As filed with the Securities and Exchange Commission on January 31, 1997.
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. 6 [X]
------
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 7 [ ]
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 Massachusetts Ave., N.W.
(Name and Address of Second Floor
Agent for Service) Washington, D.C. 20036
It is proposed that this filing will become effective:
[X] immediately upon filing pursuant to Rule 485(b)
[ ] on , 1997 pursuant to Rule 485(b)
[ ] 60 days after filing pursuant to Rule 485(a)(i)
[ ] on , 1997 pursuant to Rule 485(a)(i)
[ ] 75 days after filing pursuant to Rule 485(a)(ii)
[ ] on , 1997 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 30, 1996.
<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
Legg Mason Balanced Trust -- Primary Shares
Part A - Prospectus
Navigator American Leading Companies Trust
Navigator Balanced Trust
Part A - Prospectus
Legg Mason American Leading Companies Trust -- Primary Shares
Legg Mason Balanced Trust -- Primary Shares
Navigator American Leading Companies Trust
Navigator Balanced Trust
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
<PAGE>
Legg Mason American Leading Companies Trust--Primary Shares
Legg Mason Balanced Trust -- Primary Shares
Form N-1A Cross Reference Sheet
Part A. Item No. Prospectus Caption
1 Cover Page
2 Prospectus Highlights;
Expenses
3 Performance Information;
Financial Highlights
4 Investment Objectives
and Policies;
Description of each Corporation/Trust and Its
Shares
5 Expenses;
The Funds' Management and
Investment Adviser;
The Funds' Distributor;
6 Prospectus Highlights;
Description of each Corporation/Trust and
Its Shares;
How Your Shareholder Account is
Maintained;
Dividends and Other Distributions;
Shareholder Services;
Tax Treatment of Dividends and Other
Distributions
7 How You Can Invest in the Funds;
How Your Shareholder Account is
Maintained;
How Net Asset Value is Determined;
The Funds' Distributor;
Investing Through Tax-Deferred
Retirement Plans
8 How You Can Redeem Your Primary
Shares
9 Not Applicable
<PAGE>
Navigator American Leading Companies Trust
Navigator Balanced Trust
Form N-1A Cross Reference Sheet
Part A. Item No. Prospectus Caption
1 Cover Page
2 Expenses
3 Performance Information;
Financial Highlights
4 Investment Objectives
and Policies;
Description of each Corporation/Trust and Its
Shares
5 Expenses;
The Funds' Management and
Investment Adviser;
The Funds' Distributor;
6 Description of each Corporation/Trust and
Its Shares;
Dividends and Other Distributions;
How Your Shareholder Accounts Is
Maintained;
Shareholder Services;
Tax Treatment of Dividends and Other
Distributions
7 How To Purchase and Redeem Shares;
How Your Shareholder Account is
Maintained;
How Net Asset Value is Determined;
The Funds' Distributor;
8 How To Purchase and Redeem Shares
9 Not Applicable
<PAGE>
Legg Mason American Leading Companies Trust--Primary Shares
Legg Mason Balanced Trust--Primary Shares
Navigator American Leading Companies Trust
Navigator Balanced 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 Funds' Directors and
Officers
15 The Funds' Directors and
Officers
16 The Funds' Investment Adviser;
The Funds' Distributor;
The Funds' Independent Accountants/
Auditors;
The Funds' 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 Funds' Distributor;
Portfolio Transactions and
<PAGE>
Brokerage;
The Funds' Custodian and Transfer
and Dividend-Disbursing Agent
22 Performance Information
23 Financial Statements
<PAGE>
LEGG MASON EQUITY FUNDS
Value Trust, Inc.
Total Return Trust, Inc.
Special Investment Trust, Inc.
American Leading Companies Trust
Balanced Trust
Supplement to the Prospectus dated July 31, 1996
The following table is to be inserted at the end of the section titled
"Financial Highlights" which begins on page 5 of the Prospectus.
Balanced Trust
<TABLE>
<CAPTION>
October 1, 1996(A)
to
Primary Class* December 31,1996
<S> <C> (Unaudited)
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 10.00
-------
Net investment income(B) 0.03
Net realized and unrealized gain on investments 0.35
------
Total from investment operations 0.38
------
Distributions to shareholders from net investment income (0.04)
------
Net asset value, end of period $ 10.34
=======
Total return 3.83%(C)
RATIOS/SUPPLEMENTAL DATA:
Ratio to average net assets:
Expenses(B) 1.85%(D)
Net investment income(B) 2.50%(D)
Portfolio turnover rate 0.82%(D)
Average commission rate paid(E) $0.0628
Net assets, end of period (in thousands) $14,916
</TABLE>
- ---------------
* As of December 31, 1996, the Navigator Class of shares has not commenced
operations.
(A) Commencement of operations.
(B) Net of fees waived and expenses reimbursed pursuant to a voluntary expense
limitation of 1.85%. If no fees had been waived by the Manager, the
annualized ratio of expenses to average daily net assets for the period
October 1, 1996 to December 31, 1996 would have been 3.67%.
(C) Not annualized for periods of less than a full year.
(D) Annualized.
(E) Pursuant to SEC regulations effective for fiscal years beginning after
September 1, 1995, this is the average commission rate paid on securities
purchased and sold by the Fund.
January 31, 1997
<PAGE>
LEGG MASON EQUITY FUNDS
Value Trust, Inc.
Total Return Trust, Inc.
Special Investment Trust, Inc.
American Leading Companies Trust
Balanced Trust
Supplement to the Prospectus dated July 31, 1996
The following table replaces the table shown on page 8 of the Prospectus
under the section titled "Financial Highlights":
American Leading Companies
<TABLE>
<CAPTION>
For the Six
Months Ended For the Years Ended March 31,
September 30,
Primary Class* 1996 1996 1995 1994(A)
- --------------------------------------------------- ---------------- ---------------- ---------------- -----------------
(Unaudited)
<S> <C>
Per Share Operating Performance:
Net asset value, beginning of period $12.23 $10.18 $9.69 $10.00
---------------- ---------------- ---------------- -----------------
Net investment income(B) 0.02 0.07 0.12 0.059
Net realized and unrealized gain (loss)
on investments 1.00 2.08 0.48 (0.344)
---------------- ---------------- ---------------- -----------------
Total from investment operations 1.02 2.15 0.60 (0.285)
---------------- ---------------- ---------------- -----------------
Distributions to shareholders from net
investment income (0.01) (0.10) (0.11) (0.025)
---------------- ---------------- ---------------- -----------------
Net asset value, end of period $13.24 $12.23 $10.18 $9.69
---------------- ---------------- ---------------- -----------------
Total return(C) 8.34% 21.24% 6.24% (2.86)%
Ratios/Supplemental Data:
Ratios to average net assets:
Expenses(B) 1.95%(D) 1.95% 1.95% 1.95%(D)
Net investment income(B) .25%(D) .69% 1.21% 1.14%(D)
Portfolio turnover rate 31.89%(D) 43.4% 30.5% 21.0%(D)
Average commission rate paid(E) $0.0630 -- -- --
Net assets, end of period (in thousands) $80,789 $76,100 $59,985 $55,022
</TABLE>
* As of September 30, 1996, the Navigator Class of shares had not commenced
operations.
(A) For the period September 1, 1993 (commencement of operations) to March 31,
1994.
(B) 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 Adviser, the
annualized ratio of expenses to average daily net assets for the period
September 1, 1993 to March 31, 1994, for the years ended March 31, 1995,
March 31, 1996 and the six months ended September 30, 1996 would have been
2.28%, 2.12%, 2.20% and 2.12%, respectively.
(C) Not annualized for periods of less than a full year.
(D) Annualized.
(E) Pursuant to SEC regulations effective for fiscal years beginning after
September 1, 1995, this is the average commission rate paid on securities
purchased and sold by the Fund.
January 31, 1997
<PAGE>
LEGG MASON EQUITY FUNDS
Value Trust, Inc.
Total Return Trust, Inc.
Special Investment Trust, Inc.
American Leading Companies Trust
Balanced Trust
Primary Shares
Supplement to the Prospectus dated July 31, 1996
Under the section entitled "LMCM" on page 27 of the Prospectus, the third
paragraph is revised to read:
Effective January 1, 1997, an investment committee composed of officers
and employees of LMCM became responsible for the management of American Leading
Companies.
January 16, 1997
<PAGE>
TABLE OF CONTENTS
Prospectus Highlights 2
Expenses 4
Financial Highlights 5
Performance Information 8
Investment Objectives and Policies 10
How You Can Invest in the Funds 21
How Your Shareholder Account is Maintained 22
How You Can Redeem Your Primary Shares 22
How Net Asset Value is Determined 23
Dividends and Other Distributions 24
Tax Treatment of Dividends and Other Distributions 24
Shareholder Services 25
Investing Through Tax-Deferred Retirement Plans 26
The Funds' Management and Investment Advisers 26
The Funds' Distributor 28
Description of each Corporation/Trust and its Shares 29
ADDRESSES
DISTRIBUTOR:
Legg Mason Wood Walker, Inc.
111 South Calvert Street
P.O. Box 1476, Baltimore, MD 21203-1476
410 (Bullet) 539 (Bullet) 0000 800 (Bullet) 822 (Bullet) 5544
TRANSFER AND SHAREHOLDER SERVICING AGENT:
Boston Financial Data Services
P.O. Box 953, Boston, MA 02103
COUNSEL:
Kirkpatrick & Lockhart LLP
1800 Massachusetts Ave., N.W.
Washington, DC 20036
INDEPENDENT ACCOUNTANTS /AUDITORS:
Coopers & Lybrand L.L.P.
217 East Redwood Street, Baltimore, Maryland 21202
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 ANY FUND OR ITS DISTRIBUTOR. THE PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY ANY FUND OR BY THE PRINCIPAL UNDERWRITER IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
[recycled logo] PRINTED ON RECYCLED PAPER
LMF-001
Legg Mason
Equity
Funds
Value Trust, Inc.
Total Return Trust, Inc.
Special Investment
Trust, Inc.
American Leading
Companies Trust
Balanced Trust
Primary Shares
Putting Your Future First
Prospectus
July 31, 1996
[Legg Mason Funds Logo]
<PAGE>
LEGG MASON EQUITY FUNDS -- PRIMARY SHARES
LEGG MASON VALUE TRUST, INC.
LEGG MASON TOTAL RETURN TRUST, INC.
LEGG MASON SPECIAL INVESTMENT TRUST, INC.
LEGG MASON AMERICAN LEADING COMPANIES
TRUST (A SERIES OF LEGG MASON INVESTORS TRUST, INC.)
LEGG MASON BALANCED TRUST
(A SERIES OF LEGG MASON INVESTORS TRUST, INC.)
This Prospectus sets forth concisely the information about the
funds that a prospective investor ought to know before investing. It
should be read and retained for future reference. A Statement of
Additional Information about the funds dated July 31, 1996 has been
filed with the Securities and Exchange Commission ("SEC") and, as
amended or supplemented from time to time, is incorporated herein by
this reference. The Statement of Additional Information is available
without charge upon request from the distributor, Legg Mason Wood
Walker, Incorporated ("Legg Mason") (address and telephone numbers
listed below).
Legg Mason Special Investment Trust, Inc. may invest up to 35% of
its net assets in lower-rated debt securities (commonly known as "junk
bonds"), and may invest up to 20% of its total assets in the
securities of companies involved in actual or anticipated
restructurings. Both types of investments involve an increased risk of
payment default and/or loss of principal.
Shares of Legg Mason Special Investment Trust, Inc. are not
registered for sale to investors in Missouri, and this Prospectus is
not an offer to investors residing in that State.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED BY, ANY BANK OR OTHER DEPOSITORY INSTITUTION. SHARES ARE
NOT INSURED BY THE FDIC, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY, AND ARE SUBJECT TO INVESTMENT RISK, INCLUDING THE POSSIBLE
LOSS OF THE PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
PROSPECTUS
July 31, 1996
Legg Mason Wood Walker, Incorporated
111 South Calvert Street
P.O. Box 1476
Baltimore, MD 21203-1476
410 (Bullet) 539 (Bullet) 0000
800 (Bullet) 822 (Bullet) 5544
<PAGE>
PROSPECTUS HIGHLIGHTS
The following summary is qualified in its entirety by the more
detailed information appearing in the body of this Prospectus and in the
Statement of Additional Information.
THE LEGG MASON VALUE TRUST, INC. ("Value Trust") is a diversified,
open-end management investment company seeking long-term growth of
capital. Value Trust invests principally in those equity securities which
its investment adviser, Legg Mason Fund Adviser, Inc. ("Adviser" or
"Manager"), believes are undervalued and therefore offer above-average
potential for capital appreciation. The Adviser believes that Value Trust
shares may be appropriate for investments by Individual Retirement
Accounts, Keogh Plans, Simplified Employee Pension Plans and other
qualified retirement plans (collectively referred to as "Retirement
Plans") whose principal investment objective is capital appreciation.
Other investors who seek capital appreciation may also invest in Value
Trust shares.
THE LEGG MASON TOTAL RETURN TRUST, INC. ("Total Return Trust") is a
diversified, open-end management investment company seeking capital
appreciation and current income in order to achieve an attractive total
investment return consistent with reasonable risk. In attempting to
achieve this objective, the Adviser selects a diversified portfolio,
composed of dividend-paying common stocks and securities convertible into
common stock which, in the opinion of the Adviser, offer the potential for
long-term growth; common stocks or securities convertible into common
stock which do not pay current dividends but which offer prospects for
capital appreciation and future income; and debt instruments of various
maturities. Total Return Trust may write covered put and call options. The
Adviser believes that Total Return Trust shares may be appropriate for
investments by Retirement Plans. Due to Total Return Trust's investment
objective, however, investors should not expect capital appreciation
comparable to funds devoted solely to growth, or income comparable to
funds devoted to maximum current income.
THE LEGG MASON SPECIAL INVESTMENT TRUST, INC. ("Special Investment
Trust") is a diversified, open-end management investment company seeking
capital appreciation. Special Investment Trust invests principally in
equity securities of companies with market capitalizations of less than
$2.5 billion which, in the opinion of the Adviser, have one or more of the
following characteristics: they are not closely followed by, or are out of
favor with, investors generally, and the Adviser believes they are
undervalued in relation to their long-term earning power or asset values;
unusual developments have occurred which suggest the possibility that the
market value of the securities will increase; or they are involved in
actual or anticipated reorganizations or restructurings under the
Bankruptcy Code. Special Investment Trust also invests in the securities
of companies with larger capitalizations which have one or more of these
characteristics. Special Investment Trust may invest up to 35% of its
assets in debt securities rated below investment grade.
THE LEGG MASON AMERICAN LEADING COMPANIES TRUST ("American Leading
Companies") is a professionally managed portfolio seeking long-term
capital appreciation and current income consistent with prudent investment
risk. American Leading Companies is a separate series of Legg Mason
Investors Trust, Inc. ("Investors Trust"), a diversified, open-end
management investment company. Under normal market conditions, American
Leading Companies 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.
American Leading Companies' investment adviser, Legg Mason Capital
Management, Inc. ("LMCM"), defines a "Leading Company" as a company that,
in the opinion of LMCM, 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
2
<PAGE>
("S&P 500"). LMCM believes that American Leading Companies' shares may be
appropriate for investment by Retirement Plans.
THE LEGG MASON BALANCED TRUST ("Balanced Trust") is a professionally
managed portfolio seeking long-term capital appreciation and current
income in order to achieve an attractive total investment return
consistent with reasonable risk. Balanced Trust is a separate series of
Investors Trust. Under normal conditions, Balanced Trust will invest no
more than 75% of its assets in equity securities. The term "equity
securities" includes, without limitation, common stocks, and convertible
securities of domestic issuers, securities of closed-end investment
companies and U.S. dollar-denominated securities of foreign issuers,
including American Depositary Receipts ("ADRs") and Global Depositary
Receipts ("GDRs"). Balanced Trust will invest at least 25% of its
portfolio in fixed income securities. Bartlett & Co. ("Bartlett"), as
investment adviser, believes that Balanced Trust shares may be appropriate
for investment by Retirement Plans.
Value Trust, Total Return Trust, Special Investment Trust, American
Leading Companies and Balanced Trust (each separately referred to as a
"Fund" and collectively referred to as the "Funds") each may invest a
significant portion of its assets in debt securities, and may invest to
some extent in securities rated below investment grade. Each Fund may
invest in foreign securities, which would expose it to the possibility of
currency fluctuations and other risks of foreign investing. Each Fund may
use futures contracts and/or options for hedging or income purposes, which
may expose it to the potential for losses greater than the value of the
Fund's investment in such instruments.
Of course, there can be no assurance that any Fund will achieve its
objective. See "Investment Objectives and Policies," page 10 which also
includes a discussion of risks.
Each Fund offers two classes of shares, Primary Class ("Primary
Shares") and Navigator Class ("Navigator Shares"). Primary Shares offered
in this Prospectus are available to all investors except certain
institutions (see page 5). No initial sales charge is payable on
purchases, and no redemption charge is payable on sales of the Funds'
shares. Each Fund pays management fees to the Advisers/Manager and
distribution fees (Primary Shares only) to Legg Mason, as described in
this Prospectus.
DISTRIBUTOR:
Legg Mason Wood Walker, Incorporated
INVESTMENT ADVISERS:
Legg Mason Fund Adviser, Inc. (for Value Trust, Total Return Trust and
Special Investment Trust)
Legg Mason Capital Management, Inc. (for American Leading Companies)
Bartlett & Co. (for Balanced Trust)
PURCHASE METHODS:
Send bank/personal check or wire federal funds. There is a $1,000
minimum, generally for initial purchases, and a $100 minimum, generally
for subsequent purchases. Lower minimums for initial and subsequent
purchases apply for automatic investments. See page 22. See "How You Can
Invest in the Funds," page 21.
REDEMPTION METHODS:
Redeem by calling your Legg Mason or affiliated investment executive
or redeem by mail. See "How You Can Redeem Your Primary Shares," page 22.
PUBLIC OFFERING PRICE PER SHARE:
Net asset value
EXCHANGE PRIVILEGE:
All funds in the Legg Mason Family of Funds. See "Exchange Privilege,"
page 25.
DIVIDENDS:
Declared and paid quarterly for Value Trust, Total Return Trust and
Balanced Trust. Declared and paid after the end of each taxable year of
Special Investment Trust and American Leading Companies. See "Dividends
and Other Distributions," page 23.
REINVESTMENT:
All dividends and other distributions are automatically reinvested in
Primary Shares unless cash payments are requested.
3
<PAGE>
EXPENSES
The purpose of the following table is to assist an investor in
understanding the various costs and expenses that an investor in Primary
Shares of a Fund will bear directly or indirectly. The expenses and fees
set forth in the table are based on average net assets and annual Fund
operating expenses related to Primary Shares of Value Trust, Total Return
Trust, Special Investment Trust and American Leading Companies for the
year ended March 31, 1996. For Balanced Trust, which has no operating
history prior to the date of this Prospectus, other expenses are based on
estimates for the current fiscal period, and fees are adjusted for current
expense limits and fee waiver levels.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES -- PRIMARY SHARES(A)
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
TOTAL SPECIAL AMERICAN
VALUE RETURN INVESTMENT LEADING BALANCED
TRUST TRUST TRUST COMPANIES TRUST
<S> <C> <C> <C> <C> <C>
Management fees
(after fee
waivers) 0.77% 0.75% 0.82% 0.50% 0.50%
12b-1 fees
(after fee
waivers) 0.95% 1.00% 1.00% 1.00% 0.75%
Other expenses 0.10% 0.20% 0.14% 0.45% 0.60%
Total operating
expenses
(after fee
waivers) 1.82% 1.95% 1.96% 1.95% 1.85%
</TABLE>
(A) The Manager and Legg Mason have voluntarily agreed to waive 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) as follows: for Total Return Trust and American
Leading Companies, 1.95% of each Fund's average daily net assets
indefinitely; and for Balanced Trust, 1.85% of average daily net assets
until March 31, 1997. In the absence of such waivers, the management
fee, 12b-1 fee, other expenses and total operating expenses relating to
Primary Shares would have been as follows: for Total Return Trust, the
same as described above, and for American Leading Companies, 0.75%,
1.00%, 0.45% and 2.20% of average net assets; and for Balanced Trust,
0.75%, 0.75%, 0.60% and 2.10% of average net assets.
For further information concerning the Funds' expenses, please see
"The Funds' Management and Investment Advisers" and "The Funds'
Distributor," pages 26-28. Because each Fund pays 12b-1 fees 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").
EXAMPLE
The following example illustrates the expenses that you would pay on a
$1,000 investment in Primary Shares over various time periods assuming (1)
a 5% annual rate of return and (2) redemption at the end of each time
period. As noted in the prior table, the Funds charge no redemption fees
of any kind.
<TABLE>
<CAPTION>
TOTAL SPECIAL AMERICAN
VALUE RETURN INVESTMENT LEADING BALANCED
TRUST TRUST TRUST COMPANIES TRUST
<S> <C> <C> <C> <C> <C>
1 Year $ 18 $ 20 $ 20 $ 20 $ 19
3 Years $ 57 $ 61 $ 62 $ 61 $ 57
5 Years $ 99 $105 $106 $105 N/A
10 Years $214 $226 $229 $226 N/A
</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 OF THE FUNDS. THE
ABOVE TABLES AND EXAMPLES SHOULD NOT BE CONSIDERED REPRESENTATIONS OF PAST
OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN. The actual expenses attributable to Primary Shares will depend
upon, among other things, the level of average net assets, the levels of
sales and redemptions of shares, the extent to which the Manager and/or
Legg Mason waive their fees and reimburse all or a portion of each Fund's
expenses and the extent to which Primary Shares incur variable expenses,
such as transfer agency costs.
4
<PAGE>
FINANCIAL HIGHLIGHTS
Each Fund offers two classes of shares, Primary Shares and Navigator
Shares. Navigator Shares are currently offered for sale only to
institutional clients of the Fairfield Group, Inc. ("Fairfield") for
investment of their own monies and monies for which they act in a fiduciary
capacity, to clients of Legg Mason Trust Company ("Trust Company") for
which Trust Company exercises discretionary investment management
responsibility, 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 for Primary
Shares reflects the 12b-1 fees paid by that Class.
The financial information in the tables that follow has been audited
for Value Trust, Total Return Trust and Special Investment Trust by Coopers
& Lybrand L.L.P., independent accountants and for American Leading
Companies by Ernst & Young LLP, independent auditors. Each Fund's financial
statements for the year ended March 31, 1996 and the report of Coopers &
Lybrand L.L.P. or Ernst & Young LLP thereon are included in that Fund's
annual report and are incorporated by reference in the Statement of
Additional Information. The annual report for each Fund is available to
shareholders without charge by calling your Legg Mason or affiliated
investment executive or Legg Mason's Funds Marketing Department at
800-822-5544. As of the date of this Prospectus, Balanced Trust has not
commenced operations and has not issued any annual reports.
VALUE TRUST (A)
<TABLE>
<CAPTION>
PRIMARY CLASS
Years Ended March 31, 1996 1995 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period $20.21 $18.50 $17.81 $15.69 $13.38 $14.19 $14.16
Net investment income .19 .10 .08 .18 .25 .32 .33
Net realized and
unrealized
gain (loss) on
investments 8.00 1.70 .92 2.12 2.34 (.74) .77
Total from investment
operations 8.19 1.80 1.00 2.30 2.59 (.42) 1.10
Distributions to
shareholders from:
Net investment
income (.17) (.05) (.11) (.18) (.28) (.36) (.33)
Net realized gain on
investments (1.24) (.04) (.20) -- -- (.03) (.74)
Total distributions (1.41) (.09) (.31) (.18) (.28) (.39) (1.07)
Net asset value, end
of period $26.99 $20.21 $18.50 $17.81 $15.69 $13.38 $14.19
Total return(C) 42.09% 9.77% 5.65% 14.76% 19.53% (2.88)% 7.74%
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net
assets:
Expenses 1.82%(E) 1.81%(E) 1.82%(E) 1.86%(E) 1.90%(E) 1.90%(E) 1.86%(E)
Net investment
income 0.8% 0.5% 0.5% 1.1% 1.7% 2.5% 2.2%
Portfolio turnover
rate 19.6% 20.1% 25.5% 21.8% 39.4% 38.8% 30.7%
Net assets, end of
period
(in thousands) $1,450,774 $986,325 $912,418 $878,394 $745,833 $690,053 $808,780
</TABLE>
<TABLE>
<CAPTION>
NAVIGATOR CLASS
Years Ended March 31, 1989 1988 1987 1996 1995(B)
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period $12.14 $15.07 $15.34 $20.27 $18.76
Net investment income .21 .21 .21 .43 .12
Net realized and
unrealized
gain (loss) on
investments 1.99 (1.54) 1.11 8.02 1.40
Total from investment
operations 2.20 (1.33) 1.32 8.45 1.52
Distributions to
shareholders from:
Net investment
income (.18) (.20) (.20) (.40) (.01)
Net realized gain on
investments -- (1.40) (1.39) (1.24) --
Total distributions (.18) (1.60) (1.59) (1.64) (.01)
Net asset value, end
of period $14.16 $12.14 $15.07 $27.08 $20.27
Total return(C) 18.33% (8.42)% 9.89% 43.53% 8.11%
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net
assets:
Expenses 1.96%(E) 1.97%(E) 2.00%(E) 0.82% 0.82%(D)
Net investment
income 1.6% 1.5% 1.5% 1.8% 1.8%(D)
Portfolio turnover
rate 29.7% 47.8% 42.5% 19.6% 20.1%
Net assets, end of
period
(in thousands) $720,961 $665,689 $819,348 $52,332 $36,519
</TABLE>
(A) ALL SHARE AND PER SHARE FIGURES REFLECT THE 2-FOR-1 STOCK SPLIT EFFECTIVE
JULY 29, 1991.
(B) FOR THE PERIOD DECEMBER 1, 1994 (COMMENCEMENT OF SALE OF NAVIGATOR
SHARES) TO MARCH 31, 1995.
(C) NOT ANNUALIZED FOR PERIODS OF LESS THAN A FULL YEAR.
(D) ANNUALIZED.
(E) INCLUDES DISTRIBUTION FEE OF 1.0% THROUGH MAY 11, 1987 AND 0.95%
THEREAFTER.
5
<PAGE>
TOTAL RETURN TRUST
<TABLE>
<CAPTION>
PRIMARY CLASS
Years Ended March 31, 1996 1995 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period $12.79 $13.54 $13.61 $11.64 $9.64 $10.03 $10.06
Net investment income .48 .33 .36 .39(B) .34 .28 .21
Net realized and
unrealized
gain (loss) on
investments 3.69 (.19) .24 1.89 1.91 (.31) .15
Total from investment
operations 4.17 .14 .60 2.28 2.25 (.03) .36
Distributions to
shareholders from:
Net investment
income (.51) (.29) (.33) (.31) (.25) (.29) (.21)
Net realized gain on
investments -- (.60) (.34) -- -- (.07) (.18)
Total distributions (.51) (.89) (.67) (.31) (.25) (.36) (.39)
Net asset value, end
of period $16.45 $12.79 $13.54 $13.61 $11.64 $9.64 $10.03
Total return(C) 33.23% 1.09% 4.57% 19.88% 23.59% (0.05)% 3.48%
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net
assets:
Expenses 1.95%(E) 1.93%(E) 1.94%(E) 1.95(B,E) 2.34%(E) 2.50%(E) 2.39%(E)
Net investment
income 3.2% 2.5% 2.7% 3.1%(B) 3.1% 3.1% 2.0%
Portfolio turnover
rate 34.7% 61.9% 46.6% 40.5% 38.4% 62.1% 39.2%
Net assets, end of
period (in
thousands) $267,010 $194,767 $184,284 $139,034 $52,360 $22,822 $26,815
</TABLE>
<TABLE>
<CAPTION> NAVIGATOR CLASS
Years Ended March 31, 1989 1988 1987 1996 1995(A)
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period $ 8.86 $11.63 $10.78 $12.83 $12.66
Net investment income .15 .18 .18 .62 .15
Net realized and
unrealized
gain (loss) on
investments 1.18 (1.35) .90 3.72 .25
Total from investment
operations 1.33 (1.17) 1.08 4.34 .40
Distributions to
shareholders from:
Net investment
income (.13) (.21) (.19) (.65) (.06)
Net realized gain on
investments -- (1.39) (.04) -- (.17)
Total distributions (.13) (1.60) (.23) (.65) (.23)
Net asset value, end
of period $10.06 $8.86 $11.63 $16.52 $12.83
Total return(C) 15.16% (10.17)% 10.24% 34.67% 2.28%
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net
assets:
Expenses 2.40%(E) 2.30%(E) 2.40%(E) 0.94% 0.86%(D)
Net investment
income 1.6% 1.9% 1.7% 4.2% 3.6%(D)
Portfolio turnover
rate 25.7% 50.1% 82.7% 34.7% 61.9%
Net assets, end of
period (in
thousands) $30,102 $35,394 $47,028 $7,058 $4,823
</TABLE>
(A) FOR THE PERIOD DECEMBER 1, 1994 (COMMENCEMENT OF SALE OF NAVIGATOR
SHARES) TO MARCH 31, 1995.
(B) NET OF FEES WAIVED BY THE ADVISER IN EXCESS OF AN INDEFINITE VOLUNTARY
EXPENSE LIMITATION OF 1.95% BEGINNING NOVEMBER 1, 1992.
(C) NOT ANNUALIZED FOR PERIODS OF LESS THAN A FULL YEAR.
(D) ANNUALIZED.
(E) INCLUDES DISTRIBUTION FEE OF 1.0%.
6
<PAGE>
SPECIAL INVESTMENT TRUST
<TABLE>
<CAPTION>
PRIMARY CLASS
Years Ended March 31, 1996 1995 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning
of period $19.96 $21.56 $17.91 $17.00 $14.59 $13.58 $11.84
Net investment income -- (.06) (.11) .03 .12 .18 .12
Net realized and
unrealized
gain (loss) on
investments 5.60 (1.31) 3.93 1.66 2.83 2.42 1.70
Total from investment
operations 5.60 (1.37) 3.82 1.69 2.95 2.60 1.82
Distributions to
shareholders from:
Net investment
income -- -- (.03) -- (.14) (.27) (.08)
Net realized gain on
investments (.47) (.23) (.14) (.78) (.40) (1.32) --
Total distributions (.47) (.23) (.17) (.78) (.54) (1.59) (.08)
Net asset value, end
of period $25.09 $19.96 $21.56 $17.91 $17.00 $14.59 $13.58
Total return(C) 28.47% (6.37)% 21.35% 10.50% 20.46% 21.46% 15.37%
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net
assets:
Expenses 1.96%(E) 1.93%(E) 1.94%(E) 2.00%(E) 2.10%(E) 2.30%(E) 2.30%(E)
Net investment
income -- (0.2)% (0.6)% 0.2% 0.8% 1.4% 1.0%
Portfolio turnover
rate 35.6% 27.5% 16.7% 32.5% 56.9% 75.6% 115.9%
Net assets, end of
period (in
thousands) $792,240 $612,093 $565,486 $322,572 $201,772 $106,770 $68,240
</TABLE>
<TABLE>
<CAPTION>
NAVIGATOR CLASS
Years Ended March 31, 1989 1988 1987 1996 1995(A)
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning
of period $10.14 $12.80 $11.53 $20.03 $19.11
Net investment income .06(B) .13(B) --(B) .09 .07
Net realized and
unrealized
gain (loss) on
investments 1.65 (1.825) 1.51 5.78 .85
Total from investment
operations 1.71 (1.695) 1.51 5.87 .92
Distributions to
shareholders from:
Net investment
income (.01) (.075) (.02) (.17) --
Net realized gain on
investments -- (.89) (.22) (.47) --
Total distributions (.01) (.965) (.24) (.64) --
Net asset value, end
of period $11.84 $10.14 $12.80 $25.26 $20.03
Total return(C) 16.99% (14.18)% 13.39% 29.85% 4.81%
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net
assets:
Expenses 2.50%(E) 2.50%(E) 2.50%(E) 0.88% 0.90%(D)
Net investment
income 0.7% 1.0% -- 1.0% 1.0%(D)
Portfolio turnover
rate 122.4% 158.9% 77.0% 35.6% 27.5%
Net assets, end of
period (in thousands) $44,450 $43,611 $55,822 $35,731 $26,123
</TABLE>
(A) FOR THE PERIOD DECEMBER 1, 1994 (COMMENCEMENT OF SALE OF NAVIGATOR
SHARES) TO MARCH 31, 1995.
(B) EXCLUDES INVESTMENT ADVISORY FEES AND OTHER EXPENSES IN EXCESS OF A 2.5%
ADVISER-IMPOSED EXPENSE LIMITATION.
(C) NOT ANNUALIZED FOR PERIODS OF LESS THAN A FULL YEAR.
(D) ANNUALIZED.
(E) INCLUDES DISTRIBUTION FEE OF 1.0%.
7
<PAGE>
AMERICAN LEADING COMPANIES
<TABLE>
<CAPTION>
PRIMARY CLASS
Years Ended March 31, 1996 1995 1994(A)
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $10.18 $ 9.69 $10.00
Net investment income(B) 0.07 0.12 0.059
Net realized and unrealized gain (loss) on investments 2.08 0.48 (0.344)
Total from investment operations 2.15 0.60 (0.285)
Distributions to shareholders from net investment income (0.10) (0.11) (0.025)
Net asset value, end of period $12.23 $10.18 $9.69
Total return(C) 21.24% 6.24% (2.86)%
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net assets:
Expenses(B) 1.95% 1.95% 1.95%(D)
Net investment income(B) 0.69% 1.21% 1.14%(D)
Portfolio turnover rate 43.4% 30.5% 21.0%(D)
Net assets, end of period (in thousands) $76,100 $59,985 $55,022
</TABLE>
(A) FOR THE PERIOD SEPTEMBER 1, 1993 (COMMENCEMENT OF OPERATIONS) TO MARCH
31, 1994.
(B) 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 YEARS ENDED MARCH 31, 1995 AND MARCH 31,
1996 WOULD HAVE BEEN 2.28%, 2.12% AND 2.20%, RESPECTIVELY.
(C) NOT ANNUALIZED FOR PERIODS OF LESS THAN A FULL YEAR.
(D) ANNUALIZED.
PERFORMANCE INFORMATION
From time to time each Fund may quote the TOTAL RETURN of each class
of shares in advertisements or in reports or other communications to
shareholders. A mutual fund's total return is a measurement of the overall
change in value 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-to-year results,
tend to smooth out variations in a fund's returns. For comparison
purposes, each Fund's total return is compared with total returns of the
Value Line Geometric Average, an index of approximately 1,700 stocks
("Value Line Index"), and the S&P 500, two unmanaged indexes of widely
held common stocks. No adjustment has been made for any income taxes
payable by shareholders.
The investment return and principal value of an investment in each
Fund will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Returns of each Fund would
have been lower if the Advisers and/or Legg Mason had not waived certain
fees for the fiscal years ended March 31, as follows: 1989 through 1996
for Value Trust; 1986 through 1995 for Total Return Trust and 1986
8
<PAGE>
through 1996 for Special Investment Trust; and 1994 through 1996 for
American Leading Companies. As of the date of this Prospectus, Balanced
Trust has no operating history.
Performance figures reflect past performance only and are not intended
to and do not indicate future performance. Further information about each
Fund's performance is contained in its Annual Report to Shareholders,
which may be obtained without charge by calling your Legg Mason or
affiliated investment executive or Legg Mason's Funds Marketing Department
at 800-822-5544.
Total returns as of March 31, 1996 were as follows:
<TABLE>
<CAPTION>
SPECIAL AMERICAN
TOTAL RETURN INVESTMENT LEADING
VALUE TRUST TRUST TRUST COMPANIES
<S> <C> <C> <C> <C>
CUMULATIVE TOTAL RETURN
Primary Class:
One Year +42.09% +33.23% +28.47% +21.24%
Five Years +126.03 +108.70 +94.29 N/A
Ten Years +181.74 +146.16 +209.91 N/A
Life of Class -- Value Trust(A) +872.26
Life of Class -- Total Return Trust(B) +165.36
Life of Class -- Special Investment Trust(C) +257.33
Life of Class -- American Leading Companies(D) +25.13
Navigator Class:
One Year +43.53 +34.67 +29.85 N/A
Life of Class(E) +55.17 +37.74 +36.10 N/A
AVERAGE ANNUAL TOTAL RETURN
Primary Class:
One Year +42.09% +33.23% +28.47% +21.24%
Five Years +17.72 +15.85 +14.21 N/A
Ten Years +10.91 +9.43 +11.98 N/A
Life of Class -- Value Trust(A) +17.69
Life of Class -- Total Return Trust(B) +9.88
Life of Class -- Special Investment Trust(C) +13.22
Life of Class -- American Leading Companies(D) +9.06
Navigator Class:
One Year +43.53 +34.67 +29.85 N/A
Life of Class(E) +39.00 +27.12 +25.99 N/A
</TABLE>
<TABLE>
<CAPTION>
VALUE LINE S&P STOCK
INDEX INDEX
<S> <C> <C>
CUMULATIVE TOTAL RETURN
Primary Class:
One Year +21.19% +32.09%
Five Years +67.41 +98.15
Ten Years +90.46 +269.15
Life of Class -- Value Trust(A) +317.14 +806.32
Life of Class -- Total Return Trust(B) +125.97 +343.59
Life of Class -- Special Investment Trust(C) +116.60 +321.18
Life of Class -- American Leading Companies(D) +28.18 +49.11
Navigator Class:
One Year +21.19 +32.09
Life of Class(E) +29.97 +47.09
AVERAGE ANNUAL TOTAL RETURN
Primary Class:
One Year +21.19% +32.09%
Five Years +10.86 +14.66
Ten Years +6.65 +13.95
Life of Class -- Value Trust(A) +10.77 +17.10
Life of Class -- Total Return Trust(B) +8.19 +15.46
Life of Class -- Special Investment Trust(C) +7.83 +15.05
Life of Class -- American Leading Companies(D) +10.08 +16.72
Navigator Class:
One Year +21.19 +32.09
Life of Class(E) +21.79 +33.66
</TABLE>
(A) INCEPTION OF VALUE TRUST -- APRIL 16, 1982.
(B) INCEPTION OF TOTAL RETURN TRUST -- NOVEMBER 21, 1985.
(C) INCEPTION OF SPECIAL INVESTMENT TRUST -- DECEMBER 30, 1985.
(D) INCEPTION OF AMERICAN LEADING COMPANIES -- SEPTEMBER 1, 1993.
(E) FOR THE PERIOD DECEMBER 1, 1994 (COMMENCEMENT OF SALE OF NAVIGATOR
SHARES) TO MARCH 31, 1996.
The S&P 500 and Value Line Index figures assume reinvestment of
dividends paid by their component stocks. Unlike the figures presented for
the Funds, the S&P 500 and Value Line Index figures do not include
brokerage commissions and other costs of investing.
9
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Each Fund's investment objective may not be changed without
shareholder approval; however, except as otherwise noted, the investment
policies of each Fund described below may be changed by the Funds' Board
of Directors without a shareholder vote. There can be no assurance that
any Fund will achieve its investment objective.
VALUE TRUST'S objective is long-term growth of capital. The Adviser
believes that the Fund's objective can best be met through the purchase of
securities that appear 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. Any or all of these
factors may provide buying opportunities at attractive prices compared to
historical or market price-earnings ratios, book value, return on equity,
or the long-term prospects for the companies in question.
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.
The Fund's policy of investing in securities that may be temporarily
out of favor differs from the investment approach followed by many other
mutual funds with similar investment objectives. Such mutual funds
typically do not invest in securities that have declined sharply in price,
are not widely followed, or are issued by companies that have reported
poor earnings or that have suffered a cyclical downturn in business. The
Adviser believes, however, that purchasing securities depressed by
temporary factors will provide investment returns superior to those
obtained when premium prices are paid for issues currently in favor.
The Fund invests primarily in companies with a record of earnings and
dividends, reasonable return on equity, and sound finances. The Fund may
from time to time invest in securities that pay no dividends or interest.
Current dividend income is not a prerequisite in the selection of equity
securities.
The Fund normally invests primarily in equity securities. It may
invest in debt securities, including government, corporate and money
market securities, for temporary defensive purposes and, consistent with
its investment objective, during periods when or under circumstances where
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 both foreign and domestic issuers of any maturity without
regard to rating, and may invest its assets in such securities without
regard to a percentage limit. The Adviser currently anticipates that under
normal market conditions, the Fund will invest no more than 25% of its
total assets in long-term debt securities. Up to 10% of its total assets
may be invested in debt securities not rated investment grade, i.e., not
rated at least BBB by Standard & Poor's ("S&P") or Baa by Moody's
Investors Service, Inc. ("Moody's") or, if unrated by those entities,
deemed by the Adviser to be of comparable quality.
TOTAL RETURN TRUST'S objective is to obtain capital appreciation and
current income in order to achieve an attractive total investment return
consistent with reasonable risk. The Adviser attempts to meet its
objective by investing in dividend-paying common stocks, debt securities
and securities convertible into common stocks which, in the opinion of the
Adviser, offer potential for attractive total return. The Fund also
invests in common stocks and securities convertible into common stocks
which do not pay current dividends but which, in the Adviser's opinion,
offer prospects for capital appreciation and future income.
The Fund may invest in debt securities, including government,
corporate and money market securities, consistent with its investment
objective, during periods when or under circumstances where 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 without regard to rating and
may invest its assets in such securities without regard
10
<PAGE>
to a percentage limit. The Adviser currently anticipates that under normal
market conditions, the Fund will invest no more than 50% of its total
assets in intermediate-term and long-term debt securities, and no more
than 5% of its total assets in debt securities not rated investment grade,
i.e., not rated at least BBB by S&P or Baa by Moody's or, if unrated by
those entities, deemed by the Adviser to be of comparable quality.
SPECIAL INVESTMENT TRUST'S objective is capital appreciation. Current
income is not a consideration. The Fund invests principally in equity
securities, and securities convertible into equity securities, of
companies with market capitalizations of less than $2.5 billion which the
Adviser believes have one or more of the following characteristics:
1. The companies generally are not closely followed by, or are out of
favor with, investors, and which appear to be undervalued in relation to
their long-term earning power or asset values. A security may be
undervalued because of many factors, including market decline, poor
economic conditions, tax-loss selling, or actual or anticipated
developments affecting the issuer.
2. The companies are experiencing unusual and possibly non-repetitive
developments which, in the opinion of the Adviser, may cause the market
values of the securities to increase. Such developments may include:
(a) a sale or termination of an unprofitable part of the company's
business;
(b) a change in the company's management or in management's
philosophy;
(c) a basic change in the industry in which the company operates;
(d) the introduction of new products or technologies; or
(e) the prospect or effect of acquisition or merger activities.
3. The companies are involved in actual or anticipated reorganizations
or restructurings under the Bankruptcy Code. No more than 20% of the
Fund's total assets may be invested in such securities.
The Fund also invests in debt securities of companies having one or
more of the characteristics listed above.
Investments in securities with such characteristics may involve
greater risks of loss than investments in securities of larger,
well-established companies with a history of consistent operating
patterns. However, the Adviser believes that such investments also may
offer greater than average potential for capital appreciation.
Although the Fund primarily invests in companies with the
characteristics described previously, the Adviser may invest in larger,
more highly-capitalized companies when circumstances warrant such
investments.
The Adviser believes that the comparative lack of attention by
investment analysts and institutional investors to small and mid-sized
companies may result in opportunities to purchase the securities of such
companies at attractive prices compared to historical or market
price-earnings ratios, book value, return on equity or long-term
prospects. The Fund's policy of investing primarily in the securities of
smaller companies differs from the investment approach of many other
mutual funds, and investment in such securities involves special risks.
Among other things, the prices of securities of small and mid-sized
companies generally are more volatile than those of larger companies; the
securities of smaller companies generally are less liquid; and smaller
companies generally are more likely to be adversely affected by poor
economic or market conditions.
It is anticipated that some of the portfolio securities of the Fund
may not be widely traded, and that the Fund's position in such securities
may be substantial in relation to the market for such securities.
Accordingly, it may be difficult for the Fund to dispose of such
securities at prevailing market prices in order to meet redemptions.
However, as a non-fundamental policy, the Fund will not invest more than
10% of its net assets in illiquid securities.
The Fund may invest up to 20% of its total assets in securities of
companies involved in actual or anticipated reorganizations or
restructurings. Investments in such securities involve special risks,
including difficulty in obtaining information as to the financial
condition of such issuers and the fact that the market prices of such
securities are subject to sudden and erratic market movements and
11
<PAGE>
above-average price volatility. Such securities require active monitoring.
The Fund invests primarily in equity securities and securities
convertible into equities, but also purchases debt securities including
government, corporate and money market securities. Up to 35% of the Fund's
assets may be invested in debt securities not rated at least BBB by S&P,
or below Baa by Moody's, and securities unrated by those entities, deemed
by the Adviser to be of comparable quality.
When conditions warrant, for temporary defensive purposes, the Fund
also may invest without limit in short-term debt instruments, including
government, corporate and money market securities. Such short-term
investments will be rated in one of the four highest rating categories by
S&P or Moody's or, if unrated by S&P or Moody's, deemed by the Adviser to
be of comparable quality.
AMERICAN LEADING COMPANIES' 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. 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. LMCM
defines a "Leading Company" as a company that, in the opinion of LMCM, 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,
LMCM's goal is to invest in companies having what LMCM 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 LMCM believes show strong potential for future market
leadership, and in companies which LMCM believes, because of corporate
restructuring or other changes, are undervalued based on their potential
for future growth. There is always a risk that LMCM 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. 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.
During periods when LMCM believes the return on certain debt
securities may equal or exceed the return on equity 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. 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 LMCM to be of comparable quality.
The Fund may invest up to 5% of its net assets in convertible
securities. Many convertible
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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 not rated at least below Ba by
Moody's or BB by S&P or, if unrated by those entities, deemed by the
Adviser to be of comparable quality.
BALANCED TRUST'S investment objective is to seek long-term capital
appreciation and current income in order to achieve an attractive total
investment return consistent with reasonable risk. The Fund will invest in
a combination of equity, debt and money market securities in attempting to
achieve its objective. Under normal conditions, the Fund will invest no
more than 75% of its assets in equity securities. Bartlett will emphasize
investments in dividend-paying equity securities that, in the opinion of
Bartlett, offer the potential for long-term growth, and in common stocks
or securities convertible into common stock that do not pay current
dividends but offer prospects for capital appreciation and future income.
The Fund generally will invest at least 25% of its portfolio in fixed
income securities, including, without limitation, preferred stocks, bonds,
debentures, municipal obligations, and mortgage-related securities;
certificates of deposit; Treasury bills, notes, bonds and other
obligations of the U.S. Government, its agencies and instrumentalities;
commercial paper and other money market instruments rated not less than
A-1, P-1 or F-1 by Moody's, S&P or Fitch Investors Services ("Fitch"),
respectively; and repurchase agreements. No more than 5% of the Fund's
total assets may be invested in fixed income or convertible securities not
rated at least BBB or Baa at the time of purchase, or comparable unrated
securities. If an investment grade security purchased by the Fund
subsequently loses its investment grade rating, Bartlett will determine
whether to retain that security in the Fund's portfolio. The Fund may
invest in securities of any maturity, but, under normal circumstances,
expects to maintain its portfolio of fixed income securities so as to have
an average dollar-weighted maturity of between four and five years.
Balanced Trust is managed as a balanced fund and invests in equity and
debt securities. This approach attempts to "balance" the potential for
growth and greater volatility of stocks with the historically stable
income and more moderate average price fluctuations of fixed income
securities. The proportion of the Fund's assets invested in each type of
security will vary from time to time in accordance with Bartlett's
assessment of investment opportunities. It is currently anticipated that
the Fund will invest an average of 60% of its total assets in common and
preferred stocks and the remaining 40% in various fixed income securities.
These percentages may vary in attempting to increase returns or reduce
risk.
The Fund may also acquire securities on a when-issued and
delayed-delivery basis, and may purchase exchange-traded futures contracts
on stock indices and options thereon. The Fund may use derivatives, such
as options and futures, in its investment activities. No more than 15% of
the Fund's net assets may be invested in illiquid securities. The Fund may
also engage in reverse repurchase agreements.
The portfolio turnover rate for the equity portion of the Fund's
portfolio is estimated to be 50% and the portfolio turnover rate for the
fixed income portion is estimated to be 120%. The Fund's portfolio
turnover rate is not expected to exceed 80%.
TYPES OF INVESTMENTS AND ASSOCIATED RISKS
FOR EACH FUND:
When cash is temporarily available, or for temporary defensive
purposes, each Fund may invest without limit in money market instruments,
including repurchase agreements and high-quality short-term debt
securities. A repurchase agreement is an agreement under which either U.S.
government obligations or 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 each Fund by State Street Bank and
Trust Company ("State Street"), the Funds' custodian, as collateral until
resold and will be supplemented by additional collateral if necessary to
maintain a total value equal to or in excess of the value of the
repurchase agreement. Each Fund bears a risk of loss in the event that the
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other party to a repurchase agreement defaults on its obligations and the
Fund is delayed or prevented from exercising its rights to dispose of the
collateral securities, which may decline in value in the interim. The
Funds will enter into repurchase agreements only with financial
institutions determined by each Fund's adviser to present minimal risk of
default during the term of the agreement based on guidelines established
by the Funds' Boards of Directors. A Fund will not enter into repurchase
agreements of more than seven days' duration if more than 10% (for Value
Trust, Total Return Trust and Special Investment Trust) or 15% (for
American Leading Companies and Balanced Trust) of its net assets would be
invested in such agreements and other illiquid investments.
The Funds may engage in securities lending. However, no Fund currently
intends to loan securities with a value exceeding 5% of its net assets.
For further information concerning securities lending, see the Statement
of Additional Information.
PREFERRED STOCK
Each Fund may purchase preferred stock as a substitute for debt
securities of the same issuer when, in the opinion of its adviser, the
preferred stock is more attractively priced in light of the risks
involved. Preferred stock pays dividends at a specified rate and generally
has preference over common stock in the payment of dividends and the
liquidation of the issuer's assets but is junior to the debt securities of
the issuer in those same respects. Unlike interest payments on debt
securities, dividends on preferred stock are generally payable at the
discretion of the issuer's board of directors. Shareholders may suffer a
loss of value if dividends are not paid. The market prices of preferred
stocks are subject to changes in interest rates and are more sensitive to
changes in the issuer's creditworthiness than are the prices of debt
securities. Value Trust, Total Return Trust and Special Investment Trust
do not currently expect to invest more than 5% of net assets in preferred
stock.
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. Before
conversion, convertible securities ordinarily provide a stream of income
with generally higher yields than those of common stocks of the same or
similar issuers, but lower than the yield on non-convertible debt.
Convertible securities are usually subordinated to comparable-tier
non-convertible securities but rank senior to common stock in a
corporation's capital structure.
The value of a convertible security is a function of (1) its yield in
comparison with the yields of other securities of comparable maturity and
quality that do not have a conversion privilege and (2) its worth, at
market value, if converted into the underlying common stock. Convertible
securities are typically issued by smaller capitalized companies whose
stock prices may be volatile. The price of a convertible security often
reflects such variations in the price of the underlying common stock in a
way that non-convertible debt does not. 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.
U.S. GOVERNMENT SECURITIES
U.S. government securities include direct obligations of the U.S.
Treasury and obligations issued by U.S. government agencies and
instrumentalities, including securities that are supported by: (1) the
full faith and credit of the United States (e.g., certificates of the
Government National Mortgage Association ("GNMA") ); (2) the right of the
issuer to borrow from the U.S. Treasury (e.g., Federal Home Loan Banks
securities); (3) the discretionary authority of the U.S. Treasury to lend
to the issuer (e.g., Federal National Mortgage Association ("FNMA")
securities); and (4) solely the creditworthiness of the issuer (e.g.,
Federal Home Loan Mortgage Corporation ("FHLMC") securities). Neither the
U.S. Government nor any of its agencies or instrumentalities guarantees
the market value of the securities they issue. Therefore, the market value
of such securities can be expected to fluctuate in response to changes in
interest rates.
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FOREIGN SECURITIES
Each Fund may invest in foreign securities. Investment in foreign
securities presents certain risks, including those resulting from
fluctuations in currency exchange rates, revaluation of currencies, future
political and economic developments and the possible imposition of
currency exchange blockages or other foreign governmental laws or
restrictions, reduced availability of public information concerning
issuers, and the fact that foreign issuers are not generally subject to
uniform accounting, auditing and financial reporting standards or to other
regulatory practices and requirements comparable to those applicable to
domestic issuers. These risks are intensified when investing in countries
with developing economies and securities markets, also known as "emerging
markets." Moreover, securities of many foreign issuers may be less liquid
and their prices more volatile than those of comparable domestic issuers.
In addition, with respect to certain foreign countries, there is the
possibility of expropriation, confiscatory taxation, withholding taxes and
limitations on the use or removal of funds or other assets.
The Funds may also invest in ADRs, which are securities issued by
banks evidencing their ownership of specific foreign securities. ADRs may
be sponsored or unsponsored; issuers of securities underlying unsponsored
ADRs are not contractually obligated to disclose material information in
the U.S. Accordingly, there may be less information available about such
issuers than there is with respect to domestic companies and issuers of
securities underlying sponsored ADRs. Although ADRs are denominated in
U.S. dollars, the underlying security often is not; thus, the value of the
ADR may be subject to exchange controls and variations in the exchange
rate. The Funds may also invest in GDRs, which are receipts, often
denominated in U.S. dollars, issued by either a U.S. or non-U.S. bank
evidencing its ownership of the underlying foreign securities.
Although not a fundamental policy subject to shareholder vote, the
adviser currently anticipates that Value Trust, Total Return Trust,
Special Investment Trust and American Leading Companies will each invest
no more than 25% of its total assets in foreign securities. Bartlett
currently anticipates that Balanced Trust will not invest more than 10% of
its total assets in foreign securities, either directly or through ADRs or
GDRs.
ILLIQUID SECURITIES
Value Trust, Total Return Trust, and Special Investment Trust may each
invest up to 10% of its net assets in illiquid securities. American
Leading Companies and Balanced Trust may each invest up to 15% of its net
assets in illiquid securities. Illiquid securities are securities that
cannot be expected to be sold within seven days at approximately the price
at which they are valued. Due to the absence of an active trading market,
a Fund may have difficulty valuing or disposing of illiquid securities
promptly. Securities that are freely tradable in their country of origin
or in their principal market are not considered illiquid securities even
if they are not registered for sale in the U.S.
WHEN-ISSUED SECURITIES
Each Fund may enter into commitments to purchase securities on a
when-issued basis. A Fund may purchase when-issued securities because such
securities are often the most efficiently priced and have the best
liquidity in the bond market. As with the purchase of all securities, when
a Fund purchases securities on a when-issued basis, it assumes the risks
of ownership, including the risk of price fluctuation, at the time of
purchase, not at the time of receipt. However, a Fund does not have to pay
for the obligations until they are delivered to it, which is normally 7 to
15 days later, but could be considerably longer in the case of some
mortgage-backed securities. To meet that payment obligation, that Fund
will set aside cash or liquid, high-quality debt securities in an account
with its custodian equal to the payment that will be due. Depending on
market conditions, a Fund's when-issued purchases could cause its net
asset value to be more volatile, because they will increase the amount by
which that Fund's total assets, including the value of the when-issued
securities held by it, exceed its net assets. A Fund may sell the
securities subject to a when-issued purchase, which may result in a gain
or loss.
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FUTURES AND OPTIONS TRANSACTIONS
VALUE TRUST, TOTAL RETURN TRUST, SPECIAL INVESTMENT TRUST AND BALANCED TRUST:
The Funds may engage in futures strategies to attempt to reduce the
overall investment risk that would normally be expected to be associated
with ownership of the securities in which each invests. For example, a
Fund may sell a stock index futures contract in anticipation of a general
market or market sector decline that could adversely affect the market
value of the Fund's portfolio. To the extent that a Fund's portfolio
correlates with a given stock index, the sale of futures contracts on that
index could reduce the risks associated with a market decline and thus
provide an alternative to the liquidation of securities positions. A Fund
may sell an interest rate futures contract to offset price changes of debt
securities it already owns. This strategy is intended to minimize any
price changes in the debt securities a Fund owns (whether increases or
decreases) caused by interest rate changes, because the value of the
futures contract would be expected to move in the opposite direction from
the value of the securities owned by the Fund.
Each Fund may purchase call options on interest rate futures contracts
to hedge against a market advance in debt securities that the Fund plans
to acquire at a future date. The purchase of such options is analogous to
the purchase of call options on an individual debt security that can be
used as a temporary substitute for a position in the security itself. The
Funds may purchase put options on stock index futures contracts. This is
analogous to the purchase of protective put options on individual stocks
where a level of protection is sought below which no additional economic
loss would be incurred by the Funds. The Funds may purchase and write
options in combination with each other to adjust the risk and return of
the overall position. For example, the Funds may purchase a put option and
write a call option on the same underlying instrument, in order to
construct a combined position whose risk and return characteristics are
similar to selling a futures contract.
The Funds may purchase put options to hedge sales of securities, in a
manner similar to selling futures contracts. If stock prices fall, the
value of the put option would be expected to rise and offset all or a
portion of the Fund's resulting losses in its stock holdings. However,
option premiums tend to decrease over time as the expiration date nears.
Therefore, because of the cost of the option (in the form of premium and
transaction costs), a Fund would expect to suffer a loss in the put option
if prices do not decline sufficiently to offset the deterioration in the
value of the option premium.
The Funds may write put options as an alternative to purchasing actual
securities. If stock prices rise, a Fund would expect to profit from a
written put option, although its gain would be limited to the amount of
the premium it received. If stock prices remain the same over time, it is
likely that the Fund will also profit, because it should be able to close
out the option at a lower price. If stock prices fall, the Fund would
expect to suffer a loss.
By purchasing a call option, a Fund would attempt to participate in
potential price increases of the underlying index, with results similar to
those obtainable from purchasing a futures contract, but with risk limited
to the cost of the option if stock prices fell. At the same time, a Fund
can expect to suffer a loss if stock prices do not rise sufficiently to
offset the cost of the option.
The characteristics of writing call options are similar to those of
writing put options, as described above, except that writing covered call
options generally is a profitable strategy if prices remain the same or
fall. Through receipt of the option premium, a Fund would seek to mitigate
the effects of a price decline. At the same time, when writing call
options the Fund would give up some ability to participate in security
price increases.
The purchase and sale of options and futures contracts involve risks
different from those involved with direct investments in securities, and
also require different skills from the adviser in managing the Funds'
portfolios. While utilization of options, futures contracts and similar
instruments may be advantageous to the Funds, if the adviser is not
successful in employing such instruments in managing a Fund's investments
or in
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predicting interest rate changes, the Fund's performance will be worse
than if the Fund did not make such investments. It is possible that there
will be imperfect correlation, or even no correlation, between price
movements of the investments being hedged and the options or futures used.
It is also possible that a Fund may be unable to purchase or sell a
portfolio security at a time that otherwise would be favorable for it to
do so, or that a Fund may need to sell a portfolio security at a
disadvantageous time, due to the need for the Fund to maintain "cover" or
to segregate securities in connection with hedging transactions and that a
Fund may be unable to close out or liquidate its hedged position. In
addition, the Funds will pay commissions and other costs in connection
with such investments, which may increase each Fund's expenses and reduce
its yield. A more complete discussion of the possible risks involved in
transactions in options and futures contracts is contained in the
Statement of Additional Information. Each Fund's current policy is to
limit options and futures transactions to those described above. The Funds
may purchase and write both over-the-counter and exchange-traded options.
A Fund will not enter into any futures contracts or related options if
the sum of the initial margin deposits on futures contracts and related
options and premiums paid for related options the Fund has purchased would
exceed 5% of the Fund's total assets. A Fund will not purchase futures
contracts or related options if, as a result, more than 20% of the Fund's
total assets would be so invested.
The Funds may also enter into forward foreign currency contracts. A
forward foreign currency contract involves an obligation to purchase or
sell a specific amount of a specific currency at a future date, which may
be any fixed number of days from the date of the contract agreed upon by
the parties, at a price set at the time of the contract. By entering into
a foreign currency contract, a Fund "locks in" the exchange rate between
the currency it will deliver and the currency it will receive for the
duration of the contract. A Fund may enter into these contracts for the
purpose of hedging against risk arising from its investment in securities
denominated in foreign currencies or when it anticipates investing in such
securities. Forward currency contracts involve certain costs and risks,
including the risk that anticipated currency movements will not be
accurately predicted, causing a Fund to sustain losses on these contracts.
AMERICAN LEADING COMPANIES:
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 LMCM'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 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.
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THE FOLLOWING DISCUSSION OF RISK APPLIES ONLY TO BALANCED TRUST:
MUNICIPAL OBLIGATIONS
Municipal obligations include obligations issued to obtain funds for
various public purposes, including constructing a wide range of public
facilities, such as bridges, highways, housing, hospitals, mass
transportation, schools and streets. Other public purposes for which
municipal obligations may be issued include the refunding of outstanding
obligations, the obtaining of funds for general operating expenses and the
making of loans to other public institutions and facilities. In addition,
certain types of industrial development bonds ("IDBs") and private
activity bonds ("PABs") are issued by or on behalf of public authorities
to finance various privately operated facilities, including certain
pollution control facilities, convention or trade show facilities, and
airport, mass transit, port or parking facilities.
Municipal obligations also include short-term tax anticipation notes,
bond anticipation notes, revenue anticipation notes and other forms of
short-term debt obligations. Such notes may be issued with a short-term
maturity in anticipation of the receipt of tax payments, the proceeds of
bond placements or other revenues.
Municipal obligations also include municipal lease obligations. These
obligations, which are issued by state and local governments to acquire
land, equipment and facilities, typically are not fully backed by the
municipality's credit, and, if funds are not appropriated for the
following year's lease payments, a lease may terminate, with the
possibility of default on the lease obligation and significant loss to the
Fund. "Certificates of Participation" are participations in municipal
lease obligations or installment sales contracts. Each certificate
represents a proportionate interest in or right to the lease purchase
payments made.
The two principal classifications of municipal obligations are
"general obligation" and "revenue" bonds. "General obligation" bonds are
secured by the issuer's pledge of its faith, credit and taxing power.
"Revenue" bonds are payable only from the revenues derived from a
particular facility or class of facilities or from the proceeds of a
special excise tax or other specific revenue source such as the corporate
user of the facility being financed. IDBs and PABs are usually revenue
bonds and are not payable from the unrestricted revenues of the issuer.
The credit quality of IDBs and PABs is usually directly related to the
credit standing of the corporate user of the facilities.
MORTGAGE-RELATED SECURITIES
Mortgage-related securities represent interests in pools of mortgages.
Mortgage-related securities may be issued by governmental or government-
related entities or by non-governmental entities such as banks, savings
and loan institutions, private mortgage insurance companies, mortgage
bankers and other secondary market issuers.
Interests in pools of mortgage-related securities differ from other
forms of debt securities which normally provide for periodic payment of
interest in fixed amounts with principal payments at maturity or specified
call dates. In contrast, mortgage-related securities provide monthly
payments which consist of interest and, in most cases, principal. In
effect, these payments are a "pass-through" of the monthly payments made
by the individual borrowers on their residential mortgage loans, net of
any fees paid to the issuer or guarantor of such securities. Additional
payments to holders of mortgage-related securities are caused by
repayments resulting from the sale of the underlying residential property,
refinancing or foreclosure. Some mortgage-related securities entitle the
holders to receive all interest and principal payments owed on the
mortgages in the pool, net of certain fees, regardless of whether or not
the mortgagors actually make the payments.
As prepayment rates of individual pools of mortgage loans vary widely,
it is not possible to predict accurately the average life of a particular
mortgage-related security. Although mortgage-related securities are issued
with stated maturities of up to forty years, unscheduled or early payments
of principal and interest on the underlying mortgages may shorten
considerably the securities' effective maturities. When interest rates are
declining, such prepayments usually increase. The volume of prepayments of
principal on a pool of mortgages underlying a particular mortgage-related
security will influence the yield of that security. Increased prepayment
of principal may limit a Fund's ability to realize the appreciation in
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the value of such securities that would otherwise accompany declining
interest rates. An increase in mortgage prepayments could cause the Fund
to incur a loss on a mortgage-related security that was purchased at a
premium. On the other hand, a decrease in the rate of prepayments,
resulting from an increase in market interest rates, among other causes,
may extend the effective maturities of mortgage-related securities,
increasing their sensitivity to changes in market interest rates. In
determining the average maturity of the fixed income portion of the Fund,
Bartlett must apply certain assumptions and projections about the maturity
and prepayment of mortgage-related securities; actual prepayment rates may
differ.
GOVERNMENT MORTGAGE-RELATED SECURITIES
GNMA pass-through securities are considered to have a very low risk of
default in that (i) the underlying mortgage loan portfolio is comprised
entirely of government-backed loans and (ii) the timely payment of both
principal and interest on the securities is guaranteed by the full faith
and credit of the U.S. Government -- regardless of whether they have been
collected. GNMA pass-through securities are, however, subject to the same
market risk as comparable debt securities. Therefore, the effective
maturity and market value of the Fund's GNMA securities can be expected to
fluctuate in response to changes in interest rate levels.
FHLMC, a corporate instrumentality of the U.S. Government, issues
mortgage participation certificates ("PCs") which represent interests in
mortgages from FHLMC's national portfolio. The mortgage loans in FHLMC's
portfolio are not government backed; rather, the loans are either
uninsured with loan-to-value ratios of 80% or less, or privately insured
if the loan-to-value ratio exceeds 80%. FHLMC, not the U.S. Government,
guarantees the timely payment of interest and ultimate collection of
principal on FHLMC PCs.
FNMA is a government-sponsored corporation owned entirely by private
stockholders that purchases residential mortgages from a list of approved
seller/servicers, including savings and loan associations, savings banks,
commercial banks, credit unions and mortgage bankers. Pass-through
certificates issued by FNMA ("FNMA certificates") are guaranteed as to
timely payment of principal and interest by FNMA, not the U.S. Government.
PRIVATELY ISSUED MORTGAGE-RELATED SECURITIES
Mortgage-related securities offered by private issuers include
pass-through securities comprised of pools of conventional residential
mortgage loans; mortgage-backed bonds which are considered to be
obligations of the institution issuing the bonds and are collateralized by
mortgage loans; and bonds and collateralized mortgage obligations ("CMOs")
which are collateralized by mortgage-related securities issued by FHLMC,
FNMA, or GNMA or by pools of conventional mortgages.
CMOs are typically structured with two or more classes or series which
have different maturities and are generally retired in sequence. Each
class of obligations is scheduled to receive periodic interest payments
according to the coupon rate on the obligations. However, all monthly
principal payments and any prepayments from the collateral pool are paid
first to the "Class 1" bondholders. The principal payments are such that
the Class 1 obligations are scheduled to be completely repaid no later
than, for example, five years after the offering date. Thereafter, all
payments of principal are allocated to the next most senior class of bonds
until that class of bonds has been fully repaid. Although full payoff of
each class of bonds is contractually required by a certain date, any or
all classes of obligations may be paid off sooner than expected because of
an increase in the payoff speed of the pool.
Mortgage-related securities created by non-governmental issuers
generally offer a higher rate of interest than government and government-
related securities because there are no direct or indirect government
guarantees of payments in the former securities, resulting in higher
risks.
The market for conventional pools is smaller and less liquid than the
market for the government and government-related mortgage pools.
CORPORATE DEBT SECURITIES
Corporate debt securities may pay fixed or variable rates of interest,
or interest at a rate contingent upon some other factor, such as the price
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of some commodity. These securities may be convertible into preferred or
common equity, or may be bought as part of a unit containing common stock.
In selecting corporate debt securities for a Fund, the adviser reviews and
monitors the creditworthiness of each issuer and issue. The adviser also
analyzes interest rate trends and specific developments which it believes
may affect individual issuers.
THE FOLLOWING DISCUSSION OF RISKS APPLIES TO EACH FUND AS NOTED:
RISKS OF DEBT SECURITIES
The prices of debt securities fluctuate in response to perceptions of
the issuer's creditworthiness and also tend to vary inversely with market
interest rates. The value of such securities is likely to decline in times
of rising interest rates. Conversely, when rates fall, the value of these
investments is likely to rise. The longer the time to maturity the greater
are such variations.
RISKS OF LOWER-RATED DEBT SECURITIES
Generally, debt securities rated below BBB by S&P, or below Baa by
Moody's, and unrated securities of comparable quality, offer a higher
current yield than that provided by higher grade issues, but also involve
higher risks. Debt securities rated C by Moody's and S&P are bonds on
which no interest is being paid and which can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
However, debt securities, regardless of their ratings, generally have a
higher priority in the issuer's capital structure than do equity
securities.
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. Lower
rated debt securities are also sometimes referred to as "junk bonds."
The market for lower rated debt securities has expanded rapidly in
recent years. This growth has paralleled a long economic expansion. At
certain times in the past, the prices of many lower rated debt securities
declined, indicating concerns that issuers of such securities might
experience financial difficulties. At those times, 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 debt securities, which may limit
a 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 debt securities, especially in a thinly
traded market.
The ratings of Moody's and S&P represent the opinions of those
agencies as to the quality of the debt securities which they rate. 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. If
securities are rated investment grade by one rating organization and below
investment grade by the other, the adviser may rely on the rating that it
believes is more accurate. 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. Each Fund does not intend to invest in securities
that are in default, or where, in the adviser's opinion, default appears
likely.
RISKS OF FUTURES AND OPTIONS TRANSACTIONS
Each of Value Trust, Total Return Trust, Special Investment Trust and
Balanced Trust can invest in futures and options transactions, including
puts and calls. Because such investments "derive" their value from the
value of the underlying security, index, or interst rate on which they are
based, they are sometimes referred to as "derivative" securities. As
explained in greater detail above, in the section titled "FUTURES AND
OPTIONS TRANSACTIONS," such investments
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involve risks that are different from those presented by investing
directly in the securities themselves. While utilization of options,
futures contracts and similar instruments may be advantageous to the
Funds, if the adviser is not successful in employing such instruments in
managing a Fund's investments the Fund's performance will be worse than if
the Fund did not make such investments.
Although American Leading Companies may not invest in future
transactions, it may to a limited extent sell covered call options on any
security in which it is permitted to invest for the purpose of enhancing
income. American Leading Companies may not invest in any other form of
option transaction. The particular risks of covered call options are also
discussed above, in the section titled "FUTURES AND OPTIONS TRANSACTIONS."
INVESTMENT LIMITATIONS
Each Fund has adopted certain fundamental investment limitations that,
like its investment objective, can be changed only by a vote of the
holders of a majority of the outstanding voting securities of the Fund.
For these purposes a "vote of the holders of a majority of the outstanding
voting securities" of the Fund means 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 present at a shareholders' meeting if more than 50% of the
outstanding shares are represented at the meeting in person or by proxy.
These investment limitations are set forth in the Statement of Additional
Information under "Additional Information About Investment Limitations and
Policies." Other Fund policies, unless described as fundamental, can be
changed by action of the Board of Directors.
The fundamental restrictions applicable to American Leading Companies
include a prohibition on investing 25% or more of its 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).
HOW YOU CAN INVEST IN THE FUNDS
You may purchase Primary Shares of the Funds through a brokerage
account with Legg Mason or with an affiliate that has a dealer agreement
with Legg Mason (Legg Mason is a wholly owned subsidiary of Legg Mason,
Inc., a financial services holding company). Your Legg Mason or affiliated
investment executive will be pleased to explain the shareholder services
available from the Funds and answer any questions you may have. Documents
available from your Legg Mason or affiliated investment executive should
be completed if you invest in shares of the Funds through an Individual
Retirement Account ("IRA"), Self-Employed Individual Retirement Plan
("Keogh Plan"), Simplified Employee Pension Plan ("SEP") or other
qualified retirement plan.
Clients of certain institutions that maintain omnibus accounts with
the Funds' transfer agent may obtain shares through those institutions.
Such institutions may receive payments from the Funds' distributor for
account servicing, and may receive payments from their clients for other
services performed. Investors can purchase Fund shares from Legg Mason
without receiving or paying for such other services.
The minimum initial investment in Primary Shares for each Fund
account, including investments made by exchange from other Legg Mason
funds, is $1,000, and the minimum investment for each purchase of
additional shares is $100, except as noted below. Initial and subsequent
investments in an IRA established on behalf of a nonworking spouse of a
shareholder who has an IRA invested in the Funds require a minimum amount
of only $250. 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 Funds' Future First Systematic Investment
Plan, payroll deduction plans and plans involving automatic payment of
funds from financial institutions or automatic investment of dividends
from certain unit investment trusts, minimum initial and subsequent
investments are lower. Each Fund may change
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these minimum amount requirements at its discretion.
Primary Shares purchased on behalf of an IRA, Keogh Plan, SEP or other
qualified retirement plan will be processed at the net asset value next
determined after 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 regular trading on the
New York Stock Exchange ("Exchange") (normally 4:00 p.m. Eastern time)
("close of the Exchange") on any day the Exchange is open will be executed
at the net asset value determined as of the close of the Exchange on that
day. Orders received by your Legg Mason or affiliated investment executive
after the close of the Exchange or on days the Exchange is closed will be
executed at the net asset value determined as of the close of the Exchange
on the next day the Exchange is open. See "How Net Asset Value is
Determined," page 23. Each Fund reserves the right to reject any order for
its shares or to suspend the offering of shares for a period of time.
You should always furnish your shareholder account number when making
additional purchases of shares.
There are three ways you can invest in Primary Shares of the Funds:
1. THROUGH YOUR LEGG MASON OR AFFILIATED INVESTMENT EXECUTIVE
Shares may be purchased through any Legg Mason or affiliated
investment executive. An investment executive will be pleased to open an
account for you, explain to you the shareholder services available from
the Funds and answer any questions you may have. After you have
established a Legg Mason or affiliated account, you can order shares from
your investment executive in person, by telephone or by mail.
2. THROUGH THE FUTURE FIRST SYSTEMATIC INVESTMENT PLAN
You may also buy shares through the Future First Systematic Investment
Plan. Under this plan, you may arrange for automatic monthly investments
in the Funds of $50 or more by authorizing Boston Financial Data Services
("BFDS"), the Funds' transfer agent, to transfer funds each month from
your checking account. Please contact any Legg Mason or affiliated
investment executive for further information.
3. THROUGH AUTOMATIC INVESTMENTS
Arrangements may be made with some employers and financial
institutions, such as banks or credit unions, for regular automatic
monthly investments of $50 or more in shares. In addition, it may be
possible for dividends from certain unit investment trusts to be invested
automatically in shares. Persons interested in establishing such automatic
investment programs should contact the Funds through any Legg Mason or
affiliated investment executive.
HOW YOUR SHAREHOLDER ACCOUNT IS MAINTAINED
When you initially purchase shares, a shareholder account is
established automatically for you. Any shares that you purchase or receive
as a dividend or other distribution will be credited directly to your
account at the time of purchase or receipt. No certificates are issued
unless you specifically request them in writing. Shareholders who elect to
receive certificates can redeem their shares only by mail. Certificates
will be issued in full shares only. No certificates will be issued for
shares of any Fund prior to 10 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
redemption of your shares. Please have the following information ready
when you call: the name of the Fund, the number of shares to be redeemed
and your shareholder account number. Second, you may send a written
request for redemption to:
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[insert complete Fund name], c/o Legg Mason Funds Processing, P.O. Box
1476, Baltimore, Maryland 21203-1476.
Requests for redemption received by your Legg Mason or affiliated
investment executive before the close of the Exchange on any day when the
Exchange is open, will be transmitted to BFDS, transfer agent for the
Funds, for redemption at the net asset value per share determined as of
the close of the Exchange on that day. Requests for redemption received by
your Legg Mason or affiliated investment executive after the close of the
Exchange will be executed at the net asset value determined as of the
close of the Exchange on its next trading day. A redemption request
received by your Legg Mason or affiliated investment executive may be
treated as a request for repurchase and, if it is accepted by Legg Mason,
your shares will be purchased at the net asset value per share determined
as of the next close of the Exchange.
Proceeds from your redemption will settle in your Legg Mason brokerage
account two days after trade date. However, each Fund reserves the right
to take up to seven days to make payment upon redemption if, in the
judgment of the Adviser, the respective Fund could be adversely affected
by immediate payment. (The Statement of Additional Information describes
several other circumstances in which the date of payment may be postponed
or the right of redemption suspended.) The proceeds of your redemption or
repurchase may be more or less than your original cost. If the shares to
be redeemed or repurchased were paid for by check (including certified or
cashier's checks), within 10 business days of the redemption or repurchase
request, the proceeds will not be disbursed unless the Fund can be
reasonably assured that the check has been collected.
Written requests for redemption must be in "good order." A redemption
request will be considered to be received in "good order" only if:
1. You have indicated in writing the number of Primary Shares to be
redeemed, the complete Fund name and your shareholder account number;
2. The written request is signed by you and by any co-owner of the
account with exactly the same name or names used in establishing the
account;
3. The written request is accompanied by any certificates representing
the shares that have been issued to you, and you have endorsed the
certificates for transfer or an accompanying stock power exactly as the
name or names appear on the certificates; and
4. The signatures on the written redemption request and on any
certificates for your shares (or an accompanying stock power) have been
guaranteed without qualification by a national bank, a state bank, a
member firm of a principal stock exchange or other entity described in
Rule 17Ad-15 under the Securities Exchange Act of 1934.
Other supporting legal documents may be required from corporations or
other organizations, fiduciaries or persons other than the shareholder of
record making the request for redemption or repurchase. If you have a
question concerning the redemption of shares, contact your Legg Mason or
affiliated investment executive.
The Funds will not be responsible for the authenticity of redemption
instructions received by telephone, provided they follow reasonable
procedures to identify the caller. The Funds may request identifying
information from callers or employ identification numbers. The Funds may
be liable for losses due to unauthorized or fraudulent instructions if
they do not follow reasonable procedures. Telephone redemption privileges
are available automatically to all shareholders unless certificates have
been issued. Shareholders who do not wish to have telephone redemption
privileges should call their Legg Mason or affiliated investment executive
for further instructions.
Because of the relatively high cost of maintaining small accounts,
each Fund may elect to close any account with a current value of less than
$500 by redeeming all of the shares in the account and mailing the
proceeds to you. However, the Funds will not redeem accounts that fall
below $500 solely as a result of a reduction in net asset value per share.
If a Fund elects to redeem the shares in your account, you will be
notified that your account is below $500 and will be allowed 60 days to
make an additional investment to avoid having your account closed.
HOW NET ASSET VALUE IS DETERMINED
Net asset value per Primary Share of each Fund is determined daily as
of the close of the
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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 each 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 each 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
each Fund's adviser to be the primary market. Securities with remaining
maturities of 60 days or less are valued at amortized cost. Each Fund will
value its foreign securities in U.S. dollars on the basis of the
then-prevailing exchange rates.
DIVIDENDS AND OTHER DISTRIBUTIONS
Each Fund declares dividends to holders of Primary Shares out of its
investment company taxable income (which consists of net investment
income, any net short-term capital gain and any net gains from certain
foreign currency transactions) attributable to those shares. Value Trust,
Total Return Trust and Balanced Trust declare and pay dividends from net
investment income quarterly; they pay dividends from any net short-term
capital gains and net gains from foreign currency transactions annually.
Special Investment Trust and American Leading Companies declare and pay
dividends from investment company taxable income following the end of each
taxable year. Each Fund also distributes substantially all of its 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 of the distributing Fund on the payment
dates. Other shareholders may elect to:
1. Receive both dividends and other distributions in Primary Shares of
the distributing Fund;
2. Receive dividends in cash and other distributions in Primary Shares
of the distributing Fund;
3. Receive dividends in Primary Shares of the distributing Fund and
other distributions in cash; or
4. Receive both dividends and other distributions in cash.
In certain cases, shareholders may reinvest dividends and other
distributions in the corresponding class of shares of another Legg Mason
fund. Please contact your investment executive for additional information
about this option.
If no election is made, both dividends and other distributions are
credited to your Fund 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 are credited to your account at that net asset value.
Shareholders electing to receive dividends or other distributions in cash
will be sent a check or will have their Legg Mason account credited after
the payment date. You may elect at any time to change your option by
notifying the applicable Fund in writing at: [insert complete Fund name],
c/o Legg Mason Funds Processing, P.O. Box 1476, Baltimore, 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.
TAX TREATMENT OF DIVIDENDS AND OTHER DISTRIBUTIONS
Each Fund intends to continue to qualify (or to qualify, in the case
of Balanced Trust) 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 and net capital gain that is
distributed to its shareholders.
Dividends from each Fund's investment company taxable income (whether
paid in cash or reinvested in Primary Shares) are taxable to its
shareholders (other than IRAs, Keogh Plans, SEPs, other
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qualified retirement plans and other tax-exempt investors) as ordinary
income to the extent of the Fund's earnings and profits. Distributions of
each Fund's net capital gain (whether paid in cash or reinvested in
Primary Shares), when designated as such, are taxable to those
shareholders as long-term capital gain, regardless of how long they have
held their Fund shares.
Each Fund sends its shareholders a notice following the end of each
calendar year specifying, among other things, the amounts of all dividends
and other distributions paid (or deemed paid) during that year. Each Fund
is required to withhold 31% of all dividends, capital gain distributions
and redemption proceeds payable to any individuals and certain other
noncorporate shareholders who do not provide the Fund with a certified
taxpayer identification number. Each 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 Primary Shares may result in taxable gain or loss to
the redeeming shareholder, depending on whether the redemption proceeds
are more or less than the shareholder's adjusted basis for the redeemed
shares. An exchange of Primary Shares for shares of any other Legg Mason
fund generally will have similar tax consequences. See "Shareholder
Services -- Exchange Privilege," page 25. If shares of a Fund are
purchased within 30 days before or after redeeming other shares of the
same Fund (regardless of class) at a loss, all or part of that loss will
not be deductible and instead will increase the basis of the newly
purchased shares.
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 each 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 Funds, depending on the laws of your home
state and locality. A portion of the dividends paid by the Funds
attributable to direct U.S. government obligations is not subject to state
and local income taxes in most jurisdictions. Each Fund's annual notice to
shareholders regarding the amount of dividends identifies this portion.
Prospective shareholders are urged to consult their tax advisers with
respect to the effects of this investment on their own tax situations.
SHAREHOLDER SERVICES
CONFIRMATIONS AND REPORTS
You will receive from Legg Mason a confirmation after each transaction
involving Primary Shares (except a reinvestment of dividends: or capital
gain distributions and shares purchased 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 only through the Future First
Systematic Investment Plan or through automatic investments, in which case
an account statement will be sent quarterly. Reports will be sent to each
Fund's shareholders at least semiannually showing its portfolio and other
information; the annual report for each Fund will contain financial
statements audited by its respective independent accountants/auditors.
Shareholder inquiries should be addressed to: [insert complete Fund
name], c/o Legg Mason Funds Processing, P.O. Box 1476, Baltimore, Maryland
21203-1476.
SYSTEMATIC WITHDRAWAL PLAN
You may elect to make systematic withdrawals from your Fund account of
a minimum of $50 on a monthly basis if you are purchasing or already own
shares with a net asset value of $5,000 or more. Shareholders should not
purchase shares of a Fund while they are participating in the Systematic
Withdrawal Plan with respect to that Fund. Please contact your Legg Mason
or affiliated investment executive for further information.
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EXCHANGE PRIVILEGE
As a Fund shareholder, you are entitled to exchange your Primary
Shares of a Fund for the corresponding class of shares of any of the Legg
Mason Funds, provided that such shares are eligible for sale in your state
of residence.
Investments by exchange into the Legg Mason funds sold without an
initial sales charge are made at the per share net asset value determined
on the same business day as redemption of the Fund shares you wish to
exchange. Investments by exchange into the Legg Mason funds sold with an
initial sales charge are made at the per share net asset value, plus the
applicable sales charge, determined on the same business day as redemption
of the Fund shares you wish to redeem; except that no sales charge will be
imposed upon proceeds from the redemption of Fund shares to be exchanged
that were originally purchased by exchange from a fund on which the same
or higher initial sales charge previously was paid. There is no charge for
the exchange privilege, but each Fund reserves the right to terminate or
limit the exchange privilege of any shareholder who makes more than four
exchanges from that Fund in one calendar year. To obtain further
information concerning the exchange privilege and prospectuses of other
Legg Mason funds, or to make an exchange, please contact your Legg Mason
or affiliated investment executive. To effect an exchange by telephone,
please call your Legg Mason or affiliated investment executive with the
information described in "How You Can Redeem Your Primary Shares," page
22. The other factors relating to telephone redemptions described in that
section apply also to telephone exchanges. Please read the prospectus for
the other fund(s) carefully before you invest by exchange. Each Fund
reserves the right to modify or terminate the exchange privilege upon 60
days' notice to shareholders.
There is no assurance the money market funds will be able to maintain
a $1.00 share price. None of the funds is insured or guaranteed by the
U.S. Government.
INVESTING THROUGH TAX-DEFERRED RETIREMENT PLANS
Investors who are considering establishing an IRA, Keogh Plan, SEP or
other qualified retirement plan may wish to consult their attorneys or tax
advisers with respect to individual tax questions. Your Legg Mason or
affiliated investment executive can make available to you forms of plans.
The option of investing in these plans through regular payroll deductions
may be arranged with Legg Mason and your employer. Additional information
with respect to these plans is available upon request from any Legg Mason
or affiliated investment executive.
THE FUNDS' MANAGEMENT AND INVESTMENT ADVISERS
BOARD OF DIRECTORS
The business and affairs of each Fund are managed under the direction
of its Board of Directors.
ADVISER
Pursuant to separate advisory agreements with Value Trust, Total
Return Trust and Special Investment Trust (each an "Advisory Agreement"),
which were approved by each respective Fund's Board of Directors, the
Adviser, a wholly owned subsidiary of Legg Mason, Inc., serves as
investment adviser to each of those Funds. The Adviser administers and
acts as the portfolio manager for each Fund and has responsibility for the
actual investment management of the Funds, including the responsibility
for making decisions and placing orders to buy, sell or hold a particular
security. The Adviser acts as adviser, manager or consultant to seventeen
investment company portfolios which had aggregate assets under management
of approximately $5.7 billion as of May 31, 1996. The Adviser's address is
111 South Calvert Street, Baltimore, Maryland 21202.
William H. Miller, III co-managed Value Trust from its inception in
1982 to November 1990, when he assumed primary responsibility for the
day-to-day management. Mr. Miller has been responsible for the day-to-day
management of Total Return Trust since November 1990. Nancy T. Dennin
joined Mr. Miller as co-manager of Total Return Trust on January 1, 1992.
Mr. Miller has also been primarily responsible for the day-to-day
management of Special Investment Trust since its inception in 1985.
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Mr. Miller is a portfolio manager and President of the Adviser. Mr.
Miller has been employed by the Adviser since 1982. Mrs. Dennin is a Vice
President of the Adviser and has been employed by the Adviser since 1985.
From 1985 through 1991, Mrs. Dennin analyzed various industries for the
Adviser including financial services, retail, apparel and insurance.
The Adviser receives for its services a management fee from each Fund
attibutable to the net assets of Primary Shares, calculated daily and
payable monthly. The Adviser receives a fee at an annual rate of 1.0% of
Value Trust's average daily net assets for the first $100 million of
average net assets; 0.75% of average daily net assets between $100 million
and $1 billion; and 0.65% of average daily net assets exceeding $1
billion. The Adviser receives from Total Return Trust, a management fee at
an annual rate of 0.75% of the average daily net assets of the Fund. The
Adviser receives from Special Investment Trust, a management fee at an
annual rate of 1.0% of the average daily net assets of the Fund for the
first $100 million of average net assets and 0.75% of average daily net
assets exceeding $100 million. The management fee paid by each Fund is
higher than fees paid by most other funds to their investment advisers.
For Total Return Trust, the Adviser has agreed to waive indefinitely its
fees in any month to the extent Total Return Trust's expenses related to
Primary Shares (exclusive of taxes, interest, brokerage and extraordinary
expenses) exceed during any month an annual rate of 1.95% of the Fund's
average daily net assets. During the fiscal year ended March 31, 1996,
Value Trust paid a management fee of 0.77% of its average daily net
assets, Total Return Trust paid a management fee of 0.75% of its average
daily net assets, and Special Investment Trust paid a management fee of
0.82% of its average daily net assets.
MANAGER
Pursuant to separate management agreements with American Leading
Companies and Balanced Trust (each a "Management Agreement"), which were
approved by the Investors Trust's Board of Directors, Legg Mason Fund
Adviser, Inc. ("Manager"), a wholly owned subsidiary of Legg Mason, Inc.,
serves as the Funds' manager. The Funds pay the Manager, pursuant to the
respective Management Agreements, a management fee equal to an annual rate
of 0.75% of each Fund's respective average daily net assets and an annual
rate of 0.75% of Balanced Trust's average daily net assets. The management
fees paid by the Funds are higher than most other equity funds. Each Fund
pays all its other expenses which are not assumed by the Manager. The
Manager has agreed to waive its fees and to reimburse each Fund for its
expenses related to Primary Shares (exclusive of taxes, interest,
brokerage and extraordinary expenses) as follows: for American Leading
Companies, 1.95% of average net assets indefinitely; and for Balanced
Trust, 1.85% of average net assets until March 31, 1997. These agreements
are voluntary and may be terminated by the Manager at any time.
LMCM
LMCM, a wholly owned subsidiary of Legg Mason, Inc., serves as
investment adviser to American Leading Companies pursuant to the terms of
an Investment Advisory Agreement with the Manager, which was approved by
the Trust's Board of Directors. LMCM 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 LMCM 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.
LMCM has not previously advised a registered investment company.
However, LMCM manages private accounts with a value as of May 31, 1996 of
approximately $1.0 billion. The address of LMCM 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 LMCM 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.
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The Funds may use Legg Mason, among others, as broker for agency
transactions in listed and over-the-counter securities at commission rates
and under circumstances consistent with the policy of best execution.
BARTLETT
Bartlett, a wholly owned subsidiary of Legg Mason, Inc., serves as
investment adviser to Balanced Trust pursuant to the terms of an
Investment Advisory Agreement with the Manager, which was approved by the
Trust's Board of Directors. Bartlett 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 Bartlett a fee, computed daily
and paid monthly, at an annual rate equal to 66 2/3% of the fee received
by the Manager, or 0.50% of the Fund's average daily net assets. Bartlett
acts as adviser to individuals, corporations, pension and profit sharing
plans and trust accounts, as well as to five investment company portfolios
which had aggregate assets under management of approximately $2.4 billion
as of May 31, 1996. The address of Bartlett is 36 East Fourth Street,
Cincinnati, Ohio 45202.
Dale H. Rabiner, CFA and Woodrow H. Uible, CFA jointly manage the
Fund. Both are senior portfolio managers of Bartlett. Mr. Rabiner has been
employed by Bartlett since 1983 and has served since then as Director of
its Fixed Income Group. He is a member of Bartlett's Management Committee
and Investment Policy Committee. Mr. Uible has been employed by Bartlett
since 1980. He chairs Bartlett's Equity Investment Group, and is
responsible for Bartlett's equity investment processes. He is a member of
Bartlett's Management Committee and Investment Policy Committee.
THE FUNDS' DISTRIBUTOR
Legg Mason is the distributor of each Fund's shares pursuant to a
separate Underwriting Agreement with each Fund. Each Underwriting
Agreement obligates Legg Mason to pay certain expenses in connection with
the offering of shares, 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, 1996, Legg Mason received from BFDS $228,000, $56,000,
$189,000 and $22,000 for performing such services in connection with Value
Trust, Total Return Trust, Special Investment Trust and American Leading
Companies, respectively.
The Board of Directors of each Fund has adopted a Distribution and
Shareholder Services Plan ("Plan") pursuant to Rule 12b-1 under the
Investment Company Act of 1940 ("1940 Act"). 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 each 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 of
the Total Return Trust, Special Investment Trust and American Leading
Companies, 0.70% of the average daily net assets attributable to Primary
Shares of Value Trust and 0.50% of the average daily net assets
attributable to Primary Shares of Balanced Trust; and an annual service
fee equal to 0.25% of the average daily net assets attributable to Primary
Shares of each of the Funds. The distribution fee and 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 distribution fees in any month to the extent the Total Return
Trust's and American Leading Companies' expenses related to Primary Shares
(exclusive of taxes, interest, brokerage costs and extraordinary expenses)
exceed an annual rate of 1.95% each of Total Return Trust's and American
Leading Companies average daily net assets. Legg Mason has also agreed to
waive until March 31, 1997 distribution fees in any month to the
28
<PAGE>
extent the Balanced Trust's expenses related to Primary Shares (exclusive
of taxes, interest, brokerage costs and extraordinary expenses) exceed an
annual rate of 1.85% of Balanced Trust's average daily net assets.
NASD rules limit the amount of annual distribution fees that may be
paid by mutual funds and impose a ceiling on the cumulative distribution
fees received. Each Fund's Plan complies with those rules.
The Chairman, President and Treasurer of each Fund are employed by
Legg Mason.
DESCRIPTION OF EACH CORPORATION/TRUST AND ITS SHARES
Value Trust, Total Return Trust, Special Investment Trust and Legg
Mason Investors Trust, Inc. were established as Maryland corporations on
January 20, 1982, May 22, 1985, October 31, 1985 and May 5, 1993,
respectively. Value Trust has authorized capital of 200 million shares of
common stock, par value $0.001 per share. Total Return Trust and Special
Investment Trust each have authorized capital of 100 million shares of
common stock, par value $0.001 per share. The Articles of Incorporation of
Investors Trust authorize issuance of one billion shares of par value
$.001 per share of American Leading Companies and 250 million shares of
par value $.001 per share of Balanced Trust. Each corporation may issue
additional series of shares. Each Fund currently offers two Classes of
Shares -- Class A (known as "Primary Shares") and Class Y (known as
"Navigator Shares"). The two Classes represent interests in the same pool
of assets. A separate vote is taken by a Class of Shares of a Fund if a
matter affects just that Class of Shares. Each Class of Shares may bear
certain differing Class-specific expenses. Salespersons and others
entitled to receive compensation for selling or servicing Fund shares may
receive more with respect to one Class than another.
Navigator Shares are currently offered for sale only to institutional
clients of Fairfield for investment of their own monies and monies for
which they act in a fiduciary capacity, to clients of Trust Company for
which Trust Company exercises discretionary investment management
responsibility, to qualified retirement plans managed on a discretionary
basis and having net assets of at least $200 million, and to The Legg
Mason Profit Sharing Plan and Trust. The initial and subsequent investment
minimums for Navigator Shares are $50,000 and $100, respectively.
Investments in Navigator Shares may be made through investment executives
of Fairfield Group, Inc., Horsham, Pennsylvania, or Legg Mason.
Each Fund pays no Rule 12b-1 fee with respect to Navigator Shares. The
per share net asset value of Navigator Shares, and dividends paid to
Navigator shareholders, are generally expected to be higher than those of
Primary Shares of the Funds, because of the lower expenses attributable to
Navigator Shares. The per share net asset value of the classes of shares
will tend to converge, however, immediately after the payment of ordinary
income dividends. Navigator Shares of the Funds may be exchanged for the
corresponding class of shares of certain other Legg Mason funds.
Investments by exchange into other Legg Mason funds are made at the per
share net asset value, determined on the same business day as redemption
of the Navigator Shares the investors wish to redeem.
The Boards of Directors of the Funds do not anticipate that there will
be any conflicts among the interests of the holders of the different
Classes of Fund shares. On an ongoing basis, the Boards will consider
whether any such conflict exists and, if so, take appropriate action.
Shareholders of the Funds are entitled to one vote per share and
fractional votes for fractional shares held. Voting rights are not
cumulative. All shares of the Funds are fully paid and nonassessable and
have no preemptive or conversion rights.
Shareholders' meetings will not be held except where the 1940 Act
requires a shareholder vote on certain matters (including the election of
directors, approval of an advisory contract, and approval of a plan of
distribution pursuant to Rule 12b-1). Each 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 their respective Fund at 111 South Calvert
Street, Baltimore, Maryland 21202, stating the purpose of the proposed
meeting and the matters to be acted upon.
29
<PAGE>
Each Fund acknowledges that it is solely responsible for the
information or any lack of information about it in this joint Prospectus
and in the joint Statement of Additional Information, and no other Fund is
responsible therefor. There is a possibility that one Fund might be deemed
liable for misstatements or omissions regarding another Fund in this
Prospectus or in the joint Statement of Additional Information; however,
the Funds deem this possibility slight.
30
<PAGE>
NAVIGATOR EQUITY FUNDS
Navigator Value Trust
Navigator Total Return Trust
Navigator Special Investment Trust
Navigator American Leading Companies Trust
Navigator Balanced Trust
Supplement to the Prospectus dated July 31, 1996
The following table is to be inserted at the end of the section titled
"Financial Highlights" which begins on page 4 of the Prospectus.
Balanced Trust
<TABLE>
<CAPTION>
October 1, 1996(A)
to
Primary Class* December 31,1996
(Unaudited)
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 10.00
-------
Net investment income(B) 0.03
Net realized and unrealized gain on investments 0.35
-------
Total from investment operations 0.38
-------
Distributions to shareholders from net investment income (0.04)
-------
Net asset value, end of period $ 10.34
=======
Total return 3.83%(C)
RATIOS/SUPPLEMENTAL DATA:
Ratio to average net assets:
Expenses(B) 1.85%(D)
Net investment income(B) 2.50%(D)
Portfolio turnover rate 0.82%(D)
Average commission rate paid(E) $0.0628
Net assets, end of period (in thousands) $14,916
</TABLE>
* As of December 31, 1996, the Navigator Class of shares has not commenced
operations.
(A) Commencement of operations.
(B) Net of fees waived and expenses reimbursed pursuant to a voluntary expense
limitation of 1.85%. If no fees had been waived by the Manager, the
annualized ratio of expenses to average daily net assets for the period
October 1, 1996 to December 31, 1996 would have been 3.67%.
(C) Not annualized for periods of less than a full year.
(D) Annualized.
(E) Pursuant to SEC regulations effective for fiscal years beginning after
September 1, 1995, this is the average commission rate paid on securities
purchased and sold by the Fund.
January 31, 1997
<PAGE>
NAVIGATOR EQUITY FUNDS
Navigator Value Trust
Navigator Total Return Trust
Navigator Special Investment Trust
Navigator American Leading Companies Trust
Navigator Balanced Trust
Supplement to the Prospectus dated July 31, 1996
The following table replaces the table shown on page 7 of the Prospectus
under the section titled "Financial Highlights":
American Leading Companies
<TABLE>
<CAPTION>
For the Six
Months Ended
Primary Class* September 30, For the Years Ended March 31,
- --------------------------------------------------------------------------------------------------------------------------
1996 1996 1995 1994(A)
- --------------------------------------------------- ---------------- ---------------- ---------------- -----------------
(Unaudited)
<S> <C>
Per Share Operating Performance:
Net asset value, beginning of period $12.23 $10.18 $9.69 $10.00
---------------- ---------------- ---------------- -----------------
Net investment income(B) 0.02 0.07 0.12 0.059
Net realized and unrealized gain (loss)
on investments 1.00 2.08 0.48 (0.344)
---------------- ---------------- ---------------- -----------------
Total from investment operations 1.02 2.15 0.60 (0.285)
---------------- ---------------- ---------------- -----------------
Distributions to shareholders from net
investment income (0.01) (0.10) (0.11) (0.025)
---------------- ---------------- ---------------- -----------------
Net asset value, end of period $13.24 $12.23 $10.18 $9.69
---------------- ---------------- ---------------- -----------------
Total return(C) 8.34% 21.24% 6.24% (2.86)%
Ratios/Supplemental Data:
Ratios to average net assets:
Expenses(B) 1.95%(D) 1.95% 1.95% 1.95%(D)
Net investment income(B) .25%(D) .69% 1.21% 1.14%(D)
Portfolio turnover rate 31.89%(D) 43.4% 30.5% 21.0%(D)
Average commission rate paid(E) $0.0630 -- -- --
Net assets, end of period (in thousands) $80,789 $76,100 $59,985 $55,022
</TABLE>
* As of September 30, 1996, the Navigator Class of shares had not commenced
operations.
(A) For the period September 1, 1993 (commencement of operations) to March 31,
1994.
(B) 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 Adviser, the
annualized ratio of expenses to average daily net assets for the period
September 1, 1993 to March 31, 1994, for the years ended March 31, 1995,
March 31, 1996 and the six months ended September 30, 1996 would have been
2.28%, 2.12%, 2.20% and 2.12%, respectively.
(C) Not annualized for periods of less than a full year.
(D) Annualized.
(E) Pursuant to SEC regulations effective for fiscal years beginning after
September 1, 1995, this is the average commission rate paid on securities
purchased and sold by the Fund.
January 31, 1997
<PAGE>
NAVIGATOR EQUITY FUNDS
Navigator Value Trust
Navigator Total Return Trust
Navigator Special Investment Trust
Navigator American Leading Companies Trust
Navigator Balanced Trust
Supplement to the Prospectus dated July 31, 1996
Under the section entitled "LMCM" on page 23 of the Prospectus, the third
paragraph is revised to read:
Effective January 1, 1997, an investment committee composed of officers
and employees of LMCM became responsible for the management of American Leading
Companies.
January 16, 1997
<PAGE>
NAVIGATOR EQUITY FUNDS
PROSPECTUS
JULY 31, 1996
<TABLE>
<S> <C>
LEGG MASON VALUE TRUST, INC. LEGG MASON AMERICAN LEADING COMPANIES TRUST,
LEGG MASON SPECIAL INVESTMENT TRUST, INC. A SERIES OF LEGG MASON INVESTORS
LEGG MASON TOTAL RETURN TRUST, INC. TRUST, INC.
LEGG MASON BALANCED TRUST,
A SERIES OF LEGG MASON INVESTORS TRUST, INC.
</TABLE>
Shares of Navigator Value Trust, Navigator Total Return Trust, Navigator
Special Investment Trust, Navigator American Leading Companies and Navigator
Balanced Trust (collectively referred to as ("Navigator Shares") represent
separate classes ("Navigator Classes") of common stock in Legg Mason Value
Trust, Inc. ("Value Trust"), Legg Mason Total Return Trust, Inc. ("Total Return
Trust"), Legg Mason Special Investment Trust, Inc. ("Special Investment Trust"),
Legg Mason American Leading Companies Trust ("American Leading Companies") and
Legg Mason Balanced Trust ("Balanced Trust") (each separately referred to as a
"Fund" and collectively referred to as the "Funds"), respectively.
The Navigator Classes of Shares, described in this Prospectus, are currently
offered for sale only to institutional clients of the Fairfield Group, Inc.
("Fairfield") for investment of their own 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.
SPECIAL INVESTMENT TRUST MAY INVEST UP TO 35% OF ITS NET ASSETS IN
LOWER-RATED DEBT SECURITIES (COMMONLY KNOWN AS "JUNK BONDS"), AND MAY INVEST UP
TO 20% OF ITS TOTAL ASSETS IN THE SECURITIES OF COMPANIES INVOLVED IN ACTUAL OR
ANTICIPATED RESTRUCTURINGS. BOTH TYPES OF INVESTMENTS INVOLVE AN INCREASED RISK
OF PAYMENT DEFAULT AND/OR LOSS OF PRINCIPAL.
SHARES OF SPECIAL INVESTMENT TRUST ARE NOT REGISTERED FOR SALE TO INVESTORS
IN MISSOURI, AND THIS PROSPECTUS IS NOT AN OFFER TO INVESTORS RESIDING IN THAT
STATE.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK OR OTHER DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY
THE FDIC, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
This Prospectus sets forth concisely the information about the Funds that a
prospective investor ought to know before investing. It should be read and
retained for future reference. A Statement of Additional Information about the
Funds dated July 31, 1996 has been filed with the Securities and Exchange
Commission ("SEC") and, as amended or supplemented from time to time, is
incorporated herein by this reference. The Statement of Additional Information
is available without charge upon request from the distributor, Legg Mason Wood
Walker, Incorporated ("Legg Mason") (address and telephone numbers listed on the
following page).
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.
Navigator Shares are sold and redeemed without any purchase or redemption
charge imposed by the Funds, 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." Each Fund will
pay management fees to Legg Mason Fund Adviser, Inc., but Navigator Shares pay
no distribution fees.
VALUE TRUST is a diversified, open-end management investment company seeking
long-term growth of capital. Value Trust invests principally in those equity
securities which its investment adviser, Legg Mason Fund Adviser, Inc.
("Adviser" or "Manager"), believes are undervalued and therefore offer
above-average potential for capital appreciation.
TOTAL RETURN TRUST is a diversified, open-end management investment company
seeking capital appreciation and current income in order to achieve an
attractive total investment return consistent with reasonable risk. In
attempting to achieve this objective, the Adviser selects a diversified
portfolio, composed of dividend-paying common stocks and securities convertible
into common stock which, in the opinion of the Adviser, offer the potential for
long-term growth; common stocks or securities convertible into common stock
which do not pay current dividends but which offer prospects for
<PAGE>
capital appreciation and future income; and debt instruments of various
maturities. Total Return Trust may write covered put and call options. Due to
Total Return Trust's investment objective, however, investors should not expect
capital appreciation comparable to funds devoted solely to growth, or income
comparable to funds devoted to maximum current income.
SPECIAL INVESTMENT TRUST is a diversified, open-end management investment
company seeking capital appreciation. Special Investment Trust invests
principally in equity securities of companies with market capitalizations of
less than $2.5 billion which, in the opinion of the Adviser, have one or more of
the following characteristics: they are not closely followed by, or are out of
favor with, investors generally, and the Adviser believes they are undervalued
in relation to their long-term earning power or asset values; unusual
developments have occurred which suggest the possibility that the market value
of the securities will increase; or they are involved in actual or anticipated
reorganizations or restructurings under the Bankruptcy Code. Special Investment
Trust also invests in the securities of companies with larger capitalizations
which have one or more of these characteristics. Special Investment Trust may
invest up to 35% of its assets in debt securities rated below investment grade.
AMERICAN LEADING COMPANIES is a professionally managed portfolio seeking
long-term capital appreciation and current income consistent with prudent
investment risk. American Leading Companies is a separate series of Legg Mason
Investors Trust, Inc. ("Investors Trust"), a diversified open-end management
investment company. Under normal market conditions, American Leading Companies
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. ("LMCM"), defines a "Leading Company" as a
company that, in the opinion of LMCM, 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").
BALANCED TRUST is a professionally managed portfolio seeking long-term
capital appreciation and current income in order to achieve an attractive total
investment return consistent with reasonable risk. Balanced Trust is a separate
series of the Investors Trust. Under normal conditions, Balanced Trust will
invest no more than 75% of its assets in equity securities. The term "equity
securities" includes, without limitation, common stocks, and convertible
securities of domestic issuers, securities of closed-end investment companies
and U.S. dollar-denominated securities of foreign issuers, including American
Depositary Receipts ("ADRs") and Global Depositary Receipts ("GDRs"). Balanced
Trust will invest at least 25% of its portfolio in fixed income securities.
TABLE OF CONTENTS
Expenses 3
Financial Highlights 4
Performance Information 7
Investment Objectives and Policies 9
How To Purchase and Redeem Shares 19
How Your Shareholder Account is
Maintained 20
How Net Asset Value is Determined 20
Dividends and Other Distributions 21
Tax Treatment of Dividends and
Other Distributions 21
Shareholder Services 22
The Funds' Management and Investment Advisers 22
The Funds' Distributor 24
Description of each Corporation/Trust
and Its Shares 24
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
2
<PAGE>
EXPENSES
The purpose of the following tables is to assist an investor in
understanding the various costs and expenses that an investor in Navigator
Shares of a Fund will bear directly or indirectly. The expenses and fees set
forth in the tables are based on average net assets and annual Fund operating
expenses related to Navigator Shares of Value Trust, Total Return Trust, Special
Investment Trust and American Leading Companies for the year ended March 31,
1996. For Balanced Trust, which has no operating history prior to the date of
this Prospectus, other expenses are based on estimates for the current fiscal
period, and fees are adjusted for current expense limits and fee waiver levels.
ANNUAL FUND OPERATING EXPENSES -- NAVIGATOR SHARES (A)
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
TOTAL SPECIAL AMERICAN
VALUE RETURN INVESTMENT LEADING BALANCED
TRUST TRUST TRUST COMPANIES TRUST
<S> <C> <C> <C> <C> <C>
Management fees
(after fee
waivers) 0.77% 0.75% 0.82% 0.50% 0.50%
12b-1 fees None None None None None
Other expenses 0.05% 0.19% 0.06% 0.45% 0.60%
Total operating
expenses (after
fee waivers) 0.82% 0.94% 0.88% 0.95% 1.10%
</TABLE>
(A) The Manager has voluntarily agreed to waive the management fee and assume
certain other expenses to the extent necessary to limit total operating
expenses relating to Navigator Shares (exclusive of taxes, brokerage
commissions, interest and extraordinary expenses) as follows: for Total
Return Trust and American Leading Companies, 0.95% of each Fund's average
daily net assets indefinitely; and for Balanced Trust, 1.10% of average
daily net assets until March 31, 1997. In the absence of such waivers, the
management fee, other expenses and total operating expenses relating to
Navigator Shares would have been as follows: for Total Return Trust, the
same as described above, and American Leading Companies, 0.75%, 0.45% and
1.20% of average net assets; and for Balanced Trust, 0.75%, 0.60% and 1.35%
of average net assets.
For further information concerning the Funds' expenses, please see "The
Funds' Management and Investment Advisers," page 22.
EXAMPLE
The following examples illustrate 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 prior table, the Funds charge no redemption fees of any kind.
<TABLE>
<CAPTION>
TOTAL SPECIAL AMERICAN
VALUE RETURN INVESTMENT LEADING BALANCED
TRUST TRUST TRUST COMPANIES TRUST
<S> <C> <C> <C> <C> <C>
1 Year $ 8 $ 10 $ 9 $ 10 $11
3 Years $ 26 $ 30 $ 28 $ 30 $34
5 Years $ 46 $ 52 $ 49 $ 53 N/A
10 Years $101 $115 $108 $ 117 N/A
</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,
NAVIGATOR SHARES OF THE FUNDS. THE ABOVE TABLES AND EXAMPLES SHOULD NOT BE
CONSIDERED REPRESENTATIONS OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN THOSE SHOWN. The actual expenses attributable to 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 the Manager
waives its fees and reimburses all or a portion of each Fund's expenses and the
extent to which Navigator Shares incur variable expenses, such as transfer
agency costs.
3
<PAGE>
FINANCIAL HIGHLIGHTS
Each Fund offers two classes of shares, Primary Shares and Navigator
Shares. Navigator Shares pay no 12b-1 distribution fees and may pay lower
transfer agency fees. The information for Primary Shares reflects the 12b-1
fees paid by that Class.
The financial information in the tables that follow has been audited
for Value Trust, Total Return Trust and Special Investment Trust by Coopers
& Lybrand L.L.P., independent accountants and for American Leading
Companies by Ernst & Young LLP, independent auditors. Each Fund's financial
statements for the year ended March 31, 1996 and the report of Coopers &
Lybrand L.L.P. or Ernst & Young LLP thereon are included in that Fund's
annual report and are incorporated by reference in the Statement of
Additional Information. The annual report for each Fund is available to
shareholders without charge by calling your Legg Mason or affiliated
investment executive or Legg Mason's Funds Marketing Department at
800-822-5544.
As of the date of this Prospectus, Balanced Trust has not commenced
operations and has not issued any annual reports.
VALUE TRUST (A)
<TABLE>
<CAPTION>
PRIMARY CLASS
Years Ended March 31, 1996 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period $20.21 $18.50 $17.81 $15.69 $13.38 $14.19 $14.16 $12.14
Net investment income .19 .10 .08 .18 .25 .32 .33 .21
Net realized and
unrealized gain
(loss) on investments 8.00 1.70 .92 2.12 2.34 (.74) .77 1.99
Total from investment
operations 8.19 1.80 1.00 2.30 2.59 (.42) 1.10 2.20
Distributions to
shareholders from:
Net investment income (.17) (.05) (.11) (.18) (.28) (.36) (.33) (.18)
Net realized gain on
investments (1.24) (.04) (.20) -- -- (.03) (.74) --
Total distributions (1.41) (.09) (.31) (.18) (.28) (.39) (1.07) (.18)
Net asset value, end
of period $26.99 $20.21 $18.50 $17.81 $15.69 $13.38 $14.19 $14.16
Total return(C) 42.09% 9.77% 5.65% 14.76% 19.53% (2.88)% 7.74% 18.33%
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net
assets:
Expenses 1.82%(E) 1.81%(E) 1.82%(E) 1.86%(E) 1.90%(E) 1.90%(E) 1.86%(E) 1.96%(E)
Net investment income 0.8% 0.5% 0.5% 1.1% 1.7% 2.5% 2.2% 1.6%
Portfolio turnover
rate 19.6% 20.1% 25.5% 21.8% 39.4% 38.8% 30.7% 29.7%
Net assets, end of
period (in thousands) $1,450,774 $986,325 $912,418 $878,394 $745,833 $690,053 $808,780 $720,961
</TABLE>
<TABLE>
<CAPTION>
NAVIGATOR
Years Ended March 31, 1988 1987 1996 1995(B)
<S> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period $15.07 $15.34 $20.27 $18.76
Net investment income .21 .21 .43 .12
Net realized and
unrealized gain
(loss) on investments (1.54) 1.11 8.02 1.40
Total from investment
operations (1.33) 1.32 8.45 1.52
Distributions to
shareholders from:
Net investment income (.20) (.20) (.40) (.01)
Net realized gain on
investments (1.40) (1.39) (1.24) --
Total distributions (1.60) (1.59) (1.64) (.01)
Net asset value, end
of period $12.14 $15.07 $27.08 $20.27
Total return(C) (8.42)% 9.89% 43.53% 8.11%
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net
assets:
Expenses 1.97%(E) 2.00%(E) 0.82% 0.82%(D)
Net investment income 1.5% 1.5% 1.8% 1.8%(D)
Portfolio turnover
rate 47.8% 42.5% 19.6% 20.1%
Net assets, end of
period (in thousands) $665,689 $819,348 $52,332 $36,519
</TABLE>
(A) ALL SHARE AND PER SHARE FIGURES REFLECT THE 2-FOR-1 STOCK SPLIT EFFECTIVE
JULY 29, 1991.
(B) FOR THE PERIOD DECEMBER 1, 1994 (COMMENCEMENT OF SALE OF NAVIGATOR
SHARES) TO MARCH 31, 1995.
(C) NOT ANNUALIZED FOR PERIODS OF LESS THAN A FULL YEAR.
(D) ANNUALIZED.
(E) INCLUDES DISTRIBUTION FEE OF 1.0% THROUGH MAY 11, 1987 AND 0.95%
THEREAFTER.
4
<PAGE>
TOTAL RETURN TRUST
<TABLE>
<CAPTION>
PRIMARY CLASS
Years Ended March 31, 1996 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period $12.79 $13.54 $13.61 $11.64 $ 9.64 $10.03 $10.06 $ 8.86
Net investment income .48 .33 .36 .39(B) .34 .28 .21 .15
Net realized and unrealized
gain (loss) on investments 3.69 (.19) .24 1.89 1.91 (.31) .15 1.18
Total from investment
operations 4.17 .14 .60 2.28 2.25 (.03) .36 1.33
Distributions to shareholders
from:
Net investment income (.51) (.29) (.33) (.31) (.25) (.29) (.21) (.13)
Net realized gain on
investments -- (.60) (.34) -- -- (.07) (.18) --
Total distributions (.51) (.89) (.67) (.31) (.25) (.36) (.39) (.13)
Net asset value, end of
period $16.45 $12.79 $13.54 $13.61 $11.64 $ 9.64 $10.03 $10.06
Total return(C) 33.23% 1.09% 4.57% 19.88% 23.59% (0.05)% 3.48% 15.16%
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net assets:
Expenses 1.95%(E) 1.93%(E) 1.94%(E) 1.95%(B,E) 2.34%(E) 2.50%(E) 2.39%(E) 2.40%(E)
Net investment income 3.2% 2.5% 2.7% 3.1%(B) 3.1% 3.1% 2.0% 1.6%
Portfolio turnover rate 34.7% 61.9% 46.6% 40.5% 38.4% 62.1% 39.2% 25.7%
Net assets, end of period
(in thousands) $267,010 $194,767 $184,284 $139,034 $52,360 $22,822 $26,815 $30,102
</TABLE>
<TABLE>
<CAPTION>
NAVIGATOR
Years Ended March 31, 1988 1987 1996 1995(A)
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period $11.63 $10.78 $12.83 $12.66
Net investment income .18 .18 .62 .15
Net realized and unrealized
gain (loss) on investments (1.35) .90 3.72 .25
Total from investment
operations (1.17) 1.08 4.34 .40
Distributions to shareholders
from:
Net investment income (.21) (.19) (.65) (.06)
Net realized gain on
investments (1.39) (.04) -- (.17)
Total distributions (1.60) (.23) (.65) (.23)
Net asset value, end of
period $ 8.86 $11.63 $16.52 $12.83
Total return(C) (10.17)% 10.24% 34.67% 2.28%
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net assets:
Expenses 2.30%(E) 2.40%(E) 0.94% 0.86%(D)
Net investment income 1.9% 1.7% 4.2% 3.6%(D)
Portfolio turnover rate 50.1% 82.7% 34.7% 61.9%
Net assets, end of period
(in thousands) $35,394 $47,028 $7,058 $4,823
</TABLE>
(A) FOR THE PERIOD DECEMBER 1, 1994 (COMMENCEMENT OF SALE OF NAVIGATOR
SHARES) TO MARCH 31, 1995.
(B) NET OF FEES WAIVED BY THE ADVISER IN EXCESS OF AN INDEFINITE VOLUNTARY
EXPENSE LIMITATION OF 1.95% BEGINNING NOVEMBER 1, 1992.
(C) NOT ANNUALIZED FOR PERIODS OF LESS THAN A FULL YEAR.
(D) ANNUALIZED.
(E) INCLUDES DISTRIBUTION FEE OF 1.0%.
5
<PAGE>
SPECIAL INVESTMENT TRUST
<TABLE>
<CAPTION>
PRIMARY CLASS
Years Ended March 31, 1996 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period $19.96 $21.56 $17.91 $17.00 $14.59 $13.58 $11.84 $10.14
Net investment income -- (.06) (.11) .03 .12 .18 .12 .06(B)
Net realized and
unrealized gain (loss)
on investments 5.60 (1.31) 3.93 1.66 2.83 2.42 1.70 1.65
Total from investment
operations 5.60 (1.37) 3.82 1.69 2.95 2.60 1.82 1.71
Distributions to
shareholders from:
Net investment income -- -- (.03) -- (.14) (.27) (.08) (.01)
Net realized gain on
investments (.47) (.23) (.14) (.78) (.40) (1.32) -- --
Total distributions (.47) (.23) (.17) (.78) (.54) (1.59) (.08) (.01)
Net asset value, end of
period $25.09 $19.96 $21.56 $17.91 $17.00 $14.59 $13.58 $11.84
Total return(C) 28.47% (6.37)% 21.35% 10.50% 20.46% 21.46% 15.37% 16.99%
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net
assets:
Expenses 1.96%(E) 1.93%(E) 1.94%(E) 2.00%(E) 2.10%(E) 2.30%(E) 2.30%(E) 2.50%(E)
Net investment income --% (0.2)% (0.6)% 0.2% 0.8% 1.4% 1.0% 0.7%
Portfolio turnover rate 35.6% 27.5% 16.7% 32.5% 56.9% 75.6% 115.9% 122.4%
Net assets, end of period
(in thousands) $792,240 $612,093 $565,486 $322,572 $201,772 $106,770 $68,240 $44,450
</TABLE>
<TABLE>
<CAPTION>
NAVIGATOR
CLASS
Years Ended March 31, 1988 1987 1996 1995(A)
<S> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period $12.80 $11.53 $20.03 $19.11
Net investment income .13(B) --(B) .09 .07
Net realized and
unrealized gain (loss)
on investments (1.825) 1.51 5.78 .85
Total from investment
operations (1.695) 1.51 5.87 .92
Distributions to
shareholders from:
Net investment income (.075) (.02) (.17) --
Net realized gain on
investments (.89) (.22) (.47) --
Total distributions (.965) (.24) (.64) --
Net asset value, end of
period $10.14 $12.80 $25.26 $20.03
Total return(C) (14.18)% 13.39% 29.85% 4.81%
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net
assets:
Expenses 2.50%(E) 2.50%(E) 0.88% 0.90%(D)
Net investment income 1.0% -- 1.0% 1.0%(D)
Portfolio turnover rate 158.9% 77.0% 35.6% 27.5%
Net assets, end of period
(in thousands) $43,611 $55,822 $35,731 $26,123
</TABLE>
(A) FOR THE PERIOD DECEMBER 1, 1994 (COMMENCEMENT OF SALE OF NAVIGATOR
SHARES) TO MARCH 31, 1995.
(B) EXCLUDES INVESTMENT ADVISORY FEES AND OTHER EXPENSES IN EXCESS OF A 2.5%
ADVISER-IMPOSED EXPENSE LIMITATION.
(C) NOT ANNUALIZED FOR PERIODS OF LESS THAN A FULL YEAR.
(D) ANNUALIZED.
(E) INCLUDES DISTRIBUTION FEE OF 1.0%.
6
<PAGE>
AMERICAN LEADING COMPANIES
<TABLE>
<CAPTION>
PRIMARY CLASS
Years Ended March 31, 1996 1995 1994(A)
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $10.18 $ 9.69 $10.00
Net investment income(B) 0.07 0.12 0.059
Net realized and unrealized gain (loss) on investments 2.08 0.48 (0.344)
Total from investment operations 2.15 0.60 (0.285)
Distributions to shareholders from net investment income (0.10) (0.11) (0.025)
Net asset value, end of period $12.23 $10.18 $ 9.69
Total return(C) 21.24% 6.24% (2.86)%
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net assets:
Expenses(B) 1.95% 1.95% 1.95%(D)
Net investment income(B) 0.69% 1.21% 1.14%(D)
Portfolio turnover rate 43.4% 30.5% 21.0%(D)
Net assets, end of period (in thousands) $76,100 $59,985 $55,022
</TABLE>
(A) FOR THE PERIOD SEPTEMBER 1, 1993 (COMMENCEMENT OF OPERATIONS) TO MARCH
31, 1994.
(B) 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 YEARS ENDED MARCH 31, 1995 AND MARCH 31,
1996 WOULD HAVE BEEN 2.28%, 2.12%, AND 2.20%, RESPECTIVELY.
(C) NOT ANNUALIZED FOR PERIODS OF LESS THAN A FULL YEAR.
(D) ANNUALIZED.
PERFORMANCE INFORMATION
From time to time the Funds 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-to-year
results, tend to smooth out variations in a fund's returns. For comparison
purposes, each Fund's total return is compared with total returns of the Value
Line Geometric Average, an index of approximately 1,700 stocks ("Value Line
Index"), and the S&P 500, two unmanaged indexes of widely held common stocks. No
adjustment has been made for any income taxes payable by shareholders.
The investment return and principal value of an investment in each Fund will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. Returns of each Fund would have been lower if the
Advisers and/or Legg Mason had not waived certain fees for the fiscal years
ended March 31, as follows: 1989 through 1996 for Value Trust; 1986 through 1995
for Total Return and 1986 through 1996 for Special Investment; and 1994 through
1996 for American Leading Companies. As of the date of this Prospectus, Balanced
Trust has no operating history.
7
<PAGE>
Performance figures reflect past performance only and are not intended
to and do not indicate future performance. Further information about each
Fund's performance is contained in its Annual Report to Shareholders, which
may be obtained without charge by calling your Legg Mason or affiliated
investment executive or Legg Mason's Funds Marketing Department at
800-822-5544.
Total returns as of March 31, 1996 are shown below.
<TABLE>
<CAPTION>
AMERICAN
TOTAL RETURN SPECIAL LEADING VALUE LINE
VALUE TRUST TRUST INVESTMENT TRUST COMPANIES INDEX
<S> <C> <C> <C> <C> <C>
CUMULATIVE TOTAL RETURN
Primary Class:
One Year +42.09% +33.23% +28.47% +21.24% +21.19%
Five Years +126.03 +108.70 +94.29 N/A +67.41
Ten Years +181.74 +146.16 +209.91 N/A +90.46
Life of Class -- Value Trust(A) +872.26 +317.14
Life of Class -- Total Return Trust(B) +165.36 +125.97
Life of Class -- Special Investment Trust(C) +257.33 +116.60
Life of Class -- American Leading Companies(D) +25.13 +28.18
Navigator Class:
One Year +43.53 +34.67 +29.85 N/A +21.19
Life of Class(E) +55.17 +37.74 +36.10 N/A +29.97
</TABLE>
<TABLE>
<CAPTION>
S&P STOCK
INDEX
CUMULATIVE TOTAL RETURN
<S> <C>
Primary Class:
One Year +32.09%
Five Years +98.15
Ten Years +269.15
Life of Class -- Value Trust(A) +806.32
Life of Class -- Total Return Trust(B) +343.59
Life of Class -- Special Investment Trust(C) +321.18
Life of Class -- American Leading Companies(D) +49.11
Navigator Class:
One Year +32.09
Life of Class(E) +47.09
</TABLE>
<TABLE>
<CAPTION>
AMERICAN
TOTAL RETURN SPECIAL LEADING VALUE LINE
VALUE TRUST TRUST INVESTMENT TRUST COMPANIES INDEX
<S> <C> <C> <C> <C> <C>
AVERAGE ANNUAL TOTAL RETURN
Primary Class:
One Year +42.09% +33.23% +28.47% +21.24% +21.19%
Five Years +17.72 +15.85 +14.21 N/A +10.86
Ten Years +10.91 +9.43 +11.98 N/A +6.65
Life of Class -- Value Trust(A) +17.69 +10.77
Life of Class -- Total Return Trust(B) +9.88 +8.19
Life of Class -- Special Investment Trust(C) +13.22 +7.83
Life of Class -- American Leading Companies(D) +9.06 +10.08
Navigator Class:
One Year +43.53 +34.67 +29.85 N/A +21.19
Life of Class(E) +39.00 +27.12 +25.99 N/A +21.79
</TABLE>
<TABLE>
<CAPTION>
S&P STOCK
INDEX
<S> <C>
AVERAGE ANNUAL TOTAL RETURN
Primary Class:
One Year +32.09%
Five Years +14.66
Ten Years +13.95
Life of Class -- Value Trust(A) +17.10
Life of Class -- Total Return Trust(B) +15.46
Life of Class -- Special Investment Trust(C) +15.05
Life of Class -- American Leading Companies(D) +16.72
Navigator Class:
One Year +32.09
Life of Class(E) +33.66
</TABLE>
(A) INCEPTION OF VALUE TRUST -- APRIL 16, 1982.
(B) INCEPTION OF TOTAL RETURN TRUST -- NOVEMBER 21, 1985.
(C) INCEPTION OF SPECIAL INVESTMENT TRUST -- DECEMBER 30, 1985.
(D) INCEPTION OF AMERICAN LEADING COMPANIES -- SEPTEMBER 1, 1993.
(E) FOR THE PERIOD DECEMBER 1, 1994 (COMMENCEMENT OF SALE OF NAVIGATOR
SHARES) TO MARCH 31, 1996.
The S&P 500 and Value Line Index figures assume reinvestment of
dividends paid by their component stocks. Unlike the figures presented for
the Funds, the S&P 500 and Value Line Index figures do not include
brokerage commissions and other costs of investing.
8
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Each Fund's investment objective may not be changed without
shareholder approval; however, except as otherwise noted, the investment
policies of each Fund described below may be changed by the Funds' Board
of Directors without a shareholder vote. There can be no assurance that
any Fund will achieve its investment objective.
VALUE TRUST'S objective is long-term growth of capital. The Adviser
believes that the Fund's objective can best be met through the purchase of
securities that appear 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. Any or all of these
factors may provide buying opportunities at attractive prices compared to
historical or market price-earnings ratios, book value, return on equity,
or the long-term prospects for the companies in question.
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.
The Fund's policy of investing in securities that may be temporarily
out of favor differs from the investment approach followed by many other
mutual funds with similar investment objectives. Such mutual funds
typically do not invest in securities that have declined sharply in price,
are not widely followed, or are issued by companies that have reported
poor earnings or that have suffered a cyclical downturn in business. The
Adviser believes, however, that purchasing securities depressed by
temporary factors will provide investment returns superior to those
obtained when premium prices are paid for issues currently in favor.
The Fund invests primarily in companies with a record of earnings and
dividends, reasonable return on equity, and sound finances. The Fund may
from time to time invest in securities that pay no dividends or interest.
Current dividend income is not a prerequisite in the selection of equity
securities.
The Fund normally invests primarily in equity securities. It may
invest in debt securities, including government, corporate and money
market securities, for temporary defensive purposes and, consistent with
its investment objective, during periods when or under circumstances where
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 both foreign and domestic issuers of any maturity without
regard to rating, and may invest its assets in such securities without
regard to a percentage limit. The Adviser currently anticipates that under
normal market conditions, the Fund will invest no more than 25% of its
total assets in long-term debt securities. Up to 10% of its total assets
may be invested in debt securities not rated investment grade, i.e., not
rated at least BBB by Standard & Poor's ("S&P") or Baa by Moody's
Investors Service, Inc. ("Moody's") or, if unrated by those entities,
deemed by the Adviser to be of comparable quality.
TOTAL RETURN TRUST'S objective is to obtain capital appreciation and
current income in order to achieve an attractive total investment return
consistent with reasonable risk. The Adviser attempts to meet its
objective by investing in dividend-paying common stocks, debt securities
and securities convertible into common stocks which, in the opinion of the
Adviser, offer potential for attractive total return. The Fund also
invests in common stocks and securities convertible into common stocks
which do not pay current dividends but which, in the Adviser's opinion,
offer prospects for capital appreciation and future income.
The Fund may invest in debt securities, including government,
corporate and money market securities, consistent with its investment
objective, during periods when or under circumstances where 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 without regard to rating and
may invest its assets in such securities without regard to a percentage
limit. The Adviser currently anticipates that under normal market
conditions, the Fund will invest no more than 50% of its total assets in
intermediate-term and long-term debt securities, and no more than 5% of
its total assets in debt securities not rated investment grade, i.e., not
rated at least BBB by S&P or Baa by Moody's or, if unrated by those
entities, deemed by the Adviser to be of comparable quality.
9
<PAGE>
SPECIAL INVESTMENT TRUST'S objective is capital appreciation. Current
income is not a consideration. The Fund invests principally in equity
securities, and securities convertible into equity securities, of
companies with market capitalizations of less than $2.5 billion which the
Adviser believes have one or more of the following characteristics:
1. The companies generally are not closely followed by, or are out of
favor with, investors, and which appear to be undervalued in relation to
their long-term earning power or asset values. A security may be
undervalued because of many factors, including market decline, poor
economic conditions, tax-loss selling, or actual or anticipated
developments affecting the issuer.
2. The companies are experiencing unusual and possibly non-repetitive
developments which, in the opinion of the Adviser, may cause the market
values of the securities to increase. Such developments may include:
(a) a sale or termination of an unprofitable part of the company's
business;
(b) a change in the company's management or in management's
philosophy;
(c) a basic change in the industry in which the company operates;
(d) the introduction of new products or technologies; or
(e) the prospect or effect of acquisition or merger activities.
3. The companies are involved in actual or anticipated reorganizations
or restructurings under the Bankruptcy Code. No more than 20% of the
Fund's total assets may be invested in such securities.
The Fund also invests in debt securities of companies having one or
more of the characteristics listed above.
Investments in securities with such characteristics may involve
greater risks of loss than investments in securities of larger,
well-established companies with a history of consistent operating
patterns. However, the Adviser believes that such investments also may
offer greater than average potential for capital appreciation.
Although the Fund primarily invests in companies with the
characteristics described previously, the Adviser may invest in larger,
more highly-capitalized companies when circumstances warrant such
investments.
The Adviser believes that the comparative lack of attention by
investment analysts and institutional investors to small and mid-sized
companies may result in opportunities to purchase the securities of such
companies at attractive prices compared to historical or market
price-earnings ratios, book value, return on equity or long-term
prospects. The Fund's policy of investing primarily in the securities of
smaller companies differs from the investment approach of many other
mutual funds, and investment in such securities involves special risks.
Among other things, the prices of securities of small and mid-sized
companies generally are more volatile than those of larger companies; the
securities of smaller companies generally are less liquid; and smaller
companies generally are more likely to be adversely affected by poor
economic or market conditions.
It is anticipated that some of the portfolio securities of the Fund
may not be widely traded, and that the Fund's position in such securities
may be substantial in relation to the market for such securities.
Accordingly, it may be difficult for the Fund to dispose of such
securities at prevailing market prices in order to meet redemptions.
However, as a non-fundamental policy, the Fund will not invest more than
10% of its net assets in illiquid securities.
The Fund may invest up to 20% of its total assets in securities of
companies involved in actual or anticipated reorganizations or
restructurings. Investments in such securities involve special risks,
including difficulty in obtaining information as to the financial
condition of such issuers and the fact that the market prices of such
securities are subject to sudden and erratic market movements and
above-average price volatility. Such securities require active monitoring.
The Fund invests primarily in equity securities and securities
convertible into equities, but also purchases debt securities including
government, corporate and money market securities. Up to 35% of the Fund's
assets may be invested in debt securities not rated at least BBB by S&P,
or Baa by Moody's, and securities unrated by those entities, deemed by the
Adviser to be of comparable quality.
When conditions warrant, for temporary defensive purposes, the Fund
also may invest without limit in short-term debt instruments, including
government, corporate and money market securities. Such short-term
investments will be rated in one of the four highest rating categories by
S&P or Moody's or, if unrated by S&P or Moody's, deemed by the Adviser to
be of comparable quality.
10
<PAGE>
AMERICAN LEADING COMPANIES' 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. 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. LMCM
defines a "Leading Company" as a company that, in the opinion of LMCM, 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,
LMCM's goal is to invest in companies having what LMCM 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 LMCM believes show strong potential for future market
leadership, and in companies which LMCM believes, because of corporate
restructuring or other changes, are undervalued based on their potential
for future growth. There is always a risk that LMCM 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.
During periods when LMCM believes the return on certain debt
securities may equal or exceed the return on equity 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. 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 LMCM to be of comparable quality.
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 not rated at least Ba by Moody's or BB by S&P or, if unrated by
those entities, deemed by the Adviser to be of comparable quality.
BALANCED TRUST'S investment objective is to seek long-term capital
appreciation and current income in order to achieve an attractive total
investment return consistent with reasonable risk. The Fund will invest in
a combination of equity, debt and money market securities in attempting to
achieve its objective. Under normal conditions, the Fund will invest no
more than 75% of its assets in equity securities. Bartlett & Co.
("Bartlett"), as investment adviser, will emphasize investments in
dividend-paying equity securities that, in the opinion of Bartlett, offer
the potential for long-term growth, and in common stocks or securities
convertible into common stock that do not pay current dividends but offer
prospects for capital appreciation and future income.
The Fund generally will invest at least 25% of its portfolio in fixed
income securities, including, without limitation, preferred stocks, bonds,
debentures, municipal obligations and mortgage-related securities;
certificates of deposit; Treasury bills, notes, bonds and other
obligations of the U.S. Government, its agencies and instrumentalities;
commercial paper and other money market instruments rated not less than
A-1, P-1 or F-1 by
11
<PAGE>
Moody's, S&P or Fitch Investors Services ("Fitch"), respectively; and
repurchase agreements. No more than 5% of the Fund's total assets may be
invested in fixed income or convertible securities not rated at least BBB
or Baa at the time of purchase, or comparable unrated securities. If an
investment grade security purchased by the Fund subsequently loses its
investment grade rating, Bartlett will determine whether to retain that
security in the Fund's portfolio. The Fund may invest in securities of any
maturity, but, under normal circumstances, expects to maintain its
portfolio of fixed income securities so as to have an average
dollar-weighted maturity of between four and five years.
Balanced Trust is managed as a balanced fund and invests in equity and
debt securities. This approach attempts to "balance" the potential for
growth and greater volatility of stocks with the historically stable
income and more moderate average price fluctuations of fixed income
securities. The proportion of the Fund's assets invested in each type of
security will vary from time to time in accordance with Bartlett's
assessment of investment opportunities. It is currently anticipated that
the Fund will invest an average of 60% of its total assets in common and
preferred stocks and the remaining 40% in various fixed income securities.
These percentages may vary in attempting to increase returns or reduce
risk.
The Fund may also acquire securities on a when-issued and
delayed-delivery basis, and may purchase exchange-traded futures contracts
on stock indices and options thereon. The Fund may use derivatives, such
as options and futures, in its investment activities. No more than 15% of
the Fund's net assets may be invested in illiquid securities. The Fund may
also engage in reverse repurchase agreements.
The portfolio turnover rate for the equity portion of the Fund's
portfolio is estimated to be 50% and the portfolio turnover rate for the
fixed income portion is estimated to be 120%. The Fund's portfolio
turnover rate is not expected to exceed 80%.
TYPES OF INVESTMENTS AND ASSOCIATED RISKS
FOR EACH FUND:
When cash is temporarily available, or for temporary defensive
purposes, each Fund may invest without limit in money market instruments,
including repurchase agreements high-quality short-term debt securities. A
repurchase agreement is an agreement under which either U.S. government
obligations or 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 each Fund by State Street Bank and Trust
Company ("State Street"), the Funds' custodian, as collateral until resold
and will be supplemented by additional collateral if necessary to maintain
a total value equal to or in excess of the value of the repurchase
agreement. Each 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 rights to dispose of the
collateral securities, which may decline in value in the interim. The
Funds will enter into repurchase agreements only with financial
institutions determined by each Fund's adviser to present minimal risk of
default during the term of the agreement based on guidelines established
by the Funds' Boards of Directors. A Fund will not enter into repurchase
agreements of more than seven days' duration if more than 10% (for Value
Trust, Total Return Trust and Special Investment Trust) or 15% (for
American Leading Companies and Balanced Trust) of its net assets would be
invested in such agreements and other illiquid investments.
The Funds may engage in securities lending. However, no Fund currently
intends to loan securities with a value exceeding 5% of its net assets.
For further information concerning securities lending, see the Statement
of Additional Information.
PREFERRED STOCK
Each Fund may purchase preferred stock as a substitute for debt
securities of the same issuer when, in the opinion of its adviser, the
preferred stock is more attractively priced in light of the risks
involved. Preferred stock pays dividends at a specified rate and generally
has preference over common stock in the payment of dividends and the
liquidation of the issuer's assets but is junior to the debt securities of
the issuer in those same respects. Unlike interest payments on debt
securities, dividends on preferred stock are generally payable at the
discretion of the issuer's board of directors. Shareholders may suffer a
loss of value if dividends are not paid. The market prices of preferred
stocks are subject to changes in interest rates and are more sensitive to
changes in the issuer's creditworthiness than are the prices of debt
securities. Value Trust, Total Return Trust and Special Investment Trust
do not currently expect to invest more than 5% of net assets in preferred
stock.
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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. Before
conversion, convertible securities ordinarily provide a stream of income
with generally higher yields than those of common stocks of the same or
similar issuers, but lower than the yield on non-convertible debt.
Convertible securities are usually subordinated to comparable-tier
non-convertible securities but rank senior to common stock in a
corporation's capital structure.
The value of a convertible security is a function of (1) its yield in
comparison with the yields of other securities of comparable maturity and
quality that do not have a conversion privilege and (2) its worth, at
market value, if converted into the underlying common stock. Convertible
securities are typically issued by smaller capitalized companies whose
stock prices may be volatile. The price of a convertible security often
reflects such variations in the price of the underlying common stock in a
way that non-convertible debt does not. 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.
U.S. GOVERNMENT SECURITIES
U.S. government securities include direct obligations of the U.S.
Treasury and obligations issued by U.S. government agencies and
instrumentalities, including securities that are supported by: (1) the
full faith and credit of the United States (e.g., certificates of the
Government National Mortgage Association ("GNMA")); (2) the right of the
issuer to borrow from the U.S. Treasury (e.g., Federal Home Loan Banks
securities); (3) the discretionary authority of the U.S. Treasury to lend
to the issuer (e.g., Federal National Mortgage Association ("FNMA")
securities); and (4) solely the creditworthiness of the issuer (e.g.,
Federal Home Loan Mortgage Corporation ("FHLMC") securities). Neither the
U.S. Government nor any of its agencies or instrumentalities guarantees
the market value of the securities they issue. Therefore, the market value
of such securities can be expected to fluctuate in response to changes in
interest rates.
FOREIGN SECURITIES
Each Fund may invest in foreign securities. Investment in foreign
securities presents certain risks, including those resulting from
fluctuations in currency exchange rates, revaluation of currencies, future
political and economic developments and the possible imposition of
currency exchange blockages or other foreign governmental laws or
restrictions, reduced availability of public information concerning
issuers, and the fact that foreign issuers are not generally subject to
uniform accounting, auditing and financial reporting standards or to other
regulatory practices and requirements comparable to those applicable to
domestic issuers. These risks are intensified when investing in countries
with developing economies and securities markets also known as "emerging
markets." Moreover, securities of many foreign issuers may be less liquid
and their prices more volatile than those of comparable domestic issuers.
In addition, with respect to certain foreign countries, there is the
possibility of expropriation, confiscatory taxation, withholding taxes and
limitations on the use or removal of funds or other assets.
The Funds may also invest in ADRs, which are securities issued by
banks evidencing their ownership of specific foreign securities. ADRs may
be sponsored or unsponsored; issuers of securities underlying unsponsored
ADRs are not contractually obligated to disclose material information in
the U.S. Accordingly, there may be less information available about such
issuers than there is with respect to domestic companies and issuers of
securities underlying sponsored ADRs. Although ADRs are denominated in
U.S. dollars, the underlying security often is not; thus, the value of the
ADR may be subject to exchange controls and variations in the exchange
rate. The Funds may also invest in GDRs, which are receipts, often
denominated in U.S. dollars, issued by either a U.S. or non-U.S. bank
evidencing its ownership of the underlying foreign securities.
Although not a fundamental policy subject to shareholder vote, the
adviser currently anticipates that Value Trust, Total Return Trust,
Special Investment Trust and American Leading Companies will each invest
no more than 25% of its total assets in foreign securities. Bartlett
currently anticipates that Balanced Trust will not invest more than 10% of
its total assets in foreign securities, either directly or through ADRs or
GDRs.
ILLIQUID SECURITIES
Value Trust, Total Return Trust, and Special Investment Trust may each
invest up to 10% of its net assets in illiquid securities. American
Leading Companies and Balanced Trust may each invest up to 15% of its net
assets in illiquid securities. Illiquid securities are securities that
cannot be
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expected to be sold within seven days at approximately the price at which
they are valued. Due to the absence of an active trading market, a Fund
may have difficulty valuing or disposing of illiquid securities promptly.
Securities that are freely tradable in their country of origin or in their
principal market are not considered illiquid securities even if they are
not registered for sale in the U.S.
WHEN-ISSUED SECURITIES
Each Fund may enter into commitments to purchase securities on a
when-issued basis. A Fund may purchase when-issued securities because such
securities are often the most efficiently priced and have the best
liquidity in the bond market. As with the purchase of all securities, when
a Fund purchases securities on a when-issued basis, it assumes the risks
of ownership, including the risk of price fluctuation, at the time of
purchase, not at the time of receipt. However, a Fund does not have to pay
for the obligations until they are delivered to it, which is normally 7 to
15 days later, but could be considerably longer in the case of some
mortgage-backed securities. To meet that payment obligation, that Fund
will set aside cash or liquid, high-quality debt securities in an account
with its custodian equal to the payment that will be due. Depending on
market conditions, a Fund's when-issued purchases could cause its net
asset value to be more volatile, because they will increase the amount by
which that Fund's total assets, including the value of the when-issued
securities held by it, exceed its net assets. A Fund may sell the
securities subject to a when-issued purchase, which may result in a gain
or loss.
FUTURES AND OPTIONS TRANSACTIONS
VALUE TRUST, TOTAL RETURN TRUST AND SPECIAL INVESTMENT TRUST AND BALANCED TRUST:
The Funds may engage in futures strategies to attempt to reduce the
overall investment risk that would normally be expected to be associated
with ownership of the securities in which each invests. For example, a
Fund may sell a stock index futures contract in anticipation of a general
market or market sector decline that could adversely affect the market
value of the Fund's portfolio. To the extent that a Fund's portfolio
correlates with a given stock index, the sale of futures contracts on that
index could reduce the risks associated with a market decline and thus
provide an alternative to the liquidation of securities positions. A Fund
may sell an interest rate futures contract to offset price changes of debt
securities it already owns. This strategy is intended to minimize any
price changes in the debt securities a Fund owns (whether increases or
decreases) caused by interest rate changes, because the value of the
futures contract would be expected to move in the opposite direction from
the value of the securities owned by the Fund.
Each Fund may purchase call options on interest rate futures contracts
to hedge against a market advance in debt securities that the Fund plans
to acquire at a future date. The purchase of such options is analogous to
the purchase of call options on an individual debt security that can be
used as a temporary substitute for a position in the security itself. The
Funds may purchase put options on stock index futures contracts. This is
analogous to the purchase of protective put options on individual stocks
where a level of protection is sought below which no additional economic
loss would be incurred by the Funds. The Funds may purchase and write
options in combination with each other to adjust the risk and return of
the overall position. For example, the Funds may purchase a put option and
write a call option on the same underlying instrument, in order to
construct a combined position whose risk and return characteristics are
similar to selling a futures contract.
The Funds may purchase put options to hedge sales of securities, in a
manner similar to selling futures contracts. If stock prices fall, the
value of the put option would be expected to rise and offset all or a
portion of the Fund's resulting losses in its stock holdings. However,
option premiums tend to decrease over time as the expiration date nears.
Therefore, because of the cost of the option (in the form of premium and
transaction costs), a Fund would expect to suffer a loss in the put option
if prices do not decline sufficiently to offset the deterioration in the
value of the option premium.
The Funds may write put options as an alternative to purchasing actual
securities. If stock prices rise, a Fund would expect to profit from a
written put option, although its gain would be limited to the amount of
the premium it received. If stock prices remain the same over time, it is
likely that the Fund will also profit, because it should be able to close
out the option at a lower price. If stock prices fall, the Fund would
expect to suffer a loss.
By purchasing a call option, a Fund would attempt to participate in
potential price increases of the underlying index, with results similar to
those obtainable from purchasing a futures contract, but with risk limited
to the cost of the option if stock prices fell. At the same time, a Fund
can
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expect to suffer a loss if stock prices do not rise sufficiently to offset
the cost of the option.
The characteristics of writing call options are similar to those of
writing put options, as described above, except that writing covered call
options generally is a profitable strategy if prices remain the same or
fall. Through receipt of the option premium, a Fund would seek to mitigate
the effects of a price decline. At the same time, when writing call
options the Fund would give up some ability to participate in security
price increases.
The purchase and sale of options and futures contracts involve risks
different from those involved with direct investments in securities, and
also require different skills from the adviser in managing the Funds'
portfolio. While utilization of options, futures contracts and similar
instruments may be advantageous to the Funds, if the adviser is not
successful in employing such instruments in managing a Fund's investments
or in predicting interest rate changes, the Fund's performance will be
worse than if the Fund did not make such investments. It is possible that
there will be imperfect correlation, or even no correlation, between price
movements of the investments being hedged and the options or futures used.
It is also possible that a Fund may be unable to purchase or sell a
portfolio security at a time that otherwise would be favorable for it to
do so, or that a Fund may need to sell a portfolio security at a
disadvantageous time, due to the need for the Fund to maintain "cover" or
to segregate securities in connection with hedging transactions and that a
Fund may be unable to close out or liquidate hedged positions. In
addition, the Funds will pay commissions and other costs in connection
with such investments, which may increase each Fund's expenses and reduce
its yield. A more complete discussion of the possible risks involved in
transactions in options and futures contracts is contained in the
Statement of Additional Information. Each Fund's current policy is to
limit options and futures transactions to those described above. The Funds
may purchase and write both over-the-counter and exchange-traded options.
A Fund will not enter into any futures contracts or related options if
the sum of the initial margin deposits on futures contracts and related
options and premiums paid for related options the Fund has purchased would
exceed 5% of the Fund's total assets. A Fund will not purchase futures
contracts or related options if, as a result, more than 20% of the Fund's
total assets would be so invested.
The Funds may also enter into forward foreign currency contracts. A
forward foreign currency contract involves an obligation to purchase or
sell a specific amount of a specific currency at a future date, which may
be any fixed number of days from the date of the contract agreed upon by
the parties, at a price set at the time of the contract. By entering into
a foreign currency contract, a Fund "locks in" the exchange rate between
the currency it will deliver and the currency it will receive for the
duration of the contract. A Fund may enter into these contracts for the
purpose of hedging against risk arising from its investment in securities
denominated in foreign currencies or when it anticipates investing in such
securities. Forward currency contracts involve certain costs and risks,
including the risk that anticipated currency movements will not be
accurately predicted, causing a Fund to sustain losses on these contracts.
AMERICAN LEADING COMPANIES:
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 LMCM'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 securities
underlying all outstanding covered call options would
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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.
THE FOLLOWING DISCUSSION OF RISK APPLIES ONLY TO BALANCED TRUST:
MUNICIPAL OBLIGATIONS
Municipal obligations include obligations issued to obtain funds for
various public purposes, including constructing a wide range of public
facilities, such as bridges, highways, housing, hospitals, mass
transportation, schools and streets. Other public purposes for which
municipal obligations may be issued include the refunding of outstanding
obligations, the obtaining of funds for general operating expenses and the
making of loans to other public institutions and facilities. In addition,
certain types of industrial development bonds ("IDBs") and private
activity bonds ("PABs") are issued by or on behalf of public authorities
to finance various privately operated facilities, including certain
pollution control facilities, convention or trade show facilities, and
airport, mass transit, port or parking facilities.
Municipal obligations also include short-term tax anticipation notes,
bond anticipation notes, revenue anticipation notes and other forms of
short-term debt obligations. Such notes may be issued with a short-term
maturity in anticipation of the receipt of tax payments, the proceeds of
bond placements or other revenues.
Municipal obligations also include municipal lease obligations. These
obligations, which are issued by state and local governments to acquire
land, equipment and facilities, typically are not fully backed by the
municipality's credit, and, if funds are not appropriated for the
following year's lease payments, a lease may terminate, with the
possibility of default on the lease obligation and significant loss to the
Fund. "Certificates of Participation" are participations in municipal
lease obligations or installment sales contracts. Each certificate
represents a proportionate interest in or right to the lease purchase
payments made.
The two principal classifications of municipal obligations are
"general obligation" and "revenue" bonds. "General obligation" bonds are
secured by the issuer's pledge of its faith, credit and taxing power.
"Revenue" bonds are payable only from the revenues derived from a
particular facility or class of facilities or from the proceeds of a
special excise tax or other specific revenue source such as the corporate
user of the facility being financed. IDBs and PABs are usually revenue
bonds and are not payable from the unrestricted revenues of the issuer.
The credit quality of IDBs and PABs is usually directly related to the
credit standing of the corporate user of the facilities.
MORTGAGE-RELATED SECURITIES
Mortgage-related securities represent interests in pools of mortgages.
Mortgage-related securities may be issued by governmental or government-
related entities or by non-governmental entities such as banks, savings
and loan institutions, private mortgage insurance companies, mortgage
bankers and other secondary market issuers.
Interests in pools of mortgage-related securities differ from other
forms of debt securities which normally provide for periodic payment of
interest in fixed amounts with principal payments at maturity or specified
call dates. In contrast, mortgage-related securities provide monthly
payments which consist of interest and, in most cases, principal. In
effect, these payments are a "pass-through" of the monthly payments made
by the individual borrowers on their residential mortgage loans, net of
any fees paid to the issuer or guarantor of such securities. Additional
payments to holders of mortgage-related securities are caused by
repayments resulting from the sale of the underlying residential property,
refinancing or foreclosure. Some mortgage-related securities entitle the
holders to receive all interest and principal payments owed on the
mortgages in the pool, net of certain fees, regardless of whether or not
the mortgagors actually make the payments.
As prepayment rates of individual pools of mortgage loans vary widely,
it is not possible to predict accurately the average life of a particular
mortgage-related security. Although mortgage-related securities are issued
with stated maturities of up to forty years, unscheduled or early payments
of principal and interest on the underlying mortgages may shorten
considerably the securities' effective maturities. When interest rates are
declining, such prepayments usually increase. The volume of prepayments of
principal on a pool of mortgages underlying a particular mortgage-related
security will influence the yield of that security. Increased prepayment
of principal may limit a Fund's ability to realize the appreciation in the
value of such securities that would otherwise accompany declining interest
rates. An increase in mortgage prepayments could cause the Fund to incur a
loss on a mortgage-related security that was purchased at a premium. On
the other hand, a decrease in the rate of prepayments, resulting from an
increase in market interest rates, among other causes, may extend the
effective maturities
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of mortgage-related securities, increasing their sensitivity to changes in
market interest rates. In determining the average maturity of the fixed
income portion of the Fund, Bartlett must apply certain assumptions and
projections about the maturity and prepayment of mortgage-related
securities; actual prepayment rates may differ.
GOVERNMENT MORTGAGE-RELATED SECURITIES
GNMA pass-through securities are considered to have a very low risk of
default in that (i) the underlying mortgage loan portfolio is comprised
entirely of government-backed loans and (ii) the timely payment of both
principal and interest on the securities is guaranteed by the full faith
and credit of the U.S. Government -- regardless of whether they have been
collected. GNMA pass-through securities are, however, subject to the same
market risk as comparable debt securities. Therefore, the effective
maturity and market value of the Fund's GNMA securities can be expected to
fluctuate in response to changes in interest rate levels.
FHLMC, a corporate instrumentality of the U.S. Government, issues
mortgage participation certificates ("PCs") which represent interests in
mortgages from FHLMC's national portfolio. The mortgage loans in FHLMC's
portfolio are not government backed; rather, the loans are either
uninsured with loan-to-value ratios of 80% or less, or privately insured
if the loan-to-value ratio exceeds 80%. FHLMC, not the U.S. Government,
guarantees the timely payment of interest and ultimate collection of
principal on FHLMC PCs.
FNMA is a government-sponsored corporation owned entirely by private
stockholders that purchases residential mortgages from a list of approved
seller/servicers, including savings and loan associations, savings banks,
commercial banks, credit unions and mortgage bankers. Pass-through
certificates issued by FNMA ("FNMA certificates") are guaranteed as to
timely payment of principal and interest by FNMA, not the U.S. Government.
PRIVATELY ISSUED MORTGAGE-RELATED SECURITIES
Mortgage-related securities offered by private issuers include
pass-through securities comprised of pools of conventional residential
mortgage loans; mortgage-backed bonds which are consid-ered to be
obligations of the institution issuing the bonds and are collateralized by
mortgage loans; and bonds and collateralized mortgage obligations ("CMOs")
which are collateralized by mortgage-related securities issued by FHLMC,
FNMA, or GNMA or by pools of conventional mortgages.
CMOs are typically structured with two or more classes or series which
have different maturities and are generally retired in sequence. Each
class of obligations is scheduled to receive periodic interest payments
according to the coupon rate on the obligations. However, all monthly
principal payments and any prepayments from the collateral pool are paid
first to the "Class 1" bondholders. The principal payments are such that
the Class 1 obligations are scheduled to be completely repaid no later
than, for example, five years after the offering date. Thereafter, all
payments of principal are allocated to the next most senior class of bonds
until that class of bonds has been fully repaid. Although full payoff of
each class of bonds is contractually required by a certain date, any or
all classes of obligations may be paid off sooner than expected because of
an increase in the payoff speed of the pool.
Mortgage-related securities created by non-governmental issuers
generally offer a higher rate of interest than government and government-
related securities because there are no direct or indirect government
guarantees of payments in the former securities, resulting in higher
risks.
The market for conventional pools is smaller and less liquid than the
market for the government and government-related mortgage pools.
CORPORATE DEBT SECURITIES
Corporate debt securities may pay fixed or variable rates of interest,
or interest at a rate contingent upon some other factor, such as the price
of some commodity. These securities may be convertible into preferred or
common equity, or may be bought as part of a unit containing common stock.
In selecting corporate debt securities for a Fund, the adviser reviews and
monitors the creditworthiness of each issuer and issue. The adviser also
analyzes interest rate trends and specific developments which it believes
may affect individual issuers.
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THE FOLLOWING DISCUSSION OF RISKS APPLIES TO EACH FUND AS NOTED:
RISKS OF DEBT SECURITIES
The prices of debt securities fluctuate in response to perceptions of
the issuer's creditworthiness and also tend to vary inversely with market
interest rates. The value of such securities is likely to decline in times
of rising interest rates. Conversely, when rates fall, the value of these
investments is likely to rise. The longer the time to maturity the greater
are such variations.
RISKS OF LOWER-RATED DEBT SECURITIES
Generally, debt securities rated below BBB by S&P, or below Baa by
Moody's, and unrated securities of comparable quality, offer a higher
current yield than that provided by higher grade issues, but also involve
higher risks. Debt securities rated C by Moody's and S&P are bonds on
which no interest is being paid and which can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
However, debt securities, regardless of their ratings, generally have a
higher priority in the issuer's capital structure than do equity
securities.
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. Lower
rated debt securities are also sometimes referred to as "junk bonds."
The market for lower rated debt securities has expanded rapidly in
recent years. This growth has paralleled a long economic expansion. At
certain times in the past, the prices of many lower rated debt securities
declined, indicating concerns that issuers of such securities might
experience financial difficulties. At those times, 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 debt securities, which may limit
a 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 debt securities, especially in a thinly
traded market.
The ratings of Moody's and S&P represent the opinions of those
agencies as to the quality of the debt securities which they rate. 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. If
securities are rated investment grade by one rating organization and below
investment grade by the other, the adviser may rely on the rating that it
believes is more accurate. 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. Each Fund does not intend to invest in securities
that are in default, or where, in the adviser's opinion, default appears
likely.
RISKS OF FUTURES AND OPTIONS TRANSACTIONS
Each of Value Trust, Total Return Trust, Special Investment Trust and
Balanced Trust can invest in futures and options transactions, including
puts and calls. Because such investments "derive" their value from the
value of the underlying security, index, or interest rate on which they
are based, they are sometimes referred to as "derivative" securities. As
explained in greater detail above, in the section titled "FUTURES AND
OPTIONS TRANSACTIONS," such investments involve risks that are different
from those presented by investing directly in the securities themselves.
While utilization of options, futures contracts and similar instruments
may be advantageous to the Funds, if the adviser is not successful in
employing such instruments in managing a Fund's investments the Fund's
performance will be worse than if the Fund did not make such investments.
Although American Leading Companies may not invest in futures
transactions, it may to a limited extent sell covered call options on any
security in which it is permitted to invest for the purpose of enhancing
income. American Leading Companies may not invest in any other form of
option transaction. The particular risks of covered call options are also
discussed above, in the section titled "FUTURES AND OPTIONS TRANSACTIONS."
INVESTMENT LIMITATIONS
Each Fund has adopted certain fundamental investment limitations that,
like its investment objective, can be changed only by a vote of the
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holders of a majority of the outstanding voting securities of the Fund.
For these purposes a "vote of the holders of a majority of the outstanding
voting securities" of the Fund means 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 present at a shareholders' meeting if more than 50% of the
outstanding shares are represented at the meeting in person or by proxy.
These investment limitations are set forth in the Statement of Additional
Information under "Additional Information About Investment Limitations and
Policies." Other Fund policies, unless described as fundamental, can be
changed by action of the Board of Directors.
The fundamental restrictions applicable to American Leading Companies
include a prohibition on investing 25% or more of its 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).
HOW TO PURCHASE AND REDEEM SHARES
Institutional Clients of Fairfield may purchase Navigator Shares from
Fairfield, the principal offices of which are located at 200 Gibraltar
Road, Horsham, Pennsylvania 19044. Other investors eligible to purchase
Navigator Shares may purchase them through a brokerage account with Legg
Mason. (Legg Mason and Fairfield are wholly owned subsidiaries of Legg
Mason, Inc., a financial services holding company.)
Clients of certain institutions that maintain omnibus accounts with
the Funds' transfer agent may obtain shares through those institutions.
Such institutions may receive payments from the Funds' distributor for
account servicing, and may receive payments from their clients for other
services performed. Investors can purchase Fund shares from Legg Mason
without receiving or paying for such other services.
Purchase of Shares
The minimum investment is $50,000 for the initial purchase of
Navigator Shares and $100 for each subsequent investment. Each 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 ("Exchange") (normally 4:00 p.m.
Eastern time) ("close of the Exchange") on any day the Exchange is open
will be executed at the net asset value determined as of the close of the
Exchange on that day. Orders received by Legg Mason or Fairfield after the
close of the Exchange or on days the Exchange is closed will be executed
at the net asset value determined as of the close of the Exchange on the
next day the Exchange is open. See "How Net Asset Value is Determined" on
page 20. Each Fund reserves the right to reject any order for its shares
or to suspend the offering of shares for a period of time.
In addition to Institutional Clients purchasing shares directly from
Fairfield, Navigator Shares may be purchased through procedures
established by Fairfield in connection with requirements of Customer
Accounts of various Institutional Clients.
No sales charge is imposed by any of the Funds in connection with the
purchase of Navigator Shares. Depending upon the terms of a particular
Customer Account, however, Institutional Clients may charge their
Customers fees for automatic investment and other cash management services
provided in connection with investments in the Funds. 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 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,
19
<PAGE>
will be transmitted to Boston Financial Data Services ("BFDS"), transfer
agent for the Funds, for redemption at the net asset value per share
determined as of the close of the Exchange on that day. Requests for
redemption received by Legg Mason or Fairfield after the close of the
Exchange will be executed at the net asset value determined as of the
close of the Exchange on its next trading day. A redemption request
received by Legg Mason or Fairfield may be treated as a request for
repurchase and, if it is accepted by Legg Mason, your shares will be
purchased at the net asset value per share determined as of the next close
of the Exchange.
Shareholders may have their telephone redemption requests paid by a
direct wire to a domestic commercial bank account previously designated by
the shareholder, or mailed to the name and address in which the
shareholder's account is registered with the Fund. Such payments will
normally be transmitted on the next business day following receipt of a
valid request for redemption. However, each Fund reserves the right to
take up to seven days to make payment upon redemption if, in the judgment
of the adviser, that 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 10 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.
Each Fund will not be responsible for the authenticity of redemption
instructions received by telephone, provided it follows reasonable
procedures to identify the caller. Each Fund may request identifying
information from callers or employ identification numbers. Each 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, a
Fund may elect to close any account with a current value of less than $500
by redeeming all of the shares in the account and mailing the proceeds to
the investor. However, the Funds will not redeem accounts that fall below
$500 solely as a result of a reduction in net asset value per share. If a
Fund elects to redeem the shares in an account, the 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 of
any Fund prior to 10 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
Fairfield, Legg Mason or their affiliates.
Every shareholder of record will receive a confirmation of each new
share transaction with a Fund. In addition, Legg Mason clients will
receive a monthly statement, which will also show the total number of
shares being held in safekeeping by the Funds' transfer agent for the
account of the shareholder.
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 a Fund on a timely basis.
HOW NET ASSET VALUE IS DETERMINED
Net asset value per Navigator Share of each Fund is determined daily
as of the close of the Exchange, on every day that the Exchange is open,
20
<PAGE>
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 each 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 each 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 each Fund's adviser to be the primary market. Securities
with remaining maturities of 60 days or less are valued at amortized cost.
Each Fund will value its foreign securities in U.S. dollars on the basis
of the then-prevailing exchange rates.
DIVIDENDS AND OTHER DISTRIBUTIONS
Each Fund declares dividends to holders of Navigator Shares out of its
investment company taxable income (which consists of net investment
income, any net short-term capital gain and any net gains from certain
foreign currency transactions) attributable to those shares. Value Trust,
Total Return Trust and Balanced Trust declare and pay dividends from net
investment income quarterly; they pay dividends from any net short-term
capital gains and net gains from foreign currency transactions annually.
Special Investment Trust and American Leading Companies declare and pay
dividends from investment company taxable income following the end of each
taxable year. Each Fund also distributes substantially all of its 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 distributing Fund;
2. Receive dividends in cash and other distributions in Navigator
Shares of the distributing Fund;
3. Receive dividends in Navigator Shares of the distributing Fund and
other distributions in cash; or
4. Receive both dividends and other distributions in cash.
In certain cases, shareholders may reinvest dividends and other
distributions in shares of another Navigator fund. A shareholder should
contact its 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 are
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 are credited to your 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 the applicable Fund in writing at: [insert complete Fund name],
c/o Fairfield Group, Inc., 200 Gibraltar Road, Horsham, Pennsylvania
19044. Those purchasing through Legg Mason should write to: [insert
complete Fund name], c/o Legg Mason Funds Processing, P.O. Box 1476,
Baltimore, Maryland 21203-1476. An election must be received at least 10
days before the record date in order to be effective for dividends and
other distributions paid to shareholders as of that date.
TAX TREATMENT OF DIVIDENDS AND OTHER DISTRIBUTIONS
Each Fund intends to continue to qualify (or to qualify in the case of
Balanced Trust) for treatment as a regulated investment company under the
Internal Revenue Code of 1986, as amended ("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 each Fund's investment company taxable income (whether
paid in cash or reinvested in Navigator Shares) are taxable to their
shareholders (other than tax-exempt investors) as ordinary income to the
extent of each Fund's earnings and profits. Distributions of each Fund's
net capital gain (whether paid in cash or reinvested in Navigator Shares),
when designated as such, are taxable to those shareholders as long-term
capital gain, regardless of how long they have held their Fund shares.
21
<PAGE>
Each Fund sends each shareholder a notice following the end of each
calendar year specifying, among other things, the amounts of all ordinary
income dividends and other distributions paid (or deemed paid) during that
year.
A redemption of Navigator Shares may result in taxable gain or loss to
the redeeming shareholder, depending on whether the redemption proceeds
are more or less than the shareholder's adjusted basis for the redeemed
shares. An exchange of Navigator Shares for shares of any other Navigator
fund generally will have similar tax consequences. See "Shareholder
Services -- Exchange Privilege," page 22. If Fund shares are purchased
within 30 days before or after redeeming other shares of the same Fund
(regardless of class) at a loss, all or part of that loss will not be
deductible and instead will increase the basis of the newly purchased
shares.
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 each Fund and its shareholders; see the
Statement of Additional Information for a further discussion. In addition
to federal income tax, an investor may also be subject to state, local or
foreign taxes on distributions from the Funds, depending on the laws of
its home state and locality. A portion of the dividends paid by the Funds
attributable to direct U.S. government obligations is not subject to state
and local income taxes in most jurisdictions. Each Fund's annual notice to
shareholders regarding the amount of dividends identifies this portion.
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
Confirmations for each purchase and redemption transaction (except a
reinvestment of dividends and capital gain distributions) of Navigator
Shares made by Institutional Clients acting in a fiduciary, advisory,
custodial, or other similar capacity on behalf of persons maintaining
Customer Accounts at Institutional Clients will be sent to the
Institutional Client by the transfer agent. Beneficial ownership of shares
by Customer Accounts will be recorded by the Institutional Client and
reflected in the regular account statements provided by them to their
customers.
Reports will be sent to each Fund's shareholders at least semiannually
showing its portfolio and other information; the annual report for each
Fund will contain financial statements audited by its respective
independent accountants/auditors.
Shareholder inquiries should be addressed to "[insert complete Fund
name], c/o Legg Mason Funds Processing, P.O. Box 1476, Baltimore, Maryland
21203-1476," or "[insert complete Fund name], c/o Fairfield Group, Inc.,
200 Gibraltar Road, Horsham, Pennsylvania 19044."
EXCHANGE PRIVILEGE
Holders of Navigator Shares are entitled to exchange them for a
corresponding class of shares, provided the shares to be acquired are
eligible for sale under applicable state securities laws.
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 18. The other factors relating to telephone
redemptions described in that section apply also to telephone exchanges.
Please read the prospectus for the other fund(s) carefully before you
invest by exchange. Each Fund reserves the right to modify or terminate
the exchange privilege upon 60 days' notice to shareholders. There is no
assurance the money market funds will be able to maintain a $1.00 share
price. None of the funds is insured or guaranteed by the U.S. Government.
THE FUNDS' MANAGEMENT AND INVESTMENT ADVISERS
BOARD OF DIRECTORS
The business and affairs of each Fund are managed under the direction
of its Board of Directors.
22
<PAGE>
ADVISER
Pursuant to separate advisory agreements with Value Trust, Total
Return Trust and Special Investment Trust (each an "Advisory Agreement"),
which were approved by each respective Fund's Board of Directors, the
Adviser, a wholly owned subsidiary of Legg Mason, Inc., serves as
investment adviser to each of those Funds. The Adviser administers and
acts as the portfolio manager for each Fund and has responsibility for the
actual investment management of the Funds, including the responsibility
for making decisions and placing orders to buy, sell or hold a particular
security. The Adviser acts as adviser, manager or consultant to seventeen
investment company portfolios which had aggregate assets under management
of approximately $5.7 billion as of May 31, 1996. The Adviser's address is
111 South Calvert Street, Baltimore, Maryland 21202.
William H. Miller, III co-managed Value Trust from its inception in
1982 to November 1990, when he assumed primary responsibility for the
day-to-day management. Mr. Miller has been responsible for the day-to-day
management of the Total Return Trust since November 1990. Nancy T. Dennin
joined Mr. Miller as co-manager of the Total Return Trust on January 1,
1992. Mr. Miller has also been primarily responsible for the day-to-day
management of the Special Investment Trust since its inception in 1985.
Mr. Miller is a portfolio manager and President of the Adviser. Mr.
Miller has been employed by the Adviser since 1982. Mrs. Dennin is a Vice
President of the Adviser and has been employed by the Adviser since 1985.
From 1985 through 1991, Mrs. Dennin analyzed various industries for the
Adviser including financial services, retail, apparel and insurance.
The Adviser receives for its services a management fee from each Fund
attributable to the net assets of Navigator Shares, calculated daily and
payable monthly. The Adviser receives a fee at an annual rate of 1.0% of
the Value Trust's average daily net assets for the first $100 million of
average net assets; 0.75% of average daily net assets between $100 million
and $1 billion; and 0.65% of average daily net assets exceeding $1
billion. The Adviser receives from Total Return Trust, a management fee at
an annual rate of 0.75% of the average daily net assets of the Fund. The
Adviser receives from Special Investment Trust, a management fee at an
annual rate of 1.0% of the average daily net assets of the Fund for the
first $100 million of average net assets and 0.75% of average daily net
assets exceeding $100 million. The management fee paid by each Fund is
higher than fees paid by most other funds to their investment advisers.
For the Total Return Trust, the Adviser has agreed to waive indefinitely
its fees in any month to the extent the Total Return Trust's expenses
related to Navigator Shares (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. During the fiscal year ended March
31, 1996, Value Trust paid a management fee of 0.77% of its average daily
net assets, Total Return Trust paid a management fee of 0.75% of its
average daily net assets, and Special Investment Trust paid a management
fee of 0.82% of its average daily net assets.
MANAGER
Pursuant to separate management agreements with American Leading
Companies and Balanced Trust (each a "Management Agreement"), which were
approved by the Investors Trust's Board of Directors, Legg Mason Fund
Adviser, Inc. ("Manager"), a wholly owned subsidiary of Legg Mason, Inc.,
serves as the Funds' manager. The Funds pay the Manager, pursuant to the
respective Management Agreements, a management fee equal to an annual rate
of 0.75% of each Fund's average daily net assets and an annual rate of
0.75% of Balanced Trust's average daily net assets attributable to
Navigator Shares. The management fees paid by the Funds are higher than
fees paid by most other equity funds. Each Fund pays all its other
expenses which are not assumed by the Manager. The Manager has agreed to
waive its fees and to reimburse each Fund for its expenses related to
Navigator Shares (exclusive of taxes, interest, brokerage and
extraordinary expenses) as follows: for American Leading Companies, 0.95%
of average net assets indefinitely; and for Balanced Trust, 1.10% of
average net assets until March 31, 1997. These agreements are voluntary
and may be terminated by the Manager at any time.
LMCM
LMCM, a wholly owned subsidiary of Legg Mason, Inc., serves as
investment adviser to American Leading Companies pursuant to the terms of
an Investment Advisory Agreement with the Manager, which was approved by
the Trust's Board of Directors. LMCM 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 LMCM
23
<PAGE>
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 attributable to Navigator Shares.
LMCM has not previously advised a registered investment company.
However, LMCM manages private accounts with a value as of May 31, 1996 of
approximately $1.0 billion. The address of LMCM 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 LMCM 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.
The Funds may use Legg Mason, among others, as broker for agency
transactions in listed and over-the-counter securities at commission rates
and under circumstances consistent with the policy of best execution.
BARTLETT
Bartlett, a wholly owned subsidiary of Legg Mason, Inc., serves as
investment adviser to Balanced Trust pursuant to the terms of an
Investment Advisory Agreement with the Manager, which was approved by the
Trust's Board of Directors. Bartlett 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 Bartlett a fee, computed daily
and paid monthly, at an annual rate equal to 66 2/3% of the fee received
by the Manager, or 0.50% of the Fund's average daily net assets. Bartlett
acts as adviser to individuals, corporations, pension and profit sharing
plans and trust accounts, as well as to five investment company portfolios
which had aggregate assets under management of approximately $2.4 billion
as of May 31, 1996. The address of Bartlett is 36 East Fourth Street,
Cincinnati, Ohio 45202.
Dale H. Rabiner, CFA and Woodrow H. Uible, CFA jointly manage the
Fund. Both are senior portfolio managers of Bartlett. Mr. Rabiner has been
employed by Bartlett since 1983 and has served since then as Director of
its Fixed Income Group. He is a member of Bartlett's Management Committee
and Investment Policy Committee. Mr. Uible has been employed by Bartlett
since 1980. He chairs Bartlett's Equity Investment Group, and is
responsible for Bartlett's equity investment processes. He is a member of
Bartlett's Management Committee and Investment Policy Committee.
THE FUNDS' DISTRIBUTOR
Legg Mason is the distributor of each Fund's shares pursuant to a
separate Underwriting Agreement with each Fund. Each Underwriting
Agreement obligates Legg Mason to pay certain expenses in connection with
the offering of shares, 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, 1996, Legg Mason received from BFDS $228,000, $56,000,
$189,000 and $22,000 for performing such services in connection with Value
Trust, Total Return Trust, Special Investment Trust and American Leading
Companies, respectively.
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 Funds' Distributor, Legg
Mason. Neither Fairfield nor Legg Mason receives compensation from the
Funds for selling Navigator Shares.
The Chairman, President and Treasurer of each Fund are employed by
Legg Mason.
DESCRIPTION OF EACH CORPORATION / TRUST AND ITS SHARES
Value Trust, Total Return Trust, Special Investment Trust and Legg
Mason Investors Trust, Inc. were established as Maryland corporations on
January 20, 1982, May 22, 1985, October 31, 1985 and May 5, 1993,
respectively. Value Trust has authorized capital of 200 million shares of
common stock, par value $0.001 per share. Total Return Trust and Special
Investment Trust each have authorized capital of 100 million shares of
common stock, par value $0.001 per share. The Articles of the Investors
Trust authorize issuance of one billion shares of par value $.001 per
share of American Leading Companies and 250 million shares of par value
$.001 per share of Balanced
24
<PAGE>
Trust. Each corporation may issue additional series of shares. Each Fund
currently offers two Classes of Shares -- Class A (known as "Primary
Shares") and Class Y (known as "Navigator Shares"). The two Classes
represent interests in the same pool of assets. A separate vote is taken
by a Class of Shares of a Fund if a matter affects just that Class of
Shares. Each Class of Shares may bear certain differing Class-specific
expenses. Salespersons and others entitled to receive compensation for
selling or servicing Fund shares may receive more with respect to 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.
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 of Special Investment Trust, Total Return Trust and American
Leading Companies and 0.95% of the net assets attributable to Primary
Shares of Value Trust. 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 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 Funds 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 Boards of Directors of the Funds do not anticipate that there will
be any conflicts among the interests of the holders of the different
Classes of Fund shares. On an ongoing basis, the Boards will consider
whether any such conflict exists and, if so, take appropriate action.
Shareholders of each Fund are entitled to one vote per share and
fractional votes for fractional shares held. Voting rights are not
cumulative. All shares of each Fund are fully paid and nonassessable and
have no preemptive or conversion rights.
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). Each 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. The address of BFDS is P.O. Box
953, Boston, Massachusetts 02103.
Each Fund acknowledges that it is solely responsible for the
information or any lack of information about it in this joint Prospectus
and in the joint Statement of Additional Information, and no other Fund is
responsible therefor. There is a possibility that one Fund might be deemed
liable for misstatements or omissions regarding another Fund in this
Prospectus or in the joint Statement of Additional Information; however,
the Funds deem this possibility slight.
25
<PAGE>
LEGG MASON VALUE TRUST, INC.
LEGG MASON TOTAL RETURN TRUST, INC.
LEGG MASON SPECIAL INVESTMENT TRUST, INC.
LEGG MASON INVESTORS TRUST, INC.:
AMERICAN LEADING COMPANIES TRUST
BALANCED TRUST
PRIMARY SHARES
NAVIGATOR SHARES
Supplement to the Statement of Additional Information
dated July 31, 1996
The following is inserted in the section titled "Financial Statements" on page
43 of the Statement of Additional Information:
The unaudited financial statements of Legg Mason American Leading
Companies Trust for the six month period ending September 30, 1996 are
incorporated into the Statement of Additional Information by reference to the
Report to Shareholders for the same period.
January 31, 1997
<PAGE>
LEGG MASON VALUE TRUST, INC.
LEGG MASON TOTAL RETURN TRUST, INC.
LEGG MASON SPECIAL INVESTMENT TRUST, INC.
LEGG MASON INVESTORS TRUST, INC.:
AMERICAN LEADING COMPANIES TRUST
BALANCED TRUST
PRIMARY SHARES
NAVIGATOR SHARES
Supplement to Statement of Additional Information
dated July 31, 1996
The unaudited financial statements of the Legg Mason Balanced Trust for
the period from October 1, 1996 (commencement of operations) to December 31,
1996, attached hereto, are to be inserted in the section entitled "Financial
Statements," on page 43 of the Statement of Additional Information.
January 31, 1997
<PAGE>
LEGG MASON INVESTORS TRUST, INC.
BALANCED TRUST
FINANCIAL REPORT
FOR THE PERIOD OCTOBER 1, 1996
(Commencement of Operations)
TO
DECEMBER 31, 1996
INDEX TO FINANCIAL REPORT
Page
Statement of Net Assets 1-4
Statement of Operations 5
Statement of Changes in Net Assets 6
Financial Highlights 7
Notes to Financial Statements 8
<PAGE>
<TABLE>
<CAPTION>
Statement of Net Assets
Legg Mason Investors Trust, Inc.
Balanced Trust
December 31, 1996 % of Maturity
(Unaudited) Net Assets Coupon Date Shares/Par Cost Value
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Common Stocks and Equity Interests 48.99%
Aerospace 2.40%
Lockheed Martin Corporation 2,050 $188,402 $187,575
Raytheon Company 3,550 174,843 170,844
358,419
Automotive 1.69%
Ford Motor Company 7,900 252,095 251,812
Chemicals 2.36%
Ferro Corporation 6,400 181,004 181,600
Potash Corporation of Saskatchewan, Inc. 2,000 151,630 170,000
351,600
Computer Services & Systems 0.39%
Zilog, Inc. 2,200 45,307 57,475(A)
Construction/Building Materials 1.03%
Martin Marietta Materials, Inc. 6,600 152,546 153,450
Electrical Equipment/Electronics 1.58%
Pioneer-Standard Electronics, Inc. 18,000 201,594 236,250
Energy (Oil/Gas/Services) 3.13%
Cabot Oil & Gas Corporation 6,700 110,740 114,737
Phillips Petroleum Company 3,300 136,204 146,025
Southwestern Energy Company 13,600 205,754 205,700
466,462
Finance 3.58%
Federal National Mortgage Association 4,600 178,115 171,350
Raymond James Financial, Inc. 1,800 46,033 54,225
Salomon, Inc. 5,200 240,140 245,050
U.S. Trust Corporation 800 58,575 63,200
533,825
Food, Beverage & Tobacco 4.01%
Archer Daniels Midland Co. 9,000 194,690 198,000
Philip Morris Companies, Inc. 400 36,955 45,050
Universal Foods Corporation 4,300 149,913 151,575
UST, Inc. 6,300 199,029 203,963
598,588
Insurance/Hospital Management 1.65%
John Alden Financial Corporation 7,000 136,733 129,500
MBIA, Inc. 1,150 105,379 116,437
245,937
Manufacturing 5.44%
Fleetwood Enterprises, Inc. 8,000 250,453 220,000
Kaydon Corporation 5,800 243,354 273,325
National Presto Industries, Inc. 1,600 60,375 59,800
Stewart & Stevenson Services, Inc. 1,000 21,125 29,125
York International Corporation 4,100 208,822 229,088
811,338
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
Statement of Net Assets
Legg Mason Investors Trust, Inc.
Balanced Trust
December 31, 1996 % of Maturity
(Unaudited) Net Assets Coupon Date Shares/Par Cost Value
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Media/Advertising 2.35%
A.H. Belo Corporation 5,200 $191,111 $181,350
Time Warner, Inc. 4,500 172,008 168,750
350,100
Miscellaneous 1.99%
Blackrock N.A. Government Income Trust 30,000 309,300 296,250
Multi-Industry 1.82%
American Brands, Inc. 1,200 55,936 59,550
Loews Corporation 2,250 194,028 212,062
271,612
Real Estate (REITs) 2.12%
ROC Communities, Inc. 6,900 169,489 191,475
United Dominion Realty Trust, Inc. 8,000 111,980 124,000
315,475
Retail 2.88%
Federated Department Stores, Inc. 5,600 187,768 191,100(A)
Jostens, Inc. 11,300 241,948 238,713
429,813
Savings & Loan 1.58%
Washington Federal, Inc. 8,900 224,044 235,850
Services 1.53%
ADT, Ltd. 10,000 197,575 228,750(A)
Telecommunications 0.12%
Ameritech Corporation 300 16,112 18,187
Transportation 3.84%
AMR Corporation 2,150 187,345 189,469(A)
GATX Corp. 3,000 143,345 145,500
Kansas City Southern Industries, Inc. 5,300 248,342 238,500
573,469
Utilities 3.50%
KU Energy Corporation 6,700 199,050 201,000
NIPSCO Industries, Inc. 1,200 44,196 47,550
TNP Enterprises, Inc. 5,500 142,155 150,563
Western Resources, Inc. 4,000 119,950 123,500
522,613
Total Common Stock and Equity Interests 7,085,484 7,307,275
Corporate Bonds and Notes 1.89%
Time Warner Sr. Notes 0.000%(B) 06/22/13 650,000 281,851 281,938
Total Corporate Bonds and Notes 281,851 281,938
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Statement of Net Assets
Legg Mason Investors Trust, Inc.
Balanced Trust
December 31, 1996 % of Maturity
(Unaudited) Net Assets Coupon Date Shares/Par Cost Value
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
U.S. Government and Agency Obligations 42.93%
Federal Home Loan Mortgage Corporation 3.96%
FHLMC 6.000% 03/01/26 $98,865 $92,701 $91,976
FHLMC 6.500% 01/01/26 197,630 191,331 189,169
FHLMC 6.500% 05/01/26 123,618 119,176 118,170
FHLMC 6.500% 05/01/26 199,829 193,897 191,023
590,338
Federal National Mortgage Association 3.74%
FNMA 30 YR. TBA 6.000% 01/01/27(C) 600,000 561,000 557,058
Government National Mortgage Association 6.61%
GNMA POOL 7.000% 03/15/26 100,917 98,994 98,709
GNMA POOL 7.000% 04/15/26 187,622 182,287 183,517
GNMA POOL 7.500% 10/15/26 197,670 196,805 197,731
GNMA POOL 8.000% 04/15/26 97,428 98,889 99,376
GNMA POOL 8.000% 10/15/26 99,838 101,741 101,835
GNMA POOL 8.000% 10/15/26 199,721 203,778 203,716
GNMA POOL 8.000% 11/15/26 98,929 101,155 100,907
985,791
Treasury Bond Strips (D) 19.74%
U.S. Treasury Bond Strip 0.000% 08/15/98 1,325,000 1,208,816 1,208,095
U.S. Treasury Bond Strip 0.000% 02/15/99 700,000 619,315 618,772
U.S. Treasury Bond Strip 0.000% 08/15/99 600,000 514,107 514,182
U.S. Treasury Bond Strip 0.000% 08/15/03 300,000 200,727 198,720
U.S. Treasury Bond Strip 0.000% 05/15/04 500,000 312,330 314,230
U.S. Treasury Bond Strip 0.000% 11/15/04 150,000 91,408 91,031
2,945,030
Treasury Notes 8.88%
U.S. Treasury Note 5.875% 08/15/98 300,000 300,420 300,141
U.S. Treasury Note 6.500% 05/31/01 250,000 251,599 252,735
U.S. Treasury Note 7.125% 02/29/00 750,000 778,044 772,148
1,325,024
Total U.S. Government and Agency Obligations 6,418,519 6,403,241
Short-Term Investments 8.21%
Commercial Paper 6.70%
Raytheon 6.500% 01/02/97 1,000,000 999,819 999,819
Repurchase Agreement 1.51%
State Street Bank and Trust Co., N.A. 4.000% 01/02/97 225,000 225,000 225,000
4.00% dated 12/31/96, to be
repurchased at $225,050 on 1/2/97
(Collateral: $230,000 U.S. T-Note
6.00% due 5/31/98, value $232,038)
Total Short-Term Investments 1,224,819 1,224,819
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Statement of Net Assets
Legg Mason Investors Trust, Inc.
Balanced Trust
December 31, 1996 % of Maturity
(Unaudited) Net Assets Coupon Date Shares/Par Cost Value
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Total Investments 102.02% 15,010,673 $15,217,273
Other Assets Less Liabilities -2.02% (300,985
Net Assets Consisting of:
Accumulated paid-in-capital applicable to
1,443,052 shares outstanding 14,720,869
Accumulated net operating loss (11,653)
Undistributed net realized gain on investments 472
Unrealized appreciation of investments 206,600
Net Assets 100.00% $14,916,288
Net asset value per share $10.34
</TABLE>
(A) Non-income producing
(B) Zero-coupon bond- A bond with no periodic interest payments which is
sold at a discount to produce a current yield-to-maturity. This
Time Warner security is a zero-coupon bond callable on June 22, 1998.
(C) When-issued Security- Security purchased on a delayed delivery basis. Final
settlement amount has not yet been announced.
(D) Stripped Security- Security with interest-only payment streams. For this
interest-only security, the amount shown as principal is the notional
balance used to calculate the amount of interest due.
4
<PAGE>
LEGG MASON INVESTORS TRUST, INC.
BALANCED TRUST
STATEMENT OF OPERATIONS
For the Period October 1, 1996
(Commencement of Operations)
to December 31, 1996
(Unaudited)
<TABLE>
<S> <C>
Investment Income:
Dividends (net of foreign taxes withheld of $14) $ 23,898
Interest 61,385
-----------
Total investment income $ 85,283
Expenses:
Management fee 14,715
Distribution and service fees 14,715
Custodian Fee 17,500
Legal and audit fees 9,990
Reports to shareholders 4,800
Registration fees 2,775
Transfer agent and shareholder servicing expense 2,220
Directors' fees 1,250
Other expenses 4,011
-----------
71,976
Less fees waived and expenses reimbursed (35,678)
-----------
Total expenses, net of waivers and reimbursements 36,298
-----------
Net Investment Income 48,985
Net Realized and Unrealized Gain on Investments:
Realized gain on investments 472
Unrealized appreciation of investments 206,600
Net Realized and Unrealized Gain on Investments 207,072
-----------
Increase in Net Assets Resulting from Operations $ 256,057
===========
</TABLE>
5
<PAGE>
LEGG MASON INVESTORS TRUST, INC.
BALANCED TRUST
STATEMENT OF CHANGES IN NET ASSETS
For the Period October 1, 1996
(Commencement of Operations)
to December 31, 1996
(Unaudited)
<TABLE>
<S> <C>
Change in Net Assets:
Net investment income $ 48,985
Net realized gain on investments 472
Unrealized appreciation of investments 206,600
-----------
Increase in net assets resulting from operations 256,057
Distributions to shareholders from net investment income (60,638)
Increase in net assets from Fund share transactions 14,719,869
Increase in net assets 14,915,288
Net Assets:
Beginning of period 1,000
End of period (including overdistributed income of $11,653) $14,916,288
===========
</TABLE>
6
<PAGE>
LEGG MASON INVESTORS TRUST, INC.
BALANCED TRUST
FINANCIAL HIGHLIGHTS
October 1, 1996(A)
to
Primary Class* December 31, 1996
- -------------------------------------------------------------------------------
(Unaudited)
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 10.00
-------
Net investment income(B) 0.03
Net realized and unrealized gain on investments 0.35
-------
Total from investment operations 0.38
-------
Distributions to shareholders from net investment income (0.04)
-------
Net asset value, end of period $ 10.34
=======
Total return 3.83%(C)
RATIOS/SUPPLEMENTAL DATA:
Ratio to average net assets:
Expenses(B) 1.85%(D)
Net investment income(B) 2.50%(D)
Portfolio turnover rate 0.82%(D)
Average commission rate paid(E) $0.0628
Net assets, end of period (in thousands) $14,916
* As of December 31, 1996, the Navigator Class of Shares has not commenced
operations.
(A) Commencement of operations.
(B) Net of fees waived and expenses reimbursed pursuant to a voluntary expense
limitation of 1.85%. If no fees had been waived by the Manager, the
annualized ratio of expenses to average daily net assets for the period
October 1, 1996 to December 31, 1996 would have been 3.67%.
(C) Not annualized for periods of less than a full year.
(D) Annualized.
(E) Pursuant to SEC regulations effective for fiscal years beginning after
September 1, 1995, this is the average commission rate paid on securities
purchased and sold by the Fund.
See notes to financial statements
7
<PAGE>
LEGG MASON INVESTORS TRUST, INC.
BALANCED TRUST
NOTES TO FINANCIAL STATEMENTS
(Amounts in Thousands)
(Unaudited)
1. Significant Accounting Policies:
The Legg Mason Investors Trust, Inc. ("Trust"), consisting of the
Balanced Trust ("Fund") and the American Leading Companies Trust, is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The financial
statements of the other portfolio of the Trust are included in a separate
report to shareholders. The Trust was organized on May 5, 1993. The Fund
had no operations prior to October 1, 1996, other than those related to
organizational matters.
Security Valuation
Securities traded on national securities exchanges are valued at the
last quoted sales price. Over-the-counter securities, and listed securities
for which no sales price is available are valued at the mean between the
latest bid and asked prices. Short-term securities are valued at cost
which, when combined with accrued interest receivable, approximates
current value.
Dividends and Distributions to Shareholders
Interest income and expenses are recorded on the accrual basis.
Dividend income is recorded on the ex-dividend date. Net investment income
for dividend purposes consists of dividends and interest earned, less
expenses.
Dividends from net investment income and distributions from capital
gains are recorded on the ex- dividend date. Dividends from net investment
income will be made quarterly and distributions from net capital gains, if
available, will be made annually. Additional distributions will be made
when necessary.
Security Transactions
Security transactions are recorded on the trade date. Realized gains
and losses from security transactions are reported on an identified cost
basis. At December 31, 1996, $561 was payable for securities purchased but
not yet received.
Repurchase Agreements
All repurchase agreements are fully collateralized by obligations
issued by the U.S. government or its agencies and such collateral is in the
possession of the Fund's custodian. The value of such collateral includes
accrued interest. Risks arise from the possible delay in recovery or
potential loss of rights in the collateral should the issuer of the
repurchase agreement fail financially.
Deferred Organizational Expense
Deferred organizational expenses of $86 are being amortized on a
straight-line basis over 5 years beginning on the date operations began.
8
<PAGE>
Federal Income Taxes
No provision for federal income or excise taxes is required since the
Fund intends to qualify as a regulated investment company and distribute
all of its taxable income to its shareholders.
Use of Estimates
The preparation of the financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
2. Investment Transactions:
For the period ended December 31, 1996, purchases and sales of U.S.
government securities aggregated $6,418 and $20, respectively, and
purchases and sales of other securities (excluding short-term securities)
aggregated $7,366 and $0, respectively.
At December 31, 1996, the cost of securities for federal income tax
purposes was $15,011. Aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was $317 and
aggregate gross unrealized depreciation for all securities in which there
was an excess of tax cost over value was $110. The net unrealized
appreciation for tax purposes is $207.
3. Fund Share Transactions:
At December 31, 1996, there were 1,000,000 shares authorized at $.001
par value for all portfolios of the Trust (including the Fund).
Transactions in Fund shares were as follows:
October 1, 1996(A)
to
December 31, 1996
----------------------
Shares Amount
------ ------
Sold 1,472 $15,021
Reinvestment of distributions 6 59
Repurchased (35) (361)
------ -------
Net increase 1,443 $14,719
====== =======
(A) Commencement of operations.
4. Transactions with Affiliates:
The Fund has a management agreement with Legg Mason Fund Adviser, Inc.
("Manager"), a corporate affiliate of Legg Mason Wood Walker, Incorporated
("Legg Mason"), a member of the New York Stock Exchange and the distributor
for the Fund. Under this agreement, the Manager provides the Fund with
management and administrative services for which the Fund pays a fee at an
annual rate of 0.75% of average daily net assets, calculated daily and
payable monthly. Legg Mason, the Manager and the Adviser have voluntarily
agreed to waive their fees and to reimburse the Fund for its expenses
(exclusive of taxes, interest, brokerage and extraordinary expenses) to the
extent necessary to limit total operating expenses to 1.85%, until March
31, 1997. At December 31, 1996, management fees of $15 were waived.
9
<PAGE>
Bartlett & Co. ("Adviser"), a wholly owned subsidiary of Legg Mason,
Inc., serves as investment adviser to the Fund. The Adviser is responsible
for the actual investment activity of the Fund, for which the Manager (not
the Fund) pays the Adviser a fee at an annual rate equal to 662/3% of the
fee received by the Manager.
Legg Mason, as distributor of the Fund, receives an annual distribution
fee of 0.50% and an annual service fee of 0.25% of the Fund's average daily
net assets, calculated daily and payable monthly. At December 31, 1996,
distribution and service fees totaling $15 were waived. Legg Mason also has
an agreement with the Fund's transfer agent to assist with certain of its
duties. No brokerage commissions were paid to Legg Mason or its affiliates
during the period ended December 31, 1996.
The Fund, along with certain other Legg Mason Funds, has entered into a
$75 million line of credit ("Credit Agreement") to be utilized as an
emergency source of cash in the event of unanticipated, large redemption
requests by shareholders. Pursuant to the Credit Agreement, each
participating Fund is liable only for principal and interest payments
related to borrowings made by that Fund. Borrowings under the line of
credit bear interest at prevailing short-term interest rates. For the
period ended December 31, 1996, the Fund had no borrowings under the line
of credit.
10
<PAGE>
LEGG MASON VALUE TRUST, INC.
LEGG MASON TOTAL RETURN TRUST, INC.
LEGG MASON SPECIAL INVESTMENT TRUST, INC.
LEGG MASON INVESTORS TRUST, INC.
PRIMARY SHARES
NAVIGATOR SHARES
STATEMENT OF ADDITIONAL INFORMATION
July 31, 1996
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 Statement of Additional Information is not a prospectus and should
be read in conjunction with the Prospectus for Primary Shares or Navigator
Shares (both dated July 31, 1996), as appropriate, which have been filed with
the Securities and Exchange Commission ("SEC"). Copies of the Prospectuses are
available without charge from the Funds at (410) 539-0000.
The Legg Mason Value Trust, Inc. ("Value Trust") is a mutual fund
seeking long-term growth of capital. Value Trust invests principally in those
equity securities which its investment adviser, Legg Mason Fund Adviser, Inc.
("Adviser" or "Manager"), believes are undervalued and therefore offer
above-average potential for capital appreciation. Other investors who seek
capital appreciation may also invest in Value Trust shares.
The Legg Mason Total Return Trust, Inc. ("Total Return Trust") is a
mutual fund seeking capital appreciation and current income in order to achieve
an attractive total investment return consistent with reasonable risk. In
attempting to achieve this objective, the Adviser selects a diversified
portfolio, composed of dividend-paying common stocks and securities convertible
into common stock which, in the opinion of the Adviser, offer the potential for
long-term growth; common stocks or securities convertible into common stock
which do not pay current dividends but which offer prospects for capital
appreciation and future income; and debt instruments of various maturities.
Total Return Trust may write covered put and call options.
The Legg Mason Special Investment Trust, Inc. ("Special Investment
Trust") is a mutual fund seeking capital appreciation. Special Investment Trust
invests principally in equity securities of companies with market
capitalizations of less than $2.5 billion which, in the opinion of the Adviser,
have one or more of the following characteristics: they are not closely followed
by, or are out of favor with, investors generally, and the Adviser believes they
are undervalued in relation to their long-term earning power or asset values;
unusual developments have occurred which suggest the possibility that the market
value of the securities will increase; or they are involved in actual or
anticipated reorganizations or restructurings under the Bankruptcy Code. Special
Investment Trust may also invest in the securities of companies with larger
capitalizations which have one or more of these characteristics.
<PAGE>
Legg Mason American Leading Companies Trust("American Leading
Companies"), a diversified, professionally managed portfolio, is a separate
series of Legg Mason Investors Trust, Inc., an open-end investment company
("Trust"). American Leading Companies seeks long-term capital appreciation and
current income consistent with prudent investment risk. American Leading
Companies 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.
American Leading Companies' investment adviser, Legg Mason Capital Management,
Inc. ("LMCM"), defines a "Leading Company" as a company that, in the opinion of
LMCM, 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").
Legg Mason Balanced Trust ("Balanced Trust"), a diversified,
professionally managed portfolio, is a separate series of the Trust. Balanced
Trust seeks long-term capital appreciation and current income in order to
achieve an attractive total investment return consistent with reasonable risk.
Under normal conditions, Balanced Trust will invest no more than 75% of its
assets in equity securities. The term "equity securities" includes, without
limitation, common stocks, and convertible securities of domestic issuers,
securities of closed-end investment companies and U.S. dollar-denominated
securities of foreign issuers, including American Depositary Receipts ("ADRs")
and Global Depositary Receipts ("GDRs"). Balanced Trust will invest at least 25%
of its portfolio in fixed income securities.
Shares of Navigator Value Trust, Navigator Total Return Trust,
Navigator Special Investment Trust, Navigator American Leading Companies and
Navigator Balanced Trust (collectively referred to as "Navigator Shares")
represent interests in Value Trust, Total Return Trust, Special Investment
Trust, American Leading Companies and Balanced Trust, respectively, that are
currently offered for sale only to institutional clients of the Fairfield Group,
Inc. ("Fairfield") for investment of their own monies and monies for which they
act in a fiduciary capacity, to clients of Legg Mason Trust Company ("Trust
Company") for which Trust Company exercises discretionary investment management
responsibility (such institutional investors are referred to collectively as
"Institutional Clients" and accounts of the customers with such 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 Value Trust, Total Return Trust, Special
Investment Trust, American Leading Companies and Balanced Trust (collectively
referred to as "Primary Shares") is offered for sale to all other investors and
may be purchased directly by individuals.
Navigator and Primary Shares of Value Trust, Total Return Trust,
Special Investment Trust, American Leading Companies and Balanced Trust (each
separately referred to as a "Fund" and collectively referred to as the "Funds")
are sold and redeemed without any purchase or redemption charge, although
Institutions may charge their Customer Accounts for services provided in
connection with the purchase or redemption of Navigator Shares. Each Fund pays
management fees to the Adviser/Manager. Primary Shares pay a 12b-1 distribution
fee, but Navigator Shares pay no distribution fees. See "The Funds'
Distributor."
<PAGE>
LEGG MASON WOOD WALKER,
Incorporated
- --------------------------------------------------------------------------------
111 South Calvert Street
P.O. Box 1476
Baltimore, Maryland 21202
(410) 539-0000 (800) 822-5544
<PAGE>
ADDITIONAL INFORMATION ABOUT INVESTMENT LIMITATIONS AND POLICIES
In addition to the investment objective of each Fund described in the
Prospectus, each Fund has adopted certain fundamental investment limitations
that cannot be changed except by vote of its shareholders. Value Trust, Total
Return Trust and Special Investment Trust may not:
1. Borrow money, except from banks or through reverse repurchase
agreements for temporary purposes, in an aggregate amount not to exceed 10% of
the value of the total assets of the respective Fund at the time of borrowing;
provided that borrowings, including reverse repurchase agreements, in excess of
5% of such value will be only from banks (although not a fundamental policy
subject to shareholder approval, each Fund will not purchase securities if
borrowings, including reverse purchase agreements, exceed 5% of its total
assets);
2. With respect to 75% of 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, or its agencies and instrumentalities, or purchase more
than 10% of the voting securities of any one issuer;
3. Purchase securities on "margin", except for short-term credits
necessary for clearance of portfolio transactions and except that each Fund may
make margin deposits in connection with the use of futures contracts and options
on futures contracts;
4. Invest more than 25% of its total assets (taken at market value) in
any one industry;
5. Purchase or sell commodities and commodity contracts, but this
limitation shall not prevent each Fund from purchasing or selling options and
futures contracts;
6. Underwrite the securities of other issuers, except insofar as each
Fund may be deemed an underwriter under the Securities Act of 1933, as amended,
in disposing of a portfolio security;
7. Make loans, except loans of portfolio securities and except to the
extent that the purchase of a portion of an issue of publicly distributed notes,
bonds or other evidences of indebtedness or deposits with banks and other
financial institutions may be considered loans;
8. Purchase or sell real estate, except that each Fund may invest in
securities collateralized by real estate or interests therein or in securities
issued by companies that invest in real estate or interests therein (as a
non-fundamental policy changeable without a shareholder vote, each Fund will not
purchase or sell interests in real estate limited partnerships); or
9. Make short sales of securities or maintain a short position, except
that each Fund may (a) make short sales and maintain short positions in
connection with its use of options, futures contracts and options on futures
contracts and (b) sell short "against the box."
American Leading Companies and Balanced Trust each 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
2
<PAGE>
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;
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 limitations may be changed with respect to a Fund by "the
vote of a majority of the outstanding voting securities" of that Fund, a term
defined in the 1940 Act to mean the vote (a) of 67% or more of the voting
securities present at a meeting, if the holders of more than 50% of the
outstanding voting securities of the Fund are present, or (b) of more than 50%
of the outstanding voting securities of the Fund, whichever is less.
Value Trust, Total Return Trust and Special Investment Trust:
As non-fundamental policies, changeable without shareholder vote, each
Fund will not: (i) not invest more than 5% of its total assets (taken at market
value) in securities of companies that, including their predecessors, have been
in operation less than three years; (ii) purchase or sell interests in oil and
gas or other mineral exploration or development programs or purchase or sell
oil, gas or mineral leases; (iii) invest in securities issued by other
investment companies, except in connection with a merger, consolidation,
acquisition or reorganization or by purchase in the open market of securities of
closed-end investment companies where no underwriter or dealer commission or
profit, other than a customary brokerage commission, is involved and only if
immediately thereafter not more than 10% of that Fund's total assets (taken at
market value) would be invested in such securities.
3
<PAGE>
American Leading Companies and Balanced Trust:
The following are some of the non-fundamental limitations which
American Leading Companies and Balanced Fund currently observe. Each 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;
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 (Neither Fund intends 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. (with
respect to American Leading Companies) and of Bartlett & Co. (with respect to
Balanced Trust) 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 if 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.
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In addition, as a non-fundamental limitation, American Leading Companies may
not 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.
American Leading Companies and Balanced Trust each interprets
fundamental investment limitation (4) to prohibit investment in real estate
limited partnerships.
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 a Fund, or in the number of securities an issuer has
outstanding, will not be considered a violation of any limitation.
Unless otherwise stated, the investment policies and limitations
contained in this Statement of Additional Information are not fundamental, and
can be changed without shareholder approval.
The following information applies to each Fund unless otherwise stated:
Foreign Securities
The costs associated with investment in foreign issuers, including
withholding taxes, brokerage commissions and custodial fees, are higher than
those associated with investment in domestic issuers. In addition, foreign
securities transactions may be subject to difficulties associated with the
settlement of such transactions. Delays in settlement could result in temporary
periods when assets of a Fund are uninvested and no return is earned thereon.
The inability of a Fund to make intended security purchases due to settlement
problems could cause a Fund to miss attractive investment opportunities.
Inability to dispose of a portfolio security due to settlement problems could
result in losses to a Fund due to subsequent declines in value of the portfolio
security or, if a Fund has entered into a contract to sell the security, could
result in liability to the purchaser.
Since each Fund may invest in securities denominated in currencies
other than the U.S. dollar and since each Fund may hold foreign currencies, a
Fund may be affected favorably or unfavorably by exchange control regulations or
changes in the exchange rates between such currencies and the U.S. dollar.
Changes in the currency exchange rates may influence the value of each Fund's
shares, and also may affect the value of dividends and interest earned by that
Fund and gains and losses realized by that Fund. Exchange rates are determined
by the forces of supply and demand in the foreign exchange markets. These forces
are affected by the international balance of payments, other economic and
financial conditions, government intervention, speculation and other factors.
In addition to purchasing foreign securities, each Fund may invest in
ADRs. Generally, ADRs, in registered form, are denominated in U.S. dollars and
are designed for use in the domestic market. Usually issued by a U.S. bank or
trust company, ADRs are receipts that demonstrate ownership of the underlying
securities. For purposes of each Fund's investment policies and limitations,
ADRs are considered to have the same classification as the securities underlying
them. Balanced Trust may also invest in GDRs, which are receipts, often
denominated in U.S. dollars, issued by either a U.S. or non-U.S. bank evidencing
its ownership of the underlying foreign securities.
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Illiquid Securities
Value Trust, Total Return Trust and Special Investment Trust each may
invest up to 10% of its net assets in illiquid securities. American Leading
Companies and Balanced Trust each 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/LMCM or Bartlett & Co. ("Bartlett"), investment adviser to Balanced
Trust, has determined are liquid pursuant to guidelines established by each
Fund's Board of Directors.
Restricted securities may be sold only in privately negotiated
transactions, pursuant to a registration statement filed under the Securities
Act of 1933, or pursuant to an exemption from registration. A Fund may be
required to pay part or all of the costs of such registration, and a
considerable period may elapse between the time a decision is made to sell a
restricted security and the time the registration statement becomes effective.
Judgment plays a greater role in valuing illiquid securities than those for
which a more active market exists.
SEC regulations permit the sale of certain restricted securities to
qualified institutional buyers. The investment adviser to each, acting pursuant
to guidelines established by such Fund's Board of Directors, may determine that
certain restricted securities qualified for trading on this newly developing
market are liquid. If the market does not develop as anticipated, restricted
securities in each Fund's portfolio may adversely affect that Fund's liquidity.
Debt Securities
The ratings of Moody's Investors Service, Inc. ("Moody's") and Standard
& Poor's ("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.
In addition to ratings assigned to individual bond issues, each adviser
will analyze interest rate trends and developments that may affect individual
issuers, including factors such as liquidity, profitability and asset quality.
The yields on bonds and other debt securities in which a Fund invests are
dependent on a variety of factors, including general money market conditions,
general conditions in the bond market, the financial conditions of the issuer,
the size of the offering, the maturity of the obligation and its rating. There
may be a wide variation in the quality of bonds, both within a particular
classification and between classifications. A bond issuer's obligations are
subject to the provisions of bankruptcy, insolvency and other laws affecting the
rights and remedies of bond holders or other creditors of an issuer; litigation
or other conditions may also adversely affect the power or ability of bond
issuers to meet their obligations for the payment of principal and interest.
Regardless of rating levels, all debt securities considered for purchase
(whether rated or unrated) are analyzed by each Fund's adviser to determine, to
the extent possible, that the planned investment is sound.
If a security rated A or above at the time of purchase by American
Leading Companies is subsequently downgraded to a rating below A, LMCM 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
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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, LMCM 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. American Leading Companies 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 LMCM to be of comparable quality.
Moody's describes securities rated Ba as having "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."
Value Trust, Total Return Trust and Special Investment Trust:
If an investment grade security purchased by Value Trust, Total Return
Trust or Special Investment Trust is subsequently given a rating below
investment grade, the Adviser will consider that fact in determining whether to
retain that security in that Fund's portfolio, but is not required to dispose of
it.
American Leading Companies and Balanced Trust:
When-Issued Securities
Each Fund may enter into commitments to purchase securities on a
when-issued basis. When a 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.
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American Leading Companies 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, a 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
that Fund's commitments to purchase when-issued securities.
A Fund may sell the securities underlying a when-issued purchase, which
may result in capital gains or losses.
American Leading Companies:
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 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 LMCM 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
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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 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-tomarket 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.
The following information applies to Balanced Trust:
MORTGAGE-RELATED SECURITIES Mortgage-related securities represent an
ownership interest in a pool of residential mortgage loans. These securities are
designed to provide monthly payments of interest, and in most instances,
principal to the investor. The mortgagor's monthly payments to his/her lending
institution are "passed-through" to investors such as the Fund. Most issuers or
poolers provide guarantees of payments, regardless of whether or not the
mortgagor actually makes the payment. The guarantees made by issuers or poolers
are backed by various forms of credit, insurance and collateral. They may not
extend to the full amount of the pool.
Pools consist of whole mortgage loans or participations in loans. The
majority of these loans are made to purchasers of one- to four-family homes. The
terms and characteristics of the mortgage instruments are generally uniform
within a pool but may vary among pools. For example, in addition to fixed-rate,
fixed-term mortgages, a Fund may purchase pools of variable-rate mortgages,
growing-equity mortgages, graduated-payment mortgages and other types.
All poolers apply standards for qualification to lending institutions
which originate mortgages for the pools. Poolers also establish credit standards
and underwriting criteria for individual mortgages included in the pools. In
addition, many mortgages included in pools are insured through private mortgage
insurance companies.
The majority of mortgage-related securities currently available are
issued by governmental or government-related organizations formed to increase
the availability of mortgage credit. The largest government-sponsored issuer of
mortgage-related securities is GNMA. GNMA certificates ("GNMAs") are interests
in pools of loans insured by the Federal Housing Administration or by the
Farmer's Home Administration ("FHA"), or guaranteed by the Veterans
Administration ("VA"). The Federal National Mortgage Association ("FNMA") and
the Federal Home Loan Mortgage Corporation ("FHLMC") each issue pass-through
securities which are guaranteed as to principal and interest by FNMA and FHLMC,
respectively.
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The average life of mortgage-related securities varies with the
maturities and the nature of the underlying mortgage instruments. For example,
GNMAs tend to have a longer average life than FHLMC participation certificates
("PCs") because there is a tendency for the conventional and privately-insured
mortgages underlying FHLMC PCs to repay at faster rates than the FHA and VA
loans underlying GNMAs. In addition, the term of a security may be shortened by
unscheduled or early payments of principal and interest on the underlying
mortgages. The occurrence of mortgage pre-payments is affected by various
factors, including the level of interest rates, general economic conditions, the
location and age of the mortgaged property and other social and demographic
conditions.
In determining the dollar-weighted average maturity of the fixed income
portion of the portfolio, Bartlett will follow industry practice in assigning an
average life to the mortgage-related securities of the Fund unless the interest
rate on the mortgages underlying such securities is such that a different
prepayment rate is likely. For example, where a GNMA has a high interest rate
relative to the market, that GNMA is likely to have a shorter overall maturity
than a GNMA with a market rate coupon. Moreover, Bartlett may deem it
appropriate to change the projected average life for a Fund's mortgage-related
security as a result of fluctuations in market interest rates and other factors.
Quoted yields on mortgage-related securities are typically based on the
maturity of the underlying instruments and the associated average life
assumption. Actual prepayment experience may cause the yield to differ from the
average life yield. Reinvestment of the prepayments may occur at higher or lower
interest rates than the original investment, thus affecting the yield of the
Fund. The compounding effect from the reinvestments of monthly payments received
by the Fund will increase the yield to shareholders compared to bonds that pay
interest semi-annually.
Like other debt securities, the value of mortgage-related securities
will tend to rise when interest rates fall, and fall when rates rise. The value
of mortgage-related securities may also change because of changes in the
market's perception of the creditworthiness of the organization that issued or
guaranteed them. In addition, the mortgage securities market in general may be
adversely affected by changes in governmental regulation or tax policies.
Municipal Obligations
The municipal obligations in which the Fund may invest include
municipal leases and participation interests therein. These obligations, which
may take the form of a lease, an installment purchase or a conditional sales
contract, are issued by state and local governments and authorities to acquire
land and a wide variety of equipment and facilities, such as fire and sanitation
vehicles, telecommunications equipment and other capital assets. Rather than
holding such obligations directly, the Fund may purchase a participation
interest in a municipal lease obligation from a bank or other third party. A
participation interest gives the Fund a specified, undivided pro-rata interest
in the total amount of the obligation.
Municipal lease obligations have risks distinct from those associated
with general obligation or revenue bonds. State constitutions and statutes set
forth requirements that states or municipalities must meet to incur debt. These
may include voter referenda, interest rate limits or public sale requirements.
Leases, installment purchase or conditional sale contracts (which normally
provide for title to the leased asset to pass to the governmental issuer) have
evolved as a means
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for governmental issuers to acquire property and equipment without meeting their
constitutional and statutory requirements for the issuance of debt. The
debt-issuance limitations are deemed inapplicable because of the inclusion in
many leases and contracts of "nonappropriation" clauses providing that the
governmental user has no obligation to make future payments under the lease or
contract unless money is appropriated for such purpose by the appropriate
legislative body on a yearly or other periodic basis.
In determining the liquidity of a municipal lease obligation, Bartlett
will distinguish between simple or direct municipal leases and municipal
lease-backed securities, the latter of which may take the form of a lease-backed
revenue bond or other investment structure using a municipal lease-purchase
agreement as its base. While the former may present special liquidity issues,
the latter are based on a well established method of securing payment of a
municipal obligation. The Fund's investment in municipal lease obligations and
participation interests therein will be treated as illiquid unless Bartlett
determines, pursuant to guidelines established by the Board of Directors, that
the security could be disposed of within seven days in the normal course of
business at approximately the amount at which the Fund has valued the security.
An issuer's obligations under its municipal obligations are subject to
the provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors, such as the Federal Bankruptcy Act, and laws that may be
enacted by Congress or state legislatures extending the time for payment of
principal or interest, or both, or imposing other constraints upon enforcement
of such obligations. There is also the possibility that as a result of
litigation or other conditions the power or ability of issuers to meet their
obligations for the payment of interest and principal on their municipal
obligations may be materially and adversely affected.
The United States Supreme Court has held that Congress may subject the
interest on municipal obligations to federal income tax. It can be expected
that, as in the past, proposals will be introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on municipal obligations. Proposals also may be introduced in state
legislatures which could affect the state tax treatment of the Fund's
distributions. If any such proposals were enacted, the availability of municipal
obligations for investment by the Fund and the value of its assets could be
materially and adversely affected. In such event, the Fund would re-evaluate its
investment objective and policies and consider changes in its structure or
possible dissolution.
The following information applies to Value Trust, Total Return Trust, Special
Investment Trust and Balanced Trust:
Futures Contracts
Each Fund may from time to time purchase or sell futures contracts. In
the purchase of a futures contract, the purchaser agrees to buy a specified
underlying instrument at a specified future date. In the sale of a futures
contract, the seller agrees to sell the underlying instrument at a specified
future date. The price at which the purchase or sale will take place is fixed at
the time the contract is entered into. Some currently available contracts are
based on specific securities, such as U.S. Treasury bonds or notes, and some are
based on indexes of securities such as S&P 500. Futures contracts can be held
until their delivery dates, or can be closed out before then, if a liquid
secondary market is available. A futures contract is closed out by entering into
an opposite position
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in an identical futures contract (for example, by purchasing a contract on the
same instrument and with the same delivery date as a contract the party had
sold) at the current price as determined on the futures exchange.
As the purchaser or seller of a futures contract, a Fund would not be
required to deliver or pay for the underlying instrument unless the contract is
held until the delivery date. However, the Fund would be required to deposit
with its custodian, in the name of the futures broker (known as a futures
commission merchant, or "FCM"), a percentage of the contract's value. This
amount, which is known as initial margin, generally equals 10% or less of the
value of the futures contract. Unlike margin in securities transactions, initial
margin on futures contracts does not involve borrowing to finance the futures
transactions. Rather, initial margin is in the nature of a good faith deposit or
performance bond, and would be returned to that Fund when the futures position
is terminated, after all contractual obligations have been satisfied. Initial
margin may be maintained either in cash or in liquid high-quality debt
securities, such as U.S. government securities.
The value of a futures contract tends to increase and decrease with the
value of the underlying instrument. The purchase of a futures contract will tend
to increase exposure to positive and negative price fluctuations in the
underlying instrument in the same manner as if the underlying instrument had
been purchased directly. By contrast, the sale of a futures contract will tend
to offset both positive and negative market price changes.
As the contract's value fluctuates, payments known as variation margin
or maintenance margin are made to or received from the FCM. If the contract's
value moves against the Fund, (i.e., the Fund's futures position declines in
value), the Fund may be required to make payments to the FCM, and, conversely,
the Fund may be entitled to receive payments from the FCM if the value of its
futures position increases. This process is known as "marking-to-market" and
takes place on a daily basis. Variation margin does not involve borrowing to
finance the futures transactions, but rather represents a daily settlement of
the Fund's obligations to or from a clearing organization.
Options on Securities, Indexed Securities and Futures Contracts
PURCHASING PUT OR CALL OPTIONS By purchasing a put (or call) option, a
Fund obtains the right (but not the obligation) to sell (or buy) the underlying
instrument at a fixed strike price. The option's underlying instrument may be a
specific security, an indexed security or a futures contract. The option may
give the Fund the right to sell (or buy) only on the option's expiration date,
or may be exercisable at any time up to and including that date. In return for
this right, the Fund pays the current market price for the option (known as the
option premium).
A Fund may terminate its position in an option it has purchased by
allowing the option to expire, closing it out in the secondary market at its
current price, if a liquid secondary market exists, or by exercising it. If the
option is allowed to expire, the Fund will lose the entire premium paid.
WRITING PUT OR CALL OPTIONS By writing a put (or call) option, a Fund
takes the opposite side of the transaction from the option's purchaser (or
seller). In return for receipt of the premium, the Fund assumes the obligation
to pay the strike price for the option's underlying instrument (or to sell or
deliver the option's underlying instrument) if the other party to the option
chooses to exercise it. When writing an option on a futures contract, a Fund
will be required to make margin payments to an FCM as described above for
futures contracts.
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Before exercise, a Fund may seek to terminate its position in an option
it has written by closing out the option in the secondary market at its current
price. If the secondary market is not liquid for an option the Fund has written,
however, the Fund must continue to be prepared to pay the strike price while the
option is outstanding, regardless of price changes, and must continue to set
aside assets to cover its position.
Over-the-counter and Exchange-traded Options
Each Fund may purchase and write both over-the-counter ("OTC") and
exchange-traded options. Exchange-traded options in the United States are issued
by a clearing organization affiliated with the exchange on which the option is
listed which, in effect, guarantees completion of every exchange-traded option
transaction. In contrast, OTC options are contracts between a Fund and its
contra-party with no clearing organization guarantee. Thus, when a Fund
purchases an OTC option, it relies on the dealer from which it has purchased the
OTC option to make/take delivery of the securities underlying the option.
Failure by the dealer to do so would result in the loss of the premium paid by
the Fund, as well as the loss of the expected benefit of the transaction.
Currently, options on debt securities are primarily traded on the OTC market.
Exchange markets for options on debt securities exist, but the ability to
establish and close out positions on the exchanges is subject to the maintenance
of a liquid secondary market.
Value Trust, Total Return Trust and Special Investment Trust each may
invest up to 10% and Balanced Trust may invest up to 15% of its assets in
illiquid securities. The term "illiquid securities" includes purchased OTC
options. Assets used as cover for OTC options written by the Fund also will be
deemed illiquid securities, unless the OTC options are sold to qualified dealers
who agree that the Fund may repurchase any OTC options it writes for a maximum
price to be calculated by a formula set forth in the option agreement. The cover
for an OTC option subject to this procedure would be considered illiquid only to
the extent that the maximum repurchase price under the formula exceeds the
intrinsic value of the option.
Cover for Options and Futures Strategies
Each Fund will not use leverage in its hedging strategies involving
options and futures contracts. Each Fund will hold securities, options or
futures positions whose values are expected to offset ("cover") its obligations
under the transactions. Each Fund will not enter into hedging strategies
involving options and futures contracts that expose the Fund to an obligation to
another party unless it owns either (i) an offsetting ("covered") position in
securities, options or futures contracts or (ii) has cash, receivables and
liquid debt securities with a value sufficient at all times to cover its
potential obligations. Each Fund will comply with guidelines established by the
SEC with respect to coverage of these strategies by mutual funds and, if the
guidelines so require, will set aside cash and/or liquid, high-grade debt
securities in a segregated account with its custodian in the amount prescribed.
Securities, options or futures contracts used for cover and securities held in a
segregated account cannot be sold or closed out while the strategy is
outstanding, unless they are replaced with similar assets. As a result, there is
a possibility that the use of cover or segregation involving a large percentage
of a Fund's assets could impede the portfolio management or the Fund's ability
to meet redemption requests or other current obligations.
Risks of Futures and Related Options Trading
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Successful use of futures contracts and related options depends upon
the ability of the adviser to assess movements in the direction of overall
securities and interest rates, which requires different skills and techniques
than assessing the value of individual securities. Moreover, futures contracts
relate not to the current price level of the underlying instrument, but to the
anticipated price level at some point in the future; trading of stock index
futures may not reflect the trading of the securities that are used to formulate
the index or even actual fluctuations in the index itself. There is, in
addition, the risk that movements in the price of the futures contract will not
correlate with the movements in the prices of the securities being hedged. Price
distortions in the marketplace, such as result from increased participation by
speculators in the futures market, may also impair the correlation between
movements in the prices of futures contracts and movements in the prices of the
hedged securities. If the price of the futures contract moves less than the
price of securities that are subject to the hedge, the hedge will not be fully
effective; however, if the price of the securities being hedged has moved in an
unfavorable direction, a Fund normally would be in a better position than if it
had not hedged at all. If the price of securities being hedged has moved in a
favorable direction, this advantage may be partially offset by losses on the
futures position.
Options have a limited life and thus can be disposed of only within a
specific time period. Positions in futures contracts may be closed out only on
an exchange or board of trade that provides a secondary market for such futures
contracts. Although each Fund intends to purchase and sell futures only on
exchanges or boards of trade where there appears to be a liquid secondary
market, there is no assurance that such a market will exist for any particular
contract at any particular time. In such event, it may not be possible to close
a futures position and, in the event of adverse price movements, the Fund would
continue to be required to make variation margin payments.
Purchasers of options on futures contracts pay a premium in cash at the
time of purchase which, in the event of adverse price movements, could be lost.
Sellers of options on futures contracts must post initial margin and are subject
to additional margin calls that could be substantial in the event of adverse
price movements. In addition, a Fund's activities in the futures markets may
result in a higher portfolio turnover rate and additional transaction costs in
the form of added brokerage commissions. Because combined options positions
involve multiple trades, they result in higher transaction costs and may be more
difficult to open and close out.
The exchanges may impose limits on the amount by which the price of a
futures contract or related option is permitted to change in a single day. If
the price of a contract moves to the limit for several consecutive days, a Fund
may be unable during that time to close its position in that contract and may
have to continue making payments of variation margin. A Fund may also be unable
to dispose of securities or other instruments being used as "cover" during such
a period.
Risks of Options Trading
The success of each Fund's option strategies depends on many factors,
the most significant of which is the adviser's ability to assess movements in
the overall securities and interest rate markets.
The exercise price of the options may be below, equal to or above the
current market value of the underlying securities or indexes. Purchased options
that expire unexercised have no value. Unless an option purchased by a Fund is
exercised or unless a closing transaction is effected with
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respect to that position, the Fund will realize a loss in the amount of the
premium paid and any transaction costs.
A position in an exchange-listed option may be closed out only on an
exchange that provides a secondary market for identical options. Although each
Fund intends to purchase or write only those exchange-traded options for which
there appears to be an active secondary market, there is no assurance that a
liquid secondary market will exist for any particular option at any specific
time. Closing transactions with respect to OTC options may be effected only by
negotiating directly with the other party to the option contract. Although each
Fund will enter into OTC options with dealers capable of entering into closing
transactions with the Fund, there can be no assurance that a Fund will be able
to liquidate an OTC option at a favorable price at any time prior to expiration.
In the event of insolvency of the contra-party, a Fund may be unable to
liquidate or exercise an OTC option, and could suffer a loss of its premium.
Also, the contra-party, although solvent, may refuse to enter into closing
transactions with respect to certain options, with the result that a Fund would
have to exercise those options which it has purchased in order to realize any
profit. With respect to options written by a Fund, the inability to enter into a
closing transaction may result in material losses to that Fund. For example,
because each Fund must maintain a covered position with respect to any call
option it writes on a security or index, a Fund may not sell the underlying
security or currency (or invest any cash, government securities or short-term
debt securities used to cover an index option) during the period it is obligated
under the option. This requirement may impair a Fund's ability to sell a
portfolio security or make an investment at a time when such a sale or
investment might be advantageous.
Options on indexes are settled exclusively in cash. If a Fund writes a
call option on an index, the Fund will not know in advance the difference, if
any, between the closing value of the index on the exercise date and the
exercise price of the call option itself, and thus will not know the amount of
cash payable upon settlement. In addition, a holder of an index option who
exercises it before the closing index value for that day is available runs the
risk that the level of the underlying index may subsequently change.
Each Fund's activities in the options markets may result in higher
portfolio turnover rates and additional brokerage costs.
Additional Limitations on Futures and Options
As a non-fundamental policy, each Fund will write a put or call on a
security only if (a) the security underlying the put or call is permitted by the
investment policies of that Fund, and (b) the aggregate value of the securities
underlying the calls or obligations underlying the puts determined as of the
date the options are sold does not exceed 25% of that Fund's net assets.
Also as a non-fundamental policy, each Fund will purchase and write
puts and calls on securities, stock index futures or options on stock index
futures, or on financial futures, only if: (a) (i) such options or futures are
offered through the facilities of a national securities association approved by
the Commissioner under Rule 260.105.35 of the California Blue Sky Regulations or
are listed on a national securities or commodities exchange or (ii) such options
are OTC options and (A) the OTC options involved are not readily available on an
exchange market, (B) at the time of purchase of any OTC option there is, in the
judgment of the Fund's investment adviser, an active OTC market which will
provide liquidity and pricing for such options and (C) any dealer involved in
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the purchase or sale of the OTC option has a net worth of at least $20 million
as reported on its most recent financial statement; (b) the aggregate premiums
paid on all such options which are held by the Fund at any time do not exceed
20% of that Fund's total net assets; and (c) the aggregate margin deposits
required on all such futures or options on futures contracts held at any time do
not exceed 5% of the Fund's total assets.
Under regulations adopted by the Commodity Futures Trading Commission
("CFTC"), futures contracts and related options may be used by each Fund (a) for
hedging purposes, without quantitative limits, and (b) for other purposes to the
extent that the amount of margin deposit on all such non-hedging futures
contacts owned by the Fund, together with the amount of premiums paid by that
Fund on all such non-hedging options held on futures contracts, does not exceed
5% of the market value of that Fund's net assets.
The foregoing limitations, as well as those set forth in the prospectus
regarding each Fund's use of futures and related options transactions, do not
apply to options attached to, or acquired or traded together with their
underlying securities, and do not apply to securities that incorporate features
similar to options, such as rights, certain debt securities and indexed
securities.
The above limitations on each Fund's investments in futures contracts
and options may be changed as regulatory agencies permit. However, each Fund
will not modify the above limitations to increase its permissible futures and
options activities without supplying additional information, as appropriate, in
a current Prospectus or Statement of Additional Information.
Indexed Securities
Indexed securities are securities whose prices are indexed to the
prices of securities indexes, currencies or other financial statistics. Indexed
securities typically are debt securities or deposits whose value at maturity
and/or coupon rate is determined by reference to a specific instrument or
statistic. The performance of indexed securities fluctuates (either directly or
inversely, depending upon the instrument) with the performance of the index,
security, currency or other instrument to which they are indexed and may also be
influenced by interest rate changes in the U.S. and abroad. At the same time,
indexed securities are subject to the credit risks associated with the issuer of
the security, and their value may substantially decline if the issuer's
creditworthiness deteriorates. Recent issuers of indexed securities have
included banks, corporations and certain U.S. government agencies. The
Adviser/Bartlett will only purchase indexed securities of issuers which it
determines present minimal credit risks and will monitor the issuer's
creditworthiness during the time the indexed security is held. The
Adviser/Bartlett will use its judgment in determining whether indexed securities
should be treated as short-term instruments, bonds, stock or as a separate asset
class for purposes of each Fund's investment allocations, depending on the
individual characteristics of the securities. Each Fund currently does not
intend to invest more than 5% of its total assets in indexed securities. Indexed
securities may fluctuate according to a multiple of changes in the underlying
instrument and, in that respect, have a leverage-like effect on a Fund.
Forward Currency Contracts
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Each Fund may use forward currency contracts to protect against
uncertainty in the level of future exchange rates. Each Fund will not speculate
with forward currency contracts or foreign currencies.
Each Fund may enter into forward currency contracts with respect to
specific transactions. For example, when a Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, or when a Fund
anticipates the receipt in a foreign currency of dividend or interest payments
on a security that it holds, the Fund may desire to "lock-in" the U.S. dollar
price of the security or the U.S. dollar equivalent of such payment, as the case
may be, by entering into a forward contract for the purchase or sale, for a
fixed amount of U.S. dollars or foreign currency, of the amount of foreign
currency involved in the underlying transaction. A Fund will thereby be able to
protect itself against a possible loss resulting from an adverse change in the
relationship between the currency exchange rates during the period between the
date on which the security is purchased or sold, or on which the payment is
declared, and the date on which such payments are made or received.
Each Fund also may use forward currency contracts in connection with
portfolio positions to lock-in the U.S. dollar value of those positions or to
shift the Fund's exposure to foreign currency fluctuations from one country to
another. For example, when the adviser believes that the currency of a
particular foreign country may suffer a substantial decline relative to the U.S.
dollar or another currency, it may enter into a forward currency contract to
sell the amount of the former foreign currency approximating the value of some
or all of a Fund's securities denominated in such foreign currency. This
investment practice generally is referred to as "cross-hedging" when another
foreign currency is used.
At or before the maturity date of a forward currency contract requiring
a Fund to sell a currency, the Fund may either sell a portfolio security and use
the sale proceeds to make delivery of the currency or retain the security and
offset its contractual obligation to deliver the currency by purchasing a second
contract pursuant to which the Fund will obtain, on the same maturity date, the
same amount of the currency that it is obligated to deliver. Similarly, a Fund
may close out a forward currency contract requiring it to purchase a specified
currency by entering into a second contract entitling it to sell the same amount
of the same currency on the maturity date of the first contract. A Fund would
realize a gain or loss as a result of entering into such an offsetting forward
currency contract under either circumstance to the extent the exchange rate or
rates between the currencies involved moved between the execution dates of the
first contract and the offsetting contract.
The precise matching of the forward contract amount and the value of
the securities involved will not generally be possible because the future value
of such securities in a foreign currency will change as a consequence of market
movements in the value of those securities between the date the forward currency
contract is entered into and the date it matures. Accordingly, it may be
necessary for a Fund to purchase additional foreign currency on the spot (i.e.,
cash) market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency the Fund is obligated to
deliver under the forward contract and the decision is made to sell the security
and make delivery of the foreign currency. Conversely, it may be necessary to
sell on the spot market some of the foreign currency received upon the sale of
the portfolio security if its market value exceeds the amount of foreign
currency a Fund is obligated to deliver under the forward contract. The
projection of short-term currency market movements is extremely difficult, and
the successful execution of a short-term hedging strategy is highly uncertain.
Forward currency
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contracts involve the risk that anticipated currency movements will not be
accurately predicted, causing a Fund to sustain losses on these contracts and
transaction costs. Each Fund may enter into forward contracts or maintain a net
exposure to such contracts only if (1) the consummation of the contracts would
not obligate the Fund to deliver an amount of foreign currency in excess of the
value of the Fund's portfolio securities or other assets denominated in that
currency or (2) the Fund maintains cash, U.S. government securities or other
liquid, high-grade debt securities in a segregated account in an amount not less
than the value of the Fund's total assets committed to the consummation of the
contract.
The cost to a Fund of engaging in forward currency contracts varies
with factors such as the currencies involved, the length of the contract period
and the market conditions then prevailing. Because forward currency contracts
are usually entered into on a principal basis, no fees or commissions are
involved. Each Fund will deal only with banks, broker/dealers or other financial
institutions which the adviser deems to be of high quality and to present
minimum credit risk. The use of forward currency contracts does not eliminate
fluctuations in the prices of the underlying securities each Fund owns or
intends to acquire, but it does fix a rate of exchange in advance. In addition,
although forward currency contracts limit the risk of loss due to a decline in
the value of the hedged currencies, at the same time they limit any potential
gain that might result should the value of the currencies increase.
Although each Fund values its assets daily in terms of U.S. dollars, it
does not intend to convert its holdings of foreign currencies into U.S. dollars
on a daily basis. Each Fund may convert foreign currency from time to time, and
investors should be aware of the costs of currency conversion. Although foreign
exchange dealers do not charge a fee for conversion, they do realize a profit
based on the difference between the prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign currency to a
Fund at one rate, while offering a lesser rate of exchange should the Fund
desire to resell that currency to the dealer.
Warrants
Although not a fundamental policy subject to shareholder vote, so long
as a Fund's shares continue to be registered in certain states, that Fund may
not invest more than 5% of the value of its net assets, taken at the lower of
cost or market value, in warrants or invest more than 2% of the value of such
net assets in warrants not listed on the New York or American Stock Exchanges.
For each Fund:
Portfolio Lending
Each Fund may lend portfolio securities to brokers or dealers in
corporate or government securities, banks or other recognized institutional
borrowers of securities, provided that cash or equivalent collateral, equal to
at least 100% of the market value of the securities loaned, is continuously
maintained by the borrower with the Fund. During the time portfolio securities
are on loan, the borrower will pay the Fund an amount equivalent to any
dividends or interest paid on such securities, and the Fund may invest the cash
collateral and earn income, or it may receive an agreed upon amount of interest
income from the borrower who has delivered equivalent collateral. These
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loans are subject to termination at the option of the Fund or the borrower. Each
Fund may pay reasonable administrative and custodial fees in connection with a
loan and may pay a negotiated portion of the interest earned on the cash or
equivalent collateral to the borrower or placing broker. Each Fund does not have
the right to vote securities on loan, but would terminate the loan and regain
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. Each Fund presently does not intend to lend more than 5% of its
portfolio securities at any given time.
Repurchase Agreements
Repurchase agreements are usually for periods of one week or less, but
may be for longer periods. The Funds will not enter into repurchase agreements
of more than seven days' duration if more than 15% of net assets (with respect
to American Leading Companies and Balanced Trust) or more than 10% of net assets
(with respect to Value Trust, Total Return Trust and Special Investment Trust)
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, a Fund might suffer a loss. If
bankruptcy proceedings are commenced with respect to the seller of the security,
realization upon the collateral by a Fund could be delayed or limited. However,
each Fund has adopted standards for the parties with whom it may enter into
repurchase agreements, including monitoring by each fund's 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 time frame contemplated
by the repurchase agreement.
When a 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 Funds'
custodian or an approved securities depository or book-entry system.
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ADDITIONAL TAX INFORMATION
The following is a general summary of certain federal tax
considerations affecting each Fund and its shareholders. Investors are urged to
consult their own tax advisers for more detailed information and for information
regarding any federal, state or local taxes that might be applicable to them.
General
Each Fund intends to qualify (in the case of Balanced Trust) or 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, each 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. For each Fund,
these requirements include the following: (1) at least 90% of the Fund's gross
income each taxable year must be derived from dividends, interest, payments with
respect to securities loans and gains from the sale or other disposition of
securities or foreign currencies, or other income (including gains from options,
futures or forward currency contracts) derived with respect to its business of
investing in securities or those currencies ("Income Requirement"); (2) the Fund
must derive less than 30% of its gross income each taxable year from the sale or
other disposition of securities, or any of the following, that were held for
less than three months -- options or futures contracts, or foreign currencies
(or options, futures or forward contracts thereon) that are not directly related
to that Fund's principal business of investing in securities (or options and
futures with respect thereto) ("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 that 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.
Each Fund will be subject to a nondeductible 4% excise tax ("Excise
Tax") to the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary income for that year and capital gain net
income for the one-year period ending on October 31 of that year, plus certain
other amounts.
Dividends and interest received by each Fund may be subject to income,
withholding or other taxes imposed by foreign countries and U.S. possessions
that would reduce the yield on its securities. Tax conventions between certain
countries and the United States may reduce or eliminate these foreign taxes,
however, and many foreign countries do not impose taxes on capital gains in
respect of investments by foreign investors.
Dividends and Other Distributions
Dividends and other distributions declared by a Fund in December of any
year and payable to shareholders of record on a date in that month will be
deemed to have been paid by the Fund and
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received by the shareholders on December 31 if the distributions are paid by the
Fund during the following January. Accordingly, those distributions will be
taxed to shareholders for the year in which that December 31 falls.
A portion of the dividends from each Fund's investment company taxable
income (whether paid in cash or reinvested in Fund shares) may be eligible for
the dividends-received deduction allowed to corporations. The eligible portion
for any Fund may not exceed the aggregate dividends received by that Fund 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 (the excess of net long-term capital gain over net
short-term capital loss) made by each 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.
Passive Foreign Investment Companies
Each 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, a Fund will be
subject to federal income tax on a portion of any "excess distribution" received
on the stock of a PFIC or of any gain on disposition of 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.
Pursuant to proposed regulations, open-end RICs, such as the Funds,
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 such a
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, Futures, Forward Currency Contracts and Foreign Currencies
The use of hedging instruments, such as writing (selling) and
purchasing options and futures contracts and entering into forward currency
contracts, involves complex rules that will determine for income tax purposes
the character and timing of recognition of the gains and losses each Fund
realizes in connection therewith.
Gains from the dispostition of foreign currencies (except certain gains
that may be excluded by future regulations) -- and gains from options derived by
American Leading Companies or from options, futures and forward currency
contracts derived by Value Trust, Total Return Trust, Special Investment Trust
or Balanced Trust, 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 (other than those
on foreign currencies) (with respect to American
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Leading Companies) and options and futures contracts (other than those on
foreign currencies) (with respect to Value Trust, Total Return Trust , Special
Investment Trust and Balanced Trust) will be subject to the Short-Short
Limitation if they are held for less than three months. For Value Trust, Total
Return Trust, Special Investment Trust and Balanced Trust, income from the
disposition of foreign currencies and options, futures and forward contracts
thereon also will be subject to the Short-Short Limitation if they are held for
less than three months and are not directly related to a Fund's principal
business of investing in securities (or options and futures with respect
thereto). For American Leading Companies, income from the disposition of foreign
currencies that are not directly related to its principal business of investing
in securities (or options with respect thereto) also will be subject to the
Short-Short Limitation if they are held for less than three months.
If a Fund satisfies certain requirements, any increase in value of a
position that is part of a "designated hedge" will be offset by any decrease in
value (whether realized or not) of the offsetting hedging position during the
period of the hedge for purposes of determining whether the Fund satisfies the
Short-Short Limitation. Thus, only the net gain (if any) from the designated
hedge will be included in gross income for purposes of that limitation. To the
extent this treatment is not available, a Fund may be forced to defer the
closing out of certain options, futures, forward currency contracts and foreign
currency positions beyond the time when it otherwise would be advantageous to do
so, in order for it to continue to qualify as a RIC.
Regulated futures contracts and options that are subject to section
1256 of the Code (collectively, "Section 1256 contracts") and are held by a Fund
at the end of each taxable year will be required to be "marked-to-market" for
federal income tax purposes (that is, treated as having been sold at that time
at market value). Any unrealized gain or loss recognized under this
mark-to-market rule will be added to any realized gains and losses on section
1256 contracts actually sold by the Fund during the year, and the resulting gain
or loss will be treated (without regard to the holding period) as 60% long-term
capital gain or loss and 40% short-term capital gain or loss. These rules may
operate to increase the amount of dividends, which will be taxable to
shareholders, that must be distributed to meet the Distribution Requirement and
avoid imposition of the Excise Tax, without providing the cash with which to
make the distributions. Each Fund may elect to exclude certain transactions from
Section 1256, although doing so may have the effect of increasing the relative
proportion of short-term capital gain (taxable as ordinary income when
distributed to a Fund's shareholders).
For each Fund:
When a covered call option written (sold) by a Fund expires, the Fund
realizes a short-term capital gain equal to the amount of the premium it
received for writing the option. When a Fund terminates its obligations under
such an option by entering into a closing transaction, the Fund realizes a
short-term capital gain (or loss), depending on whether the cost of the closing
transaction is less than (or exceeds) the premium received when the option was
written. When a covered call option written by a Fund is exercised, the Fund is
treated as having sold the underlying security, producing long-term or
short-term capital gain or loss, depending on the holding period of the
underlying security and whether the sum of the option price received upon the
exercise plus the premium received when the option was written exceeds or is
less than the basis of the underlying security.
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ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Each Fund offers two classes of shares, known as Primary Shares and
Navigator Shares. Primary Shares are available from Legg Mason and certain of
its affiliates. 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.
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 through the Future First
Systematic Investment Plan. Under this plan you may arrange for automatic
monthly investments in Primary Shares of $50 or more by authorizing Boston
Financial Data Services ("BFDS"), each 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 the investor, on a pre-authorized
basis, to have $50 or more automatically transferred monthly for investment in
shares of a Fund to:
Legg Mason Wood Walker, Incorporated
Funds Processing
P.O. Box 1476
Baltimore, Maryland 21203-1476
If the investor's check is not honored by the institution it is drawn
on, the investor may be subject to extra charges in order to cover collection
costs. These charges may be deducted from the investor's shareholder account.
Systematic Withdrawal Plan
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"),
SelfEmployed 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.
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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
("Exchange") (normally 4:00 p.m., eastern time) ("close of the Exchange") on the
first day of each month. If the Exchange is not open for business on that day,
the shares will be redeemed at the per share net asset value determined as of
the close of regular trading of the Exchange on the preceding business day. The
check for the withdrawal payment will usually be mailed to you on the next
business day following redemption. If you elect to participate in the Systematic
Withdrawal Plan, dividends and other distributions on all Primary Shares in your
account must be automatically reinvested in Primary Shares. You may terminate
the Systematic Withdrawal Plan at any time without charge or penalty. Each Fund,
its transfer agent, and Legg Mason 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 in
which you have an account if you maintain a Systematic Withdrawal Plan, because
you may incur tax liabilities in connection with such purchases and withdrawals.
Each Fund will not knowingly accept purchase orders from you for additional
shares if you maintain a Systematic Withdrawal Plan unless your purchase is
equal to at least one year's scheduled withdrawals. In addition, if you maintain
a Systematic Withdrawal Plan you may not make periodic investments under the
Future First Systematic Investment Plan.
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, by a Fund or its
distributor except (i) for any period during which the Exchange is closed (other
than for customary weekend and holiday closings), (ii) when trading in markets
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 each Fund's shareholders. In the case of any such suspension, you may either
withdraw your request for redemption or receive payment based upon the net asset
value next determined after the suspension is lifted.
Each Fund reserves the right, under certain conditions, to honor any
request or combination of requests for redemption from the same shareholder in
any 90-day period, totaling $250,000 or 1% of the net assets of the Fund,
whichever is less, by making payment in whole or in part by securities valued in
the same way as they would be valued for purposes of computing 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. Each Fund does not redeem "in kind" under normal circumstances,
but would do so where the adviser determines that it would be in the best
interests of the shareholders as a whole.
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VALUATION OF FUND SHARES
Net asset value of a Fund share is determined daily for each Class as
of the close of the Exchange, on every day the Exchange is open, by dividing the
value of the total assets attributable to that Class, less liabilities
attributable to that Class, by the number of shares of that Class outstanding.
Pricing will not be done on days when the Exchange is closed. The Exchange
currently observes the following holidays: New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving, and Christmas.
As described in the Prospectuses, securities for which market quotations are
readily available are valued at current market value. Securities traded on an
exchange or NASD National Market System 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, except commercial paper, are valued at cost. Commercial
paper is valued at amortized cost. Securities and other assets quoted in foreign
currencies will be valued in U.S. dollars based on the currency exchange rates
prevailing at the time of the valuation. All other securities are valued at fair
value as determined by or under the direction of the appropriate Fund's Board of
Directors. Premiums received on the sale of call options are included in the net
asset value of each Class, and the current market value of options sold by a
Fund will be subtracted from net assets of each Class.
PERFORMANCE INFORMATION
The following tables show the value, as of the end of each fiscal year,
of a hypothetical investment of $10,000 made in each Fund at commencement of
operations of each class of Fund shares. The tables assume that all dividends
and other distributions are reinvested in each respective Fund. They include the
effect of all charges and fees applicable to the respective class of shares the
Fund has paid. (There are no fees for investing or reinvesting in the Funds, and
there are no redemption fees.) They do not include the effect of any income tax
that an investor would have to pay on distributions.
Value Trust:
Primary Shares
<TABLE>
<CAPTION>
Value of Original Shares
Plus Shares Obtained Value of Shares
Through Reinvestment Acquired Through
of Capital Gain Reinvestment of Income
Fiscal Year Distributions Dividends Total Value
- -------------------------- --------------------------------- --------------------------------- --------------------------
<S> <C>
1983* $16,160 $ 241 $16,401
1984 18,870 555 19,425
1985 23,583 1,100 24,683
1986 32,556 1,954 34,510
1987 35,503 2,421 37,924
1988 32,268 2,461 34,729
1989 37,650 3,459 41,109
1990 39,891 4,399 44,290
1991 37,701 5,313 43,014
1992 44,210 7,204 51,414
1993 50,184 8,819 59,003
1994 52,789 9,548 62,337
1995 57,817 10,610 68,427
1996 82,356 14,870 97,226
</TABLE>
* April 16, 1982 (commencement of operations) to March 31, 1983.
25
<PAGE>
Navigator Shares
<TABLE>
<CAPTION>
Value of Original Shares
Plus Shares Obtained Value of Shares
Through Reinvestment Acquired Through
of Capital Gain Reinvestment of Income
Fiscal Year Distributions Dividends Total Value
- -------------------------- --------------------------------- --------------------------------- --------------------------
<S> <C>
1995* $10,805 $ 6 $10,811
1996 15,249 268 15,517
</TABLE>
* December 1, 1994 (commencement of operations) to March 31, 1995.
With respect to Primary Shares, if the investor had not reinvested
dividends and other distributions, the total value of the hypothetical
investment as of March 31, 1996 would have been $53,980, and the investor would
have received a total of $16,644 in distributions. With respect to Navigator
Shares, if the investor had not reinvested dividends and other distributions,
the total value of the hypothetical investment as of March 31, 1996 would have
been $14,435, and the investor would have received a total of $881 in
distributions. If the Adviser had not waived or reimbursed certain Fund expenses
in the 1983-1996 fiscal years, returns would have been lower.
Total Return Trust:
Primary Shares
<TABLE>
<CAPTION>
Value of Original Shares
Plus Shares Obtained Value of Shares
Through Reinvestment Acquired Through
of Capital Gain Reinvestment of Income
Fiscal Year Distributions Dividends Total Value
- -------------------------- --------------------------------- --------------------------------- --------------------------
<S> <C>
1986* $10,780 - $10,780
1987 11,673 $ 211 11,884
1988 10,295 380 10,675
1989 11,690 603 12,293
1990 11,875 846 12,721
1991 11,499 1,216 12,715
1992 13,885 1,830 15,715
1993 16,234 2,605 18,839
1994 16,637 3,064 19,701
1995 16,593 3,482 20,075
1996 21,342 5,194 26,536
</TABLE>
* November 21, 1985 (commencement of operations) to March 31, 1986.
26
<PAGE>
Navigator Shares
<TABLE>
<CAPTION>
Value of Original Shares
Plus Shares Obtained Value of Shares
Through Reinvestment Acquired Through
of Capital Gain Reinvestment of Income
Fiscal Year Distributions Dividends Total Value
- -------------------------- --------------------------------- --------------------------------- --------------------------
<S> <C>
1995* $10,203 $160 $10,363
1996 13,106 668 13,774
</TABLE>
* December 1, 1994 (commencement of operations) to March 31, 1995.
With respect to Primary Shares, if the investor had not reinvested
dividends and other distributions, the total value of the hypothetical
investment as of March 31, 1996 would have been $16,450, and the investor would
have received a total of $5,340 in distributions. With respect to Navigator
Shares, if the investor had not reinvested dividends and other distributions,
the total value of the hypothetical investment as of March 31, 1996 would have
been $12,926, and the investor would have received a total of $689 in
distributions. If the Adviser had not waived or reimbursed certain Fund expenses
in the 1986-1995 fiscal years, returns would have been lower.
Special Investment Trust:
Primary Shares
<TABLE>
<CAPTION>
Value of Original Shares
Plus Shares Obtained Value of Shares
Through Reinvestment Acquired Through
of Capital Gain Reinvestment of Income
Fiscal Year Distributions Dividends Total Value
- -------------------------- --------------------------------- --------------------------------- --------------------------
<S> <C>
1986* $11,530 - $11,530
1987 13,051 $ 23 13,074
1988 11,107 113 11,220
1989 12,982 144 13,126
1990 14,890 253 15,143
1991 17,777 615 18,392
1992 21,249 905 22,154
1993 23,528 953 24,481
1994 28,511 1,197 29,708
1995 26,707 1,108 27,815
1996 34,291 1,442 35,733
</TABLE>
* December 30, 1985 (commencement of operations) to March 31, 1986.
27
<PAGE>
Navigator Shares
<TABLE>
<CAPTION>
Value of Original Shares
Plus Shares Obtained Value of Shares
Through Reinvestment Acquired Through
of Capital Gain Reinvestment of Income
Fiscal Year Distributions Dividends Total Value
- -------------------------- --------------------------------- --------------------------------- --------------------------
<S> <C>
1995* $10,481 - $10,481
1996 13,489 $121 13,610
</TABLE>
* December 1, 1994 (commencement of operations) to March 31, 1995.
With respect to Primary Shares, if the investor had not reinvested
dividends and other distributions, the total value of the hypothetical
investment as of March 31, 1996 would have been $25,090, and the investor would
have received a total of $5,080 in distributions. With respect to Navigator
Shares, if the investor had not reinvested dividends and other distributions,
the total value of the hypothetical investment as of March 31, 1996 would have
been $13,218, and the investor would have received a total of $338 in
distributions. If the Adviser had not waived or reimbursed certain Fund expenses
in the 1986-1996 fiscal years, returns would have been lower.
American Leading Companies:
Primary Shares
<TABLE>
<CAPTION>
Value of Original Shares
Plus Shares Obtained Value of Shares
Through Reinvestment Acquired Through
of Capital Gain Reinvestment of Income
Fiscal Year Distributions Dividends Total Value
- -------------------------- --------------------------------- --------------------------------- --------------------------
<S> <C>
1994* $9,690 $ 24 $ 9,714
1995 10,180 140 10,320
1996 12,230 283 12,513
</TABLE>
* September 1, 1993 (commencement of operations) to March 31, 1994.
28
<PAGE>
If the investor had not reinvested dividends and other distributions,
the total value of the hypothetical investment as of March 31, 1996 would have
been $12,230, and the investor would have received a total of $235 in
distributions. If the Adviser had not waived or reimbursed certain Fund expenses
in the 1994 - 1996 fiscal years, returns would have been lower.
The table above is based only on Primary Shares of American Leading
Companies. As of the date of this Statement of Additional Information, Navigator
Shares of American Leading Companies have no performance history of their own.
Total Return Calculations
Average annual total return quotes used in each Fund's advertising and
other promotional materials ("Performance Advertisements") are calculated
separately for each Class according to the following formula:
n
P(1+T) = ERV
where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a
hypothetical $1,000 payment made at
the beginning of that period
Under the foregoing formula, the time periods used in Performance
Advertisements will be based on rolling calendar quarters, updated at least to
the last day of the most recent quarter prior to submission of the Performance
Advertisements for publication. Total return, or "T" in the formula above, is
computed by finding the average annual change in the value of an initial $1,000
investment over the period. In calculating the ending redeemable value, all
dividends and other distributions by a Fund are assumed to have been reinvested
at net asset value on the reinvestment dates during the period.
From time to time each 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 Funds invest in many securities that are not
included in the S&P 500.
Each Fund may also cite rankings and ratings, and compare the return of
a Class with data published by Lipper Analytical Services, Inc. ("Lipper"), CDA
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. Each Fund may also refer in
such materials to mutual fund performance rankings, ratings, comparisons with
funds having similar investment objectives, 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.
29
<PAGE>
Each 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 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
fact that the portfolio manager engages in value investing. With value
investing, the Adviser invests in those securities it believes to be undervalued
in relation to the long-term earning power or asset value of their issuers.
Securities may be undervalued because of many factors, including market decline,
poor economic conditions, tax-loss selling, or actual or anticipated unfavorable
developments affecting the issuer of the security. 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, each 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. Each Fund may use other recognized
sources as they become available.
Each 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.
Each 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.
Each Fund may also include in advertising biographical information on
key investment and managerial personnel.
Each 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.
30
<PAGE>
Each 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 $35.8 billion as of June 30,
1996.
In advertising, each 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.
Lipper Analytical Services, Inc., an independent rating service which
measures the performance of most U.S. mutual funds, reported that Value Trust's
total return ranked 349 among 1926 general equity funds it measured during the
one year ended June 30, 1996. For the five years ended June 30, 1996, Value
Trust's total return ranked 118 among 736 general equity funds and for the ten
years ended June 30, 1996, Value Trust's total return ranked 275 among 420
general equity funds. Of course, there can be no assurance that results similar
to those achieved by Value Trust in the past will be realized in future periods.
From time to time, performance rankings and ratings as reported in national
financial publications such as Money Magazine, Forbes and Barron's may be used
in describing Value Trust's performance.
TAX-DEFERRED RETIREMENT PLANS - PRIMARY SHARES
In general, income earned through the investment of assets of qualified
retirement plans is not taxed to the beneficiaries of such plans until the
income is distributed to them. Primary Share investors who are considering
establishing an IRA, Keogh Plan, SEP or other qualified retirement 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 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
31
<PAGE>
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 their own
choice to provide these services at their 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.
Simplified Employee Pension Plan -- SEP
Legg Mason makes available to corporate and other employers a SEP for
investment in Primary 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 at the
rate of 10% (depending on the type and amount of the distribution), unless the
recipient elects not to have any withholding apply.
THE FUNDS' DIRECTORS AND OFFICERS
Each Fund's officers are responsible for the operation of the Fund
under the direction of the Board of Directors. The officers and directors of the
Funds and their principal occupations during the past five years are set forth
below. An asterisk (*) indicates officers and/or directors who are "interested
persons" of the Funds 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.
RAYMOND A. MASON* [59], Chairman of the Board and Director of Value
Trust, Total Return Trust and Special Investment Trust; Chairman of the Board
and President of Legg Mason, Inc. (financial services holding company); Director
of Environmental Elements Corporation (manufacturer of pollution control
equipment); Officer and/or Director of various other affiliates of Legg Mason.
32
<PAGE>
JOHN F. CURLEY, JR.* [57], President and Director of Value Trust, Total
Return Trust and Special Investment Trust; Chairman of the Board and Director of
the Trust; Vice Chairman and Director of Legg Mason, Inc. and Legg Mason Wood
Walker, Incorporated; 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.; 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 of one Legg
Mason fund.
RICHARD G. GILMORE [69], Director of each Fund; 948 Kennett Way, West
Chester, Pennsylvania. Independent Consultant. Director of CSS Industries, Inc.
(diversified holding company whose subsidiaries are engaged in the manufacture
and sale of decorative paper products, business forms, and specialty metal
packaging); Director of PECO Energy Company (formerly Philadelphia Electric
Company); Director of four other Legg Mason funds; and Trustee of two Legg Mason
funds. Formerly: Senior Vice President and Chief Financial Officer of
Philadelphia Electric Company (now PECO Energy Company); Executive Vice
President and Treasurer, Girard Bank, and Vice President of its parent holding
company, the Girard Company; and Director of Finance, City of Philadelphia.
CHARLES F. HAUGH [71], Director of each Fund; 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 four other Legg Mason funds; and Trustee of two Legg Mason funds.
ARNOLD L. LEHMAN [53], Director of each Fund; The Baltimore Museum of
Art, Art Museum Drive, Baltimore, Maryland. Director of the Baltimore Museum of
Art; Director of four other Legg Mason funds; Trustee of two Legg Mason funds.
JILL E. McGOVERN [52], Director of each Fund; 1500 Wilson Boulevard,
Arlington, Virginia. Chief Executive Officer of the Marrow Foundation. Director
of four other 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 [62], Director of each Fund; 2901 Boston Street,
Baltimore, Maryland. Principal, T. A. Rodgers & Associates (management
consulting); Director of four other Legg Mason funds; Trustee of two Legg Mason
funds. Formerly: Director and Vice President of Corporate Development, Polk
Audio, Inc. (manufacturer of audio components).
EDWARD A. TABER, III* [53], Director of each Fund; President of the
Trust; Executive Vice President of Legg Mason, Inc. and Legg Mason Wood Walker,
Inc.; Vice Chairman and Director of Legg Mason Fund Adviser, Inc.; President and
Director of two Legg Mason funds; Trustee of two Legg Mason funds; 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 Funds, other than those who also serve as
directors, are:
33
<PAGE>
MARIE K. KARPINSKI* [47], Vice President and Treasurer of each Fund;
Treasurer of the Adviser; Vice President and Treasurer of six other Legg Mason
funds; and Secretary/Treasurer of Worldwide Value Fund, Inc.; Vice President of
Legg Mason.
KATHI D. BAIR* [31], Secretary / Assistant Treasurer / Assistant
Secretary; Secretary/Assistant Treasurer/Assistant Secretary of four other Legg
Mason funds.
STEFANIE L. WONG* [28], Secretary of the Trust; Secretary of one Legg
Mason fund; employee of Legg Mason since 1990.
BLANCHE P. ROCHE* [48], Assistant Secretary and Assistant Vice
President of each Fund; Assistant Secretary and Assistant Vice President of five
other Legg Mason funds; employee of Legg Mason since 1991. Formerly: Manager of
Consumer Financial Services, Primerica Corporation (1989-1991).
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.
Officers and directors of a Fund who are "interested persons" of the
Fund receive no salary or fees from the Fund. Each Director of a Fund who is not
an interested person of the Fund ("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 April 30, 1996, the directors and officers of each Fund beneficially
owned in the aggregate less than 1% of that Fund's outstanding shares.
On April 30, 1996, the Legg Mason Profit Sharing Plan and Trust, 7 East
Redwood Street, Baltimore, MD 21202 owned of record and beneficially the
following percentages of the outstanding shares of the Navigator Classes:
Navigator Class of Value Trust 99.71%
Navigator Class of Total Return Trust 98.44%
Navigator Class of Special Investment Trust 99.83%
The following table provides certain information relating to the
compensation of the Funds' directors for the fiscal year ended March 31, 1996.
34
<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
Total
Aggregate Compensation
Aggregate Compensation From Each
Aggregate Aggregate Compensation From Fund and
Name of Compensation Compensation From Special American Fund Complex
Person and From Value From Total Investment Leading Paid to
Position Trust* Return Trust* Trust* Companies* Directors**
<S> <C>
Raymond A.
Mason -
Chairman of
the Board
and Director None None None None None
John F.
Curley, Jr. -
President and
Director None None None None None
Edward A.
Taber, III -
Director None None None None None
Richard G.
Gilmore - $3,600 $2,000 $2,000 $2,000 $21,600
Director
Charles F.
Haugh - $3,600 $2,000 $2,000 $2,000 $23,600
Director
Arnold L.
Lehman - $3,600 $2,000 $2,000 $2,000 $23,600
Director
Jill E.
McGovern - $3,600 $2,000 $2,000 $2,000 $23,600
Director
T. A. Rodgers-
Director $3,600 $2,000 $2,000 $2,000 $21,600
================== =================== =================== ================== ================== ===================
* Represents fees paid to each director during the fiscal year ended March
31, 1996.
** Represents aggregate compensation paid to each director during the
calendar year ended December 31, 1995.
THE FUNDS' INVESTMENT ADVISER/MANAGER
The Adviser, a Maryland Corporation, is located at 111 South Calvert
Street, Baltimore, Maryland 21202. The Adviser is a wholly owned subsidiary of
Legg Mason, Inc., which is also the parent of Legg Mason. The Adviser serves as
investment adviser to Value Trust, Total Return Trust and Special Investment
Trust and as manager to American Leading Companies and Balanced Trust
35
<PAGE>
under separate Investment Advisory and Management Agreements with each Fund
("Advisory Agreement" with respect to Value Trust, Total Return Trust and
Special Investment Trust and "Management Agreement" with respect to American
Leading Companies and Balanced Trust). The Advisory Agreement for Value Trust
originally became effective as of April 19, 1982 and was most recently approved
by the shareholders of Value Trust on July 20, 1984. The Advisory Agreement for
Total Return Trust originally became effective as of August 5, 1985 and was most
recently approved by the shareholders of Total Return Trust on July 17, 1986.
The Advisory Agreement for Special Investment Trust originally became effective
as of December 10, 1985 and was most recently approved by the shareholders of
Special Investment Trust on July 17, 1986. The Management Agreement for American
Leading Companies originally became effective as of August 2, 1993. The
Management Agreement for Balanced Trust will become effective on July 31, 1996.
The Advisory Agreement (for Value Trust, Total Return Trust and Special
Investment Trust) and the Management Agreement (for American Leading Companies)
were most recently approved by each Fund's Board of Directors, including a
majority of the directors who are not "interested persons" of the Fund or the
Adviser/Manager, on October 27, 1995.
Each Advisory Agreement and Management Agreement provides that, subject
to overall direction by the Fund's Board of Directors, the Adviser/Manager
manages the investment and other affairs of each Fund. The Adviser/Manager is
responsible for managing each Fund consistent with the Fund's investment
objective and policies described in its Prospectuses and this Statement of
Additional Information. The Adviser/Manager also is obligated to (a) furnish the
Fund with office space and executive and other personnel necessary for the
operation of each Fund; (b) supervise all aspects of each Fund's operations; (c)
bear the expense of certain informational and purchase and redemption services
to each Fund's shareholders; (d) arrange, but not pay for, the periodic updating
of prospectuses, proxy material, tax returns and reports to shareholders and
state and federal regulatory agencies; and (e) report regularly to each Fund's
officers and directors. In addition, the Adviser paid Value Trust's, Total
Return Trust' s and Special Investment Trust's organizational expenses and has
agreed to reimburse Value Trust and Special Investment Trust for auditing fees
and compensation of those Funds' independent directors. The Adviser/Manager and
its affiliates pay all compensation of directors and officers of each Fund who
are officers, directors or employees of the Adviser. Each Fund pays all of its
expenses which are not expressly assumed by the Adviser/Manager. These expenses
include, among others, interest expense, taxes, brokerage fees and commissions,
expenses of preparing and printing prospectuses, proxy statements and reports to
shareholders and of distributing them to existing shareholders, custodian
charges, transfer agency fees, distribution fees to Legg Mason, each Fund's
distributor, compensation of the independent directors, legal and audit
expenses, insurance expense, shareholder meetings, proxy solicitations, expenses
of registering and qualifying Fund shares for sale under federal and state law,
governmental fees and expenses incurred in connection with membership in
investment company organizations. Each Fund also is liable for such nonrecurring
expenses as may arise, including litigation to which the Fund may be a party.
Each Fund may also have an obligation to indemnify its directors and officers
with respect to litigation.
The Adviser/Manager receives for its services to each Fund a management
fee, calculated daily and payable monthly. The Adviser receives from Value Trust
a management fee at an annual rate of 1% of the average daily net assets of that
Fund for the first $100 million of average daily net assets, 0.75% of average
daily net assets between $100 million and $1 billion, and 0.65% of average daily
net assets exceeding $1 billion. The Adviser receives from Total Return Trust a
management
36
<PAGE>
fee at an annual rate of 0.75% of the average daily net assets of that Fund. The
Adviser receives from Special Investment Trust a management fee at an annual
rate of 1% of the average daily net assets of that Fund for the first $100
million of average daily net assets and 0.75% of average daily net assets
exceeding $100 million. The Manager receives from American Leading Companies and
Balanced Trust management fees at an annual rate of 0.75% of the average daily
net assets of each Fund. The Manager has agreed to waive its fees and to
reimburse American Leading Companies and Balanced Trust for expenses related to
Primary Shares (exclusive of taxes, interest, brokerage and extraordinary
expenses) as follows: for American Leading Companies, 1.95% of average net
assets indefinitely; and for Balanced Trust, 1.85% of average net assets until
March 31, 1997. The Manager has agreed to waive its fees and to reimburse
American Leading Companies and Balanced Trust for expenses related to Navigator
Shares (exclusive of taxes, interest, brokerage and extraordinary expenses) as
follows: for American Leading Companies, 0.95% of average net assets
indefinitely; and for Balanced Trust, 1.10% of average net assets until March
31, 1997.
The management fee for each Fund is higher than fees paid by most other
funds to their investment advisers. The advisory fee of each Fund may be reduced
under regulations of various states where Fund shares are qualified for sale
which impose limitations on the annual expense ratio of each Fund. The most
restrictive annual expense limitation currently requires that the Adviser
reimburse each Fund for certain expenses, including the advisory fees received
by it (but, excluding interest, taxes, brokerage fees and commissions,
distribution fees, certain other expenses and extraordinary charges) in any
fiscal year in which a Fund's expenses exceed 2.5% of the first $30 million of
that Fund's average net assets, 2.0% of the next $70 million of average net
assets, and 1.5% of average net assets in excess of $100 million. During the
fiscal years ended March 31, 1996, 1995 and 1994, management fees of $9,588,819,
$7,519,155 and $6,847,679, respectively were received from Value Trust;
$1,768,271, $1,502,358 and $1,219,883, respectively were received from Total
Return Trust; and $5,696,555, $4,849,166 and $3,581,718, respectively were
received from Special Investment Trust. For the period September 1, 1993
(commencement of operations) to March 31, 1994, the Manager received management
fees of $188,619 (prior to fees waived of $82,244). For the fiscal years ended
March 31, 1995 and 1996, the Manager received management fees of $431,577 (prior
to fees waived of $94,444) and $515,120 (prior to fees waived of $170,819),
respectively.
Under each Advisory Agreement or (with respect to American Leading
Companies) Management Agreement, each Fund has the non-exclusive right to use
the name "Legg Mason" until that Agreement is terminated, or until the right is
withdrawn in writing by the Adviser/Manager.
LMCM, 111 South Calvert Street, Baltimore, MD 21202, an affiliate of
Legg Mason, serves as investment adviser to American Leading Companies pursuant
to an Investment Advisory Agreement dated August 2, 1993, between LMCM 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 27, 1995. 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, LMCM 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
LMCM's services to the Fund, the Manager (not the Fund) pays LMCM a fee,
37
<PAGE>
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 LMCM
on behalf of the Fund. For the fiscal years ended March 31, 1995 and 1996, the
Manager paid $134,853 and $137,720, respectively to LMCM on behalf of the Fund.
Bartlett, 36 East Fourth Street, Cincinnati, Ohio 45202, an affiliate
of Legg Mason, serves as investment adviser to Balanced Trust pursuant to an
Investment Advisory Agreement dated July 31, 1996, between Bartlett and the
Manager ("Advisory Agreement"). The Advisory Agreement was 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, Bartlett or the
Manager, on May 10, 1996. The Advisory Agreement was approved by Legg Mason Fund
Adviser, Inc., as the Fund's sole shareholder, on July 31, 1996.
Under the Advisory Agreement, Bartlett 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
Bartlett's services to the Fund, the Manager (not the Fund) pays Bartlett a fee,
computed daily and payable monthly, at an annual rate equal to 662/3% of the fee
received by the Manager from the Fund.
Under each Advisory Agreement and (with respect to American Leading
Companies and Balanced Trust) Management Agreement, the Adviser/Manager/
LMCM/Bartlett will not be liable for any error of judgment or mistake of law or
for any loss by a Fund in connection with the performance of the Advisory
Agreement or 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 of its
obligations or duties under the respective Agreement.
Each Advisory Agreement or (with respect to American Leading Companies
and Balanced Trust) Management Agreement terminates automatically upon
assignment and is terminable at any time without penalty by vote of each Fund's
Board of Directors, by vote of a majority of the Fund's outstanding voting
securities, or by the Adviser/Manager/LMCM/Bartlett, 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 all parties to the Agreement.
To mitigate the possibility that a Fund will be affected by personal
trading of employees, each Corporation and the Adviser/Manager have adopted
policies that restrict securities trading in the personal accounts of portfolio
managers and others who normally come into advance possession of information on
portfolio transactions. These policies comply, in all material respects, with
the recommendations of the Investment Company Institute.
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 fiscal years ended March 31, 1996 and 1995,
38
<PAGE>
the portfolio turnover rates for Value Trust were 19.6% and 20.1%, respectively;
the portfolio turnover rates for Total Return Trust were 34.7% and 61.9%,
respectively; the portfolio turnover rates for Special Investment Trust were
35.6% and 27.5%, respectively; and the portfolio turnover rates for American
Leading Companies were 43.4% and 30.5%, respectively.
Under the Advisory Agreement with each Fund, each fund's 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 to brokers
who provide research and analysis. Each Fund may not always pay the lowest
commission or spread available. Rather, in placing orders for a Fund each fund's
adviser also takes into account such factors as size of the order, difficulty of
execution, efficiency of the executing broker's facilities (including the
services described below), and any risk assumed by the executing broker.
Consistent with the policy of most favorable price and execution, each
fund's adviser may give consideration to research, statistical and other
services furnished by brokers or dealers to each fund's 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 these 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 each fund's adviser in connection
with services to clients other than the Fund whose brokerage generated the
service. The Adviser's/LMCM's/Bartlett's fee is not reduced by reason of its
receiving such brokerage and research services.
From time to time each Fund may use Legg Mason as broker for agency
transactions in listed and over-the-counter securities at commission rates and
under circumstances consistent with the policy of best execution. Commissions
paid to Legg Mason will not exceed "usual and customary brokerage commissions."
Rule 17e-1 under the 1940 Act defines "usual and customary" commissions to
include amounts which are "reasonable and fair compared to the commission, fee
or other remuneration received by other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time." In the over-the-counter
market, each Fund generally deals with responsible primary market-makers unless
a more favorable execution can otherwise be obtained. For the fiscal years ended
March 31, 1996, 1995 and 1994, Legg Mason received no brokerage commissions from
Value Trust, no brokerage commissions from Total Return Trust, and $16,563, $0
and $2,000, respectively, from Special Investment Trust. Value Trust paid total
brokerage commissions of $347,670, $397,268 and $518,233, respectively; Total
Return Trust paid total brokerage commissions of $235,364, $360,860 and
$349,967, respectively; and Special Investment Trust paid total brokerage
commissions of $698,545, $883,607 and $410,115, respectively, during the fiscal
years ended March 31, 1996, 1995 and 1994. For the period September 1, 1993
(commencement of operations) to March 31, 1994 and the fiscal years ended March
31, 1995 and 1996, American Leading Companies paid total brokerage commissions
of $75,165, $61,067 and $92,653, respectively. Legg Mason received no brokerage
commissions from American Leading Companies for the same periods.
39
<PAGE>
Except as permitted by SEC rules or orders, each Fund may not buy
securities from, or sell securities to, Legg Mason or its affiliated persons as
principal. Each Fund'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
each 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) a Fund together with all other registered
investment companies advised by each fund's 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 a
Fund in purchasing the securities being offered may not exceed 3% of the total
assets of that Fund. In addition, a Fund may not purchase securities during the
existence of an underwriting if Legg Mason is the sole underwriter for those
securities.
Section 11(a) of the Securities Exchange Act of 1934 prohibits Legg
Mason from executing transactions on an exchange for its affiliates, such as the
Funds, unless the affiliate expressly consents by written contract. The Advisory
Agreement expressly provides such consent.
Among the brokers regularly used by each Fund during the fiscal year
ended March 31, 1996, Value Trust at that date owned shares of the following
parent companies: 1,500,000 shares of The Bear Stearns Companies, Inc. at a
market value of $37,125,000; Total Return Trust at that date owned shares of the
following parent companies: 369,000 shares of The Bear Stearns Companies, Inc.
at a market value of $9,131,000; Special Investment Trust at that date owned
shares of the following parent companies: 500,000 shares of The Bear Stearns
Companies, Inc. at a market value of $12,375,000 and 294,000 shares of Piper
Jaffray Incorporated at a market value of $4,040,000; and American Leading
Companies at that date owned shares of the following parent companies: 20,000
shares of J.P. Morgan & Co. Incorporated at a market value of $1,660,000.
Investment decisions for each Fund are made independently from those of
other funds and accounts advised by the Adviser, LMCM or Bartlett. 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 FUNDS' DISTRIBUTOR
Legg Mason acts as distributor of the Funds' shares pursuant to a
separate Underwriting Agreement with each Fund. 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.
40
<PAGE>
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.
Each 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 Plans, the aggregate
fees may not exceed an annual rate of 1.00% of Total Return Trust's, Special
Investment Trust's, American Leading Companies' or Balanced Trust's average
daily net assets attributable to Primary Shares or 0.95% of Value Trust'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. The Plan was most recently approved by the shareholders of Value Trust on
July 20, 1984 and on July 17, 1986 for both the Total Return Trust and Special
Investment Trust. The Plan was approved by Legg Mason Fund Adviser, Inc., as
sole shareholder of American Leading Companies, on August 2, 1993. The Plan has
been amended, effective July 1, 1993, to make clear that, of the aggregate 1.00%
fees with respect to Total Return Trust, Special Investment Trust, American
Leading Companies and Balanced Trust, 0.50% is paid for distribution services
and 0.25% is paid for ongoing services to shareholders; and with respect to
Value Trust, 0.70% is paid for distribution services and 0.25% is paid for
ongoing services to shareholders. The amendments also specify that each 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. Continuation of the Plans was most recently approved on October 27,
1995 by the Board of Directors of each respective Fund including a majority of
the directors who are not "interested persons" of each Fund as that term is
defined in the 1940 Act and who have no direct or indirect financial interest in
the operation of the Plan or the Underwriting Agreement ("12b-1 Directors").
In approving the continuation of the Plan, in accordance with the
requirements of Rule 12b- 1, the directors determined that there was a
reasonable likelihood that each Plan would benefit the respective 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 each Fund's Primary Shares would be likely to
maintain or increase the amount of compensation paid by that Fund to the
Adviser/Manager.
In considering the costs of the Plans, the directors gave particular
attention to the fact that any payments made by a 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 Adviser/Manager would earn greater
management fees if a Fund's assets were increased, because such fees are
calculated as a percentage of a Fund's assets and thus would increase if net
assets
41
<PAGE>
increase. The directors further recognized that there can be no assurance that
any of the potential benefits described below would be achieved if the Plans
were implemented.
Among the potential benefits of the Plans, the directors noted that the
payment of commissions and service fees to Legg Mason and its investment
executives could motivate them to improve their sales efforts with respect to
each Fund's Primary Shares and to maintain and enhance the level of services
they provide to each Fund's Primary Class shareholders. These efforts, in turn,
could lead to increased sales and reduced redemptions, eventually enabling each
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 each Fund in connection with its Plan.
Furthermore, the investment management of each 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.
Each 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. Each Plan may be terminated by a vote of a
majority of the 12b-1 Directors or by a vote of a majority of the outstanding
voting Primary Shares. Any change in a Plan that would materially increase the
distribution cost to a Fund requires shareholder approval; otherwise the Plan
may be amended by the directors, including a majority of the 12b-1 Directors, as
previously described.
In accordance with Rule 12b-1, each Plan provides that Legg Mason will
submit to the Fund'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 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, 1996, 1995 and 1994, Value Trust
paid Legg Mason $11,760,195, $8,917,520 and $7,351,819, respectively in
distribution and service fees under the Plan, from assets attributable to
Primary Shares. For the same fiscal years, Total Return Trust paid Legg Mason
$2,297,095, $1,964,257 and $1,601,941, respectively; Special Investment Trust
paid Legg Mason $6,955,948, $5,917,557 and $4,294,605, respectively; and
American Leading Companies paid Legg Mason $686,826, $575,436 and $251,492,
respectively, in fees under the Plan.
During the year ended March 31, 1996, Legg Mason incurred the following
expenses with respect to Primary Shares:
</TABLE>
<TABLE>
<CAPTION>
Special American
Total Return Investment Leading
Value Trust Trust Trust Companies
------------------- ------------------ ------------------- -------------------
<S> <C>
Compensation to sales
personnel $ 7,905,000 $1,548,000 $4,488,000 $469,000
Advertising 78,000 23,000 34,000 17,000
Printing and mailing of
prospectuses to prospective
shareholders 138,000 80,000 134,000 66,000
Other 2,406,000 825,000 2,469,000 305,000
------------------- ------------------ ------------------- -------------------
Total expenses $10,527,000 $2,476,000 $7,125,000 $857,000
=================== ================== =================== ===================
</TABLE>
42
<PAGE>
The foregoing are estimated and do not include all expenses fairly
allocable to Legg Mason's or its affiliates' efforts to distribute Primary
Shares.
THE FUNDS' CUSTODIAN AND TRANSFER AND DIVIDEND-DISBURSING AGENT
State Street Bank and Trust Company, P.O. Box 1713, Boston,
Massachusetts 02105, serves as custodian of each Fund's assets. Boston Financial
Data Services, P.O. Box 953, Boston, Massachusetts 02103, serves as transfer and
dividend-disbursing agent, and administrator of various shareholder services.
Legg Mason assists BFDS with certain of its duties as transfer agent and
receives compensation from BFDS for its services. Shareholders who request an
historical transcript of their account will be charged a fee based upon the
number of years researched. Each Fund reserves the right, upon 60 days' written
notice, to make other charges to investors to cover administrative costs.
THE FUNDS' LEGAL COUNSEL
Kirkpatrick & Lockhart LLP, 1800 Massachusetts Ave., N.W., Washington,
D.C. 20036, serves as counsel to each Fund.
THE FUNDS' INDEPENDENT ACCOUNTANTS/AUDITORS
Coopers & Lybrand L.L.P., 217 East Redwood Street, Baltimore, Maryland
21202, has been selected by the Directors to serve as independent accountants
for Value Trust, Total Return Trust and Special Investment Trust. Ernst & Young
LLP, One North Charles Street, Baltimore, Maryland 21201, has been selected by
the Directors to serve as independent auditors for American Leading Companies
and Balanced Trust.
FINANCIAL STATEMENTS
The Statement of Net Assets (with respect to Value Trust, Total Return
Trust and American Leading Companies), and the Portfolio of Investments (with
respect to Special Investment Trust) as of March 31, 1996; the Statement of
Assets and Liabilities (with respect to Special Investment Trust) as of March
31, 1996; the Statement of Operations for the year ended March 31, 1996; the
Statement of Changes in Net Assets for the years ended March 31, 1996 and 1995;
the Financial Highlights for all periods; the Notes to Financial Statements and
the Report of the Independent Accountants/Auditors, all of which are included in
the respective Fund's annual report for the year ended March 31, 1996, are
hereby incorporated by reference in this Statement of Additional Information.
43
<PAGE>
Table of Contents
Page
Additional Information About
Investment Limitations and Policies 2
Additional Tax Information 20
Additional Purchase and Redemption
Information 23
Valuation of Fund Shares 25
Performance Information 25
Tax-Deferred Retirement Plans 31
The Funds' Directors and Officers 32
The Funds' Investment Adviser/Manager 35
Portfolio Transactions and Brokerage 38
The Funds' Distributor 40
The Funds' Custodian and Transfer and
Dividend-Disbursing Agent 43
The Funds' Legal Counsel 43
The Funds' Independent Accountants/Auditors 43
Financial Statements 43
No person has been authorized to give any information or to make any
representations not contained in the Prospectuses or this Statement of
Additional Information in connection with the offerings made by the Prospectuses
and, if given or made, such information or representations must not be relied
upon as having been authorized by any Fund or its distributor. The Prospectuses
and the Statement of Additional Information do not constitute offerings by the
Funds or by the distributor in any jurisdiction in which such offerings may not
lawfully be made.
Legg Mason Wood Walker, Incorporated
- --------------------------------------------------------------------------------
111 South Calvert Street
P.O. Box 1476
Baltimore, Maryland 21203-1476
(410)539-0000 (800)822-5544
<PAGE>
Legg Mason Investors Trust, Inc.
Part C. Other Information
Item 24. Financial Statements and Exhibits
(a) Financial Statements: The financial statements of Legg Mason
American Leading Companies Trust for the year ended March 31,
1996 and the report of the independent auditors thereon are
incorporated into the Statement of Additional Information
(Part B) by reference to the Annual Report to Shareholders for
the same period.
The unaudited financial statements of Legg Mason American
Leading Companies Trust for the six month period ending
September 30, 1996 are incorporated into the Statement of
Additional Information by reference to the Report to
Shareholders for the same period.
The unaudited financial statements for the Legg Mason Balanced
Trust for the period October 1, 1996 (commencement of
operations) to December 31, 1996 are included in the Statement
of Additional Information.
The Financial Data Schedules with respect to the Legg Mason
American Leading Companies Trust and the Legg Mason Balanced
Trust are included as Exhibits 27.1 and 27.2.
(b) Exhibits
(1) (a) Articles of Incorporation -- filed herewith
(b) Articles Supplementary -- filed herewith
(c) Articles Supplementary -- filed herewith
(2) By-Laws as amended July 19, 1993 -- filed herewith
(3) Voting trust agreement -- none
(4) Specimen security -- not applicable
(5) (a) Investment Advisory and Management Agreement
-- American Leading Companies Trust -- filed
herewith
(b) Investment Advisory Agreement -- Balanced
Trust -- filed herewith
(c) Advisory Agreement -- American Leading
Companies Trust -- filed herewith
(d) Management Agreement -- Balanced Trust --
filed herewith
(6) (a) Underwriting Agreement -- American Leading
Companies Trust -- filed herewith
(b) Amended Underwriting Agreement -- American
Leading Companies Trust 3/
(c) Underwriting Agreement -- Balanced Trust 3/
(d) Dealer Agreement with respect to Navigator
Shares 3/
(7) Bonus, profit sharing or pension plans -- none
(8) Custodian agreement 2/
-
(9) Transfer Agent Agreement 2/
-
(10) Opinion and consent of counsel
(a) American Leading Companies--filed herewith
(b) Balanced Trust 3/
_
<PAGE>
(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 -- filed
herewith
(14) (a) Prototype Retirement Plan 1/
(b) Prototype corporate Simplified Employee Pension
Plan 1/
(c) Prototype Keogh Plan 1/
(15) (a) Plan pursuant to Rule 12b-1 -- American Leading
Companies Trust -- filed herewith
(b) Amended Plan pursuant to Rule 12b-1 -- American
Leading Companies Trust 3/
(c) Plan pursuant to Rule 12b-1 -- Balanced Trust 3/
(16) Schedule for computation of performance quotations 3/
(17) Financial Data Schedule -- filed herewith
(18) Plan Pursuant to Rule 18f-3 -- none
1/ 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.
2/ Incorporated by reference from the corresponding exhibit of Post-Effective
Amendment No. 4 to the registration statement, SEC File No. 33-62174, filed
May 17, 1996.
3/ Incorporated by reference from the corresponding exhibit of Post-Effective
Amendment No. 5 to the registration statement, SEC File No. 33-62174, filed
July 31, 1996.
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 January 13, 1997)
-------------- ------------------------
Capital Stock
par value $.001
Legg Mason American Leading
Companies Trust -- Primary Shares 7,293
Navigator American Leading Companies
Trust 1
Legg Mason Balanced Trust -- Primary Shares 1,097
Navigator Balanced Trust 0
Item 27. Indemnification
<PAGE>
Article ELEVENTH of the Articles of Incorporation provides that to the
maximum extent permitted by applicable law (including Maryland law and the 1940
Act) the directors and officers of the Registrant shall not be liable to the
Registrant or to any of its stockholders for monetary damages. Article ELEVENTH
also provides that no amendment, alteration or repeal of the contents contained
in the preceding sentence or the adoption, alteration or amendment of any other
provision of the Articles or By-Laws inconsistent with Article ELEVENTH shall
adversely affect any limitation of liability of any director or officer of the
Registrant with respect to any act or failure to act which occurred prior to
such amendment, alteration, repeal or adoption.
Section 11.2 of Article ELEVENTH of the Registrant's Articles of
Incorporation provides that the Registrant shall indemnify its present and past
directors, officers, employees and agents, and persons who are serving or have
served at the Registrant's request in similar capacities for other entities to
the maximum extent permitted by applicable law (including Maryland law and the
Investment Company Act of 1940). Section 2-418(b) of the Maryland Corporations
and Associations Code ("Maryland Code") permits the Registrant to indemnify its
directors unless it is established that the act or omission of the director was
material to the matter giving rise to the proceeding, and (a) the act or
omission was committed in bad faith or was the result of active and deliberate
dishonesty; (b) the director actually received an improper personal benefit in
money, property or services; or (c) in the case of a criminal proceeding, the
director had reasonable cause to believe the act or omission was unlawful.
Indemnification may be made against judgments, penalties, fines, settlements and
reasonable expenses incurred in connection with a proceeding, in accordance with
the Maryland Code. Pursuant to Section 2-418(j) (2) of the Maryland Code, the
Regsitrant is permitted to indemnify its officers, employees and agents to the
same extent. The provisions set forth above apply insofar as consistent with
Section 17(h) of the 1940 Act, which prohibits indemnification of any director
or officer of the Registrant against any liability of the Registrant or its
shareholders to which such director or officer otherwise would be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office.
Section 10.01 of Article X of the By-Laws sets forth the procedures by
which the Registrant will indemnify its directors, officers, employees and
agents. Section 10.02 of Article X of the By-Laws provides that the Registrant
may purchase and maintain insurance on behalf of the above-mentioned persons to
the extent permitted by law.
Registrant undertakes to carry out all indemnification provisions of
its Articles of Incorporation and By-Laws in accordance with Investment Company
Act Release No. 11330 (September 4, 1980) and successor releases.
Under the Underwriting Agreement, the Fund agrees to indemnify, defend,
and hold the Distributor, its several officers and directors, and any person who
controls the Distributor within the meaning of Section 15 of the 1933 Act, free
and harmless from and against any and all claims, demands, liabilities and
expenses (including the cost of investigating or defending such claims, demands
or liabilities and any counsel fees incurred in connection therewith) which the
Distributor, its officers or directors, or any such controlling person may
incur, under the 1933 Act or under common law or otherwise, arising out of or
based upon any alleged untrue statement of a material fact contained in the
Registration Statement or arising out of or based upon any alleged omission to
state a material fact required to be stated or necessary to make the
Registration Statement not misleading, provided that in no event shall anything
contained in the
<PAGE>
Underwriting Agreement be construed so as to protect the Distributor
against any liability to the Corporation or its shareholders to which the
Distributor would otherwise be subject by reason of willful misfeasance, bad
faith, or gross negligence in the performance of its duties, or by reason
or its reckless disregard of its obligations and duties under the Agreement.
The Underwriting Agreement further provides that the Registrant shall
not indemnify the Distributor for any claims, demands, liabilities and expenses
which the Distributor may incur on account of any wrongful act of the
Distributor or any of its employees or arising out of or based upon any alleged
untrue statement of a material fact contained in information furnished in
writing by the Distributor to the Registrant for use in the Registration
Statement or arising out of or based upon any alleged omission to state a
material fact in connection with such information required to be stated in the
Registration Statement or necessary to make such information not misleading.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be provided to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in connection with the successful defense of any action, suit or proceeding or
payment pursuant to any insurance policy) is asserted against the Registrant by
such director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
prohibited as against public policy as expressed in the Act and will be governed
by the final adjudication of such issue.
Item 28. Business and other Connections of Investment Adviser and Subadviser
I. 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/or investment adviser to sixteen 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 28, 1996 with the Securities and Exchange Commission (Registration
Number 801-16958) and is incorporated herein by reference.
II. Legg Mason Capital Management, Inc. ("LMCM"), adviser to American
Leading Companies, is a registered investment adviser incorporated on October 4,
1982. Information as to the officers and directors of LMCM is included in its
Form ADV filed June 24, 1996 with the Securities and Exchange Commission
(Registration Number 801-18115) and is incorporated herein by reference.
III. Bartlett & Co. ("Bartlett"), adviser to Balanced Trust, is a
registered investment adviser incorporated on January 4, 1988. Information as to
the officers and directors of Bartlett is included in its Form ADV filed
September 17, 1996 with the Securities and Exchange Commission (Registration
Number 801-21) and is incorporated herein by reference.
Item 29. Principal Underwriters
<PAGE>
(a) Legg Mason Value Trust, Inc.
Legg Mason Total Return Trust, Inc.
Legg Mason Special Investment Trust, Inc.
Legg Mason Tax-Exempt Trust, Inc.
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
of the Board Board and Director
James W. Brinkley President and None
Director
Edmund J. Cashman, Jr. Senior Executive None
Vice President and
Director
Richard J. Himelfarb Senior Executive Vice None
President and
Director
Edward A. Taber III Senior Executive Vice President and
President and Director
Director
Robert A. Frank Executive Vice None
President and
Director
Robert G. Sabelhaus Executive Vice None
President and
Director
<PAGE>
Charles A. Bacigalupo Senior Vice None
President,
Secretary and
Director
Thomas M. Daly, Jr. Senior Vice None
President and
Director
Jerome M. Dattel Senior Vice None
President and
Director
Robert G. Donovan Senior Vice None
President and
Director
Thomas E. Hill Senior Vice None
One Mill Place President and
Easton, MD 21601 Director
Arnold S. Hoffman Senior Vice None
1735 Market Street President and
Philadelphia, PA 19103 Director
Carl Hohnbaum Senior Vice None
24th Floor President and
Two Oliver Plaza Director
Pittsburgh, PA 15222
William B. Jones, Jr. Senior Vice None
1747 Pennsylvania President and
Avenue, N.W. Director
Washington, D.C. 20006
Laura L. Lange Senior Vice None
President and
Director
Marvin H. McIntyre Senior Vice None
1747 Pennsylvania President and
Avenue, N.W. Director
Washington, D.C. 20006
Mark I. Preston Senior Vice None
President and
Director
<PAGE>
F. Barry Bilson Senior Vice None
President and
Director
M. Walter D'Alessio, Jr. Director None
1735 Market Street
Philadelphia, PA 19103
Harry M. Ford, Jr. Senior Vice None
President
William F. Haneman, Jr. Senior Vice None
One Battery Park Plaza President
New York, New York 10005
Theodore S. Kaplan Senior Vice None
President and
General Counsel
Horace M. Lowman, Jr. Senior Vice None
President and
Asst. Secretary
Seth J. Lehr Senior Vice None
1735 Market St. President
Philadelphia, PA 19103
Robert L. Meltzer Senior Vice None
One Battery Park Plaza President
New York, NY 10004
John A. Pliakas Senior Vice None
99 Summer Street President
Boston, MA 02101
Gail Reichard Senior Vice None
7 E. Redwood St. President
Baltimore, MD 21202
Timothy C. Scheve Senior Vice None
President and
Treasurer
Elisabeth N. Spector Senior Vice None
President
Joseph Sullivan Senior Vice None
President
Cheryl Allen Vice President None
221 West Sixth St.
Austin, TX 78701
William H. Bass, Jr. Vice President None
Nathan S. Betnun Vice President None
<PAGE>
John C. Boblitz Vice President None
7 E. Redwood St.
Baltimore, MD 21202
Andrew J. Bowden Vice President None
D. Stuart Bowers Vice President None
7 E. Redwood St.
Baltimore, MD 21202
Edwin J. Bradley, Jr. Vice President None
Scott R. Cousino Vice President None
John R. Gilner Vice President None
Terrence R. Duvernay Vice President None
1100 Poydras St.
New Orleans, LA 70163
Richard A. Jacobs Vice President None
C. Gregory Kallmyer Vice President None
Edward W. Lister, Jr. Vice President None
Marie K. Karpinski Vice President Vice President
and Treasurer
Anne S. Morse Vice President None
1735 Market St.
Philadelphia, PA 19103
Hance V. Myers, III Vice President None
1100 Poydras St.
New Orleans, LA 70163
Jonathan M. Pearl Vice President None
1777 Reisterstown Rd.
Pikesville, MD 21208
Douglas F. Pollard Vice President None
Carl W. Riedy, Jr. Vice President None
Robert W. Schnakenberg Vice President None
1111 Bagby St.
Houston, TX 77002
<PAGE>
Henry V. Sciortino Vice President None
1735 Market St.
Philadelphia, PA 19103
Chris Scitti Vice President None
7 E. Redwood St.
Baltimore, MD 21202
Eugene B. Shephard Vice President None
1111 Bagby St.
Houston, TX 77002-2510
Lawrence D. Shubnell Vice President None
Alexsander M. Stewart Vice President None
One World Trade Center
New York, NY 10048
F. James Tennies Vice President, None
Asst. Secretary &
Asst. General Counsel
Robert S. Trio Vice President None
1747 Pennsylvania Ave.
Washington, DC 20006
Lewis T. Yeager Vice President None
7 E. Redwood St.
Baltimore, MD 21202
Joseph F. Zunic Vice President None
* 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
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., certifies that it meets all the requirements for effectiveness of this
Post-Effective Amendment No. 6 to its Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Post-Effective
Amendment No. 6 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 27th day of January, 1997.
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. 6 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 January 27, 1997
- -------------------------- and Director
John F. Curley, Jr.
/s/Edward A. Taber, III President and Director January 27, 1997
- --------------------------
Edward A. Taber, III
/s/Charles F. Haugh* Director January 27, 1997
- --------------------------
Charles F. Haugh*
/s/Richard G. Gilmore* Director January 27, 1997
- --------------------------
Richard G. Gilmore*
/s/Arnold L. Lehman* Director January 27, 1997
- --------------------------
Arnold L. Lehman*
/s/Jill E. McGovern* Director January 27, 1997
- --------------------------
Jill E. McGovern*
/s/T.A. Rodgers* Director January 27, 1997
- --------------------------
T. A. Rodgers*
/s/Marie K. Karpinski Vice President January 27, 1997
- -------------------------- and Treasurer
Marie K. Karpinski
*Signatures affixed by Marie K. Karpinski pursuant to a power of attorney dated
May 14, 1993, filed herewith.
<PAGE>
POWER OF ATTORNEY
I, the undersigned Director, as the case may be, of the following investment
company:
Legg Mason Investors Trust, Inc.
plus any other investment company for which Legg Mason Fund Adviser, Inc. acts
as investment adviser or manager and for which the undersigned individual serves
as Director, as the case may be, hereby severally constitute and appoint each of
Marie K. Karpinski, Arthur J. Brown and Arthur C. Delibert my true and lawful
attorney-in-fact, with full power of substitution, and with full power to sign
for me and in my name in the appropriate capacity, all Pre-Effective Amendments
to any Registration Statements of the Funds, any and all subsequent Post-
Effective Amendments to said Registration Statements, any Registration
Statements on Form N-1A, any supplements or other instruments in connection
therewith, and generally to do all such things in my name and behalf in
connection therewith as said attorney-in-fact deems necessary or appropriate, to
comply with the provisions of the Securities Act of 1933 and the Investment
Company Act of 1940, and all related requirements of the Securities and Exchange
Commission. I hereby ratify and confirm all that said attorney-in-fact or their
substitutes may fo or cause to be done by virtue hereof.
WITNESS my hand on the date set forth below.
Signature Date
- --------- ----
/s/Richard G. Gilmore May 14, 1993
Richard G. Gilmore
/s/T.A. Rodgers May 14, 1993
T. A. Rodgers
/s/Charles F. Haugh May 14, 1993
Charles F. Haugh
/s/Arnold L. Lehman May 14, 1993
Arnold L. Lehman
/s/Jill E. McGovern May 14, 1993
Jill E. McGovern
ARTICLES OF INCORPORATION
OF
LEGG MASON INVESTORS TRUST, INC.
FIRST: The undersigned, ARTHUR C. DELIBERT, whose post office address
is South Lobby-Ninth Floor, 1800 M Street, N.W., Washington, D.C. 20036, being
at least eighteen years of age, under and by virtue of the General Laws of the
State of Maryland authorizing the formation of corporations, is acting as sole
incorporator with the intention of forming a corporation.
SECOND: The name of the corporation is LEGG MASON INVESTORS TRUST, INC.
(the "Corporation").
THIRD: The duration of the Corporation shall be perpetual.
FOURTH: The purposes for which the Corporation is formed are to act as
an open-end management investment company, as contemplated by the Investment
Company Act of 1940, as amended ("1940 Act"), and to exercise and enjoy all of
the powers, rights and privileges granted to, or conferred upon, corporations by
the General Laws of the State of Maryland now or hereafter in force, including,
without limitation:
(a) To hold, invest and reinvest the funds of the Corporation, and
in connection therewith to hold part or all of its funds in
cash, and to purchase, subscribe for or otherwise acquire, to
hold for investment or otherwise, to trade and deal in, write,
sell, assign, negotiate, transfer, exchange, lend, pledge or
otherwise dispose of or turn to account or realize upon,
securities of any corporation, company, association, trust,
firm, partnership, or other organization however or wherever
established or organized, as well as securities created or
issued by any United States or foreign issuer (which term
"issuer" shall, for the purpose of these Articles of
Incorporation, without limiting the generality thereof, be
deemed to include any persons, firms, associations,
partnerships, corporations, syndicates, combinations,
organizations, governments or subdivisions, agencies or
instrumentalities of any government); and to exercise, as
owner or holder of any securities, all rights, powers and
privileges in respect thereof, including the right to vote
thereon; to aid by further investment any issuer, any
obligation of or interest in which is held by the Corporation
or in the affairs of which the Corporation has any direct or
indirect interest; to guarantee or become surety on any or all
of the contracts, stocks, bonds, notes, debentures and other
obligations of any corporation,
<PAGE>
company, trust, association or firm; and to do any and
all acts and things for the preservation, protection,
improvement and enhancement in value of any and all such
securities.
For the purposes of these Articles of Incorporation, as the
same may be supplemented or amended, the term "securities"
shall be deemed to include, without limiting the generality
thereof, any stocks, shares, bonds, debentures, bills, notes,
mortgages and any other obligations or evidences of
indebtedness, and any options, certificates, receipts,
warrants, futures or forward contracts, or other instruments
representing rights to receive, purchase, subscribe for or
sell the same, or evidencing or representing any other
direct or indirect rights or interests therein, including
all rights of equitable ownership therein, or in any property
or assets; and any negotiable or non-negotiable
instruments, including money market instruments, bank
certificates of deposit, finance paper, commercial paper,
bankers' acceptances and all types of repurchase or reverse
repurchase agreements; interest rate protection instruments;
and derivative or synthetic instruments.
(b) To acquire all or any part of the goodwill, rights, property
and business of any person, firm, association or corporation
heretofore or hereafter engaged in any business similar to any
business which the Corporation has the power to conduct, and
to hold, utilize, enjoy and in any manner dispose of the whole
or any part of the rights, property and business so acquired,
and to assume in connection therewith any liabilities of any
such person, firm, association or corporation.
(c) To apply for, obtain, purchase or otherwise acquire, any
patents, copyrights, licenses, trademarks, trade names and the
like, which may be capable of being used for any of the
purposes of the Corporation; and to use, exercise, develop,
grant licenses in respect of, sell and otherwise turn to
account, the same.
(d) To issue and sell shares of its own capital stock and
securities convertible into such capital stock in such amounts
and on such terms and conditions, for such purposes and for
such amount or kind of consideration (including without
limitations, securities) now or hereafter permitted by the
laws of the State of Maryland, by the 1940 Act and by these
Articles of Incorporation, as its Board of Directors may, and
is hereby authorized to, determine.
(e) To allocate assets, liabilities and expenses of the
Corporation to a particular series or class or to apportion
the same between or among two or more series or classes, as
applicable, provided that any liabilities or expenses incurred
by a particular series or class shall be payable solely by
that series or class as provided for in Article VI.
- 2 -
<PAGE>
(f) To purchase, repurchase or otherwise acquire, hold, dispose
of, resell, transfer, reissue or cancel (all without the vote
or consent of the stockholders of the Corporation) shares of
its capital stock in any manner and to the extent now or
hereafter permitted by the laws of the State of Maryland, by
the 1940 Act and by these Articles of Incorporation.
(g) To conduct its business in all branches at one or more offices
in any part of the world, without restriction or limit as to
extent.
(h) To exercise and enjoy, in any states, territories, districts
and United States dependencies and in foreign countries, all
of the powers, rights and privileges granted to, or conferred
upon, corporations by the General Laws of the State of
Maryland now or hereafter in force.
(i) To enjoy all rights, powers and privileges of ownership or
interest in all securities held by the Corporation, including
the right to vote and otherwise act with respect thereto and
to do all acts for the preservation, protection, improvement,
and enhancement in value of all such securities;
(j) In general, to carry on any other business in connection with
or incidental to its corporate purposes, to do everything
necessary, suitable or proper for the accomplishment of such
purposes or for the attainment of any object or the
furtherance of any power set forth in these Articles of
Incorporation, either alone or in association with others, to
do every other act or thing incidental or appurtenant to or
growing out of or connected with its business or purposes,
objects or powers, and, subject to the foregoing, to have and
exercise all the powers, rights and privileges granted to, or
conferred upon, corporations by the laws of the State of
Maryland as in force from time to time.
The foregoing objects and purposes shall, except as otherwise expressly
provided, be in no way limited or restricted by reference to, or inference from,
the terms of any other clause of this or any other Article of these Articles of
Incorporation, and shall each be regarded as independent and construed as a
power as well as an object and a purpose, and the enumeration of specific
purposes, objects and powers shall not be construed to limit or restrict in any
manner the meaning of general terms or the general powers of the Corporation now
or hereafter conferred by the laws of Maryland, nor shall the expression of one
thing be deemed to exclude another though it be of like nature, not expressed;
provided however, that the Corporation shall not have power to carry on within
the State of Maryland any business whatsoever the carrying on of which would
preclude it from being classified as an ordinary business corporation under the
laws of said State; nor shall it carry on any business, or exercise any powers,
in any other state, territory, district or country except to the extent that the
same may lawfully be carried on or exercised under the laws thereof.
- 3 -
<PAGE>
Incident to meeting the purposes specified above, the Corporation also
shall have the power, without limitation:
(1) To acquire (by purchase, lease or otherwise) and to take,
receive, own, hold, use, employ, maintain, develop, dispose of
(by sale or otherwise) and otherwise deal with any real or
personal property, wherever located, and any interest therein.
(2) To make contracts and guarantees, incur liabilities and borrow
money and, in this connection, issue notes or other evidence
of indebtedness.
(3) To buy, hold, sell, and otherwise deal in and with
commodities, indices of commodities or securities, and foreign
exchange, including the purchase and sale of futures
contracts, options on futures contracts related thereto and
forward contracts, subject to any applicable provisions of
law.
(4) To sell, lease, exchange, transfer, convey, mortgage, pledge
and otherwise dispose of any or all of its assets.
FIFTH: The post office address of the principal office of the
Corporation in the State of Maryland is 111 South Calvert Street, Baltimore,
Maryland 21202. The name of the resident agent of the Corporation in the State
of Maryland is Charles A. Bacigalupo, whose post office address is 111 South
Calvert Street, Baltimore, Maryland 21202. The resident agent is a citizen of
the State of Maryland and actually resides therein.
SIXTH: Section 6.1. Capital Stock. The total number of shares of
capital stock which the Corporation shall have authority to issue is one billion
(1,000,000,000) shares, of the par value of one tenth of one cent ($.001)
("Shares"), and of the aggregate par value of one million dollars ($1,000,000).
The Board of Directors shall have full power and authority, in its sole
discretion and without obtaining any prior authorization or vote of the
Stockholders, to create and establish and to change in any manner Shares having
such preferences, terms of conversion, rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption as shall be fixed and determined from time to time by resolution or
resolutions providing for the issuance of such Shares adopted by the Board of
Directors.
The Shares may be issued by the Board of Directors in such
separate and distinct series ("Series") and classes ("Classes") as the Board of
Directors shall from time to time create and establish. The Board of Directors
is authorized, from time to time, to divide or combine the Shares into a greater
or lesser number, to classify or reclassify any unissued Shares of the
Corporation into one or more separate Series or Classes of Shares, and to take
such other action with respect to the Shares as the Board of Directors may deem
desirable. In addition, the Board of Directors is hereby expressly granted
authority to increase or decrease the number of Shares of any Series or Class,
but the number of Shares of any Series or Class shall not be
- 4 -
<PAGE>
decreased by the Board of Directors below the number of Shares thereof then
outstanding. The Board of Directors, in its discretion without a vote of the
Stockholders, may divide the shares of any Series into Classes. The Shares of
any Series or Class of stock shall have such preferences, rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption as shall be fixed and determined from time to time by
the Board of Directors.
The Corporation may hold as treasury Shares, reissue for such
consideration and on such terms as the Board of Directors may determine, or
cancel, at its discretion from time to time, any Shares reacquired by the
Corporation. No holder of any of the Shares shall be entitled as of right to
subscribe for, purchase, or otherwise acquire any Shares of the Corporation
which the Corporation proposes to issue or reissue.
Without limiting the authority of the Board of Directors set
forth herein to establish and designate any further Series, and to classify and
reclassify any unissued Shares, there is hereby established and classified, one
Series of stock comprising five hundred million (500,000,000) Shares, to be
known as the Legg Mason America's Leading Companies Trust.
The corporation shall have authority to issue any additional
Shares hereafter authorized and any Shares redeemed or repurchased by the
Corporation. All Shares of any Series or Class when properly issued in
accordance with these Articles of Incorporation shall be fully paid and
nonassessable.
Section 6.2. Establishment of Series and Classes. The
establishment of any Series or Class of Shares in addition to those established
in Section 6.1 hereof shall be effective upon the adoption of a resolution by
the Board of Directors setting forth such establishment and designation and the
relative rights and preferences of the Shares of such Series or Class. At any
time that there are no Shares outstanding of any particular Series or Class
previously established and designated, the Directors may by a majority vote
abolish that Series or Class and the establishment and designation thereof.
Section 6.3. Dividends. Dividends and distributions on Shares
with respect to each Series or Class may be declared and paid with such
frequency, in such form and in such amount as the Board of Directors may from
time to time determine. Dividends may be declared daily or otherwise pursuant to
a standing resolution or resolutions adopted only once or with such frequency as
the Board of Directors may determine.
All dividends on Shares of each Series or Class shall be paid
only out of the income belonging to that Series or Class and capital gains
distributions on Shares of each Series or Class shall be paid only out of the
capital gains belonging to that Series or Class. All dividends and distributions
on Shares of each Series or Class shall be distributed pro rata to the holders
of that Series or Class in proportion to the number of Shares of that Series or
Class held by such holders at the date and time of record
- 5 -
<PAGE>
established for the payment of such dividends or distributions, except that such
dividends and distributions shall appropriately reflect expenses allocated to a
particular Series or Class. In connection with any dividend or distribution
program or procedure the Board of Directors may determine that no dividend or
distribution shall be payable on Shares as to which the Shareholder's purchase
order and/or payment have not been received by the time or times established by
the Board of Directors under such program or procedure.
The Board of Directors shall have the power, in its sole
discretion, to distribute in any fiscal year as dividends (including dividends
designated in whole or in part as capital gain distributions) amounts
sufficient, in the opinion of the Board of Directors, to enable each Series of
the Corporation to qualify as a regulated investment company under the Internal
Revenue Code of 1986, as amended, or any successor or comparable statute
thereto, and regulations promulgated thereunder, and to avoid liability of each
Series of the Corporation for Federal income tax in respect of that year.
However, nothing in the foregoing shall limit the authority of the Board of
Directors to make distributions greater than or less than the amount necessary
to qualify as a regulated investment company and to avoid liability of any
Series of the Corporation for such tax.
Dividends and distributions may be paid in cash, property or
Shares, or a combination thereof, as determined by the Board of Directors or
pursuant to any program that the Board of Directors may have in effect at the
time. Any such dividend or distribution paid in Shares will be paid at the
current net asset value thereof as defined in Section 6.7.
Section 6.4. Assets and Liabilities of Series and Classes. All
consideration received by the Corporation for the issue or sale of Shares of a
particular Series or Class, together with all assets in which such consideration
is invested or reinvested, all income, earnings, profits, and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation of such
assets, and any funds or payments derived from any reinvestment of such proceeds
in whatever form the same may be, shall be referred to as "assets belonging to"
that Series or Class, as the case may be. In addition, any assets, income,
earnings, profits, and proceeds thereof, funds, or payments which are not
readily identifiable as belonging to any particular Series or Class shall be
allocated between and among one or more of the Series or Classes in such manner
as the Board of Directors, in its sole discretion, deems fair and equitable.
Each such allocation shall be conclusive and binding upon the Stockholders of
all Series or Classes for all purposes, and shall be referred to as assets
belonging to that Series or Class. The assets belonging to a particular Series
or Class shall be so recorded upon the books of the Corporation. The assets
belonging to each particular Series or Class shall be charged with the
liabilities of that Series or Class and all expenses, costs, charges and
reserves attributable to that Series or Class, as the case may be. Any general
liabilities, expenses, costs, charges or reserves of the Corporation which are
not readily identifiable as belonging to any particular Series or Class shall be
allocated between or among any one or more of the Series or Classes in such a
manner as
- 6 -
<PAGE>
the Board of Directors in its sole discretion deems fair and equitable. Each
such allocation shall be conclusive and binding upon the Stockholders of all
Series or Classes for all purposes.
Section 6.5. Voting. On each matter submitted to a vote of the
Stockholders, each holder of a Share shall be entitled to one vote for each
Share and fractional votes for fractional Shares standing in his name on the
books of the Corporation; provided, however, that when required by the 1940 Act
or rules thereunder or when the Board of Directors has determined that the
matter affects only the interests of one Series or Class, matters may be
submitted to a vote of the Stockholders of such Series or Class only, and each
holder of Shares thereof shall be entitled to votes equal to the number of full
and fractional Shares of the Series or Class standing in his name on the books
of the Corporation. The presence in person or by proxy of the holders of
one-third of the Shares of capital stock of the Corporation outstanding and
entitled to vote thereat shall constitute a quorum for the transaction of
business at a Stockholders' meeting, except that where any provision of law or
of these Articles of Incorporation permits or requires that holders of any
Series or Class shall vote as a Series or Class, then one-third of the aggregate
number of Shares of that Series or Class outstanding and entitled to vote shall
constitute a quorum for the transaction of business by that Series or Class.
Section 6.6. Redemption by Stockholders. Each holder of Shares
shall have the right at such times as may be permitted by the Corporation to
require the Corporation to redeem all or any part of his Shares at a redemption
price per Share equal to the net asset value per Share as of such time as the
Board of Directors shall have prescribed by resolution, minus any applicable
sales charge or redemption or repurchase fee. In the absence of such resolution,
the redemption price per Share shall be the net asset value next determined (in
accordance with Section 6.7) after receipt by the Corporation of a request for
redemption in proper form less such charges as are determined by the Board of
Directors and described in the Corporation's registration statement under the
Securities Act of 1933. The Board of Directors may specify conditions, prices,
and places of redemption, and may specify binding requirements for the proper
form or forms of requests for redemption. The Corporation may require
Stockholders to pay a sales charge to the Corporation, the underwriter or any
other person designated by the Board of Directors upon redemption or repurchase
of Shares of any Series or Class, in such amount as shall be determined from
time to time by the Directors. Payment of the redemption price may be wholly or
partly in securities or other assets at the value of such securities or assets
used in such determination of net asset value, or may be in cash.
Notwithstanding the foregoing, the Board of Directors may postpone payment of
the redemption price and may suspend the right of the holders of Shares to
require the Corporation to redeem Shares during any period or at any time when
and to the extent permissible under the 1940 Act.
Section 6.7. Net Asset Value per Share. The net asset value of
each Share of each Series or Class shall be the quotient obtained by dividing
the value of the total assets of the Series or Class, less
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<PAGE>
liabilities and expenses of that Series or Class, by the total number of Shares
of the Series or Class outstanding. The Board of Directors shall have the power
and duty to determine, in accordance with generally accepted accounting
principles, the net income, total assets and liabilities of the Corporation and
the net asset value per Share of each Series and class of Shares at such times
and by such methods as it shall determine subject to any restrictions or
requirements under the 1940 Act and the rules, regulations and interpretations
thereof promulgated or issued by the Securities and Exchange Commission or
insofar as permitted by any order of the Securities and Exchange Commission
applicable to the Corporation. The Board of Directors may delegate such power
and duty to any one or more of the directors and officers of the Corporation, to
the Corporation's investment adviser, to the custodian or depository of the
Corporation's assets, or to another agent or contractor of the Corporation.
Section 6.8. Redemption by the Corporation. The Board of
Directors may cause the Corporation to redeem at current net asset value all
Shares owned or held by any one Stockholder having an aggregate current net
asset value of less than one thousand dollars ($1,000). No such redemption shall
be effected unless the Corporation has given the Stockholder at least sixty (60)
days' notice of its intention to redeem the Shares and an opportunity to
purchase a sufficient number of additional Shares to bring the aggregate current
net asset value of his Shares to one thousand dollars ($1,000). Upon redemption
of Shares pursuant to this Section, the Corporation shall promptly cause payment
of the full redemption price, in any permissible form, to be made to the holder
of Shares so redeemed. The Board of Directors may by a majority vote establish
from time to time amounts less than one thousand dollars ($1,000) at which the
Corporation will redeem Shares pursuant to this Section.
SEVENTH: Section 7.1. Issuance of New Stock. The Board of Directors is
authorized to issue and sell or cause to be issued and sold from time to time
(without the necessity of offering the same or any part thereof to existing
stockholders) all or any portion or portions of the entire authorized but
unissued Shares of the Corporation, and all or any portion or portions of the
Shares of the Corporation from time to time in its treasury, for cash or for any
other lawful consideration or considerations and on or for any terms,
conditions, or prices consistent with the provisions of law and of the Articles
of Incorporation at the time in force; provided, however, that in no event shall
Shares of the Corporation having a par value be issued or sold for a
consideration or considerations less in amount or value than the par value of
the Shares so issued or sold, and provided further that in no event shall any
Shares of the Corporation be issued or sold, except as a stock dividend
distributed to stockholders, for a consideration (which shall be net to the
Corporation after underwriting discounts or commissions) less in amount or value
than the net asset value of the Shares so issued or sold determined as of such
time as the Board of Directors shall have by resolution prescribed. In the
absence of such a resolution, such net asset value shall be that next determined
after an unconditional order in proper form to purchase such Shares is accepted,
except that Shares may be sold to an underwriter at (a) the net asset value next
determined after such orders are received by a dealer with
- 8 -
<PAGE>
whom such underwriter has a sales agreement or (b) the net asset value
determined at a later time.
Section 7.2. Fractional Shares. The Corporation may issue and
sell fractions of Shares having pro rata all the rights of full Shares,
including, without limitation, the right to vote and to receive dividends, and
wherever the words "Share" or "Shares" are used in these Articles or in the
By-Laws they shall be deemed to include fractions of Shares, where the context
does not clearly indicate that only full Shares are intended.
EIGHTH: Except as otherwise required by the 1940 Act, a majority of all
the votes cast at a Stockholders' meeting at which a quorum is present is
sufficient to approve any matter which properly comes before the meeting.
Notwithstanding any provision of law requiring a greater proportion than a
majority of the votes of all classes or series (or of any class or series
entitled to vote thereon as a separate class or series) to take or authorize any
action, the Corporation is hereby authorized in accordance with the authority
granted by Section 2-104(b)(5) of the Maryland General Corporation Law, to take
such action upon the concurrence of a majority of the aggregate number of Shares
entitled to vote thereon (or of a majority of the aggregate number of Shares of
a Class or Series entitled to vote thereon as a separate Class or Series). The
right to cumulate votes in the election of directors is expressly prohibited.
NINTH: Section 9.1. Board of Directors. All corporate powers and
authority of the Corporation (except as otherwise provided by statute, by these
Articles of Incorporation, or by the By-Laws of the Corporation) shall be vested
in and exercised by the Board of Directors. The number of directors constituting
the Board of Directors shall be such number as may from time to time be fixed in
or in accordance with the By-Laws of the Corporation, provided that if there is
no stock outstanding, the number of directors may be less than three but not
less than one, and further provided that if there is stock outstanding and so
long as there are less than three Stockholders, the number of directors may be
less than three but not less than the number of Stockholders. Except as provided
in the By-Laws, the election of directors may be conducted in any way approved
at the meeting (whether of stockholders or directors) at which the election is
held, provided that such election shall be by ballot whenever requested by any
person entitled to vote. The names of the persons who shall act as initial
directors until stock is issued to more than one stockholder or the first
meeting of stockholders, whichever shall occur earlier, and until their
successors have been duly chosen and qualified are John F. Curley, Jr. and Marie
K. Karpinski.
Section 9.2. By-Laws. Except as may otherwise be provided in
the By-Laws, the Board of Directors of the Corporation is expressly authorized
to make, alter, amend and repeal By-Laws or to adopt new By-Laws of the
Corporation, without any action on the part of the Stockholders; but the ByLaws
made by the Board of Directors and the power so conferred may be altered or
repealed by the Stockholders.
- 9 -
<PAGE>
Section 9.3. Inspection of Records. The Board of Directors
shall have the power to determine whether and to what extent, and at what times
and places, and under what conditions and regulations, the accounts and books of
the Corporation (other than the stock ledger), or any of them, shall be open to
inspection by stockholders. No stockholders shall have any right to inspect any
account, book, or document of the Corporation, except to the extent permitted by
statute or the By-laws.
TENTH: Section 10.1. The Board of Directors may in its discretion from
time to time enter into an exclusive or nonexclusive distribution contract or
contracts providing for the sale of Shares whereby the Corporation may either
agree to sell Shares to the other party to the contract or appoint such other
party its sales agent for such shares (such other party being herein sometimes
called the "underwriter"), and in either case on such terms and conditions as
may be prescribed in the By-Laws, if any, and such further terms and conditions
as the Board of Directors may in its discretion determine not inconsistent with
the provisions of these Articles of Incorporation. Such contract may also
provide for the repurchase of Shares of the Corporation by such other party or
parties as agent of the Corporation. The Board of Directors may also in its
discretion from time to time enter into an investment advisory or management
contract or contracts whereby the other party to such contract shall undertake
to furnish to the Board of Directors such management, investment advisory,
statistical and research facilities and services and such other facilities and
services, if any, and all upon such terms and conditions, as the Board of
Directors may in its discretion determine.
Section 10.2. Any contract of the character described in
Section 10.1 or for services as administrator, custodian, transfer agent or
disbursing agent or related services may be entered into with any corporation,
firm, trust or association, although any one or more of the directors or
officers of the Corporation may be an officer, director, trustee, stockholder or
member of such other party to the contract, and no such contract shall be
invalidated or rendered voidable by reason of the existence of any such
relationship, nor shall any person holding such relationship be liable merely by
reason of such relationship for any loss or expense to the Corporation under or
by reason of said contract or accountable for any profit realized directly or
indirectly therefrom, provided that the contract when entered into was
reasonable and fair and not inconsistent with the provisions of this Article
TENTH. The same person (including a firm, corporation, trust, or association)
may be the other party to any or all of the contracts entered into pursuant to
Section 10.1 above, and any individual may be financially interested or
otherwise affiliated with persons who are parties to any or all of the contracts
mentioned in this Section 10.2.
ELEVENTH: Section 11.1. To the maximum extent permitted by applicable
law (including Maryland law and the 1940 Act) as currently in effect or as it
may hereafter be amended, no director or officer of the Corporation shall be
liable to the Corporation or its stockholders for money damages.
- 10 -
<PAGE>
Section 11.2. To the maximum extent permitted by applicable
law (including Maryland law and the 1940 Act) currently in effect or as it may
hereafter be amended, the Corporation shall indemnify and advance expenses to
its present and past directors, officers, or employees, and persons who are
serving or have served at the request of the Corporation as a director, officer,
employee, partner, trustee or agent, of or in similar capacities, for other
entities. The Board of Directors may determine that the Corporation shall
provide indemnification or advance expenses to an agent.
Section 11.3. Repeal or Modification. No repeal or
modification of this Article ELEVENTH by the stockholders of the Corporation, or
adoption or modification of any other provision of the Articles of Incorporation
or ByLaws inconsistent with this Article ELEVENTH, shall repeal or narrow any
limitation on (1) the liability of any director, officer or employee of the
Corporation or (2) right of indemnification available to any person covered by
these provisions with respect to any act or omission which occurred prior to
such repeal, modification or adoption.
TWELFTH: The Corporation reserves the right from time to time to make
any amendment of these Articles of Incorporation, now or hereafter authorized by
law, including any amendment which alters contract rights, as expressly set
forth in these Articles of Incorporation, of any outstanding Shares. Any
amendment to these Articles of Incorporation may be adopted at any meeting of
the stockholders upon receiving an affirmative vote of a majority of all votes
entitled to be cast thereon. The Board of Directors may, without a shareholder
vote, order the filing of Articles Supplementary increasing or decreasing the
aggregate number of Shares or the number of Shares of any Series or Class that
the Corporation has authority to issue, establishing new Series or Classes and
describing the Shares thereof.
IN WITNESS WHEREOF, the undersigned incorporator of LEGG MASON
INVESTORS TRUST, INC. has executed the foregoing Articles of Incorporation and
hereby acknowledges the same to be his act and further acknowledges that, to the
best of his knowledge, information, and belief, the matters and facts set forth
therein are true in all material respects under the penalties of perjury.
On the 5th day of May, 1993.
/s/ Arthur C. Delibert
Arthur C. Delibert
- 11 -
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 became 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;
<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 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
<PAGE>
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 and
belief, the matters and facts set forth herein are true in all material
respects.
Date: July 29, 1994 /s/ Edward A. Taber, III
------------------------
Edward A. Taber, III
President
Attest: /s/ Blanche P. Roche
--------------------
Secretary
Baltimore, Maryland (ss)
Subscribed and sworn to before me this 29th day of July, 1994.
/s/ Melody N. McFaddin
- ----------------------
Notary Public
My commission expires January 20, 1997
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 10, 1996, classified two hundred fifty million (250,000,000)
shares of authorized, but previously unissued and unclassified, capital stock of
the Corporation as a series to be known as Legg Mason Balanced Trust. Of these
two hundred fifty million (250,000,000) shares, the Board has designated one
hundred twenty-five million (125,000,000) shares as Legg Mason Balanced Trust,
Class A shares and one hundred twenty-five million (125,000,000) shares as Legg
Mason Balanced Trust, Class Y shares.
The previous designation of shares of capital stock of the series known
as Legg Mason American Leading Companies Trust into Class A and Class Y shares
remains the same.
The par value of the shares of capital stock of the Corporation remains
one tenth of one cent ($0.001) per share. Before the classification and
designation described herein, the
<PAGE>
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 of Legg Mason Balanced Trust 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;
(c) All other fees and expenses shall be charged to both
classes, in the proportion that the net asset
<PAGE>
value of that class bears to the net asset value of the Legg
Mason Balanced 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
<PAGE>
Legg Mason Balanced 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 Vice President of Legg Mason
Investors Trust, Inc. hereby executes these Articles
<PAGE>
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 her knowledge, information and
belief, the matters and facts set forth herein are true in all material
respects.
Date: May 15, 1996 /s/ Marie K. Karpinski
-----------------------
Marie K. Karpinski
Vice President
Attest: /s/ Stefanie Wong
-----------------
Secretary
Baltimore, Maryland (ss)
Subscribed and sworn to before me this 15th day of May, 1996.
/s/ Harriett W. Taylor
- ----------------------
Notary Public
Comm Exp 1/10/99
LEGG MASON INVESTORS TRUST, INC.
A Maryland Corporation
BY-LAWS
May 5, 1993
Amended July 19, 1993
<PAGE>
Table of Contents
Page
ARTICLE I NAME OF CORPORATION, LOCATION OF OFFICES AND SEAL......... 1
1.01. Name............................................... 1
1.02. Principal Offices.................................. 1
1.03. Seal............................................... 1
ARTICLE II STOCKHOLDERS.............................................. 1
2.01. Annual Meetings.................................... 1
2.02. Special Meetings................................... 1
2.03. Place of Meetings.................................. 2
2.04. Notice of Meetings................................. 2
2.05. Voting - In General................................ 2
2.06. Stockholders Entitled to Vote...................... 3
2.07. Voting - Proxies................................... 3
2.08. Quorum............................................. 3
2.09. Absence of Quorum.................................. 3
2.10. Stock Ledger and List of Stockholders.............. 4
2.11. Action Without Meeting............................. 5
ARTICLE III BOARD OF DIRECTORS........................................ 5
3.01. Number and Term of Office.......................... 5
3.02. Qualifications of Directors........................ 5
3.03. Election of Directors.............................. 5
3.04. Removal of Directors............................... 5
3.05. Vacancies and Newly Created Directorships ......... 5
3.06. General Powers..................................... 6
3.07. Power to Issue and Sell Stock...................... 6
3.08. Power to Declare Dividends......................... 6
3.09. Annual and Regular Meetings........................ 7
3.10. Special Meetings................................... 7
3.11. Notice............................................. 7
3.12. Waiver of Notice................................... 8
3.13. Quorum and Voting.................................. 8
3.14. Compensation....................................... 8
3.15. Action Without a Meeting........................... 8
3.16. Chairman of the Board.............................. 8
ARTICLE IV EXECUTIVE COMMITTEE AND OTHER COMMITTEES.................. 9
4.01. How Constituted.................................... 9
4.02. Powers of the Executive Committee.................. 9
4.03. Proceedings, Quorum and Manner of Acting........... 9
4.04. Other Committees................................... 9
ARTICLE V OFFICERS.................................................. 10
5.01. General............................................ 10
5.02. Election, Term of Office and
Qualifications................................. 10
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<PAGE>
5.03. Resignation........................................ 10
5.04. Removal............................................ 10
5.05. Vacancies and Newly Created Offices................ 10
5.06. President.......................................... 11
5.07. Vice President..................................... 11
5.08. Treasurer and Assistant Treasurers................. 11
5.09. Secretary and Assistant Secretaries................ 11
5.10. Subordinate Officers............................... 12
5.11. Remuneration....................................... 12
5.12. Surety Bonds....................................... 12
ARTICLE VI CUSTODY OF SECURITIES..................................... 13
6.01. Employment of a Custodian.......................... 13
6.02. Action Upon Termination of Custodian
Agreement...................................... 13
6.03. Provisions of Custodian Contract................... 13
6.04. Other Arrangements................................. 16
ARTICLES VII EXECUTION OF INSTRUMENTS, VOTING OF SECURITIES............ 17
7.01. General............................................ 17
7.02. Checks, Notes, Drafts, Etc......................... 17
7.03. Voting of Securities............................... 17
ARTICLE VIII CAPITAL STOCK............................................. 17
8.01. Certificates of Stock.............................. 17
8.02. Transfer of Capital Stock.......................... 18
8.03. Transfer Agents and Registrars..................... 18
8.04. Transfer Regulations............................... 19
8.05. Fixing of Record Date.............................. 19
8.06. Lost, Stolen or Destroyed Certificates............. 19
ARTICLE IX FISCAL YEAR, ACCOUNTANT................................... 19
9.01. Fiscal Year........................................ 19
9.02. Accountant......................................... 20
ARTICLE X INDEMNIFICATION AND INSURANCE............................. 20
10.01. Indemnification of Officers, Directors,
Employees and Agents........................... 20
10.02. Insurance of Officers, Directors,
Employees and Agents........................... 22
10.03. Non-exclusivity.................................... 22
ARTICLE XI AMENDMENTS................................................ 22
11.01. General............................................ 22
11.02. By Stockholders Only............................... 22
11.03. Limitation on Amendment............................ 23
- ii -
<PAGE>
ARTICLE I
NAME OF CORPORATION, LOCATION OF OFFICES AND SEAL
Section 1.01. Name: The name of the Corporation is Legg Mason
Investors Trust, Inc.
Section 1.02. Principal Offices: The principal office of the
Corporation in the State of Maryland shall be located in the City of Baltimore.
The Corporation may establish and maintain such other offices and places of
business as the board of directors may, from time to time, determine. Except as
provided in Section 2.10, the board of directors may keep the books of the
Corporation at any office of the Corporation or at any other place within the
United States as it may from time to time determine.
Section 1.03. Seal: The corporate seal of the Corporation shall be
circular in form and shall bear the name of the Corporation, the year of the
incorporation, and the words "Corporate Seal, Maryland". The form of the seal
shall be subject to alteration by the board of directors and the seal may be
used by causing it or a facsimile to be impressed or affixed or printed or
otherwise reproduced. Any officer or director of the Corporation shall have
authority to affix the corporate seal of the Corporation to any document
requiring the same.
ARTICLE II
STOCKHOLDERS
Section 2.01. Annual Meetings: There shall be no stockholder's
meetings for the election of directors and the transaction of other business
except as required by law or as hereinafter provided.
Section 2.02. Special Meetings: Special meetings of the stockholders
may be called at any time by the chairman of the board, the president, any vice
president, or a majority of the board of directors. Special meetings of the
stockholders shall be called by the secretary upon the written request of the
holders of shares entitled to vote not less than 10% of all the shares entitled
to be voted at such meeting, provided that (a) such request shall state the
purposes of such meeting and the matters proposed to be acted on, and (b) the
stockholders requesting such meeting shall have paid to the Corporation the
reasonably estimated cost of preparing and mailing the notice thereof, which the
secretary shall determine and specify to such stockholders. No special meeting
need be called upon the request of the holders of shares entitled to vote less
than a majority of all the shares entitled to be voted at such meeting to
consider any matter which is substantially the same as a matter voted upon at
any special meeting of the stockholders held during the preceding 12 months.
Section 2.03. Place of Meetings: All stockholders' meetings shall be
held at the principal office of the Corporation, except that the board of
directors may fix a different place of meeting, which shall be specified in each
notice or waiver of notice of the meeting.
<PAGE>
Section 2.04. Notice of Meetings: The secretary shall cause notice of
the place, date and hour, and, in the case of a special meeting or as otherwise
required by law, the purpose or purposes for which the meeting is called, to be
mailed, not less than 10 nor more than 90 days before the date of the meeting,
to each stockholder entitled to vote at such meeting, at his address as it
appears on the records of the Corporation at the time of such mailing. Notice of
any stockholders' meeting need not be given to any stockholder who shall sign a
written waiver of such notice whether before or after the time of such meeting,
which waiver shall be filed with the record of such meeting, or to any
stockholder who shall attend such meeting in person or by proxy. Notice of
adjournment of a stockholders' meeting to another time or place need not be
given, if such time and place are announced at the meeting.
Section 2.05. Voting - In General: At every stockholders' meeting each
stockholder shall be entitled to one vote for each share and a fractional vote
for each fraction of a share of stock of the Corporation validly issued and
outstanding and held by such stockholder, except that no shares held by the
Corporation shall be entitled to a vote. Except as otherwise specifically
provided in the Articles of Incorporation or these By-Laws or as required by
provisions of the Investment Company Act of 1940, as amended from time to time,
all matters shall be decided by a vote of the majority of the votes validly cast
at a meeting at which a quorum is present. The vote upon any question shall be
by ballot whenever requested by any person entitled to vote, but, unless such a
request is made, voting may be conducted in any way approved by the meeting.
At any meeting at which there is an election of directors, the chairman
of the meeting may, and upon the request of the holders of 10% of the stock
entitled to vote at such election shall, appoint two inspectors of election who
shall first subscribe an oath or affirmation to execute faithfully the duties of
inspectors at such election with strict impartiality and according to the best
of their ability, and shall, after the election, make a certificate of the
result of the vote taken. No candidate for the office of Director shall be
appointed as an inspector.
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Section 2.06. Stockholders Entitled to Vote: If, pursuant to Section
8.05 hereof, a record date has been fixed for the determination of stockholders
entitled to notice of or to vote at any stockholders' meeting, each stockholder
of the Corporation shall be entitled to vote, in person or by proxy, each share
of stock and fraction of a share of stock of the appropriate series of shares
("Series") or class of shares ("Class") of the Corporation standing in his name
on the books of the Corporation on such record date and outstanding at the time
of the meeting. If no record date has been fixed by the board of directors for
the determination of stockholders entitled to notice of or to vote at a meeting,
the record date for the meeting of stockholders shall be (a) at the close of
business (i) on the day ten days before the day on which notice of the meeting
is mailed or (ii) on the day 30 days before the meeting, whichever is the closer
date to the meeting; or, (b) if notice is waived by all stockholders, at the
close of business on the tenth day next preceding the day on which the meeting
is held.
Section 2.07. Voting - Proxies: A stockholder may vote the stock he
owns of record by written proxy executed by the stockholder himself or by his
duly authorized attorney in fact. No proxy shall be voted after eleven months
from its date unless it provides for a longer period. Each proxy shall be dated,
but need not be sealed, witnessed or acknowledged. Proxies shall be delivered to
an inspector of election or, if no inspector has been appointed, then to the
secretary of the Corporation, or person acting as secretary of the meeting,
before being voted. A proxy with respect to stock held in the name of two or
more persons shall be valid if executed by one of them unless at or prior to
exercise of such proxy the Corporation receives from any one of them written
notice to the contrary and a copy of the instrument or order which so provides.
A proxy purporting to be executed by or on behalf of a stockholder shall be
deemed valid unless challenged at or prior to its exercise. A proxy in the form
of a telegram, datagram or telex shall not be valid; however, a mechanical or
electronic facsimile of an otherwise valid proxy shall be valid.
Section 2.08. Quorum: Except as otherwise provided in the Articles of
Incorporation, the presence at any stockholders' meeting, in person or by proxy,
of stockholders entitled to cast one-third of all the votes entitled to be cast
thereat shall be necessary and sufficient to constitute a quorum for the
transaction of business.
Section 2.09. Absence of Quorum: In the absence of a quorum, the
holders or proxies of a majority of the shares present at the meeting in person
or by proxy and entitled to vote thereat, or, if no stockholder entitled to vote
is present thereat in person or by proxy, any officer present thereat entitled
to preside or act as secretary of such meeting, may adjourn the meeting without
determining the date of the new meeting or, from time to time, without further
notice to a date not more than 120 days after the original record date. Any
business that might have been transacted at the meeting originally called may be
transacted at any such adjourned meeting at which a quorum is present.
Section 2.10. Stock Ledger and List of Stockholders: It shall be the
duty of the secretary or assistant secretary of the Corporation to cause an
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original or duplicate stock ledger to be maintained at the office of the
Corporation's transfer agent. Such stock ledger may be in written form or any
other form capable of being converted into written form within a reasonable time
for visual inspection. Any one or more persons, each of whom has been a
stockholder of record of the Corporation for at least the six months next
preceding such request, and who own in the aggregate 5% or more of the
outstanding capital stock of the Corporation, may, in person or by agent, upon
written request, inspect and copy during usual business hours the corporation's
stock ledger at its principal office in Maryland; and may submit (if the
Corporation at the time of the request does not maintain a duplicate stock
ledger at its principal office in Maryland) a written request to any officer of
the Corporation or its resident agent in Maryland for a list of the stockholders
of the Corporation. Within 20 days after such a request, there shall be prepared
and filed at the Corporation's principal office in Maryland a list containing
the names and addresses of all stockholders of the Corporation and the number of
shares of each class held by each stockholder, certified as correct by an
officer of the Corporation, by its stock transfer agent, or by its registrar.
Notwithstanding the foregoing, whenever ten or more shareholders of record who
have been such for at least six months preceding such request, and who own in
the aggregate either shares having a net asset value of at least $25,000 or at
least one percent of the outstanding shares, whichever is less, shall apply to
the secretary in writing, stating that they wish to communicate with other
shareholders with a view to obtaining signatures to a request for a special
meeting of shareholders to vote upon the removal of one or more directors, and
including with the application a form of communication and request which they
wish to transmit, the Fund shall, within five business days after receipt of
such application, either: (1) afford to such applicants access to a list of the
names and addresses of all shareholders as recorded on the books of the Fund; or
(2) inform the applicants as to the approximate cost of mailing to them the
proposed communication and form of request, and, upon the written request of the
applicants, accompanied by a tender of the material to be mailed and of
reasonable expenses of mailing, shall, with reasonable promptness, mail such
material to all shareholders of record; provided, however, that the Fund may
avail itself of any of the rights afforded to a common law trust pursuant to
Section 16(c) of the Investment Company Act of 1940.
Section 2.11. Action Without Meeting: Any action to be taken by
stockholders may be taken without a meeting if all stockholders entitled to vote
on the matter consent to the action in writing and the written consents are
filed with the records of the meetings of stockholders. Such consent shall be
treated for all purposes as a vote at a meeting.
ARTICLE III
BOARD OF DIRECTORS
Section 3.01. Number and Term of Office: The board of directors shall
consist of seven directors, which number may be increased or decreased by a
resolution of a majority of the entire board of directors; provided that the
number of directors shall not be less than three nor more than twenty; and
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further provided that if there is no stock outstanding the number of directors
may be less than three but not less than one, and if there is stock outstanding
and so long as there are less than three stockholders, the number of directors
may be less than three but not less than the number of stockholders. Each
director (whenever selected) shall hold office until his successor is elected
and qualified or until his earlier death, resignation or removal.
Section 3.02. Qualifications of Directors: After stock has been issued
to more than one person, at least one of the members of the board of directors
shall be a person who is not an "interested person" of the Corporation, as
defined in the Investment Company Act of 1940, as amended.
Section 3.03. Election of Directors: The initial director or directors
of the Corporation shall be that person or those persons named as such in the
Articles of Incorporation. Thereafter, except as otherwise provided in Section
3.04 and 3.05 hereof, the directors shall be elected by the stockholders on a
date fixed by the board of directors. A plurality of all the votes validly cast
at a meeting at which a quorum is present in person or by proxy is sufficient to
elect a director.
Section 3.04. Removal of Directors: At any stockholders' meeting duly
called, provided a quorum is present, any director may be removed (either with
or without cause) by the affirmative vote of a majority of all the votes
entitled to be cast for the election of directors, and at the same meeting a
duly qualified person may be elected in his stead by a plurality of the votes
validly cast.
Section 3.05. Vacancies and Newly Created Directorships: If any
vacancies shall occur in the board of directors by reason of death, resignation,
removal or otherwise, or if the authorized number of directors shall be
increased, the directors then in office shall continue to act, and such
vacancies (if not previously filled by the stockholders) may be filled by a
majority of the directors then in office, although less than a quorum, except
that a newly created directorship may be filled only by a majority vote of the
entire board of directors, provided that in either case immediately after
filling such vacancy, at least two-thirds of the directors then holding office
shall have been elected to such office by the stockholders of the Corporation.
In the event that at any time, other than the time preceding the first
stockholders' meeting, less than a majority of the directors of the Corporation
holding office at that time were so elected by the stockholders, a meeting of
the stockholders shall be held promptly and in any event within 60 days (unless
the Securities and Exchange Commission shall by rule or order extend such
period) for the purpose of electing directors to fill any existing vacancies in
the board of directors.
Section 3.06. General Powers:
(a) The property, affairs and business of the Corporation shall be
managed by or under the direction of the board of directors, which may exercise
all the powers of the Corporation except those powers vested solely
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in the stockholders of the Corporation by statute, by the Articles of
Incorporation, or by these By-Laws.
(b) All acts done by any meeting of the directors or by any person
acting as a director, so long as his successor shall not have been duly elected
or appointed, shall, notwithstanding that it be afterwards discovered that there
was some defect in the election of the directors or of such person acting as
aforesaid or that they or any of them were disqualified, be as valid as if the
directors or such other person, as the case may be, had been duly elected and
were or was qualified to be directors or a director of the Corporation.
Section 3.07. Power to Issue and Sell Stock: The board of directors may
from time to time issue and sell or cause to be issued and sold any of the
Corporation's authorized shares to such persons and for such consideration as
the board of directors shall deem advisable, subject to the provisions of
Articles Sixth and Seventh of the Articles of Incorporation.
Section 3.08. Power to Declare Dividends:
(a) The board of directors, from time to time as it may deem advisable,
may declare and pay dividends in stock, cash or other property of the
Corporation, out of any source available for dividends, to the stockholders
according to their respective rights and interests in accordance with the
provisions of the Articles of Incorporation.
(b) The board of directors shall cause to be accompanied by a written
statement any dividend payment wholly or partly from any source other than:
(i) the Corporation's accumulated undistributed net income (determined
in accordance with good accounting practice and the rules and
regulations of the Securities and Exchange Commission then in effect)
and not including profits or losses realized upon the sale of
securities or other properties; or
(ii) the Corporation's net income so determined for the current or
preceding fiscal year.
Such statement shall adequately disclose the source or sources of such payment
and the basis of calculation, and shall be in such form as the Securities and
Exchange Commission may prescribe.
Section 3.09. Annual and Regular Meetings: The annual meeting of the
board of directors for choosing officers and transacting other proper business
shall be held at such time and place as the board may determine. The board of
directors from time to time may provide by resolution for the holding of regular
meetings and fix their time and place, which need not be in the State of
Maryland. Except as otherwise provided under the Investment Company Act of 1940,
notice of such annual and regular meetings need not be given, provided that
notice of any change in the time or place of such meetings shall be sent
promptly, in the manner provided for notice of special meetings, to each
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director not present at the meeting at which such change was made. Except as
otherwise provided under the Investment Company Act of 1940, as amended, members
of the board of directors or any committee designated thereby may participate in
a meeting of such board or committee by means of a conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other at the same time; and participation by such
means shall constitute presence in person at a meeting.
Section 3.10. Special Meetings: Special meetings of the board of
directors shall be held whenever called by the chairman of the board, the
president (or, in the absence or disability of the president, by any vice
president), the treasurer, or two or more directors, at the time and place
(which need not be in the State of Maryland) specified in the respective notices
or waivers of notice of such meetings.
Section 3.11. Notice: Except as otherwise provided, notice of any
special meeting shall be given by the secretary to each director, by mailing to
him, postage prepaid, addressed to him at his address as registered on the books
of the Corporation or, if not so registered, at his last known address, a
written or printed notification of such meeting at least three days before the
meeting or by delivering such notice to him at least two days before the
meeting, or by sending such notice to him at least 24 hours before the meeting,
by prepaid telegram, addressed to him at his said registered address, if any, or
if he has no such registered address, at his last known address.
Section 3.12. Waiver of Notice: No notice of any meeting need be given
to any director who attends such meeting in person or to any director who waives
notice of such meeting in writing (which waiver shall be filed with the records
of such meeting), whether before or after the time of the meeting.
Section 3.13. Quorum and Voting: At all meetings of the board of
directors the presence of one-half or more of the number of directors then in
office shall constitute a quorum for the transaction of business, provided that
there shall be present no fewer than two directors (unless the Corporation, at
the time, has only one director). In the absence of a quorum, a majority of the
directors present may adjourn the meeting, from time to time, until a quorum
shall be present. The action of a majority of the directors present at a meeting
at which a quorum is present shall be the action of the board of directors
unless the concurrence of a greater proportion is required for such action by
law, by the Articles of Incorporation or by these By-Laws.
Section 3.14. Compensation: Each director may receive such
remuneration for his services as shall be fixed from time to time by resolution
of the board of directors.
Section 3.15. Action Without a Meeting: Except as otherwise provided
under the Investment Company Act of 1940, as amended, any action required or
permitted to be taken at any meeting of the board of directors may be taken
without a meeting if written consents thereto are signed by all members of the
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board and such written consents are filed with the records of the meetings of
the board.
Section 3.16. Chairman of the Board: The board of directors, at its
first meeting and thereafter at its annual meeting, shall elect from among the
directors a chairman of the board, who shall serve at the pleasure of the board
of directors. If the board of directors does not elect a chairman at any annual
meeting, it may do so at any subsequent regular or special meeting. The chairman
of the board shall hold office until the next annual meeting of the board of
directors and until his successor shall have been chosen and qualified. If the
office of chairman of the board shall become vacant for any reason, the board of
directors may fill such vacancy at any regular or special meeting. The chairman
of the board shall preside at all stockholders' meetings and at all meetings of
the board of directors and shall have such powers and perform such duties as may
be assigned to him from time to time by the board of directors. The chairman of
the board shall not be considered an officer of the Corporation by reason of
holding said position.
ARTICLE IV
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
Section 4.01. How Constituted: By resolution adopted by the board of
directors, the board may designate an executive committee, consisting of not
less than three nor more than five directors. The board may also designate
additional committees consisting of at least two directors. Each member of a
committee shall be a director and shall hold office during the pleasure of the
board. The chairman of the board, if any, and the president shall be members of
the executive committee.
Section 4.02. Powers of the Executive Committee: Unless otherwise
provided by resolution of the board of directors, when the board of directors is
not in session the executive committee shall have and may exercise all powers of
the board of directors in the management of the business and affairs of the
Corporation that may lawfully be exercised by the full board of directors,
except the power to declare a dividend, to authorize the issuance of stock, to
recommend to stockholders any matter requiring stockholders' approval, to amend
the By-Laws, or to approve any merger or share exchange which does not require
shareholder approval.
Section 4.03. Proceedings, Quorum and Manner of Acting: In the absence
of an appropriate resolution of the board of directors, each committee may adopt
such rules and regulations governing its proceedings, quorum and manner of
acting as it shall deem proper and desirable, provided that the quorum shall not
be less than two directors. In the absence of such rules, the proceedings,
quorum and manner of acting of a committee shall be governed by the rules
applicable to the full board of directors. In the absence of any member of any
such committee, the members thereof present at any meeting, whether or not they
constitute a quorum, may appoint a member of the board of directors to act in
the place of such absent member.
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Section 4.04. Other Committees: The board of directors may appoint
other committees, each consisting of one or more persons, who need not be
directors. Each such committee shall have such powers and perform such duties as
may be assigned to it from time to time by the board of directors, but shall not
exercise any power which may lawfully be exercised only by the board of
directors or a committee thereof.
ARTICLE V
OFFICERS
Section 5.01. General: The officers of the Corporation shall be a
president, a secretary and a treasurer, and may include one or more vice
presidents, assistant secretaries or assistant treasurers, and such other
officers as may be appointed in accordance with the provisions of Section 5.10
hereof.
Section 5.02. Election, Term of Office and Qualifications: The officers
of the Corporation (except those appointed pursuant to Section 5.10 hereof)
shall be elected by the board of directors at its first meeting or such
subsequent meetings as shall be held prior to its first annual meeting, and
thereafter annually at its annual meeting. If any officers are not elected at
any annual meeting, such officers may be elected at any subsequent regular or
special meeting of the board. Except as provided in Sections 5.03, 5.04 and 5.05
hereof, each officer chosen by the board of directors shall hold office until
the next annual meeting of the board of directors and until his successor shall
have been chosen and qualified. Any person may hold one or more offices of the
Corporation except that the president may not hold the office of vice president,
and provided further that a person who holds more than one office may not act in
more than one capacity to execute, acknowledge or verify an instrument required
by law to be executed, verified or acknowledged by more than one officer. No
officer need be a director.
Section 5.03. Resignation: Any officer may resign his office at any
time by delivering a written resignation to the board of directors, the
president, the secretary, or any assistant secretary. Unless otherwise specified
therein, such resignation shall take effect upon delivery.
Section 5.04. Removal: Any officer may be removed from office whenever
in the board's judgment the best interest of the Corporation will be served
thereby, by the vote of a majority of the board of directors given at a regular
meeting or any special meeting called for such purpose. In addition, any officer
or agent appointed in accordance with the provisions of Section 5.10 hereof may
be removed, either with or without cause, by any officer upon whom such power of
removal shall have been conferred by the board of directors.
Section 5.05. Vacancies and Newly Created Offices: If any vacancy shall
occur in any office by reason of death, resignation, removal, disqualification
or other cause, or if any new office shall be created, such vacancies or newly
created offices may be filled by the board of directors at any regular or
special meeting or, in the case of any office created pursuant
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to Section 5.10 hereof, by any officer upon whom such power shall have been
conferred by the board of directors.
Section 5.06. President: The president shall be the chief executive
officer of the Corporation and, in the absence of the chairman of the board,
shall preside at all stockholders' meetings and at all meetings of the board of
directors. Subject to the supervision of the board of directors, he shall have
general charge of the business, affairs and property of the Corporation and
general supervision over its officers, employees and agents. Subject to the
provisions of Section 7.01 and except as the board of directors may otherwise
order, he may sign in the name and on behalf of the Corporation all deeds,
bonds, contracts or agreements. He shall exercise such other powers and perform
such other duties as from time to time may be assigned to him by the board of
directors.
Section 5.07. Vice President: The board of directors may from time to
time designate and elect one or more vice presidents who shall have such powers
and perform such duties as from time to time may be assigned to them by the
board of directors or the president. At the request or in the absence or
disability of the president, the vice president (or, if there are two or more
vice presidents, then the senior of the vice presidents present and able to act)
may perform all the duties of the president and, when so acting, shall have all
the powers of and be subject to all the restrictions upon the president.
Section 5.08. Treasurer and Assistant Treasurers: The treasurer shall
be the principal financial and accounting officer of the Corporation. He shall
deliver all funds and securities of the Corporation which may come into his
hands to such bank or trust company as the board of directors shall employ as
Custodian. He shall prepare annually a full and correct statement of the affairs
of the Corporation, including a balance sheet and a financial statement of
operations for the preceding fiscal year, which shall be filed at the
Corporation's principal office within 120 days after the end of the fiscal year.
The treasurer shall furnish such other reports regarding the business and
condition of the Corporation as the board of directors may from time to time
require and perform such duties additional to the foregoing as the board of
directors may from time to time designate.
Any assistant treasurer may perform such duties of the treasurer as the
treasurer or the board of directors may assign, and, in the absence of the
treasurer, may perform all the duties of the treasurer.
Section 5.09. Secretary and Assistant Secretaries: The secretary shall
attend to the giving and serving of all notices of the Corporation and shall act
as secretary at, and record all proceedings of, the meetings of the stockholders
and directors in the books to be kept for that purpose. He shall keep in safe
custody the seal of the Corporation, and shall have charge of the records of the
Corporation, including the stock books and such other books and papers as the
board of directors may direct and such books, reports, certificates and other
documents required by law to be kept, all of which shall at all reasonable times
be open to inspection by any director. At every
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meeting of the stockholders, he shall receive and take charge of and/or canvass
all proxies and/or ballots, and shall decide all questions affecting the
qualification of voters, the validity of proxies and the acceptance or rejection
of votes, except that the chairman may assign such duties to inspectors of
election pursuant to Section 2.05 hereof. He shall perform such other duties as
appertain to his office or as may be required by the board of directors.
Any assistant secretary may perform such duties of the secretary as the
secretary or the board of directors may assign, and, in the absence of the
secretary, may perform all the duties of the secretary.
Section 5.10. Subordinate Officers: The board of directors from time to
time may appoint such other officers or agents as it may deem advisable, each of
whom shall have such title, hold office for such period, have such authority and
perform such duties as the board of directors may determine. The board of
directors from time to time may delegate to one or more officers or agents the
power to appoint and remove any such subordinate officers or agents and to
prescribe their respective rights, terms of office, authorities and duties.
Section 5.11. Remuneration: The salaries or other compensation of the
officers of the Corporation shall be fixed from time to time by resolution of
the board of directors, except that the board of directors may by resolution
delegate to any person or group of persons the power to fix the salaries or
other compensation of any subordinate officers or agents appointed in accordance
with the provisions of Section 5.10 hereof.
Section 5.12. Surety Bonds: The board of directors may require any
officer or agent of the Corporation to execute a bond (including, without
limitation, any bond required by the Investment Company Act of 1940, as amended,
and the rules and regulations of the Securities and Exchange Commission) to the
Corporation in such sum and with such surety or sureties as the board of
directors may determine, conditioned upon the faithful performance of his duties
to the Corporation, including responsibility for negligence and for the
accounting of any of the Corporation's property, funds or securities that may
come into his hands.
ARTICLE VI
CUSTODY OF SECURITIES
Section 6.01. Employment of a Custodian: The Corporation shall place
and at all times maintain in the custody of a custodian (including any
sub-custodian for the custodian) all funds, securities and similar investments
owned by the Corporation. The custodian (and any sub-custodian) shall be a bank
or similar financial institution having not less than $2,000,000 aggregate
capital, surplus and undivided profits and shall be appointed from time to time
by the board of directors, which shall fix its remuneration.
Section 6.02. Action Upon Termination of Custodian Agreement: Upon
termination of a custodian agreement or inability of the custodian to continue
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to serve, the board of directors shall promptly appoint a successor custodian,
but in the event that no successor custodian can be found who has the required
qualifications and is willing to serve, the board of directors shall call as
promptly as possible a special meeting of the stockholders to determine whether
the Corporation shall function without a custodian or shall be liquidated. If so
directed by vote of the holders of a majority of the outstanding shares of stock
of the Corporation, the custodian shall deliver and pay over all property of the
Corporation held by it as specified in such vote.
Section 6.03. Provisions of Custodian Contract: The custodian employed
by the Corporation pursuant to the Articles of Incorporation shall be required
to enter into a contract with the Corporation which shall contain in substance
the following provisions:
(a) The Corporation will cause all securities and funds owned by the
Corporation to be delivered or paid to the custodian.
(b) The custodian will receive and receipt for any monies due to the
Corporation and deposit the same in its own banking department and in such other
banking institutions, if any, as the custodian and the board of directors may
approve. The custodian shall have the sole power to draw upon such account.
(c) The custodian shall release and deliver securities owned by the
Corporation in the following cases only:
(1) Upon the sale of such securities for the account of the
Corporation and receipt of payment therefor:
(2) 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;
(3) To the issuer thereof or its agent for transfer into the
name of the Corporation, the custodian or a nominee of either, or into the name
or nominee name of any agent or any sub-custodian, if applicable, or for
exchange for a different number of bonds or 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;
(4) To the broker or its clearing agent, against a receipt,
selling the same for examination, in accordance with the "street delivery"
custom;
(5) 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;
provided, that in any such case the new securities and cash, if any, are to be
delivered to the custodian;
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(6) 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 of 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;
(7) For deposit in a system for the central handling of
securities;
(8) Upon the receipt of payment in connection with any
repurchase agreement related to such securities entered into by the Corporation;
(9) To the depository agent in connection with tender or other
similar offers for securities of the Corporation;
(10) For delivery in connection with any loans of securities
made by the Corporation, but only against receipt of adequate collateral as
agreed upon from time to time by the custodian and the Fund on behalf of the
Corporation;
(11) For delivery as security in connection with any
borrowings by the Corporation requiring a pledge of assets, but only against
receipt of amounts borrowed;
(12) For delivery in accordance with the provisions of any
agreement among the Corporation, the custodian and a broker-dealer registered
under the Securities Exchange Act of 1934 (the "Exchange Act") and a member of
the National Association of Securities Dealers, Inc., 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
Corporation;
(13) For delivery in accordance with the provisions of any
agreement among the Corporation, the custodian, and a Futures Commission
Merchant 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 Corporation;
(14) Upon receipt of instructions from the transfer agent, 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 relating to the
Fund 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 Corporation, a
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certified copy of an appropriate resolution of the board of directors or of the
Executive Committee.
(d) The custodian shall pay out monies of the Corporation only upon the
purchase of securities, options, futures contracts or options on futures
contracts for the account of the Corporation and the delivery in due course of
such securities or evidence of title to such options, futures contracts or
options on futures contracts to the custodian, or in connection with the
conversion, exchange or surrender of securities owned by the Corporation as set
forth in (c), or for the redemption or repurchase of Shares issued by the
Corporation, or for the payment of any expense or liability incurred by the
Corporation, or for the payment of any dividends on Shares of the Corporation,
or for payment of the amount of dividends received in respect of securities sold
short, or for any other proper purpose, but only upon receipt of, in addition to
proper instructions from the Corporation, a certified copy of an appropriate
resolution of the board of directors or of the Executive Committee; provided
that, in every case where payment is made by the custodian in advance of receipt
of the securities purchased, the custodian shall be absolutely liable to the
Corporation for such securities to the same extent as if the securities had been
received by the custodian.
(e) The custodian shall make deliveries of securities and payments of
cash only upon written instructions signed or initialled by such officer or
officers or other agent or agents of the Corporation as may be authorized to
sign or initial such instructions by resolution of the board of directors, it
being understood that the board of directors may from time to time authorize a
different person or persons to sign or initial instructions for different
purposes.
The contract between the Corporation and the custodian may contain any
other provisions that are not inconsistent with the provisions of the Articles
of Incorporation or with these By-Laws as the board of directors may approve.
Such contract shall be terminable by either party upon written notice
to the other within such time not exceeding sixty (60) days as may be specified
in the contract; provided, however, that upon termination of the contract or
inability of the custodian to continue to serve, the custodian shall, upon
written notice of appointment of another bank or trust company as custodian,
deliver and pay over to such successor custodian all securities and monies held
by it for account of the Corporation. In such case, the board of directors shall
promptly implement the procedures described in Section 6.02 hereof.
Such contract shall also provide that, pending appointment of a
successor custodian or vote of the shareholders specifying some other
disposition of the funds and property, the custodian shall not deliver funds and
property of the Corporation to the Corporation, but may deliver them to a bank
or trust company doing business in the United States, of its own selection
having an aggregate capital, surplus and undivided profits, as shown by its last
published report, of not less than $2,000,000. The property of
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the Corporation is to be held under terms similar to those on which they were
held by the retiring custodian.
Any sub-custodian employed by the custodian pursuant to authorization
to do so granted by the Corporation pursuant to Section 6.01 hereof shall be
required to enter into a contract with the custodian containing in substance the
same provisions as those described in paragraphs (a) through (e) above, except
that any contract with a sub-custodian performing its duties outside the United
States and its territories and possessions, may omit or limit any of such
conditions, provided that any such contract shall be expressly approved by a
majority of the directors of the Corporation.
Section 6.04. Other Arrangements: The Corporation may make such other
arrangements for the custody of its assets (including deposit arrangements) as
may be required by any applicable law, rule or regulation.
ARTICLES VII
EXECUTION OF INSTRUMENTS, VOTING OF SECURITIES
Section 7.01. General: Subject to the provisions of Sections 5.07,
6.03, 7.02 and 8.03 hereof, all deeds documents, transfers, contracts,
agreements and other instruments requiring execution by the Corporation shall be
signed by the president or a vice president and by the treasurer or secretary or
an assistant treasurer or an assistant secretary, or as the board of directors
may otherwise, from time to time, authorize. Any such authorization may be
general or confined to specific instances.
Section 7.02. Checks, Notes, Drafts, Etc.: So long as the Corporation
shall employ a custodian to keep custody of the cash and securities of the
Corporation, all checks and drafts for the payment of money by the Corporation
may be signed in the name of the Corporation by the custodian. Except as
otherwise authorized by the board of directors, all requisitions or orders for
the assignment of securities standing in the name of the custodian or its
nominee, or for the execution of powers to transfer the same, shall be signed in
the name of the Corporation by the president or a vice president and by the
treasurer or an assistant treasurer. Promissory notes, checks or drafts payable
to the Corporation may be endorsed only to the order of the custodian or such
nominee and only by the treasurer or president or a vice president or by such
other person or persons as shall be authorized by the board of directors.
Section 7.03. Voting of Securities: Unless otherwise ordered by the
board of directors, the president or any vice president shall have full power
and authority on behalf of the Corporation to attend and to act and to vote, or
in the name of the Corporation to execute proxies to vote, at any meeting of
stockholders of any company in which the Corporation may hold stock. At any such
meeting such officer shall possess and may exercise (in person or by proxy) any
and all rights, powers and privileges incident to the ownership of such stock.
The board of directors may by resolution from time to time confer like powers
upon any other person or persons.
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ARTICLE VIII
CAPITAL STOCK
Section 8.01. Certificates of Stock:
(a) Certificates of stock shall not be issued unless requested in
writing by a shareholder. If properly requested, certificates of each Series or
Class of the Corporation shall be in the form approved by the board of
directors, signed in the name of the Corporation by the president or any vice
president and by the treasurer or any assistant treasurer or the secretary or
any assistant secretary, sealed with the seal of the Corporation and certifying
the number and kind of shares owned by him in the Corporation. Such signatures
and seal may be a facsimile and may be mechanically reproduced thereon. The
certificates containing such facsimiles shall be valid for all intents and
purposes.
(b) In case any officer who shall have signed any such certificate, or
whose facsimile signature has been placed thereon, shall cease to be such an
officer (because of death, resignation or otherwise) before such certificate is
issued, such certificate may be issued and delivered by the Corporation with the
same effect as if he were such officer at the date of issue.
(c) The number of each certificate issued, the name of the person
owning the shares represented thereby, the number of such shares and the date of
issuance shall be entered upon the stock books of the Corporation at the time of
issuance.
(d) Every certificate exchanged, surrendered for redemption or
otherwise returned to the Corporation shall be marked "Canceled" with the date
of cancellation.
Section 8.02. Transfer of Capital Stock:
(a) Transfers of shares of any Series or Class of the Corporation shall
be made on the books of the Corporation by the holder of record thereof (in
person or by his attorney thereunto duly authorized by a power of attorney duly
executed in writing and filed with the secretary of the Corporation) (i) if a
certificate or certificates have been issued, upon the surrender of the
certificate or certificates, properly endorsed or accompanied by proper
instruments of transfer, representing such shares, or (ii) as otherwise
prescribed by the board of directors.
(b) The Corporation shall be entitled to treat the holder of record of
any share of stock as the absolute owner thereof for all purposes, and
accordingly shall not be bound to recognize any legal, equitable or other claim
or interest in such share on the part of any other person, whether or not it
shall have express or other notice thereof, except as otherwise expressly
provided by the statutes of the State of Maryland.
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Section 8.03. Transfer Agents and Registrars: The board of directors
may, from time to time, appoint or remove transfer agents or registrars of
shares of any Series or Class of the Corporation. Upon any such appointment
being made, all certificates representing shares of any such Series or Class of
the Corporation thereafter issued shall be countersigned by one of such transfer
agents or registrars or by both and shall not be valid unless so countersigned.
Section 8.04. Transfer Regulations: Except as provided in the Articles
of Incorporation, the shares of any Series of the Corporation may be freely
transferred, subject to the charging of customary transfer fees, and the board
of directors may, from time to time, adopt rules and regulations with reference
to the method of transfer of the shares of any Series or Class of the
Corporation.
Section 8.05. Fixing of Record Date: The board of direc-tors may fix in
advance a date as a record date for the determi-nation of the stockholders
entitled to notice of or to vote at any stockholders' meeting or any adjournment
thereof, or to express consent to corporate action in writing without a meeting,
or to receive payment of any dividend or other distribution or allotment of any
rights, or to exercise any rights in respect of any change, conversion or
exchange of stock, or for the purpose of any other lawful action; provided that
such record date shall be a date not more than 90 nor less than 10 days prior to
the date on which the particular action requiring such determination of
stockholders of record will be taken, except as otherwise provided by law.
Section 8.06. Lost, Stolen or Destroyed Certificates: Before issuing a
new certificate for stock of the Corporation alleged to have been lost, stolen
or destroyed, the board of directors or any officer authorized by the board may,
in its or his discretion, require the owner of the lost, stolen or destroyed
certificate (or his legal representative) to give the Corporation a bond or
other indemnity, in such form and in such amount as the board or any such
officer may direct and with such surety or sureties as may be satisfactory to
the board or any such officer, sufficient to indemnify the Corporation against
any claim that may be made against it on account of the alleged loss, theft or
destruction of any such certificate or the issuance of such new certificate.
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ARTICLE IX
FISCAL YEAR, ACCOUNTANT
Section 9.01. Fiscal Year: The fiscal year of the Corporation shall,
unless otherwise ordered by the board of directors, be twelve calendar months
ending on the 31st day of March in each year.
Section 9.02. Accountant:
(a) The Corporation shall employ an independent accountant or firm of
independent accountants as its accountant to examine the accounts of the
Corporation and to sign and certify financial statements filed by the
Corporation. The accountant's certificates and reports shall be addressed both
to the board of directors and to the stockholders.
(b) A majority of the members of the board of directors who are not
"interested persons" (as such term is defined in the Investment Company Act of
1940, as amended) of the Corporation shall select the accountant at any meeting
held within 90 days before or after the beginning of the fiscal year of the
Corporation or before the annual stockholders' meeting (if any) in that year.
Such selection shall be submitted for ratification or rejection at the next
succeeding stockholders' meeting, when and if such meeting is held. If such
meeting shall reject such selection, the accountant shall be selected by
majority vote of the Corporation's outstanding voting securities, either at the
meeting at which the rejection occurred or at a subsequent meeting of
stockholders called for that purpose.
(c) Any vacancy occurring between meetings, due to the death or
resignation of the accountant, may be filled by a majority of the members of the
board of directors who are not such interested persons.
ARTICLE X
INDEMNIFICATION AND INSURANCE
Section 10.01. Indemnification of Officers, Directors, Employees and
Agents: The Corporation shall indemnify each person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
("Proceeding"), by reason of the fact that he or she is or was a director,
officer or employee of the Corporation, or is or was serving at the request of
the Corporation as a director, officer, employee, partner, trustee or agent of
another corporation, partnership, joint venture, trust, or other enterprise,
against all reasonable expenses (including attorneys' fees) actually incurred,
and judgments, fines, penalties and amounts paid in settlement in connection
with such Proceeding to the maximum extent permitted by law, now existing or
hereafter adopted. Notwithstanding the foregoing, the following provisions shall
apply with respect to indemnification of the Corporation's directors, officers,
and investment adviser (as defined in the Investment Company Act of 1940, as
amended):
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(a) Whether or not there is an adjudication of liability in such
Proceeding, the Corporation shall not indemnify any such
person for any liability arising by reason of such person's
willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his or her
office or under any contract or agreement with the Corporation
("disabling conduct").
(b) The Corporation shall not indemnify any such person unless:
(1) the court or other body before which the Proceeding
was brought (a) dismisses the Proceeding for
insufficiency of evidence of any disabling conduct,
or (b) reaches a final decision on the merits that
such person was not liable by reason of disabling
conduct; or
(2) absent such a decision, a reasonable determination is
made, based upon a review of the facts, by (a) the
vote of a majority of a quorum of the directors of
the Corporation who are neither interested persons of
the Corporation as defined in the Investment Company
Act of 1940, as amended, nor parties to the
Proceeding, or (b) if a majority of a quorum of
directors described above so directs, or if such
quorum is not obtainable, based upon a written
opinion by independent legal counsel, that such
person was not liable by reason of disabling conduct.
(c) Reasonable expenses (including attorneys' fees) incurred in
defending a Proceeding involving any such person will be paid by the Corporation
in advance of the final disposition thereof upon an undertaking by such person
to repay such expenses unless it is ultimately determined that he or she is
entitled to indemnification, if:
(1) such person shall provide adequate security for his
or her undertaking;
(2) the Corporation shall be insured against losses
arising by reason of such advance; or
(3) a majority of a quorum of the directors of the
Corporation who are neither "interested persons" of
the Corporation as defined in the Investment Company
Act of 1940, as amended, nor parties to the
Proceeding, or independent legal counsel in a written
opinion, shall determine, based on a review of
readily available facts, that there is reason to
believe that such person will be found to be entitled
to indemnification.
Section 10.02. Insurance of Officers, Directors, Employees and
Agents: The Corporation may purchase and maintain insurance or other sources of
reimbursement to the extent permitted by law on behalf of any person who is or
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was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee,
partner, trustee or agent of another corporation, partnership, joint venture,
trust or other enterprise against any liability asserted against him or her and
incurred by him or her in or arising out of his position.
Section 10.03. Non-exclusivity: The indemnification and advancement of
expenses provided by, or granted pursuant to, this Article X shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under the Articles of Incorporation,
these By-Laws, any agreement, vote of stockholders or directors, or otherwise,
both as to action in his or her official capacity and as to action in another
capacity while holding such office.
ARTICLE XI
AMENDMENTS
Section 11.01. General: Except as provided in Sections 11.02 and 11.03
hereof, all By-Laws of the Corporation, whether adopted by the board of
directors or the stockholders, shall be subject to amendment, alteration or
repeal, and new By-Laws may be made, by the affirmative vote of a majority of
either:
(a) the holders of record of the outstanding shares of stock of the
Corporation entitled to vote, at any meeting, the notice or waiver of notice of
which shall have specified or summarized the proposed amendment, alteration,
repeal or new By-Law; or
(b) the directors, at any regular or special meeting the notice or
waiver of notice of which shall have specified or summarized the proposed
amendment, alteration, repeal or new By-Law.
Section 11.02. By Stockholders Only:
(a) No amendment of any section of these By-Laws shall be made except
by the stockholders of the Corporation if the By-Laws provide that such section
may not be amended, altered or repealed except by the stockholders.
(b) From and after the issuance of any shares of the capital stock of
the Corporation, no amendment of this Article XI shall be made except by the
stockholders of the Corporation.
Section 11.03. Limitation on Amendment: No amendment to Article X of
these By-Laws shall narrow or eliminate any right to expenses, indemnification
or insurance for any claim or proceeding arising out of conduct occurring prior
to said amendment.
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INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
This INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT, made this 2nd day of
August, 1993, by and between Legg Mason Investors Trust, Inc., a Maryland
corporation (the "Corporation"), and Legg Mason Fund Adviser, Inc., a Maryland
corporation (the "Adviser").
WHEREAS, the Corporation is registered as an open-end management
investment company under the Investment Company Act of 1940, as amended ("1940
Act") and intends to offer for public sale under the Securities Act of 1933 and
various state securities laws, distinct series of shares of common stock
("Series"), each Series corresponding to a distinct portfolio; and
WHEREAS, the Corporation wishes to retain the Adviser to provide
investment advisory, management, and administrative services to the Corporation
and each Series as now exists and as hereafter may be established; and
WHEREAS, the Adviser is willing to furnish such services on the terms
and conditions hereinafter set forth;
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed as follows:
1. The Corporation hereby appoints Legg Mason Fund Adviser, Inc. as
Adviser of each Series for the period and on the terms set forth in this
Agreement. The Adviser accepts such appointment and agrees to render the
services herein set forth, for the compensation herein provided.
2. Each Series shall at all times keep the Adviser fully informed with
regard to the securities owned by it, its funds available, or to become
available, for investment, and generally as to the condition of its affairs. It
shall furnish the Adviser with such other documents and information with regard
to its affairs as the Adviser may from time to time reasonably request.
3. (a) Subject to the supervision of the Corporation's Board of
Directors, the Adviser shall regularly provide each Series with investment
research, advice, management and supervision and shall furnish a continuous
investment program for each Series' portfolio of securities consistent with each
Series' investment goals and policies. The Adviser shall determine from time to
time what securities will be purchased, retained or sold by each Series, and
shall implement those decisions, all subject to the provisions of the
Corporation's Articles of Incorporation and By-laws, the 1940 Act, the
applicable rules and regulations of the Securities and Exchange Commission, and
other applicable federal and state law, as well as the investment goals and
policies of each Series. The Adviser will place orders pursuant to its
investment determinations for each Series either directly with the issuer or
with any broker or dealer. In placing orders with brokers and dealers the
Adviser will attempt to obtain the best net price and the most favorable
execution of its orders; however, the Adviser may, in its discretion, purchase
and sell portfolio securities through brokers who provide each Series with
research, analysis, advice and similar services, and the Adviser may pay to
these brokers, in return for research and analysis, a higher commission or
spread than may be charged by other brokers. The Adviser is authorized to
combine orders on behalf of each Series with orders on behalf of other clients
of the Adviser, consistent with guidelines adopted by the Board of Directors of
the Corporation. The Adviser shall also provide advice and recommendations with
respect to other aspects of the business and affairs of each Series, and shall
perform such other functions of management and supervision as may be directed by
the Board of Directors of the Corporation.
(b) The Corporation hereby authorizes any entity or person associated
with the Adviser which is a member of a national securities exchange to effect
any transaction on the exchange for the account of each Series which is
permitted by Section 11(a) of the Securities Exchange Act of 1934 and Rule
11a2-2(T)
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thereunder, and the Corporation hereby consents to the retention by such
person associated with the Adviser of compensation for such transactions in
accordance with Rule 11a2-2(T)(a)(2)(iv).
4. The Adviser may enter into a contract ("Advisory Agreement") with an
investment adviser in which the Adviser delegates to such investment adviser any
or all its duties specified in Paragraph 3 hereunder, provided that such
Advisory Agreement imposes on the investment adviser bound thereby all duties
and conditions to which the Adviser is subject hereunder, and further provided
that such Advisory Agreement meets all requirements of the 1940 Act and rules
thereunder.
5. (a) The Adviser, at its expense, shall supply the Board of Directors
and officers of the Corporation with all statistical information and reports
reasonably required by them and reasonably available to the Adviser and shall
furnish each Series with office facilities, including space, furniture and
equipment and all personnel reasonably necessary for the operation of the
Corporation and each Series. The Adviser shall oversee the maintenance of all
books and records with respect to the Corporation's and each Series' securities
transactions and the keeping of the Corporation's and each Series' books of
account in accordance with all applicable federal and state laws and
regulations. In compliance with the requirements of Rule 31a-3 under the 1940
Act, the Adviser hereby agrees that any records which it maintains for the
Corporation or any Series are the property of the Corporation, and further
agrees to surrender promptly to the Corporation any of such records upon the
Corporation's request. The Adviser further agrees to arrange for the
preservation of the records required to be maintained by Rule 31a-1 under the
1940 Act for the periods prescribed by Rule 31a-2 under the 1940 Act. The
Adviser shall authorize and permit any of its directors, officers and employees,
who may be elected as directors or officers of the Corporation, to serve in the
capacities in which they are elected.
(b) Other than as herein specifically indicated, the Adviser shall not
be responsible for the expenses of the Corporation or any Series. Specifically,
the Adviser will not be responsible, except to the extent of the reasonable
compensation of employees of the Corporation and each Series whose services may
be used by the Adviser hereunder, for any of the following expenses of the
Corporation and each Series, which expenses shall be borne by the Corporation
and each Series: advisory fees; distribution fees; interest, taxes, governmental
fees, fees, voluntary assessments and other expenses incurred in connection with
membership in investment company organizations; the cost (including brokerage
commissions or charges, if any) of securities purchased or sold by each Series
and any losses in connection therewith; fees of custodians, transfer agents,
registrars or other agents; legal expenses; expenses of preparing share
certificates; expenses relating to the redemption or repurchase of each Series'
shares; expenses of registering and qualifying shares of each Series for sale
under applicable federal and state law; expenses of preparing, setting in print,
printing and distributing prospectuses, reports, notices and dividends to Fund
shareholders; costs of stationery; costs of stockholders' and other meetings of
the Corporation and each Series; directors' fees; audit fees; travel expenses of
officers, directors and employees of the Corporation if any; and the
Corporation's pro rata portion of premiums on any fidelity bond and other
insurance covering the Corporation and its officers and directors.
6. No director, officer or employee of the Corporation or Fund shall
receive from the Corporation any salary or other compensation as such director,
officer or employee while he or she is at the same time a director, officer, or
employee of the Adviser or any affiliated company of the Adviser. This paragraph
shall not apply to directors, executive committee members, consultants and other
persons who are not regular members of the Adviser's or any affiliated company's
staff.
7. As compensation for the services performed and the facilities
furnished and expenses assumed by the Adviser, including the services of any
consultants or sub-advisers retained by the Adviser, Legg Mason American Leading
Companies Trust, the only currently established Series of the Corporation, shall
pay the Adviser, as promptly as possible after the last day of each month, a
fee, computed daily at an annual rate of 0.75% of the Series' average daily net
assets. The first payment of the fee shall be made as
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<PAGE>
promptly as possible at the end of the month succeeding the effective date of
this Agreement. If this Agreement is terminated as to any or all Series as of
any date not the last day of a month, such fee shall be paid as promptly as
possible after such date of termination, shall be based on the average daily net
assets of such Series in that period from the beginning of such month to such
date of termination, and shall be based on that proportion of such average daily
net assets as the number of business days in such period bears to the number of
business days in such month. The average daily net assets of each Series shall
in all cases be based only on business days and be computed as of the time of
the regular close of business of the New York Stock Exchange, or such other time
as may be determined by the Board of Directors of the Corporation. Each such
payment shall be accompanied by a report prepared either by the Corporation and
each Series or by a reputable firm of independent accountants, which shall show
the amount properly payable to the Adviser under this Agreement and the detailed
computation thereof.
8. The Adviser assumes no responsibility under this Agreement other
than to render the services called for hereunder, in good faith, and shall not
be responsible for any action of the Board of Directors of the Corporation in
following or declining to follow any advice or recommendations of the Adviser;
provided, that nothing in this Agreement shall protect the Adviser against any
liability to the Corporation or its shareholders to which it would otherwise be
subject by reason of willful misfeasance, bad faith, or gross negligence in the
performance of its duties or by reason of its reckless disregard of its
obligations and duties hereunder.
9. Nothing in this Agreement shall limit or restrict the right of any
director, officer, or employee of the Adviser who may also be a director,
officer, or employee of the Corporation or each Series, to engage in any other
business or to devote his time and attention in part to the management or other
aspects of any other business, whether of a similar nature or a dissimilar
nature, or limit or restrict the right of the Adviser to engage in any other
business or to render services of any kind, including investment advisory and
management services, to any other corporation, firm, individual or association.
10. As used in this Agreement, the terms "assignment", "interested
persons", and "majority of the outstanding voting securities" shall have the
meanings given to them by Section 2(a) of the 1940 Act, subject to such
exemptions and interpretations as may be granted by the Securities and Exchange
Commission by any rule, regulation or order.
11. This Agreement will become effective with respect to each Series on
the date first written above, provided that it shall have been approved by the
Corporation's Board of Directors and by the shareholders of that Series in
accordance with the requirements of the 1940 Act and, unless sooner terminated
as provided herein, will continue in effect for two years from the above written
date. Thereafter, if not terminated, this Agreement shall continue in effect
with respect to each Series for successive annual periods ending on the same
date of each year, provided that such continuance is specifically approved at
least annually (i) by the Corporation's Board of Directors or (ii) by a vote of
a majority of the outstanding voting securities of the Series (as defined in the
1940 Act), provided that in either event the continuance is also approved by a
majority of the Corporation's Directors who are not interested persons (as
defined in the 1940 Act) of any party to this Agreement, by vote cast in person
at a meeting called for the purpose of voting on such approval.
12. This Agreement is terminable with respect to any Series without
penalty by the Corporation's Board of Directors, by vote of a majority of the
outstanding voting securities of each affected Series (as defined in the 1940
Act), or by the Adviser, on not less than 60 days' notice to the other party and
will be terminated upon the mutual written consent of the Adviser and the
Corporation. This Agreement shall terminate automatically in the event of its
assignment by the Adviser and shall not be assignable by the Corporation without
the consent of the Adviser.
13. In the event this Agreement is terminated by either party or upon
written notice from the Adviser at any time, the Corporation hereby agrees that
it will eliminate from its corporate name any reference
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to the name of "Legg Mason." The Corporation shall have the non-exclusive use of
the name "Legg Mason" in whole or in part only so long as this Agreement is
effective or until such notice is given.
14. The Adviser agrees that for services rendered to a Series, or
indemnity due in connection with service to a Series, it shall look only to
assets of that Series for satisfaction and that it shall have no claim against
the assets of any other Series.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers thereunto duly authorized.
Attest: LEGG MASON INVESTORS TRUST, INC.
By: /s/ Marie K. Karpinski By: /s/ John F. Curley, Jr.
---------------------- -----------------------
Attest: LEGG MASON FUND ADVISER, INC.
By: /s/ Marie K. Karpinski By: /s/ William H. Miller
---------------------- ---------------------
4
INVESTMENT ADVISORY AGREEMENT
LEGG MASON INVESTORS TRUST, INC.
AGREEMENT made this 31st day of July, 1996 by and between Legg Mason
Fund Adviser, Inc. ("Manager"), a Maryland corporation, and Bartlett & Co.
("Adviser"), an Ohio corporation, each of which is registered as an investment
adviser under the Investment Advisers Act of 1940.
WHEREAS, Manager is the manager of Legg Mason Investors Trust, Inc.
(the "Corporation"), an open-end, diversified management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), and
WHEREAS, Manager wishes to retain Adviser to provide it with certain
investment advisory services in connection with Manager's management of the Legg
Mason Balanced Trust ("Fund"), a series of shares of the Corporation; and
WHEREAS, Adviser is willing to furnish such services on the terms and
conditions hereinafter set forth:
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed as follows:
1. Appointment. Manager hereby appoints Bartlett & Co. as investment
adviser for the Fund for the period and on the terms set forth in this
Agreement. Adviser accepts such appointment and agrees to furnish the services
herein set forth for the compensation herein provided.
2. Delivery of Documents. Manager has furnished the Adviser with copies
properly certified or authenticated of each of the following:
(a) The Corporation's Articles of Incorporation, as filed with
the State Department of Assessments and Taxation of the State of
Maryland on May 5, 1993 and all amendments thereto (such Articles of
Incorporation, as presently in effect and as they shall from time to
time be amended, are herein called the "Articles");
(b) The Corporation's By-Laws and all amendments thereto (such
By-Laws, as presently in effect and as they shall from time to time be
amended, are herein called the "By-Laws");
(c) Resolutions of the Corporation's Board of Directors
authorizing the appointment of Manager as the manager and Bartlett &
Co. as investment adviser and approving the Management Agreement
between Manager and the Fund dated July 31, 1996 (the "Management
Agreement") and this Agreement;
(d) The Corporation's Registration Statement on Form N-1A
under the Securities Act of 1933, as amended, and the 1940 Act (File
No. 33-62174) as filed with the Securities and Exchange Commission on
May 17, 1996, including all exhibits thereto, relating to shares of
common stock of the Fund, par value $.001 per share (herein called
"Shares") and all amendments thereto;
(e) The Fund's most recent prospectus (such prospectus, as
presently in effect and all amendments and supplements thereto are
herein called the "Prospectus"); and
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(f) The Fund's most recent statement of additional information
(such statement of additional information, as presently in effect and
all amendments and supplements thereto are herein called the "Statement
of Additional Information").
The Manager will furnish Adviser from time to time with copies of all amendments
of or supplements to the foregoing.
3. Investment Advisory Services. (a) Subject to the supervision of the
Corporation's Board of Directors and the Manager, Adviser shall regularly
provide the Fund with investment research, advice, management and supervision
and shall furnish a continuous investment program for the Fund's portfolio of
securities consistent with the Fund's investment objective, policies, and
limitations as stated in the Fund's current Prospectus and Statement of
Additional Information. The Adviser shall determine from time to time what
securities will be purchased, retained or sold by the Fund, and shall implement
those decisions, all subject to the provisions of the Corporation's Articles of
Incorporation and By-Laws, the 1940 Act, the applicable rules and regulations of
the Securities and Exchange Commission, and other applicable federal and state
law, as well as the investment objective, policies, and limitations of the Fund.
The Adviser will place orders pursuant to its investment determinations for the
Fund either directly with the issuer or with any broker or dealer. In placing
orders with brokers and dealers, Adviser will attempt to obtain the best net
price and the most favorable execution of its orders; however, the Adviser may,
in its discretion, purchase and sell portfolio securities from and to brokers
and dealers who provide the Fund with research, analysis, advice and similar
services, and Adviser may pay to these brokers, in return for research and
analysis, a higher commission than may be charged by other brokers. In no
instance will portfolio securities be purchased from or sold to the Adviser or
any affiliated person thereof except in accordance with the rules, regulations
or orders promulgated by the Securities and Exchange Commission pursuant to the
1940 Act. The Adviser shall also perform such other functions of management and
supervision as may be requested by the Manager and agreed to by Adviser.
(b) The Adviser will oversee the maintenance of all books and records
with respect to the securities transactions of the Fund in accordance with all
applicable federal and state laws and regulations, and will furnish the Board of
Directors of the Corporation with such periodic and special reports as the Board
or the Manager reasonably may request.
(c) The Corporation hereby authorizes any entity or person associated
with the Adviser which is a member of a national securities exchange to effect
any transaction on the exchange for the account of the Corporation which is
permitted by Section 11(a) of the Securities Exchange Act of 1934 and Rule
11a2-2(T) thereunder, and the Corporation hereby consents to the retention by
such person associated with the Adviser of compensation for such transactions in
accordance with Rule 11a2-2(T)(a)(2)(iv).
4. Services Not Exclusive. The Adviser's services hereunder are not
deemed to be exclusive, and Adviser shall be free to render similar services to
others. It is understood that persons employed by Adviser to assist in the
performance of its duties hereunder might not devote their full time to such
service. Nothing herein contained shall be deemed to limit or restrict the right
of the Adviser or any affiliate of Adviser to engage in and devote time and
attention to other businesses or to render services of whatever kind or nature.
5. Books and Records. In compliance with the requirements of Rule 31a-3
under the 1940 Act, Adviser hereby agrees that all books and records which it
maintains for the Fund are property of the Fund and further agrees to surrender
promptly to the Fund or its agents any of such records upon the Fund's request.
The Adviser further agrees to preserve for the periods prescribed by Rule 31a-2
under the 1940 Act, any such records required to be maintained by Rule 31a-1
under the 1940 Act.
2
<PAGE>
6. Expenses. During the term of this Agreement, Adviser will pay all
expenses incurred by it in connection with its activities under this Agreement
other than the cost of securities (including brokerage commissions, if any)
purchased for the Fund.
7. Compensation. For the services which Adviser will render to Manager
and the Fund under this Agreement, Manager will pay Adviser a fee, computed
daily and paid monthly, at an annual rate equal to 662/3% of the fee received by
the Manager from the Fund, net of any waivers or reimbursements by the Manager
of its fee. Fees due to the Adviser hereunder shall be paid promptly to Adviser
by the Manager following its receipt of fees from the Fund. If this Agreement is
terminated as of any date not the last day of a calendar month, a final fee
shall be paid promptly after the date of termination and shall be based on the
percentage of days of the month during which the contract was still in effect.
8. Limitation of Liability. The Adviser will not be liable for any
error of judgment or mistake of law or for any loss suffered by Manager or by
the Fund in connection with the performance of this 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 this Agreement.
9. Definitions. As used in this Agreement, the terms "securities" and
"net assets" shall have the meanings ascribed to them in the Articles of
Incorporation of the Corporation; and the terms "assignment," "interested
person," and "majority of the outstanding voting securities" shall have the
meanings given to them by Section 2(a) of the 1940 Act, subject to such
exemptions as may be granted by the Securities and Exchange Commission by any
rule, regulation or order.
10. Duration and Termination. This Agreement will become effective July
31, 1996, provided that it shall have been approved by the Corporation's Board
of Directors and by the shareholders of the Fund in accordance with the
requirements of the 1940 Act and, unless sooner terminated as provided for
herein, shall continue in effect until July 31, 1998. Thereafter, if not
terminated, this Agreement shall continue in effect for successive annual
periods, provided that such continuance is specifically approved at least
annually (i) by the Corporation's Board of Directors or (ii) by a vote of a
majority (as defined in the 1940 Act) of the outstanding voting securities of
the Fund, provided that in either event the continuance is also approved by a
majority of the Corporation's Directors who are not interested persons (as
defined in the 1940 Act) of the Corporation or of any party to this Agreement,
by vote cast in person at a meeting called for the purpose of voting on such
approval. This Agreement is terminable without penalty, by vote of the
Corporation's Board of Directors, by vote of a majority (as defined in the 1940
Act) of the outstanding voting securities of the Fund, by the Manager or by the
Adviser, on not less than 60 days' notice to the Fund and/or the other
party(ies) and will be terminated immediately upon any termination of the
Management Agreement with respect to the Fund or upon the mutual written consent
of the Adviser, the Manager, and the Fund. Termination of this Agreement with
respect to the Fund shall in no way affect continued performance with regard to
any other portfolio of the Corporation. This Agreement will automatically and
immediately terminate in the event of its assignment.
11. Further Actions. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
12. Amendments. No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought, and no material amendment of this Agreement shall be
effective until approved by vote of the holders of a majority of the Fund's
outstanding voting securities.
13. Miscellaneous. This Agreement embodies the entire agreement and
understanding between the parties hereto, and supersedes all prior agreements
and understandings relating to the subject matter hereof. The captions in this
Agreement are included for convenience of reference only and in no way define
3
<PAGE>
or delimit any of the provisions hereof or otherwise affect their construction
or effect. Should any part of this Agreement be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement shall not
be affected thereby. This Agreement shall be binding and shall inure to the
benefit of the parties hereto and their respective successors.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first above
written.
[SEAL] LEGG MASON FUND ADVISER, INC.
Attest:
By: /s/ Kathi D. Bair By: /s/ William H. Miller
----------------- ---------------------
[SEAL] BARTLETT & CO.
Attest:
By: /s/ Barbara A. Brown By: /s/ Thomas A. Steele
-------------------- --------------------
4
ADVISORY AGREEMENT
LEGG MASON INVESTORS TRUST, INC.
AGREEMENT made this 2nd day of August, 1993 by and between LEGG MASON
FUND ADVISER, INC. ("Manager"), a Maryland corporation, and Legg Mason Capital
Management, Inc. ("Adviser"), a Maryland corporation, each of which is
registered as an investment adviser under the Investment Advisers Act of 1940.
WHEREAS, Manager is the manager of Legg Mason Investors Trust, Inc.
(the "Corporation"), an open-end, diversified management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), and
WHEREAS, Manager wishes to retain Adviser to provide it with certain
investment advisory services in connection with Manager's management of the Legg
Mason American Leading Companies Trust ("Fund"), a series of shares of the
Corporation; and
WHEREAS, Adviser is willing to furnish such services on the terms and
conditions hereinafter set forth:
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed as follows:
1. Appointment. Manager hereby appoints Legg Mason Capital Management,
Inc. as investment adviser for the Fund for the period and on the terms set
forth in this Agreement. Adviser accepts such appointment and agrees to furnish
the services herein set forth for the compensation herein provided.
2. Delivery of Documents. Manager has furnished the Adviser with copies
properly certified or authenticated of each of the following:
(a) The Corporation's Articles of Incorporation, as filed with
the State Department of Assessments and Taxation of the State of
Maryland on May 5, 1993 and all amendments thereto (such Articles of
Incorporation, as presently in effect and as they shall from time to
time be amended, are herein called the "Articles");
(b) The Corporation's By-Laws and all amendments thereto (such
By-Laws, as presently in effect and as they shall from time to time be
amended, are herein called the "By-Laws");
(c) Resolutions of the Corporation's Board of Directors
authorizing the appointment of Manager as the manager and Legg Mason
Capital Management, Inc. as investment adviser and approving the
Management Agreement between Manager and the Fund dated August 2, 1993
(the "Management Agreement") and this Agreement;
(d) The Corporation's Notification of Registration on Form
N-8A under the 1940 Act as filed with the Securities and Exchange
Commission on May 5, 1993 and all amendments thereto;
(e) The Corporation's Registration Statement on Form N-1A
under the Securities Act of 1933, as amended, and the 1940 Act (File
No. 33-62174) as filed with the Securities and Exchange Commission on
May 5, 1993, including all exhibits thereto, relating to shares of
common stock of the Fund, par value $.001 per share (herein called
"Shares") and all amendments thereto;
1
<PAGE>
(f) The Fund's most recent prospectus (such prospectus, as
presently in effect and all amendments and supplements thereto are
herein called the "Prospectus"); and
(g) The Fund's most recent statement of additional information
(such statement of additional information, as presently in effect and
all amendments and supplements thereto are herein called the "Statement
of Additional Information").
The Manager will furnish Adviser from time to time with copies of all amendments
of or supplements to the foregoing.
3. Investment Advisory Services. (a) Subject to the supervision of the
Corporation's Board of Directors and the Manager, Adviser shall regularly
provide the Fund with investment research, advice, management and supervision
and shall furnish a continuous investment program for the Fund's portfolio of
securities consistent with the Fund's investment objective, policies, and
limitations as stated in the Fund's current Prospectus and Statement of
Additional Information. The Adviser shall determine from time to time what
securities will be purchased, retained or sold by the Fund, and shall implement
those decisions, all subject to the provisions of the Corporation's Articles of
Incorporation and By-Laws, the 1940 Act, the applicable rules and regulations of
the Securities and Exchange Commission, and other applicable federal and state
law, as well as the investment objective, policies, and limitations of the Fund.
The Adviser will place orders pursuant to its investment determinations for the
Fund either directly with the issuer or with any broker or dealer. In placing
orders with brokers and dealers, Adviser will attempt to obtain the best net
price and the most favorable execution of its orders; however, the Adviser may,
in its discretion, purchase and sell portfolio securities from and to brokers
and dealers who provide the Fund with research, analysis, advice and similar
services, and Adviser may pay to these brokers, in return for research and
analysis, a higher commission than may be charged by other brokers. In no
instance will portfolio securities be purchased from or sold to the Adviser or
any affiliated person thereof except in accordance with the rules, regulations
or orders promulgated by the Securities and Exchange Commission pursuant to the
1940 Act. The Adviser shall also perform such other functions of management and
supervision as may be requested by the Manager and agreed to by Adviser.
(b) The Adviser will oversee the maintenance of all books and records
with respect to the securities transactions of the Fund in accordance with all
applicable federal and state laws and regulations, and will furnish the Board of
Directors of the Corporation with such periodic and special reports as the Board
or the Manager reasonably may request.
(c) The Corporation hereby authorizes any entity or person associated
with the Adviser which is a member of a national securities exchange to effect
any transaction on the exchange for the account of the Corporation which is
permitted by Section 11(a) of the Securities Exchange Act of 1934 and Rule
11a2-2(T) thereunder, and the Corporation hereby consents to the retention by
such person associated with the Adviser of compensation for such transactions in
accordance with Rule 11a2-2(T)(a)(2)(iv).
4. Services Not Exclusive. The Adviser's services hereunder are not
deemed to be exclusive, and Adviser shall be free to render similar services to
others. It is understood that persons employed by Adviser to assist in the
performance of its duties hereunder might not devote their full time to such
service. Nothing herein contained shall be deemed to limit or restrict the right
of the Adviser or any affiliate of Adviser to engage in and devote time and
attention to other businesses or to render services of whatever kind or nature.
5. Books and Records. In compliance with the requirements of Rule 31a-3
under the 1940 Act, Adviser hereby agrees that all books and records which it
maintains for the Fund are property of the Fund and further agrees to surrender
promptly to the Fund or its agents any of such records upon the Fund's request.
2
<PAGE>
The Adviser further agrees to preserve for the periods prescribed by Rule 31a-2
under the 1940 Act, any such records required to be maintained by Rule 31a-1
under the 1940 Act.
6. Expenses. During the term of this Agreement, Adviser will pay all
expenses incurred by it in connection with its activities under this Agreement
other than the cost of securities (including brokerage commissions, if any)
purchased for the Fund.
7. Compensation. For the services which Adviser will render to Manager
and the Fund under this Agreement, Manager will pay Adviser a fee, computed
daily and paid monthly, at an annual rate equal to 40% of the fee received by
the Manager from the Fund, net of any waivers or reimbursements by the Manager
of its fee. Fees due to the Adviser hereunder shall be paid promptly to Adviser
by the Manager following its receipt of fees from the Fund. If this Agreement is
terminated as of any date not the last day of a calendar month, a final fee
shall be paid promptly after the date of termination and shall be based on the
percentage of days of the month during which the contract was still in effect.
8. Limitation of Liability. The Adviser will not be liable for any
error of judgment or mistake of law or for any loss suffered by Manager or by
the Fund in connection with the performance of this 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 this Agreement.
9. Definitions. As used in this Agreement, the terms "securities" and
"net assets" shall have the meanings ascribed to them in the Articles of
Incorporation of the Corporation; and the terms "assignment," "interested
person," and "majority of the outstanding voting securities" shall have the
meanings given to them by Section 2(a) of the 1940 Act, subject to such
exemptions as may be granted by the Securities and Exchange Commission by any
rule, regulation or order.
10. Duration and Termination. This Agreement will become effective
August 2, 1993, provided that it shall have been approved by the Corporation's
Board of Directors and by the shareholders of the Fund in accordance with the
requirements of the 1940 Act and, unless sooner terminated as provided for
herein, shall continue in effect until August 1, 1995. Thereafter, if not
terminated, this Agreement shall continue in effect for successive annual
periods, provided that such continuance is specifically approved at least
annually (i) by the Corporation's Board of Directors or (ii) by a vote of a
majority (as defined in the 1940 Act) of the outstanding voting securities of
the Fund, provided that in either event the continuance is also approved by a
majority of the Corporation's Directors who are not interested persons (as
defined in the 1940 Act) of the Corporation or of any party to this Agreement,
by vote cast in person at a meeting called for the purpose of voting on such
approval. This Agreement is terminable without penalty, by vote of the
Corporation's Board of Directors, by vote of a majority (as defined in the 1940
Act) of the outstanding voting securities of the Fund, by the Manager or by the
Adviser, on not less than 60 days' notice to the Fund and/or the other
party(ies) and will be terminated immediately upon any termination of the
Management Agreement with respect to the Fund or upon the mutual written consent
of the Adviser, the Manager, and the Fund. Termination of this Agreement with
respect to the Fund shall in no way affect continued performance with regard to
any other portfolio of the Corporation. This Agreement will automatically and
immediately terminate in the event of its assignment.
11. Further Actions. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
12. Amendments. No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought, and no material amendment of this Agreement shall be
effective until approved by vote of the holders of a majority of the Fund's
outstanding voting securities.
3
<PAGE>
13. Miscellaneous. This Agreement embodies the entire agreement and
understanding between the parties hereto, and supersedes all prior agreements
and understandings relating to the subject matter hereof. The captions in this
Agreement are included for convenience of reference only and in no way define or
delimit any of the provisions hereof or otherwise affect their construction or
effect. Should any part of this Agreement be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement shall not
be affected thereby. This Agreement shall be binding and shall inure to the
benefit of the parties hereto and their respective successors.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first above
written.
[SEAL] LEGG MASON FUND ADVISER, INC.
Attest:
By: /s/ Marie K. Karpinski By: /s/ William H. Miller
---------------------- ---------------------
[SEAL] LEGG MASON CAPITAL MANAGEMENT, INC.
Attest:
By: /s/ Marie K. Karpinski By: /s/ Philip E. Sachs
---------------------- -------------------
4
MANAGEMENT AGREEMENT
This INVESTMENT MANAGEMENT AGREEMENT, made this 31st day of July, 1996,
by and between Legg Mason Investors Trust, Inc., a Maryland corporation (the
"Corporation"), on behalf of Legg Mason Balanced Trust ("Fund"), and Legg Mason
Fund Adviser, Inc., a Maryland corporation (the "Manager").
WHEREAS, the Corporation is registered as an open-end management
investment company under the Investment Company Act of 1940, as amended ("1940
Act") currently consisting of one other portfolio; and
WHEREAS, the Corporation wishes to retain the Manager to provide
investment advisory, management, and administrative services to the Fund; and
WHEREAS, the Manager is willing to furnish such services on the terms
and conditions hereinafter set forth;
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed as follows:
1. The Corporation hereby appoints Legg Mason Fund Adviser, Inc. as
Manager of the Fund for the period and on the terms set forth in this Agreement.
The Manager accepts such appointment and agrees to render the services herein
set forth, for the compensation herein provided.
2. The Fund shall at all times keep the Manager fully informed with
regard to the securities owned by it, its funds available, or to become
available, for investment, and generally as to the condition of its affairs. It
shall furnish the Manager with such other documents and information with regard
to its affairs as the Manager may from time to time reasonably request.
3. (a) Subject to the supervision of the Corporation's Board of
Directors, the Manager shall regularly provide the Fund with investment
research, advice, management and supervision and shall furnish a continuous
investment program for the Fund's portfolio of securities consistent with the
Fund's investment goals and policies. The Manager shall determine from time to
time what securities will be purchased, retained or sold by the Fund, and shall
implement those decisions, all subject to the provisions of the Corporation's
Articles of Incorporation and By-laws, the 1940 Act, the applicable rules and
regulations of the Securities and Exchange Commission, and other applicable
federal and state law, as well as the investment goals and policies of the Fund.
The Manager will place orders pursuant to its investment determinations for the
Fund either directly with the issuer or with any broker or dealer. In placing
orders with brokers and dealers the Manager will attempt to obtain the best net
price and the most favorable execution of its orders; however, the Manager may,
in its discretion, purchase and sell portfolio securities through brokers who
provide the Fund with research, analysis, advice and similar services, and the
Manager may pay to these brokers, in return for research and analysis, a higher
commission or spread than may be charged by other brokers. The Manager is
authorized to combine orders on behalf of the Fund with orders on behalf of
other clients of the Manager, consistent with guidelines adopted by the Board of
Directors of the Corporation. The Manager shall also provide advice and
recommendations with respect to other aspects of the business and affairs of the
Fund, and shall perform such other functions of management and supervision as
may be directed by the Board of Directors of the Corporation.
(b) The Fund hereby authorizes any entity or person associated with the
Manager which is a member of a national securities exchange to effect any
transaction on the exchange for the account of the Fund which is permitted by
Section 11(a) of the Securities Exchange Act of 1934 and Rule 11a2-2(T)
thereunder, and the Fund hereby consents to the retention by such person
associated with the Manager of compensation for such transactions in accordance
with Rule 11a2-2(T)(a)(2)(iv).
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<PAGE>
4. The Manager may enter into a contract ("Investment Advisory
Agreement") with an investment adviser in which the Manager delegates to such
investment adviser any or all its duties specified in Paragraph 3 hereunder,
provided that such Investment Advisory Agreement imposes on the investment
adviser bound thereby all duties and conditions to which the Manager is subject
hereunder, and further provided that such Investment Advisory Agreement
meets all requirements of the 1940 Act and rules thereunder.
5. (a) The Manager, at its expense, shall supply the Board of Directors
and officers of the Corporation with all statistical information and reports
reasonably required by them and reasonably available to the Manager and shall
furnish the Fund with office facilities, including space, furniture and
equipment and all personnel reasonably necessary for the operation of the Fund.
The Manager shall oversee the maintenance of all books and records with respect
to the Fund's securities transactions and the keeping of the Fund's books of
account in accordance with all applicable federal and state laws and
regulations. In compliance with the requirements of Rule 31a-3 under the 1940
Act, the Manager hereby agrees that any records which it maintains for the Fund
are the property of the Corporation, and further agrees to surrender promptly to
the Fund or its agents any of such records upon the Fund's request. The Manager
further agrees to arrange for the preservation of the records required to be
maintained by Rule 31a-1 under the 1940 Act for the periods prescribed by Rule
31a-2 under the 1940 Act. The Manager shall authorize and permit any of its
directors, officers and employees, who may be elected as directors or officers
of the Fund, to serve in the capacities in which they are elected.
(b) Other than as herein specifically indicated, the Manager shall not
be responsible for the Fund's expenses. Specifically, the Manager will not be
responsible, except to the extent of the reasonable compensation of employees of
the Fund whose services may be used by the Manager hereunder, for any of the
following expenses of the Fund, which expenses shall be borne by the Fund:
advisory fees; distribution fees; interest, taxes, governmental fees, fees,
voluntary assessments and other expenses incurred in connection with membership
in investment company organizations; the cost (including brokerage commissions
or charges, if any) of securities purchased or sold by the Fund and any losses
in connection therewith; fees of custodians, transfer agents, registrars or
other agents; legal expenses; expenses of preparing share certificates; expenses
relating to the redemption or repurchase of the Fund's shares; expenses of
registering and qualifying shares of the Fund for sale under applicable federal
and state law; expenses of preparing, setting in print, printing and
distributing prospectuses, reports, notices and dividends to Fund shareholders;
costs of stationery; costs of stockholders' and other meetings of the Fund;
directors' fees; audit fees; travel expenses of officers, directors and
employees of the Corporation if any; and the Corporation's pro rata portion of
premiums on any fidelity bond and other insurance covering the Corporation and
its officers and directors.
6. No director, officer or employee of the Corporation or Fund shall
receive from the Corporation any salary or other compensation as such director,
officer or employee while he or she is at the same time a director, officer, or
employee of the Manager or any affiliated company of the Manager. This paragraph
shall not apply to directors, executive committee members, consultants and other
persons who are not regular members of the Manager's or any affiliated company's
staff.
7. As compensation for the services performed and the facilities
furnished and expenses assumed by the Manager, including the services of any
consultants or sub-advisers retained by the Manager, the Fund shall pay the
Manager, as promptly as possible after the last day of each month, a fee,
computed daily at an annual rate of 0.75% of the average daily net assets of the
Fund. The first payment of the fee shall be made as promptly as possible at the
end of the month succeeding the effective date of this Agreement. If this
Agreement is terminated as of any date not the last day of a month, such fee
shall be paid as promptly as possible after such date of termination, shall be
based on the average daily net assets of the Fund in that period from the
beginning of such month to such date of termination, and shall be based on that
proportion of such average daily net assets as the number of business days in
such period bears to the number of business days in such month. The average
daily net assets of the Fund shall in all cases be based only on business days
and be computed as of the time of the regular close of business of the New York
Stock
2
<PAGE>
Exchange, or such other time as may be determined by the Board of Directors of
the Corporation. Each such payment shall be accompanied by a report prepared
either by the Fund or by a reputable firm of independent accountants, which
shall show the amount properly payable to the Manager under this Agreement and
the detailed computation thereof.
8. The Manager assumes no responsibility under this Agreement other
than to render the services called for hereunder, in good faith, and shall not
be responsible for any action of the Board of Directors of the Corporation in
following or declining to follow any advice or recommendations of the Manager;
provided, that nothing in this Agreement shall protect the Manager against any
liability to the Fund or its shareholders to which it would otherwise be subject
by reason of willful misfeasance, bad faith, or gross negligence in the
performance of its duties or by reason of its reckless disregard of its
obligations and duties hereunder.
9. Nothing in this Agreement shall limit or restrict the right of any
director, officer, or employee of the Manager who may also be a director,
officer, or employee of the Corporation or the Fund, to engage in any other
business or to devote his time and attention in part to the management or other
aspects of any other business, whether of a similar nature or a dissimilar
nature, or limit or restrict the right of the Manager to engage in any other
business or to render services of any kind, including investment advisory and
management services, to any other corporation, firm, individual or association.
10. As used in this Agreement, the terms "assignment", "interested
persons", and "majority of the outstanding voting securities" shall have the
meanings given to them by Section 2(a) of the 1940 Act, subject to such
exemptions and interpretations as may be granted by the Securities and Exchange
Commission by any rule, regulation or order.
11. This Agreement will become effective with respect to the Fund on
the date first written above, provided that it shall have been approved by the
Corporation's Board of Directors and by the shareholders of the Fund in
accordance with the requirements of the 1940 Act and, unless sooner terminated
as provided herein, will continue in effect for two years from the above written
date. Thereafter, if not terminated, this Agreement shall continue in effect
with respect to the Fund for successive annual periods ending on the same date
of each year, provided that such continuance is specifically approved at least
annually (i) by the Corporation's Board of Directors or (ii) by a vote of a
majority of the outstanding voting securities of the Fund (as defined in the
1940 Act), provided that in either event the continuance is also approved by a
majority of the Corporation's Directors who are not interested persons (as
defined in the 1940 Act) of any party to this Agreement, by vote cast in person
at a meeting called for the purpose of voting on such approval.
12. This Agreement is terminable with respect to the Fund without
penalty by the Corporation's Board of Directors, by vote of a majority of the
outstanding voting securities of the Fund (as defined in the 1940 Act), or by
the Manager, on not less than 60 days' notice to the other party and will be
terminated upon the mutual written consent of the Manager and the Corporation.
This Agreement shall terminate automatically in the event of its assignment by
the Manager and shall not be assignable by the Corporation without the consent
of the Manager.
13. In the event this Agreement is terminated by either party or upon
written notice from the Manager at any time, the Corporation hereby agrees that
it will eliminate from its corporate name any reference to the name of "Legg
Mason." The Corporation shall have the non-exclusive use of the name "Legg
Mason" in whole or in part only so long as this Agreement is effective or until
such notice is given.
14. The Manager agrees that for services rendered to the Fund, or
indemnity due in connection with service to the Fund, it shall look only to
assets of the Fund for satisfaction and that it shall have no claim against the
assets of any other fund.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers thereunto duly authorized.
Attest: LEGG MASON INVESTORS TRUST, INC.
By: /s/ Kathi D. Bair By: /s/ Marie K. Karpinski
----------------- ----------------------
Attest: LEGG MASON FUND ADVISER, INC.
By: /s/ Kathi D. Bair By: /s/ William H. Miller
----------------- ---------------------
4
UNDERWRITING AGREEMENT
This UNDERWRITING AGREEMENT, made this 2nd day of August, 1993, by and
between Legg Mason Investors Trust, Inc., a Maryland corporation
("Corporation"), and Legg Mason Wood Walker, Incorporated, a Maryland
corporation (the "Distributor").
WHEREAS, the Corporation is registered with the Securities and Exchange
Commission as an open-end investment company under the Investment Company Act of
1940, as amended (the "1940 Act"), and has registered its shares of common stock
of the Fund for sale to the public under the Securities Act of 1933 (the "1933
Act") and various state securities laws; and
WHEREAS, the Corporation intends to offer for public sale distinct
series of shares of common stock, each corresponding to a distinct portfolio
("Series"); and
WHEREAS, the Corporation wishes to retain the Distributor as the
principal underwriter in connection with the offering and sale of the shares of
common stock of each Series as now exists and as hereafter may be established
("Shares") and to furnish certain other services to the Corporation as specified
in this Agreement; and
WHEREAS, this Agreement has been approved by separate votes of the
Corporation's Board of Directors and of certain disinterested directors in
conformity with Section 15 of, and paragraph (b)(2) of Rule 12b-1 under, the
1940 Act; and
WHEREAS, the Distributor is willing to act as principal underwriter and
to furnish such services on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed as follows:
1. (a) The Corporation hereby appoints the Distributor as principal
underwriter in connection with the offering and sale of each Series. The
Distributor, as exclusive agent for the Corporation, upon the commencement of
operations of any Series and subject to applicable federal and state law and the
Articles of Incorporation and By-Laws of the Corporation, shall: (i) promote the
Series; (ii) solicit orders for the purchase of the Shares subject to such terms
and conditions as the Corporation may specify; and (iii) accept orders for the
purchase of the Shares on behalf of the Corporation (collectively, "Distribution
Services"). The Distributor shall comply with all applicable federal and state
laws and offer the Shares of each Series on an agency or "best efforts" basis
under which the Corporation shall issue only such Shares as are actually sold.
The Distributor shall have the right to use any list of shareholders of the
Corporation or any Series or any other list of investors which it obtains in
connection with its provision of services under this Agreement; provided,
however, that the Distributor shall not sell or knowingly provide such list or
lists to any unaffiliated person without the consent of the Corporation's Board
of Directors.
<PAGE>
(b) The Distributor shall provide ongoing shareholder liaison services,
including responding to shareholder inquiries, providing shareholders with
information on their investments, and any other services now or hereafter deemed
to be appropriate subjects for the payments of "service fees" under Article III,
Section 26 of the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. (collectively, "Shareholder Services").
2. The Distributor may enter into dealer agreements with registered and
qualified securities dealers it may select for the performance of Distribution
and Shareholder Services, the form thereof to be as mutually agreed upon and
approved by the Corporation and the Distributor. In making arrangements with
such dealers, the Distributor shall act only as principal and not as agent for
the Corporation. No dealer is authorized to act as agent for the Corporation in
connection with the offering or sale of Shares to the public or otherwise.
3. The public offering price of the Shares of each Series shall be the
net asset value per share (as determined by the Corporation) of the outstanding
Shares of the Series plus any applicable sales charge as described in the
Registration Statement of the Corporation. The Corporation shall furnish the
Distributor with a statement of each computation of public offering price and of
the details entering into such computation.
4. As compensation for providing Distribution Services under this
Agreement, the Distributor shall retain the sales charge, if any, on purchases
of Shares as set forth in the Registration Statement. The Distributor is
authorized to collect the gross proceeds derived from the sale of the Shares,
remit the net asset value thereof to the Corporation upon receipt of the
proceeds and retain the sales charge, if any. The Distributor shall receive from
each Series a distribution fee and a service fee at the rates and under the
terms and conditions of the Plan of Distribution ("Plan") adopted by the
Corporation with respect to the Series, as such Plan is in effect from time to
time,
- 2 -
<PAGE>
and subject to any further limitations on such fees as the Corporation's Board
of Directors may impose. The Distributor may reallow any or all of the sales
charge, distribution fee and service fee that it has received under this
Agreement to such dealers as it may from time to time determine; provided,
however, that the Distributor may not reallow to any dealer for Shareholder
Services an amount in excess of .25% of the average annual net asset value of
the shares with respect to which said dealer provides Shareholder Services.
5. As used in this Agreement, the term "Registration Statement" shall
mean the registration statement most recently filed by the Corporation with the
Securities and Exchange Commission and effective under the 1940 Act and 1933
Act, as such Registration Statement is amended by any amendments thereto at the
time in effect, and the terms "Prospectus" and "Statement of Additional
Information" shall mean, respectively, the form of prospectus and statement of
additional information with respect to each Series filed by the Corporation as
part of the Registration Statement, or as they may be amended from time to time.
6. The Distributor shall print and distribute to prospective investors
Prospectuses, and shall print and distribute, upon request, to prospective
investors Statements of Additional Information, and may print and distribute
such other sales literature, reports, forms and advertisements in connection
with the sale of the Shares as comply with the applicable provisions of federal
and state law. In connection with such sales and offers of sale, the Distributor
and any dealer shall give only such information and make only such statements or
representations as are contained in the Prospectus, Statement of Additional
Information, or in information furnished in writing to the Distributor by the
Corporation, and the Corporation shall not be responsible in any way for any
other information, statements or representations given or made by the
Distributor, any dealer, or their representatives or agents. Except as
specifically provided in this Agreement, the Corporation shall bear none of the
expenses of the Distributor in connection with its offer and sale of the Shares.
7. The Corporation agrees at its own expense to register the Shares
with the Securities and Exchange Commission, state and other regulatory bodies,
and to prepare and file from time to time such Prospectuses, Statements of
Additional Information, amendments, reports and other documents as may be
necessary to maintain the Registration Statement. Each Series shall bear all
expenses related to preparing and typesetting such Prospectuses, Statements of
Additional Information, and other materials required by law and such other
expenses, including printing and mailing expenses, related to
- 3 -
<PAGE>
such Series' communications with persons who are shareholders of that Fund.
8. The Corporation agrees to indemnify, defend and hold the
Distributor, its several officers and directors, and any person who controls the
Distributor within the meaning of Section 15 of the 1933 Act, free and harmless
from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which the
Distributor, its officers or directors, or any such controlling person may
incur, under the 1933 Act or under common law or otherwise, arising out of or
based upon any alleged untrue statement of a material fact contained in the
Registration Statement or arising out of or based upon any alleged omission to
state a material fact required to be stated or necessary to make the
Registration Statement not misleading, provided that in no event shall anything
contained in this Agreement be construed so as to protect the Distributor
against any liability to the Corporation or its shareholders to which the
Distributor would otherwise be subject by reason of willful misfeasance, bad
faith, or gross negligence in the performance of its duties, or by reason of its
reckless disregard of its obligations and duties under this Agreement, and
further provided that the Corporation shall not indemnify the Distributor for
conduct set forth in paragraph 9.
9. The Distributor agrees to indemnify, defend and hold the
Corporation, its several officers and directors, and any person who controls the
Corporation within the meaning of Section 15 of the 1933 Act, free and harmless
from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which the
Corporation, its officers or directors, or any such controlling person may
incur, under the 1933 Act or under common law or otherwise, on account of any
wrongful act of the Distributor or any of its employees or arising out of or
based upon any alleged untrue statement of a material fact contained in
information furnished in writing by the Distributor to the Corporation for use
in the Registration Statement or arising out of or based upon any alleged
omission to state a material fact in connection with such information required
to be stated in the Registration Statement or necessary to make such information
not misleading. As used in this paragraph, the term "employee" shall not include
a corporate entity under contract to provide services to the Corporation or any
Series, or any employee of such a corporate entity, unless such person is
otherwise an employee of the Corporation.
- 4 -
<PAGE>
10. The Corporation reserves the right at any time to withdraw all
offerings of the Shares of any or all Series by written notice to the
Distributor at its principal office.
11. The Corporation shall not issue certificates representing Shares
unless requested by a shareholder. If such request is transmitted through the
Distributor, the Corporation will cause certificates evidencing the Shares owned
to be issued in such names and denominations as the Distributor shall from time
to time direct, provided that no certificates shall be issued for fractional
Shares.
12. The Distributor may at its sole discretion, directly or through
dealers, repurchase Shares offered for sale by the shareholders or dealers.
Repurchase of Shares by the Distributor shall be at the net asset value next
determined after a repurchase order has been received. The Distributor will
receive no commission or other remuneration for repurchasing Shares. At the end
of each business day, the Distributor shall notify by telex or in writing, the
Corporation and State Street Bank and Trust Company, the Corporation's transfer
agent, of the orders for repurchase of Shares received by the Distributor since
the last such report, the amount to be paid for such Shares, and the identity of
the shareholders or dealers offering Shares for repurchase. Upon such notice,
the Corporation shall pay the Distributor such amounts as are required by the
Distributor for the repurchase of such Shares in cash or in the form of a credit
against moneys due the Corporation from the Distributor as proceeds from the
sale of Shares. The Corporation reserves the right to suspend such repurchase
right upon written notice to the Distributor. The Distributor further agrees to
act as agent for the Corporation to receive and transmit promptly to the
Corporation's transfer agent shareholder and dealer requests for redemption of
Shares.
13. The Distributor is an independent contractor and shall be agent for
the Corporation only in respect to the sale and redemption of the Shares.
14. The services of the Distributor to the Corporation under this
Agreement are not to be deemed exclusive, and the Distributor shall be free to
render similar services or other services to others so long as its services
hereunder are not impaired thereby.
15. The Distributor shall prepare reports for the Corporation's Board
of Directors on a quarterly basis showing such information concerning
expenditures related to this Agreement as from time to time shall be reasonably
requested by the Board of Directors.
- 5 -
<PAGE>
16. As used in this Agreement, the terms "assignment", "interested
person", and "majority of the outstanding voting securities" shall have the
meanings given to them by Section 2(a) of the 1940 Act, subject to such
exemptions as may be granted by the Securities and Exchange Commission by any
rule, regulation or order.
17. This Agreement will become effective with respect to each Series on
the date first written above and, unless sooner terminated as provided herein,
will continue in effect for one year from the above written date. Thereafter, if
not terminated, this Agreement shall continue in effect with respect to the Fund
for successive annual periods ending on the same date of each year, provided
that such continuance is specifically approved at least annually (i) by the
Corporation's Board of Directors or (ii) by a vote of a majority of the
outstanding voting securities of the Series (as defined in the 1940 Act),
provided that in either event the continuance is also approved by a majority of
the Corporation's Directors who are not interested persons (as defined in the
1940 Act) of any party to this Agreement, by vote cast in person at a meeting
called for the purpose of voting on such approval.
18. This Agreement is terminable with respect to any Series or in its
entirety without penalty by the Corporation's Board of Directors, by vote of a
majority of the outstanding voting securities of each affected Series (as
defined in the 1940 Act), or by the Distributor, on not less than 60 days'
notice to the other party and will be terminated upon the mutual written consent
of the Distributor and the Corporation. This Agreement will also automatically
and immediately terminate in the event of its assignment.
19. No provision of this Agreement may be changed, waived, discharged
or terminated orally, except by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought.
20. In the event this Agreement is terminated by either party or upon
written notice from the Distributor at any time, the Corporation hereby agrees
that it will eliminate from its corporate name any reference to the name of
"Legg Mason." The Corporation shall have the non-exclusive use of the name "Legg
Mason" in whole or in part only so long as this Agreement is effective or until
such notice is given.
- 6 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto caused this Agreement to be
executed by their officers thereunto duly authorized.
Attest: LEGG MASON INVESTORS TRUST, INC.
By: /s/Marie K. Karpinski By: /s/John F. Curley, Jr.
Attest: LEGG MASON WOOD WALKER, INCORPORATED
By: /s/Marie K. Karpinski By: /s/Edward A. Taber, III
- 7 -
KIRKPATRICK & LOCKHART letterhead here
August 2, 1993
Legg Mason Investors Trust, Inc.
11 South Calvert Street
Baltimore, Maryland 21202
Dear Sir or Madam:
Legg Mason Investors Trust, Inc. (the "Company") is a corporation
organized under the laws of the State of Maryland by Articles of Incorporation
dated May 5, 1993. You have requested our opinion regarding certain matters in
connection with the Company's issuance of shares of common stock ("Shares") in
its sole series, Legg Mason American Leading Companies Trust.
We have, as counsel, participated in various corporate and other
matters relating to the Company. We have examined copies of the Articles of
Incorporation and By-Laws, the minutes of meetings of the directors and other
documents relating to the organization and operation of the Company, and we are
generally familiar with its business affairs. Based upon the foregoing, it is
our opinion that the unissued Shares designated as the Legg Mason American
Leading Companies Trust, which are currently being registered, may be legally
and validly issued from time to time in accordance with the Company's Articles
of Incorporation and By-Laws; and when so issued, will be legally issued, fully
paid and nonassessable by the Company.
We hereby consent to the filing of this opinion in connection with Pre-
Effective Amendment No. 2 to the Company's Registration Statement on Form N-1A
(File No. 33-62174) to be filed with the Securities and Exchange Commission.
We also consent to the reference to our firm under the caption "Legg
<PAGE>
KIRKPATRICK & LOCKHART
Legg Mason Investors Trust, Inc.
August 2, 1993
Page 2
Mason Investors Trust's Legal Counsel" in the Statement of Additional
Information filed as part of the Registration Statement.
Sincerely,
KIRKPATRICK & LOCKHART
/s/ Arthur C. Delibert
Arthur C. Delibert
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" in the Prospectuses (Primary Shares and Navigator Class) and "The
Funds' Independent Accountants/Auditors" and "Financial Statements" in the
Statement of Additional Information and to the incorporation by reference in
this Post-Effective Amendment Number 6 to Registration Statement Number
33-62174 (Form N-1A) of our report dated April 23, 1996, 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, 1996, included in the 1996 Annual Report to Shareholders.
/s/Ernst & Young LLP
Baltimore, Maryland
January 29, 1997
[LEGG MASON LOGO] MUTUAL FUNDS
Legg Mason Wood Walker, Incorporated
111 South Calvert Street, P.O. Box 1476, Baltimore, MD 21203 (bullet) 1476
410 (bullet) 539 (bullet) 0000
Member New York Stock Exchange, Inc. Member SIPC
July 29, 1993
Legg Mason Investors Trust, Inc.
111 South Calvert Street
Baltimore, MD 21202
Ladies and Gentlemen:
Please be advised that the 10,000 shares of Legg Mason Investors Trust,
Inc. which we have today purchased from you in the aggregate amount of $100,000
were purchased as an investment with no present intention of redeeming or
selling such shares and we do not have any intention of redeeming or selling
such shares.
Very truly yours,
LEGG MASON FUND ADVISOR, INC.
BY: /s/ William H. Miller, III
------------------------------
William H. Miller, III
President
WHM/mkk
DISTRIBUTION PLAN OF
LEGG MASON INVESTORS TRUST, INC.
WHEREAS, Legg Mason Investors Trust, Inc. (the "Corporation") is an
open-end management investment company registered under the Investment Company
Act of 1940, as amended ("1940 Act"), and has offered, and intends to continue
offering, for public sale distinct series of shares of common stock ("Series"),
each corresponding to a distinct portfolio;
WHEREAS, the Corporation has registered the offering of its shares of
common stock under a Registration Statement filed with the Securities and
Exchange Commission and that Registration Statement is in effect as of the date
hereof or expected to be made effective in the near future;
WHEREAS, the Corporation's Board of Directors has established one
Series of shares of common stock of the Corporation: Legg Mason American Leading
Companies Trust ("Fund");
WHEREAS, the Corporation desires to adopt a Distribution Plan pursuant
to Rule 12b-1 under the 1940 Act and the Board of Directors has determined that
there is a reasonable likliehood that adoption of the Distribution Plan will
benefit the Corporation and its shareholders; and
WHEREAS, the Corporation has employed Legg Mason Wood Walker,
Incorporated ("Legg Mason") as principal underwriter of the shares of the
Corporation;
NOW, THEREFORE, the Corporation hereby adopts this Amended Distribution
Plan (the "Plan") in accordance with Rule 12b-1 under the 1940 Act on the
following terms and conditions:
1. A. Legg Mason American Leading Companies Trust shall pay to Legg
Mason, as compensation for Legg Mason's services as principal underwriter of the
Series' shares, a distribution fee at the rate of 0.75% on an annualized basis
of the average daily net assets of the Series' shares, such fee to be calculated
and accrued daily and paid monthly or at such other intervals as the Board shall
determine.
B. The Corporation shall pay to Legg Mason, as compensation
for ongoing services provided to the Series' shareholders, a service fee at the
rate of 0.25% on an annualized basis of the average daily net assets of the
Series' shares, such fee
- 1 -
<PAGE>
to be calculated and accrued daily and paid monthly or at such other intervals
as the Board shall determine.
C. The Corporation may pay a distribution or service fee to
Legg Mason at a lesser rate than the fees specified in paragraphs 1.A. and 1.B.,
respectively, of this Plan, in either case as agreed upon by the Board and Legg
Mason and as approved in the manner specified in paragraph 4 of this Plan. The
distribution and service fees payable hereunder are payable without regard to
the aggregate amount that may be paid over the years, provided that, so long as
the limitations set forth in Article III, Section 26(d) of the Rules of Fair
Practice of the National Association of Securities Dealers, Inc. ("NASD") remain
in effect and apply to distributors or dealers in the Corporation's shares,
the amounts paid hereunder shall not exceed those limitations, including
permissible interest.
2. As principal underwriter of the Corporation's shares, Legg Mason may
spend such amounts as it deems appropriate on any activities or expenses
primarily intended to result in the sale of the shares of the Series and/or the
servicing and maintenance of shareholder accounts, including, but not limited
to, compensation to employees of Legg Mason; compensation to Legg Mason and
other broker-dealers that engage in or support the distribution of shares or who
service shareholder accounts; expenses of Legg Mason and such other
broker-dealers, including overhead and telephone and other communication
expenses; the printing of prospectuses, statements of additional information,
and reports for other than existing shareholders; and preparation and
distribution of sales literature and advertising materials.
3. This Plan shall not take effect with respect to any additional
Series until it has been approved by a vote of at least a majority of the
outstanding voting securities, as defined in the 1940 Act, of that Series.
4. This Plan shall take effect on August 2, 1993 and shall continue in
effect for successive periods of one year from its execution for so long as such
continuance is specifically approved at least annually together with any related
agreements, by votes of a majority of both (a) the Board of Directors of the
Corporation and (b) those Directors who are not "interested persons" of the
Corporation, as defined in the 1940 Act, and who have no direct or indirect
financial interest in the operation of this Plan or any agreements related to it
(the "Rule 12b-1 Directors"), cast in person at a meeting or meetings called for
the purpose of voting on this Plan and such related agreements; and only if the
Directors who approve the
- 2 -
<PAGE>
Plan taking effect have reached the conclusion required by Rule 12b- 1(e) under
the 1940 Act.
5. Any person authorized to direct the disposition of monies paid or
payable by any Series pursuant to this Plan or any related agreement shall
provide to the Corporation's Board of Directors and the Board shall review, at
least quarterly, a written report of the amounts so expended and the purposes
for which such expenditures were made. Legg Mason shall submit only information
regarding amounts expended for "distribution activities," as defined in this
paragraph 5, to the Board in support of the distribution fee payable hereunder
and shall submit only information regarding amounts expended for "service
activities," as defined in this paragraph 5, to the Board in support of the
service fee payable hereunder.
For purposes of this Plan, "distribution activities" shall
mean any activities in connection with Legg Mason's performance of its
obligations under the underwriting agreement, dated August 2, 1993, by and
between the Corporation and Legg Mason, that are not deemed "service
activities." "Service activities" shall mean activities covered by the
definition of "service fee" contained in amendments to Article III, Section
26(d) of the NASD's Rules of Fair Practice that are currently scheduled to
become effective July 7, 1993, including the provision by Legg Mason of
personal, continuing services to investors in the Corporation's shares. Overhead
and other expenses of Legg Mason related to its "distribution activities" or
"service activities," including telephone and other communications expenses, may
be included in the information regarding amounts expended for such distribution
or service activities, respectively.
6. This Plan may be terminated with respect to any Series at any time
by vote of a majority of the Rule 12b-1 Directors or by vote of a majority of
the outstanding voting securities of that Series.
7. This Plan may not be amended to increase materially the amount of
distribution fees provided for in paragraph 1.A. hereof or the amount of service
fees provided for in paragraph 1.B. hereof unless such amendment is approved by
a vote of at least a majority of the outstanding securities, as defined in the
1940 Act, of the Corporation, and no material amendment to the Plan shall be
made unless such amendment is approved in the manner provided for continuing
approval in paragraph 4 hereof.
8. While this Plan is in effect, the selection and nomination of
directors who are not interested persons of the Corporation, as defined in the
1940 Act, shall be committed to the discretion of directors who are themselves
not interested persons.
- 3 -
<PAGE>
9. The Corporation shall preserve copies of this Plan and any related
agreements for a period of not less than six years from the date of expiration
of the Plan or agreement, as the case may be, the first two years in an easily
accessible place; and shall preserve copies of each report made pursuant to
paragraph 5 hereof for a period of not less than six years from the date of such
report, the first two years in an easily accessible place.
IN WITNESS WHEREOF, the Corporation has executed this Distribution Plan
as of the day and year set forth below:
Date: August 2, 1993 LEGG MASON INVESTORS TRUST, INC.
----------------------
Attest: By: /s/John F. Curley, Jr.
By: /s/Marie K. Karpinski
Agreed and assented to by
LEGG MASON WOOD WALKER, INCORPORATED
By:/s/Edward A. Taber, III
- 4 -
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000904046
<NAME> LEGG MASON INVESTORS TRUST, INC.
<SERIES>
<NUMBER> 1
<NAME> LEGG MASON AMERICAN LEADING COMPANIES TRUST
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 61,231
<INVESTMENTS-AT-VALUE> 80,296
<RECEIVABLES> 684
<ASSETS-OTHER> 37
<OTHER-ITEMS-ASSETS> 1
<TOTAL-ASSETS> 81,018
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 229
<TOTAL-LIABILITIES> 229
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 61,046
<SHARES-COMMON-STOCK> 6,101
<SHARES-COMMON-PRIOR> 6,224
<ACCUMULATED-NII-CURRENT> 75
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 603
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 19,065
<NET-ASSETS> 80,789
<DIVIDEND-INCOME> 756
<INTEREST-INCOME> 92
<OTHER-INCOME> 0
<EXPENSES-NET> 753
<NET-INVESTMENT-INCOME> 95
<REALIZED-GAINS-CURRENT> 2,177
<APPREC-INCREASE-CURRENT> 4,016
<NET-CHANGE-FROM-OPS> 6,288
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 61
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 435
<NUMBER-OF-SHARES-REDEEMED> (563)
<SHARES-REINVESTED> 5
<NET-CHANGE-IN-ASSETS> 4,689
<ACCUMULATED-NII-PRIOR> 41
<ACCUMULATED-GAINS-PRIOR> (1,574)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 290
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 818
<AVERAGE-NET-ASSETS> 76,978
<PER-SHARE-NAV-BEGIN> 12.23
<PER-SHARE-NII> .02
<PER-SHARE-GAIN-APPREC> 1.00
<PER-SHARE-DIVIDEND> (.01)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.24
<EXPENSE-RATIO> 1.95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000904046
<NAME> LEGG MASON INVESTORS TRUST, INC.
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<NAME> LEGG MASON BALANCED TRUST
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