As filed with the Securities and Exchange Commission on June 15, 1995.
1933 Act File No. 33-62174
1940 Act File No. 811-7692
--------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. ____[ ]
Post-Effective Amendment No. __3__ [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. __5__ [X]
LEGG MASON INVESTORS TRUST, INC.
(Exact Name of Registrant as Specified in Charter)
111 South Calvert Street
Baltimore, Maryland 21202
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (410) 539-0000
Copies to:
CHARLES A. BACIGALUPO ARTHUR C. DELIBERT, ESQ.
111 South Calvert Street Kirkpatrick & Lockhart LLP
Baltimore, Maryland 21202 1800 M Street, N.W.
(Name and Address of South Lobby - Ninth Floor
Agent for Service) Washington, D.C. 20036-5891
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to Rule 485(b)
[ ] on ___________________, 1995 pursuant to Rule 485(b)
[ X ] 60 days after filing pursuant to Rule 485(a)(i)
[ ] on __________, 1995 pursuant to Rule 485(a)(i)
[ ] 75 days after filing pursuant to Rule 485(a)(ii)
[ ] on ___________________, 1995 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.
Registrant has filed a declaration pursuant to Rule 24f-2 under the
Investment Company Act of 1940 and filed the notice required by such Rule
for its most recent fiscal year on May 31, 1995.
<PAGE>
Legg Mason Investors Trust, Inc.
Contents of Registration Statement
This registration statement consists of the following papers and
documents.
Cover Sheet
Table of Contents
Cross Reference Sheets
Legg Mason American Leading Companies Trust--Primary Shares
-----------------------------------------------------------
Part A - Prospectus
Navigator American Leading Companies Trust
------------------------------------------
Part A - Prospectus
Legg Mason American Leading Companies Trust--Primary Shares
Navigator American Leading Companies Trust
-------------------------------------------
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
<PAGE>
Legg Mason American Leading Companies Trust--Primary Shares
Form N-1A Cross Reference Sheet
----------------------------------
Part A. Item No. Prospectus Caption
---------------- ------------------
1 Cover Page
2 Prospectus Highlights; Fund Expenses
3 Performance Information; Financial Highlights
4 Investment Objective and Policies; Description of the
Trust and Its Shares
5 Fund Expenses; The Fund's Management and Investment
Adviser; The Fund's Distributor; The Fund's Custodian
and Transfer Agent
6 Prospectus Highlights; Description of the Trust and Its
Shares; Dividends and Other Distributions; Shareholder
Services; Taxes
7 How You Can Invest in the Fund; How Your Shareholder
Account is Maintained; How Net Asset Value is
Determined;
The Fund's Distributor
8 How You Can Redeem Your Primary Fund Shares
9 Not Applicable
<PAGE>
Navigator American Leading Companies Trust
Form N-1A Cross Reference Sheet
--------------------------------
Part A Item No. Prospectus Caption
---------------------------------
1 Cover Page
2 Fund Expenses
3 Financial Highlights; Performance Information
4 Investment Objective and Policies; Description of the
Trust and Its Shares
5 Fund Expenses; The Fund's Management and Investment
Adviser; The Fund's Distributor
6 Dividends and Other Distributions; Shareholder
Services; Taxes; Description of the Fund and Its Shares
7 How to Purchase and Redeem Shares; How Shareholder
Accounts Are Maintained; How Net Asset Value Is
Determined; The Fund's Distributor;
8 How You Can Redeem Your Fund Shares
9 Not Applicable
<PAGE>
Legg Mason American Leading Companies Trust--Primary Shares
Navigator American Leading Companies Trust
Form N-1A Cross Reference Sheet
-------------------------------
Statement of Additional
Part B. Item No.Information Caption
---------------------------------------
10 Cover Page
11 Table of Contents
12 Not Applicable
13 Additional Information About Investment Limitations and
Policies; Portfolio Transactions and Brokerage
14 The Trust's Directors and Officers
15 The Trust's Directors and Officers
16 The Fund's Investment Adviser; The Fund's Distributor;
The Trust's Independent Auditors; The Fund's Custodian
and Transfer and Dividend-Disbursing Agent
17 Portfolio Transactions and Brokerage
18 Not Applicable
19 Valuation of Fund Shares; Additional Purchase and
Redemption Information
20 Additional Tax Information; Tax-Deferred Retirement Plans
21 The Fund's Distributor; Portfolio Transactions and
Brokerage
22 Performance Information
23 Financial Statements
<PAGE>
<PAGE>
TABLE OF CONTENTS
Prospectus Highlights 2
Fund Expenses 3
Financial Highlights 4
Performance Information 5
Investment Objective and Policies 6
How You Can Invest in the Fund 8
How Your Shareholder Account is Maintained 9
How You Can Redeem Your Primary Shares 9
How Net Asset Value is Determined 10
Dividends and Other Distributions 11
Taxes 11
Shareholder Services 12
The Fund's Management and Investment Adviser 14
The Fund's Distributor 14
The Fund's Custodian and Transfer Agent 15
Description of the Trust and its Shares 15
ADDRESSES
DISTRIBUTOR:
Legg Mason Wood Walker, Inc.
111 South Calvert Street
P.O. Box 1476, Baltimore, MD 21203-1476
410 (Bullet) 539 (Bullet) 0000
TRANSFER AND SHAREHOLDER SERVICING AGENT:
Boston Financial Data Services
P.O. Box 953, Boston, MA 02103
COUNSEL:
Kirkpatrick & Lockhart LLP
1800 M Street, N.W., Washington, DC 20036
INDEPENDENT AUDITORS:
Ernst & Young LLP
One North Charles Street, Baltimore, MD 21201
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR THE STATEMENT OF
ADDITIONAL INFORMATION IN CONNECTION WITH THE OFFERING MADE BY THE
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR ITS
DISTRIBUTOR. THE PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR
BY THE PRINCIPAL UNDERWRITER IN ANY JURISDICTION IN WHICH SUCH OFFERING
MAY NOT LAWFULLY BE MADE.
(recycle logo here) PRINTED ON RECYCLED PAPER
LMF-012
PROSPECTUS
JULY 31, 1995
LEGG MASON
AMERICAN
LEADING
COMPANIES
TRUST
PRIMARY SHARES
PUTTING YOUR FUTURE FIRST
--Legg Mason logo here--<PAGE>
<PAGE>
THE LEGG MASON AMERICAN LEADING COMPANIES TRUST -- PRIMARY SHARES
PROSPECTUS
Legg Mason American Leading Companies Trust ("Fund"), a diversified,
professionally managed portfolio, is a separate series of Legg Mason
Investors Trust, Inc. ("Trust"), an open-end management investment
company. The Fund seeks long-term capital appreciation and current income
consistent with prudent investment risk. Under normal market conditions,
the Fund will invest at least 75% of its total assets in a diversified
portfolio of dividend-paying common stocks of Leading Companies that have
market capitalizations of at least $2 billion. The Fund's investment
adviser, Legg Mason Capital Management, Inc. ("Adviser"), defines a
"Leading Company" as a company that, in the opinion of the Adviser, has
attained a major market share in one or more products or services within
its industry(ies), and possesses the financial strength and management
talent to maintain or increase market share and profit in the future. Such
companies are typically well known as leaders in their respective
industries; most are found in the top half of the Standard & Poor's
Composite Index of 500 Stocks ("S&P 500").
The Primary Class of shares ("Primary Shares") offered in this
Prospectus is available to all investors except certain institutions (see
page 4). The Fund seeks to provide fiduciaries, organizations,
institutions and individuals with a convenient and prudent medium of
investment primarily in the common stocks of Leading Companies. The
Adviser believes the Fund's shares are also appropriate for investment by
Individual Retirement Accounts, Keogh Plans, Simplified Employee Pension
Plans and other qualified retirement plans whose principal investment
objective is long-term growth of capital and current income. Other
investors who seek that objective may also invest in shares of the Fund.
No initial sales charge is payable on purchases, and no redemption
charge is payable on sales, of Fund shares. The Fund pays management fees
to Legg Mason Fund Adviser, Inc. ("Manager") and distribution fees to Legg
Mason Wood Walker, Incorporated ("Legg Mason") as described on pages 13-14
of this Prospectus.
This Prospectus sets forth concisely the information about the Fund
that a prospective investor ought to know before investing. It should be
retained for future reference. A Statement of Additional Information about
the Fund dated July 31, 1995 has been filed with the Securities and
Exchange Commission ("SEC") and, as amended or supplemented from time to
time, is incorporated herein by reference. The Statement of Additional
Information is available without charge upon request from Legg Mason
(address and telephone numbers listed below).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Dated: July 31, 1995
Legg Mason Wood Walker, Inc.
111 South Calvert Street
P.O. Box 1476
Baltimore, MD 21203-1476
410 (Bullet) 539 (Bullet) 0000
800 (Bullet) 822 (Bullet) 5544
<PAGE>
PROSPECTUS HIGHLIGHTS
THE LEGG MASON AMERICAN LEADING COMPANIES TRUST -- PRIMARY SHARES
The following summary is qualified in its entirety by the more
detailed information appearing in the body of this Prospectus and in the
Statement of Additional Information.
FUND'S INCEPTION:
September 1, 1993
NET ASSETS:
Over $64 million as of May 31, 1995
FUND TYPE:
The Fund is an open-end, diversified management investment company.
You may purchase or redeem Primary Shares of the Fund through a brokerage
account with Legg Mason or certain of its affiliates. See "How You Can
Invest in the Fund," page 8, and "How You Can Redeem Your Primary Shares,"
page 9.
INVESTMENT OBJECTIVE AND POLICIES:
The Fund's investment objective is to provide long-term capital
appreciation and current income consistent with prudent investment risk.
Under normal circumstances, the Fund will invest at least 75% of its total
assets in the dividend-paying common stocks of Leading Companies having
market capitalizations of at least $2 billion. Such companies are
typically well known as leaders in their respective industries; most are
found in the top half of the S&P 500.
The Fund may invest up to 25% of its total assets in debt securities.
These securities must be rated A or above by Moody's Investors Service,
Inc. ("Moody's") or Standard & Poor's Ratings Group ("S&P") or, if
unrated, determined by the Adviser to be of comparable quality, except
that the Fund may invest up to 5% of its net assets in convertible
securities, which may be rated as low as BB/Ba or, if unrated, deemed by
the Adviser to be of comparable quality. The prices of debt securities
generally fluctuate inversely with market interest rates. The Fund may
sell covered call options to generate additional income; this practice
reduces the potential for gain on the underlying securities.
The Fund may invest up to 25% of its total assets in foreign
securities. Investment in foreign securities entails certain additional
risks, including risks arising from currency fluctuation, accounting
systems and disclosure regulations that differ from those in the U. S.,
trading and settlement systems that may offer the buyer less protection
than in the U. S., and political and economic changes in foreign
countries. See "Investment Objective and Policies," page 6.
DISTRIBUTOR :
Legg Mason Wood Walker, Incorporated
MANAGER:
Legg Mason Fund Adviser, Inc.
INVESTMENT ADVISER :
Legg Mason Capital Management, Inc.
TRANSFER AND SHAREHOLDER SERVICING AGENT :
Boston Financial Data Services
CUSTODIAN:
State Street Bank and Trust Company
EXCHANGE PRIVILEGE:
All funds in the Legg Mason Family of Funds. See "Exchange Privilege,"
page 12.
DIVIDENDS:
Declared and paid quarterly. See "Dividends and Other Distributions,"
page 11.
REINVESTMENT:
All dividends and other distributions are automatically reinvested in
Primary Shares unless cash payments are requested.
INITIAL PURCHASE:
$1,000 minimum, generally.
SUBSEQUENT PURCHASES:
$100 minimum, generally.
PURCHASE METHODS:
Send bank/personal check or wire federal funds. See "How You Can
Invest in the Fund," page 8.
PUBLIC OFFERING PRICE PER SHARE:
Net asset value
2
<PAGE>
FUND EXPENSES
The purpose of the following table is to assist an investor in
understanding the various costs and expenses that an investor in Primary
Shares will bear directly or indirectly. The expenses and fees set forth
in the table are based on average net assets and annual Fund operating
expenses related to Primary Shares for the year ended March 31, 1995.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge on purchases or
reinvested dividends None
Redemption or exchange fees None
ANNUAL FUND OPERATING EXPENSES -- PRIMARY
SHARES
(AS A PERCENTAGE OF AVERAGE NET ASSETS; AFTER
WAIVER)
Management fees(1) 0.58 %
12b-1 fees 1.00 %
Other expenses 0.37 %
Total operating expenses(1) 1.95 %
</TABLE>
(1) Pursuant to a voluntary expense limitation, the Manager and Legg Mason
have agreed to waive indefinitely the management and 12b-1 fees and
assume certain other expenses to the extent necessary to limit total
operating expenses relating to Primary Shares (exclusive of taxes,
brokerage commissions, interest and extraordinary expenses) to 1.95%
of the Fund's average daily net assets. See "The Fund's Management and
Investment Adviser," page 13. In the absence of such waivers, the
expected management fee, 12b-1 fee, other expenses and total operating
expenses relating to Primary Shares would be 0.75%, 1.00%, 0.37% and
2.12% of average net assets, respectively.
EXAMPLE OF EFFECT OF FUND EXPENSES
The following example illustrates the expenses that you would pay on a
$1,000 investment in Primary Shares over various time periods assuming (1)
a 5% annual rate of return and (2) full redemption at the end of each time
period. As noted in the table at left, the Fund charges no redemption fees
of any kind.
<TABLE>
<S> <C> <C> <C>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$20 $61 $105 $227
</TABLE>
This example assumes that all dividends and other distributions are
reinvested and that the percentage amounts listed under "Annual Fund
Operating Expenses" remain the same over the time periods shown.
The above tables and the assumption in the example of a 5% annual
return are required by regulations of the SEC applicable to all mutual
funds. THE ASSUMED 5% ANNUAL RETURN IS NOT A PREDICTION OF, AND DOES NOT
REPRESENT, THE PROJECTED OR ACTUAL PERFORMANCE OF PRIMARY SHARES. THE
ABOVE TABLES AND EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN. The actual expenses attributable to Primary Shares will depend
upon, among other things, the level of average net assets, the levels of
sales and redemptions of shares, the extent to which the Manager and Legg
Mason waive their fees and reimburse Fund expenses and the extent to which
Primary Shares incur variable expenses, such as transfer agency costs.
Because the Fund pays a 12b-1 fee with respect to Primary Shares,
long-term investors in Primary Shares may pay more in distribution
expenses than the economic equivalent of the maximum front-end sales
charge permitted by the National Association of Securities Dealers, Inc.
("NASD"). For further information concerning Fund expenses, see "The
Fund's Management and Investment Adviser," page 14.
3
<PAGE>
FINANCIAL HIGHLIGHTS
Effective July 31, 1995, the Fund commenced the sale of a second class
of shares, known as Navigator Shares. Navigator Shares are currently
offered for sale only to institutional clients of the Fairfield Group, Inc.
("Fairfield") for investment of their own funds and funds for which they
act in a fiduciary capacity, to clients of Legg Mason Trust Company ("Trust
Company") for which Trust Company exercises discretionary investment
management responsibility, to qualified retirement plans managed on a
discretionary basis and having net assets of at least $200 million, and to
The Legg Mason Profit Sharing Plan and Trust. Navigator Shares pay no 12b-1
distribution fees and may pay lower transfer agency fees. The information
below is for Primary Shares and reflects the 12b-1 fees paid by that Class.
The financial highlights for the period September 1, 1993 (commencement
of operations) to March 31, 1994 and for the year ended March 31, 1995 have
been derived from financial statements which have been audited by Ernst &
Young LLP, independent auditors. The Fund's financial statements for the
year ended March 31, 1995 and the report of Ernst & Young LLP thereon are
included in the Fund's annual report and are incorporated by reference into
the Statement of Additional Information. The annual report is available to
shareholders without charge by calling your Legg Mason or affiliated
investment executive or Legg Mason's Funds Marketing Department at
800-822-5544.
<TABLE>
<CAPTION>
PRIMARY CLASS
Years Ended March 31, 1995 1994(1)
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 9.69 $10.00
Net investment income 0.12(2) 0.059(2)
Net realized and unrealized gain (loss) on investments 0.48 (0.344)
Total from investment operations 0.60 (0.285)
Distributions to shareholders from net investment income (0.11) (0.025)
Net asset value, end of period $10.18 $9.69
Total return 6.24% (2.86)%(3)
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net assets:
Expenses 1.95%(2) 1.95%(2)(4)
Net investment income 1.21%(2) 1.14%(4)
Portfolio turnover rate 30.5% 21.0%(4)
Net assets, end of period (in thousands) $59,985 $55,022
</TABLE>
(1) FOR THE PERIOD SEPTEMBER 1, 1993 (COMMENCEMENT OF OPERATIONS) TO MARCH
31, 1994.
(2) NET OF FEES WAIVED PURSUANT TO A VOLUNTARY EXPENSE LIMITATION OF 1.95%
OF AVERAGE DAILY NET ASSETS. IF NO FEES HAD BEEN WAIVED BY THE MANAGER,
THE RATIO OF EXPENSES TO AVERAGE DAILY NET ASSETS FOR THE PERIOD SEPTEMBER
1, 1993 TO MARCH 31, 1994 AND THE YEAR ENDED MARCH 31, 1995 WOULD HAVE
BEEN 2.28% AND 2.12%, RESPECTIVELY.
(3) NOT ANNUALIZED. THE ANNUALIZED TOTAL RETURN FOR THE PERIOD WOULD HAVE
BEEN (4.92)%.
(4) ANNUALIZED.
4
<PAGE>
PERFORMANCE INFORMATION
From time to time the Fund may quote the total return of each class of
shares in advertisements or in reports or other communications to
shareholders. A mutual fund's total return is a measurement of the overall
change in value of an investment in the fund, including changes in share
price and assuming reinvestment of dividends and other distributions.
CUMULATIVE TOTAL RETURN shows the fund's performance over a specific
period of time. AVERAGE ANNUAL TOTAL RETURN is the average annual
compounded return that would have produced the same cumulative total
return if the fund's performance had been constant over the entire period.
Average annual returns, which differ from actual year-by-year results,
tend to smooth out variations in a fund's return. No adjustment has been
made for any income taxes payable by shareholders. Returns would have been
lower if the Manager and/or Distributor had not waived certain fees for
the period September 1, 1993 (commencement of operations) to March 31,
1995.
Total returns of Primary Shares as of March 31, 1995 were as follows:
<TABLE>
<CAPTION>
Cumulative Average Annual
Total Return Total Return
<S> <C> <C>
One Year +6.24 % +6.24%
Life of Fund(|) +3.20 +2.02
</TABLE>
(|) Fund inception -- September 1, 1993.
Performance information is based on historical results and is not
intended to indicate future performance. The investment return and
principal value of an investment in the Fund will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their
original cost. As of the date of this Prospectus, Navigator Shares have no
performance record.
Further information about the Fund's performance is contained in the
Annual Report to Shareholders, which may be obtained without charge by
calling your Legg Mason or affiliated investment executive or Legg Mason's
Funds Marketing Department at 800-822-5544.
5
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide long-term capital
appreciation and current income consistent with prudent investment risk.
The Fund seeks to provide fiduciaries, organizations, institutions and
individuals with a convenient and prudent medium of investment, primarily
in the common stocks of Leading Companies. The Fund intends to maintain
for its shareholders a portfolio of securities which an experienced
investor charged with fiduciary responsibility might select under the
Prudent Investor Rule, as described in the trust laws or court decisions
of many states, including New York. The investment objective may not be
changed without shareholder approval. There can be no assurance that the
Fund's investment objective will be achieved.
Under normal market conditions, the Fund will invest at least 75% of
its total assets in a diversified portfolio of dividend-paying common
stocks of Leading Companies that have market capitalizations of at least
$2 billion. The Adviser defines a "Leading Company" as a company that, in
the opinion of the Adviser, has attained a major market share in one or
more products or services within its industry(ies), and possesses the
financial strength and management talent to maintain or increase market
share and profit in the future. Such companies are typically well known as
leaders in their respective industries; most are found in the top half of
the S&P 500. Additionally, the Adviser's goal is to purchase companies
having what the Adviser believes is a reasonable price/earnings ratio, and
it will favor those companies with well established histories of dividends
and dividend growth rates. The Fund may also invest in companies having
capitalizations above or below $2 billion which the Adviser believes show
strong potential for future market leadership, and in companies which the
Adviser believes, because of corporate restructuring or other changes, are
undervalued based on their potential for future growth. There is always a
risk that the Adviser will not properly assess the potential for an
issuer's future growth, or that an issuer will not realize that potential.
While the Fund may invest in foreign securities, the Fund under normal
market conditions intends to invest at least 65% of its total assets in
domestic Leading Companies. "Domestic" company, for this purpose, means a
company that has its principal corporate offices in the U.S. or that
derives at least 50% of its revenues from operations in the U.S.
The Fund's objective and policies require traditional investment
management techniques that involve, for example, the evaluation and
financial analysis of specific foreign and domestic issuers as well as
economic and political analysis. The Fund's portfolio turnover rate is not
expected to exceed 100%. Under normal circumstances, the Fund expects to
own a minimum of 35 different securities. The Fund may also invest in
common stocks and securities convertible into common stocks which do not
pay current dividends but which offer prospects for capital appreciation
and future income. The Fund may invest in when-issued securities, which
may involve additional risks.
Foreign Securities
The Fund may invest in foreign issuers that meet the above criteria,
either directly or through the purchase of American Depositary Receipts
(ADRs). ADRs are certificates issued by American banks representing shares
of a foreign company held by the bank. ADRs are denominated in U.S.
dollars and can be traded in the domestic securities markets; many are
exchange-listed.
Investment in foreign securities, whether directly or through ADRs,
presents certain risks, which the Adviser will consider carefully in
selecting such securities. These include the risks resulting from
fluctuations in currency exchange rates, revaluation of currencies, future
political and economic developments in the issuer's country, reduced
availability of public information concerning issuers, and the fact that
most foreign issuers (including some whose shares are represented by ADRs)
are not subject to uniform accounting, auditing and financial reporting
standards or to other regulatory practices and requirements comparable to
those applicable to domestic issuers. In addition, with respect to certain
foreign countries, there is the possibility of expropriation and
confiscatory taxation. Direct purchasers of foreign securities may also be
subject to limitations on the use or removal of funds or other assets.
6
<PAGE>
Securities of many foreign issuers are less liquid and their prices
more volatile than those of comparable domestic issuers. Foreign
securities traded abroad may be subject to settlement delays. Transactions
on foreign securities exchanges are usually subject to mark-ups or
commissions higher than negotiated commissions on U.S. transactions,
although the Fund will endeavor to obtain the best net results in
effecting transactions. There is less government supervision and
regulation of exchanges and brokers in many foreign countries than in the
U.S. Additional costs associated with an investment in foreign securities
will include higher custodial fees than apply to domestic custodial
arrangements and transactions costs of foreign currency conversions. The
Fund may not invest more than 25% of its total assets in foreign
securities, either directly or through ADRs.
Debt Securities
The Fund may invest up to 25% of its total assets in debt securities,
including government, corporate and money market securities, consistent
with its investment objective, during periods when the Adviser believes
the return on certain debt securities may equal or exceed the return on
equity securities. The Fund may invest in debt securities of any maturity
of both foreign and domestic issuers. The debt securities in which the
Fund may invest will be rated at least A by S&P or Moody's, or deemed by
the Adviser to be of comparable quality. 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 longer the
time to maturity the greater are such variations.
The Fund may invest up to 5% of its net assets in convertible
securities. Many convertible securities are rated below investment grade
or, if unrated, are considered comparable to securities rated below
investment grade. The Fund does not intend to invest in convertible
securities rated below Ba by Moody's or BB by S&P or, if unrated, deemed
by the Adviser to be of comparable quality.
When cash is temporarily available, or for temporary defensive
purposes, the Fund may invest without limit in high-quality short-term
debt securities and money market instruments, including repurchase
agreements. A repurchase agreement is an agreement under which either U.S.
government obligations or other high-quality, liquid debt securities are
acquired from a securities dealer or bank subject to resale at an
agreed-upon price and date. The securities are held for the Fund by State
Street Bank and Trust Company ("State Street"), the Fund's custodian, as
collateral until resold and will be supplemented by additional collateral
if necessary to maintain a total value equal to or in excess of the value
of the repurchase agreement. The Fund bears a risk of loss in the event
that the other party to a repurchase agreement defaults on its obligations
and the Fund is delayed or prevented from exercising its right to dispose
of the collateral securities, which may decline in value in the interim.
The Fund will enter into repurchase agreements only with financial
institutions determined by the Adviser to present minimal risk of default
during the term of the agreement, based on guidelines established by the
Fund's Board of Directors.
Covered Call Options
The Fund may sell covered call options on any security in which it is
permitted to invest for the purpose of enhancing income. A call option
gives the purchaser the right to purchase the underlying security from the
Fund at a specified price (the "strike price") during a specified period.
A call option is "covererd" if, at all times the option is outstanding,
the Fund holds the underlying security or a right to obtain that security
at no additional cost. The Fund may purchase a call option for the purpose
of closing out a short position in an option.
The use of options involves certain risks. These risks include: (1)
the fact that use of these instruments can reduce the opoportunity for
gain; (2) dependence on the Adviser's ability to predict movements in the
prices of individual securities, fluctuations in the general securities
markets or in market sectors; (3) imperfect correlation between movements
in the price of options and movements in the price of the underlying
securities; (4) the possible lack of a liquid secondary market for a
particular option at any particular time; (5) the possibility that the use
of cover involving a large
7
<PAGE>
percentage of the Fund's assets could impede portfolio management or the
Fund's ability to meet redemption requests or other short-term
obligations; and (6) the possible need to defer closing out positions in
these instruments in order to avoid adverse tax consequences. There can be
no assurance that the use of options by the Fund will be successful. As a
non-fundamental policy, the Fund will not sell a covered call option if,
as a result, the value of the portfolio securities underlying all
outstanding covered call options would exceed 25% of the value of the
equity securities held by the Fund. See the Statement of Additional
Information for a more detailed discussion of options strategies.
Other Investment Restrictions
The fundamental restrictions applicable to the Fund include a
prohibition on investing 25% or more of total assets in the securities of
issuers having their principal business activities in the same industry
(with the exception of securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities and repurchase agreements
with respect thereto).
The Fund has adopted certain other fundamental investment limitations
that, like its investment objective, can be changed only by a vote of Fund
shareholders. These investment limitations are set forth in the Statement
of Additional Information under "Additional Information About Investment
Limitations and Policies." Except as expressly stated otherwise, the
investment policies and limitations contained in this prospectus are not
fundamental and can be changed without a shareholder vote.
HOW YOU CAN INVEST IN THE FUND
You may purchase Primary Shares of the Fund through a brokerage
account with Legg Mason or with an affiliate that has a dealer agreement
with Legg Mason (Legg Mason is a wholly owned subsidiary of Legg Mason,
Inc., a financial services holding company). Your Legg Mason or affiliated
investment executive will be pleased to explain the shareholder services
available from the Fund and answer any questions you may have. Documents
available from your Legg Mason or affiliated investment executive should
be completed if you invest in shares of the Fund through an Individual
Retirement Account ("IRA"), Self-Employed Individual Retirement Plan
("Keogh Plan"), Simplified Employee Pension Plan ("SEP") or other
qualified retirement plan.
The minimum initial investment in Primary Shares for each account,
including investments made by exchange from other Legg Mason funds, is
$1,000, and the minimum investment for each purchase of additional shares
is $100, except as noted below. Initial investments in an IRA account
established on behalf of a non-working spouse of a shareholder who has an
IRA invested in the Fund require a minimum amount of only $250. Subsequent
investments in an IRA or similar plan require a minimum amount of $100.
However, once an account is established, the minimum amount for subsequent
investments will be waived if an investment in an IRA or similar plan will
bring the investment for the year to the maximum amount permitted under
the Internal Revenue Code of 1986, as amended ("Code"). For those
investing through the Fund's Future First Systematic Investment Plan,
payroll deduction plans and plans involving automatic payment of funds
from financial institutions or automatic investment of dividends from
certain unit investment trusts, minimum initial and subsequent investments
are lower. The Fund may change these minimum amount requirements at its
discretion.
Primary Shares purchased on behalf of an IRA, Keogh Plan, SEP or
qualified retirement plan will be processed at the net asset value next
determined after Legg Mason's Funds Processing receives a check for the
amount of the purchase. Other Primary Share purchases will be processed at
the net asset value next determined after your Legg Mason or affiliated
investment executive has received your order; payment must be made within
three business days to Legg Mason. Orders received by your Legg Mason or
affiliated investment executive before the close of business of the New
York Stock Exchange, Inc. ("Exchange") (normally 4:00 p.m. Eastern time)
("close of the Exchange") on any day the Exchange is open will be executed
at the net asset value determined as of the close of the Exchange on that
day. Orders
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received by your Legg Mason or affiliated investment executive after the
close of the Exchange or on days the Exchange is closed will be executed
at the net asset value determined as of the close of the Exchange on the
next day the Exchange is open. See "How Net Asset Value is Determined" on
page 10. The Fund reserves the right to reject any order for shares of the
Fund or to suspend the offering of shares for a period of time.
You should always furnish your shareholder account number when making
additional purchases of shares.
There are three ways you can invest in Primary Shares of the Fund:
1. THROUGH YOUR LEGG MASON OR AFFILIATED INVESTMENT EXECUTIVE
Shares may be purchased through any Legg Mason or affiliated
investment executive. An investment executive will be pleased to open an
account for you, explain to you the shareholder services available from
the Fund, and answer any questions you may have. After you have
established a Legg Mason or affiliated account, you can order shares from
your investment executive in person, by telephone or by mail.
2. THROUGH THE FUTURE FIRST SYSTEMATIC INVESTMENT PLAN
You may also buy shares through the Future First Systematic Investment
Plan. Under this plan, you may arrange for automatic monthly investments
in the Fund of $50 or more by authorizing Boston Financial Data Services
("BFDS"), the Fund's transfer agent, to prepare a check each month drawn
on your checking account. There is no minimum initial investment. Please
contact any Legg Mason or affiliated investment executive for further
information.
3. THROUGH AUTOMATIC INVESTMENTS
Arrangements may be made with some employers and financial
institutions, such as banks or credit unions, for regular automatic
monthly investments of $50 or more in shares. In addition, it may be
possible for dividends from certain unit investment trusts to be invested
automatically in shares. Persons interested in establishing such automatic
investment programs should contact the Fund through any Legg Mason or
affiliated investment executive.
HOW YOUR SHAREHOLDER ACCOUNT IS MAINTAINED
When you initially purchase shares, a shareholder account is
established automatically for you. Any shares that you purchase or receive
as a dividend or other distribution will be credited directly to your
account at the time of purchase or receipt. No certificates are issued
unless you specifically request them in writing. Shareholders who elect to
receive certificates can redeem their shares only by mail. Certificates
will be issued in full shares only. No certificates will be issued for
shares prior to 15 business days after purchase of such shares by check
unless the Fund can be reasonably assured during that period that payment
for the purchase of such shares has been collected. Shares may not be held
in, or transferred to, an account with any brokerage firm other than Legg
Mason or its affiliates.
HOW YOU CAN REDEEM YOUR PRIMARY SHARES
There are two ways you can redeem your Primary Shares. First, you may
give your Legg Mason or affiliated investment executive an order for
repurchase of your shares. Please have the following information ready
when you call: the number of shares to be redeemed and your shareholder
account number. Second, you may send a written request for redemption to
"Legg Mason American Leading Companies Trust, c/o Legg Mason Funds
Processing, P.O. Box 1476, Baltimore, Maryland 21203-1476."
Requests for redemption in "good order," as described below, received
by your Legg Mason or affiliated investment executive before the close of
the Exchange on any day when the Exchange is open, will be transmitted to
BFDS, transfer agent for the Fund, for redemption at the net asset value
per share determined as of the close of the Exchange on that day. Requests
for redemption received by your Legg Mason or affiliated investment
executive after the close of the Exchange will be executed at the net
asset value determined as of the close of the Exchange on its next trading
day. A redemption request received by your Legg Mason or affiliated
investment executive may be treated as a request for repurchase and, if it
is accepted by Legg Mason, your shares will be purchased at the net asset
value per share determined as of the next close of the Exchange.
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Proceeds from your redemption will settle in your Legg Mason brokerage
account two business days after trade date. However, the Fund reserves the
right to take up to seven days to make payment upon redemption if, in the
judgment of the Adviser, the Fund could be adversely affected by immediate
payment. (The Statement of Additional Information describes several other
circumstances in which the date of payment may be postponed or the right
of redemption suspended.) The proceeds of your redemption or repurchase
may be more or less than your original cost. If the shares to be redeemed
or repurchased were paid for by check (including certified or cashier's
checks) within 15 business days of the redemption or repurchase request,
the proceeds will not be disbursed unless the Fund can be reasonably
assured that the check has been collected.
A redemption request will be considered to be received in "good order"
only if:
1. You have indicated in writing the number of Primary Shares to be
redeemed and your shareholder account number;
2. The written request is signed by you and by any co-owner of the
account with exactly the same name or names used in establishing the
account;
3. The written request is accompanied by any certificates representing
the shares that have been issued to you, and you have endorsed the
certificates for transfer or an accompanying stock power exactly as the
name or names appear on the certificates; and
4. The signatures on the written redemption request and on any
certificates for your shares (or an accompanying stock power) have been
guaranteed without qualification by a national bank, a state bank, a
member firm of a principal stock exchange or other entity described in
Rule 17Ad-15 under the Securities Exchange Act of 1934.
Other supporting legal documents may be required from corporations or
other organizations, fiduciaries or persons other than the shareholder of
record making the request for redemption or repurchase. If you have a
question concerning the redemption of shares, contact your Legg Mason or
affiliated investment executive.
The Fund will not be responsible for the authenticity of redemption
instructions received by telephone, provided it follows reasonable
procedures to identify the caller. The Fund may request identifying
information from callers or employ identification numbers. The Fund may be
liable for losses due to unauthorized or fraudulent instructions if it
does not follow reasonable procedures. Telephone redemption privileges are
available automatically to all shareholders unless certificates have been
issued. Shareholders who do not wish to have telephone redemption
privileges should call their Legg Mason or affiliated investment executive
for further instructions.
To redeem your Fund retirement account, a Distribution Request Form
must be completed and returned to Legg Mason Client Services for
processing. This form can be obtained through your Legg Mason or
affiliated investment executive or Legg Mason Client Services in
Baltimore, Maryland.
Because of the relatively high cost of maintaining small accounts, the
Fund may elect to close any account with a current value of less than $500
by redeeming all of the shares in the account and mailing the proceeds to
you. However, the Fund will not redeem accounts that fall below $500
solely as a result of a reduction in net asset value per share. If the
Fund elects to redeem the shares in your account, you will be notified
that your account is below $500 and will be allowed 60 days in which to
make an additional investment in order to avoid having your account
closed.
HOW NET ASSET VALUE IS DETERMINED
Net asset value per share is determined daily as of the close of the
Exchange on every day that the Exchange is open, by subtracting the
liabilities attributable to Primary Shares from the total assets
attributable to such shares and dividing the result by the number of
Primary Shares outstanding. Securities owned by the Fund for which market
quotations are readily available are valued at current market value. In
the absence of readily available market quotations, securities are valued
at fair value as determined by or under the supervision of the Trust's
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 the Adviser to be the primary market. Securities
with
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remaining maturities of 60 days or less are valued at amortized cost. The
Fund will value its foreign securities in U.S. dollars on the basis of the
then-prevailing exchange rates.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Fund declares and pays dividends to holders of Primary Shares out
of its investment company taxable income attributable to those shares,
which generally consists of net investment income, net short-term capital
gain and any net gains from certain foreign currency transactions,
following the end of each quarter. The Fund also distributes to
shareholders substantially all net capital gain (the excess of net
long-term capital gain over net short-term capital loss) after the end of
the taxable year in which the gain is realized. A second distribution of
net capital gain may be necessary in some years to avoid imposition of the
excise tax described under the heading "Additional Tax Information" in the
Statement of Additional Information. Dividends and other distributions, if
any, on shares held in an IRA, Keogh Plan, SEP or other qualified
retirement plan and by shareholders maintaining a Systematic Withdrawal
Plan generally are reinvested in Primary Shares on the payment dates.
Other shareholders may elect to:
1. Receive both dividends and other distributions in Primary Shares;
2. Receive dividends in cash and other distributions in Primary
Shares;
3. Receive dividends in Primary Shares and other distributions in
cash; or
4. Receive both dividends and other distributions in cash.
In certain cases, you may reinvest your dividends and other
distributions in Primary Shares of another Legg Mason fund. Please contact
your Legg Mason or affiliated investment executive for additional
information about this option.
If no election is made, both dividends and other distributions will be
credited to your account in Primary Shares at the net asset value of the
shares determined as of the close of the Exchange on the reinvestment
date. Shares received pursuant to any of the first three (reinvestment)
elections above also will be credited to your account at that net asset
value. If you elect to receive dividends and/or other distributions in
cash, you will be sent a check or will have your Legg Mason account
credited after the payment date. You may elect at any time to change your
option by notifying the Fund in writing at: Legg Mason American Leading
Companies Trust, c/o Legg Mason Funds Processing, P.O. Box 1476,
Baltimore, Maryland 21203-1476. Your election must be received at least 10
days before the record date in order to be effective for dividends and
other distributions paid to shareholders as of that date.
TAXES
The Fund intends to continue to qualify for treatment as a regulated
investment company under the Code so that it will be relieved of federal
income tax on that part of its investment company taxable income
(generally consisting of net investment income, any net short-term capital
gain and any net gains from certain foreign currency transactions) and net
capital gain that is distributed to its shareholders.
Dividends from the Fund's investment company taxable income (whether
paid in cash or reinvested in Fund shares) are taxable to its shareholders
(other than IRAs, Keogh Plans, SEPs, other qualified retirement plans and
other tax-exempt investors) as ordinary income to the extent of the Fund's
earnings and profits. Distributions of the Fund's net capital gain
(whether paid in cash or reinvested in Fund shares), when designated as
such, are taxable to those shareholders as long-term capital gain,
regardless of how long they have held their Fund shares.
The Fund sends each shareholder a notice following the end of each
calendar year specifying, among other things, the amounts of all dividends
and other distributions paid (or deemed paid) during that year. The Fund
is required to withhold 31% of all dividends, capital gain distributions
and redemption proceeds payable to any individuals and certain other
noncorporate shareholders who do not provide the Fund with a certified
taxpayer identification number. The Fund also is required to withhold 31%
of all dividends and capital gain distributions payable to such
shareholders who otherwise are subject to backup withholding.
A redemption of Fund shares may result in taxable gain or loss to the
redeeming shareholder,
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depending on whether the redemption proceeds are more or less than the
shareholder's adjusted basis for the redeemed shares. An exchange of Fund
shares for shares of any other Legg Mason fund generally will have similar
tax consequences. See "Shareholder Services -- Exchange Privilege," below.
If Fund shares are purchased within 30 days before or after redeeming Fund
shares at a loss, all or part of that loss will not be deductible and
instead will increase the basis of the newly purchased shares.
A dividend or other distribution paid shortly after shares have been
purchased, although in effect a return of investment, is subject to
federal income tax. Accordingly, an investor should recognize that a
purchase of Fund shares immediately prior to a dividend or other
distribution record date could cause the investor to incur tax liabilities
and should not be made solely for the purpose of receiving the dividend or
other distribution.
The foregoing is only a summary of some of the important federal tax
considerations generally affecting the Fund and its shareholders; see the
Statement of Additional Information for a further discussion. In addition
to federal income tax, you may also be subject to state, local or foreign
taxes on distributions from the Fund, depending on the laws of your home
state and locality. Prospective shareholders are urged to consult their
tax advisers with respect to the effects of this investment on their own
tax situations.
SHAREHOLDER SERVICES
CONFIRMATIONS AND REPORTS
You will receive from the distributor a confirmation after each
transaction (except a reinvestment of dividends, capital gains and
purchases made through the Future First Systematic Investment Plan or
through automatic investments). An account statement will be sent to you
monthly unless there has been no activity in the account or you are
purchasing shares through the Future First Systematic Investment Plan or
through automatic investments, in which case an account statement will be
sent quarterly. Reports will be sent to shareholders at least
semi-annually showing the Fund's portfolio and other information; the
annual report will contain financial statements audited by the independent
auditors of the Trust.
Shareholder inquiries should be addressed to "Legg Mason American
Leading Companies Trust, c/o Legg Mason Funds Processing, P.O. Box 1476,
Baltimore, Maryland 21203-1476."
SYSTEMATIC WITHDRAWAL PLAN
You may elect to make systematic withdrawals from your Fund account of
a minimum of $50 on a monthly basis if you are purchasing or already own
shares with a net asset value of $5,000 or more. Shareholders should not
purchase shares of the Fund while they are participating in the Systematic
Withdrawal Plan. Please contact your Legg Mason or affiliated investment
executive for further information.
EXCHANGE PRIVILEGE
As a Fund shareholder, you are entitled to exchange your Primary
Shares of the Fund for the corresponding class of shares of the following
funds in the Legg Mason Family of Funds, provided that such shares are
eligible for sale in your state of residence:
Legg Mason Cash Reserve Trust
A money market fund seeking stability of principal and current income
consistent with stability of principal.
Legg Mason Tax Exempt Trust, Inc.
A money market fund seeking high current income exempt from federal
income tax, preservation of capital, and liquidity.
Legg Mason U.S. Government Money Market Portfolio
A money market fund seeking high current income consistent with
liquidity and conservation of principal.
Legg Mason Value Trust, Inc.
A mutual fund seeking long-term growth of capital.
Legg Mason Special Investment Trust, Inc.
A mutual fund seeking capital appreciation by investing principally in
issuers with market capitalizations of less than $2.5 billion.
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Legg Mason Total Return Trust, Inc.
A mutual fund seeking capital appreciation and current income in order
to achieve an attractive total investment return consistent with
reasonable risk.
Legg Mason Global Equity Trust
A mutual fund seeking maximum long-term total return, by investing in
common stocks of companies located in at least three different countries.
Legg Mason U.S. Government Intermediate-Term Portfolio
A mutual fund seeking high current income consistent with prudent
investment risk and liquidity needs, primarily by investing in debt
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, while maintaining an average dollar-weighted maturity
of between three and ten years.
Legg Mason Investment Grade Income Portfolio
A mutual fund seeking a high level of current income primarily through
investment in a diversified portfolio of investment grade debt securities.
Legg Mason High Yield Portfolio
A mutual fund seeking primarily a high level of current income and,
secondarily, capital appreciation, by investing principally in
lower-rated, fixed-income securities.
Legg Mason Global Government Trust
A mutual fund seeking capital appreciation and current income by
investing principally in debt securities issued or guaranteed by foreign
governments, the U.S. Government, their agencies, instrumentalities and
political subdivisions.
Legg Mason Maryland Tax-Free Income Trust*
A tax-exempt municipal bond fund seeking a high level of current
income exempt from federal and Maryland state and local income taxes,
consistent with prudent investment risk and preservation of capital.
Legg Mason Pennsylvania Tax-Free Income Trust*
A tax-exempt municipal bond fund seeking a high level of current
income exempt from federal income tax and Pennsylvania personal income
tax, consistent with prudent investment risk and preservation of capital.
Legg Mason Tax-Free Intermediate-Term Income Trust*
A tax-exempt municipal bond fund seeking a high level of current
income exempt from federal income tax, consistent with prudent investment
risk.
*Shares of these funds are sold with an initial sales charge.
Investments by exchange into the Legg Mason funds sold without an
initial sales charge are made at the per share net asset value determined
on the same business day as redemption of the Fund shares you wish to
exchange. Investments by exchange into the Legg Mason funds sold with an
initial sales charge are made at the per share net asset value, plus the
applicable sales charge, determined on the same business day as redemption
of the Fund shares you wish to redeem; except that no sales charge will be
imposed upon proceeds from the redemption of Fund shares to be exchanged
that were originally purchased by exchange from a fund on which the same
or higher initial sales charge previously was paid. There is no charge for
the exchange privilege, but the Fund reserves the right to terminate or
limit the exchange privilege of any shareholder who makes more than four
exchanges from the Fund in one calendar year. To obtain further
information concerning the exchange privilege and prospectuses of other
Legg Mason funds, or to make an exchange, please contact your Legg Mason
or affiliated investment executive. To effect an exchange by telephone,
please call your Legg Mason or affiliated investment executive with the
information described in the section "How You Can Redeem Your Primary
Shares," on page 9. The other factors relating to telephone redemptions
described in that section apply also to telephone exchanges. Please read
the prospectus for the other funds carefully before you invest by
exchange. The Fund reserves the right to modify or terminate the exchange
privilege upon 60 days' notice to shareholders. There is no assurance the
money market funds will be able to maintain a $1.00 share price. None of
the funds is insured or guaranteed by the U.S. Government.
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THE FUND'S MANAGEMENT AND INVESTMENT ADVISER
BOARD OF DIRECTORS
The business and affairs of the Fund are managed under the direction
of the Board of Directors of Legg Mason Investors Trust, Inc. ("Trust").
MANAGER
Pursuant to a management agreement with the Fund ("Management
Agreement"), which was approved by the Trust's Board of Directors, Legg
Mason Fund Adviser, Inc. ("Manager"), a wholly owned subsidiary of Legg
Mason, Inc., serves as the Fund's manager. The Fund pays the Manager,
pursuant to the Management Agreement, a management fee equal to an annual
rate of 0.75% of the Fund's average daily net assets. The Fund pays all
its other expenses which are not assumed by the Manager. The Manager has
agreed to waive its fees and to reimburse the Fund for its expenses
(exclusive of taxes, interest, brokerage and extraordinary expenses) in
excess of 1.95% of the Fund's average net assets indefinitely. For the
fiscal year ended March 31, 1995, the Fund's expenses as a percentage of
average net assets were 1.95%.
The Manager acts as the investment adviser, manager or consultant to
fifteen investment company portfolios (excluding the Fund) which had
aggregate assets under management of over
$4.4 billion as of May 31, 1995.
ADVISER
Legg Mason Capital Management, Inc. ("Adviser"), a wholly owned
subsidiary of Legg Mason, Inc., serves as investment adviser to the Fund
pursuant to the terms of an Investment Advisory Agreement with the
Manager, which was approved by the Trust's Board of Directors. The Adviser
manages the investment and other affairs of the Fund and directs the
investments of the Fund in accordance with its investment objectives,
policies and limitations. For these services, the Manager (not the Fund)
pays the Adviser a fee, computed daily and payable monthy, at an annual
rate equal to 40% of the fee received by the Manager, or 0.30% of the
Fund's average daily net assets.
The Adviser has not previously advised a registered investment
company. However, the Adviser manages private accounts with a value as of
May 31, 1995 of approximately $700 million. The address of the Adviser is
111 South Calvert Street, Baltimore, Maryland 21202.
J. Eric Leo serves as portfolio manager for the Fund and is primarily
responsible for the selection of investments. Mr. Leo has been Executive
Vice President and Chief Investment Officer of the Adviser since December
1991. From October 1986 to December 1991, he served as Managing Director
of Equitable Capital Management, where he managed, among other assets, the
Equitable Account #1 -- Growth & Income Commingled Fund. Prior to joining
Equitable, Mr. Leo was President and Chief Investment Officer for Sperry
Capital Management Corp., where he was responsible for $1.1 billion in
pension assets.
The Fund uses Legg Mason, among others, as broker for agency
transactions in listed and over-the-counter securities at commission rates
and under circumstances consistent with the policy of best execution.
THE FUND'S DISTRIBUTOR
Legg Mason is the distributor of the Fund's shares pursuant to an
Underwriting Agreement with the Fund. The Underwriting Agreement obligates
Legg Mason to pay certain expenses in connection with the offering of
shares of the Fund, including any compensation to its investment
executives, the printing and distribution of prospectuses, statements of
additional information and periodic reports used in connection with the
offering to prospective investors, after the prospectuses, statements of
additional information and reports have been prepared, set in type and
mailed to existing shareholders at the Fund's expense, and for any
supplementary sales literature and advertising costs. Legg Mason also
assists BFDS with certain of its duties as transfer agent; for the year
ended March 31, 1995, Legg Mason received from BFDS $19,487 for performing
such services in connection with this Fund.
The Board of Directors of the Trust has adopted a Distribution and
Shareholder Services Plan ("Plan") pursuant to Rule 12b-1 under the
Investment Company Act of 1940 ("1940 Act").
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The Plan provides that as compensation for its ongoing services to
investors in Primary Shares and its activities and expenses related to the
sale and distribution of Primary Shares, Legg Mason receives from the Fund
an annual distribution fee payable from the assets attributable to Primary
Shares of up to 0.75% of the average daily net assets attributable to
Primary Shares, and an annual service fee equal to 0.25% of the Fund's
average daily net assets attributable to Primary Shares. The distribution
fee and the service fee are calculated daily and paid monthly. The fees
received by Legg Mason during any year may be more or less than its cost
of providing distribution and shareholder services for Primary Shares.
Legg Mason has agreed to waive indefinitely the distribution fee to the
extent necessary to limit the total expenses applicable to Primary Shares
(exclusive of taxes, interest, brokerage fees and extraordinary expenses)
as described above.
NASD rules limit the amount of annual distribution fees that may be
paid by mutual funds and impose a ceiling on the cumulative distribution
fees received. The Fund's Plan complies with those rules.
The Chairman, President and Treasurer of the Fund are employed by Legg
Mason.
THE FUND'S CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company, P.O. Box 1713, Boston,
Massachusetts 02105, is custodian for the securities and similar assets of
the Fund. Boston Financial Data Services, P.O. Box 953, Boston,
Massachusetts 02103, is the transfer agent for Fund shares and
dividend-disbursing agent for the Fund.
Pursuant to rules adopted under Section 17(f) of the 1940 Act, the
Fund may maintain foreign securities and cash in the custody of certain
eligible foreign banks and securities depositories. Selection of these
foreign custodial institutions is made by the Board of Directors in
accordance with SEC rules. The Board of Directors will consider a number
of factors, including, but not limited to, the relationship of the
institution to State Street, the reliability and financial stability of
the institution, the ability of the institution to capably perform
custodial services for the Fund, the reputation of the institution in its
national market, the political and economic stability of the countries in
which the sub-custodians will be located and risks of potential
nationalization or expropriation of Fund assets. No assurance can be given
that the Board of Directors' appraisal of the risks in connection with
foreign custodial arrangements will always be correct or that
expropriation, nationalization, freezes, or confiscation of Fund assets
will not occur.
DESCRIPTION OF THE TRUST AND ITS SHARES
The Trust was established as a Maryland corporation on May 5, 1993.
The Articles of Incorporation authorize the Trust to issue one billion
shares of par value $.001 per share and to create additional series, each
of which may issue separate classes of shares. The Fund currently offers
two Classes of Shares -- Class A (known as "Primary Shares") and Class Y
(known as "Navigator Shares"). Each Class represents interests in the same
pool of assets of the Fund. A separate vote is taken by a Class of Shares
of the Fund if a matter affects just that Class of Shares. Each Class of
Shares may bear certain differing Class-specific expenses. Salespersons
and others entitled to receive compensation for selling or servicing Fund
shares may receive more with respect to one Class than another.
The initial and subsequent investment minimums for Navigator Shares
are $50,000 and $100, respectively. Investments in Navigator Shares may be
made through investment executives of Fairfield Group, Inc., Horsham,
Pennsylvania, or Legg Mason. For information about Navigator Shares, call
800-822-5544.
The Fund pays no Rule 12b-1 fee with respect to Navigator Shares. The
per share net asset value of the Navigator Shares, and dividends and
distributions (if any) paid to Navigator shareholders, are generally
expected to be higher than those of Primary Shares of the Fund, because of
the lower expenses attributable to Navigator Shares. The per share net
asset value of the Classes of Shares will tend to converge, however,
immediately after the payment of ordinary income dividends. Navigator
Shares of the Fund may be exchanged for the corresponding class of shares
of certain other Legg Mason Funds. Investments by exchange into the other
Legg Mason Funds are made at the per
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share net asset value, determined on the same business day as redemption
of the Navigator Shares the investors wish to redeem.
The Board of Directors of the Fund does not anticipate that there will
be any conflicts among the interests of the holders of the different
Classes of Fund shares. On an ongoing basis, the Board will consider
whether any such conflict exists and, if so, take appropriate action.
Shareholders of the Fund are entitled to one vote per share and
fractional votes for fractional shares held. Voting rights are not
cumulative. All shares of the Fund are fully paid and nonassessable and
have no preemptive or conversion rights.
Shareholders' meetings will not be held except where the 1940 Act
requires a shareholder vote on certain matters (including the election of
directors, approval of an advisory contract, and approval of a plan of
distribution pursuant to Rule 12b-1). The Trust will call a special
meeting of the shareholders at the request of 10% or more of the shares
entitled to vote; shareholders wishing to call such a meeting should
submit a written request to the Fund at 111 South Calvert Street,
Baltimore, Maryland 21202, stating the purpose of the proposed meeting
and the matters to be acted upon.
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Navigator American Leading Companies Trust
Prospectus
Shares of Navigator American Leading Companies Trust ("Navigator
Shares") represent a separate class ("Navigator Class") of interests in
Legg Mason American Leading Companies Trust ("Fund"), a professionally
managed portfolio seeking long-term capital appreciation and current
income consistent with prudent investment risk. The Fund is a separate
series of Legg Mason Investors Trust, Inc. ("Trust"), a diversified open-
end management investment company. Under normal market conditions, the
Fund will invest at least 75% of its total assets in a diversified
portfolio of dividend-paying common stocks of Leading Companies that have
market capitalizations of at least $2 billion. The Fund's investment
adviser, Legg Mason Capital Management, Inc. ("Adviser"), defines a
"Leading Company" as a company that, in the opinion of the Adviser, has
attained a major market share in one or more products or services within
its industry(ies), and possesses the financial strength and management
talent to maintain or increase market share and profit in the future. Such
companies are typically well known as leaders in their respective
industries; most are found in the top half of the Standard & Poor's
Composite Index of 500 Stocks ("S&P 500").
The Navigator Class of Shares, described in this Prospectus, is
currently offered for sale only to institutional clients of the Fairfield
Group, Inc. ("Fairfield") for investment of their own funds and funds for
which they act in a fiduciary capacity, to clients of Legg Mason Trust
Company ("Trust Company") for which Trust Company exercises discretionary
investment management responsibility (such institutional investors are
referred to collectively as "Institutional Clients" and accounts of the
customers with such Clients ("Customers") are referred to collectively as
"Customer Accounts"), to qualified retirement plans managed on a
discretionary basis and having net assets of at least $200 million, and to
The Legg Mason Profit Sharing Plan and Trust. Navigator Shares may not be
purchased by individuals directly, but Institutional Clients may purchase
shares for Customer Accounts maintained for individuals.
Navigator Shares are sold and redeemed without any purchase or
redemption charge imposed by the Fund, although Institutional Clients may
charge their Customer Accounts for services provided in connection with
the purchase or redemption of shares. See "How to Purchase and Redeem
Shares." The Fund will pay management fees to Legg Mason Fund Adviser,
Inc., but Navigator Class pays no distribution fees.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK OR OTHER DEPOSITORY INSTITUTION.
SHARES ARE NOT INSURED BY THE FDIC, THE FEDERAL RESERVE BOARD, OR ANY
OTHER AGENCY, AND ARE SUBJECT TO INVESTMENT RISK, INCLUDING THE POSSIBLE
LOSS OF THE PRINCIPAL AMOUNT INVESTED.
This Prospectus sets forth concisely the information about the
Fund that a prospective investor ought to know before investing. It should
be read and retained for future reference. A Statement of Additional
<PAGE>
Information about the Fund dated July 31, 1995 has been filed with the
Securities and Exchange Commission ("SEC") and, as amended or supplemented
from time to time, is incorporated herein by reference. The Statement of
Additional Information is available without charge upon request from Legg
Mason (address and telephone numbers listed below).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Dated: July 31, 1995
Legg Mason Wood Walker, Inc.
111 South Calvert Street
P.O. Box 1476
Baltimore, MD 21203-1476
410-539-0000
800-822-5544
2
<PAGE>
FUND EXPENSES
The purpose of the following table is to assist an investor in
understanding the various costs and expenses that an investor in Navigator
Shares will bear directly or indirectly. The expenses and fees set forth
in the table are based on estimated expenses for the initial period of
operations of the Navigator Class.
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge on purchases or
reinvested dividends None
Redemption or exchange fees None
Annual Fund Operating Expenses -- Navigator Shares
(as a percentage of average net assets)
Management fees(1) 0.58%
12b-1 fees None
Other expenses (estimated) 0.37%
-----
Total operating expenses 0.95%
=====
(1) The expense ratio for Navigator Class would have been 1.12% had
the Fund's Manager not agreed to reimburse management fees and other
expenses pursuant to a voluntary expense limitation. The Manager has
agreed, pursuant to the reimbursement agreement, to reimburse management
fees and/or assume other expenses indefinitely to the extent the Navigator
Class's expenses (exclusive of taxes, interest, brokerage and
extraordinary expenses) exceed during any month an annual rate of 0.95% of
the Fund's average daily net assets for such month.
For further information concerning Fund expenses, please see "The
Fund's Management and Investment Adviser" and "The Fund's Distributor,"
pages 15-16.
EXAMPLE OF EFFECT OF FUND EXPENSES
The following example illustrates the expenses that you would pay
on a $1,000 investment in Navigator Shares over various time periods
assuming (1) a 5% annual rate of return and (2) redemption at the end of
each time period. As noted in the table above, the Fund charges no
redemption fees of any kind.
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$10 $30 $53 $117
This example assumes that all dividends and other distributions
are reinvested and that the percentage amounts listed under "Annual Fund
Operating Expenses" remain the same over the time periods shown. The
3
<PAGE>
above tables and the assumption in the example of a 5% annual return are
required by regulations of the SEC applicable to all mutual funds. THE
ASSUMED 5% ANNUAL RETURN IS NOT A PREDICTION OF, AND DOES NOT REPRESENT,
THE PROJECTED OR ACTUAL PERFORMANCE OF NAVIGATOR SHARES. THE ABOVE TABLES
AND EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The
actual expenses attributable to Navigator Shares will depend upon, among
other things, the level of average net assets, the levels of sales and
redemptions of shares, the extent to which Navigator Shares incur variable
expenses, such as transfer agency costs, and whether the Manager
reimburses all or a portion of the Fund's expenses.
4
<PAGE>
FINANCIAL HIGHLIGHTS
Effective July 31, 1995, the Fund commenced the sale of Navigator
Shares. The information below is for Primary Shares and reflects 12b-1
fees paid by that class and not by Navigator Shares. Navigator Shares pay
no 12b-1 distribution fees.
The financial highlights for the period September 1, 1993
(commencement of operations) to March 31, 1994, and the year ended March
31, 1995 have been derived from financial statements which have been
audited by Ernst & Young LLP, independent auditors. The Fund's financial
statements for the year ended March 31, 1995 and the report of Ernst &
Young LLP thereon are included in the Fund's annual report and are
incorporated by reference into the Statement of Additional Information.
The annual report is available to shareholders without charge by calling
an investment executive at Fairfield or Legg Mason or Legg Mason's Funds
Marketing Department at 800-822-5544.
<TABLE>
<CAPTION>
PRIMARY SHARES
Years Ended March 31, 1995 1994(1)
<S> <C> <C>
Per Share Operating Performance:
Net asset value, beginning
of period $9.69 $10.00
Net investment income 0.12(2) 0.059(2)
Net realized and unrealized
gain
(loss) on investments 0.48 (0.344)
Total from investment
operations 0.60 (0.285)
Distributions to
shareholders from
net investment income (0.11) (0.025)
Net asset value, end of
period $10.18 $ 9.69
Total return
6.24% (2.86)%(3)
5
<PAGE>
PRIMARY SHARES
Years Ended March 31, 1995 1994(1)
Ratios/Supplemental Data:
Ratios to average net
assets: 1.95%(2) 1.95%(2)(4)
Expenses
Net investment income
(loss) 1.21%(2) 1.14%(4)
Portfolio turnover rate 30.5% 21.0%(4)
Net assets, end of period
(in thousands) $59,985 $55,022
</TABLE>
--------------------
(1) For the period September 1, 1993 (commencement of operations) to
March 31, 1995.
(2) Net of fees waived pursuant to a voluntary expense limitation of
1.95% of average daily net assets. If no fees had been waived by the
Manager, the ratio of expenses to average daily net assets for the
period September 1, 1993 to March 31, 1994 and the year ended March
31, 1995 would have been 2.28% and 2.12%, respectively.
(3) Not annualized. The annualized total return for the period would
have been (4.92)%.
(4) Annualized.
6
<PAGE>
PERFORMANCE INFORMATION
From time to time the Fund may quote the total return of each
class of shares in advertisements or in reports or other communications to
shareholders. A mutual fund's TOTAL RETURN is a measurement of the
overall change in value of an investment in the fund, including changes in
share price and assuming reinvestment of dividends and other
distributions. CUMULATIVE TOTAL RETURN shows the fund's performance over
a specific period of time. AVERAGE ANNUAL TOTAL RETURN is the average
annual compounded return that would have produced the same cumulative
total return if the fund's performance had been constant over the entire
period.
Performance information is based on historical results and is not
intended to indicate future performance. The investment return and
principal value of an investment in the fund will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their
original cost. Average annual returns, which differ from actual
year-to-year results, tend to smooth out variations in a fund's returns.
Total returns of Primary Shares as of March 31, 1995 were as
follows:
Cumulative Average Annual
Total Return Total Return
-----------------------------------------------
One Year +6.24% +6.24%
Life of Fund(1) +3.20 +2.02
(1) Fund's inception - September 1, 1993.
No adjustment has been made for any income taxes payable by
shareholders. Total returns would have been lower if the Adviser and/or
Distributor had not waived certain fees in the fiscal years 1994 through
1995. As of the date of this Prospectus, Navigator Shares have no
performance history. Because Navigator Shares have lower total expenses,
they will generally have a higher return than Primary Shares.
Further information about the Fund's performance is contained in
the Annual Report to Shareholders, which may be obtained without charge by
calling an investment executive at Fairfield or Legg Mason or Legg Mason's
Funds Marketing Department at 800-822-5544.
7
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide long-term capital
appreciation and current income consistent with prudent investment risk.
The Fund seeks to provide fiduciaries, organizations, institutions and
individuals with a convenient and prudent medium of investment, primarily
in the common stocks of Leading Companies. The Fund intends to maintain
for its shareholders a portfolio of securities which an experienced
investor charged with fiduciary responsibility might select under the
Prudent Investor Rule, as described in the trust laws or court decisions
of many states, including New York. The investment objective may not be
changed without shareholder approval. There can be no assurance that the
Fund's investment objective will be achieved.
Under normal market conditions, the Fund will invest at least 75%
of its total assets in a diversified portfolio of dividend-paying common
stocks of Leading Companies that have market capitalizations of at least
$2 billion. The Adviser defines a "Leading Company" as a company that, in
the opinion of the Adviser, has attained a major market share in one or
more products or services within its industry(ies), and possesses the
financial strength and management talent to maintain or increase market
share and profit in the future. Such companies are typically well known as
leaders in their respective industries; most are found in the top half of
the S&P 500. Additionally, the Adviser's goal is to purchase companies
having what the Adviser believes is a reasonable price/earnings ratio, and
it will favor those companies with well established histories of dividends
and dividend growth rates. The Fund may also invest in companies having
capitalizations above or below $2 billion which the Adviser believes show
strong potential for future market leadership, and in companies which the
Adviser believes, because of corporate restructuring or other changes, are
undervalued based on their potential for future growth. There is always a
risk that the Adviser will not properly assess the potential for an
issuer's future growth, or that an issuer will not realize that potential.
While the Fund may invest in foreign securities, the Fund under
normal market conditions intends to invest at least 65% of its total
assets in domestic Leading Companies. "Domestic" company, for this
purpose, means a company that has its principal corporate offices in the
U.S. or that derives at least 50% of its revenues from operations in the
U.S.
The Fund's objective and polices require traditional investment
management techniques that involve, for example, the evaluation and
financial analysis of specific foreign and domestic issuers as well as
economic and political analysis. The Fund's portfolio turnover rate is not
expected to exceed 100%. Under normal circumstances, the Fund expects to
own a minimum of 35 different securities. The Fund may also invest in
common stocks and securities convertible into common stocks which do not
pay current dividends but which offer prospects for capital appreciation
and future income. The Fund may invest in when-issued securities, which
may involve additional risks.
8
<PAGE>
FOREIGN SECURITIES
The Fund may invest in foreign issuers that meet the above
criteria, either directly or through the purchase of American Depositary
Receipts (ADRs). ADRs are certificates issued by American banks
representing shares of a foreign company held by the bank. ADRs are
denominated in U.S. dollars and can be traded in the domestic securities
markets; many are exchange-listed.
Investment in foreign securities, whether directly or through
ADRs, presents certain risks, which the Adviser will consider carefully in
selecting such securities. These include the risks resulting from
fluctuations in currency exchange rates, revaluation of currencies, future
political and economic developments in the issuer's country, reduced
availability of public information concerning issuers, and the fact that
most foreign issuers (including some whose shares are represented by ADRs)
are not subject to uniform accounting, auditing and financial reporting
standards or to other regulatory practices and requirements comparable to
those applicable to domestic issuers. In addition, with respect to certain
foreign countries, there is the possibility of expropriation and
confiscatory taxation. Direct purchasers of foreign securities may also be
subject to limitations on the use or removal of funds or other assets.
Securities of many foreign issuers are less liquid and their
prices more volatile than those of comparable domestic issuers. Foreign
securities traded abroad may be subject to settlement delays. Transactions
on foreign securities exchanges are usually subject to mark-ups or
commissions higher than negotiated commissions on U.S. transactions,
although the Fund will endeavor to obtain the best net results in
effecting transactions. There is less government supervision and
regulation of exchanges and brokers in many foreign countries than in the
U.S. Additional costs associated with an investment in foreign securities
will include higher custodial fees than apply to domestic custodial
arrangements and transactions costs of foreign currency conversions. The
Fund may not invest more than 25% of its total assets in foreign
securities, either directly or through ADRs.
DEBT SECURITIES
The Fund may invest up to 25% of its total assets in debt
securities, including government, corporate and money market securities,
consistent with its investment objective, during periods when the Adviser
believes the return on certain debt securities may equal or exceed the
return on equity securities. The Fund may invest in debt securities of any
maturity of both foreign and domestic issuers. The debt securities in
which the Fund may invest will be rated at least A by S&P or Moody's, or
deemed by the Adviser to be of comparable quality. 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 longer the time to maturity the greater are such variations.
9
<PAGE>
The Fund may invest up to 5% of its net assets in convertible
securities. Many convertible securities are rated below investment grade
or, if unrated, are considered comparable to securities rated below
investment grade. The Fund does not intend to invest in convertible
securities rated below Ba by Moody's or BB by S&P or, if unrated, deemed
by the Adviser to be of comparable quality.
When cash is temporarily available, or for temporary defensive
purposes, the Fund may invest without limit in high-quality short-term
debt securities and money market instruments, including repurchase
agreements. A repurchase agreement is an agreement under which either U.S.
government obligations or other high-quality liquid debt securities are
acquired from a securities dealer or bank subject to resale at an
agreed-upon price and date. The securities are held for the Fund by State
Street Bank and Trust Company ("State Street"), the Fund's custodian, as
collateral until resold and will be supplemented by additional collateral
if necessary to maintain a total value equal to or in excess of the value
of the repurchase agreement. The Fund bears a risk of loss in the event
that the other party to a repurchase agreement defaults on its obligations
and the Fund is delayed or prevented from exercising its right to dispose
of the collateral securities, which may decline in value in the interim.
The Fund will enter into repurchase agreements only with financial
institutions determined by the Adviser to present minimal risk of default
during the term of the agreement, based on guidelines established by the
Fund's Board of Directors.
COVERED CALL OPTIONS
The Fund may sell covered call options on any security in which
it is permitted to invest for the purpose of enhancing income. A call
option gives the purchaser the right to purchase the underlying security
from the Fund at a specified price (the "strike price") during a specified
period. A call option is "covered" if, at all times the option is
outstanding, the Fund holds the underlying security or a right to obtain
that security at no additional cost. The Fund may purchase a call option
for the purpose of closing out a short position in an option.
The use of options involves certain risks. These risks include:
(1) the fact that use of these instruments can reduce the opportunity for
gain; (2) dependence on the Adviser's ability to predict movements in the
prices of individual securities, fluctuations in the general securities
markets or in market sectors; (3) imperfect correlation between movements
in the price of options and movements in the price of the underlying
securities; (4) the possible lack of a liquid secondary market for a
particular option at any particular time; (5) the possibility that the use
of cover involving a large percentage of the Fund's assets could impede
portfolio management or the Fund's ability to meet redemption requests or
other short-term obligations; and (6) the possible need to defer closing
out positions in these instruments in order to avoid adverse tax
consequences. There can be no assurance that the use of options by the
Fund will be successful. As a non-fundamental policy, the Fund will not
sell a covered call option if, as a result, the value of the portfolio
10
<PAGE>
securities underlying all outstanding covered call options would exceed
25% of the value of the equity securities held by the Fund. See the
Statement of Additional Information for a more detailed discussion of
options strategies.
OTHER INVESTMENT RESTRICTIONS
The fundamental restrictions applicable to the Fund include a
prohibition on investing 25% or more of total assets in the securities of
issuers having their principal business activities in the same industry
(with the exception of securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities and repurchase agreements
with respect thereto).
The Fund has adopted certain other fundamental investment
limitations that, like its investment objective, can be changed only by a
vote of Fund shareholders. These investment limitations are set forth in
the Statement of Additional Information under ``Additional Information
About Investment Limitations and Policies." Except as expressly stated
otherwise, the investment policies and limitations contained in this
prospectus are not fundamental and can be changed without a shareholder
vote.
HOW TO PURCHASE AND REDEEM SHARES
Institutional Clients of Fairfield Group, Inc. may purchase
Navigator Shares from Fairfield, the principal offices of which are
located at 200 Gibraltar Road, Horsham, Pennsylvania 19044. Other
investors eligible to purchase Navigator Shares may purchase them through
a brokerage account with Legg Mason Wood Walker, Inc. ("Legg Mason").
(Legg Mason and Fairfield are wholly owned subsidiaries of Legg Mason,
Inc., a financial services holding company.)
PURCHASE OF SHARES
The minimum investment is $50,000 for the initial purchase of
Navigator Shares and $100 for each subsequent investment. The Fund
reserves the right to change these minimum amounts at its discretion.
Institutional Clients may set different minimums for their Customers'
investments in accounts invested in Navigator Shares.
Share purchases will be processed at the net asset value next
determined after Legg Mason or Fairfield has received your order; payment
must be made within three business days to the selling organization.
Orders received by Legg Mason or Fairfield before the close of regular
trading on the New York Stock Exchange, Inc. ("Exchange") (normally 4:00
p.m. Eastern time) ("close of the Exchange") on any day the Exchange is
open will be executed at the net asset value determined as of the close of
the Exchange on that day. Orders received by Legg Mason or Fairfield
after the close of the Exchange or on days the Exchange is closed will be
executed at the net asset value determined as of the close of the Exchange
on the next day the Exchange is open. See "How Net Asset Value is
11
<PAGE>
Determined" on page 12. The Fund reserves the right to reject any order
for shares of the Fund, to suspend the offering of shares for a period of
time, or to waive any minimum investment requirements.
In addition to Institutional Clients purchasing shares directly
from Fairfield, Navigator Shares may be purchased through procedures
established by Fairfield in connection with requirements of Customer
Accounts of various Institutional Clients.
No sales charge is imposed by the Fund in connection with the
purchase of Navigator Shares. Depending upon the terms of a particular
Customer Account, however, Institutional Clients may charge their
Customers fees for automatic investment and other cash management services
provided in connection with investments in the Fund. Information
concerning these services and any applicable charges will be provided by
the Institutional Clients. This Prospectus should be read by Customers in
connection with any such information received from the Institutional
Clients. Any such fees, charges or other requirements imposed by an
Institutional Client upon its Customers will be in addition to the fees
and requirements described in this Prospectus.
REDEMPTION OF SHARES
Shares may ordinarily be redeemed by a shareholder via telephone,
in accordance with the procedures described below. However, Customers of
Institutional Clients wishing to redeem shares held in Customer Accounts
at the Institution may redeem only in accordance with instructions and
limitations pertaining to their Account at the Institution.
Fairfield clients can make telephone redemption requests by
calling Fairfield at 1-800-441-3885. Legg Mason clients should call their
investment executives or Legg Mason Funds Processing at 1-800-822-5544.
Callers should have available the number of shares (or dollar amount) to
be redeemed and their account number.
Orders for redemption received by Legg Mason or Fairfield before
the close of the Exchange, on any day when the Exchange is open, will be
transmitted to Boston Financial Data Services ("BFDS"), transfer agent for
the Fund, for redemption at the net asset value per share determined as of
the close of the Exchange on that day. Requests for redemption received by
Legg Mason or Fairfield after the close of the Exchange will be executed
at the net asset value determined as of the close of the Exchange on its
next trading day. A redemption request received by Legg Mason or Fairfield
may be treated as a request for repurchase and, if it is accepted by Legg
Mason, your shares will be purchased at the net asset value per share
determined as of the next close of the Exchange.
Shareholders may have their telephone redemption requests paid by
a direct wire to a domestic commercial bank account previously designated
by the shareholder, or mailed to the name and address in which the
shareholder's account is registered with the Fund. Such payments will
normally be transmitted on the next business day following receipt of a
12
<PAGE>
valid request for redemption. However, the Fund reserves the right to take
up to seven days to make payment upon redemption if, in the judgment of
the Adviser, the Fund could be adversely affected by immediate payment.
(The Statement of Additional Information describes several other
circumstances in which the date of payment may be postponed or the right
of redemption suspended.) The proceeds of redemption or repurchase may be
more or less than the original cost. If the shares to be redeemed or
repurchased were paid for by check (including certified or cashier's
checks) within 15 business days of the redemption or repurchase request,
the proceeds may not be disbursed unless the Fund can be reasonably
assured that the check has been collected.
The Fund will not be responsible for the authenticity of
redemption instructions received by telephone, provided it follows
reasonable procedures to identify the caller. The Fund may request
identifying information from callers or employ identification numbers. The
Fund may be liable for losses due to unauthorized or fraudulent
instructions if it does not follow reasonable procedures. Telephone
redemption privileges are available automatically to all shareholders
unless certificates have been issued. Shareholders who do not wish to have
telephone redemption privileges should call their investment executive for
further instructions.
Because of the relatively high cost of maintaining small
accounts, the Fund may elect to close any account with a current value of
less than $500 by redeeming all of the shares in the account and mailing
the proceeds to the investor. However, the Fund will not redeem accounts
that fall below $500 solely as a result of a reduction in net asset value
per share. If the Fund elects to redeem the shares in an account, the
investor will be notified that the account is below $500 and will be
allowed 60 days in which to make an additional investment in order to
avoid having the account closed.
HOW SHAREHOLDER ACCOUNTS ARE MAINTAINED
A shareholder account is established automatically for each
investor. Any shares the investor purchases or receives as a dividend or
other distribution will be credited directly to the account at the time of
purchase or receipt. No certificates are issued unless the shareholder
specifically requests them in writing. Shareholders who elect to receive
certificates can redeem their shares only by mail. Certificates will be
issued in full shares only. No certificates will be issued for shares
prior to 15 business days after purchase of such shares by check unless
the Fund can be reasonably assured during that period that payment for the
purchase of such shares has been collected. Fund shares may not be held
in, or transferred to, an account with any brokerage firm other than
Fairfield, Legg Mason or their affiliates.
Every shareholder of record will receive a confirmation of each
new share transaction with the Fund, which will also show the total number
of shares being held in safekeeping by the Fund's transfer agent for the
account of the shareholder.
13
<PAGE>
Navigator Shares sold to Institutional Clients acting in a
fiduciary, advisory, custodial, or other similar capacity on behalf of
persons maintaining Customer Accounts at Institutional Clients will
normally be held of record by the Institutional Clients. Therefore, in
the context of Institutional Clients, references in this Prospectus to
shareholders mean the Institutional Clients rather than their Customers.
Institutional Clients purchasing or holding Navigator Shares on behalf of
their Customers are responsible for the transmission of purchase and
redemption orders (and the delivery of funds) to the Fund on a timely
basis.
HOW NET ASSET VALUE IS DETERMINED
Net asset value per share is determined daily as of the close of
the Exchange, on every day that the Exchange is open, by subtracting the
liabilities attributable to Navigator Shares from the total assets
attributable to such shares and dividing the result by the number of
Navigator Shares outstanding. Securities owned by the Fund for which
market quotations are readily available are valued at current market
value. In the absence of readily available market quotations, securities
are valued at fair value as determined by the Fund's 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 the Adviser to be the primary market. Securities with
remaining maturities of 60 days or less are valued at amortized cost. The
Fund will value its foreign securities in U.S. dollars on the basis of the
then-prevailing exchange rates.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Fund declares and pays dividends to holders of Navigator
Shares out of its investment company taxable income attributable to those
shares, which generally consists of net investment income and net
short-term capital gain and any net gains from certain foreign currency
transactions, following the end of each quarter. The Fund also distributes
to shareholders substantially all net capital gain (the excess of net
long-term capital gain over net short-term capital loss) after the end of
the taxable year in which the gain is realized. A second distribution of
net capital gain may be necessary in some years to avoid imposition of the
excise tax described under the heading "Additional Tax Information" in the
Statement of Additional Information. Shareholders may elect to:
1. Receive both dividends and other distributions in Navigator
Shares of the Fund;
2. Receive dividends in cash and other distributions in
Navigator Shares of the Fund;
3. Receive dividends in Navigator Shares of the Fund and other
distributions in cash; or
4. Receive both dividends and other distributions in cash.
In certain cases, shareholders may reinvest dividends and other
distributions in shares of another Navigator fund. Please contact an
14
<PAGE>
investment executive for additional information about this option.
Qualified retirement plans that obtained Navigator Shares through exchange
generally receive dividends and other distributions in additional shares.
If no election is made, both dividends and other distributions
will be credited to the Institutional Client's account in Navigator Shares
at the net asset value of the shares determined as of the close of the
Exchange on the reinvestment date. Shares received pursuant to any of the
first three (reinvestment) elections above also will be credited to the
account at that net asset value. If an investor elects to receive
dividends or other distributions in cash, a check will be sent. Investors
purchasing through Fairfield may elect at any time to change the
distribution option by notifying in writing Navigator American Leading
Companies Trust, c/o Fairfield Group, Inc., 200 Gibraltar Road, Horsham,
Pennsylvania 19044. Those purchasing through Legg Mason should write to
Navigator American Leading Companies Trust, c/o Legg Mason Funds
Processing, P.O. Box 1476, Baltimore, Maryland, 21203-1476. An election
must be received at least 10 days before the record date in order to be
effective for dividends and other distributions paid to shareholders as of
that date.
TAXES
The Fund intends to continue to qualify for treatment as a
regulated investment company under the Internal Revenue Code of 1986, as
amended, so that it will be relieved of federal income tax on that part of
its investment company taxable income (generally consisting of net
investment income, any net short-term capital gain and any net gains from
certain foreign currency transactions) and net capital gain that is
distributed to its shareholders.
Dividends from the Fund's investment company taxable income
(whether paid in cash or reinvested in Fund shares) are taxable to its
shareholders (other than tax-exempt investors) as ordinary income to the
extent of the Fund's earnings and profits. Distributions of the Fund's net
capital gain (whether paid in cash or reinvested in Fund shares), when
designated as such, are taxable to those shareholders as long-term capital
gain, regardless of how long they have held their Fund shares.
The Fund sends each shareholder a notice following the end of
each calendar year specifying, among other things, the amounts of all
dividends and other distributions paid (or deemed paid) during that year.
The Fund is required to withhold 31% of all dividends, capital gain
distributions and redemption proceeds payable to certain noncorporate
shareholders who do not provide the Fund with a certified taxpayer
identification number. The Fund also is required to withhold 31% of all
dividends and capital gain distributions payable to such shareholders who
otherwise are subject to backup withholding.
A redemption of Fund shares may result in taxable gain or loss to
the redeeming shareholder, depending on whether the redemption proceeds
are more or less than the shareholder's adjusted basis for the redeemed
15
<PAGE>
shares. An exchange of Fund shares for shares of any other Navigator fund
generally will have similar tax consequences. See "Shareholder Services -
Exchange Privilege," page 14. If Fund shares are purchased within 30 days
before or after redeeming Fund shares at a loss, all or part of that loss
will not be deductible and instead will increase the basis of the newly
purchased shares.
A dividend or other distribution paid shortly after shares have
been purchased, although in effect a return of investment, is subject to
federal income tax. Accordingly, an investor should recognize that a
purchase of Fund shares immediately prior to the record date for a
dividend or other distribution could cause the investor to incur tax
liabilities and should not be made solely for the purpose of receiving the
dividend or other distribution.
The foregoing is only a summary of some of the important federal
tax considerations generally affecting the Fund and its shareholders; see
the Statement of Additional Information for a further discussion. In
addition to federal income tax, you may also be subject to state, local or
foreign taxes on distributions from the Fund, depending on the laws of
your home state and locality. Prospective shareholders are urged to
consult their tax advisers with respect to the effects of this investment
on their own tax situations.
SHAREHOLDER SERVICES
CONFIRMATIONS AND REPORTS
Shareholders will receive from the distributor a confirmation
after each transaction (except a reinvestment of dividends and capital
gain distributions). An account statement will be sent to each shareholder
monthly unless there has been no activity in the account, in which case an
account statement will be sent quarterly. Reports will be sent to
shareholders at least semiannually showing the Fund's portfolio and other
information; the annual report will contain financial statements audited
by the Fund's independent accountants.
Confirmations for purchases and redemptions of Navigator Shares
made by Institutional Clients acting in a fiduciary, advisory, custodial,
or other similar capacity on behalf of persons maintaining Customer
Accounts at Institutional Clients will be sent to the Institutional
Client. Beneficial ownership of shares by Customer Accounts will be
recorded by the Institutional Client and reflected in the regular account
statements provided by them to their customers.
Shareholder inquiries should be addressed to "Navigator American
Leading Companies Trust, c/o Legg Mason Funds Processing, P.O. Box 1476,
Baltimore, Maryland 21203-1476," or "Fairfield Group, Inc., 200 Gibraltar
Road, Horsham, Pennsylvania 19044."
EXCHANGE PRIVILEGE
16
<PAGE>
Holders of Navigator Shares are entitled to exchange them for
Navigator Shares of the following funds, provided the shares to be
acquired are eligible for sale under applicable state securities laws:
NAVIGATOR MONEY MARKET FUND, INC. -- PRIME OBLIGATIONS PORTFOLIO
A money market fund seeking to provide as high a level of current
interest income as is consistent with liquidity and relative stability of
principal.
NAVIGATOR TAX-FREE MONEY MARKET FUND, INC.
A money market fund seeking to provide its shareholders with as
high a level of current interest income that is exempt from federal income
taxes as is consistent with liquidity and relative stability of principal.
NAVIGATOR VALUE TRUST
A mutual fund seeking long-term growth of capital.
NAVIGATOR TOTAL RETURN TRUST
A mutual fund seeking capital appreciation and current income in
order to achieve an attractive total investment return consistent with
reasonable risk.
NAVIGATOR SPECIAL INVESTMENT TRUST
A mutual fund seeking capital appreciation by investing
principally in issuers with market capitalizations of less than $2.5
billion.
NAVIGATOR U.S. GOVERNMENT INTERMEDIATE-TERM PORTFOLIO
A mutual fund seeking high current income consistent with prudent
investment risk and liquidity needs, primarily by investing in debt
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, while maintaining an average dollar-weighted maturity
of between three and ten years.
NAVIGATOR MARYLAND TAX-FREE INCOME TRUST
A tax-exempt municipal bond fund seeking a high level of current
income exempt from federal and Maryland state and local income taxes,
consistent with prudent investment risk and preservation of capital.
NAVIGATOR PENNSYLVANIA TAX-FREE INCOME TRUST
A tax-exempt municipal bond fund seeking a high level of current
income exempt from federal income tax and Pennsylvania personal income
tax, consistent with prudent investment risk and preservation of capital.
17
<PAGE>
NAVIGATOR TAX-FREE INTERMEDIATE-TERM INCOME TRUST
A tax-exempt municipal bond fund seeking a high level of current
income exempt from federal income tax, consistent with prudent investment
risk.
LEGG MASON CASH RESERVE TRUST
A money market fund seeking stability of principal and current
income consistent with stability of principal.
Investments by exchange into other Navigator funds are made at
the per share net asset value next determined on the same business day as
redemption of the Fund shares you wish to exchange. To obtain further
information concerning the exchange privilege and prospectuses of other
Navigator funds, or to make an exchange, please contact your investment
executive. To effect an exchange by telephone, please call your investment
executive with the information described in the section "How to Purchase
and Redeem Shares," page 9. The other factors relating to telephone
redemptions described in that section apply also to telephone exchanges.
Please read the prospectus for the other funds carefully before you invest
by exchange. The Fund reserves the right to modify or terminate the
exchange privilege upon 60 days' notice to shareholders. There is no
assurance the money market funds will be able to maintain a $1.00 share
price. None of the funds is insured or guaranteed by the U.S. Government.
THE FUND'S MANAGEMENT AND INVESTMENT ADVISER
BOARD OF DIRECTORS
The business and affairs of the Fund are managed under the
direction of the Trust's Board of Directors.
MANAGER
Pursuant to a management agreement with the Fund ("Management
Agreement"), which was approved by the Trust's Board of Directors, Legg
Mason Fund Adviser, Inc. ("Manager"), a wholly owned subsidiary of Legg
Mason, Inc., serves as the Fund's manager. The Fund pays the Manager,
pursuant to the Management Agreement, a management fee equal to an annual
rate of 0.75% of the Fund's average daily net assets. The Fund pays all
its other expenses which are not assumed by the Manager. The Manager has
agreed to waive its fees and to reimburse the Fund for its expenses
related to Navigator Shares (exclusive of taxes, interest, brokerage and
extraordinary expenses) in excess of 0.95% of the Fund's average net
assets indefinitely.
The Manager acts as investment adviser, manager or consultant to
fifteen investment company portfolios (excluding the Fund) which had
aggregate assets under management of over $4.4 billion as of May 31, 1995.
18
<PAGE>
ADVISER
Legg Mason Capital Management, Inc. ("Adviser"), a wholly owned
subsidiary of Legg Mason, Inc., serves as investment adviser to the Fund
pursuant to the terms of an Investment Advisory Agreement with the
Manager, which was approved by the Trust's Board of Directors. The Adviser
manages the investment and other affairs of the Fund and directs the
investments of the Fund in accordance with its investment objectives,
policies and limitations. For these services, the Manager (not the Fund)
pays the Adviser a fee, computed daily and payable monthly, at an annual
rate equal to 40% of the fee received by the Manager, or 0.30% of the
Fund's average daily net assets.
The Adviser has not previously advised a registered investment
company. However, the Adviser manages private accounts with a value as of
April 30, 1995 of approximately $700 million. The address of the Adviser
is 111 South Calvert Street, Baltimore, MD 21202.
J. Eric Leo serves as portfolio manager for the Fund and is
primarily responsible for the selection of investments. Mr. Leo has been
Executive Vice President and Chief Investment Officer of the Adviser since
December 1991. From October 1986 to December 1991, he served as Managing
Director of Equitable Capital Management, where he managed, among other
assets, the Equitable Account #1 - Growth & Income Commingled Fund. Prior
to joining Equitable, Mr. Leo was President and Chief Investment Officer
for Sperry Capital Management Corp., where he was responsible for $1.1
billion in pension assets.
The Fund uses Legg Mason, among others, as broker for agency
transactions in listed and over-the-counter securities at commission rates
and under circumstances consistent with the policy of best execution.
THE FUND'S DISTRIBUTOR
Legg Mason is the distributor of the Fund's shares pursuant to an
Underwriting Agreement with the Fund. The Underwriting Agreement obligates
Legg Mason to pay certain expenses in connection with the offering of
shares of the Fund, including any compensation to its investment
executives, the printing and distribution of prospectuses, statements of
additional information and periodic reports used in connection with the
offering to prospective investors, after the prospectuses, statements of
additional information and reports have been prepared, set in type and
mailed to existing shareholders at the Fund's expense, and for any
supplementary sales literature and advertising costs. Legg Mason also
assists BFDS with certain of its duties as transfer agent; for the year
ended March 31, 1995, Legg Mason received from BFDS $19,487 for performing
such services in connection with the Fund.
Fairfield Group, Inc., a wholly owned subsidiary of Legg Mason,
Inc., is a registered broker-dealer with principal offices located at 200
Gibraltar Road, Horsham, Pennsylvania 19044. Fairfield may sell
Navigator Shares pursuant to a Dealer Agreement with the Fund's
19
<PAGE>
Distributor, Legg Mason. Neither Fairfield nor Legg Mason receives
compensation from the Fund for selling Navigator Shares.
The Chairman, President and Treasurer of the Fund are employed by
Legg Mason.
DESCRIPTION OF THE TRUST AND ITS SHARES
The Trust was established as a Maryland corporation on May 5,
1993. The Articles of Incorporation authorize the Trust to issue one
billion shares of par value $0.001 per share and to create additional
series, each of which may issue separate classes of shares. The Fund
currently offers two Classes of Shares -- Class Y (known as "Navigator
Shares") and Class A (known as "Primary Shares"). Each Class represents
interests in the same pool of assets of the Fund. A separate vote is
taken by a Class of Shares of the Fund if a matter affects just that Class
of Shares. Each Class of Shares may bear certain differing Class-specific
expenses. Salespersons and others entitled to receive compensation for
selling or servicing Fund Shares may receive more with respect to one
Class than another.
The initial and subsequent investment minimums for Primary Shares
are $1,000 and $100, respectively. Investments in Primary Shares may be
made through a Legg Mason or affiliated investment executive, through the
Future First Systematic Investment Plan or through automatic investment
arrangements. For information about Primary Shares, call 800-822-5544.
Holders of Primary Shares bear distribution and service fees
under Rule 12b-1 at the rate of 1.0% of the net assets attributable to
Primary Shares. Investors in Primary Shares may elect to receive
dividends and/or capital gain distributions in cash through the receipt of
a check or a credit to their Legg Mason account. The per share net asset
value of the Navigator Shares, and dividends and distributions (if any)
paid to Navigator shareholders, are generally expected to be higher than
those of Primary Shares of the Fund, because of the lower expenses
attributable to Navigator Shares. The per share net asset value of the
Classes of Shares will tend to converge, however, immediately after the
payment of ordinary income dividends. Primary Shares of the Fund may be
exchanged for the corresponding Class of Shares of other Legg Mason Funds.
Investments by exchange into the Legg Mason Funds sold with an initial
sales charge are made at the per share net asset value, plus the sales
charge, determined on the same business day as redemption of the Fund
shares the investors in Primary Shares wish to redeem.
The Board of Directors of the Fund does not anticipate that there
will be any conflicts among the interests of the holders of the different
Classes of Fund shares. On an ongoing basis, the Board will consider
whether any such conflict exists and, if so, take appropriate action.
Shareholders of the Fund are entitled to one vote per share and
fractional votes for fractional shares held. Voting rights are not
cumulative. All shares of the Fund are fully paid and nonassessable and
have no preemptive or conversion rights.
20
<PAGE>
Shareholders' 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 approval of a plan of distribution pursuant to Rule 12b-1).
The Fund will call a special meeting of the shareholders at the request of
10% or more of the shares entitled to vote; shareholders wishing to call
such a meeting should submit a written request to the Fund at 111 South
Calvert Street, Baltimore, Maryland 21202, stating the purpose of the
proposed meeting and the matters to be acted upon.
21
<PAGE>
TABLE OF CONTENTS
Fund Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . 5
Performance Information . . . . . . . . . . . . . . . . . . . . . . . 6
Investment Objective and Policies . . . . . . . . . . . . . . . . . . 7
How to Purchase and Redeem Shares . . . . . . . . . . . . . . . . . . 9
How Shareholder Accounts are Maintained . . . . . . . . . . . . . . . . 11
How Net Asset Value is Determined . . . . . . . . . . . . . . . . . . . 12
Dividends and Other Distributions . . . . . . . . . . . . . . . . . . . 12
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Shareholder Services . . . . . . . . . . . . . . . . . . . . . . . . . 14
The Fund's Management and Investment Adviser . . . . . . . . . . . . . 15
The Fund's Distributor . . . . . . . . . . . . . . . . . . . . . . . . 16
Description of the Trust and Its Shares . . . . . . . . . . . . . . . . 17
ADDRESSES
DISTRIBUTOR:
Legg Mason Wood Walker, Inc.
111 South Calvert Street
P.O. Box 1476, Baltimore, MD 21203-1476
410-539-0000 800-822-5544
TRANSFER AND SHAREHOLDER SERVICING AGENT:
Boston Financial Data Services
P.O. Box 953, Boston, MA 02103
COUNSEL:
Kirkpatrick & Lockhart LLP
1800 M Street, N.W., Washington, DC 20036
INDEPENDENT AUDITORS:
Ernst & Young LLP
One North Charles Street, Baltimore, Maryland 21202
No person has been authorized to give any information or to
make any representations not contained in this Prospectus or
the Statement of Additional Information in connection with
the offering made by the Prospectus and, if given or made,
such information or representations must not be relied upon
as having been authorized by the Fund or its distributor. The
Prospectus does not constitute an offering by the Fund or by
the principal underwriter in any jurisdiction in which such
offering may not lawfully be made.
LMF - 012A
<PAGE>
LEGG MASON INVESTORS TRUST, INC.
LEGG MASON AMERICAN LEADING COMPANIES TRUST
PRIMARY SHARES
NAVIGATOR SHARES
STATEMENT OF ADDITIONAL INFORMATION
Legg Mason American Leading Companies Trust ("Fund"), a
diversified, professionally managed portfolio, is a separate series of
Legg Mason Investors Trust, Inc., an open-end investment company
("Trust"). The Fund seeks long-term capital appreciation and current
income consistent with prudent investment risk. The Fund normally will
seek to achieve its investment objective by investing not less than 75% of
its total assets in the dividend-paying common stocks of Leading Companies
that have market capitalizations of at least $2 billion. The Adviser, Legg
Mason Capital Management, Inc., defines a "Leading Company" as a company
that, in the opinion of the Adviser, has attained a major market share in
one or more products or services within its industry(ies), and possesses
the financial strength and management talent to maintain or increase
market share and profit in the future. Such companies typically are well
known as leaders in their respective industries; most are found in the top
half of the Standard & Poor's Composite Index of 500 Stocks ("S&P 500").
Shares of Navigator American Leading Companies Trust
("Navigator Shares") represent interests in the Fund that are currently
offered for sale only to institutional clients of the Fairfield Group,
Inc. ("Fairfield") for investment of their own funds and funds for which
they act in a fiduciary capacity, to clients of Legg Mason Trust Company
("Trust Company") for which Trust Company exercises discretionary
investment management responsibility (such institutional investors are
referred to collectively as "Institutional Clients" and accounts of the
customers with such Clients ("Customers") are referred to collectively as
"Customer Accounts"), to qualified retirement plans managed on a
discretionary basis and having net assets of at least $200 million, and to
The Legg Mason Profit Sharing Plan and Trust. The Navigator Class of
Shares may not be purchased by individuals directly, but Institutional
Clients may purchase shares for Customer Accounts maintained for
individuals.
The Primary Class of shares of Legg Mason American Leading
Companies Trust ("Primary Shares") is offered for sale to all other
investors and may be purchased directly by individuals.
Navigator and Primary Shares are sold and redeemed without
any purchase or redemption charge imposed by the Fund, although
Institutions may charge their Customer Accounts for services provided in
connection with the purchase or redemption of Navigator Shares. The Fund
pays management fees to Legg Mason Fund Adviser, Inc. Primary Shares pay
a 12b-1 distribution fee, but Navigator Shares pay no distribution fees.
See "The Fund's Distributor."
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK OR OTHER DEPOSITORY INSTITUTION.
<PAGE>
SHARES ARE NOT INSURED BY THE FDIC, THE FEDERAL RESERVE BOARD, OR ANY
OTHER AGENCY, AND ARE SUBJECT TO INVESTMENT RISK, INCLUDING THE POSSIBLE
LOSS OF THE PRINCIPAL AMOUNT INVESTED.
This Statement of Additional Information is not a prospectus
and should be read in conjunction with the Prospectuses for Primary Shares
and for Navigator Shares, (both dated July 31, 1995), as appropriate,
which have been filed with the Securities and Exchange Commission ("SEC").
Copies of the Prospectuses are available without charge from the Fund at
(410) 539-0000.
Dated: July 31, 1995
Legg Mason Wood Walker
Incorporated
------------------------
111 South Calvert Street
P.O. Box 1476
Baltimore, Maryland 21202
(410) 539-0000
(800) 822-5544
<PAGE>
Table of Contents
Page
----
Additional Information About
Investment Limitations and Policies 1
Additional Purchase and Redemption Information 9
Additional Tax Information 11
Tax-Deferred Retirement Plans 13
Performance Information 16
Valuation of Fund Shares 19
The Trust's Directors and Officers 19
The Fund's Manager 21
The Fund's Investment Adviser 23
The Fund's Distributor 24
Portfolio Transactions and Brokerage 26
The Fund's Custodian and Transfer and
Dividend-Disbursing Agent 28
The Trust's Legal Counsel 28
The Trust's Independent Auditors 28
Financial Statements 28
Appendix A 29
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 the Fund or its
distributor. The Prospectuses and the Statement of Additional Information
do not constitute offerings by the Fund or by the distributor in any
jurisdiction in which such offerings may not lawfully be made.
ADDITIONAL INFORMATION ABOUT INVESTMENT LIMITATIONS AND POLICIES
In addition to the investment objective described in the
Prospectuses, the Fund has adopted the following fundamental investment
limitations that cannot be changed except by vote of the shareholders of
the Fund. The Fund may not:
1. Borrow money, except from banks or through reverse repurchase
agreements for temporary purposes in an aggregate amount not to exceed 5%
of the value of its total assets at the time of borrowings. (Although not
a fundamental policy subject to shareholder approval, the Fund will repay
any money borrowed before any portfolio securities are purchased);
2. Issue senior securities, except as permitted under the
Investment Company Act of 1940 ("1940 Act");
3. Engage in the business of underwriting the securities of
other issuers except insofar as the Fund may be deemed an underwriter
under the Securities Act of 1933, as amended, in disposing of a portfolio
security;
<PAGE>
4. Buy or hold any real estate; provided, however, that
instruments secured by real estate or interests therein are not subject to
this limitation;
5. 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, other than the U.S. Government, its agencies and
instrumentalities, or purchase more than 10% of the voting securities of
any one issuer;
6. 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, 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.
The foregoing investment limitations cannot be changed without
the affirmative vote of the lesser of (1) more than 50% of the outstanding
shares of the Fund or (2) 67% or more of the shares of the Fund present at
a shareholders' meeting if more than 50% of the outstanding shares of the
Fund are represented at the meeting in person or by proxy. If a
percentage restriction is adhered to at the time of an investment or
transaction, a later increase or decrease in percentage resulting from a
change in the value of portfolio securities or amount of total assets will
not be considered a violation of any of the foregoing limitations.
Except as otherwise specified, the investment limitations and
policies which follow, and those set forth throughout this Statement of
Additional Information, are non-fundamental and may be changed by the
Fund's Board of Directors without shareholder approval.
The following are some of the non-fundamental limitations which
the Fund currently observes. The Fund may not:
1. Purchase or sell any oil, gas or mineral exploration or
development programs;
2. Buy securities on "margin," except for short-term credits
necessary for clearance of portfolio transactions and except that the Fund
may make margin deposits in connection with the use of permitted currency
futures contracts and options on currency futures contracts;
2
<PAGE>
3. Make short sales of securities or maintain a short position,
except that the Fund may sell short "against the box". This limit does
not apply to short sales and short positions in connection with its use of
options, futures contracts and options on futures contracts (The Fund does
not intend to make short sales in excess of 5% of its net assets during
the coming year);
4. Purchase or retain the securities of an issuer if, to the
knowledge of the Fund's management, those officers and directors of the
Fund, of Legg Mason Fund Adviser, Inc. and of Legg Mason Capital
Management, Inc. who individually own beneficially more than 0.5% of the
outstanding securities of that issuer own in the aggregate more than 5% of
the securities of that issuer;
5. Purchase any security if, as a result, more than 5% of the
Fund's total assets would be invested in securities of companies that
together with any predecessors have been in continuous operation for less
than three years;
6. Purchase a security restricted as to resale if, as a result
thereof, more than 10% of the Fund's total assets would be invested in
restricted securities. For purposes of this limitation, securities that
can be sold freely in the principal market in which they are traded are
not considered restricted, even it they cannot be sold in the United
States.
7. Make investments in warrants if such investments, valued at
the lower of cost or market, exceed 5% of the value of its net assets,
which amount may include warrants that are not listed on the New York or
American Stock Exchanges, provided that such unlisted warrants, valued at
the lower of cost or market, do not exceed 2% of the Fund's net assets,
and further provided that this restriction does not apply to warrants
attached to, or sold as a unit with, other securities. For purposes of
this restriction, the term "warrants" does not include options on
securities, stock or bond indices, foreign currencies or futures
contracts.
8. Acquire securities of other open-end investment companies,
except in connection with a merger, consolidation, reorganization or
acquisition.
9. Hold more than 10% of the outstanding voting securities of
any one issuer.
10. Purchase or sell interest rate and currency futures
contracts, options on currencies, securities, and securities indexes and
options on interest rate and currency futures contracts, provided,
however, that the Fund may sell covered call options on securities and may
purchase options to the extent necessary to close out its position in one
or more call options.
The Fund interprets fundamental investment limitation (4) to
prohibit investment in real estate limited partnerships.
3
<PAGE>
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 value of
portfolio securities, in the net asset value of the Fund, or in the number
of securities an issuer has outstanding will not be considered a violation
of any limitation.
Repurchase Agreements
---------------------
When cash is temporarily available, or for temporary defensive
purposes, the Fund may invest in repurchase agreements as described in
each Prospectus. Repurchase agreements are usually for periods of one
week or less, but may be for longer periods. The Fund will not enter into
repurchase agreements of more than seven days' duration if more than 15%
of its net assets would be invested in such agreements and other illiquid
investments. To the extent that proceeds from any sale upon a default of
the obligation to repurchase were less than the repurchase price, the Fund
might suffer a loss. If bankruptcy proceedings are commenced with respect
to the seller of the security, realization upon the collateral by the Fund
could be delayed or limited. However, the Fund has adopted standards for
the parties with whom it may enter into repurchase agreements, including
monitoring by the Adviser of the creditworthiness of such parties which
the Fund's Board of Directors believes are reasonably designed to assure
that each party presents no serious risk of becoming involved in
bankruptcy proceedings within the timeframe contemplated by the repurchase
agreement.
When the Fund enters into a repurchase agreement, it will obtain
as collateral from the other party 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 by the Fund's custodian or an approved securities depository or
book-entry system.
Illiquid and Restricted Securities
----------------------------------
The Fund may invest up to 15% of its net assets in illiquid
securities. For this purpose, "illiquid securities" are those that cannot
be disposed of within seven days for approximately the price at which the
Fund values the security. Illiquid securities include repurchase
agreements with terms of greater than seven days and restricted securities
other than those the Adviser has determined to be liquid pursuant to
guidelines established by the Trust's Board of Directors.
SEC regulations permit the sale of certain restricted securities
to qualified institutional buyers. The Adviser, acting pursuant to
guidelines established by the 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, restricted securities in the Fund's portfolio may adversely
4
<PAGE>
affect the Fund's liquidity. Pricing of illiquid securities may involve
more judgment than is the case for more liquid securities.
Foreign Securities
------------------
Since the Fund may invest in securities denominated in currencies
other than the U.S. dollar, the 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 currency
exchange rates may influence the value of the Fund's shares, and also may
affect the value of dividends and interest earned by the Fund and gains
and losses realized by the 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.
Foreign securities transactions could be subject to settlement
procedures different from those followed in the United States, where
delivery is made versus payment. The settlement procedures in some
foreign markets expose investors to the creditworthiness of an
intermediary, such as a bank or brokerage firm, for a period of time
during settlement.
In addition to purchasing foreign securities, the Fund may invest
in American Depositary 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 the Fund's investment policies and limitations, ADRs are
considered to have the same classification as the securities underlying
them.
Securities Lending
------------------
The 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, equal to at
least 100% of the market value of the securities loaned, is continuously
maintained by the borrower with the Fund. During the time portfolio
securities are on loan, the borrower pays the Fund an amount equivalent to
any dividends or interest paid on such securities, and the Fund may invest
the cash collateral and earn income, or it may receive an agreed upon
amount of interest income from the borrower who has delivered equivalent
collateral. These loans are subject to termination at the option of the
Fund or the borrower. The Fund may pay reasonable administrative and
custodial fees in connection with a loan and may pay a negotiated portion
of the interest earned on the cash or equivalent collateral to the
borrower or placing broker. The Fund does not have the right to vote
securities on loan, but would terminate the loan and retain the right to
vote if that were considered important with respect to the investment.
The risks of securities lending are similar to those of repurchase
agreements, described above. The Fund presently does not intend to loan
5
<PAGE>
more than 5% of its portfolio securities at any given time during the
foreseeable future.
Debt Securities
---------------
The ratings of Moody's Investors Service, Inc. ("Moody's") and
Standard & Poor's Ratings Group ("S&P") 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. Regardless of rating levels, all debt securities considered
for purchase (whether rated or unrated) are analyzed by the Adviser to
determine, to the extent possible, that the planned investment is sound.
If a security rated A or above at the time of purchase is subsequently
downgraded to a rating below A, the Adviser will consider that fact in
determining whether to dispose of the security, but will dispose of it if
necessary to insure that no more than 5% of net assets are invested in
debt securities rated below A. If one rating agency has rated a security
A or better and another agency has rated it below A, the Adviser may rely
on the higher rating in determining to purchase or retain the security.
Bonds rated A may be given a "+" or "-" by the rating agency. The Fund
considers bonds denominated A, A+ or A- to be included in the rating A.
Convertible Securities
----------------------
A convertible security is a bond, debenture, note, preferred
stock or other security that may be converted into or exchanged for a
prescribed amount of common stock of the same or a different issuer within
a particular period of time at a specified price or formula. A
convertible security entitles the holder to receive interest paid or
accrued on debt or the dividend paid on preferred stock until the
convertible security matures or is redeemed, converted or exchanged.
Before conversion, convertible securities ordinarily provide a stream of
income with generally higher yields than those of common stocks of the
same or similar issuers, but lower than the yield 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. The Fund does not
intend to purchase any convertible securities rated below BB by S&P or
below Ba by Moody's or, if unrated, deemed by the Adviser to be of
comparable quality. Moody's describes securities rated Ba as having
6
<PAGE>
"speculative elements; their future cannot be considered well-assured.
Often the protection of interest and principal payments may be very
moderate, and thereby not well safeguarded during both good and bad times
over the future. Uncertainty of position characterizes bonds in this
class."
Lower rated debt securities are especially affected by adverse
changes in the industries in which the issuers are engaged and by changes
in the financial condition of the issuers. Highly leveraged issuers may
also experience financial stress during periods of rising interest rates.
The market for lower rated debt securities expanded rapidly in
the 1980's, which growth paralleled a long period of economic expansion.
In the late 1980's, the prices of many lower rated debt securities
declined, indicating that many issuers of such securities might experience
financial difficulties. The yields on lower rated debt securities rose
dramatically, reflecting the risk that holders of such securities could
lose a substantial portion of their value as a result of the issuers'
financial restructuring or default. There can be no assurance that such
declines will not recur.
The market for lower-rated debt securities is generally thinner
and less active than that for higher quality securities, which may limit
the Fund's ability to sell such securities at fair value. Judgment plays
a greater role in pricing such securities than is the case for securities
having more active markets. Adverse publicity and investor perceptions,
whether or not based on fundamental analysis, may also decrease the values
and liquidity of lower rated securities, especially in a thinly traded
market.
When-Issued Securities
----------------------
The Fund may enter into commitments to purchase securities on a
when-issued basis. When the Fund purchases securities on a when-issued
basis, it assumes the risks of ownership at the time of the purchase, not
at the time of receipt. However, the Fund does not have to pay for the
obligations until they are delivered to it. This is normally seven to 15
days later, but could be longer. Use of this practice would have a
leveraging effect on the Fund. The Fund does not currently expect that
its commitment to purchase when-issued securities will at any time exceed,
in the aggregate, 5% of its net assets.
To meet its payment obligation under a when-issued commitment,
the Fund will establish a segregated account with its custodian and
maintain cash or liquid high-quality debt obligations, in an amount at
least equal in value to the Fund's commitments to purchase when-issued
securities.
The Fund may sell the securities underlying a when-issued
purchase, which may result in capital gains or losses.
Covered Call Options
--------------------
The Fund may write covered call options on securities in which it
is authorized to invest. Because it can be expected that a call option
7
<PAGE>
will be exercised if the market value of the underlying security increases
to a level greater than the exercise price, the Fund might write covered
call options on securities generally when its Adviser believes that the
premium received by the Fund will exceed the extent to which the market
price of the underlying security will exceed the exercise price. The
strategy may be used to provide limited protection against a decrease in
the market price of the security, in an amount equal to the premium
received for writing the call option less any transaction costs. Thus, in
the event that the market price of the underlying security held by the
Fund declines, the amount of such decline will be offset wholly or in part
by the amount of the premium received by the Fund. If, however, there is
an increase in the market price of the underlying security and the option
is exercised, the Fund would be obligated to sell the security at less
than its market value. The Fund would give up the ability to sell the
portfolio securities used to cover the call option while the call option
was outstanding. In addition, the Fund could lose the ability to
participate in an increase in the value of such securities above the
exercise price of the call option because such an increase would likely be
offset by an increase in the cost of closing out the call option (or could
be negated if the buyer chose to exercise the call option at an exercise
price below the securities' current market value).
If the Fund desires to close out its obligation under a call
option it has sold, it will have to purchase an offsetting option. The
value of an option position will reflect, among other things, the current
market price of the underlying security, futures contract or currency, the
time remaining until expiration, the relationship of the exercise price to
the market price, the historical price volatility of the underlying
security, and general market conditions. Accordingly, when the price of
the security rises toward the strike price of the option, the cost of
offsetting the option will negate to some extent the benefit to the Fund
of the price increase of the underlying security. For this reason, the
successful use of options as an income strategy depends upon the Adviser's
ability to forecast the direction of price fluctuations in the underlying
market or market sector.
The Fund may write exchange-traded options. The ability to
establish and close out positions on the exchange is subject to the
maintenance of a liquid secondary market. Although the Fund intends to
write only those exchange-traded options for which there appears to be an
active secondary market, there is no assurance that a liquid secondary
market will exist for any particular option at any specific time. With
respect to options written by the Fund, the inability to enter into a
closing transaction may result in material losses to the Fund. For
example, because the Fund must maintain a covered position with respect to
any call option it writes on a security, the Fund may not sell the
underlying security during the period it is obligated under such option.
This requirement may impair the Fund's ability to sell a portfolio
security or make an investment at a time when such a sale or investment
might be advantageous.
The Fund will not enter into an options position that exposes it
to an obligation to another party unless it owns an offsetting
("covering") position in securities or other options. The Fund will
comply with guidelines established by the SEC with respect to coverage of
8
<PAGE>
these strategies by mutual funds, and, if the guidelines so require, will
set aside cash and/or liquid, high-grade debt securities in a segregated
account with its custodian in the amount prescribed, as marked-to-market
daily. Securities positions used for cover and securities held in a
segregated account cannot be sold or closed out while the strategy is
outstanding, unless they are replaced with similar assets. As a result,
there is a possibility that the use of cover or segregation involving a
large percentage of the Fund's assets could impede portfolio management or
the Fund's ability to meet redemption requests or other current
obligations.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The Fund offers two classes of shares, known as Primary Shares
and Navigator Shares. Primary Shares are available from Legg Mason and
certain of its affiliates. Navigator Shares are currently offered for
sale only to Institutional Clients, to clients of Trust Company, for which
Trust Company exercises discretionary investment management
responsibility, to qualified retirement plans managed on a discretionary
basis and having net assets of at least $200 million, and to The Legg
Mason Profit Sharing Plan and Trust. Navigator Shares may not be
purchased by individuals directly, but Institutional Clients may purchase
shares for Customer Accounts maintained for individuals. Primary Shares
are available to all other investors.
9
<PAGE>
Future First Systematic Investment Plan and Transfer of Funds from
Financial Institutions
------------------------------------------------------------------
If you invest in Primary Shares, the Prospectus for those shares
explains that you may buy additional Primary Shares of the Fund through
the Future First Systematic Investment Plan. Under this plan you may
arrange for automatic monthly investments inPrimary Shares of $50 or more
by authorizing Boston Financial Data Services ("BFDS"), the Fund's
transfer agent, to prepare a check each month drawn on your checking
account. Each month the transfer agent will send a check to your bank for
collection, and the proceeds of the check will be used to buy Primary
Shares at the per share net asset value determined on the day the check is
sent to your bank. You will receive a quarterly account statement. You
may terminate the Future First Systematic Investment Plan at any time
without charge or penalty. Forms to enroll in the Future First Systematic
Investment Plan are available from any Legg Mason or affiliated office.
Investors in Primary Shares may also buy additional Primary
Shares through a plan permitting transfers of funds from a financial
institution. Certain financial institutions may allow you, on a pre-
authorized basis, to have $50 or more automatically transferred monthly
for investment in shares of the 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
--------------------------
If you own Primary Shares with a net asset value of $5,000 or
more, you may also elect to make systematic withdrawals from your Fund
account of a minimum of $50 on a monthly basis . The amounts paid to you
each month are obtained by redeeming sufficient 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"), Self-Employed Individual Retirement
Plan ("Keogh Plan"), Simplified Employee Pension Plan ("SEP") or other
qualified retirement plan. You may change the monthly amount to be paid
to you without charge not more than once a year by notifying Legg Mason or
the affiliate with which you have an account. Redemptions will be made at
the Primary Shares' net asset value per share determined as of the close
of regular trading of the New York Stock Exchange, Inc. ("Exchange")
(normally 4:00 p.m., eastern time) ("close of the Exchange") on the first
10
<PAGE>
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 account must be automatically
reinvested in Fund shares. You may terminate the Systematic Withdrawal
Plan at any time without charge or penalty. The Fund, its transfer agent,
and Legg Mason Wood Walker, Incorporated ("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
distributions, the amount of your original investment may be
correspondingly reduced.
Ordinarily, you should not purchase additional shares of the Fund
if you maintain a Systematic Withdrawal Plan because you may incur tax
liabilities in connection with such purchases and withdrawals. The 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.
Other Information Regarding Redemption
--------------------------------------
The date of payment for redemption may not be postponed for more
than seven days, and the right of redemption may not be suspended, except
(i) for any period during which the Exchange is closed (other than for
customary weekend and holiday closings), (ii) when trading in markets the
Fund normally utilizes is restricted, or an emergency, as defined by rules
and regulations of the SEC, exists, making disposal of the Fund's
investments or determination of its net asset value not reasonably
practicable, or (iii) for such other periods as the SEC by regulation or
order may permit for protection of the 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.
The Fund reserves the right, under certain conditions, to honor
any request or combination of requests, for redemption from the same
shareholder in any 90-day period, totalling $250,000 or 1% of the net
assets of the Fund, whichever is less, by making payment in whole or in
part by securities valued in the same way as they would be valued for
purposes of computing the 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.
The Fund does not redeem in kind under normal circumstances, but would do
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<PAGE>
so where the Adviser determines that it would be in the best interests of
the shareholders as a whole.
ADDITIONAL TAX INFORMATION
The following is a general summary of certain federal tax
considerations affecting the 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 be
applicable to them.
General
-------
The Fund intends to continue to qualify for treatment as a
regulated investment company ("RIC") under the Internal Revenue Code of
1986, as amended ("Code"). In order to continue to qualify for that
treatment, the Fund must distribute annually to its shareholders at least
90% of its investment company taxable income (generally, net investment
income plus any net short-term capital gain and any net gains from
certain foreign currency transactions) ("Distribution Requirement") and
must meet several additional requirements. 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) derived
with respect to its business of investing in securities or those
currencies ("Income Requirement"); (2) the Fund must derive less than 30%
of its gross income each taxable year from the sale or other disposition
of securities or options, or foreign currencies that are not directly
related to the Fund's principal business of investing in securities (or
options with respect thereto) that were held for less than three months
("Short-Short Limitation"); (3) 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 that does not represent more than 10%
of the issuer's outstanding voting securities; and (4) 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.
The 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.
Dividends and interest received by the Fund may be subject to
income, withholding or other taxes imposed by foreign countries and U.S.
possessions that would reduce the yield on the Fund's securities. Tax
conventions between certain countries and the United States may reduce or
eliminate these foreign taxes, however, and many foreign countries do not
12
<PAGE>
impose taxes on capital gains in respect of investments by foreign
investors.
Passive Foreign Investment Companies
------------------------------------
The Fund may invest in the stock of "passive foreign investment
companies" ("PFICs"). A PFIC is a foreign corporation 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,
the 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 disposi-
tion of that stock (collectively "PFIC income"), plus interest thereon,
even if the Fund distributes the PFIC income as a taxable dividend to its
shareholders. The balance of the PFIC income will be included in the
Fund's investment company taxable income and, accordingly, will not be
taxable to it to the extent that income is distributed to its
shareholders. If the Fund invests in a PFIC and elects to treat the PFIC
as a "qualified electing fund," then in lieu of the foregoing tax and
interest obligation, the Fund will be required to include in income each
year its pro rata share of the qualified electing fund's annual ordinary
earnings and net capital gain (the excess of net long-term capital gain
over net short-term capital loss), even if they are not distributed to the
Fund; those amounts probably would have to be distributed to satisfy the
Distribution Requirement and avoid imposition of the Excise Tax. In most
instances it will be very difficult, if not impossible, to make this
election because of certain requirements thereof.
Pursuant to proposed regulations, open-end RICs, such as the
Fund, would be entitled to elect to "mark-to-market" their stock in
certain PFICs. "Marking-to-market," in this context, means recognizing as
gain for each taxable year the excess, as of the end of that year, of the
fair market value of each such PFIC's stock over the adjusted basis in
that stock (including mark-to-market gain for each prior year for which an
election was in effect).
Options and Currencies
----------------------
Income from foreign currencies (except certain gains therefrom
that may be excluded by future regulations), and income from transactions
in options derived by the Fund with respect to its business of investing
in securities or foreign currencies, will qualify as permissible income
under the Income Requirement. However, income from the disposition of
options will be subject to the Short-Short Limitation if they are held for
less than three months. Income from the disposition of foreign currencies
that are not directly related to the Fund's principal business of
investing in securities (or options with respect thereto), if any, also
13
<PAGE>
will be subject to the Short-Short Limitation if they are held for less
than three months.
Dividends and Other Distributions
---------------------------------
Dividends and other distributions declared by the Fund in
December of any year and payable to shareholders of record on a date in
that month will be deemed to have been paid by the Fund and received by
the shareholders on December 31 if the distributions are paid by the Fund
during the following January. Accordingly, those dividends and other
distributions will be taxed to shareholders for the year in which that
December 31 falls.
A portion of the dividends from 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 may not exceed the aggregate dividends received by the Fund for
the taxable year 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 alternative minimum tax.
Distributions of net capital gain made by the Fund do not qualify for the
dividends-received deduction.
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.
TAX-DEFERRED RETIREMENT PLANS
As noted in the Prospectus for Primary Shares, an investment in
those shares may be appropriate for IRAs, Keogh Plans, SEPs and other
qualified retirement plans. In general, income earned through the
investment of assets of those plans is not taxed to their beneficiaries
until the income is distributed to them. Primary Share investors who are
considering establishing such a plan should consult their attorneys or
other tax advisers with respect to individual tax questions. The option
of investing in these plans with respect to Primary Shares through regular
payroll deductions may be arranged with a Legg Mason or affiliated
investment executive and your employer. Additional information with
respect to these plans is available upon request from any Legg Mason or
affiliated investment executive.
Individual Retirement Account -- IRA
------------------------------------
Certain Primary Share investors may obtain tax advantages by
establishing IRAs. Specifically, 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 and your adjusted
gross income does not exceed a certain level, 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. In
14
<PAGE>
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 $2,250 to the two IRAs, provided that the contribution to either does
not exceed $2,000. If you and your spouse are both employed and neither
of you is an active participant in a qualified employer or government
retirement plan and you establish separate IRAs, you each may contribute
all of your earned income, up to $2,000 each, and thus may together
receive tax deductions of up to $4,000 for contributions to your IRAs. If
your employer's plan 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
Shares through 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
distributed, or start to be distributed, to you not later than the end of
the taxable year in which you attain age 70-1/2. Distributions made
before age 59-1/2, in addition to being taxable, generally are subject to
a penalty equal to 10% of the distribution, except in the case of death or
disability or where the distribution is rolled over into another qualified
plan or certain other situations.
Self-Employed Individual Retirement Plan -- Keogh Plan
------------------------------------------------------
Legg Mason makes available to self-employed individuals a Plan
and Trustee Agreement for a Keogh Plan through which Primary Shares may be
purchased. Primary Share investors have the right to use a bank of your
own choice to provide these services at your own cost. There are
penalties for distributions from a Keogh Plan prior to age 59-1/2, except
in the case of death or disability.
15
<PAGE>
Simplified Employee Pension Plan -- SEP
---------------------------------------
Legg Mason makes available to corporate and other employers a SEP
for investment in Fund shares.
Withholding at the rate of 20% is required for federal income tax
purposes on certain distributions (excluding, for example, certain
periodic payments) from the foregoing retirement plans (except IRAs and
SEPs), unless the recipient transfers the distribution directly to an
"eligible retirement plan" (including IRAs and other qualified plans) that
accepts those distributions. Other distributions generally are subject to
regular wage withholding or 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.
16
<PAGE>
PERFORMANCE INFORMATION
The following table shows the value, as of the end of each fiscal
year, of a hypothetical investment of $10,000 made at the Fund's
commencement of operations (Primary Shares) on September 1, 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
Primary 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 effect of any income tax that an investor would have to pay on
distributions.
Value of Original
Shares Plus Shares Value of Shares
Obtained Through Acquired Through
Fiscal Reinvestment of Capital Reinvestment of
Year Gain Distributions Income Dividends Total Value
1994* $9,690 $ 24 $9,714
1995 10,180 140 10,320
* September 1, 1993 (commencement of operations) to March 31, 1994.
If the investor had not reinvested dividends and other
distributions, the total value of the hypothetical investment as of March
31, 1995 would have been $10,180, and the investor would have received a
total of $135 in distributions. If the Adviser had not waived or
reimbursed certain Fund expenses in the 1994 and 1995 fiscal years,
returns would have been lower.
The table above is based only on Primary Shares of the Fund. As
of the date of this Statement of Additional Information, Navigator Shares
have no performance history of their own.
Total Return Calculations
-------------------------
Average annual total return quotes used in the Fund's advertising
and other promotional materials ("Performance Advertisements") are
calculated separately for each class according to the following formula:
17
<PAGE>
n
P(1+T) = ERV
where: P = a hypothetical initial payment of
$1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a
hypothetical $1,000 payment made at
the beginning of that period.
Under the foregoing formula, the time periods used in Performance
Advertisements will be based on rolling calendar quarters, updated at
least to the last day of the most recent quarter prior to submission of
the Performance Advertisements for publication. Total return, or "T" in
the formula above, is computed by finding the average annual change in the
value of an initial $1,000 investment over the period. In calculating the
ending redeemable value, all dividends and other distributions by the Fund
are assumed to have been reinvested at net asset value on the reinvestment
dates during the period.
From time to time the Fund may compare the performance of a class
of shares in advertising and sales literature to the performance of other
investment companies, groups of investment companies or various market
indices. One such market index is the S&P 500, a widely recognized,
unmanaged index composed of the capitalization-weighted average of the
prices of 500 of the largest publicly traded stocks in the U.S. The S&P
500 includes reinvestment of all dividends. It takes no account of the
costs of investing or the tax consequences of distributions. The Fund may
invest in securities that are not included in the S&P 500.
The Fund may also cite rankings and ratings, and compare the
return of a class with data published by Lipper Analytical Services, Inc.
("Lipper"), CDS Investment Technologies, Inc., Wiesenberger Investment
Company Services, Value Line, Morningstar, and other services or
publications that monitor, compare and/or rank the performance of
investment companies. The Fund may also refer in such materials to mutual
fund performance rankings, ratings, comparisons with funds having similar
investment objectives, and other data, such as comparative asset, expense
and fee levels, published by Lipper and other organizations. Fund
advertisements may also refer to information about the Fund and other
mutual funds reported in independent periodicals, including, but not
limited to, FINANCIAL WORLD, MONEY Magazine, FORBES, BUSINESS WEEK,
BARRON'S, FORTUNE, THE KIPLINGER LETTERS, THE WALL STREET JOURNAL, and THE
NEW YORK TIMES.
The Fund may compare the investment return of a class to the
return on certificates of deposit and other forms of bank deposits, and
may quote from organizations that track the rates offered on such
deposits. Bank deposits are insured by an agency of the federal
government up to specified limits. In contrast, Fund shares are not
insured, the value of Fund shares may fluctuate, and an investor's shares,
when redeemed, may be worth more or less than the investor originally paid
for them. Unlike the interest paid on many certificates of deposit, which
18
<PAGE>
remains at a specified rate for a specified period of time, the return of
each class of shares will vary.
Fund advertisements may reference the history of the distributor
and its affiliates, the education and experience of the portfolio manager,
and the portfolio manager's philosophy and style of investing. They may
also refer to Legg Mason's general philosophy of value investing. With
value investing, the Fund 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. The Adviser 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, the 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.
The Fund may use other recognized sources as they become available.
The Fund may use data prepared by Ibbotson Associates of Chicago,
Illinois ("Ibbotson") to compare the returns of various capital markets
and to show the value of a hypothetical investment in a capital market.
Ibbotson relies on different indices to calculate the performance of
common stocks, corporate and government bonds and Treasury bills.
The 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.
The Fund may also include in advertising biographical information
on key investment and managerial personnel.
The 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 low price levels.
19
<PAGE>
The Fund may discuss Legg Mason's tradition of service. Since
1899, Legg Mason and its affiliated companies have helped investors meet
their specific investment goals and have provided a full spectrum of
financial services. Legg Mason affiliates serve as investment advisers
for private accounts and mutual funds with assets of more than $17 billion
as of March 31, 1995.
In advertising, the Fund may discuss the advantages of saving
through tax-deferred retirement plans or accounts, including the
advantages and disadvantages of "rolling over" a distribution from a
retirement plan into an IRA, factors to consider in determining whether
you qualify for such a rollover, and the other options available. These
discussions may include graphs or other illustrations that compare the
growth of a hypothetical tax-deferred investment to the after-tax growth
of a taxable investment.
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 that 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, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving, and Christmas. As described in
the Prospectus, securities owned by the Fund for which market quotations
are readily available are valued at current market value. Securities
traded on an exchange or NASD National Market System securities (including
debt 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. Short-term securities with
remaining maturities of less than 60 days are valued at amortized cost.
Foreign securities denominated in foreign currency generally are valued at
the U.S. dollar equivalents at the spot currency value as reported by a
major New York bank. All other securities are valued at fair value as
determined by or under the direction of the Fund's Board of Directors.
Premiums received on the sale of call options are included in the Fund's
net asset value, and the current market value of options sold by the Fund
will be subtracted from net assets.
THE TRUST'S DIRECTORS AND OFFICERS
The Trust's officers are responsible for the operation of the
Fund under the general supervision of the Board of Directors. The
officers and directors of the Trust 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 Trust as
defined by the 1940 Act. The business address of each officer and
director is 111 South Calvert Street, Baltimore, Maryland 21202, unless
otherwise indicated.
20
<PAGE>
JOHN F. CURLEY, JR.* [56], Chairman of the Board and Director;
Vice Chairman and Director of Legg Mason Wood Walker, Incorporated and
Legg Mason, Inc.; 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.; President
and Director of three Legg Mason funds; Chairman of the Board and Director
of three Legg Mason funds; Chairman of the Board, President and Trustee of
one Legg Mason fund; Chairman of the Board and Trustee ofone Legg Mason
fund.
RICHARD G. GILMORE [68], Director; 948 Kennett Way, West Chester,
Pennsylvania. Independent Consultant. Director of CSS Industries, Inc.
(diversified holding company whose subsidiaries are engaged in manufacture
and sale of decorative paper products, business forms, and specialty metal
packaging); Director of PECO Energy Company (formerly Philadelphia
Electric Company); Director of six Legg Mason funds; and Trustee of one
Legg Mason fund. 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.
CHARLES F. HAUGH [69], Director; 14201 Laurel Park Drive, Suite
104, Laurel, Maryland. Real Estate Developer and Investor; President and
Director of Resource Enterprises, Inc. (real estate brokerage); Chairman
of Resource Realty LLC (management of retail and office space); Partner in
Greater Laurel Health Park Ltd. Partnership (real estate investment and
development); Director of six Legg Mason funds; and Trustee of two Legg
Mason funds.
ARNOLD L. LEHMAN [51], Director; The Baltimore Museum of Art, Art
Museum Drive, Baltimore, Maryland. Director of the Baltimore Museum of
Art; Director of six Legg Mason funds; Trustee of two Legg Mason funds.
JILL E. McGOVERN [50], Director; 1500 Wilson Boulevard,
Arlington, Virginia. Chief Executive of the Marrow Foundation. Director
of six Legg Mason funds; Trustee of two Legg Mason funds. Formerly:
Executive Director of the Baltimore International Festival (January 1991
- March 1993); and Senior Assistant to the President of The Johns Hopkins
University (1986-1991).
T. A. RODGERS [60], Director; 2901 Boston Street, Baltimore,
Maryland. Principal, T. A. Rodgers & Associates (management consulting);
Director of six Legg Mason funds; Trustee of one Legg Mason fund.
Formerly: Director and Vice President of Corporate Development, Polk
Audio, Inc. (manufacturer of audio components).
21
<PAGE>
EDWARD A. TABER [51], III,* President and Director; Executive
Vice President of Legg Mason, Inc. and Legg Mason Wood Walker, Inc.; Vice
Chairman and Director of Legg Mason Fund Adviser, Inc.; Director of three
Legg Mason funds; President and Director of two Legg Mason funds; Trustee
of one Legg Mason fund; Vice President of Worldwide Value Fund, Inc.
Formerly: Executive Vice President of T. Rowe Price-Fleming
International, Inc. (1986-1992) and Director of the Taxable Fixed Income
Division at T. Rowe Price Associates, Inc. (1973-1992).
The executive officers of the Fund, other than those who also
serve as directors, are:
MARIE K. KARPINSKI* [46], Vice President and Treasurer; Treasurer
of the Adviser; Vice President and Treasurer of eight Legg Mason funds;
and Secretary/Treasurer of Worldwide Value Fund, Inc.; Vice President of
Legg Mason.
STEFANIE L. WONG* [27], Secretary; Secretary of one Legg Mason
fund; employee of Legg Mason since 1990.
BLANCHE P. ROCHE* [46], Assistant Secretary and Assistant Vice
President; Assistant Secretary and Assistant Vice President of seven Legg
Mason funds; employee of Legg Mason since 1991. Formerly: Manager of
Consumer Financial Services, Primerica Corporation (1989-1991).
Officers and directors of the Trust who are "interested persons"
of the Trust receive no salary or fees from the Trust. Each director of
the Trust who is not an interested person of the Trust ("Independent
Directors") receives a fee of $400 annually for serving as a director, and
a fee of $400 for each meeting of the Board of Directors attended by him
or her. On May 31, 1995, the directors and officers of the Fund
beneficially owned in the aggregate less than 1% of the Fund's outstanding
shares.
The Nominating Committee of the Board of Directors is responsible
for the selection and nomination of disinterested directors. The
Committee is composed of Messrs. Haugh, Gilmore, Lehman, Rodgers and Dr.
McGovern.
The following table provides certain information relating to the
compensation of the Trust's directors for the fiscal year ended March 31,
1995.
<TABLE>
<CAPTION>
COMPENSATION TABLE
------------------
<S> <C> <C> <C> <C>
22
<PAGE>
Total
Pension or Compen-
Retirement sation From
Benefits Estimated Trust and
Accrued as Annual Fund
Aggregate Part of Benefits Complex
Name of Person and Compensation Fund's Upon Paid to
Position From Trust* Expenses Retirement Directors**
John F. Curley, Jr.
Chairman of the None N/A N/A None
Board and Director
Edward A. Taber, III
President and None N/A N/A None
Director
Marie K. Karpinski
Vice President and
Treasurer None N/A N/A None
Richard G. Gilmore
Director $2,000 N/A N/A $21,600
Charles F. Haugh
Director $2,000 N/A N/A $23,600
Arnold L. Lehman
Director $2,000 N/A N/A $23,600
Jill E. McGovern
Director $2,000 N/A N/A $23,600
T. A. Rodgers
Director $2,000 N/A N/A $21,600
</TABLE>
23
<PAGE>
* Represents fees paid to each director during the fiscal year ended
March 31, 1995.
** Represents aggregate compensation paid to each director during the
calendar year ended December 31, 1994.
THE FUND'S MANAGER
The Manager, Legg Mason Fund Adviser, Inc., a Maryland
corporation, is located at 111 South Calvert Street, Baltimore, Maryland
21202. The Manager is a wholly owned subsidiary of Legg Mason, Inc.,
which also is the parent of Legg Mason Wood Walker, Incorporated. The
Manager serves as the Fund's investment adviser and manager under an
Investment Advisory and Management Agreement ("Management Agreement")
dated August 2, 1993. Continuation of the Management Agreement was most
recently approved by the Board of Directors on October 21, 1994. The
Management Agreement provides that, subject to overall direction by the
Board of Directors, the Manager manages the investment and other affairs
of the Fund. The Manager is responsible for managing the Fund consistent
with the Fund's investment objective and policies described in its
Prospectus and this Statement of Additional Information. The Manager also
is obligated to (a) furnish the Fund with office space and executive and
other personnel necessary for the operations of the Fund; (b) supervise
all aspects of the Fund's operations; (c) bear the expense of certain
informational and purchase and redemption services to the Fund's
shareholders; (d) arrange, but not pay for, the periodic updating of
prospectuses and the preparation of proxy material, tax returns and
reports to shareholders and state and federal regulatory agencies; and
(e) report regularly to the Trust's officers and directors. The Manager
and its affiliates pay all the compensation of directors and officers of
the Trust who are employees of the Manager or Adviser. The Fund pays all
its other expenses which are not expressly assumed by the Manager. The
Fund also is liable for such nonrecurring expenses as may arise, including
litigation to which the Fund may be a party. The Fund may also have an
obligation to indemnify its directors and officers with respect to
litigation.
As explained in the Fund's Prospectus, the Manager receives for
its services a management fee, calculated daily and payable monthly, at an
annual rate of 0.75% of the Fund's average daily net assets. The Manager
has agreed to waive its fees and to reimburse the Fund for its expenses
related to Primary Shares (exclusive of taxes, interest, brokerage and
extraordinary expenses) in excess of 1.95% of the Fund's average net
assets indefinitely. For the period September 1, 1993 (commencement of
operations) to March 31, 1994, the Manager paid management fees of
$188,619 (prior to fees waived of $82,244). For the fiscal year ended
March 31, 1995, the Manager paid management fees of $431,577 (prior to
fees waived of $94,444). With respect to Navigator Shares, the Manager
has agreed to waive its fees and to reimburse the Fund for its expenses
related to Navigator Shares (exclusive of taxes, interest, brokerage and
extraordinary expenses) in excess of 0.95% of the Fund's average daily net
assets indefinitely.
24
<PAGE>
Under the Management Agreement, the Manager 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 Management 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 under the Agreement.
The Management Agreement terminates automatically upon assignment
by the Manager. It also is terminable at any time without penalty by vote
of the Trust's Board of Directors, by vote of a majority of the Fund's
outstanding voting securities, or by the Manager, 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.
Under the Management Agreement, the 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 the Manager.
THE FUND'S INVESTMENT ADVISER
The Adviser, Legg Mason Capital Management, Inc., 111 South
Calvert Street, Baltimore, MD 21202, an affiliate of Legg Mason, serves as
investment adviser to the Fund pursuant to an Investment Advisory
Agreement dated August 2, 1993, between the Adviser and the Manager
("Advisory Agreement"). The Advisory Agreement was most recently approved
by the Board of Directors, including a majority of the directors who are
not "interested persons" (as that term is defined in the 1940 Act) of the
Trust, the Adviser or the Manager, on October 21, 1994. The Advisory
Agreement was approved by Legg Mason Fund Adviser, Inc., as the Fund's
sole shareholder, on August 2, 1993.
Under the Advisory Agreement, the Adviser is responsible, subject
to the general supervision of the Manager and the Trust's Board of
Directors, for the actual management of the Fund's assets, including
responsibility for making decisions and placing orders to buy, sell or
hold a particular security. For the Adviser's services to the Fund, the
Manager (not the Fund) pays the Adviser a fee, computed daily and payable
monthly, at an annual rate equal to 40% of the fee received by the Manager
from the Fund. For the period September 1, 1993 (commencement of
operations) to March 31, 1994, the Manager paid $42,550 to the Adviser on
behalf of the Fund. For the fiscal year ended March 31, 1995, the Manager
paid $134,853 to the Adviser on behalf of the Fund.
Under the Advisory Agreement, 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 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
25
<PAGE>
performance of its duties or from reckless disregard by it of its
obligations or duties thereunder.
The Advisory Agreement terminates automatically upon assignment
and is terminable at any time without penalty by vote of the
Corporations's Board of Directors, by vote of a majority of the Fund's
outstanding voting securities, by the Manager or by the Adviser, on not
less than 60 days' notice to the Fund and/or the other party(ies). The
Advisory Agreement terminates immediately upon any termination of the
Management Agreement or upon the mutual written consent of the Adviser,
the Manager and the Fund.
THE FUND'S DISTRIBUTOR
Legg Mason acts as distributor of the Fund's shares pursuant to
an Underwriting Agreement with the Trust. The Underwriting Agreement
obligates Legg Mason to promote the sale of Fund shares and to pay certain
expenses in connection with its distribution efforts, including expenses
for 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 the Fund's expense) and for supplementary sales
literature and advertising costs.
Fairfield Group, Inc., a wholly owned subsidiary of Legg Mason,
Inc., with principal offices at 200 Gibraltar Road, Horsham, Pennsylvania,
may act as a dealer for Navigator Shares pursuant to a Dealer Agreement
with Legg Mason. Neither Legg Mason nor Fairfield receives any
compensation from the Fund for its activities in selling Navigator Shares.
The Fund has adopted a Distribution and Shareholder Services Plan
("Plan") which, among other things, permits the Fund to pay Legg Mason
fees for its services related to sales and distribution of Primary Shares
and the provision of ongoing services to Primary Class shareholders.
Payments are made only from assets attributable to Primary Shares. Under
the Plan, the aggregate fees may not exceed an annual rate of 1.00% of the
Fund's average daily net assets attributable to Primary 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 Primary Shares only.
Continuation of the Plan was most recently approved by the
Trust's Board of Directors, including a majority of the directors who are
not interested persons of the Fund and who have no direct or indirect
financial interest in the operation of the Plan or any related agreements
("12b-1 Directors"), on October 21, 1994. The Plan was approved by Legg
Mason Fund Adviser, Inc., as sole shareholder of the Fund, on August 2,
1993.
26
<PAGE>
The Plan makes clear that, of the aggregate 1.00% fees, 0.75% is
paid for distribution services and 0.25% is paid for ongoing services to
shareholders. The Plan also specifies that the Fund may not pay more in
cumulative distribution fees than 6.25% of total new gross assets
attributable to Primary Shares, plus interest, as specified in the Rules
of Fair Practice of the National Association of Securities Dealers, Inc.
("NASD"). Legg Mason may pay all or a portion of the fee to its
investment executives.
In approving the Plan, in accordance with the requirements of
Rule 12b-1, the directors determined that there was a reasonable
likelihood that the Plan would benefit the Fund and its Primary Class
shareholders. The directors considered, among other things, the extent to
which the potential benefits of the Plan to the Fund's Primary Class
shareholders outweighed 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 Shares
would be likely to maintain or increase the amount of compensation paid by
the Fund to its Manager.
In considering the costs of the Plan, the directors gave
particular attention to the fact that any payments made by the Fund to
Legg Mason under the Plan would increase the Fund's level of expenses in
the amount of such payments. Further, the directors recognized that the
Manager would earn greater management fees if the Fund's assets were
increased, because such fees are calculated as a percentage of the 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 the Plan were
implemented.
Among the potential benefits of the Plan, 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 the Fund's Primary Shares and to maintain and enhance the
level of services they provide to the Fund's Primary Class shareholders.
These efforts, in turn, could lead to increased sales and reduced
redemptions, eventually enabling the Fund to achieve economies of scale
and lower per share operating expenses. Any reduction in such expenses
would serve to offset, in whole or in part, the additional expenses
incurred by the Fund in connection with the Plan. Furthermore, the
investment management of the Fund could be enhanced, as net inflows of
cash from new sales might enable its portfolio 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.
The Plan will continue in effect only so long as it is approved
at least annually by the vote of a majority of the Board of Directors,
including a majority of the 12b-1 Directors, cast in person at a meeting
called for the purpose of voting on the Plan. The Plan may be terminated
with respect to the Fund by a vote of a majority of 12b-1 Directors or by
27
<PAGE>
vote of a majority of the outstanding voting securities of Primary Shares
of the Fund. Any change in the Plan that would materially increase the
distribution costs to the Fund requires shareholder approval; otherwise,
the Plan may be amended by the directors, including a majority of the 12b-
1 Directors.
In accordance with Rule 12b-1, the Plan provides that Legg Mason
will submit to the Trust's Board of Directors, and the directors will
review at least quarterly, a written report of any amounts expended
pursuant to the Plan and the purposes for which such expenditures were
made. In addition, as long as the Plan is in effect, the selection and
nomination of the Independent Directors will be committed to the
discretion of such Independent Directors.
For the fiscal years ended March 31, 1994 and 1995, the Fund paid
Legg Mason $251,492 and $575,436, respectively, in fees under the Plan.
During the same period, Legg Mason incurred the following expenses with
respect to the Fund:
Compensation to sales personnel $405,000
Advertising 76,000
Printing and mailing of prospectuses to
prospective shareholders 40,000
Other 626,000
---------
Total expenses $1,147,000
==============
The foregoing are estimated and do not include all expenses
fairly allocable to Legg Mason's or its affiliates' efforts to distribute
Primary Shares.
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 period September 1, 1993 (commencement of
operations) to March 31, 1994 and the fiscal year ended March 31, 1995,
the Fund's annualized portfolio turnover rates were 21.0% and 30.5%,
respectively.
Under the Advisory Agreement, the Adviser is responsible for the
execution of the Fund's portfolio transactions and must seek the most
favorable price and execution for such transactions, subject to the
possible payment, as described below, of higher brokerage commissions or
spreads to brokers who provide research and analysis. The Fund may not
always pay the lowest commission or spread available. Rather, the
Adviser also will take into account such factors as size of the order,
difficulty of execution, efficiency of the executing broker's facilities,
28
<PAGE>
including the services described below, and any risk assumed by the
executing broker.
Consistent with the policy of most favorable price and execution,
the Adviser may give consideration to research, statistical and other
services furnished by brokers or dealers to the Adviser for its use, may
place orders with brokers who provide supplemental investment and market
research and securities and economic analysis and may pay to those brokers
a higher brokerage commission than may be charged by other brokers. 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 the Adviser in connection with services to clients other than
the Fund. The Adviser's fee is not reduced by reason of its receiving
such brokerage and research services.
From time to time, the 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." The Adviser also selects other brokers to
execute portfolio transactions. In the over-the-counter market, the Fund
generally deals with responsible primary market-makers unless the Adviser
believes a more favorable execution can otherwise be obtained. For the
period September 1, 1993 (commencement of operations) to March 31, 1994
and the fiscal year ended March 31, 1995, the Fund paid total brokerage
commissions of $75,165 and 61,067, respectively. Legg Mason received no
brokerage commissions from the Fund for the same periods.
Except as permitted by SEC rules or orders, the Fund may not buy
securities from, or sell securities to, Legg Mason or its affiliated
persons as principal. The Trust's Board of Directors has adopted
procedures in conformity with Rule 10f-3 under the 1940 Act whereby the
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: (i) the Fund together with all other registered investment companies
advised by the Adviser, may not purchase more than 4% of the principal
amount of the offering of such class or $500,000 in principal amount,
whichever is greater, but in no event greater than 10% of the principal
amount of the offering; and (ii) the consideration to be paid by the Fund
in purchasing the securities being offered may not exceed 3% of the total
assets of the Fund. In addition, the Fund may not purchase securities
during the existence of an underwriting if Legg Mason is the sole
underwriter of those securities.
29
<PAGE>
Section 11(a) of the Securities Exchange Act of 1934 prohibits
Legg Mason from effecting transactions on an exchange for its affiliates,
such as the Fund, unless the affiliate expressly consents by written
contract. The Management and Advisory Agreements expressly provide such
consent.
Among the brokers regularly used by the Fund during the fiscal
year ended March 31, 1995, the Fund at that date owned 25,000 shares of
the following parent company: J. P. Morgan & Co. Incorporated at a market
value of $1,525,000.
Investment decisions for the Fund are made independently from
those of other funds and accounts advised by the Adviser. However, the
same security may be held in the portfolios of more than one fund or
account. When two or more accounts simultaneously engage in the purchase
or sale of the same security, the prices and amounts will be equitably
allocated to each account. In some cases, this procedure may adversely
affect the price or quantity of the security available to a particular
account. In other cases, however, an account's ability to participate in
large-volume transactions may produce better executions and prices.
THE TRUST'S CUSTODIAN AND
TRANSFER AND DIVIDEND-DISBURSING AGENT
State Street Bank and Trust Company, P.O. Box 1713, Boston,
Massachusetts 02105, serves as custodian of the Fund's assets. BFDS,
P.O. Box 953, Boston, Massachusetts, serves as transfer and dividend-
disbursing agent, and administrator of various shareholder services. Legg
Mason also assists BFDS with certain of its duties as transfer agent for
which BFDS pays Legg Mason a fee. Shareholders who request an historical
transcript of their account will be charged a fee based on the number of
years researched. The Fund reserves the right, upon 60 days' written
notice, to make other charges to investors to cover administrative costs.
30
<PAGE>
THE TRUST'S LEGAL COUNSEL
Kirkpatrick & Lockhart LLP, 1800 M Street, N.W., Washington, D.C.
20036, serves as counsel to the Fund.
THE TRUST'S INDEPENDENT AUDITORS
Ernst & Young LLP, has been selected by the Fund to serve as the
Fund's independent auditors.
FINANCIAL STATEMENTS
The Statement of Net Assets as of March 31, 1995; the Statement
of Operations for the year ended March 31, 1995, the Statement of Changes
in Net Assets for the period September 1, 1993 (commencement of
operations) to March 31, 1994 and for the fiscal year ended March 31,
1995; the Financial Highlights for all periods; the Notes to Financial
Statements and the Report of the Independent Auditors, all of which are
included in the Fund's annual report for the year ended March 31, 1995,
are hereby incorporated by reference in this Statement of Additional
Information.
31
<PAGE>
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 exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa-Bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what are
generally known as high-grade bonds. They are rated lower than the best
bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-term
risks appear somewhat larger than in Aaa securities.
A-Bonds which are rated A possess many favorable investment
attributes and are to be considered upper-medium grade obligations.
Factors giving security to principal and interest are considered adequate
but elements may be present which suggest a susceptibility to impairment
sometime in the future.
Description of Standard & Poor's Ratings Group corporate bond ratings:
AAA-This is the highest rating assigned by Standard & Poor's to
an obligation and indicates an extremely strong capacity/to pay principal
and interest.
AA-Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority
of instances they differ from AAA issues only in small degree.
A-Bonds rated A have a strong capacity to pay principal and
interest, although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions.
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
stock.
aa-An issue which is rated "aa" is considered a high-grade
preferred stock. This rating indicates that there is a reasonable
assurance that earnings and asset protection will remain relatively well
maintained in the foreseeable future.
32
<PAGE>
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.
33
<PAGE>
Legg Mason Investors Trust, Inc.
Part C. Other Information
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements: The financial statements of the
Fund for the year ended March 31, 1995 and the report of
the independent auditors thereon are incorporated into
the Statement of Additional Information by reference to
the Annual Report to Shareholders for the same period.
(b) Exhibits
(1) (a) Articles of Incorporation 1/
(b) Articles Supplementary -- filed herewith
(2) By-Laws as amended July 19, 1993 3/
(3) Voting trust agreement -- none
(4) Specimen security 3/
(5) (a) Investment Advisory and Management
Agreement 4/
(b) Advisory Agreement 4/
(6) Underwriting Agreement 4/
(7) Bonus, profit sharing or pension plans -- none
(8) Form of Custodian Agreement -- filed herewith
(9) Form of Transfer Agency Agreement -- filed
herewith
(10) Opinion and consent of counsel 4/
(11) Other opinions, appraisals, rulings and consents
--Accountants' consent -- filed herewith
(12) Financial statements omitted from Item 23 --
none
(13) Agreement for providing initial capital 3/
(14) (a) Prototype Retirement Plan 2/
(b) Prototype corporate Simplified Employee
Pension Plan 2/
(c) Prototype Keogh Plan 2/
(15) Plan pursuant to Rule 12b-1 4/
(16) Schedule for computation of performance
quotations -- filed herewith
(17) Financial Data Schedule -- filed herewith
(18) Copies of Plans Pursuant to Rule 18f-3 -- none
-----------------
1/ Incorporated by reference from the initial registration statement, SEC
File No. 33-62174, filed May 5, 1993.
2/ Incorporated by reference from the corresponding exhibit of Post-
Effective Amendment No. 8 to the registration statement of Legg Mason
Income Trust, Inc., SEC File No. 33-12092, filed April 28, 1991.
<PAGE>
3/ Incorporated by reference from Pre-Effective Amendment No. 1 to the
registration statement, SEC File No. 33-62174, filed July 30, 1993.
4/ Incorporated by reference from the corresponding exhibit of Pre-
Effective Amendment No. 2 to the registration statement, SEC File No. 33-
62174, filed August 4, 1993.
<PAGE>
Item 25. Persons Controlled by or under Common Control with Registrant
-------------------------------------------------------------
None.
Item 26. Number of Holders of Securities
-------------------------------
Number of Recordholders
Title of Class (as of May 31, 1995)
------------- -----------------------
Capital Stock
par value $.001
Legg Mason American Leading
Companies Trust--Primary Shares 7,054
Navigator American Leading Companies
Trust 0
Item 27. Indemnification
---------------
This item is incorporated by reference from Item 27 of
Part C of Post-Effective Amendment No. 1 to the registration statement,
SEC File No. 33-62174, filed February 15, 1994.
Item 28. Business and other Connections of Investment Adviser and
Subadviser
--------------------------------------------------------
Legg Mason Fund Adviser, Inc. ("Manager"), the Registrant's
Manager, is a registered investment adviser incorporated on
January 20, 1982. The Manager is engaged primarily in the
investment advisory business. It serves as manager and
investment adviser to fourteen open-end investment companies
or portfolios and as investment consultant for one closed-end
investment company. Information as to the officers and
directors of the Manager is included in its Form ADV filed
June 30, 1994 with the Securities and Exchange Commission
(Registration Number 801-16958) and is incorporated herein by
reference.
Legg Mason Capital Management, Inc. ("Adviser"), the
Registrant's sub-adviser, is a registered investment adviser
incorporated on October 4, 1982. Information as to the
officers and directors of the Adviser is included in its Form
ADV filed June 26, 1994 with the Securities and Exchange
Commission (Registration Number 801-18115) and is incorporated
herein by reference.
Item 29. Principal Underwriters
----------------------
(a) Legg Mason Value Trust, Inc.
Legg Mason Total Return Trust, Inc.
Legg Mason Special Investment Trust, Inc.
Legg Mason Tax-Exempt Trust, Inc.
<PAGE>
Legg Mason Cash Reserve Trust
Legg Mason Income Trust, Inc.
Legg Mason Global Trust, Inc.
Legg Mason Tax-Free Income Fund
Western Asset Trust, 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").
Position and Positions and
Name and Principal Offices with Offices with
Business Address* Underwriter - LMWW Registrant
------------------ ------------------- -------------
Raymond A. Mason Chairman of the None
Board
John F. Curley, Jr. Vice Chairman Chairman of the Board
and Director
James W. Brinkley President and None
Director
Edmund J. Cashman, Jr. Senior Executive None
Vice President and
Director
Richard J. Himelfarb Executive Vice None
President and
Director
James A. Flick Executive Vice None
President
Edward A. Taber, III Executive Vice President and
President Director
Charles A. Bacigalupo Senior Vice None
President,
Secretary and
Director
Horace M. Lowman, Jr. Senior Vice None
President,
Assistant
Secretary and
Director
Thomas M. Daly Senior Vice None
President and
Director
William F. Haneman, Jr. Senior Vice None
63 Wall Street President and
New York, New York 10005 Director
<PAGE>
Position and Positions and
Name and Principal Offices with Offices with
Business Address* Underwriter - LMWW Registrant
------------------ ------------------- -------------
Carl Hohnbaum Senior Vice None
24th Floor President and
Two Oliver Plaza Director
Pittsburgh, PA 15222
Graham Humes Senior Vice None
President and
Director
William B. Jones, Jr. Senior Vice None
1747 Pennsylvania President and
Avenue, N.W. Director
Washington, D.C. 20006
Ernest C. Kiehne Senior Vice None
President and
Director
Douglas C. Petty, Jr. Senior Vice None
1747 Pennsylvania President and
Avenue, N.W. Director
Washington, D.C. 20006
Mark I. Preston Senior Vice None
President and
Director
Robert G. Sabelhaus Senior Vice None
President and
Director
F. Barry Bilson Senior Vice None
President
Jerome M. Dattel Senior Vice None
President
Robert G. Donovan Senior Vice None
President
Harry M. Ford, Jr. Senior Vice None
President
Robert L. Meltzer Senior Vice None
63 Wall Street President
New York, NY 10005
William H. Miller, III Senior Vice None
President
Philip O. Rogers Senior Vice None
President
E. Robert Quasman Senior Vice None
President
Eileen M. O'Rourke Vice President None
and Controller
John C. Boblitz Vice President None
<PAGE>
Position and Positions and
Name and Principal Offices with Offices with
Business Address* Underwriter - LMWW Registrant
------------------ ------------------- -------------
David L. Farrington Vice President None
Daniel L. Foard Vice President None
C. Gregory Kallmyer Vice President None
Marie K. Karpinski Vice President Vice President
and Treasurer
Jonathan M. Pearl Vice President None
Victoria Schwatka Vice President None
Charles R. Spencer, Jr. Vice President None
2600 Washington Avenue
Newport News, VA 23607
Lewis T. Yeager Vice President None
John T. Rogers Group Vice None
President
Timothy C. Scheve Treasurer None
Thomas E. Hill Director None
One Mill Place
P.O. Drawer 100
Easton, MD 21701
Edward J. Maher Director None
123 South Broad St.
Philadelphia, PA 19109
Marvin McIntyre Director None
1747 Pennsylvania
Avenue, N.W.
Washington, D.C. 20006
George Strum Director None
1777 Reisterstown Road
Suite 165
Pikesville, MD 21208
----------------------
* All addresses are 111 South Calvert 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 30. Location of Accounts and Records
--------------------------------
State Street Bank and Trust Company
P.O. Box 1713
Boston, Massachusetts 02105-1713
<PAGE>
Item 31. Management Services
--------------------
None.
Item 32. Undertakings
-------------
Registrant hereby undertakes to provide each person to whom a
prospectus is delivered with a copy of its latest annual report to
shareholders upon request and without charge.
<PAGE>
SIGNATURE PAGE
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, Legg Mason Investors
Trust, Inc., has duly caused this Post-Effective Amendment No. 3 to its
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 15th day of June, 1995.
Legg Mason Investors Trust, Inc.
By:/s/ John F. Curley, Jr.
----------------------------------
John F. Curley, Jr.
Chairman of the Board and Director
Pursuant to the requirements of the Securities Act of
1933, this Post-Effective Amendment No. 3 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
----------------------- and Director June 15, 1995
John F. Curley, Jr.
/s/ Edward A. Taber, III President and June 15, 1995
------------------------ Director
Edward A. Taber, III
/s/ Charles F. Haugh Director June 15, 1995
------------------------
Charles F. Haugh*
/s/ Richard G. Gilmore Director June 15, 1995
------------------------
Richard G. Gilmore*
/s/ Arnold L. Lehman Director June 15, 1995
------------------------
Arnold L. Lehman*
/s/ Jill E. McGovern Director June 15, 1995
------------------------
Jill E. McGovern*
/s/ T.A. Rodgers Director June 15, 1995
------------------------
T. A. Rodgers*
/s/ Marie K. Karpinski Vice President June 15, 1995
------------------------ and Treasurer
Marie K. Karpinski
*Signatures affixed by Marie K. Karpinski pursuant to a power of attorney
dated May 14, 1993, incorporated by reference to Pre-Effective Amendment
No. 1, SEC File No. 33-62174, filed July 30, 1993.
<PAGE>
LEGG MASON INVESTORS TRUST, INC.
EXHIBIT INDEX
-------------
Exhibit
Number Page
------- ----
(1) (a) Articles of Incorporation 1/
(b) Articles Supplementary--filed herewith
(2) By-Laws as amended July 19, 1993 3/
(3) Voting trust agreement -- none
(4) Specimen security 3/
(5) (a) Investment Advisory and Management Agreement 4/
(b) Advisory Agreement 4/
(6) Underwriting Agreement 4/
(7) Bonus, profit sharing or pension plans -- none
(8) Form of Custodian Agreement -- filed herewith
(9) Form of Transfer Agent Agreement -- filed herewith
(10) Opinion of counsel 4/
(11) Other opinions, appraisals, rulings and consents -
Accountants' Consent -- filed herewith
(12) Financial statements omitted from Item 23 -- none
(13) Agreement for providing initial capital 3/
(14) (a) Prototype IRA Plan 2/
(b) Prototype corporate Simplified Employee
Pension Plan 2/
(c) Prototype Keogh Plan 2/
(15) Plan pursuant to Rule 12b-1 4/
(16) Schedule for computation of performance quotations -- filed
herewith
(17) Financial Data Schedule -- filed herewith
(18) Copies of Plans Pursuant to Rule 18f-3 -- none
------------------
1/ Incorporated by reference from the initial registration statement, SEC
File No. 33-62174, filed May 5, 1993.
2/ Incorporated by reference from the corresponding exhibit of Post-
Effective Amendment No. 8 to the registration statement of Legg Mason
Income Trust, Inc., SEC File No. 33-12092, filed April 28, 1991.
3/ Incorporated by reference from Pre-Effective Amendment No. 1 to the
registration statement, SEC File No. 33-62174, filed July 30, 1993.
4/ Incorporated by reference from the corresponding exhibit of Pre-
Effective Amendment No. 2 to the registration statement, SEC File No. 33-
62174, filed August 4, 1993.
<PAGE>
ARTICLES SUPPLEMENTARY
TO
ARTICLES OF INCORPORATION
OF
LEGG MASON INVESTORS TRUST, INC.
FIRST: The Board of Directors ("Board") of Legg Mason Investors
Trust, Inc., a Maryland Corporation ("Corporation") organized on May 5,
1993, has, by action on May 13, 1994, designated or reclassified five
hundred million (500,000,000) shares of capital stock of the Corporation.
Of the one billion (1,000,000,000) shares of capital stock that the
Corporation has authority to issue:
(1) two hundred fifty million (250,000,000) shares, which were
previously classified as Legg Mason American Leading Companies Trust,
including all of those outstanding at the time these Articles become
effective, have been designated as shares of the Legg Mason American
Leading Companies Trust, Class A;
(2) two hundred fifty million (250,000,000) shares, which were
previously classified as shares of the Legg Mason American Leading
Companies Trust, have been reclassified as shares of Legg Mason American
Leading Companies Trust, Class Y;
(3) the remaining five hundred million (500,000,000) authorized
shares, which were previously unclassified, remain unclassified.
The par value of the shares of capital stock of the Corporation
remains one tenth of one cent ($0.001) per share. Before the designation
and reclassification described herein, the aggregate par value of all of
the authorized shares was one million (1,000,000) dollars and so remains.
The Class A and Class Y shares shall represent investment in the
same pool of assets and shall have the same preferences, conversion and
other rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption, except as provided
in the Corporation's Articles of Incorporation and as set forth below:
(1) The net asset values of Class A shares and Class Y shares
shall be calculated separately. In calculating the net asset
values,
(a) Each class shall be charged with the transfer
agency fees and Rule 12b-1 fees (or equivalent fees by
any other name) attributable to that class, and not with
the transfer agency fees and Rule 12b-1 fees (or
equivalent fees by any other name) attributable to any
other class;
(b) Each class shall be charged separately with such
other expenses as may be permitted by SEC rule or order
and as the board of directors shall deem appropriate;
- 1 -
<PAGE>
(c) All other fees and expenses shall be charged to
both classes, in the proportion that the net asset value
of that class bears to the net asset value of the series
Legg Mason American Leading Companies Trust, except as
the Securities and Exchange Commission may otherwise
require;
(2) Dividends and other distributions shall be paid on Class
A shares and Class Y shares at the same time. The amounts of all
dividends and other distributions shall be calculated separately
for Class A shares and Class Y shares. In calculating the amount
of any dividend or other distribution,
(a) Each class shall be charged with the transfer
agency fees and Rule 12b-1 fees (or equivalent fees by
any other name) attributable to that class, and not with
the transfer agency fees and Rule 12b-1 fees (or
equivalent fees by any other name) attributable to any
other class;
(b) Each class shall be charged separately with such
other expenses as may be permitted by SEC rule or order
and as the board of directors shall deem appropriate;
(c) All other fees and expenses shall be charged to
both classes, in the proportion that the net asset value
of that class bears to the net asset value of the series
Legg Mason American Leading Companies Trust, except as
the Securities and Exchange Commission may otherwise
require;
(3) Each class shall vote separately on matters pertaining
only to that class, as the directors shall from time to time
determine. On all other matters, all classes shall vote
together, and every share, regardless of class, shall have an
equal vote with every other share.
SECOND: The Corporation is registered with the U.S. Securities
and Exchange Commission as an open-end investment company under the
Investment Company Act of 1940.
THIRD: The total number of shares of capital stock that the
Corporation has authority to issue remains unchanged.
FOURTH: The reclassification described herein was effected by the
Board of Directors of the Corporation pursuant to a power contained in
Sections 6.1 and 6.2 of the Corporation's Articles of Incorporation.
IN WITNESS WHEREOF, the undersigned President of Legg Mason
Investors Trust, Inc. hereby executes these Articles Supplementary on
behalf of the Corporation, and hereby acknowledges these Articles
Supplementary to be the act of the Corporation and further states under
the penalties for perjury that, to the best of his knowledge, information
- 2 -
<PAGE>
and belief, the matters and facts set forth herein are true in all
material respects.
Date: July ___, 1994 ____________________________
Edward A. Taber, III,
President
Attest: ____________________________
Secretary
Baltimore, Maryland (ss)
Subscribed and sworn to before me this ___ day of ________, 1994.
_________________________
Notary Public
- 3 -
<PAGE>
CUSTODIAN CONTRACT
Between
LEGG MASON INVESTORS TRUST
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
Page
1. Employment of Custodian and Property to be Held By
It................................................................1
2. Duties of the Custodian with Respect to Property
of the Fund Held by the Custodian in the United States............2
2.1 Holding Securities.................................2
2.2 Delivery of Securities.............................2
2.3 Registration of Securities.........................5
2.4 Bank Accounts......................................6
2.5 Availability of Federal Funds......................6
2.6 Collection of Income...............................6
2.7 Payment of Fund Monies.............................7
2.8 Liability for Payment in Advance of
Receipt of Securities Purchased....................9
2.9 Appointment of Agents..............................9
2.10 Deposit of Fund Assets in Securities System........9
2.10 A Fund Assets Held in the Custodian's Direct
Paper System......................................11
2.11 Segregated Account................................12
2.12 Ownership Certificates for Tax Purposes...........13
2.13 Proxies...........................................13
2.14 Communications Relating to Portfolio Securities...13
3. Duties of the Custodian with Respect to Property of
the Fund Held Outside of the United States.......................13
3.1 Appointment of Foreign Sub-Custodians.............13
3.2 Assets to be Held.................................14
3.3 Foreign Securities Depositories...................14
3.4 Agreements with Foreign Banking Institutions......14
3.5 Access of Independent Accountants of the Fund.....15
3.6 Reports by Custodian..............................15
3.7 Transactions in Foreign Custody Account...........15
3.8 Liability of Foreign Sub-Custodians...............16
3.9 Liability of Custodian............................16
3.10 Monitoring Responsibilities.......................17
3.11 Branches of U.S. Banks............................17
3.12 Tax Law...........................................18
4. Payments for Sales or Repurchase or Redemptions
of Shares of the Fund............................................18
5. Proper Instructions..............................................19
<PAGE>
6. Actions Permitted Without Express Authority......................19
7. Evidence of Authority............................................20
8. Duties of Custodian With Respect to the Books
of Account and Calculation of Net Asset Value
and Net Income...................................................20
9. Records..........................................................21
10. Opinion of Fund's Independent Accountants........................21
11. Reports to Fund by Independent Public Accountants................21
12. Compensation of Custodian........................................22
13. Responsibility of Custodian......................................22
14. Effective Period, Termination and Amendment......................24
15. Successor Custodian..............................................25
16. Interpretive and Additional Provisions...........................26
17. Additional Portfolios............................................26
18. Massachusetts Law to Apply.......................................27
19. Prior Contracts..................................................27
20. Shareholder Communications.......................................27
21. Miscellaneous....................................................28
<PAGE>
CUSTODIAN CONTRACT
This Contract between LEGG MASON INVESTORS TRUST, INC., a
corporation organized and existing under the laws of Maryland, having its
principal place of business at 111 South Calvert Street, Baltimore,
Maryland 21202, hereinafter called the "Fund", and State Street Bank and
Trust Company, a Massachusetts trust company, having its principal place
of business at 225 Franklin Street, Boston, Massachusetts, 02110,
hereinafter called the "Custodian",
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate series,
with each such series representing interests in a separate portfolio of
securities and other assets; and
WHEREAS, the Fund intends to initially offer shares in one series,
Legg Mason American Leading Companies Trust (such series together with all
other series subsequently established by the Fund and made subject to this
Contract in accordance with paragraph 17, being herein referred to as the
"Portfolio(s)");
NOW THEREFORE, in consideration of the mutual covenants and
agreements hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of the
assets of the Portfolios of the Fund, including securities which the Fund,
on behalf of the applicable Portfolio, desires to be held in places within
the United States ("domestic securities") and securities it desires to be
held outside the United States ("foreign securities") pursuant to the
provisions of this Contract. The Fund on behalf of the Portfolio(s)
agrees to deliver to the Custodian all securities, similar investments and
cash of the Portfolios, and all payments of income, payments of principal
or capital distributions received by it with respect to all securities
owned by the Portfolio(s) from time to time, and the cash consideration
received by it for such new or treasury shares of capital stock of the
Fund representing interests in the Portfolios, ("Shares") as may be issued
or sold from time to time. The Custodian shall not be responsible for any
property of a Portfolio held or received by the Portfolio and not
delivered to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of
Article 5), the Custodian shall on behalf of the applicable Portfolio(s)
from time to time employ one or more sub-custodians, located in the United
1
<PAGE>
States but only in accordance with an applicable vote by the Board of
Directors of the Fund on behalf of the applicable Portfolio(s), and
provided that the Custodian shall have no more or less responsibility or
liability to the Fund on account of any actions or omissions of any
sub-custodian so employed than any such sub-custodian has to the
Custodian; provided, however, that (a) the Custodian will be liable to the
Fund for the Custodian's own negligence in transmitting any instructions
received by it from the Fund and for the Custodian's own negligence in
connection with the delivery of any securities, cash or other assets held
by it to any sub-custodian and (b) in the event of any loss, damage or
expense suffered or incurred by the Fund caused by or resulting from
actions or omissions for which the Custodian would be liable pursuant to
this section, the Custodian shall promptly reimburse the Fund in the
amount of any such loss, damage or expense. The Custodian may employ as
sub-custodian for the Fund's foreign securities on behalf of the
applicable Portfolio(s) the foreign banking institutions and foreign
securities depositories designated in Schedule A hereto but only in
accordance with the provisions of Article 3. The Fund may instruct the
Custodian, through Proper Instructions, to cease the employment of any one
or more sub-custodians for maintaining custody of the Portfolio's assets,
and to cause the prompt delivery of such assets to another sub-custodian
acceptable to the Fund and the Custodian.
2. Duties of the Custodian with Respect to Property of the Fund Held
By the Custodian in the United States
2.1 Holding Securities. The Custodian shall hold and physically
segregate for the account of each Portfolio all non-cash property,
to be held by it in the United States including all domestic
securities owned by such Portfolio, other than (a) securities which
are maintained pursuant to Section 2.10 in a clearing agency which
acts as a securities depository or in a book-entry system
authorized by the U.S. Department of the Treasury, collectively
referred to herein as "Securities System" and (b) commercial paper
of an issuer for which State Street Bank and Trust Company acts as
issuing and paying agent ("Direct Paper") which is deposited and/or
maintained in the Direct Paper System of the Custodian pursuant to
Section 2.10A.
2.2 Delivery of Securities. The Custodian shall release and deliver
domestic securities owned by a Portfolio held by the Custodian or
in a Securities System account of the Custodian or in the
Custodian's Direct Paper book entry system account ("Direct Paper
System Account") only upon receipt of Proper Instructions from the
Fund on behalf of the applicable Portfolio, which may be continuing
instructions when deemed appropriate by the parties, and only in
the following cases:
2
<PAGE>
1) Upon sale of such securities for the account of the
Portfolio and receipt of payment therefor;
2) Upon the receipt of payment in connection with any
repurchase agreement related to such securities
entered into by the Portfolio;
3) In the case of a sale effected through a Securities
System, in accordance with the provisions of Section
2.10 hereof;
4) To the depository agent in connection with tender or
other similar offers for securities of the Portfolio;
5) To the issuer thereof or its agent when such
securities are called, redeemed, retired or otherwise
become payable; provided that, in any such case, the
cash or other consideration is to be delivered to the
Custodian;
6) To the issuer thereof, or its agent, for transfer into
the name of the Portfolio or into the name of any
nominee or nominees of the Custodian or into the name
or nominee name of any agent appointed pursuant to
Section 2.9 or into the name or nominee name of any
sub-custodian appointed pursuant to Article 1; or for
exchange for a different number of bonds, certificates
or other evidence representing the same aggregate face
amount or number of units; provided that, in any such
case, the new securities are to be delivered to the
Custodian;
7) Upon the sale of such securities for the account of
the Portfolio, to the broker or its clearing agent,
against a receipt, for examination in accordance with
"street delivery" custom; provided that in any such
case, the Custodian shall have no responsibility or
liability for any loss arising from the delivery of
such securities prior to receiving payment for such
securities except as may arise from the Custodian's
own negligence or willful misfeasance;
8) For exchange or conversion pursuant to any plan of
merger, consolidation, recapitalization,
reorganization or readjustment of the securities of
the issuer of such securities, or pursuant to
provisions for conversion contained in such
securities, or pursuant to any deposit agreement;
3
<PAGE>
provided that, in any such case, the new securities
and cash, if any, are to be delivered to the
Custodian;
9) In the case of warrants, rights or similar securities,
the surrender thereof in the exercise of such
warrants, rights or similar securities or the
surrender of interim receipts or temporary securities
for definitive securities; provided that, in any such
case, the new securities and cash, if any, are to be
delivered to the Custodian;
10) For delivery in connection with any loans of
securities made by the Portfolio, but only against
receipt of adequate collateral as agreed upon from
time to time by the Custodian and the Fund on behalf
of the Portfolio, which may be in the form of cash or
obligations issued by the United States government,
its agencies or instrumentalities, except that in
connection with any loans for which collateral is to
be credited to the Custodian's account in the
book-entry system authorized by the U.S. Department of
the Treasury, the Custodian will not be held liable or
responsible for the delivery of securities owned by
the Portfolio prior to the receipt of such collateral;
11) For delivery as security in connection with any
borrowings by the Fund on behalf of the Portfolio
requiring a pledge of assets by the Fund on behalf of
the Portfolio, but only against receipt of amounts
borrowed;
12) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio,
the Custodian and a broker-dealer registered under the
Securities Exchange Act of 1934, as amended (the
"Exchange Act") and a member of The National
Association of Securities Dealers, Inc. ("NASD"),
relating to compliance with the rules of The Options
Clearing Corporation and of any registered national
securities exchange, or of any similar organization or
organizations, regarding escrow or other arrangements
in connection with transactions by the Portfolio of
the Fund;
13) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio,
the Custodian, and a Futures Commission Merchant
4
<PAGE>
registered under the Commodity Exchange Act, relating
to compliance with the rules of the Commodity Futures
Trading Commission and/or any Contract Market, or any
similar organization or organizations, regarding
account deposits in connection with transactions by
the Portfolio of the Fund;
14) Upon receipt of instructions from the transfer agent
("Transfer Agent") for the Fund, for delivery to such
Transfer Agent or to the holders of shares in
connection with distributions in kind, as may be
described from time to time in the currently effective
prospectus and statement of additional information of
the Fund, related to the Portfolio ("Prospectus"), in
satisfaction of requests by holders of Shares for
repurchase or redemption; and
15) For any other proper corporate purpose, but only upon
receipt of, in addition to Proper Instructions from
the Fund on behalf of the applicable Portfolio, a
certified copy of a resolution of the Board of
Directors or of the Executive Committee signed by an
officer of the Fund and certified by the Secretary or
an Assistant Secretary, specifying the securities of
the Portfolio to be delivered, setting forth the
purpose for which such delivery is to be made,
declaring such purpose to be a proper corporate
purpose, and naming the person or persons to whom
delivery of such securities shall be made.
2.3 Registration of Securities. Domestic securities held by the
Custodian (other than bearer securities) shall be registered in the
name of the Portfolio or in the name of any nominee of the Fund on
behalf of the Portfolio or of any nominee of the Custodian which
nominee shall be assigned exclusively to the Portfolio, unless the
Fund has authorized in writing the appointment of a nominee to be
used in common with other registered investment companies having
the same investment adviser as the Portfolio, or in the name or
nominee name of any agent appointed pursuant to Section 2.9 or in
the name or nominee name of any sub-custodian appointed pursuant to
Article 1. All securities accepted by the Custodian on behalf of
the Portfolio under the terms of this Contract shall be in "street
name" or other good delivery form. If, however, the Fund directs
the Custodian to maintain securities in "street name," the
Custodian shall utilize its best efforts only to timely collect
income due the Fund on such securities and to notify the Fund on a
best efforts basis only of relevant corporate actions including,
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without limitation, pendency of calls, maturities, tender or
exchange offers.
2.4 Bank Accounts. The Custodian shall open and maintain a separate
bank account or accounts in the United States in the name of each
Portfolio of the Fund, subject only to draft or order by the
Custodian acting pursuant to the terms of this Contract, and shall
hold in such account or accounts, subject to the provisions hereof,
all cash received by it from or for the account of the Portfolio,
other than cash maintained by the Portfolio in a bank account
established and used in accordance with Rule 17f-3 under the
Investment Company Act of 1940. Funds held by the Custodian for a
Portfolio may be deposited by it to its credit as Custodian in the
Banking Department of the Custodian or in such other banks or trust
companies as it may in its discretion deem necessary or desirable;
provided, however, that every such bank or trust company shall be
qualified to act as a custodian under the Investment Company Act of
1940 and that each such bank or trust company and the funds to be
deposited with each such bank or trust company shall on behalf of
each applicable Portfolio be approved by vote of a majority of the
Board of Directors of the Fund. Such funds shall be deposited by
the Custodian in its capacity as Custodian and shall be
withdrawable by the Custodian only in that capacity.
2.5 Availability of Federal Funds. Upon mutual agreement between the
Fund on behalf of each applicable Portfolio and the Custodian, the
Custodian shall, upon the receipt of Proper Instructions from the
Fund on behalf of a Portfolio, make federal funds available to such
Portfolio as of specified times agreed upon from time to time by
the Fund and the Custodian in the amount of checks received in
payment for Shares of such Portfolio which are deposited into the
Portfolio's account.
2.6 Collections. Subject to the provisions of Section 2.3, the
Custodian shall, and shall require any sub-custodian to, collect on
a timely basis all income, payments of principal and other payments
with respect to registered domestic securities held hereunder to
which each Portfolio shall be entitled either by law or pursuant to
custom in the securities business, and shall collect on a timely
basis all income, payments of principal and other payments with
respect to bearer domestic securities if, on the date of payment by
the issuer, such securities are held by the Custodian or its agent
thereof and shall promptly credit such income, as collected, to
such Portfolio's custodian account. Without limiting the
generality of the foregoing, the Custodian shall detach, endorse
where necessary and present for payment all coupons and other
income items requiring presentation as and when they become due and
shall collect interest when due on securities held hereunder.
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Income due each Portfolio on securities loaned pursuant to the
provisions of Section 2.2 (10) shall be the responsibility of the
Fund. The Custodian will have no duty or responsibility in
connection with income due on securities loaned, other than to
provide the Fund with such information or data as may be necessary
to assist the Fund in arranging for the timely delivery to the
Custodian of the income to which the Portfolio is properly
entitled. The Custodian shall promptly notify the Fund by
facsimile transmission or in such other manner as the Fund and the
Custodian may agree in writing if any amount payable with respect
to Shares of the Portfolios or other assets of the Portfolios is
not received by the Custodian when due.
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions from
the Fund on behalf of the applicable Portfolio, which may be
continuing instructions when deemed appropriate by the parties, the
Custodian shall pay out monies of a Portfolio in the following
cases only:
1) Upon the purchase of domestic securities, options,
futures contracts or options on futures contracts for
the account of the Portfolio but only (a) against the
delivery of such securities or evidence of title to
such options, futures contracts or options on futures
contracts to the Custodian (or any bank, banking firm
or trust company doing business in the United States
or abroad which is qualified under the Investment
Company Act of 1940, as amended, to act as a custodian
and has been designated by the Custodian as its agent
for this purpose) registered in the name of the
Portfolio or in the name of a nominee of the Custodian
referred to in Section 2.3 hereof or in proper form
for transfer; (b) in the case of a purchase effected
through a Securities System, in accordance with the
conditions set forth in Section 2.10 hereof; (c) in
the case of a purchase involving the Direct Paper
System, in accordance with the conditions set forth in
Section 2.10A; (d) in the case of repurchase
agreements entered into between the Fund on behalf of
the Portfolio and the Custodian, or another bank, or a
broker-dealer which is a member of NASD, (i) against
delivery of the securities either in certificate form
or through an entry crediting the Custodian's account
at the Federal Reserve Bank with such securities or
(ii) against delivery of the receipt evidencing
purchase by the Portfolio of securities owned by the
Custodian along with written evidence of the agreement
by the Custodian to repurchase such securities from
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the Portfolio or (e) for transfer to a time deposit
account of the Fund in any bank, whether domestic or
foreign; such transfer may be effected prior to
receipt of a confirmation from a broker and/or the
applicable bank pursuant to Proper Instructions from
the Fund as defined in Article 5;
2) In connection with conversion, exchange or surrender
of securities owned by the Portfolio as set forth in
Section 2.2 hereof;
3) For the redemption or repurchase of Shares issued by
the Portfolio as set forth in Article 4 hereof;
4) For the payment of any expense or liability incurred
by the Portfolio, including but not limited to the
following payments for the account of the Portfolio:
interest, taxes, management, accounting, transfer
agent and legal fees, and operating expenses of the
Fund whether or not such expenses are to be in whole
or part capitalized or treated as deferred expenses;
5) For the payment of any dividends on Shares of the
Portfolio declared pursuant to the governing documents
of the Fund;
6) For payment of the amount of dividends received in
respect of securities sold short;
7) For any other proper purpose, but only upon receipt
of, in addition to Proper Instructions from the Fund
on behalf of the Portfolio, a certified copy of a
resolution of the Board of Directors or of the
Executive Committee of the Fund signed by an officer
of the Fund and certified by its Secretary or an
Assistant Secretary, specifying the amount of such
payment, setting forth the purpose for which such
payment is to be made, declaring such purpose to be a
proper purpose, and naming the person or persons to
whom such payment is to be made.
2.8 Liability for Payment in Advance of Receipt of Securities
Purchased. Except as specifically stated otherwise in this
Contract, in any and every case where payment for purchase of
domestic securities for the account of a Portfolio is made by the
Custodian in advance of receipt of the securities purchased in the
absence of specific written instructions from the Fund on behalf of
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<PAGE>
such Portfolio to so pay in advance, the Custodian shall be
absolutely liable to the Fund for such securities to the same
extent as if the securities had been received by the Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times in
its discretion appoint (and may at any time remove) any other bank
or trust company which is itself qualified under the Investment
Company Act of 1940, as amended, to act as a custodian, as its
agent to carry out such of the provisions of this Article 2 as the
Custodian may from time to time direct; provided, however, that the
appointment of any agent shall not relieve the Custodian of its
responsibilities or liabilities hereunder. In the event of any
loss, damage or expense suffered or incurred by the Fund, on behalf
of a Portfolio, caused by or resulting from the actions or
omissions of any agent for which the Custodian would otherwise be
liable, the Custodian shall promptly reimburse the Fund in the
amount of any such loss, damage or expense.
2.10 Deposit of Fund Assets in Securities Systems. The Custodian may
deposit and/or maintain securities owned by a Portfolio in a
clearing agency registered with the Securities and Exchange
Commission under Section 17A of the Securities Exchange Act of
1934, which acts as a securities depository, or in the book-entry
system authorized by the U.S. Department of the Treasury and
certain federal agencies, collectively referred to herein as
"Securities System" in accordance with applicable Federal Reserve
Board and Securities and Exchange Commission rules and regulations,
if any, and subject to the following provisions:
1) The Custodian may deposit and/or maintain securities
of the Portfolio in a Securities System provided that
such securities are represented in an account
("Account") of the Custodian in the Securities System
which shall not include any assets of the Custodian
other than assets held as a fiduciary, custodian or
otherwise for customers;
2) The books and records of the Custodian with respect to
securities of the Portfolio which are maintained in a
Securities System shall identify by book-entry those
securities belonging to the Portfolio;
3) The Custodian shall pay for securities purchased for
the account of the Portfolio upon (i) receipt of
advice from the Securities System that such securities
have been transferred to the Account, and (ii) the
making of an entry on the records of the Custodian to
reflect such payment and transfer for the account of
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<PAGE>
the Portfolio. The Custodian shall transfer
securities sold for the account of the Portfolio upon
(i) receipt of advice from the Securities System that
payment for such securities has been transferred to
the Account, and (ii) the making of an entry on the
records of the Custodian to reflect such transfer and
payment for the account of the Portfolio. Copies of
all advices from the Securities System of transfers of
securities for the account of the Portfolio shall
identify the Portfolio, be maintained for the
Portfolio by the Custodian and be provided to the Fund
at its request. Upon request, the Custodian shall
furnish the Fund on behalf of the Portfolio
confirmation of each transfer to or from the account
of the Portfolio in the form of a written advice or
notice and shall furnish to the Fund on behalf of the
Portfolio copies of daily transaction sheets
reflecting each day's transactions in the Securities
System for the account of the Portfolio.
4) The Custodian shall provide the Fund for the Portfolio
with any report obtained by the Custodian on the
Securities System's accounting system, internal
accounting control and procedures for safeguarding
securities deposited in the Securities System;
5) The Custodian shall have received from the Fund on
behalf of the Portfolio the initial certificate
required by Article 14 hereof;
6) At the written request of the Fund, the Custodian will
terminate the use of any such Securities System on
behalf of the Portfolios as promptly as practicable;
and
7) Anything to the contrary in this Contract
notwithstanding, the Custodian shall be liable to the
Fund for the benefit of the Portfolio for any loss or
damage to the Portfolio resulting from use of the
Securities System by reason of any negligence,
misfeasance or misconduct of the Custodian or any of
its agents or of any of its or their employees or from
failure of the Custodian or any such agent to enforce
effectively such rights as it may have against the
Securities System; at the election of the Fund, it
shall be entitled to be subrogated to the rights of
the Custodian with respect to any claim against the
Securities System or any other person which the
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<PAGE>
Custodian may have as a consequence of any such loss
or damage if and to the extent that the Portfolio has
not been made whole for any such loss or damage. In
the event of any such subrogation, the Custodian shall
cooperate with the Fund in asserting such rights and
shall take all actions reasonably necessary to enable
the Fund to assert such rights.
2.10A Fund Assets Held in the Custodian's Direct Paper System.
The Custodian may deposit and/or maintain securities owned by a
Portfolio in the Direct Paper System of the Custodian subject to
the following provisions:
1) No transaction relating to securities in the Direct
Paper System will be effected in the absence of Proper
Instructions from the Fund on behalf of the Portfolio;
2) The Custodian may deposit and/or maintain securities
of the Portfolio in the Direct Paper System only if
such securities are represented in an account
("Account") of the Custodian in the Direct Paper
System which shall not include any assets of the
Custodian other than assets held as a fiduciary,
custodian or otherwise for customers;
3) The records of the Custodian with respect to
securities of the Portfolio which are maintained in
the Direct Paper System shall identify by book-entry
those securities belonging to the Portfolio;
4) The Custodian shall pay for securities purchased for
the account of the Portfolio upon the making of an
entry on the records of the Custodian to reflect such
payment and transfer of securities to the account of
the Portfolio. The Custodian shall transfer
securities sold for the account of the Portfolio upon
the making of an entry on the records of the Custodian
to reflect such transfer and receipt of payment for
the account of the Portfolio;
5) The Custodian shall furnish the Fund on behalf of the
Portfolio confirmation of each transfer to or from the
account of the Portfolio, in the form of a written
advice or notice, of Direct Paper on the next business
day following such transfer and shall furnish to the
Fund on behalf of the Portfolio copies of daily
transaction sheets reflecting each day's transaction
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<PAGE>
in the Securities System for the account of the
Portfolio;
6) The Custodian shall provide the Fund on behalf of the
Portfolio with any report on its system of internal
accounting control as the Fund may reasonably request
from time to time.
2.11 Segregated Account. The Custodian shall upon receipt of Proper
Instructions from the Fund on behalf of each applicable Portfolio
establish and maintain a segregated account or accounts for and on
behalf of each such Portfolio, into which account or accounts may
be transferred cash, securities and/or similar investments,
including securities maintained in an account by the Custodian
pursuant to Section 2.10 hereof, (i) in accordance with the
provisions of any agreement among the Fund on behalf of the
Portfolio, the Custodian and a broker-dealer registered under the
Exchange Act and a member of the NASD (or any futures commission
merchant registered under the Commodity Exchange Act), relating to
compliance with the rules of The Options Clearing Corporation and
of any registered national securities exchange (or the Commodity
Futures Trading Commission or any registered contract market), or
of any similar organization or organizations, regarding escrow or
other arrangements in connection with transactions by the
Portfolio, (ii) for purposes of segregating cash or securities in
connection with options purchased, sold or written by the Portfolio
or commodity futures contracts or options thereon purchased or sold
by the Portfolio, (iii) for the purposes of compliance by the
Portfolio with the procedures required by Investment Company Act
Release No. 10666, or any subsequent release or releases of the
Securities and Exchange Commission relating to the maintenance of
segregated accounts by registered investment companies and (iv) for
other proper corporate purposes, but only, in the case of clause
(iv), upon receipt of, in addition to Proper Instructions from the
Fund on behalf of the applicable Portfolio, a certified copy of a
resolution of the Board of Directors or of the Executive Committee
signed by an officer of the Fund and certified by the Secretary or
an Assistant Secretary, setting forth the purpose or purposes of
such segregated account and declaring such purposes to be proper
corporate purposes.
2.12 Ownership Certificates for Tax Purposes. The Custodian shall, and
shall require any sub-custodian to, promptly execute ownership and
other certificates and affidavits for all federal, state and
foreign tax purposes in connection with receipt of income or other
payments with respect to securities or similar investments of each
Portfolio held by it and in connection with transfers of securities
or similar investments.
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2.13 Proxies; Notices. The Custodian shall cause to be promptly
executed by the registered holder of such securities, if the
securities are registered otherwise than in the name of the
Portfolio or a nominee of the Portfolio, all forms of proxies that
are received by the Custodian or any agent for the Custodian or any
nominee of either of them, without indication of the manner in
which such proxies are to be voted, and shall promptly deliver to
the Portfolio such proxies, all proxy soliciting materials and all
notices relating to such securities.
2.14 Communications Relating to Portfolio Securities. Subject to the
provisions of Section 2.3, the Custodian shall transmit promptly to
the Fund for each Portfolio all written information (including,
without limitation, pendency of calls and maturities of domestic
securities and expirations of rights in connection therewith and
notices of exercise of call and put options written by the Fund on
behalf of the Portfolio and the maturity of futures contracts
purchased or sold by the Portfolio) received by the Custodian from
issuers of the securities being held for the Portfolio. With
respect to tender or exchange offers, the Custodian shall transmit
promptly to the Portfolio all written information received by the
Custodian from issuers of the securities whose tender or exchange
is sought and from the party (or his agents) making the tender or
exchange offer. If the Portfolio desires to take action with
respect to any tender offer, exchange offer or any other similar
transaction, the Portfolio shall notify the Custodian at least
three business days prior to the date on which the Custodian is to
take such action.
3. Duties of the Custodian with Respect to Property of the Fund Held
Outside of the United States
3.1 Appointment of Foreign Sub-Custodians. The Fund hereby authorizes
and instructs the Custodian to employ as sub-custodians for the
Portfolio's securities and other assets maintained outside the
United States the foreign banking institutions and foreign
securities depositories designated on Schedule A hereto ("foreign
sub-custodians"). Upon receipt of "Proper Instructions", as
defined in Section 5 of this Contract, together with a certified
resolution of the Fund's Board of Directors, the Custodian and the
Fund may agree to amend Schedule A hereto from time to time to
designate additional foreign banking institutions and foreign
securities depositories to act as sub-custodian. The Fund may
instruct the Custodian through Proper Instructions to cease the
employment of any one or more such sub-custodians for maintaining
custody of the Portfolio's assets and to cause the delivery of such
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<PAGE>
assets to another sub-custodian acceptable to the Custodian and the
Fund.
3.2 Assets to be Held. The Custodian shall limit the securities and
other assets maintained in the custody of the foreign
sub-custodians to: (a) "foreign securities", as defined in
paragraph (c)(1) of Rule 17f-5 under the Investment Company Act of
1940, and (b) cash and cash equivalents in such amounts as the
Custodian or the Fund may determine to be reasonably necessary to
effect the Portfolio's foreign securities transactions. The
Custodian shall identify on its books as belonging to the Fund, the
foreign securities of the Fund held by each foreign sub-custodian.
3.3 Foreign Securities Depositories. Except as may otherwise be agreed
upon in writing by the Custodian and the Fund, assets of the
Portfolios shall be maintained in foreign securities depositories
only through arrangements implemented by the foreign banking
institutions serving as sub-custodians pursuant to the terms
hereof. Where possible, such arrangements shall include entry into
agreements containing the provisions set forth in Section 3.4
hereof.
3.4 Agreements with Foreign Banking Institutions. Each agreement with
a foreign banking institution shall be substantially in the form
set forth in Exhibit 1 hereto and shall provide that: (a) the
assets of each Portfolio will not be subject to any right, charge,
security interest, lien or claim of any kind in favor of the
foreign banking institution or its creditors or agent, except a
claim of payment for their safe custody or administration; (b)
beneficial ownership for the assets of each Portfolio will be
freely transferable without the payment of money or value other
than for safe custody or administration; (c) adequate records will
be maintained identifying the assets as belonging to each
applicable Portfolio; (d) officers of or auditors employed by, or
other representatives of the Custodian, including to the extent
permitted under applicable law the independent public accountants
for the Fund, will be given access to the books and records of the
foreign banking institution relating to its actions under its
agreement with the Custodian; and (e) assets of the Portfolios held
by the foreign sub-custodian will be subject only to the
instructions of the Custodian or its agents.
3.5 Access of Independent Accountants of the Fund. Upon request of the
Fund, the Custodian will use its best efforts to arrange for the
Fund, its independent accountants and/or its attorneys to be
afforded access to the books and records of any foreign banking
institution employed as a foreign sub-custodian insofar as such
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<PAGE>
books and records relate to the performance of such foreign banking
institution under its agreement with the Custodian.
3.6 Reports by Custodian. The Custodian will supply to the Fund from
time to time, as mutually agreed upon, statements in respect of the
securities and other assets of the Portfolio(s) held by foreign
sub-custodians, including but not limited to an identification of
entities having possession of the Portfolio(s) securities and other
assets and advices or notifications of any transfers of securities
to or from each custodial account maintained by a foreign banking
institution for the Custodian on behalf of each applicable
Portfolio indicating, as to securities acquired for a Portfolio,
the identity of the entity having physical possession of such
securities. The Custodian shall also provide to the Fund such
other information as may be reasonably requested by the Fund on
behalf of the Portfolios to evidence compliance with Rule 17f-5
under the Investment Company Act.
3.7 Transactions in Foreign Custody Account. (a) Except as otherwise
provided in paragraph (b) of this Section 3.7, the provision of
Sections 2.2 and 2.7 of this Contract shall apply, mutatis mutandis
to the foreign securities of the Fund held outside the United
States by foreign sub-custodians. (b) Notwithstanding any
provision of this Contract to the contrary, settlement and payment
for securities received for the account of each applicable
Portfolio and delivery of securities maintained for the account of
each applicable Portfolio may be effected in accordance with the
customary established securities trading or securities processing
practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivering
securities to the purchaser thereof or to a dealer therefor (or an
agent for such purchaser or dealer) against a receipt with the
expectation of receiving later payment for such securities from
such purchaser or dealer. (c) Securities maintained in the custody
of a foreign sub-custodian may be maintained in the name of such
entity's nominee to the same extent as set forth in Section 2.3 of
this Contract, and the Fund agrees to hold any such nominee
harmless from any liability as a holder of record of such
securities (except liability for failing to act in accordance with
instructions).
3.8 Liability of Foreign Sub-Custodians. Each agreement pursuant to
which the Custodian employs a foreign banking institution as a
foreign sub-custodian shall require the institution to exercise
reasonable care and diligence in the performance of its duties and
to indemnify, and hold harmless, the Custodian and each Fund from
and against any loss, damage, cost, expense, liability or claim
arising out of or in connection with the institution's performance
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<PAGE>
of such obligations. At the election of the Fund, it shall be
entitled to be subrogated to the rights of the Custodian with
respect to any claims against a foreign banking institution as a
consequence of any such loss, damage, cost, expense, liability or
claim if and to the extent that the Fund has not been made whole
for any such loss, damage, cost, expense, liability or claim. In
the event of any such subrogation, the Custodian shall cooperate
with the Fund in asserting such rights and shall take all actions
reasonably necessary to enable the Fund to assert such rights.
3.9 Liability of Custodian. The Custodian shall be liable for the acts
or omissions of a foreign banking institution to the same extent as
set forth with respect to sub-custodians generally in this Contract
and, regardless of whether assets are maintained in the custody of
a foreign banking institution, a foreign securities depository or a
branch of a U.S. bank as contemplated by paragraph 3.12 hereof, the
Custodian shall not be liable for any loss, damage, cost, expense,
liability or claim resulting from nationalization, expropriation,
currency restrictions, or acts of war or terrorism or any loss
where the sub-custodian has otherwise exercised reasonable care and
diligence. Notwithstanding the foregoing provisions of this
paragraph 3.9, in delegating custody duties to State Street London
Ltd., the Custodian shall not be relieved of any responsibility to
the Fund for any loss, damage or expense due to such delegation,
except such loss as may result from (a) political risk (including,
but not limited to, exchange control restrictions, confiscation,
expropriation, nationalization, insurrection, civil strife or armed
hostilities) or (b) other losses (excluding a bankruptcy or
insolvency of State Street London Ltd. not caused by political
risk) due to Acts of God, nuclear incident or other losses under
circumstances where the Custodian and State Street London Ltd. have
exercised reasonable care and diligence.
In the event that any sub-custodian appointed pursuant to the
provisions of this Section 3 fails to perform any of its
obligations under the terms and conditions of the applicable sub-
custodian agreement, the Custodian shall use its best efforts to
cause such sub-custodian to fully perform its obligations. In the
event that the Custodian is unable to cause such sub-custodian to
perform fully its obligations thereunder, the Custodian shall
forthwith notify the Fund of the same and, upon the Fund's request,
terminate such sub-custodian as a sub-custodian for the Fund in
accordance with the termination provisions of the applicable sub-
custodian agreement and, if requested by the Fund, appoint another
sub-custodian acceptable to the Custodian and the Fund.
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The Custodian will not amend any sub-custodian agreement or agree
to change or permit any changes thereunder in respect of the Fund
except upon the prior written approval of the Fund.
3.10 Monitoring Responsibilities. The Custodian shall furnish annually
to the Fund, during the month of June, and a reasonably requested
by the Fund from time to time, information concerning the foreign
sub-custodians employed by the Custodian. Such information shall
be similar in kind and scope to that furnished to the Fund in
connection with the initial approval of this Contract. In
addition, the Custodian shall monitor the performance and financial
condition of the foreign sub-custodians and foreign securities
depositories to the extent practicable and shall promptly inform
the Fund in the event that the Custodian learns of a material
adverse change in the performance or financial condition of a
foreign sub-custodian or any material loss of the assets of the
Fund or in the case of any foreign sub-custodian not the subject of
an exemptive order from the Securities and Exchange Commission is
notified by such foreign sub-custodian that there appears to be a
substantial likelihood that its shareholders' equity will decline
below $200 million (U.S. dollars or the equivalent thereof) or that
its shareholders' equity has declined below $200 million (in each
case computed in accordance with generally accepted U.S. accounting
principles).
3.11 Branches of U.S. Banks. (a) Except as otherwise set forth in this
Contract, the provisions hereof shall not apply where the custody
of the Portfolios assets are maintained in a foreign branch of a
banking institution which is a "bank" as defined by Section 2(a)(5)
of the Investment Company Act of 1940 meeting the qualification set
forth in Section 26(a) of said Act. The appointment of any such
branch as a sub-custodian shall be governed by paragraph 1 of this
Contract. (b) Cash held for each Portfolio of the Fund in the
United Kingdom shall be maintained in an interest bearing account
established for the Fund with the Custodian's London branch, which
account shall be subject to the direction of the Custodian, State
Street London Ltd. or both.
3.12 Tax Law. Except as provided in Section 2.12, the Custodian shall
have no responsibility or liability for any obligations now or
hereafter imposed on the Fund or the Custodian as custodian of the
Fund by the tax law of the United States of America or any state or
political subdivision thereof. It shall be the responsibility of
the Fund to notify the Custodian of the obligations imposed on the
Fund, or the Custodian with respect to assets of the Fund, by the
tax law of jurisdictions other than those mentioned in the above
sentence, including responsibility for withholding and other taxes,
assessments or other governmental charges, certifications and
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<PAGE>
governmental reporting. The sole responsibility of the Custodian
with regard to such tax law shall be to use reasonable efforts to
assist the Fund with respect to any claim for exemption or refund
under the tax law of jurisdictions for which the Fund has provided
such information.
4. Payments for Sales or Repurchases or Redemptions of Shares of the
Fund
The Custodian shall receive from the distributor for the Shares or
from the Transfer Agent of the Fund and promptly deposit into the account
of the appropriate Portfolio such payments as are received for Shares of
that Portfolio issued or sold from time to time by the Fund. The
Custodian will provide timely notification to the Fund on behalf of each
such Portfolio and the Transfer Agent of any receipt by it of payments for
Shares of such Portfolio.
From such funds as may be available for the purpose but subject to
the limitations of the Articles of Incorporation and any applicable votes
of the Board of Directors of the Fund pursuant thereto, the Custodian
shall, upon receipt of instructions from the Transfer Agent, make funds
available for payment to holders of Shares who have delivered to the
Transfer Agent a request for redemption or repurchase of their Shares. In
connection with the redemption or repurchase of Shares of a Portfolio, the
Custodian is authorized upon receipt of instructions from the Transfer
Agent to wire funds to or through a commercial bank designated by the
redeeming shareholders. In connection with the redemption or repurchase
of Shares of the Fund, the Custodian shall honor checks drawn on the
Custodian by a holder of Shares, which checks have been furnished by the
Fund to the holder of Shares, when presented to the Custodian in
accordance with such procedures and controls as are mutually agreed upon
from time to time between the Fund and the Custodian.
5. Proper Instructions
Proper Instructions as used throughout this Contract means a
written request, direction, instruction or certification signed or
initialled on behalf of the Fund by one or more person or persons as the
Board of Directors shall have from time to time authorized. Each such
writing shall set forth the specific transaction or type of transaction
involved, including a specific statement of the purpose for which such
action is requested. Oral instructions will be considered Proper
Instructions if the Custodian reasonably believes them to have been given
by a person authorized to give such instructions with respect to the
transaction involved. The Fund shall cause all oral instructions to be
confirmed in writing in the manner set forth above. Upon receipt of a
18
<PAGE>
certificate of the Secretary or an Assistant Secretary as to the
authorization by the Board of Directors of the Fund accompanied by a
detailed description of procedures approved by the Board of Directors,
Proper Instructions may include communications effected directly between
electro-mechanical or electronic devices provided that the Fund and the
Custodian are satisfied that such procedures afford adequate safeguards
for the Portfolios' assets. For purposes of this Section, Proper
Instructions shall include instructions received by the Custodian pursuant
to any three-party agreement which requires a segregated asset account in
accordance with Section 2.11. Proper Instructions may be in the form of
standing instructions.
6. Actions Permitted without Express Authority
The Custodian may in its discretion, without express authority from
the Fund on behalf of each applicable Portfolio:
1) make payments to itself or others for minor expenses
of handling securities or other similar items relating
to its duties under this Contract, provided that all
such payments shall be accounted for to the Fund on
behalf of the Portfolio;
2) surrender securities in temporary form for securities
in definitive form;
3) endorse for collection, in the name of the Portfolio,
checks, drafts and other negotiable instruments; and
4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution,
purchase, transfer and other dealings with the
securities and property of the Portfolio except as
otherwise directed by the Board of Directors of the
Fund.
7. Evidence of Authority
The Custodian shall be protected in acting upon any instructions,
notice, request, consent, certificate or other instrument or paper
reasonably believed by it to be genuine and to have been properly executed
by or on behalf of the Fund. The Custodian may receive and accept a
certified copy of a vote of the Board of Directors of the Fund as
conclusive evidence (a) of the authority of any person to act in
accordance with such vote or (b) of any determination or of any action by
the Board of Directors pursuant to the Articles of Incorporation as
19
<PAGE>
described in such vote, and such vote may be considered as in full force
and effect until receipt by the Custodian of written notice to the
contrary.
8. Duties of Custodian with Respect to the Books of Account and
Calculation of Net Asset Value and Net Income
The Custodian shall cooperate with and supply necessary information
to the entity or entities appointed by the Board of Directors of the Fund
to keep the books of account of each Portfolio and/or compute the net
asset value per share of the outstanding shares of each Portfolio or, if
directed in writing to do so by the Fund on behalf of the Portfolio, shall
itself keep such books of account and/or compute such net asset value per
share. If so directed, the Custodian shall also calculate daily the net
income of the Portfolio as described in the Fund's currently effective
prospectus related to such Portfolio and shall advise the Fund and the
Transfer Agent daily of the total amounts of such net income and, if
instructed in writing by an officer of the Fund to do so, shall advise the
Transfer Agent periodically of the division of such net income among its
various components. The calculations of the net asset value per share and
the daily income of each Portfolio shall be made at the time or times
described from time to time in the Fund's currently effective prospectus
related to such Portfolio. On each day that the Custodian computes the
net asset value per share of each Portfolio, the Custodian will provide
information sufficient to permit the Fund to verify that portfolio
transactions have been recorded in accordance with the prospectus and are
reconciled with the Portfolio's trading records.
9. Books and Records
The Custodian shall with respect to each Portfolio create and
maintain all books and records relating to its activities and obligations
under this Contract in such manner as will meet the obligations of the
Fund under the Investment Company Act of 1940, with particular attention
to Section 31 thereof and Rules 31a-1 and 31a-2 thereunder and under
applicable state and federal tax laws. All such books and records shall
be the property of the Fund and shall at all times during the regular
business hours of the Custodian be open for inspection and audit by duly
authorized officers, employees, agents and auditors of and attorneys for,
the Fund and employees and agents of the Securities and Exchange
Commission. The Custodian shall, at the Fund's request, supply the Fund
with a tabulation of securities owned by each Portfolio and held by the
Custodian and shall, when requested to do so by the Fund and for such
compensation as shall be agreed upon between the Fund and the Custodian,
include certificate numbers in such tabulations.
20
<PAGE>
10. Opinion of Fund's Independent Accountant
The Custodian shall take all reasonable action, as the Fund on
behalf of each applicable Portfolio may from time to time request, to
obtain from year to year favorable opinions from the Fund's independent
accountants with respect to the Custodian's activities hereunder in
connection with the preparation of the Fund's Form N-1A, and Form N-SAR or
other periodic reports to Fund shareholders or to the Securities and
Exchange Commission and with respect to any other requirements of such
Commission.
11. Reports to Fund by Independent Public Accountants
The Custodian shall provide the Fund, on behalf of each of the
Portfolios at such times as the Fund may reasonably require, with reports
by independent public accountants on the accounting system, internal
accounting control and procedures for safeguarding cash, securities,
futures contracts and options on futures contracts, including cash,
securities and other assets deposited and/or maintained in a Securities
System or with a sub-custodian, relating to the services provided by the
Custodian, directly or through any agent, under this Contract; such
reports shall be of sufficient scope and in sufficient detail as may
reasonably be required by the Fund to provide reasonable assurance that
any material inadequacies would be disclosed by such examination, and, if
there are no such inadequacies, the reports shall so state.
12. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon in writing from time to
time between the Fund on behalf of each applicable Portfolio and the
Custodian. The Custodian shall provide the Fund a written invoice for
each such payment.
13. Responsibility of Custodian
So long as and to the extent that it is in the exercise of
reasonable care, the Custodian shall not be responsible for the title,
validity or genuineness of any property or evidence of title thereto
received by it or delivered by it pursuant to this Contract and shall be
held harmless in acting upon any notice, request, consent, certificate or
other instrument reasonably believed by it to be genuine and to be signed
by the proper party or parties, including any futures commission merchant
acting pursuant to the terms of a three-party futures or options
agreement. The Custodian shall be held to the exercise of reasonable care
21
<PAGE>
in carrying out the provisions of this Contract, but shall be kept
indemnified by and shall be without liability to the Fund for any action
taken or omitted by it in good faith without negligence. It shall be
entitled to rely on and may act upon advice of counsel (who may be counsel
for the Fund) on all matters, and shall be without liability for any
action reasonably taken or omitted pursuant to such advice of counsel that
such actions or omissions comply with the terms of this Contract and with
all applicable laws, provided the Custodian acts in good faith and without
negligence.
If the Fund on behalf of a Portfolio requires the Custodian to take
any action with respect to securities, which action involves the payment
of money or which action may, in the opinion of the Custodian, result in
the Custodian or its nominee assigned to the Fund or the Portfolio being
liable for the payment of money or incurring liability of some other form,
the Fund on behalf of the Portfolio, as a prerequisite to requiring the
Custodian to take such action, shall provide indemnity to the Custodian in
an amount and form satisfactory to it.
If the Fund requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but not
limited to securities settlements, foreign exchange contracts and assumed
settlement) for the benefit of a Portfolio including the purchase or sale
of foreign exchange or of contracts for foreign exchange (any such amount
is referred to herein as an "Advance") or in the event that the Custodian
or its nominee shall incur or be assessed any taxes, charges, expenses,
assessments, claims or liabilities in connection with the performance of
this Contract, except such as may arise from its or its nominee's or
agent's own negligent action, negligent failure to act or willful
misfeasance (any such liability is referred to herein as a "Liability"),
then in such event cash held for the account of the appropriate Portfolio
and securities issued by United States issuers or other securities
selected by the Custodian equal in value to not more than 125% of such
Advance and accrued interest on the Advance or the anticipated amount of
such Liability, held at any time for the account of the appropriate
Portfolio by the Custodian or sub-custodian, shall be held as security for
such Liability or for such Advance and the accrued interest on the
Advance. Each Portfolio hereby grants to the Custodian a security
interest and lien on cash held by the Custodian for the account of such
Portfolio and any assets of such Portfolio as may be designated from time
to time by the Custodian as provided in this Section 13. The Custodian
shall designate the security or securities constituting security for an
Advance or Liability (the "Designated Securities") by notice in writing to
the Fund (which may be sent by telefax). In the event the value of the
Designated Securities shall decline to less than 110% of the amount of
such Advance and accrued interest on the Advance or the anticipated amount
of such Liability, then the Custodian may designate in the same manner
additional securities to be held as security for such obligation
22
<PAGE>
("Additional Securities") but the aggregate value of the Designated
Securities and the Additional Securities shall not be in excess of 125% of
the amount of such Advance and the accrued interest on the Advance or the
anticipated amount of such Liability. At the request of the Fund, the
Custodian shall agree to substitution of a security or securities which
have a value equal to the value of the Designated or Additional Securities
which the Fund desires to be released from their status as security, and
such release from status as security shall be effective upon the Custodian
and the Fund agreeing in writing as to the identity of the substituted
security or securities, which shall thereupon become Designated
Securities.
Notwithstanding the above, the Custodian shall, at the request of
the Fund, immediately release from their status as security any or all of
the Designated Securities or Additional Securities upon the Custodian's
receipt from such Fund cash or cash equivalents in an amount equal to 100%
of the value of the Designated Securities or Additional Securities that
the Fund desires to be released from their status as security pursuant to
this Section. The Fund shall reimburse the Custodian in respect of a
Liability and shall pay any Advances upon demand; provided, however, that
the Custodian first notified the Fund of such demand for repayment or
reimbursement. If, upon notification, the Fund shall fail to pay such
advance or interest when due or shall fail to reimburse the Custodian
promptly in respect of a Liability, the Fund, on behalf of the Portfolios,
acknowledges and agrees that the Custodian shall be entitled to apply cash
held for the applicable Portfolio and/or dispose of the Designated
Securities and Additional Securities to the extent necessary to obtain
repayment or reimbursement. Interest, dividends and other distributions
paid or received on the Designated Securities or Additional Securities,
other than payments of principal or payments upon retirement, redemption
or repurchase, shall remain the property of the Fund, and shall not be
subject to this Section. To the extent that the disposition of the Fund's
property, designated as security for such Advance or Liability, results in
an amount less than necessary to obtain repayment or reimbursement, the
Fund shall continue to be liable to the Custodian for the difference
between the proceeds of the disposition of the Fund's property, designated
as security for such Advance or Liability, and the amount of the repayment
or reimbursement due to the Custodian and the Custodian shall be entitled
to designate Additional Securities to secure the amount of the shortfall
and shall have the same rights with respect to such Additional Securities
as are provided herein with respect to Designated Securities generally.
14. Effective Period, Termination and Amendment
This Contract shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter
provided, may be amended at any time by mutual agreement of the parties
23
<PAGE>
hereto and may be terminated by either party by an instrument in writing
delivered or mailed, postage prepaid to the other party, such termination
to take effect not sooner than thirty (30) days after the date of such
delivery or mailing; provided, however that the Custodian shall not with
respect to a Portfolio act under Section 2.10 hereof in the absence of
receipt of an initial certificate of the Secretary or an Assistant
Secretary that the Board of Directors of the Fund has approved the initial
use of a particular Securities System by such Portfolio, as required by
Rule 17f-4 under the Investment Company Act of 1940, as amended and that
the Custodian shall not with respect to a Portfolio act under Section
2.10A hereof in the absence of receipt of an initial certificate of the
Secretary or an Assistant Secretary that the Board of Directors has
approved the initial use of the Direct Paper System by such Portfolio;
provided further, however, that the Fund shall not amend or terminate this
Contract in contravention of any applicable federal or state regulations,
or any provision of the Articles of Incorporation, and further provided,
that the Fund on behalf of one or more of the Portfolios may at any time
by action of its Board of Directors (i) substitute another bank or trust
company for the Custodian by giving notice as described above to the
Custodian, or (ii) immediately terminate this Contract in the event of the
appointment of a conservator or receiver for the Custodian by the
Comptroller of the Currency or upon the happening of a like event at the
direction of an appropriate regulatory agency or court of competent
jurisdiction.
Upon termination of the Contract, the Fund on behalf of each
applicable Portfolio shall pay to the Custodian such compensation as may
be due as of the date of such termination and shall likewise reimburse the
Custodian for its reasonable costs, expenses and disbursements.
Termination of this Contract with respect to one Portfolio (but less than
all of the Portfolios) will not constitute termination of the Contract,
and the terms of the Contract continue to apply to the other Portfolios.
15. Successor Custodian
If a successor custodian for the Fund, or one or more of the
Portfolios shall be appointed by the Board of Directors of the Fund, the
Custodian shall, upon termination, promptly deliver to such successor
custodian at the office of the Custodian, duly endorsed and in the form
for transfer, all cash, securities, similar investments and other
property, as well as all books and records, of each applicable Portfolio
then held by it hereunder and shall transfer to an account of the
successor custodian all of the securities of each such Portfolio held in a
Securities System.
If no such successor custodian shall be appointed, the Custodian
shall, in like manner, upon receipt of a certified copy of a vote of the
24
<PAGE>
Board of Directors of the Fund, deliver at the office of the Custodian and
promptly transfer such securities, similar investments, cash, books,
records and other properties in accordance with such vote.
In the event that no written order designating a successor
custodian or certified copy of a vote of the Board of Directors shall have
been delivered to the Custodian on or before the date when such
termination shall become effective, then the Custodian shall have the
right to deliver to a bank or trust company, which is a "bank" as defined
in the Investment Company Act of 1940, doing business in Boston,
Massachusetts, of its own selection, having an aggregate capital, surplus,
and undivided profits, as shown by its last published report, of not less
than $25,000,000, all securities, similar investments, cash books, records
and other properties held by the Custodian on behalf of each applicable
Portfolio and all instruments held by the Custodian relative thereto and
all other property held by it under this Contract on behalf of each
applicable Portfolio and to transfer to an account of such successor
custodian all of the securities of each such Portfolio held in any
Securities System. Thereafter, such bank or trust company shall be the
successor of the Custodian under this Contract. The Custodian agrees to
cooperate with the successor custodian and the Fund in execution of
documents and performance of other actions necessary or desirable in order
to substitute the successor custodian for the Custodian.
In the event that securities, similar investments, cash and other
properties remain in the possession of the Custodian after the date of
termination hereof owing to failure of the Fund to procure the certified
copy of the vote referred to or of the Board of Directors to appoint a
successor custodian, the Custodian shall be entitled to fair compensation
for its services during such period as the Custodian retains possession of
such securities, similar investments,cash and other properties and the
provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
16. Interpretive and Additional Provisions
In connection with the operation of this Contract, the Custodian
and the Fund on behalf of each of the Portfolios, may from time to time
agree on such provisions interpretive of or in addition to the provisions
of this Contract as may in their joint opinion be consistent with the
general tenor of this Contract. Any such interpretive or additional
provisions shall be in a writing signed by both parties and shall be
annexed hereto, provided that no such interpretive or additional
provisions shall contravene any applicable federal or state regulations or
any provision of the Articles of Incorporation of the Fund. No
interpretive or additional provisions made as provided in the preceding
sentence shall be deemed to be an amendment of this Contract.
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<PAGE>
17. Additional Portfolios
In the event that the Fund establishes one or more series of Shares
in addition to Legg Mason American Leading Companies Trust with respect
to which it desires to have the Custodian render services as custodian
under the terms hereof, it shall so notify the Custodian in writing, and
if the Custodian agrees in writing to provide such services, such series
of Shares shall become a Portfolio hereunder.
18. Massachusetts Law to Apply
This Contract shall be construed and the provisions thereof
interpreted under and in accordance with laws of The Commonwealth of
Massachusetts.
19. Prior Contracts
This Contract supersedes and terminates, as of the date hereof, all
prior contracts between the Fund on behalf of each of the Portfolios and
the Custodian relating to the custody of the Fund's assets.
20. Shareholder Communications
Securities and Exchange Commission Rule 14b-2 requires banks which
hold securities for the account of customers to respond to requests by
issuers of securities for the names, addresses and holdings of beneficial
owners of securities of that issuer held by the bank unless the beneficial
owner has expressly objected to disclosure of this information. In order
to comply with the rule, the Custodian needs the Fund to indicate whether
the Fund authorizes the Custodian to provide the Fund's name, address, and
share position to requesting companies whose stock the Fund owns. If the
Fund tells the Custodian "no", the Custodian will not provide this
information to requesting companies. If the Fund tells the Custodian
"yes" or do not check either "yes" or "no" below, the Custodian is
required by the rule to treat the Fund as consenting to disclosure of this
information for all securities owned by the Fund or any funds or accounts
established by the Fund. For the Fund's protection, the Rule prohibits
the requesting company from using the Fund's name and address for any
purpose other than corporate communications. Please indicate below
whether the Fund consent or object by checking one of the alternatives
below.
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<PAGE>
YES [ ] The Custodian is authorized to release the Fund's
name, address, and share positions.
NO [ ] The Custodian is not authorized to release the Fund's
name, address, and share positions.
21. Miscellaneous
21.1 Assignment. This Contract may not be assigned by
either party without the written consent of the other.
21.2 Insurance. The Custodian agrees to maintain insurance
adequate to the protection of all assets of the Fund
that may come into the Custodian's care under this
Contract.
21.3 Confidentiality. The Custodian agrees that all books,
records, information and data pertaining to the
business of the Fund which are exchanged or received
pursuant to the negotiation or carrying out of this
Contract shall remain confidential, shall not be
voluntarily disclosed to any other person, except as
may be required by law, and shall not be used by the
Custodian for any purpose not directly related to the
business of the Fund, except with the Fund's written
consent.
21.4 Separate Portfolios. Notwithstanding any other
provision of this Agreement, the parties agree that
the assets and liabilities of each series of the Fund
are separate and distinct from the assets and
liabilities of each other series and that no series
shall be liable or shall be charged for any debt,
obligation or liability of any other series, whether
arising under this Contract or otherwise.
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<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this instrument
to be executed in its name and behalf by its duly authorized
representative and its seal to be hereunder affixed as of the
day of , 1993.
ATTEST LEGG MASON INVESTORS TRUST, INC.
______________________ By _______________________________
ATTEST STATE STREET BANK AND TRUST COMPANY
_______________________ By ________________________________
Executive Vice President
28
<PAGE>
Schedule A
The following foreign banking institutions and foreign securities
depositories have been approved by the Board of Directors of Legg Mason
Investors Trust, Inc. for use as sub-custodians for the Fund's securities
and other assets:
(Insert banks and securities depositories)
Certified:
_________________________
Fund's Authorized Officer
Date:___________________
29
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
between
LEGG MASON INVESTORS TRUST, INC.
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
Page
Article 1 Terms of Appointment; Duties of the Bank.......... 1
Article 2 Fees and Expenses................................. 4
Article 3 Representations and Warranties of the Bank........ 5
Article 4 Representations and Warranties of the Fund........ 5
Article 5 Data Access and Proprietary Information........... 6
Article 6 Indemnification................................... 7
Article 7 Standard of Care.................................. 10
Article 8 Covenants of the Fund and the Bank................ 11
Article 9 Termination of Agreement.......................... 12
Article 10 Additional Funds.................................. 12
Article 11 Assignment........................................ 13
Article 12 Amendment......................................... 13
Article 13 Massachusetts Law to Apply........................ 13
Article 14 Force Majeure..................................... 13
Article 15 Consequential Damages............................. 14
Article 16 Merger of Agreement............................... 14
Article 17 Miscellaneous..................................... 14
Article 18 Counterparts...................................... 14
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the ____ day of ____________, 199___, by and
between LEGG MASON INVESTORS TRUST, INC., a Maryland corporation, having
its principal office and place of business at 7 East Redwood Street,
Baltimore, MD 21202 (the "Fund"), and STATE STREET BANK AND TRUST COMPANY,
a Massachusetts trust company having its principal office and place of
business at 225 Franklin Street, Boston, Massachusetts 02110 (the "Bank").
WHEREAS, the Fund is authorized to issue shares in separate series,
with each such series representing interests in a separate portfolio of
securities and other assets; and
WHEREAS, the Fund intends to initially offer shares in one series,
Legg Mason American Leading Companies Trust (each such series, together
with all other series subsequently established by the Fund and made
subject to this Agreement in accordance with Article 10, being herein
referred to, as a "Portfolio", and collectively as the "Portfolios");
WHEREAS, the Fund on behalf of the Portfolios desires to appoint the
Bank as its transfer agent, dividend disbursing agent, custodian of
certain retirement plans and agent in connection with certain other
activities and the Bank desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
Article l Terms of Appointment; Duties of the Bank
1.01 Subject to the terms and conditions set forth in this
Agreement, the Fund, on behalf of the Portfolios, hereby employs and
appoints the Bank to act as, and the Bank agrees to act as its transfer
agent for the authorized and issued shares of capital stock of the Fund
representing interests in each of the respective Portfolios ("Shares"),
dividend disbursing agent, custodian of certain retirement plans and agent
in connection with any accumulation, open-account or similar plans
provided to the shareholders of each of the respective Portfolios of the
Fund ("Shareholders") and set out in the currently effective prospectus
and statement of additional information ("prospectus") of the Fund on
behalf of the applicable Portfolio, including without limitation any
periodic investment plan or periodic withdrawal program.
<PAGE>
1.02 The Bank agrees that it will perform the following
services:
(a) In accordance with procedures established from time to time
by agreement between the Fund on behalf of each of the Portfolios, as
applicable and the Bank, the Bank shall:
(i) Receive for acceptance, orders for the purchase
of Shares, and promptly deliver payment and
appropriate documentation thereof to the
Custodian of the Fund authorized pursuant to the
Articles of Incorporation of the Fund (the
"Custodian");
(ii) Pursuant to purchase orders, issue the
appropriate number of Shares and hold such Shares
in the appropriate Shareholder account;
(iii) Receive for acceptance redemption requests and
redemption directions and deliver the appropriate
documentation thereof to the Custodian;
(iv) In respect to the transactions in items (i), (ii)
and (iii) above, the Bank shall execute
transactions directly with broker-dealers
authorized by the Fund who shall thereby be
deemed to be acting on behalf of the Fund;
(v) At the appropriate time as and when it receives
monies paid to it by the Custodian with respect
to any redemption, pay over or cause to be paid
over in the appropriate manner such monies as
instructed by the redeeming Shareholders;
(vi) Effect transfers of Shares by the registered
owners thereof upon receipt of appropriate
instructions;
(vii) Prepare and transmit payments for dividends and
distributions declared by the Fund on behalf of
the applicable Portfolio;
(viii) Issue replacement certificates for those
certificates alleged to have been lost, stolen or
2
<PAGE>
destroyed upon receipt by the Bank of
indemnification satisfactory to the Bank and
protecting the Bank and the Fund, and the Bank at
its option, may issue replacement certificates in
place of mutilated stock certificates upon
presentation thereof and without such indemnity;
(ix) Maintain records of account for and advise the
Fund and its Shareholders as to the foregoing;
and
(x) Record the issuance of Shares of the Fund and
maintain pursuant to SEC Rule 17Ad-10(e) a record
of the total number of Shares of the Fund which
are authorized, based upon data provided to it by
the Fund, and issued and outstanding. The Bank
shall also provide the Fund on a regular basis
with the total number of Shares which are
authorized and issued and outstanding and shall
have no obligation, when recording the issuance
of Shares, to monitor the issuance of such Shares
or to take cognizance of any laws relating to the
issue or sale of such Shares, which functions
shall be the sole responsibility of the Fund.
(b) In addition to and neither in lieu nor in contravention of
the services set forth in the above paragraph (a), the Bank shall: (i)
perform the customary services of a transfer agent, dividend disbursing
agent, custodian of certain retirement plans and, as relevant, agent in
connection with accumulation, open-account or similar plans (including
without limitation any periodic investment plan or periodic withdrawal
program), including but not limited to: maintaining all Shareholder
accounts, preparing Shareholder meeting lists, mailing proxies, receiving
and tabulating proxies, mailing Shareholder reports and prospectuses to
current Shareholders, withholding taxes on U.S. resident and non-resident
alien accounts, preparing and filing U.S. Treasury Department Forms 1099
and other appropriate forms required by federal authorities with respect
to dividends and distributions for all Shareholders, preparing and mailing
3
<PAGE>
confirmation forms and statements of account to Shareholders for all
purchases and redemptions of Shares and other confirmable transactions in
Shareholder accounts, preparing and mailing activity statements for
Shareholders, and providing Shareholder account information and (ii)
provide a system which will enable the Fund to monitor the total number of
Shares of each series and class sold in each State.
(c) In addition, the Fund shall (i) identify to the Bank in
writing those transactions and assets to be treated as exempt from blue
sky reporting for each State and (ii) verify the establishment of
transactions for each State on the system prior to activation and
thereafter monitor the daily activity for each State. The responsibility
of the Bank for the Fund's blue sky State registration status is solely
limited to the initial establishment of transactions subject to blue sky
compliance by the Fund and the reporting of such transactions to the Fund
as provided above.
(d) Procedures as to who shall provide certain of these
services in Article 1 may be established from time to time by agreement
between the Fund on behalf of each Portfolio and the Bank per the attached
service responsibility schedule. The Bank may at times perform only a
portion of these services and the Fund or its agent may perform these
services on the Fund's behalf.
(e) The Bank shall provide additional services on behalf of the
Fund (e.g., escheatment services) which may be agreed upon in writing
between the Fund and the Bank.
Article 2 Fees and Expenses
2.01 For the performance by the Bank pursuant to this
Agreement, the Fund agrees on behalf of each of the Portfolios to pay the
Bank an annual maintenance fee for each Shareholder account as set out in
the initial fee schedule attached hereto. Such fees and out-of-pocket
expenses and advances identified under Section 2.02 below may be changed
from time to time subject to mutual written agreement between the Fund and
the Bank.
2.02 In addition to the fee paid under Section 2.01 above, the
Fund agrees on behalf of each of the Portfolios to reimburse the Bank for
out-of-pocket expenses, including but not limited to confirmation
4
<PAGE>
production, postage, forms, telephone, microfilm, microfiche, tabulating
proxies, records storage or advances incurred by the Bank for the items
set out in the fee schedule attached hereto. In addition, any other
expenses incurred by the Bank at the request or with the consent of the
Fund, will be reimbursed by the Fund on behalf of the applicable
Portfolio.
2.03 The Fund agrees on behalf of each of the Portfolios to pay
all fees and reimbursable expenses within five days following the receipt
of the respective billing notice. Postage for mailing of dividends,
proxies, Fund reports and other mailings to all Shareholder accounts shall
be advanced to the Bank by the Fund at least seven (7) days prior to the
mailing date of such materials.
Article 3 Representations and Warranties of the Bank
The Bank represents and warrants to the Fund that:
3.01 It is a trust company duly organized and existing and in
good standing under the laws of the Commonwealth of Massachusetts.
3.02 It is duly qualified to carry on its business in the
Commonwealth of Massachusetts.
3.03 It is empowered under applicable laws and by its Charter
and By-Laws to enter into and perform this Agreement.
3.04 All requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement.
3.05 It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations
under this Agreement.
Article 4 Representations and Warranties of the Fund
The Fund represents and warrants to the Bank that:
4.01 It is a corporation duly organized and existing and in
good standing under the laws of Maryland.
4.02 It is empowered under applicable laws and by its Articles
of Incorporation and By-Laws to enter into and perform this Agreement.
4.03 All corporate proceedings required by said Articles of
Incorporation and By-Laws have been taken to authorize it to enter into
and perform this Agreement.
5
<PAGE>
4.04 It is an open-end and diversified management investment
company registered under the Investment Company Act of 1940, as amended.
4.05 A registration statement under the Securities Act of 1933,
as amended on behalf of each of the Portfolios is currently effective and
will remain effective, and appropriate state securities law filings have
been made and will continue to be made, with respect to all Shares of the
Fund being offered for sale.
Article 5 Data Access and Proprietary Information
5.01 The Fund acknowledges that the data bases, computer
programs, screen formats, report formats, interactive design techniques,
and documentation manuals furnished to the Fund by the Bank as part of the
Fund's ability to access certain Fund-related data ("Customer Data")
maintained by the Bank on data bases under the control and ownership of
the Bank or other third party ("Data Access Services") constitute
copyrighted, trade secret, or other proprietary information (collectively,
"Proprietary Information") of substantial value to the Bank or other third
party. In no event shall Customer Data be deemed Proprietary Information
belonging to the Bank. The Fund agrees to treat all Proprietary
Information as proprietary to the Bank and further agrees that it shall
not divulge any Proprietary Information to any person or organization
except as may be provided hereunder. Without limiting the foregoing, the
Fund agrees for itself and its employees and agents:
(a) to access Customer Data solely from locations as may
be designated in writing by the Bank and solely in accordance with the
Bank's applicable user documentation;
(b) to refrain from copying or duplicating in any way the
Proprietary Information;
(c) to refrain from obtaining unauthorized access to any
portion of the Proprietary Information, and if such access is
inadvertently obtained, to inform in a timely manner of such fact and
dispose of such information in accordance with the Bank's instructions;
(d) to refrain from causing or allowing third-party data
acquired hereunder from being retransmitted to any other computer facility
or other location, except with the prior written consent of the Bank;
6
<PAGE>
(e) that the Fund shall have access only to those
authorized transactions agreed upon by the parties;
(f) to honor all reasonable written requests made by the
Bank to protect at the Bank's expense the rights of the Bank in
Proprietary Information at common law, under federal copyright law and
under other federal or state law.
Each party shall take reasonable efforts to advise its employees of
their obligations pursuant to this Article 5. The obligations of this
Article shall survive any earlier termination of this Agreement.
5.02 If the Fund notifies the Bank that any of the Data Access
Services do not operate in material compliance with the most recently
issued user documentation for such services, the Bank shall endeavor in a
timely manner to correct such failure. Organizations from which the Bank
may obtain certain data included in the Data Access Services are solely
responsible for the contents of such data and the Fund agrees to make no
claim against the Bank arising out of the contents of such third-party
data, including, but not limited to, the accuracy thereof. DATA ACCESS
SERVICES AND ALL COMPUTER PROGRAMS AND SOFTWARE SPECIFICATIONS USED IN
CONNECTION THEREWITH ARE PROVIDED ON AN AS IS, AS AVAILABLE BASIS. THE
BANK EXPRESSLY DISCLAIMS ALL WARRANTIES EXCEPT THOSE EXPRESSLY STATED
HEREIN INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
5.03 If the transactions available to the Fund include the
ability to originate electronic instructions to the Bank in order to (i)
effect the transfer or movement of cash or Shares or (ii) transmit
Shareholder information or other information (such transactions
constituting a "COEFI"), then in such event the Bank shall be entitled to
rely on the validity and authenticity of such instruction without
undertaking any further inquiry as long as such instruction is undertaken
in conformity with security procedures established by the Bank from time
to time.
Article 6 Indemnification
6.01 The Bank shall not be responsible for, and the Fund shall
on behalf of the applicable Portfolio indemnify and hold the Bank harmless
7
<PAGE>
from and against, any and all losses, damages, costs, charges, counsel
fees, payments, expenses and liability arising out of or attributable to:
(a) All actions of the Bank or its agent or subcontractors
required to be taken pursuant to this Agreement, provided that such
actions are taken in good faith and without negligence or willful
misconduct.
(b) The Fund's lack of good faith, negligence or willful
misconduct which arise out of the breach of any representation or warranty
of the Fund hereunder.
(c) The reliance on or use by the Bank or its agents or
subcontractors of information, records, documents or services which (i)
are received by the Bank or its agents or subcontractors, and (ii) have
been prepared, maintained or performed by the Fund or any other person or
firm on behalf of the Fund including but not limited to any previous
transfer agent or registrar.
(d) The reliance on, or the carrying out by the Bank or its
agents or subcontractors of any instructions or requests of the Fund on
behalf of the applicable Portfolio.
(e) The offer or sale of Shares in violation of any requirement
under the federal securities laws or regulations or the securities laws or
regulations of any state that such Shares be registered in such state or
in violation of any stop order or other determination or ruling by any
federal agency or any state with respect to the offer or sale of such
Shares in such state.
The Bank shall be liable for any and all losses and damages, and
any and all reasonable costs, charges, counsel fees, payments, expenses
and liability directly arising out of or attributable to the Bank s lack
of good faith or its negligence or willful misconduct. In the event of
any loss, damage or expense suffered or incurred by the Fund caused by or
resulting from actions or omissions for which the Bank would be liable
pursuant to this section, the Bank shall promptly reimburse the Fund in
the amount of any such loss, damage or expense. The Bank shall not be
liable for any special or consequential damages under any provision of
this agreement or for any special or consequential damages arising out of
any act or failure to act hereunder.
8
<PAGE>
6.02 At any time the Bank may apply to any officer of the Fund
for instructions, and may consult with legal counsel with respect to any
matter arising in connection with the services to be performed by the Bank
under this Agreement, and the Bank and its agents or subcontractors shall
not be liable and shall be indemnified by the Fund on behalf of the
applicable Portfolio for any action taken or omitted by it in reliance
upon such instructions or upon the opinion of such counsel that such
actions or omissions comply with the terms of this Agreement and with all
applicable laws, provided the Bank acts in good faith and without
negligence. The Bank, its agents and subcontractors shall be protected
and indemnified in acting upon any paper or document furnished by or on
behalf of the Fund, reasonably believed to be genuine and to have been
signed by the proper person or persons, or upon any instruction,
information, data, records or documents provided the Bank or its agents or
subcontractors by machine readable input, telex, CRT data entry or other
similar means authorized by the Fund, and shall not be held to have notice
of any change of authority of any person, until receipt of written notice
thereof from the Fund. The Bank, its agents and subcontractors shall also
be protected and indemnified in recognizing stock certificates which are
reasonably believed to bear the proper manual or facsimile signatures of
the officers of the Fund, and the proper countersignature of any former
transfer agent or former registrar, or of a co-transfer agent or co-
registrar.
6.03 In order that the indemnification provisions contained in
this Article 6 shall apply, upon the assertion of a claim for which the
Fund may be required to indemnify the Bank, the Bank shall promptly notify
the Fund of such assertion, and shall keep the Fund advised with respect
to all developments concerning such claim. The Fund shall have the option
to participate with the Bank in the defense of such claim or to defend
against said claim in its own name or in the name of the Bank. The Bank
shall in no case confess any claim or make any compromise in any case in
which the Fund may be required to indemnify the Bank except with the
Fund's prior written consent.
Article 7 Standard of Care
9
<PAGE>
7.01 The Bank shall at all times act in good faith and agrees
to use its best efforts within reasonable limits to insure the accuracy of
all services performed under this Agreement, but assumes no responsibility
and shall not be liable for loss or damage due to errors unless said
errors are caused by its negligence, bad faith, or willful misconduct or
that of its employees.
Article 8 Covenants of the Fund and the Bank
8.01 The Fund shall on behalf of each of the Portfolios
promptly furnish to the Bank the following:
(a) A certified copy of the resolution of the Directors of the
Fund authorizing the appointment of the Bank and the execution and
delivery of this Agreement.
(b) A copy of the Articles of Incorporation and By-Laws of the
Fund and all amendments thereto.
8.02 The Bank hereby agrees to establish and maintain
facilities and procedures reasonably acceptable to the Fund for
safekeeping of stock certificates, check forms and facsimile signature
imprinting devices, if any; and for the preparation or use, and for
keeping account of, such certificates, forms and devices and to make such
changes in said procedures and facilities as the Fund may from time to
time reasonably request.
8.03 The Bank shall keep records relating to the services to be
performed hereunder, in the form and manner as it may deem advisable. To
the extent required by Section 31 of the Investment Company Act of 1940,
as amended, and the Rules thereunder, the Bank agrees that all such
records prepared or maintained by the Bank relating to the services to be
performed by the Bank hereunder are the property of the Fund and will be
preserved, maintained and made available in accordance with such Section
and Rules, and will be surrendered promptly to the Fund on and in
accordance with its request.
8.04 The Bank and the Fund agree that all books, records,
information and data pertaining to the business of the other party which
are exchanged or received pursuant to the negotiation or the carrying out
of this Agreement shall remain confidential, shall not be voluntarily
disclosed to any other person, except as may be required by law, and shall
10
<PAGE>
not be used by the Bank for any purpose not directly related to the
business of the Fund, except with the Fund s written consent.
8.05 In case of any requests or demands for the inspection of
the Shareholder records of the Fund, the Bank will endeavor to notify the
Fund and to secure instructions from an authorized officer of the Fund as
to such inspection. The Bank reserves the right, however, to exhibit the
Shareholder records to any person whenever it is advised by its counsel
that it may be held liable for the failure to exhibit the Shareholder
records to such person.
Article 9 Termination of Agreement
9.01 This Agreement may be terminated by either party upon one
hundred twenty (120) days written notice to the other.
9.02 Should the Fund exercise its right to terminate in the
absence of a material breach of this Agreement by the Bank, all out-of-
pocket expenses associated with the movement of records and material will
be borne by the Fund on behalf of the applicable Portfolio(s).
Additionally, the Bank reserves the right to charge for any other
reasonable expenses associated with such termination and/or a charge
equivalent to the average of three (3) months' fees if the Fund terminates
the Agreement within one year of its effectiveness. In the event that the
Fund designates a successor to any of the Bank s obligations hereunder,
the Bank shall, at the expense and direction of the Fund, transfer to such
successor a certified list of Shareholders of the Fund, a complete record
of the account of each Shareholder, and all other necessary or relevant
books, records and other data established or maintained by the Bank
hereunder.
Article 10 Additional Funds
10.01 In the event that the Fund establishes one or more series
of Shares in addition to Legg Mason American Leading Companies Trust with
respect to which it desires to have the Bank render services as transfer
agent under the terms hereof, it shall so notify the Bank in writing, and
if the Bank agrees in writing to provide such services, such series of
Shares shall become a Portfolio hereunder.
Article 11 Assignment
11
<PAGE>
11.01 Except as provided in Section 11.03 below, neither this
Agreement nor any rights or obligations hereunder may be assigned by
either party without the written consent of the other party.
11.02 This Agreement shall inure to the benefit of and be
binding upon the parties and their respective permitted successors and
assigns.
11.03 The Bank may, without further consent on the part of the
Fund, subcontract for the performance hereof with (i) Boston Financial
Data Services, Inc., a Massachusetts corporation ("BFDS") which is duly
registered as a transfer agent pursuant to Section 17A(c)(1) of the
Securities Exchange Act of 1934, as amended ("Section 17A(c)(1)"), (ii) a
BFDS subsidiary duly registered as a transfer agent pursuant to Section
17A(c)(1) or (iii) a BFDS affiliate; provided, however, that the Bank
shall be as fully responsible to the Fund for the acts and omissions of
any subcontractor as it is for its own acts and omissions.
Article 12 Amendment
12.01 This Agreement may be amended or modified by a written
agreement executed by both parties and authorized or approved by a
resolution of the Directors of the Fund.
Article 13 Massachusetts Law to Apply
13.01 This Agreement shall be construed and the provisions
thereof interpreted under and in accordance with the laws of the
Commonwealth of Massachusetts.
Article 14 Force Majeure
14.01 In the event either party is unable to perform its
obligations under the terms of this Agreement because of acts of God,
strikes, equipment or transmission failure or damage reasonably beyond its
control, or other causes reasonably beyond its control, such party shall
not be liable for damages to the other for any damages resulting from such
failure to perform or otherwise from such causes. The Bank shall use
reasonable care to minimize the likelihood of damage, loss of data, delays
and/or errors and should such damage, loss of data, delays and/or errors
occur, the Bank shall use its best efforts to mitigate the effects of such
occurrence.
Article 15 Consequential Damages
12
<PAGE>
15.01 Neither party to this Agreement shall be liable to the
other party for consequential damages under any provision of this
Agreement or for any consequential damages arising out of any act or
failure to act hereunder.
Article 16 Merger of Agreement
16.01 This Agreement constitutes the entire agreement between
the parties hereto and supersedes any prior agreement with respect to the
subject matter hereof whether oral or written.
Article 17 Miscellaneous
17.01 Notwithstanding any other provision of this Agreement,
the parties agree that the assets and liabilities of each series of the
Fund are separate and distinct from the assets and liabilities of each
other series and that no series shall be liable or shall be charged for
any debt, obligation or liability of any other series, whether arising
under this Agreement or otherwise.
Article 18 Counterparts
18.01 This Agreement may be executed by the parties hereto on
any number of counterparts, and all of said counterparts taken together
shall be deemed to constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in their names and on their behalf by and through their duly
authorized officers, as of the day and year first above written.
LEGG MASON INVESTORS TRUST, INC.
BY: _____________________________________
ATTEST:
_____________________________________
STATE STREET BANK AND TRUST COMPANY
13
<PAGE>
BY: ____________________________________
Executive Vice President
ATTEST:
_______________________________________
14
<PAGE>
STATE STREET BANK & TRUST COMPANY
FUND SERVICE RESPONSIBILITIES*
<TABLE>
<CAPTION>
<S> <C>
Service Performed Responsibility
Bank Fund
1. Receives orders for the purchase
of Shares.
2. Issue Shares and hold Shares in
Shareholders accounts.
3. Receive redemption requests.
4. Effect transactions 1-3 above
directly with broker-dealers.
5. Pay over monies to redeeming
Shareholders.
6. Effect transfers of Shares.
7. Prepare and transmit dividends
and distributions.
8. Issue Replacement Certificates.
9. Reporting of abandoned property.
10. Maintain records of account.
11. Maintain and keep a current and
accurate control book for each
issue of securities.
12. Mail proxies.
13. Mail Shareholder reports.
14. Mail prospectuses to current
Shareholders.
15. Withhold taxes on U.S. resident
and non-resident alien accounts.
1
<PAGE>
Service Performed Responsibility
Bank Fund
16. Prepare and file U.S. Treasury
Department forms.
17. Prepare and mail account and
confirmation statements for
Shareholders.
18. Provide Shareholder account
information.
19. Blue sky reporting.
* Such services are more fully described in Article 1.02 (a), (b) and (c) of the Agreement.
LEGG MASON INVESTORS TRUST, INC.
BY: ____________________________________
ATTEST:
________________________________
STATE STREET BANK AND TRUST COMPANY
BY: _______________________________________
Executive Vice President
ATTEST:
__________________________________
2
<PAGE>
</TABLE>
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" in the Prospectuses and "The Trust's Independent Auditors" in
the Statement of Additional Information and to the incorporation by
reference in this Post-Effective Amendment Number 3 to Registration
Statement Number 33-62174 (Form N-1A) of our report dated April 27, 1995,
on the financial statements and financial highlights of The Legg Mason
American Leading Companies Trust, a separate series of the Legg Mason
Investors Trust, Inc., for the year ended March 31, 1995, included in the
1995 Annual Report to Shareholders.
/s/ Ernst & Young LLP
Baltimore, Maryland
June 15, 1995
<PAGE>
LEGG MASON AMERICAN LEADING COMPANIES TRUST
-------------------------------------------
March 31, 1994 - March 31, 1995 (One Year)
-------------------------------
Cumulative Total Return:
-----------------------
ERV = (10.18 x 1.0137899) - (9.69 x 1.0024851) x 1000 + 1000 = 1062.41
----------------------------------------
(9.69 x 1.0024851)
P = 1000
C = 1062.41 - 1 = 0.06241 = 6.24%
------- ----
1000
Average Annual Return: Same
----------------------
September 1, 1993 - March 31, 1995 (life of fund)
----------------------------------
Cumulative Total Return:
-----------------------
ERV = (10.18 X 1.0137899) - (10.00 x 1.0) x 1000 + 1000 = 1032.04
-----------------------------------
(10.00 x 1.0)
P = 1000
C = 1032.04 - 1 = 0.03204 = 3.20%
------- ----
1000
Average Annual Return:
----------------------
1
-------
1.58082
(0.03204 + 1) - 1 = 0.0202 = 2.02%
----
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> LEGG MASON AMERICAN LEADING COMPANIES TRUST
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-START> APR-01-1994
<PERIOD-END> MAR-31-1995
<INVESTMENTS-AT-COST> 58,704,473
<INVESTMENTS-AT-VALUE> 60,048,657
<RECEIVABLES> 700,430
<ASSETS-OTHER> 62,910
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 60,811,997
<PAYABLE-FOR-SECURITIES> 669,403
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 157,956
<TOTAL-LIABILITIES> 827,359
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 58,872,824
<SHARES-COMMON-STOCK> 5,891,418
<SHARES-COMMON-PRIOR> 5,679,486
<ACCUMULATED-NII-CURRENT> 248,230
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (480,763)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,344,347
<NET-ASSETS> 59,984,638
<DIVIDEND-INCOME> 1,453,300
<INTEREST-INCOME> 366,251
<OTHER-INCOME> 0
<EXPENSES-NET> 1,124,498
<NET-INVESTMENT-INCOME> 695,053
<REALIZED-GAINS-CURRENT> (439,491)
<APPREC-INCREASE-CURRENT> 3,245,707
<NET-CHANGE-FROM-OPS> 3,501,269
<EQUALIZATION> 5,664
<DISTRIBUTIONS-OF-INCOME> (645,458)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 13,742,006
<NUMBER-OF-SHARES-REDEEMED> (12,279,159)
<SHARES-REINVESTED> 637,649
<NET-CHANGE-IN-ASSETS> 4,962,184
<ACCUMULATED-NII-PRIOR> 192,971
<ACCUMULATED-GAINS-PRIOR> (41,272)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 431,577
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,218,942
<AVERAGE-NET-ASSETS> 57,543,615
<PER-SHARE-NAV-BEGIN> 9.69
<PER-SHARE-NII> 0.12
<PER-SHARE-GAIN-APPREC> 0.48
<PER-SHARE-DIVIDEND> (0.11)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.18
<EXPENSE-RATIO> 1.95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
