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LEGG MASON
FINANCIAL SERVICES FUND
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PRIMARY CLASS AND CLASS A PROSPECTUS October 5, 1999
[LEGG MASON FUNDS Logo Appears Here]
HOW TO INVEST(SM)
As with all mutual funds, the Securities and Exchange Commission has not passed
upon the adequacy of this prospectus, nor has it approved or disapproved these
securities. It is a criminal offense to state otherwise.
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TABLE OF CONTENTS
ABOUT THE FUND:
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1 Investment objective
3 Principal risks
5 Performance
6 Fees and expenses of the fund
8 Management
ABOUT YOUR INVESTMENT:
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10 How to invest
14 How to sell your shares
16 Account policies
17 Services for investors
19 Dividends and taxes
21 Financial highlights
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LEGG MASON FINANCIAL SERVICES FUND
INVESTMENT OBJECTIVE
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INVESTMENT OBJECTIVE: LONG-TERM GROWTH OF CAPITAL.
PRINCIPAL INVESTMENT STRATEGIES:
Gray, Seifert & Co., Inc., the fund's sub-adviser, under normal circumstances
concentrates the fund's investments by investing substantially all of the fund's
assets in equity securities of issuers in the financial services industry that
it believes are undervalued and thus may offer above-average potential for
capital appreciation. Equity securities include common stocks, preferred stocks,
convertible securities, rights and warrants.
Financial services companies include, but are not limited to:
o regional and money center banks
o securities brokerage firms
o asset management companies
o savings banks and thrift institutions
o specialty finance companies (e.g., credit card and mortgage providers)
o insurance and insurance brokerage firms
o government-sponsored agencies, such as Fannie Mae
o financial conglomerates
o foreign financial services companies (limited to 25% of total assets,
not including ADRs)
Investments may also include securities of companies that derive more than 50%
of their revenues from providing products and services to the financial services
industry, including software, hardware, publishing, news services, credit
research and ratings services, internet services and business services.
The sub-adviser believes the financial services industry is undergoing many
changes due to legislation reform and the shifting demographics of the
population. In deciding what securities to buy, the sub-adviser analyzes an
issuer's financial statements to determine earnings per share potential. It also
reviews, as appropriate, the economy where the issuer does business,
Legg Mason Financial Services Fund 1
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the products offered, its potential to benefit from industry changes, and the
strength and goals of management.
The sub-adviser will sell a security in the fund's portfolio if that security
experiences earnings problems.
For temporary defensive purposes, the fund may hold all or a portion of its
assets in money market instruments, cash equivalents, short-term government and
corporate obligations, or repurchase agreements. The fund may not achieve its
investment objective when so invested.
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PRINCIPAL RISKS
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IN GENERAL:
An investment in the fund is not guaranteed; investors may lose money by
investing in the fund. There is no guarantee that the fund will achieve its
investment objective. The principal risks of investing in the fund are described
below.
MARKET RISK:
Stock prices generally fluctuate more than those of other securities. A fund may
experience a substantial or complete loss on an individual stock. Market risk
may affect a single issuer, industry or section of the economy, or may affect
the market as a whole.
CONCENTRATION RISK:
The fund invests primarily in securities in the financial services industry.
A fund concentrating most of its investments in a single industry will be more
susceptible to factors adversely affecting issuers within that industry than
would a more diversified portfolio of securities.
Financial services companies are subject to extensive government regulation. The
profitability of financial services companies is dependent on the availability
and cost of funds, and can fluctuate significantly when interest rates change.
Economic downturns, credit losses and severe price competition can negatively
affect this industry.
CREDIT RISK:
There is a risk that the fund's holdings in fixed income securities could be
downgraded or could default in payment of principal or interest. Credit ratings
are the opinions of the private companies that rate companies or their
securities; they are not guarantees.
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FOREIGN SECURITIES RISK:
Investments in foreign securities (including those denominated in U.S. dollars)
involve certain risks not typically associated with investments in domestic
issuers. The values of foreign securities are subject to economic and political
developments in the countries and regions where the companies operate, such as
changes in economic or monetary policies, and to changes in exchange rates.
Values may also be affected by foreign tax laws and restrictions on receiving
the investment proceeds from a foreign country. Some foreign governments have
defaulted on principal and interest payments.
In general, less information is publicly available about foreign companies than
about U.S. companies. Foreign companies are generally not subject to the same
accounting, auditing and financial reporting standards as are U.S. companies.
Transactions in foreign securities may be subject to less efficient settlement
practices, including extended clearance and settlement periods. Foreign stock
markets may be less liquid and less regulated than U.S. stock markets.
YEAR 2000:
Like other mutual funds (and most organizations around the world), the fund
could be adversely affected by computer problems related to the year 2000. These
could interfere with the operations of the fund, its adviser, distributor or
sub-adviser, and other outside service providers, and could impact companies in
which the fund invests.
While no one knows if these problems will have any impact on the fund or on
financial markets in general, the adviser and its affiliates and the other
service providers to the fund have reported that they are taking steps to
protect fund investors. These include efforts to determine that the problems
will not directly affect the systems used by major service providers.
Whether these steps will be effective can only be known for certain in the year
2000.
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PERFORMANCE
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The fund has three authorized classes of shares: Class A, Primary Class
and Navigator Class. Each class is subject to different expenses and a
different sales charge structure. As of the date of this prospectus,
the fund has not been in operation for a full calendar year; therefore,
no performance information is presented.
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FEES AND EXPENSES OF THE FUND
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The table below describes the fees and expenses you will incur directly or
indirectly as an investor in the fund. The fund pays operating expenses directly
out of its assets, so they will lower the fund's share price and dividends.
Other expenses include transfer agency, custody, professional and registration
fees.
Shareholder Fees
(fees paid directly from your investment)
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Class A Primary Class
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Maximum sales charge (load) imposed on
purchases (as a % of offering price) 4.75% (a) None
Maximum deferred sales charge
(as a % of net asset value) None (b) None
Annual Fund Operating Expenses
(expenses that are deducted from fund assets) (c)
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Class A Primary Class
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Management fees 1.00% (d) 1.00% (e)
Service (12b-1) fees 0.25% 1.00%
Other expenses 0.40% 0.40%
Total annual fund operating expenses 1.65% (d) 2.40% (e)
(a) Sales charge waivers and reduced sales charge purchase plans are available
for Class A shares. See "How to Invest."
(b) A contingent deferred sales charge ("CDSC") of 1% of the net asset value of
Class A shares will be imposed on redemptions of shares purchased pursuant
to the front-end sales charge waiver on purchases of $1 million or more of
Class A shares made within one year of the purchase date. See "How to
Invest."
(c) The fees and expenses shown are for the fiscal year ended December 31, 1998,
and are calculated as a percentage of average net assets.
(d) Legg Mason Fund Adviser, Inc., as investment adviser, has voluntarily agreed
to waive fees so that expenses of Class A shares (exclusive of taxes,
interest, brokerage and extraordinary expenses) do not exceed an # Legg
MasonFinancial Services Fundannual rate of 1.50% of the fund's average daily
net assets attributable
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to Class A shares. This voluntary waiver will continue until May 1, 2000,
and may be terminated at any time. With this waiver, management fees and
total annual fund operating expenses were 0.85% and 1.50%, respectively.
(e) Legg Mason Fund Adviser, Inc., as investment adviser, has voluntarily agreed
to waive fees so that expenses of Primary Class shares (exclusive of taxes,
interest, brokerage and extraordinary expenses) do not exceed an annual rate
of 2.25% of the fund's average daily net assets attributable to Primary
Class shares. This voluntary waiver will continue until May 1, 2000, and may
be terminated at any time. With this waiver, management fees and total
annual fund operating expenses were 0.85% and 2.25%, respectively.
EXAMPLE:
This example helps you compare the cost of investing in the fund with the cost
of investing in other mutual funds. Although your actual costs may be higher or
lower, you would pay the following expenses on a $10,000 investment in the fund,
assuming (1) a 5% return each year, (2) the fund's operating expenses remain the
same as shown in the table above, and (3) that you redeem all of your shares at
the end of the time periods shown.
1 Year 3 Years 5 Years 10 Years
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Class A Shares $635 $971 $1,329 $2,337
Primary Class Shares $243 $748 $1,280 $2,736
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MANAGEMENT
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ADVISER:
Legg Mason Fund Adviser, Inc., 100 Light Street, Baltimore, Maryland 21202, is
the fund's investment adviser. The adviser is responsible for the actual
investment management of the fund, including making investment decisions and
placing orders to buy, sell or hold a particular security. The adviser has
delegated investment advisory functions for the fund to a sub-adviser, as
described below. The adviser also supervises all aspects of the operations of
the fund as administrator.
Prior to October 6, 1999, Bartlett & Co. served as investment adviser to the
fund, under compensation arrangements substantially similar to those with the
current adviser. For its services during the fiscal year ended December 31,
1998, the fund paid the adviser a fee of 1.00% of its average daily net assets,
net of any waivers.
The adviser acts as manager or adviser to investment companies with aggregate
assets of $19.6 billion as of August 31, 1999.
SUB-ADVISER:
Gray, Seifert & Co., 380 Madison Avenue, New York, New York 10017, serves as
investment sub-adviser to the fund. For its services, Gray, Seifert receives a
monthly fee from the adviser equal to 60% of the fee actually paid to the
adviser by the fund (net of any waivers). Gray, Seifert is known for its
research and securities analysis with respect to the financial services
industry. It has not previously advised a mutual fund; however, Gray, Seifert
has been the evaluator of the Legg Mason Regional Bank and Thrift Unit
Investment Trusts. As of August 31, 1999, Gray, Seifert had aggregate assets
under management of $1.1 billion.
PORTFOLIO MANAGEMENT:
Miles Seifert and Amy LaGuardia are responsible for co-managing the fund. Mr.
Seifert has been Chairperson of the Board and a Director of Gray, Seifert since
its inception in 1980. Ms. LaGuardia has been Senior Vice President and Director
of Research at Gray, Seifert for four years. Prior thereto, she was Vice
President. She has been employed at Gray, Seifert since 1982.
8 Legg Mason Financial Services Fund
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DISTRIBUTOR OF THE FUND'S SHARES:
Legg Mason Wood Walker, Incorporated, 100 Light Street, Baltimore, Maryland
21202, is the distributor of the fund's shares. The fund has adopted a separate
plan with respect to each class that allows it to pay distribution fees and/or
shareholder service fees for the sale of its shares and for services provided to
shareholders. The fees are calculated daily and paid monthly.
Each class of shares bears differing class-specific expenses. Salespersons and
others entitled to receive compensation for selling or servicing fund shares may
receive more with respect to one class than another.
For Class A shares, the fund may pay the distributor a service fee at an annual
rate of 0.25% of its average daily Class A net assets.
For Primary Class shares, the fund may pay the distributor a distribution fee at
an annual rate of 0.75% and a service fee of 0.25% of average daily Primary
Class net assets.
Because these fees are paid out of the fund's assets on an ongoing basis, over
time these fees will increase the cost of your investment and may cost you more
than paying other types of sales charges.
The distributor collects the sales charges imposed on purchases of Class A
shares and any CDSCs that may be imposed on certain redemptions of Class A
shares. The distributor reallows a portion of the sales charges on Class A
shares to broker/dealers that have sold such shares in accordance with the Class
A purchase schedule, and may from time to time reallow the full amount of the
sales charge.
The distributor may also pay special additional compensation and promotional
incentives to broker/dealers who sell Class A shares of the fund.
The distributor may enter into agreements with other brokers to sell Primary
Class shares of the fund. The distributor pays these brokers up to 90% of the
distribution and service fees that it receives from the fund for those sales.
The adviser, sub-adviser and distributor are wholly owned subsidiaries of Legg
Mason, Inc., a financial services holding company.
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HOW TO INVEST
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To open a regular account or a retirement account with the fund, contact a Legg
Mason financial advisor or other entity that has entered into an agreement with
the fund's distributor to sell shares of the Legg Mason family of funds. A Legg
Mason financial advisor will explain the shareholder services available from the
fund and answer any questions you may have. For each class of shares the minimum
initial investment is $1,000 and the minimum for each purchase of additional
shares is $100, except as noted below.
Retirement accounts include traditional IRAs, spousal IRAs, education IRAs, Roth
IRAs, simplified employee pension plans, savings incentive match plans for
employees, and other qualified retirement plans. Contact your Legg Mason
financial advisor or other entity offering the fund to discuss which one might
be appropriate for you.
When placing a purchase order, please specify whether the order is for Class A
or Primary Class. All purchase orders that fail to specify a class will
automatically be invested in Primary Class shares.
Once your account is open, you may use the following methods to add to your
account:
In Person Give your financial advisor a check for $100 or more payable
to the fund.
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Mail Mail your check, payable to the fund, for $100 or more to your
financial advisor.
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Telephone or Call your financial advisor to transfer available cash
Wire balances in your brokerage account or to transfer money from
your bank directly to Legg Mason. Wire transfers may be
subject to a service charge by your bank.
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Future First Contact your Legg Mason financial advisor to enroll in Legg
Mason's Future First
Systematic Systematic Investment Plan. Under this plan, you may arrange
for automatic
Investment Plan monthly investments in the fund of $50 or more. The fund's
transfer agent will transfer funds monthly from your Legg
Mason account or from your checking account to purchase shares
of the fund.
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Automatic Arrangements may be made with some employers and financial
institutions for
Investments regular automatic monthly investments of $50 or more in shares
of the fund. You may also reinvest dividends from certain unit
investment trusts in shares of the fund.
Call your financial advisor or another entity offering the fund for sale with
any questions regarding the investment options above.
Certain investment methods may be subject to lower minimum initial and
additional investments.
10 Legg Mason Financial Services Fund
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Investments made through entities other than Legg Mason may be subject to
transaction fees or other purchase conditions established by those entities. You
should consult their program literature for further information.
Purchase orders received by your financial advisor or the entity offering the
fund before the close of the New York Stock Exchange (normally 4:00 p.m.,
Eastern time) will be processed at the fund's net asset value as of the close of
the exchange on that day. Orders received after the close of the exchange will
be processed at the fund's net asset value as of the close of the exchange on
the next day the exchange is open. Payment must be made within three business
days to Legg Mason.
Navigator Class shares are offered through a separate prospectus only to certain
institutional investors.
CLASS A PURCHASE SCHEDULE:
The fund's offering price for Class A purchases is equal to the net asset value
per share plus a front-end sales charge determined from the following schedule
(which may be amended from time to time):
Dealer
Sales Charge Sales Charge Reallowance
as a % of as a % of as a % of
Amount of Purchase Offering Price Net Investment Offering Price
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Less than $25,000 4.75% 4.99% 4.00%
$25,000 to $49,999 4.50 4.71 3.75
$50,000 to $99,999 4.00 4.17 3.25
$100,000 to $249,999 3.50 3.63 2.75
$250,000 to $499,999 2.50 2.56 2.00
$500,000 to $999,999 2.00 2.04 1.60
$1 million or more * 0.00 0.00 1.00
* A CDSC of 1% of the shares' net asset value at the time of purchase or sale,
whichever is less, may be charged on redemptions of shares purchased pursuant to
the front-end sales charge waiver for purchases of $1 million or more made
within one year of the purchase date. See "How to Sell Your Shares" for a
discussion of any applicable CDSC on Class A shares.
Legg Mason Financial Services Fund 11
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The distributor will pay the following commissions to brokers that initiate and
are responsible for purchases of Class A shares of any single purchaser of $2
million or more in the aggregate: 0.80% up to $2,999,999, plus 0.50% of the
excess over $3 million up to $20 million, plus 0.25% of the excess over $20
million.
SALES CHARGE WAIVERS FOR CLASS A SHARES:
Purchases of Class A shares made by the following investors will not be subject
to a sales charge:
o advisory clients (and related accounts) of Gray, Seifert
o certain employee benefit or retirement accounts (subject to the
discretion of Gray, Seifert)
o employees of Legg Mason, Inc. and its affiliates
o registered representatives or full-time employees of broker/dealers that
have dealer agreements with the distributor
o the children, siblings and parents of such persons
o broker/dealers, registered investment advisers, financial institutions
or financial planners for the accounts of clients participating in "wrap
fee" advisory programs that adhere to certain standards and that are
subject to agreements between those entities and the distributor
o purchases of $1,000,000 or more
Investors may be eligible for a reduced sales charge on purchases of Class A
shares through a Right of Accumulation or under a Letter of Intent.
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RIGHT OF ACCUMULATION:
To receive the Right of Accumulation, investors must give the distributor or
their broker/dealer sufficient information to permit qualification. If
qualified, investors may purchase shares of the fund at the sales charge
applicable to the total of:
o the dollar amount being purchased, plus
o the dollar amount of the investors' concurrent purchases of Class A
shares of other funds, plus
o the price of all Class A shares of funds already held by the investor.
LETTER OF INTENT:
Investors may execute a Letter of Intent indicating an aggregate amount to be
invested in Class A shares of any fund in the following 13 months. All purchases
made during that period will be subject to the sales charge applicable to that
aggregate amount.
If a Letter of Intent is executed within 90 days of a prior purchase of
Class A shares, the prior purchase may be included under the Letter of Intent
and an adjustment will be made to the applicable sales charge. The adjustment
will be based on the current net asset value of the respective fund(s).
If the total amount of purchases does not equal the aggregate amount covered by
the Letter of Intent after the thirteenth month, you will be required to pay the
difference between the sales charges paid at the reduced rate and the sales
charge applicable to the purchases actually made.
Shares having a value equal to 5% of the amount specified in the Letter of
Intent will be held in escrow during the 13-month period (while remaining
registered in your name) and will be subject to redemption to assure any
necessary payment to the distributor of a higher applicable sales charge.
Legg Mason Financial Services Fund 13
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HOW TO SELL YOUR SHARES
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Redemptions made through entities other than Legg Mason may be subject to
transaction fees or other conditions imposed by those entities. You should
consult their program literature for further information.
Any of the following methods may be used to sell your shares:
Telephone Call your Legg Mason financial advisor or entity offering the fund
and request a redemption. Please have the following information ready
when you call: the name of the fund, the number of shares (or dollar
amount) to be redeemed, and your shareholder account number.
Proceeds will be credited to your brokerage account or a check will
be sent to you, at your direction, at no charge to you. Wire requests
will be subject to a fee of $18. Be sure that your financial advisor
has your bank account information on file.
The fund will follow reasonable procedures to ensure the validity of
any telephone redemption request, such as requesting identifying
information from callers or employing identification numbers. Unless
you specify that you do not wish to have telephone redemption
privileges, you may be held responsible for any fraudulent telephone
order.
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Mail Send a letter to the fund requesting redemption of your shares. The
letter should be signed by all of the owners of the account and their
signatures guaranteed without qualification. You may obtain a
signature guarantee from most banks or securities dealers.
Your order will be processed promptly and you will generally receive the
proceeds within a week. Fund shares will be sold at the next net asset value
calculated after your redemption request is received by your Legg Mason
financial advisor or another entity.
Payment of the proceeds of redemptions of shares that were recently purchased by
check or acquired through reinvestment of dividends on such shares may be
delayed for up to 10 days from the purchase date in order to allow for the check
to clear.
Additional documentation may be required from corporations, executors,
partnerships, administrators, trustees or custodians.
14 Legg Mason Financial Services Fund
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CONTINGENT DEFERRED SALES CHARGES:
If you redeem any Class A shares within one year that were purchased without a
sales charge because the purchase totaled $1,000,000 or more, you will be
subject to a CDSC of 1% of the lower of the original purchase price or the net
asset value of such shares at the time of redemption. You may exchange such
shares purchased without a sales charge for Class A shares of another fund
without being charged a CDSC. You will be subject to a CDSC if you redeem shares
acquired through exchange.
Class A shares that are redeemed will not be subject to the CDSC to the extent
that the value of such shares represents (i) reinvestment of dividends or other
distributions, or (ii) shares redeemed more than one year after their purchase.
The amount of any CDSC will be paid to the distributor.
The fund will use the "first-in, first-out" method to determine the one- year
holding period. The date of redemption or exchange will be compared with the
earliest purchase date of shares held in the account. The fee will not apply to
any shares purchased through reinvestment of dividends or other distributions or
to shares held in retirement plans; however, it will apply to shares held in IRA
accounts (including IRA-based plans) and to shares purchased through automatic
investment plans.
Legg Mason Financial Services Fund 15
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ACCOUNT POLICIES
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CALCULATION OF NET ASSET VALUE:
Net asset value per Class A share and Primary Class share is determined daily as
of the close of the New York Stock Exchange, on every day the exchange is open.
To calculate the fund's Class A share or Primary Class share price, the fund's
assets attributable to that class of shares are valued and totaled, liabilities
attributable to that class of shares are subtracted, and the resulting net
assets are divided by the number of shares outstanding for that class. The
fund's securities are valued on the basis of market quotations or, lacking such
quotations, at fair value as determined under the guidance of the Board of
Directors.
Securities for which market quotations are readily available are valued at the
last sale price of the day for a comparable position, or, in the absence of any
such sales, the last available bid price for a comparable position. Where a
security is traded on more than one market, the securities are generally valued
on the market considered by the sub-adviser to be the primary market. Fixed
income securities generally are valued using market quotations, independent
pricing services that use prices provided by market makers, or estimates of
market values. Securities with remaining maturities of 60 days or less are
valued at amortized cost.
OTHER:
Fund shares may not be held in, or transferred to, an account with any firm that
does not have an agreement with Legg Mason or its affiliates.
If your account falls below $500 for reasons other than a drop in share price,
the fund may ask you to increase your balance. If, after 60 days, your account
is still below $500, the fund may close your account and send you the proceeds.
The fund reserves the right to:
o reject any order for shares or suspend the offering of shares for a
period of time.
o change its minimum investment amounts.
o delay sending out redemption proceeds for up to seven days. This
generally applies only in cases of very large redemptions, excessive
trading or during unusual market conditions. The fund may delay
redemptions beyond seven days, or suspend redemptions, only as permitted
by the SEC.
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SERVICES FOR INVESTORS
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For further information regarding any of the services below, please contact your
financial advisor or other entity offering the fund for sale.
CONFIRMATIONS AND ACCOUNT STATEMENTS:
You will receive from Legg Mason a confirmation after each transaction involving
Class A shares or Primary Class shares (except a reinvestment of dividends or
capital gain distributions and purchases made through the Future First
Systematic Investment Plan or through automatic investments). Legg Mason or the
entity through which you invest will send you account statements monthly unless
there has been no activity in the account. Legg Mason will send you statements
quarterly if you participate in the Future First Systematic Investment Plan or
if you purchase shares through automatic investments.
SYSTEMATIC WITHDRAWAL PLAN:
If you are purchasing or already own shares of the fund with a net asset value
of $5,000 or more, you may elect to make systematic withdrawals from the fund.
The minimum amount for each withdrawal is $50. You should not purchase shares of
the fund when you are a participant in the plan.
EXCHANGE PRIVILEGE:
Fund shares may be exchanged for the corresponding class of shares of any of the
other Legg Mason funds, provided these funds are eligible for sale in your state
of residence. You can request an exchange in writing or by phone. Be sure to
read the current prospectus for any fund into which you are exchanging.
There is currently no fee for exchanges; however, you may be subject to a sales
charge when exchanging into a fund that has one. A CDSC may apply to the
redemption of Class A shares acquired through an exchange. In addition, an
exchange of the fund's shares will be treated as a sale of the shares and any
gain on the transaction may be subject to tax.
Legg Mason Financial Services Fund 17
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Each fund reserves the right to:
o Terminate or limit the exchange privilege of any shareholder who makes
more than four exchanges from the fund in one calendar year.
o Terminate or modify the exchange privilege after 60 days' written notice
to shareholders.
REINSTATEMENT PRIVILEGE:
If you have redeemed your Class A shares, you may reinstate your fund account
without a sales charge up to the dollar amount redeemed by purchasing shares
within 90 days of the redemption. Within 90 days of a redemption, contact the
distributor or your broker/dealer and notify them of your desire to reinstate
and give them an order for the amount to be purchased. The reinstatement will be
made at the net asset value next determined after the notification and purchase
order have been received by the transfer agent.
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DIVIDENDS AND TAXES
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The fund declares and pays all dividends on an annual basis.
Distributions of substantially all of the fund's net capital gain (the excess of
net long-term capital gain over net short-term capital loss) and any net
realized gain from foreign currency transactions are generally declared and paid
after the end of the tax year in which the gain is realized. A second
distribution of net capital gain may be necessary in some years to avoid
imposition of a federal excise tax.
Your dividends and other distributions will be automatically reinvested in the
same class of shares of the fund. If you wish to begin receiving dividends
and/or other distributions in cash, you must notify the fund at least 10 days
before the next dividend and/or other distribution is to be paid.
If the postal or other delivery service is unable to deliver your check, your
distribution option will automatically be converted to having all dividends and
other distributions reinvested in fund shares. No interest will accrue on
amounts represented by uncashed distribution or redemption checks.
Fund dividends and other distributions are taxable to most investors
(other than retirement plans and other tax-exempt investors) whether received in
cash or reinvested in additional shares of the fund. Dividends from investment
company taxable income are taxable as ordinary income. Distributions of the
fund's net capital gain are taxable as long-term capital gain, regardless of how
long you have held your fund shares.
The sale or exchange of fund shares may result in a taxable gain or loss,
depending on whether the proceeds are more or less than the cost of your shares.
A tax statement is sent to you at the end of each year detailing the tax status
of your distributions.
Legg Mason Financial Services Fund 19
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The fund will withhold 31% of all dividends, capital gain distributions and
redemption proceeds payable to individuals and certain other non-corporate
shareholders who do not provide the fund with a valid taxpayer identification
number or who are otherwise subject to backup withholding. The fund will also
withhold 31% of all dividends and capital gain distributions payable to such
shareholders who are otherwise subject to backup withholding.
Because each investor's tax situation is different, please consult your tax
adviser about federal, state and local tax considerations.
20 Legg Mason Financial Services Fund
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FINANCIAL HIGHLIGHTS
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The financial highlights table below is intended to help you understand the
fund's financial performance since its inception. Total return represents the
rate that an investor would have earned (or lost) on an investment in the fund,
assuming reinvestment of all dividends and other distributions. Certain
information reflects financial results for a single fund share. The information
for the period ended December 31, 1998, has been audited by the fund's
independent accountants, PricewaterhouseCoopers LLP, whose report, along with
the fund's financial statements, is incorporated by reference into the Statement
of Additional Information and is included in the annual report. The annual
report is available upon request by calling toll-free 1-800-822-5544.
Income From Investment Operations
- --------------------------------------------------------------------------------
Net Asset Net Realized &
For the Value, Net Unrealized Total From
Period Beginning Investment Gains On Investment
Ended of Period Income Investments Operations
- --------------------------------------------------------------------------------
Class A:
June 30, 1999* $10.58 $ -- (a) $(.10) $(.10)
Dec. 31, 1998(b) 10.00 -- (a) .58 .58
- --------------------------------------------------------------------------------
Primary Class:
June 30, 1999* $10.57 $(.03)(c) $(.11) $(.14)
Dec. 31, 1998(b) 10.00 (.01)(c) .58 .57
Distributions
- --------------------------------------------------------------------------------
Net Asset
For the From Net From Net Value,
Period Investment Realized Total End of
Ended Income Gain Distributions Period
- --------------------------------------------------------------------------------
Class A:
June 30, 1999* $-- $-- $-- $10.48
Dec. 31, 1998(b) -- -- -- 10.58
- --------------------------------------------------------------------------------
Primary Class:
June 30, 1999* $-- $-- $-- $10.43
Dec. 31, 1998(b) -- -- -- 10.57
Legg Mason Financial Services Fund 21
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- --------------------------------------------------------------------------------
Ratios/Supplemental Data
- --------------------------------------------------------------------------------
Net Investment
Expenses Income (Loss)
For the to Average to Average Portfolio Net Assets,
Period Total Return Net Assets Net Assets Turnover Rate End of Year
Ended: (%) (d) (%) (%) (%) (000)
- --------------------------------------------------------------------------------
Class A:
June 30, 1999* (.95)(e) 1.50(a,f) (.03)(b,f) 18.07(f) $11,090
Dec. 31, 1998(b) 5.80(e) 1.50(a,f) .22(b,f) -- 7,451
- --------------------------------------------------------------------------------
Primary Shares:
June 30, 1999* (1.32)(e) 2.25(c,f) (.76)(c,f) 18.07(f) $32,071
Dec. 31, 1998(b) 5.70(e) 2.25(c,f) (.11)(c,f) -- 14,598
(a) Net of fees waived pursuant to a voluntary expense limitation of 1.50%.
If no fees had been waived, the annualized ratio of expenses to average
daily net assets would have been 1.65%.
(b) November 16, 1998 (commencement of sale of this class) to December 31,
1998.
(c) Net of fees waived pursuant to a voluntary expense limitation of 2.25%.
If no fees had been waived, the annualized ratio of expenses to average
daily net assets would have been 2.40%.
(d) Excluding sales charge.
(e) Not annualized.
(f) Annualized.
* Unaudited. For the period January 1, 1999 to June 30, 1999.
22 Legg Mason Financial Services Fund
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[GRAPHIC]
Legg Mason Financial Services Fund
- --------------------------------------------------------------------------------
The following additional information about the fund is available upon request
and without charge:
STATEMENT OF ADDITIONAL INFORMATION (SAI) - the SAI is filed with the
Securities and Exchange Commission (SEC) and is incorporated by reference
into (is considered part of) this prospectus. The SAI provides additional
details about the fund and its policies.
ANNUAL AND SEMI-ANNUAL REPORTS - additional information about the fund's
investments is available in the fund's annual and semi-annual reports to
shareholders. These reports provide detailed information about the fund's
portfolio holdings and operating results.
To request the SAI or any reports to shareholders, or to obtain
more information:
o call toll-free 1-800-822-5544
o visit us on the Internet via http://www.leggmason.com
o write to us at: Legg Mason Wood Walker, Incorporated
100 Light Street, P.O. Box 1476
Baltimore, Maryland 21203-1476
Information about the fund, including the SAI, can be reviewed and copied at the
SEC's public reference room in Washington, D.C. (phone 1-800-SEC-0330). Reports
and other information about the fund are available on the SEC's Internet site at
http://www.sec.gov. Investors may also write to: SEC, Public Reference Section,
Washington, D.C. 20549-6009. The SEC charges a fee for making copies.
LMF-188 SEC file numbers: 811-7692
