LEGG MASON INVESTORS TRUST INC, 497, 2000-05-08

LEGG MASON INVESTORS TRUST INC
497, 2000-05-08

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Legg Mason Financial Services Fund

PRIMARY CLASS AND CLASS A PROSPECTUS April 28, 2000

logo

THE ART OF INVESTING SM

As with all mutual funds, the Securities and Exchange Commission has not passed
upon the accuracy or adequacy of this prospectus, nor has it approved or
disapproved these securities. It is a criminal offense to state otherwise.

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T A B LE O F C O N T E N T S

A b o u t t h e f u n d :

3 Investment objective

4 Principal risks

6 Performance

7 Fees and expenses of the fund

9 Management

A b o u t y o u r i n v e s t m e n t:

11 How to invest

14 How to sell your shares

16 Account policies

17 Services for investors

18 Distributions and taxes

19 Financial highlights

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Legg Mason Financial Services Fund:

[icon] I N V E S T M E N T O B J E C T I V E

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 at least 65% 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, mortgage providers)

o insurance and insurance brokerage firms

o government sponsored agencies, such as Sallie Mae

o financial conglomerates

o foreign financial services companies (limited to 25% of total assets,
not including ADRs)

Investments may also include 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 legislative 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, 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. If the fund invests
substantially in such instruments, the fund may not be pursuing its principle
investment strategies and the fund may not achieve its investment objective.

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PRINCIPAL RISKS

In general:

There is no assurance that the fund will meet its investment objective;
investors could lose money by investing in the fund. As with all mutual funds,
an investment in this fund is not insured or guaranteed by the Federal Deposit
Insurance Company or any other government agency.

Market risk:

Stock prices generally fluctuate more than those of other securities, such as
debt securities. Market risk, the risk that prices of securities will go down
because of the interplay of market forces, may affect a single issuer, industry
or section of the economy or may affect the market as a whole. The fund may
experience a substantial or complete loss on an individual stock.

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.

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.

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.

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Interest rate and credit risk:

Debt securities are subject to interest rate risk, which is the possibility that
the market prices of the fund's investments may decline due to an increase in
market interest rates. Generally, the longer the maturity of a fixed income
security, the greater is the effect on its value when rates change.

Debt securities are also subject to credit risk, i.e., the risk that an issuer
of securities will be unable to pay principal and interest when due, or that the
value of the security will suffer because investors believe the issuer is less
able to pay. This is broadly gauged by the credit ratings of the securities in
which the fund invests. However, ratings are only the opinions of the agencies
issuing them and are not absolute guarantees as to quality.

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.

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[icon] P E R F O R M A N C E

The fund has three authorized classes of shares: Class A shares, Primary Class
shares and Navigator Class shares. The information provided below is mainly for
Primary Class shares, which is the class with the greatest net assets. Each
class is subject to different expenses and a different sales charge structure.
The information below provides an indication of the risk of investing in the
fund by showing how the fund's average annual returns compare with those of a
broad measure of market performance. Annual returns assume reinvestment of
dividends and other distributions. Historical performance of a fund does not
necessarily indicate what will happen in the future.

PRIMARY CLASS SHARES

Total Return as of December 31 (%):

1999 (10.97)
-------

During the last calendar year:

Quarter Ended Total Return

Best quarter June 30, 1999 4.93%

Worst quarter September 30, 1999 (13.23%)

In the following table, the average annual total return for the years ended
December 31, 1999 is compared with the Standard & Poor's 500 Index (S&P 500), a
broad-based unmanaged index of common stocks, commonly used to measure general
market activity.

1 Year Life of Class
------ -------------

Class A (14.58%) (8.61%)(a)

Primary Class (10.97%) (5.27%)(a)

S&P 500 21.04% 23.98% (b)

(a) November 16, 1998 (commencement of operations of each class) to
December 31, 1999. On October 5, 1999 this fund was reorganized from a
series of Bartlett Capital Trust to a series of Legg Mason Investors
Trust, Inc.

(b) For the period November 30, 1998 to December 31, 1999.

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[icon] F E E S A N D E X P E N S E S O F T H E F U N D

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 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 4.75 % (a) None
offering price)
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Maximum deferred sales charge
(as a % of net asset value) None (b) None
- --------------------------------------------------------------------------------

Annual Fund Operating Expenses
(expenses that are deducted from fund assets)

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Class A Primary Class
- --------------------------------------------------------------------------------
Management fees (c) 1.00 % 1.00 %
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Distribution and/or service
(12b-1) fees 0.25 % 1.00 %
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Other expenses .80 % .73 %
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Total Annual Fund Operating
Expenses (c) 2.05 % 2.73 %
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(a) Sales charge waivers and reduced sales charge purchase plans are available
for Class A shares. See "How to Invest."

(b) A contingent deferred sales charge ("CDSC") of 1% of the net asset value of
Class A shares will be imposed on redemptions of shares purchased pursuant to
the front-end sales charge waiver on purchases of $1 million or more of Class A
shares made within one year of the purchase date. See "How to Invest."

(c) Legg Mason Fund Adviser, Inc., as investment adviser, has voluntarily agreed
to waive fees so that Class A and Primary Class expenses (exclusive of taxes,
interest, brokerage and extraordinary expenses) do not exceed annual rates of
1.50% and 2.25% of the fund's average daily net assets attributable to Class A
shares and Primary Class shares. These voluntary waivers will continue until
April 30, 2001, and may be terminated by Legg Mason Fund Adviser, Inc. at any
time. With these waivers, management fees and total annual fund operating
expenses would be .57% and 1.50% for Class A shares, and .57% and 2.25% for
Primary Class shares.

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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) you redeem all of your shares at the
end of the time periods shown.

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1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Class A shares $673 $1,087 $1,526 $2,741
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Primary Class shares $276 $847 $1,445 $3,061
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[icon] M A N A G E M E N T

Adviser:

Legg Mason Fund Adviser, Inc. ("Adviser"), 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.

For its services during the period October 6, 1999 to December 31, 1999, the
fund paid the Adviser a fee of 1% of its average daily net assets, net of any
waivers. For the period January 1, 1999 through October 5, 1999, Bartlett & Co.
served as investment adviser to the fund, under compensation arrangements
substantially similar to those with the current adviser.

The Adviser acts as manager or adviser to investment companies with aggregate
assets of about $18.2 billion as of December 31, 1999.

Sub-Adviser:

Gray, Seifert & Co., ("Gray, Seifert") 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
was the evaluator of the Legg Mason Regional Bank and Thrift Unit Investment
Trusts. As of December 31, 1999, Gray, Seifert had aggregate assets under
management of about $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 is Senior Vice President and Director of
Research at Gray, Seifert where she has been employed since 1982.

Distributor of the fund's shares:

Legg Mason Wood Walker, Incorporated ("Legg Mason"), 100 Light Street,
Baltimore, Maryland 21202, is the distributor of the fund's shares. The fund has
adopted a separate plan under Rule 12b-1 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 Legg Mason a service fee at an annual rate
of 0.25% of its average daily Class A net assets.

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For Primary Class shares, the fund may pay Legg Mason a distribution fee at an
annual rate of 0.75% and a service fee of 0.25% of average daily Primary Class
shares net assets.

Because these fees are paid out of the fund's assets on an ongoing basis, over
time these fees will increase the cost of your investment and may cost you more
than paying other types of sales charges.

Legg Mason collects the sales charges imposed on purchases of Class A shares and
any CDSCs that may be imposed on certain redemptions of Class A shares. Legg
Mason reallows a portion of the sales charges on Class A shares to
broker/dealers that have sold such shares in accordance with the Class A shares
Purchase Schedule and may from time to time reallow the full amount of the sales
charge.

Legg Mason may also pay special additional compensation and promotional
incentives to broker/dealers who sell Class A shares of the fund.

Legg Mason may enter into agreements with other brokers to sell Primary Class
shares of the fund. Legg Mason pays these brokers up to 90% of the distribution
and service fee that it receives from the fund for those sales.

The Adviser, Gray, Seifert, and Legg Mason are wholly owned subsidiaries of Legg
Mason, Inc., a financial services holding company.

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[icon] H O W T O I N V E S T

To open a regular account or a retirement account contact a Legg Mason Financial
Advisor, Legg Mason Funds Investor Services ("FIS"), or another entity that has
entered into an agreement with the fund's distributor to sell shares of the
fund. The minimum initial investment is $1,000 and the minimum for each purchase
of additional shares is $100.

Retirement accounts include traditional IRAs, spousal IRAs, Education IRAs, Roth
IRAs, simplified employee pension plans, savings incentive match plans for
employees and other qualified retirement plans. The investment amount for an
Education IRA is $500. Contact your financial adviser, FIS, or other entity
offering the funds to discuss which one might be appropriate for you.

Certain investment methods (for example, through certain retirement plans) may
be subject to lower minimum initial and additional investments. Arrangements may
also be made with some employers and financial institutions for regular
automatic monthly investments of $50 or more in shares of the fund. Contact your
financial adviser or FIS with any questions regarding your investment options.

When placing a purchase order, please specify whether the order is for Class A
or Primary Class shares. All purchase orders that fail to specify a class will
automatically be invested in Primary Class shares.

Once your account is open, you may use the following methods to purchase shares
of the fund:

- --------------------------------------------------------------------------------
In Person Give your financial adviser a check for $100 or more
payable to the fund.
- --------------------------------------------------------------------------------
Mail Mail your check, payable to the fund, for $100 or more
to your financial adviser or to Legg Mason Funds
Investor Services at P.O. Box 17023, Baltimore, MD
21297-0356.
- --------------------------------------------------------------------------------
Telephone or Wire Call your financial adviser or FIS at 1-800-822-5544
to transfer available cash balances in your brokerage
account or to transfer money from your bank directly.
Wire transfers may be subject to a service charge by
your bank.
- --------------------------------------------------------------------------------
Internet or TeleFund FIS clients may purchase shares of the fund through
Legg Mason's Internet site at
http://www.leggmasonfunds.com or through a telephone
account management service "TeleFund" at
1-877-6-LMFUNDS.
- --------------------------------------------------------------------------------
Future First Systematic Contact a Legg Mason Financial Adviser to enroll in
Investment Plan Legg Mason's Future First Systematic Investment Plan.
Under this plan, you may arrange for automatic monthly
investments in a fund of $50 or more. The transfer
agent will transfer funds monthly from your Legg Mason
account or from your checking/savings account to
purchase shares of the fund.
- --------------------------------------------------------------------------------
Automatic Arrangements may be made with some employers and
Investments financial institutions for regular automatic monthly
investments of $50 or more in shares of the fund. You
may also reinvest dividends from certain unit
investment trusts in shares of the 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 adviser, FIS or the entity offering
the fund before the close of the New York Stock Exchange ("Exchange") (normally
4:00 p.m., Eastern time) will be processed at the fund's net asset value as of
the close of the Exchange on that day. Orders received after the close of the
Exchange will be processed at the fund's net asset value as of the close of the
Exchange on the next day the Exchange is open. Payment must be made within three
business days.

Navigator Class shares, which have a lower overall cost structure, are offered
through a separate prospectus only to certain investors.

Class A Shares Purchase Schedule:

The fund's offering price for Class A shares purchases is equal to the net asset
value per share plus a front-end sales charge determined from the following
schedule (which may be amended from time to time):

Sales Charge Sales Charge Dealer Reallowance
as a % of as a % of as a % of
Amount of Purchase Offering Price Net Investment Offering Price

Less than $25,000 4.75% 4.99% 4.00%
$25,000 to $49,999 4.50 4.71 3.75
$50,000 to $99,999 4.00 4.17 3.25
$100,000 to $249,999 3.50 3.63 2.75
$250,000 to $499,999 2.50 2.56 2.00
$500,000 to $999,999 2.00 2.04 1.60
$1 million or more * 0.00 0.00 1.00

* For redemptions made within one year of the purchase date, a CDSC of 1% of the
shares' net 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. See "How to Sell Your Shares"
for a discussion of any applicable CDSC on Class A shares.

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.

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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 Legg Mason)

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.

Right of Accumulation:

To receive the Right of Accumulation, investors must give the distributor or
their broker/dealer sufficient information to permit qualification. If
qualified, investors may purchase shares of the fund at the sales charge
applicable to the total of:

o the dollar amount being purchased, plus

o the dollar amount of the investors' concurrent purchases of Class A shares
of other Legg Mason funds, plus

o the price of all shares of Class A shares of Legg Mason funds already held
by the investor.

Letter of Intent:

Investors may execute a Letter of Intent indicating an aggregate amount to be
invested in Class A shares of any Legg Mason 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 fund.

If the total amount of purchases does not equal the aggregate amount covered by
the Letter of Intent after the thirteenth month, you will be required to pay the
difference between the sales charges paid at the reduced rate and the sales
charge applicable to the purchases actually made.

Shares having a value equal to 5% of the amount specified in the Letter of
Intent will be held in escrow during the 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.

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[icon] H O W T O S E L L Y O U R S H A R E S

You may use any of the following methods to sell shares of the fund:

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Telephone Call your financial adviser or FIS at 1-800-822-5544 or
entity offering the fund and request redemption. Please have
the following information ready when you call: the name of
the fund, the number of shares (or dollar amount) to be
redeemed and your shareholder account number.

Proceeds will be credited to your brokerage account or a
check will be sent to you, at your direction, at no charge to
you. Wire requests will be subject to a fee of $12. Be sure
that your financial adviser has your bank account information
on file.
- --------------------------------------------------------------------------------
Internet or FIS clients may request a redemption of fund shares through
TeleFund Legg Mason's Internet site at TeleFund
http://www.leggmasonfunds.com or through TeleFund at
1-877-6-LMFUNDS.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------

The fund will follow reasonable procedures to ensure the validity of any
telephone or Internet redemption request, such as requesting identifying
information from users or employing identification numbers. Unless you specify
that you do not wish to have telephone redemption privileges, you may be held
responsible for any fraudulent telephone order.

Fund shares will be sold at the next net asset value calculated after your
redemption request is received by your financial adviser or FIS.

Redemption orders will be processed promptly. Generally, proceeds from
redemption orders received before 11:00 a.m. Eastern time will be sent that same
day. Payment of the proceeds of redemptions of shares that were recently
purchased by check or acquired through reinvestment of distributions on such
shares may be delayed for up to 10 days from the purchase date in order to allow
for the check to clear.

Additional documentation may be required from corporations, executors,
partnerships, administrators, trustees or custodians.

Redemptions made through entities other than Legg Mason may be subject to
transaction fees or other conditions established by those entities. You should
consult their program literature for further information.

The fund has reserved the right under certain conditions to redeem its shares in
kind by distributing portfolio securities in payment for redemptions.

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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.

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[icon] A C C O U N T P O L I C I E S

Calculation of net asset value:

Net asset value per Class A share and Primary Class share is determined daily as
of the close of the Exchange, on every day the Exchange is open. The Exchange is
normally closed on all national holidays and Good Friday. To calculate 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 policies approved by the Board
of Directors.

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 or
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.

To the extent that the fund has portfolio securities that are primarily listed
on foreign exchanges that trade on days when the fund does not price its shares,
the net asset value of the fund may change on days when shareholders will not be
able to purchase or redeem the fund's shares.

Other:

Fund shares may not be held in, or transferred to, an account with any firm that
does not have an agreement with Legg Mason or its affiliates.

If your account falls below $500 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 will not redeem accounts that fall below $500 solely as a result of a
reduction in net asset value per share.

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, and

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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[icon] S E R V I C E S F O R I N V E S T O R S

For further information regarding any of the services below, please contact your
financial adviser 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. As described above under the
heading `Contingent Deferred Sales Charge,' 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.

The 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 redemption, contact Legg
Mason or your broker/dealer and notify them of your desire to reinstate and give
them an order for the amount to be purchased. The reinstatement will be made at
the net asset value next determined after the notification and purchase order
have been received by the transfer agent.

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[icon] D I S T R I B U T I O N S A N D T A X E S

The fund declares and pays any dividends on an annual basis.

Distributions of substantially all of the fund's net capital gain (the excess of
any 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 taxable year in which the gain is realized. A second
distribution of net capital gain may be necessary in some years to avoid
imposition of a federal excise tax.

Your dividends and other distributions will be automatically reinvested in the
same class of shares of the fund, unless you elect to receive dividends and/or
other distributions in cash. To change your election, you must notify the fund
at least 10 days before the next dividend and/or other distribution is to be
paid.

If the postal or other delivery service is unable to deliver your distribution
check, your distribution option will automatically be converted to having all
dividends and other distributions reinvested in fund shares. No interest will
accrue on amounts represented by uncashed distribution or redemption checks.

Fund dividends and other distributions are taxable to 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 (which includes net investment income and net short-term capital
gain) 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.

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. The fund will also withhold 31% of all dividends and capital gain
distributions payable to shareholders who are otherwise subject to backup
withholding.

Because each investor's tax situation is different, please consult your tax
adviser about federal, state and local tax considerations.

-18-
<PAGE>

[icon] F I N A N C I A L H I G H L I G H T S

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 January 1, 1999 to December 31, 1999, has been audited by the
fund's independent auditors, Ernst & Young 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 information for
the period November 16, 1998 to December 31, 1998 has been audited by
PricewaterhouseCoopers LLP. The annual report is available upon request by
calling toll-free 1-800-822-5544.

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Investment Operations Distributions
- -------------------------------------------------------------------------------------------------------------------
Net Asset Net Net Realized Total From From Net From Net Net Asset
Value, Investment and Investment Investment Realized Value,
Beginning Income/(Loss) Unrealized Operations Income Gains End of
of Period Gain/(Loss) Period
On Investments
- -------------------------------------------------------------------------------------------------------------------
Primary Class Shares:
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Year Ended $10.57 $(0.07)(C) $(1.09) $(1.16) $ --- $ --- $ 9.41
Dec. 31,
1999 (B)
- -------------------------------------------------------------------------------------------------------------------
Period 10.00 (0.01)(C) 0.58 0.57 --- --- 10.57
Ended
Dec. 31,
1998(D)
- -------------------------------------------------------------------------------------------------------------------
Class A Shares:
- -------------------------------------------------------------------------------------------------------------------
Year Ended $10.58 $---(E) $(1.09) $(1.09) $ --- $--- $ 9.49
Dec. 31,
1999 (B)
- -------------------------------------------------------------------------------------------------------------------
Period 10.00 ---(E) 0.58 0.58 --- --- 10.58
Ended
Dec. 31,
1998(D)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- -------------------------------------------------------------------------------------------------------------------
Total Return Expenses to Net Investment Portfolio Net Assets,
(%)(A) Average Net Income/(Loss) to Turnover End of Year
Assets (%) Average Net Rate(%) (thousands-$)
Assets (%)
- -------------------------------------------------------------------------------------------------------------------
Primary Class Shares:
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended
Dec. 31, (10.97)% 2.25%(C) (0.73)%(C) 27.1% $28,366
1999 (B)
- -------------------------------------------------------------------------------------------------------------------
Period Ended 5.70%(F) 2.25%(C,G) (0.11)%(C,G) ---- 14,598
Dec. 31,
1998(D)
- -------------------------------------------------------------------------------------------------------------------
Class A Shares:
- -------------------------------------------------------------------------------------------------------------------
Year Ended
Dec. 31, (10.30)% $1.50% (E) 0.01% (E) 27.1% $ 9,399
1999 (B)
- -------------------------------------------------------------------------------------------------------------------
Period Ended 5.80%(F) 1.50%(E,G) 0.22%(E,G) ---- 7,451
Dec. 31,
1998(D)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
-19-
<PAGE>

(A) Excluding sales charge on Class A shares.

(B) Effective October 5, 1999, LMFA became the Fund's investment adviser,
replacing Bartlett & Co.

(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 as follows: 1999, 2.73%; 1998, 2.40%.

(D) For the period November 16, 1998 (commencement of operations of each class)
to December 31, 1998. (E) (E) 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 as follows: 1999, 2.05%;
1998, 1.65%.

(F) Not annualized.
(G) Annualized.

-20-
<PAGE>

L e g g M a s o n F i n a n c i a l S e r v i c e s F u n d

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. In the fund's annual report, you will find a discussion of the
market conditions and investment strategies that significantly affected the
fund's performance during its last fiscal year.

To request the SAI or any reports to shareholders, or to obtain more
information:

o call toll-free 1-800-822-5544
o visit us on the Internet via http://www.leggmasonfunds.com
o write to us at: Legg Mason Wood Walker, Incorporated
100 Light Street, P.O. Box 1476
Baltimore, 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. Information on the operation of
the Public Reference Room may be obtained by calling the SEC at 1-202-942-8090.
Reports and other information about the fund are available on the EDGAR database
on the SEC's Internet site at http://www.sec.gov. Investors may also obtain this
information, after paying a duplicating fee, by electronic request at the
following e-mail address: [email protected] or by writing the SEC's Public
Reference Section, Washington, D.C. 20549-0102.

LMF-188 SEC file number: 811-7692

-21-
<PAGE>

Legg Mason Financial Services Fund
- ----------------------------------

Navigator Class of Legg Mason Financial Services Fund

NAVIGATOR SHARES PROSPECTUS April 28, 2000

logo

THE ART OF INVESTING SM

<PAGE>

T A B LE O F C O N T E N T S

A b o u t t h e f u n d :

3 Investment objective

4 Principal risks

6 Performance

7 Fees and expenses of the fund

8 Management

A b o u t y o u r i n v e s t m e n t:

9 How to invest

11 How to sell your shares

12 Account policies

13 Services for investors

14 Distributions and taxes

15 Financial highlights

-2-
<PAGE>

Legg Mason Financial Services Fund:

[icon] I N V E S T M E N T O B J E C T I V E

Investment objective: long-term growth of capital.

Principal investment strategies:

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, mortgage providers)

o insurance and insurance brokerage firms

o government sponsored agencies, such as Sallie Mae

o financial conglomerates

o foreign financial services companies (limited to 25% of total assets,
not including ADRs)

The sub-adviser will sell a security in the fund's portfolio if that security
experiences earnings problems.

-3-
<PAGE>

PRINCIPAL RISKS

In general:

Market risk:

Style risk:

Convertible securities:

-4-
<PAGE>

Interest rate and credit risk:

Foreign securities risk:

-5-
<PAGE>

[icon] PERFORMANCE

The information below provides an indication of the risks of investing in the
fund by showing changes in the fund's performance from year to year. Annual
returns assume reinvestment of dividends and other distributions. Navigator
Class shares commenced operations on October 7, 1999. The returns presented for
the fund are for Primary Class shares, which are not offered in this prospectus.
Navigator Class and Primary Class shares are invested in the same portfolio of
securities, and the annual returns for each class of shares would differ only to
the extent that the Navigator Class would pay lower expenses, and therefore
would have higher returns. Historical performance of a fund does not necessarily
indicate what will happen in the future.

PRIMARY CLASS SHARES

Total Return as of December 31 (%):

1999 (10.97)
-------

During the last calendar year:

Quarter Ended Total Return

Best quarter June 30, 1999 4.93%

Worst quarter September 30, 1999 (13.23%)

1 Year Life of Class

Primary Class (10.97%) (5.27%) (a)

S&P 500 Index 21.04% 23.98% (b)

(a) November 16, 1998 (commencement of operations of this class) to December 31,
1999. On October 5, 1999 this fund was reorganized from a series of Bartlett
Capital Trust to a series of Legg Mason Investors Trust, Inc.

(b) For the period November 30, 1998 to December 31, 1999.

-6-
<PAGE>

[icon] F E E S A N D E X P E N S E S O F T H E F U N D

Navigator Class

Annual Fund Operating Expenses
(expenses that are deducted from fund assets)

---------------------------------------------------------------
Management fees (a) 1.00 %
---------------------------------------------------------------
Distribution and/or service (12b-1)
fees None
---------------------------------------------------------------
Other expenses (a) 0.67 %
---------------------------------------------------------------
Total Annual Fund Operating
Expenses (b) 1.67 %
---------------------------------------------------------------

(a) "Other expenses" are based on estimated expenses for the fiscal year ending
December 31, 2000. Navigator Class commenced operations on October 7, 1999.

(b) Legg Mason Fund Adviser, Inc., as investment adviser, has voluntarily agreed
to waive fees so that expenses of Navigator Class shares (exclusive of taxes,
interest, brokerage and extraordinary expenses) do not exceed an annual rate of
1.25% of the fund's average daily net assets attributable to Navigator Class
shares. This voluntary waiver will continue to April 30, 2001, and may be
terminated at any time. With this waiver, estimated management fees and total
annual fund operating expenses for the fund would be 0.57% and 1.25%.

Example:

------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
------------------------------------------------------------
$170 $526 $907 $1976
------------------------------------------------------------

-7-
<PAGE>

[icon] M A N A G E M E N T

Adviser:

The Adviser acts as manager or adviser to investment companies with aggregate
assets of about $18.2 billion as of December 31, 1999.

Sub-Adviser:

Portfolio Management:

Distributor of the fund's shares:

Legg Mason Wood Walker, Incorporated ("Distributor" or "Legg Mason"), 100 Light
Street, Baltimore, Maryland 21202, distributes the fund's shares pursuant to an
Underwriting Agreement. The Underwriting Agreement obligates the Distributor to
pay certain expenses in connection with offering fund shares, including
compensation to its financial advisers, the printing and distribution of
prospectuses, statements of additional information and shareholder reports
(after these have been printed and mailed to existing shareholders at the fund's
expense), supplementary sales literature and advertising materials.

The Distributor and Gray, Seifert may pay non-affiliated entities out of their
own assets to support the distribution of Navigator Class shares and shareholder
servicing.

The Adviser, Gray, Seifert, and the Distributor are wholly owned subsidiaries of
Legg Mason, Inc., a financial services holding company.

-8-
<PAGE>

[icon] H O W T O I N V E S T

Navigator Class shares are currently offered for sale only to:

o Institutional Clients of Legg Mason Trust Company for which they exercise
discretionary investment management responsibility and accounts of the
customers with such Institutional Clients ("Customers").

o Qualified retirement plans managed on a discretionary basis and having net
assets of at least $200 million.

o Any qualified retirement plan having net assets of at least $300 million.

o Clients of Bartlett & Co. who, as of December 19, 1996, were shareholders
of Bartlett Short Term Bond Fund or Bartlett Fixed Income Fund and for whom
Bartlett acts as an ERISA fiduciary.

o Any qualified retirement plan of Legg Mason, Inc. or of any of its
affiliates.

o Certain institutions who were clients of Fairfield Group, Inc. as of
February 28, 1999 for investment of their own monies and monies for which
they act in a fiduciary capacity.

o Shareholders of Class Y shares of Bartlett Europe Fund or Bartlett
Financial Services Fund on October 5, 1999.

o Any open-end management investment company advised or managed by LMFA or by
any person controlling, controlled by, or under common control with LMFA.

Eligible investors may purchase Navigator Class shares through a brokerage
account at Legg Mason. The minimum initial investment is $50,000 and the minimum
for each purchase of additional shares is $100. Institutional Clients may set
different minimums for their Customers' investments in accounts invested in
Navigator Class shares.

Customers of certain Institutional Clients that have omnibus accounts with the
fund's transfer agent can purchase shares through those Institutions. The
distributor may pay such Institutional Clients for account servicing.
Institutional Clients may charge their Customers for services provided in
connection with the purchase and redemption of shares. Information concerning
these services and any applicable charges will be provided by the Institutional
Clients. This Prospectus should by read by Customers in connection with any such
information received by Institutional Clients. Any such fees, charges or
requirements imposed by Institutional Clients will be in addition to the fees
and requirements of this Prospectus.

Certain institutions that have agreements with Legg Mason or the fund may be
authorized to accept purchase and redemption orders on their behalf. Once the
authorized institution accepts the order, you will receive the next determined
net asset value. You should consult with your institution to determine the time
by which it must receive your order to get that day's share price. It is the
institution's responsibility to transmit your order to the fund in a timely
fashion.

Purchase orders received by Legg Mason before the close of the New York Stock
Exchange (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. The fund is open for
business every day the New York Stock Exchange is open. The New York Stock
Exchange is closed on all national holidays and Good Friday. Orders received
after the close of the exchange will be processed at the fund's net asset value

-9-
<PAGE>

as of the close of the exchange on the next day the exchange is open. Payment
must be made within three business days to the selling organization.

-10-

<PAGE>

[icon] H O W T O S E L L Y O U R S H A R E S

To redeem your shares by telephone:

o Call 1-800-822-5544

Please have available the number of shares (or dollar amount) to be redeemed and
the account number.

The 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.

Customers of Institutional Clients may redeem only in accordance with
instructions and limitations pertaining to their account at the Institution.

Redemption orders received by Legg Mason before the close of the New York Stock
Exchange will be transmitted to the fund's transfer agent. Your order will be
processed at that day's net asset value. Redemption orders received by Legg
Mason after the close of the exchange will be processed at the closing net asset
value on the next day the exchange is open.

Your order will be processed promptly and you will generally receive the
proceeds by mail to the name and address on the account registration within a
week. You may also have your telephone redemption requests paid by a direct wire
to a previously designated domestic commercial bank account

Payment of the proceeds of redemptions of shares that were recently purchased by
check or acquired through reinvestment of dividends on such shares may be
delayed for up to 10 days from the purchase date in order to allow for the check
to clear.

The fund has reserved the right under certain conditions to redeem its shares in
kind by distributing portfolio securities in payment for redemptions.

-11-
<PAGE>

[icon] A C C O U N T P O L I C I E S

Calculation of Net Asset Value:

Net asset value per Navigator Class share is determined daily as of the close of
the Exchange on every day the Exchange is open. The Exchange is normally closed
on all national holidays and Good Friday. To calculate the fund's Navigator
Class share price, the fund's assets attributable to Navigator Class shares are
valued and totaled, liabilities attributable to Navigator Class shares are
subtracted, and the resulting net assets are divided by the number of Navigator
Class shares outstanding. The fund's securities are valued on the basis of
market quotations or, lacking such quotations, at fair value as determined under
policies approved by the Board of Directors.

Where a security is traded on more than one market, which may include foreign
markets, the securities are generally valued on the market considered by the
sub-adviser to be the primary market. Securities with remaining maturities of 60
days or less are valued at amortized cost. The fund will value its foreign
securities in U.S. dollars on the basis of the then-prevailing exchange rates.

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.

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 or excessive trading or
during unusual market conditions. The fund may delay redemptions beyond
seven days, or suspend redemptions, only as permitted by the SEC.

-12-
<PAGE>

[icon] S E R V I C E S F O R I N V E S T O R S

Confirmations and Account Statements:

Confirmations will be sent to Institutional Clients after each transaction
involving Navigator Class shares which will include the total number of shares
being held in safekeeping by the transfer agent. The transfer agent will send
confirmations of each purchase and redemption transaction (except a reinvestment
of dividends or capital gain distributions). Beneficial ownership of shares by
Customer accounts will be recorded by the Institutional Client and reflected in
their regular account statements.

Exchange Privilege:

Navigator Class shares of this fund may be exchanged for shares of the Legg
Mason Money Market Funds or Navigator Class shares of any of the other Legg
Mason funds, provided these funds are eligible for sale in your state of
residence. You can request an exchange in writing or by phone. Be sure to read
the current prospectus for any fund into which you are exchanging.

There is currently no fee for exchanges; however, you may be subject to a sales
charge when exchanging into a fund that has one. In addition, an exchange of a
fund's shares will be treated as a sale of the shares, and any gain on the
transaction may be subject to tax.

The fund reserves the right to:

o Terminate or limit the exchange privilege of any shareholder who makes more
than four exchanges from the fund in one calendar year.

o Terminate or modify the exchange privilege after 60 days' written notice to
shareholders.

Some Institutional Clients may not offer all of the Navigator Funds for
exchange.

-13-
<PAGE>

[icon] D I S T R I B U T I O N S A N D T A X E S

The fund declares and pays any dividends on an annual basis.

Distributions of substantially all of the fund's net capital gain (the excess of
any net long-term capital gain over net short-term capital loss) and any net
realized gains from foreign currency transactions 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
additional Navigator Class shares of the fund unless you elect to receive them
in cash. 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.

Fund dividends and other distributions are taxable to investors (other than
retirement plans and other tax-exempt investors) whether received in cash or
reinvested in additional Navigator Class shares of the fund. Dividends from
investment company taxable income (which includes net investment income and net
short term capital gains) are taxable as ordinary income. Distributions of the
fund's net capital gain, if any, 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 after the end of each year detailing the tax
status of your distributions.

Because each investor's tax situation is different, please consult your tax
adviser about federal, state and local tax considerations.

-14-
<PAGE>

[icon] F I N A N C I A L H I G H L I G H T S

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. The information
for the period has been audited by the fund's independent auditors, Ernst &
Young 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.

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Investment Operations Distributions
- ----------------------------------------------------------------------------------------------------------------
Net Asset Net Net Realized Total From From Net From Net Net Asset
Value, Investment and Investment Investment Realized Value,
Beginning Income/(Loss) Unrealized Operations Income Gains End of
of Period Gain/(Loss) Period
On Investments
- ----------------------------------------------------------------------------------------------------------------
Navigator Class Shares:
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Period $9.27 $0.01(b) $0.22 $0.23 $--- $--- $ 9.50
Ended
Dec. 31,
1999 (a)
- ----------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- ----------------------------------------------------------------------------------------------------------------
Total Return Expenses to Net Investment Portfolio Net Assets,
(%) Average Net Income/(Loss) to Turnover End of Year
Assets (%) Average Net Rate(%) (thousands-$)
Assets (%)
- ----------------------------------------------------------------------------------------------------------------
Navigator Class Shares:
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Period Ended 2.37%(c) 1.25%(b,d) 0.33%(b,d) 27.1%(d) $5
Dec. 31,
1999 (a)
- ----------------------------------------------------------------------------------------------------------------

</TABLE>

(a) For the period October 7, 1999 (commencement of operations of Navigator
Class) to December 31, 1999.

(b) Net of fees waived pursuant to a voluntary expense limitation of 1.25%. If
no fees had been waived, the annualized ratio of expenses to average daily
net assets for the period October 7, 1999 through December 31, 1999, would
have been 1.67%.

-15-
<PAGE>

L e g g M a s o n F i n a n c i a l S e r v i c e s F u n d

The following additional information about the fund is available upon request
and without charge:

To request the SAI or any reports to shareholders, or to obtain more
information:

LMF- SEC file number: 811-7692

-16-
<PAGE>

LEGG MASON INVESTORS TRUST, INC.
Legg Mason Financial Services Fund

CLASS A SHARES, PRIMARY CLASS SHARES and NAVIGATOR CLASS SHARES

STATEMENT OF ADDITIONAL INFORMATION

April 28, 2000

This Statement of Additional Information is not a prospectus. It
should be read in conjunction with the Prospectus for Class A and Primary Class
shares or the Prospectus for Navigator Class shares of Financial Services Fund
(both dated April 28, 2000), as appropriate, which have been filed with the
Securities and Exchange Commission ("SEC"). The Fund's annual reports are
incorporated by reference into this Statement of Additional Information. Copies
of Prospectuses or the annual report may be obtained without charge from the
Fund's distributor, Legg Mason Wood Walker, Incorporated ("Legg Mason"), at
1-800-822-5544.

Legg Mason Wood Walker,
Incorporated
- --------------------------------------------------------------------------------
100 Light Street
Baltimore, Maryland 21202
(410) 539-0000 (800) 822-5544

<PAGE>

TABLE OF CONTENTS

Page

DESCRIPTION OF THE FUND.......................................................1
FUND POLICIES.................................................................1
INVESTMENT STRATEGIES AND RISKS...............................................2
ADDITIONAL TAX INFORMATION...................................................13
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION...............................16
VALUATION OF FUND SHARES.....................................................18
PERFORMANCE INFORMATION......................................................18
TAX-DEFERRED RETIREMENT PLANS - PRIMARY CLASS SHARES AND CLASS A SHARES......21
MANAGEMENT OF THE FUND.......................................................22
THE FUND'S INVESTMENT ADVISER/MANAGER........................................25
PORTFOLIO TRANSACTIONS AND BROKERAGE.........................................26
THE FUND'S DISTRIBUTOR.......................................................27
CAPITAL STOCK INFORMATION....................................................30
THE FUND'S CUSTODIAN AND TRANSFER AND DIVIDEND-DISBURSING AGENT..............30
THE FUND'S LEGAL COUNSEL.....................................................30
THE FUND'S INDEPENDENT AUDITORS..............................................30
FINANCIAL STATEMENTS.........................................................30
Appendix A...................................................................31

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

<PAGE>

DESCRIPTION OF THE FUND

Legg Mason Investors Trust, Inc. ("Investors Trust" or "Corporation") is a
diversified open-end management investment company that was established as a
Maryland corporation on May 5, 1993. Legg Mason Financial Services Fund
("Financial Services Fund") is a separate series of Investors Trust.

FUND POLICIES

Financial Services Fund's investment objective is to seek long-term
growth of capital. The Fund's investment objective is non-fundamental and may be
changed without shareholder approval.

The Fund has adopted certain fundamental investment limitations that
cannot be changed except by vote of its shareholders.

Financial Services Fund may not:

1. Borrow money, except (a) from a bank, provided that immediately
after such borrowing there is an asset coverage of 300% for all borrowings of
the Fund; or (b) from a bank or other persons for temporary purposes only,
provided that such temporary borrowings are in an amount not exceeding 5% of the
Fund's total assets at the time when the borrowing is made.

2. Act as underwriter of securities issued by other persons. This
limitation is not applicable to the extent that, in connection with the
disposition of portfolio securities (including restricted securities), the Fund
may be deemed an underwriter under certain federal securities laws.

3. Purchase, hold or deal in real estate. This limitation is not
applicable to investments in securities which are secured by or represent
interests in real estate or to securities issued by companies, including real
estate investment trusts, that invest in real estate or interests in real
estate. This limitation does not preclude the Fund from investing in
mortgage-related securities or investing directly in mortgages.

4. Purchase, hold or deal in commodities or commodities futures
contracts except that the fund may purchase or sell forward currency contracts.

5. Make loans to other persons, except (a) by loaning portfolio
securities, (b) by engaging in repurchase agreements, (c) by purchasing
nonpublicly offered debt securities, or (d) through direct investments in
mortgages. For purposes of this limitation, the term "loans" shall not include
the purchase of a portion of an issue of publicly distributed bonds, debentures
or other securities.

6. Purchase securities or evidences of interest thereon on "margin."
This limitation is not applicable to short term credit obtained by the Fund for
the clearance of purchases and sales or redemption of securities, or to
arrangements with respect to transactions involving options, futures contracts,
short sales and other permitted investments and techniques (including foreign
exchange contracts).

7. Invest more than 25% of its total assets in a particular industry
other than the financial services industry.

8. Purchase the securities of any issuer if such purchase at the time
thereof would cause less than 75% of the value of its total assets to be
invested in cash and cash items (including receivables), securities issued by
the U.S. government, its agencies or instrumentalities and repurchase agreements
with respect thereto, securities of other investment companies, other securities
for the purposes of this calculation limited in respect of any one issuer to an
amount not greater in value than 5% of the value of the total assets of the Fund
and to not more than 10% of the outstanding voting securities of such issuer.

-1-

<PAGE>

9. Issue senior securities, except as permitted under the 1940 Act.

The foregoing limitations may be changed by "the vote of a majority of
the outstanding voting securities" the Fund, a term defined in the 1940 Act to
mean the vote (a) of 67% or more of the voting securities present at a meeting,
if the holders of more than 50% of the outstanding voting securities of the Fund
are present, or (b) of more than 50% of the outstanding voting securities of the
Fund, whichever is less.

For purposes of the diversification requirements described above,
Financial Services Fund will treat both the corporate borrower and the financial
intermediary as issuers of a loan participation interest. Investments by the
Fund in collateralized mortgage obligations that are deemed to be investment
companies under the 1940 Act will be included in the limitation on investments
in other investment companies.

Except as otherwise stated, if a fundamental or non-fundamental
percentage limitation set forth above is complied with at the time an investment
is made, a later increase or decrease in percentage resulting from a change in
value of portfolio securities, in the net asset value of the Fund, or in the
number of securities an issuer has outstanding, will not be considered to be
outside the limitation. The Fund will monitor the level of borrowing and
illiquid securities in its portfolio and will make necessary adjustments to
maintain the required asset coverage and adequate liquidity.

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.

INVESTMENT STRATEGIES AND RISKS

This section supplements the information in the Prospectuses
concerning the investments the Fund may make and the techniques it may use. The
Fund, unless otherwise stated, may employ several investment strategies,
including:

Securities in the Financial Services Industry
- ---------------------------------------------

Companies in the financial services industry include regional and
money center banks, securities brokerage firms, asset management companies,
savings banks and thrift institutions, specialty finance companies (e.g., credit
card, mortgage providers), insurance and insurance brokerage firms, government
sponsored agencies (e.g., Sallie Mae), financial conglomerates and foreign
banking and financial services companies.

The financial services industry is currently undergoing relatively
rapid change as existing distinctions between financial service segments becomes
less clear. For instance, recent business combinations in the U.S. have included
insurance, finance, banking and/or securities brokerage under single ownership.
Moreover, Congress recently repealed the federal laws generally separating
commercial and investment banking, and the services offered by banks are likely
to expand. While providing diversification, expanded powers could expose banks
to well-established competitors, particularly as the historical distinctions
between banks and other financial institutions erode. Increased competition may
also result from the broadening of regional and national interstate banking
powers, which has already reduced the number of publicly traded regional banks.

Banks, savings and loan associations, and finance companies are
subject to extensive governmental regulation which may limit both the amounts
and types of loans and other financial commitments they can make and the
interest rates and fees they can charge. The profitability of these groups is
largely dependent on the availability and cost of capital funds, and can
fluctuate significantly when interest rates change. In addition, general
economic conditions are important to the operations of these concerns, with
exposure to credit losses resulting from possible financial difficulties of
borrowers potentially having an adverse effect.

-2-
<PAGE>

Finance companies can be highly dependent upon access to capital
markets and any impediments to such access, such as adverse overall economic
conditions or a negative perception in the capital markets of a finance
company's financial condition or prospects, could adversely affect its business.

Insurance companies are likewise subject to substantial governmental
regulation, predominately at the state level, and may be subject to severe price
competition. The performance of the Fund's investments in insurance companies
will be subject to risk from several additional factors. The earnings of
insurance companies will be affected by, in addition to general economic
conditions, pricing (including severe pricing competition from time to time),
claims activity, and marketing competition. Particular insurance lines will also
be influenced by specific matters. Property and casualty insurer profits may be
affected by certain weather catastrophes and other disasters. Life and health
insurer profits may be affected by mortality and morbidity rates. Individual
companies may be exposed to material risk, including reserve inadequacy,
problems in investment portfolios (due to real estate or "junk" bond holdings,
for example), and the inability to collect from reinsurance carriers. Insurance
companies are subject to extensive governmental regulation, including the
imposition of maximum rate levels, which may not be adequate for some lines of
business. Proposed or potential anti-trust or tax law changes also may affect
adversely insurance companies' policy sales, tax obligations and profitability.

Companies engaged in stock brokerage, commodity brokerage, investment
banking, investment management, or related investment advisory services are
closely tied economically to the securities and commodities markets and can
suffer during a decline in either. These companies also are subject to the
regulatory environment and changes in regulations, pricing pressure and the
availability of funds to borrowing and interest rates.

Illiquid and Restricted Investments
- -----------------------------------

The Fund may invest up to 15% of its net assets in illiquid
investments. For this purpose, "illiquid investments" are those that cannot be
disposed of within seven days for approximately the price at which the Fund
values the security. Illiquid investments include repurchase agreements with
terms of greater than seven days, and restricted investments other than those
the Fund's adviser has determined are liquid pursuant to guidelines established
by the Fund's Board of Directors. Due to the absence of an active trading
market, the Fund may have difficulty disposing of illiquid securities promptly.
Judgment plays a greater role in valuing illiquid securities than those for
which a more active market exists.

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. The 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.

SEC regulations permit the sale of certain restricted securities to
qualified institutional buyers. The Fund's adviser, acting pursuant to
guidelines established by the 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, or qualified
institutional investors become disinterested for a time, restricted securities
in the Fund's portfolio may adversely affect the Fund's liquidity.

Concentration
- -------------

The Fund will not invest more than 25% of its total assets in a
particular industry other than the financial services industry.

-3-
<PAGE>

Forward Currency Contracts
- --------------------------

The Fund may enter into forward currency contracts to purchase or sell
foreign currencies for a fixed amount of U.S. dollars or another foreign
currency. A forward currency contract involves an obligation to purchase or sell
a specific currency at a future date, which may be any fixed number of days
(term) from the date of the forward currency contract agreed upon by the
parties, at a price set at the time of the forward currency contract. These
forward currency contracts are traded directly between currency traders (usually
large commercial banks) and their customers.

Such transactions may serve as long hedges; for example, the Fund may
purchase a forward currency contract to lock in the U.S. dollar price of a
security denominated in a foreign currency that the Fund intends to acquire.
Forward currency contract transactions may also serve as short hedges; for
example, the Fund may sell a forward currency contract to lock in the U.S.
dollar equivalent of the proceeds from the anticipated sale of a security,
dividend or interest payment denominated in a foreign currency.

The Fund may also use forward currency contracts to hedge against a
decline in the value of existing investments denominated in foreign currency.
For example, if the Fund owned securities denominated in Euros, it could enter
into a forward currency contract to sell Euros in return for U.S. dollars to
hedge against possible declines in the Euro's value. Such a hedge, sometimes
referred to as a "position hedge," would tend to offset both positive and
negative currency fluctuations, but would not offset changes in security values
caused by other factors. The Fund could also hedge the position by selling
another currency expected to perform similarly to the Euro. This type of hedge,
sometimes referred to as a "proxy hedge," could offer advantages in terms of
cost, yield or efficiency, but generally would not hedge currency exposure as
effectively as a simple hedge into U.S. dollars. Proxy hedges may result in
losses if the currency used to hedge does not perform similarly to the currency
in which the hedged securities are denominated.

The Fund may also hedge its foreign currency exchange rate risk by
engaging in currency futures contracts and options transactions. The Fund will
not engage in foreign currency transactions for speculative purposes.

The Fund also may use forward currency contracts to attempt to enhance
income or yield. The Fund could use forward currency contracts to increase its
exposure to foreign currencies that the adviser believes might rise in value
relative to the U.S. dollar, or shift its exposure to foreign currency
fluctuations from one country to another. For example, if the Fund owned
securities denominated in a foreign currency and the adviser believed that
currency would decline relative to another currency, it might enter into a
forward currency contract to sell an appropriate amount of the first foreign
currency, with payment to be made in the second foreign currency.

The cost to the Fund of engaging in forward currency contracts varies
with factors such as the currency involved, the length of the contract period
and the market conditions then prevailing. Because forward currency contracts
are usually entered into on a principal basis, no fees or commissions are
involved. When the Fund enters into a forward currency contract, it relies on
the counterparty to make or take delivery of the underlying currency at the
maturity of the contract. Failure by the counterparty to do so would result in
the loss of any expected benefit of the transaction.

Purchasers and sellers of forward currency contracts can enter into
offsetting closing transactions by selling or purchasing, respectively, an
instrument identical to the instrument purchased or sold. Secondary markets
generally do not exist for forward currency contracts, with the result that
closing transactions generally can be made for forward currency contracts only
by negotiating directly with the counterparty. Thus, there can be no assurance
that the Fund will in fact be able to close out a forward currency contract at a
favorable price prior to maturity. In addition, in the event of insolvency of
the counterparty, the Fund might be unable to close out a forward currency
contract at any time prior to maturity. In either event, the Fund would continue

-4-
<PAGE>

to be subject to market risk with respect to the position, and would continue to
be required to maintain a position in securities denominated in the foreign
currency or to maintain cash or liquid assets in an account.

The precise matching of forward currency contract amounts and the
value of the securities involved generally will not be possible because the
value of such securities, measured in the foreign currency, will change after
the forward currency contract has been established. Thus, the Fund might need to
purchase or sell foreign currencies in the spot (cash) market to the extent such
foreign currencies are not covered by forward currency contracts. The projection
of short-term currency market movements is extremely difficult, and the
successful execution of a short-term hedging strategy is highly uncertain.

Successful use of forward currency contracts depends on the adviser's
skill in analyzing and predicting currency values. Forward currency contracts
may substantially change the Fund's exposure to changes in currency exchange
rates and could result in losses to the Fund if currencies do not perform as the
adviser anticipates. There is no assurance that the adviser's use of forward
currency contracts will be advantageous to the Fund or that the adviser will
hedge at an appropriate time. The Fund may hold foreign currency positions that
are not hedged at all.

Repurchase Agreements
- ---------------------

When cash is temporarily available, or for temporary defensive
purposes, the Fund may invest without limit in repurchase agreements and money
market instruments, including 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 the Fund by a custodian bank as collateral until
resold and will be supplemented by additional collateral if necessary to
maintain a total value equal to or in excess of the value of the repurchase
agreement. The Fund bears a risk of loss in the event that the other party to a
repurchase agreement defaults on its obligations and the Fund is delayed or
prevented from exercising its rights to dispose of the collateral securities,
which may decline in value in the interim. The Fund will enter into repurchase
agreements only with financial institutions determined by the Fund's adviser to
present minimal risk of default during the term of the agreement.

Repurchase agreements are usually for periods of one week or less, but
may be for longer periods. The Fund will not enter into repurchase agreements of
more than seven days' duration if more than 15% of net assets would be invested
in such agreements and other illiquid investments. To the extent that proceeds
from any sale upon a default of the obligation to repurchase were less than the
repurchase price, the Fund might suffer a loss. If bankruptcy proceedings are
commenced with respect to the seller of the security, realization upon the
collateral by the Fund could be delayed or limited.

When the Fund enters into a repurchase agreement, it will obtain as
collateral from the other party securities equal in value to 102% of the amount
of the repurchase agreement (or 100%, if the securities obtained are U.S.
Treasury bills, notes or bonds). Such securities will be held by a custodian
bank or an approved securities depository or book-entry system.

Foreign Securities
- ------------------

The 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 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
and transactions in foreign securities may be subject to less efficient
settlement practices, including extended clearance and settlement periods.
Issuers may be less liquid and their prices more volatile than those of

-5-
<PAGE>

comparable domestic issuers. In addition, with respect to certain foreign
countries, there is the possibility of expropriation, confiscatory taxation,
withholding taxes and limitations on the use or removal of funds or other
assets.

The costs associated with investment in foreign issuers, including
withholding taxes, brokerage commissions and custodial fees, are higher than
those associated with investment in domestic issuers. In addition, foreign
securities transactions may be subject to difficulties associated with the
settlement of such transactions. Delays in settlement could result in temporary
periods when assets of the Fund are uninvested and no return is earned thereon.
The inability of the Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Inability to dispose of a portfolio security due to settlement problems could
result in losses to the Fund due to subsequent declines in value of the
portfolio security or, if the Fund has entered into a contract to sell the
security, could result in liability to the purchaser.

Since the Fund may invest in securities denominated in currencies
other than the U.S. dollar and since the Fund may hold foreign currencies, the
Fund may be affected favorably or unfavorably by exchange control regulations or
changes in the exchange rates between such currencies and the U.S. dollar.
Changes in the currency exchange rates may influence the value of the Fund's
shares, and also may affect the value of dividends and interest earned by the
Fund and gains and losses realized by the Fund. Exchange rates are determined by
the forces of supply and demand in the foreign exchange markets. These forces
are affected by the international balance of payments, other economic and
financial conditions, government intervention, speculation and other factors.

In addition to purchasing foreign securities, the Fund may invest in
American Depository Receipts ("ADRs"). Generally, ADRs, in registered form, are
denominated in U.S. dollars and are designed for use in the domestic market.
Usually issued by a U.S. bank or trust company, ADRs are receipts that
demonstrate ownership of the underlying securities. For purposes of the Fund's
investment policies and limitations, ADRs are considered to have the same
classification as the securities underlying them. ADRs may be sponsored or
unsponsored; issuers of securities underlying unsponsored ADRs are not
contractually obligated to disclose material information in the U.S.
Accordingly, there may be less information available about such issuers than
there is with respect to domestic companies and issuers of securities underlying
sponsored ADRs. The Fund may also invest in Global Depository Receipts ("GDRs"),
which are receipts, often denominated in U.S. dollars, issued by either a U.S.
or non-U.S. bank evidencing its ownership of the underlying foreign securities.

Although not a fundamental policy subject to shareholder vote, the
adviser currently anticipates that the Fund will invest no more than 25% of its
total assets in foreign securities, either directly or through ADRs or GDRs.

Emerging Market Securities
- --------------------------

Because of the high levels of foreign-denominated debt owed by many
emerging market countries, fluctuating exchange rates can significantly affect
the debt service obligations of those countries. This could, in turn, affect
local interest rates, profit margins and exports which are a major source of
foreign exchange earnings. Although it might be theoretically possible to hedge
for anticipated income and gain, the ongoing and indeterminate nature of the
foregoing risk (and the costs associated with hedging transactions) makes it
virtually impossible to hedge effectively against such risks.

To the extent an emerging market country faces a liquidity crisis with
respect to its foreign exchange reserves, it may increase restrictions on the
outflow of any foreign exchange. Repatriation is ultimately dependent on the
ability of the Fund to liquidate its investments and convert the local currency
proceeds obtained from such liquidation into U.S. dollars. Where this conversion
must be done through official channels (usually the central bank or certain
authorized commercial banks), the ability to obtain U.S. dollars is dependent on
the availability of U.S. dollars through those channels and, if available, upon
the willingness of those channels to allocate those U.S. dollars to the Fund. In
such a case, the Fund's ability to obtain U.S. dollars may be adversely affected
by any increased restrictions imposed on the outflow of foreign exchange. If the

-6-
<PAGE>

Fund is unable to repatriate any amounts due to exchange controls, it may be
required to accept an obligation payable at some future date by the central bank
or other government entity of the jurisdiction involved. If such conversion can
legally be done outside official channels, either directly or indirectly, the
Fund's ability to obtain U.S. dollars may not be affected as much by any
increased restrictions except to the extent of the price which may be required
to be paid for the U.S. dollars.

Many emerging market countries have little experience with the
corporate form of business organization, and may not have well developed
corporation and business laws or concepts of fiduciary duty in the business
context.

The securities markets of emerging markets are substantially smaller,
less developed, less liquid and more volatile than the securities markets of the
U.S. and other more developed countries. Disclosure and regulatory standards in
many respects are less stringent than in the U.S. and other major markets. There
also may be a lower level of monitoring and regulation of emerging markets and
the activities of investors in such markets; enforcement of existing regulations
has been extremely limited.

Some emerging markets have different settlement and clearance
procedures. In certain markets there have been times when settlements have been
unable to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. The inability of the Fund to make
intended securities purchases due to settlement problems could cause the Fund to
miss attractive investment opportunities. Inability to dispose of a portfolio
security caused by settlement problems could result either in losses to the Fund
due to subsequent declines in the value of the portfolio security or, if the
Fund has entered into a contract to sell the security, in possible liability to
the purchaser.

The risk also exists that an emergency situation may arise in one or
more emerging markets as a result of which trading of securities may cease or
may be substantially curtailed and prices for the Fund's portfolio securities in
such markets may not be readily available.

Debt Securities
- ---------------

The Fund may invest in the debt securities of governmental or
corporate issuers in any rating category of the recognized rating services,
including issues that are in default, and may invest in unrated debt
obligations. Most foreign debt obligations are not rated. Corporate debt
securities may pay fixed or variable rates of interest. These securities may be
convertible into preferred or common equity, or may be bought as part of a unit
containing common stock.

The prices of debt securities fluctuate in response to perceptions of
the issuer's creditworthiness and also tend to vary inversely with market
interest rates. The value of such securities is likely to decline in times of
rising interest rates. Conversely, when rates fall, the value of these
investments is likely to rise. The longer the time to maturity the greater are
such variations.

Debt securities and securities convertible into common stock need not
necessarily be of a certain grade as determined by rating agencies such as
Standard & Poor's ("S&P") or Moody's Investors Service, Inc. ("Moody's");
however, the Fund's adviser does consider such ratings in determining whether
the security is an appropriate investment for the Fund. Generally, debt
securities rated below BBB by S&P, or below Baa by Moody's, and unrated
securities of comparable quality, offer a higher current yield than that
provided by higher grade issues, but also involve higher risks. 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 period of rising interest rates. Lower-rated debt

-7-
<PAGE>

securities are also sometimes referred to as "junk bonds." The Fund does not
intend to invest more than 5% of its net assets in securities rated below
investment grade.

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 time, 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 issuer's 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 the
Fund's ability to sell such securities at fair value. Judgment plays a greater
role in pricing such securities than is the case for securities having more
active markets. Adverse publicity and investor perceptions, whether or not based
on fundamental analysis, may also decrease the values and liquidity of
lower-rated debt securities, especially in a thinly traded market.

The ratings of S&P and Moody's represent the opinions of those
agencies. Such ratings are relative and subjective, and are not absolute
standards of quality. Unrated debt securities are not necessarily of lower
quality than rated securities, but they may not be attractive to as many buyers.
A description of the ratings assigned to corporate debt obligations by Moody's
and S&P is included in Appendix A.

In addition to ratings assigned to individual bond issues, the 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 the 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 the Fund's adviser to determine, to
the extent possible, that the planned investment is sound.

The Fund may invest in securities which are in lower rating categories
or are unrated if the adviser determines that the securities provide the
opportunity of meeting the Fund's objective without presenting excessive risk.
The adviser will consider all factors which it deems appropriate, including
ratings, in making investment decisions for the Fund and will attempt to
minimize investment risks through diversification, investment analysis and
monitoring of general economic conditions and trends. While the adviser may
refer to ratings, it does not rely exclusively on ratings, but makes its own
independent and ongoing review of credit quality.

Corporate Debt Securities
- -------------------------

Corporate debt securities are bonds or notes issued by corporations
and other business organizations, including business trusts, in order to finance
their credit needs. Corporate debt securities include commercial paper which
consists of short-term (usually from 1 to 270 days) unsecured promissory notes
issued by corporations in order to finance their current operations. The Fund
may invest in foreign corporate debt securities denominated in U.S. dollars or
foreign currencies. Foreign debt securities include Yankee dollar obligations
(U.S. dollar denominated securities issued by foreign corporations and traded on
U.S. markets) and Eurodollar obligations (U.S. dollar denominated securities
issued by foreign corporations and traded on foreign markets). In selecting
corporate debt securities, the Fund's 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.

-8-
<PAGE>

Government Obligations and Related Securities
- ---------------------------------------------

U.S. government obligations include a variety of securities that are
issued or guaranteed by the U.S. Treasury, by various agencies of the U.S.
Government or by various instrumentalities that have been established or
sponsored by the U.S. Government. U.S. Treasury securities and securities issued
by the Government National Mortgage Association ("GNMA") and Small Business
Administration are backed by the "full faith and credit" of the U.S. Government.
Other U.S. government obligations may or may not be backed by the "full faith
and credit" of the U.S. In the case of securities not backed by the "full faith
and credit" of the U.S., the investor must look principally to the agency
issuing or guaranteeing the obligation (such as the Federal Farm Credit System,
the Federal Home Loan Banks, Fannie Mae and Freddie Mac for ultimate repayment
and may not be able to assert a claim against the U.S. itself in the event the
agency or instrumentality does not meet its commitments.

Participation interests in U.S. government obligations are pro rata
interests in such obligations which are generally underwritten by government
securities dealers. Certificates of safekeeping for U.S. government obligations
are documentary receipts for such obligations. Both participation interests and
certificates of safekeeping are traded on exchanges and in the over-the-counter
market.

The Fund may invest in U.S. government obligations and related
participation interests. In addition, the Fund may invest in custodial receipts
that evidence ownership of future interest payments, principal payments or both
on certain U.S. government obligations. Such obligations are held in custody by
a bank on behalf of the owners. These custodial receipts are known by various
names, including Treasury Receipts, Treasury Investors Growth Receipts ("TIGRs")
and Certificates of Accrual on Treasury Securities ("CATS"). Custodial receipts
generally are not considered obligations of the U.S. government for purposes of
securities laws. The Fund will consider all interest-only or principal-only
fixed income securities as illiquid.

Municipal Obligations
- ---------------------

Municipal obligations are debt obligations issued by or on behalf of
states, territories and possessions of the United States and the District of
Columbia, and their political subdivisions, agencies, authorities and
instrumentalities and other qualifying issuers which pay interest that is, in
the opinion of bond counsel to the issuer, exempt from federal income tax. The
Fund may invest no more than 5% of its net assets in municipal obligations
(including participation interests). Municipal obligations are issued to obtain
funds to construct, repair or improve various public facilities such as
airports, bridges, highways, hospitals, housing, schools, streets and water and
sewer works, to pay general operating expenses or to refinance outstanding
debts. They also may be issued to finance various private activities, including
the lending of funds to public or private institutions for construction of
housing, educational or medical facilities or the financing of privately owned
or operated facilities. Municipal obligations consist of tax-exempt bonds,
tax-exempt notes and tax-exempt commercial paper. Tax-exempt notes generally are
used to provide short term capital needs and generally have maturities of one
year or less. Tax-exempt commercial paper typically represents short-term,
unsecured, negotiable promissory notes.

The two principal classifications of municipal obligations are
"general obligation" and "revenue" bonds. General obligation bonds are backed by
the issuer's full credit and taxing power. Revenue bonds are backed by the
revenues of a specific project, facility or tax. Industrial development revenue
bonds are a specific type of revenue bond backed by the credit of the private
issuer of the facility, and therefore investments in these bonds have more
potential risk that the issuer will not be able to meet scheduled payments of
principal and interest.

Zero Coupon and Pay-in-Kind Bonds
- ---------------------------------

Corporate debt securities and municipal obligations include so-called
"zero coupon" bonds and "pay-in-kind" bonds. The Fund may invest no more than 5%
of its net assets in zero coupon bonds or pay-in-kind bonds, respectively. Zero
coupon bonds do not provide for cash interest payments but instead are issued at

-9-
<PAGE>

a significant discount from face value. Pay-in-kind bonds allow the issuer, at
its option, to make current interest payments on the bonds either in cash or in
additional bonds. The value of zero coupon and pay-in-kind bonds is subject to
greater fluctuation in response to changes in market interest rates than bonds
which make regular payments of interest. Both of these types of bonds allow an
issuer to avoid the need to generate cash to meet current interest payments.
Accordingly, such bonds may involve greater credit risks than bonds which make
regular payments of interest. Even though zero coupon and pay-in-kind bonds do
not pay current interest in cash, by holding those bonds the Fund is required to
accrue interest income on such investments and may be required to distribute
that income at least annually to shareholders. Thus, the Fund could be required
at times to liquidate other investments in order to satisfy its dividend
requirements.

Mortgage-Related Securities
- ---------------------------

The Fund may invest no more than 5% of its net assets in
mortgage-related securities. Mortgage-related securities provide capital for
mortgage loans made to residential homeowners, including securities which
represent interests in pools of mortgage loans made by lenders such as savings
and loan institutions, mortgage bankers, commercial banks and others. Pools of
mortgage loans are assembled for sale to investors (such as the Fund) by various
governmental, government-related and private organizations, such as dealers. The
market value of mortgage-related securities will fluctuate as a result of
changes in interest rates and mortgage rates.

Interests in pools of mortgage loans generally provide a monthly
payment which consists of both interest and principal payments. In effect, these
payments are a "pass-through" of the monthly payments made by the individual
borrowers on their residential mortgage loans, net of any fees paid to the
issuer or guarantor of such securities. Additional payments are caused by
repayments of principal resulting from the sale of the underlying residential
property, refinancing or foreclosure, net of fees or costs which may be
incurred. Some mortgage-related securities (such as securities issued by GNMA)
are described as "modified pass-through" because they entitle the holder to
receive all interest and principal payments owed on the mortgage pool, net of
certain fees, regardless of whether the mortgagor actually makes the payment.

Commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market issuers, such
as dealers, create pass-through pools of conventional residential mortgage
loans. Such issuers also may be the originators of the underlying mortgage loans
as well as the guarantors of the mortgage-related securities. Pools created by
such non-governmental issuers generally offer a higher rate of interest than
government and government-related pools because there are no direct or indirect
government guarantees of payments with respect to such pools. However, timely
payment of interest and principal of these pools is supported by various forms
of insurance or guarantees, including individual loan, title, pool and hazard
insurance. There can be no assurance that the private insurers can meet their
obligations under the policies. The Fund may buy mortgage-related securities
without insurance or guarantees if, through an examination of the loan
experience and practices of the persons creating the pools, LMFA determines that
the securities are an appropriate investment for the Fund.

Another type of security representing an interest in a pool of
mortgage loans is known as a collateralized mortgage obligation ("CMO"). CMOs
represent interests in a short-term, intermediate-term or long-term portion of a
mortgage pool. Each portion of the pool receives monthly interest payments, but
the principal repayments pass through to the short-term CMO first and the
long-term CMO last. A CMO permits an investor to more accurately predict the
rate of principal repayments. CMOs are issued by private issuers, such as
broker/dealers and government agencies, such as Fannie Mae and Freddie Mac.
Investments in CMOs are subject to the same risks as direct investments in the
underlying mortgage-backed securities. In addition, in the event of a bankruptcy
or other default of a broker who issued the CMO held by the Fund, the Fund could
experience both delays in liquidating its position and losses. The Fund may
invest in CMOs in any rating category of the recognized rating services and may
invest in unrated CMOs. The Fund may also invest in "stripped" CMOs, which
represent only the income portion or the principal portion of the CMO. The
values of stripped CMOs are very sensitive to interest rate changes;

-10-
<PAGE>

accordingly, these instruments present a greater risk of loss than conventional
mortgage-backed securities.

The Fund's adviser expects that governmental, government-related or
private entities may create mortgage loan pools offering pass-through
investments in addition to those described above. The mortgages underlying these
securities may be second mortgages or alternative mortgage instruments (for
example, mortgage instruments whose principal or interest payments may vary or
whose terms to maturity may differ from customary long-term fixed rate
mortgages). As new types of mortgage-related securities are developed and
offered to investors, the adviser will, consistent with the Fund's investment
objective and policies, consider making investments in such new types of
securities. The Prospectuses will be amended with any necessary additional
disclosure prior to the Fund investing in such securities.

The average life of securities representing interests in pools of
mortgage loans is likely to be substantially less than the original maturity of
the mortgage pools as a result of prepayments or foreclosures of such mortgages.
Prepayments are passed through to the registered holder with the regular monthly
payments of principal and interest, and have the effect of reducing future
payments. To the extent the mortgages underlying a security representing an
interest in a pool of mortgages are prepaid, the Fund may experience a loss (if
the price at which the respective security was acquired by the Fund was at a
premium over par, which represents the price at which the security will be
redeemed upon prepayment) or a gain (if the price at which the respective
security was acquired by the Fund was at a discount from par). In addition,
prepayments of such securities held by the Fund will reduce the share price of
the Fund to the extent the market value of the securities at the time of
prepayment exceeds their par value, and will increase the share price of the
Fund to the extent the par value of the securities exceeds their market value at
the time of prepayment. Prepayments may occur with greater frequency in periods
of declining mortgage rates because, among other reasons, it may be possible for
mortgagors to refinance their outstanding mortgages at lower interest rates.
When market interest rates increase, the market values of mortgage-backed
securities decline. At the same time, however, mortgage refinancing slows, which
lengthens the effective maturities of these securities. As a result, the
negative effect of the rate increase on the market value of mortgage securities
is usually more pronounced than it is for other types of fixed-income
securities.

Although the market for mortgage-related securities issued by private
organizations is becoming increasingly liquid, such securities may not be
readily marketable. The Fund will not purchase mortgage-related securities for
which there is no established market (including CMOs and direct investments in
mortgages as described below) or any other investments which the adviser deems
to be illiquid pursuant to criteria established by the Board of Directors if, as
a result, more than 10% of the value of the Fund's net assets would be invested
in such illiquid securities and investments.

Government-related organizations which issue mortgage-related
securities include GNMA, Fannie Mae and Freddie Mac. Securities issued by GNMA
and Fannie Mae are fully modified pass-through securities, i.e., the timely
payment of principal and interest is guaranteed by the issuer. Freddie Mac
securities are modified pass-through securities, i.e., the timely payment of
interest is guaranteed by Freddie Mac, principal is passed through as collected
but payment thereof is guaranteed not later than one year after it becomes
payable.

Direct Investment in Mortgages
- ------------------------------

Mortgage-related securities include investments made directly in
mortgages secured by real estate. When the Fund makes a direct investment in
mortgages, the Fund, rather than a financial intermediary, becomes the mortgagee
with respect to such loans purchased by the Fund. Direct investments in
mortgages are normally available from lending institutions which group together
a number of mortgages for resale (usually from 10 to 50 mortgages) and which act
as servicing agent for the purchaser with respect to, among other things, the
receipt of principal and interest payments. (Such investments are also referred
to as "whole loans.") The vendor of such mortgages receives a fee from the
purchaser for acting as servicing agent. The vendor does not provide any
insurance or guarantees covering the repayment of principal or interest on the
mortgages. Whole loans present a greater risk of prepayment, because the

-11-
<PAGE>

mortgages so acquired are not as diversified as interests in large pools. The
Fund will invest in such mortgages only if the adviser has determined through an
examination of the mortgage loans and their originators that the purchase of the
mortgages should not present a significant risk of loss to the Fund.

Floating and Variable Rate Obligations
- --------------------------------------

Fixed income securities may be offered in the form of floating and
variable rate obligations. The Fund may invest no more than 5% of its net assets
in floating and variable rate obligations, respectively. Floating rate
obligations have an interest rate which is fixed to a specified interest rate,
such as bank prime rate, and is automatically adjusted when the specified
interest rate changes. Variable rate obligations have an interest rate which is
adjusted at specified intervals to a specified interest rate. Periodic interest
rate adjustments help stabilize the obligations' market values.

The Fund may purchase these obligations from the issuers or may
purchase participation interests in pools of these obligations from banks or
other financial institutions. Variable and floating rate obligations usually
carry demand features that permit the Fund to sell the obligations back to the
issuers or to financial intermediaries at par value plus accrued interest upon
short notice at any time or prior to specific dates. The inability of the issuer
or financial intermediary to repurchase an obligation on demand could affect the
liquidity of the Fund's portfolio. Frequently, obligations with demand features
are secured by letters of credit or comparable guarantees. Floating and variable
rate obligations which do not carry unconditional demand features that can be
exercised within seven days or less are deemed illiquid unless the Board
determines otherwise. The Fund's investment in illiquid floating and variable
rate obligations would be limited to the extent that it is not permitted to
invest more than 10% of the value of its net assets in illiquid investments.

Portfolio Lending
- -----------------

The Fund may lend portfolio securities to brokers or dealers in
corporate or government securities, banks or other recognized institutional
borrowers of securities, provided that cash 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 loans
are subject to termination at the option of the Fund or the borrower. The Fund
may pay reasonable administrative and custodial fees in connection with a loan
and may pay a negotiated portion of the interest earned on the cash or
equivalent collateral to the borrower or placing broker. The Fund does not have
the right to vote securities on loan, but would terminate the loan and 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.

No loans will be made if, as a result, the aggregate amount of such
loans would exceed 25% of the Fund's total assets.

Investment Companies
- --------------------

The Fund is permitted to invest in other investment companies. The
Fund will not: (a) invest more than 10% of its total assets in securities of
other investment companies; (b) invest more than 5% of its total assets in
securities of any investment company; and (c) purchase more than 3% of the
outstanding voting stock of any investment company.

If the Fund acquires securities of another investment company, you may
be subject to duplicative management fees.

-12-
<PAGE>

Senior Securities
- -----------------

The 1940 Act prohibits the issuance of senior securities by a
registered open-end fund with one exception. The Fund may borrow from banks
provided that immediately after any such borrowing there is an asset coverage of
at least 300% for all borrowings of the Fund. Borrowing for temporary purposes
only and in an amount not exceeding 5% of the value of the total assets of the
Fund at the time the borrowing is made is not deemed to be an issuance of a
senior security.

There are various investment techniques which may give rise to an
obligation of the Fund to pay in the future about which the Commission has
stated it would not raise senior security concerns, provided the Fund maintains
segregated assets in an amount that covers the future payment obligation. Such
investment techniques include, among other things, forward contracts and
repurchase agreements.

Portfolio Turnover
- ------------------

The Fund anticipates that in the future its portfolio turnover rate
will not exceed 100%. The portfolio turnover rate is computed by dividing the
lesser of purchases or sales of securities for the period by the average value
of portfolio securities for that period. Short-term securities are excluded from
the calculation. High portfolio turnover rates (100% or more) will involve
corresponding greater transaction costs that will be borne directly by the Fund.
It may also increase the amount of short-term capital gains realized by the Fund
and thus may affect the tax treatment of distributions paid to shareholders,
because distributions of net short-term capital gains are taxable as ordinary
income. The Fund will take these possibilities into account as part of its
investment strategies. It is expected that the portfolio turnover for the Fund
will be low to moderate.

ADDITIONAL TAX INFORMATION

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

General
- -------

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

By qualifying for treatment as a RIC, the Fund (but not its
shareholders) will be relieved of federal income tax on the part of its
investment company taxable income and net capital gain (i.e., the excess of net
long-term capital gain over net short-term capital loss) that it distributes to

-13-
<PAGE>

its shareholders. If the Fund failed to qualify for treatment as a RIC for any
taxable year, (1) it would be taxed at corporate rates on the full amount of its
taxable income for that year without being able to deduct the distributions it
makes to its shareholders and (2) the shareholders would treat all those
distributions, including distributions of net capital gain, as dividends (that
is, ordinary income) to the extent of the Fund's earnings and profits. In
addition, the Fund could be required to recognize unrealized gains, pay
substantial taxes and interest and make substantial distributions before
requalifying for RIC treatment.

The Fund will be subject to a nondeductible 4% excise tax ("Excise
Tax") to the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary income for that year and capital gain net
income for the one-year period ending on October 31 of that year, plus certain
other amounts.

Dividends and interest received by the Fund, and gains realized
thereby, may be subject to income, withholding or other taxes imposed by foreign
countries and U.S. possessions that would reduce the total return 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 the Fund in December of
any year and payable to its shareholders of record on a date in that month will
be deemed to have been paid by the Fund and received by the shareholders on
December 31 if the 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 the 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
may not exceed the aggregate dividends received by the Fund for the taxable year
from domestic corporations. However, dividends received by a corporate
shareholder and deducted by it pursuant to the dividends-received deduction are
subject indirectly to the federal alternative minimum tax. Distributions of net
capital gain made by the Fund do not qualify for the dividends-received
deduction.

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

Passive Foreign Investment Companies
- ------------------------------------

The Fund may invest in the stock of "passive foreign investment
companies" ("PFICs"). A PFIC is a foreign corporation (with certain exceptions)
that, in general, meets either of the following tests: (1) at least 75% of its
gross income is passive or (2) an average of at least 50% of its assets produce,
or are held for the production of, passive income. Under certain circumstances,
the Fund will be subject to federal income tax on a portion of any "excess
distribution" received on the stock of a PFIC or of any gain on 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 it
distributes that income to its shareholders.

If the Fund invests in a PFIC and elects to treat the PFIC as a
"qualified electing fund" ("QEF"), then in lieu of the foregoing tax and
interest obligation, the Fund would be required to include in income each year
its pro rata share of the QEF's annual ordinary earnings and net capital gain --
which the Fund probably would have to distribute to satisfy the Distribution
Requirement and avoid imposition of the Excise Tax -- even if the QEF did not

-14-
<PAGE>

distribute those earnings and gain to the Fund. In most instances it will be
very difficult, if not impossible, to make this election because of certain
requirements thereof.

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

Forward Currency Contracts and Foreign Currencies
- -------------------------------------------------

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

Certain foreign currency contracts in which the Fund may invest will
be subject to section 1256 of the Code ("section 1256 contracts"). Any section
1256 contracts the Fund holds at the end of its taxable year, other than
contracts with respect to which the Fund has made a "mixed straddle" election,
must be "marked-to-market" (that is, treated as having been sold at that time
for their fair market value), with the result that unrealized gains or losses
will be treated as though they were realized. Sixty percent of any net gain or
loss recognized on these deemed sales, and sixty percent of any net realized
gain or loss on section 1256 contracts actually sold by the Fund during the
year, will be treated as long-term capital gain or loss, and the balance will be
treated as short-term capital gain or loss. Section 1256 contracts also may be
marked-to-market for purposes of the Excise Tax. These rules may operate to
increase the amount the Fund must distribute to satisfy the Distribution
Requirement (i.e., with respect to the portion treated as short-term capital
gain), which will be taxable to the shareholders as ordinary income, and to
increase the net capital gain the Fund recognizes, without in either case
increasing the cash available to the Fund. The Fund may elect to exclude certain
transactions from the operation of section 1256, although doing so may have the
effect of increasing the relative proportion of net short-term capital gain
(taxable as ordinary income) and thus increasing the amount of dividends it must
distribute.

Other
- -----

If the Fund has an "appreciated financial position" -- generally, an
interest (including an interest through a forward currency contract or short
sale) with respect to any stock, debt instrument (other than "straight debt") or
partnership interest the fair market value of which exceeds its adjusted basis
- -- and enters into a "constructive sale" of the position, the Fund will be
treated as having made an actual sale thereof, with the result that gain will be
recognized at that time. A constructive sale generally consists of a short sale,
an offsetting notional principal contract or a forward currency contract entered
into by the Fund or a related person with respect to the same or substantially
identical property. In addition, if the appreciated financial position is itself
a short sale or such a contract, acquisition of the underlying property or
substantially identical property will be deemed a constructive sale. The
foregoing will not apply, however, to any transaction during any taxable year
that otherwise would be treated as a constructive sale if the transaction is
closed within 30 days after the end of that year and the Fund holds the
appreciated financial position unhedged for 60 days after that closing (i.e., at
no time during that 60-day period is the Fund's risk of loss regarding that
position reduced by reason of certain specified transactions with respect to
substantially identical or related property, such as having an option to sell,
being contractually obligated to sell, making a short sale, or granting an
option to buy substantially identical stock or securities).

-15-
<PAGE>

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

The Fund offers three classes of shares, known as Primary Class
shares, Navigator Class shares, and Class A shares. Primary Class shares and
Class A shares are available from Legg Mason and certain of its affiliates, as
well as from certain institutions having agreements with Legg Mason. Navigator
Class shares are currently offered for sale only to: Institutional Clients of
Legg Mason Trust Company for which they exercise discretionary investment
management responsibility and accounts of the customers with such Institutional
Clients; qualified retirement plans managed on a discretionary basis and having
net assets of at least $200 million; any qualified retirement plan having net
assets of at least $300 million; clients of Bartlett & Co. who, as of December
19, 1996 were shareholders of Bartlett Short-Term Bond Fund or Bartlett Fixed
Income Fund and for whom Bartlett acts as an ERISA fiduciary; Class Y
shareholders of Bartlett Europe Fund or Bartlett Financial Services Fund on
October 5, 1999; any qualified retirement plan of Legg Mason, Inc. or of any of
its affiliates; certain institutions who were clients of Fairfield Group, Inc.
as of February 28, 1999 for investment of their own monies and monies for which
they act in a fiduciary capacity; and any open-end investment company advised or
managed by Legg Mason Fund Adviser, Inc. ("LMFA") or by any person controlling,
controlled by, or under common control with LMFA. Navigator Class shares may not
be purchased by individuals directly, but Institutional Clients may purchase
shares for Customer Accounts maintained for individuals. Primary Class shares
and Class A shares are available to all other investors.

Future First Systematic Investment Plan and Transfer of Funds from Financial
Institutions
- --------------------------------------------------------------------------------

If you invest in Primary Class shares or Class A shares, the
Prospectus for those shares explains that you may buy Primary Class shares or
Class A shares through the Future First Systematic Investment Plan. Under this
plan you may arrange for automatic monthly investments in Primary Class shares
or Class A shares of $50 or more by authorizing Boston Financial Data Services
("BFDS"), the Fund's transfer agent, to transfer funds each month from your Legg
Mason account or from your checking/savings account to be used to buy Primary
Class shares at the per share net asset value determined on the day the funds
are sent from 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 Class shares may also buy Primary Class 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 the Fund to:

Legg Mason Wood Walker, Incorporated
Funds Processing
P.O. Box 1476
Baltimore, Maryland 21203-1476

If the investor's check is not honored by the institution it is drawn on, the
investor may be subject to extra charges in order to cover collection costs.
These charges may be deducted from the investor's shareholder account.

Systematic Withdrawal Plan
- --------------------------

If you own Primary Class shares or Class A 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

-16-
<PAGE>

Account ("IRA"), Simplified Employee Pension Plan ("SEP"), Savings Incentive
Match Plan for Employees ("SIMPLE") or other qualified retirement plan. You may
change the monthly amount to be paid to you without charge not more than once a
year by notifying Legg Mason or the affiliate with which you have an account.
Redemptions will be made at the 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
the Exchange on the preceding business day. The check for the withdrawal payment
will usually be mailed to you on the next business day following redemption. If
you elect to participate in the Systematic Withdrawal Plan, dividends and other
distributions on all shares in your account must be automatically reinvested in
the applicable class of shares. You may terminate the Systematic Withdrawal Plan
at any time without charge or penalty. The Fund, its transfer agent, and Legg
Mason also reserve the right to modify or terminate the Systematic Withdrawal
Plan at any time.

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

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

Other Information Regarding Redemption
- --------------------------------------

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

The date of payment for redemption may not be postponed for more than
seven days, and the right of redemption may not be suspended, by the 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 the Fund's shareholders. In the case of any such suspension, you may either
withdraw your request for redemption or receive payment based upon the net asset
value next determined after the suspension is lifted.

The Fund reserves the right, under certain conditions, to honor any
request by making payment in whole or in part in securities valued in the same
way as they would be valued for purposes of computing the Fund's net asset value
per share. If payment is made in securities, a shareholder should expect to
incur brokerage expenses in converting those securities into cash and will be
subject to fluctuation in the market price of those securities until they are
sold. The Fund does not redeem "in kind" under normal circumstances, but would
do so where the adviser determines that it would be in the best interests of the
Fund's shareholders as a whole.

Class A shares that were purchased pursuant to the front-end sales
charge waiver on purchases of $1 million or more and are redeemed within one
year of their purchase are subject to a CDSC of 1.00% of the shares' net asset
value at the time of purchase or redemption, whichever is less.

-17-
<PAGE>

VALUATION OF FUND SHARES

Net asset value of a Fund share is determined daily for each Class as
of the close of the Exchange, on every day the Exchange is open, by dividing the
value of the total assets attributable to that Class, less liabilities
attributable to that Class, by the number of shares of that Class outstanding.
Pricing will not be done on days when the Exchange is closed. The Exchange
currently observes the following holidays: New Year's Day, Presidents' Day,
Martin Luther King, Jr. Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, and Christmas Day. As described in the Prospectuses,
securities for which market quotations are readily available are valued at
current market value. Securities traded on an exchange or the Stock Market are
normally valued at last sale prices. Other over-the-counter securities, and
securities traded on exchanges for which there is no sale on a particular day
(including debt securities), are valued at the mean of latest closing bid and
asked prices. Securities with remaining maturities of 60 days or less are valued
at amortized cost. Securities and other assets quoted in foreign currencies will
be valued in U.S. dollars based on the currency exchange rates prevailing at the
time of the valuation. All other securities are valued at fair value as
determined by or under the direction of the 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 the Fund will be
subtracted from net assets of each Class.

PERFORMANCE INFORMATION

Total Return Calculations
- -------------------------

Average annual total return quotes used in the Fund's advertising and
other promotional materials ("Performance Advertisements") are calculated
separately for each Class according to the following formula:

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

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

The following tables show the value, as of the end of the fiscal year,
of a hypothetical investment of $10,000 made in the Fund at commencement of
operations of Primary Class shares and Class A shares of the Fund. The tables
assume that all dividends and other distributions are reinvested in the Fund.
They include the effect of all charges and fees applicable to the respective
class of shares the Fund has paid. (There are no fees for investing or
reinvesting in the Fund imposed by the Fund, and there are no redemption fees
other than those described above for Class A shares.) They do not include the
effect of any income tax that an investor would have to pay on distributions.
Performance data is only historical, and is not intended to indicate the Fund's
future performance.

-18-
<PAGE>

Primary Class shares
- --------------------

Value of Original Shares Value of Shares
Plus Shares Obtained Acquired Through
Through Reinvestment of Reinvestment of
Fiscal Year Capital Gain Distributions Income Dividends Total Value
- --------------------------------------------------------------------------------
1998* $ 10,570 $ 0 $ 10,570

1999 $ 9,410 $ 0 $ 9,410

* November 16, 1998 (commencement of operations) to December 31, 1998.

Class A Shares
- --------------

1999 $ 9,039 $ 0 $ 9,039

* November 16, 1998 (commencement of operations) to December 31, 1998.

With respect to Primary Class shares, if the investor had not
reinvested dividends and other distributions, the total value of the
hypothetical investment as of December 31, 1999 would have been $9,410, and the
investor would have received a total of $ 0 in distributions. With respect to
Class A shares, if the investor had not reinvested dividends and other
distributions, the total value of the hypothetical investment as of December 31,
1999 would have been $ 9,039, and the investor would have received a total of $
0 in distributions. If the adviser had not waived certain fees in the 1998-1999
fiscal year, returns would have been lower.

From time to time the Fund may compare the performance of a Class to
the performance of other investment companies, groups of investment companies,
various market indices or the features or performances of alternative
investments in advertisements, sales literature and reports to shareholders. One
such market index is the S&P 500, a widely recognized, unmanaged index composed
of the capitalization-weighted average of the prices of 500 of the largest
publicly traded stocks in the U.S. The S&P 500 includes reinvestment of all
dividends. It takes no account of the costs of investing or the tax consequences
of distributions. The Fund invests in many securities that are not included in
the S&P 500.

The fund may also include calculations, such as hypothetical
compounding examples or tax-free compounding examples, which describe
hypothetical results in such communications. Such performance examples will be
based on an express set of assumptions that are not indicative of the
performance of the fund.

From time to time, the total return of the fund may be quoted in
advertisements, shareholder reports, or other communications to shareholders.

The 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

-19-
<PAGE>

and/or rank the performance of investment companies. The Fund may also refer in
such materials to mutual fund performance rankings, ratings, comparisons with
funds having similar investment objectives, and other mutual funds reported in
independent periodicals, including, but not limited to, FINANCIAL WORLD, MONEY
Magazine, FORBES, BUSINESS WEEK, BARRON'S, FORTUNE, THE KIPLINGER LETTERS, THE
WALL STREET JOURNAL, and THE NEW YORK TIMES.

The Fund may compare the investment return of a Class to the return on
certificates of deposit and other forms of bank deposits, and may quote from
organizations that track the rates offered on such deposits. Bank deposits are
insured by an agency of the federal government up to specified limits. In
contrast, Fund shares are not insured, the value of Fund shares may fluctuate,
and an investor's shares, when redeemed, may be worth more or less than the
investor originally paid for them. Unlike the interest paid on many certificates
of deposit, which 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, the Fund may illustrate hypothetical investment plans
designed to help investors meet long-term financial goals, such as saving for a
child's college education or for retirement. Sources such as the Internal
Revenue Service, the Social Security Administration, the Consumer Price Index
and Chase Global Data and Research may supply data concerning interest rates,
college tuitions, the rate of inflation, Social Security benefits, mortality
statistics and other relevant information. The Fund may use other recognized
sources as they become available.

The Fund may use data prepared by independent third parties such as
Ibbotson Associates and Frontier Analytics, Inc. to compare the returns of
various capital markets and to show the value of a hypothetical investment in a
capital market. Typically, different indices are used to calculate the
performance of common stocks, corporate and government bonds and Treasury bills.

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

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

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

The Fund may discuss Legg Mason's tradition of service. Since 1899,
Legg Mason and its affiliated companies have helped investors meet their
specific investment goals and have provided a full spectrum of financial

-20-
<PAGE>

services. Legg Mason affiliates serve as investment advisers for private
accounts and mutual funds with assets of approximately $ 104.2 billion as of
December 31, 1999.

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

TAX-DEFERRED RETIREMENT PLANS - PRIMARY CLASS SHARES AND CLASS A SHARES

In general, income earned through the investment of assets of
qualified retirement plans and IRAs is not taxed to their beneficiaries until
the income is distributed to them. Primary Class or Class A investors who are
considering establishing an IRA or a SEP, SIMPLE or other qualified retirement
plan should consult their attorneys or other tax advisers with respect to
individual tax questions. The option of investing in IRAs or those plans with
respect to Primary Class or Class A shares through regular payroll deductions
may be arranged with a Legg Mason or affiliated financial advisor and your
employer. Additional information with respect to IRAs and those plans is
available upon request from any Financial Advisor or Service Provider.

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

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

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

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

-21-
<PAGE>

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

Simplified Employee Pension Plan -- SEP
- ---------------------------------------

Legg Mason makes available to corporate and other employers a SEP for
investment in Primary Class or Class A shares.

Savings Incentive Match Plan for Employees - SIMPLE
- ---------------------------------------------------

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

Withholding at the rate of 20% is required for federal income tax
purposes on certain distributions (excluding, for example, certain periodic
payments) from the foregoing retirement plans (except IRAs and SEPs), unless the
recipient transfers the distribution directly to an "eligible retirement plan"
(including IRAs and other qualified plans) that accepts those distributions.
Other distributions generally are subject to regular wage withholding at the
rate of 10% (depending on the type and amount of the distribution), unless the
recipient elects not to have any withholding apply. Primary Class and Class A
investors should consult their plan administrator or tax advisor for further
information.

MANAGEMENT OF THE FUND

The 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
Fund 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 Fund as defined by the 1940 Act. The business address of each
officer and director is 100 Light Street, Baltimore, Maryland 21202, unless
otherwise indicated.

JOHN F. CURLEY, JR.* [7/24/39], Chairman of the Board and Director;
President and/or Chairman of the Board and Director/Trustee of all Legg Mason
retail funds. Retired: Vice Chairman and Director of Legg Mason Wood Walker,
Inc. and Legg Mason, Inc.; Director of Legg Mason Fund Adviser, Inc. and Western
Asset Management Company (each a registered investment adviser ); Officer and/or
Director of various other affiliates of Legg Mason, Inc.

EDWARD A. TABER III* [8/25/43], President and Director; Senior
Executive Vice President of Legg Mason, Inc. and Legg Mason Wood Walker, Inc.;
Chairman and Director of Legg Mason Fund Adviser, Inc. and Director of Western
Asset Management Company (each a registered investment adviser ); President
and/or Director/Trustee of all Legg Mason retail funds except Legg Mason Tax
Exempt Trust. Formerly: Executive Vice President of T. Rowe Price-Fleming
International, Inc. (1986-1992) and Director of the Taxable Income Division at
T. Rowe Price Associates, Inc. (1973-1992).

ARNOLD L. LEHMAN [7/18/44], Director; 200 Eastern Parkway, Brooklyn,
NY. Director, The Brooklyn Museum of Art; Director/Trustee of all Legg Mason
retail funds. Formerly: Director, Baltimore Museum of Art.

-22-
<PAGE>

JILL E. McGOVERN [8/29/44], Director; 400 Seventh Street, NW,
Washington, DC, Chief Executive Officer of the Marrow Foundation.
Director/Trustee of all Legg Mason retail funds. Formerly: Executive Director of
the Baltimore International Festival (January 1991 - March 1993); and Senior
Assistant to the President of The Johns Hopkins University (1986 - 1991).

RICHARD G. GILMORE [6/9/27], Director; 10310 Tamo Shanter Place,
Bradenton, Florida. Independent Consultant. Director of CSS Industries, Inc.
(diversified holding company whose subsidiaries are engaged in the manufacture
and sale of decorative paper products, business forms, and specialty metal
packaging); Director of PECO Energy Company (formerly Philadelphia Electric
Company); Director/Trustee of all Legg Mason retail funds. Formerly: Senior Vice
President and Chief Financial Officer of Philadelphia Electric Company (now PECO
Energy Company); Executive Vice President and Treasurer, Girard Bank, and Vice
President of its parent holding company the Girard Company; and Director of
Finance, City of Philadelphia.

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

G. PETER O'BRIEN [10/13/45], Director; Trustee of Colgate University;
Director/Trustee of all Legg Mason retail funds except Legg Mason Income Trust,
Inc., and Legg Mason Tax Exempt Trust, Inc. Retired: Managing Director/Equity
Capital Markets Group of Merrill Lynch & Co. (1971-1999).

NELSON A. DIAZ [5/23/47], Director; One Logan Square, Philadelphia,
PA. Partner, Blank Rome Comisky, & McCauley LLP since 1997. Trustee of Temple
University and of Philadelphia Museum of Art. Board member of U.S. Hispanic
Leadership Institute, Democratic National Committee, and National Association
for Hispanic Elderly. Formerly: General Counsel, United States Department of
Housing and Urban Development (1993 - 1997). Director/Trustee of all Legg Mason
retail funds except Legg Mason Income Trust, Inc. and Legg Mason Tax Exempt
Trust, Inc.

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

MARIE K. KARPINSKI* [1/1/49], Vice President and Treasurer; Vice
President and Treasurer of all Legg Mason retail funds.

PATRICIA A. MAXEY* [7/10/67], Secretary; employee of Legg Mason since
November 1999. Formerly: employee of Select Appointments International
(1998-1999) and of Fidelity Investments (1995-1997).

WM. SHANE HUGHES* [4/24/68], Assistant Secretary and Assistant
Treasurer; employee of Legg Mason since May 1997. Formerly: Senior Associate of
C.W. Amos and Co. (a regional public accounting firm).

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

Officers and directors of the Fund who are "interested persons" of the
Fund receive no salary or fees from the Fund. Each Director who is not an
interested person of the Fund ("Independent Directors") receives an annual
retainer and a per meeting fee based on the average net assets of the Fund at
December 31, of the previous year.

On April 1, 2000 the directors and officers of the Corporation
beneficially owned in the aggregate less than 1% of the Fund's outstanding
shares.

-23-
<PAGE>

On March 31, 2000 the following entities were known by the fund to own
of record 5% or more of the fund's outstanding shares:

Name Address % of Ownership
- ---- ------- --------------

Neuberger Berman LLC 55 Water St., 60.81% (Class A)
New York, NY 10041

Kinco & Co. c/o Republic National Bank 5.13% (Class A)
1 Hanson PL, Brooklyn, NY 11243

Daniel J. Lubin 3 Goddard Dr 99.82% (Navigator)
Auburn, MA 01501

The following table provides certain information relating to the
compensation of the Corporation's directors. None of the Legg Mason funds has
any retirement plan for its directors.

COMPENSATION TABLE
- ------------------
- --------------------------------------------------------------------------------
Aggregate Total Compensation From
Compensation Fund and Fund Complex
Name of Person and Position From Fund* paid to Directors**
- --------------------------------------------------------------------------------
John F. Curley, Jr. - None None
Chairman of the Board and
Director
- --------------------------------------------------------------------------------
Edward A. Taber - President
and Director None None
- --------------------------------------------------------------------------------
Arnold L. Lehman - Director $ 600 $ 41,100
- --------------------------------------------------------------------------------
Jill E. McGovern - Director $ 600 $ 41,100
- --------------------------------------------------------------------------------
Richard G. Gilmore - Director $ 600 $ 41,100
- --------------------------------------------------------------------------------
T.A. Rodgers - Director $ 600 $ 41,100
- --------------------------------------------------------------------------------
G. Peter O'Brien - Director*** $ 600 $ 15,000
- --------------------------------------------------------------------------------
Nelson A. Diaz - Director**** $ 0 $ 0
- --------------------------------------------------------------------------------

* Represents compensation paid to the directors for the fiscal year ending
December 31, 1999.

** Represents aggregate compensation paid to each director during the calendar
year ended December 31, 1999. There are twelve open-end investment
companies in the Legg Mason Complex (with a total of twenty-four funds).

-24-
<PAGE>

*** Mr. O'Brien was appointed to the Board on November 11, 1999.

**** Mr. Diaz was appointed to the Board on February 10, 2000.

THE FUND'S INVESTMENT ADVISER/MANAGER

Legg Mason Fund Adviser, Inc. ("LMFA"), a Maryland corporation, is
located at 100 Light Street, Baltimore, Maryland 21202. LMFA is a wholly owned
subsidiary of Legg Mason, Inc., which is also the parent of Legg Mason and Gray,
Seifert & Co ("Gray, Seifert"). LMFA serves as manager to Financial Services
Fund under a Management Agreement between Legg Mason Investors Trust, Inc. on
behalf of the Fund and LMFA ("Management Agreement").

The Management Agreement provides that, subject to overall direction
by the Fund's Board of Directors, LMFA manages or oversees the investment and
other affairs of the Fund. LMFA is responsible for managing the Fund consistent
with the Fund's investment objective and policies described in its Prospectuses
and this Statement of Additional Information. LMFA also is obligated to (a)
furnish the Fund with office space and executive and other personnel necessary
for the operation of the Fund; (b) supervise all aspects of the Fund's
operations; (c) bear the expense of certain informational and purchase and
redemption services to the Fund's shareholders; (d) arrange, but not pay for,
the periodic updating of prospectuses, proxy material, tax returns and reports
to shareholders and state and federal regulatory agencies; and (e) report
regularly to the Fund's officers and directors. In addition, LMFA and its
affiliates pay all compensation of directors and officers of the Fund who are
officers, directors or employees of LMFA. The Fund pays all of its expenses
which are not expressly assumed by LMFA. These expenses include, among others,
interest expense, taxes, brokerage fees and commissions, expenses of preparing
and printing prospectuses, proxy statements and reports to shareholders and of
distributing them to existing shareholders, custodian charges, transfer agency
fees, distribution fees to Legg Mason, the 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. The Fund also is liable for such nonrecurring expenses as may
arise, including litigation to which the Fund may be a party. The Fund may also
have an obligation to indemnify its directors and officers with respect to
litigation.

LMFA receives for its services to the Fund a management fee,
calculated daily and payable monthly at an annual rate of 1.00% of the average
daily net assets of the Fund. LMFA has agreed to waive its fees for Financial
Services Fund for expenses related to Primary Class shares (exclusive of taxes,
interest, brokerage and extraordinary expenses) in excess of 2.25% of average
net assets attributable to Primary Class shares until April 30, 2001. LMFA has
agreed to waive its fees for expenses related to Navigator Class shares
(exclusive of taxes, interest, brokerage and extraordinary expenses) in excess
of 1.25% of average net assets attributable to Navigator Class shares until
April 30, 2001, and LMFA has agreed to waive its fees for expenses related to
Class A shares (exclusive of taxes, interest, brokerage and extraordinary
expenses) in excess of 1.50% of average net assets attributable to Class A
shares until April 30, 2001.

Until October 5, 1999, Bartlett & Co. served as manager to Financial
Services Fund under compensation arrangements substantially similar to those
with LMFA. For the period November 16, 1998 (commencement of operations) to
December 31, 1998, the Fund paid Bartlett advisory fees in the amount of
$17,081. For the period January 1, 1999 to October 5, 1999, the Fund paid
Bartlett advisory fees in the amount of $ 139,411. For the period October 6,
1999 to December 31, 1999, the Fund paid LMFA management fees in the amount of $
75,300.

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

-25-
<PAGE>

Gray, Seifert, 380 Madison Avenue, New York, New York, serves as
investment sub-adviser to Financial Services Fund under a Sub-Advisory Agreement
between Gray, Seifert and LMFA ("Sub-Advisory Agreement"). Prior to October 5,
1999, Gray, Seifert served as sub-adviser to the Fund under arrangements with
Bartlett substantially similar to those with LMFA.

Gray, Seifert is responsible for providing investment advice to
Financial Services Fund in accordance with its investment objective and
policies, and for placing orders to purchase and sell portfolio securities
pursuant to directions from the Fund's officers. For Gray, Seifert's services to
Financial Services Fund, LMFA (not the Fund) pays Gray, Seifert a fee equal to
60% of the fee it receives from the Fund for advisory and administrative
services. For the period November 16, 1998 (commencement of operations) to
December 31, 1998, Bartlett & Co. paid $10,249 to Gray, Seifert. For the period
January 1, 1999 to October 5, 1999, Bartlett & Co. paid $ 83,647 to Gray,
Seifert. For the period October 6, 1999 to December 31, 1999, LMFA paid Gray
Seifert $ 45,180 for its services to the Fund.

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

The Management Agreement and the Sub-Advisory Agreement terminate
automatically upon assignment and are terminable at any time without penalty by
vote of the Fund's Board of Directors, by vote of a majority of the Fund's
outstanding voting securities, by LMFA or by Gray, Seifert, 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 the Fund will be affected by personal
trading of employees, the Corporation and LMFA 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 period November 16, 1998 to December 31, 1998, the
portfolio turnover rate was 0% (annualized). For the fiscal year ended December
31, 1999, the portfolio turnover rate was 27.1%.

Under the Sub-Advisory Agreement with the Fund, the adviser is
responsible for the execution of the Fund's portfolio transactions and must seek
the most favorable price and execution for such transactions, subject to the
possible payment, as described below, of higher brokerage commissions to brokers
who provide research and analysis. The Fund may not always pay the lowest
commission or spread available. Rather, in placing orders for the Fund the
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, the
Adviser may give consideration to research, statistical and other services
furnished by brokers or dealers to the Adviser for its use, may place orders
with brokers who provide supplemental investment and market research and
securities and economic analysis and may pay to 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

-26-
<PAGE>

securities or of purchasers or sellers of securities; and furnishing analyses
and reports concerning issuers, industries, securities, economic factors and
trends, portfolio strategy and the performance of accounts. Such research and
analysis may be useful to the Adviser in connection with services to clients
other than the Fund whose brokerage generated the service. LMFA's and/or Gray
Seifert's fee is not reduced by reason of its receiving such brokerage and
research services.

From time to time the Fund may use Legg Mason as broker for agency
transactions in listed and over-the-counter securities at commission rates and
under circumstances consistent with the policy of best execution. Commissions
paid to Legg Mason will not exceed "usual and customary brokerage commissions."
Rule 17e-1 under the 1940 Act defines "usual and customary" commissions to
include amounts which are "reasonable and fair compared to the commission, fee
or other remuneration received by other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time." In the over-the-counter
market, the Fund generally deals with responsible primary market-makers unless a
more favorable execution can otherwise be obtained.

For the fiscal year ended December 31, 1999, the Fund paid total
brokerage commissions of $44,923. For the period November 16, 1998 (commencement
of operations) to December 31, 1998, the Fund paid total brokerage commissions
of $ 20,148. Legg Mason received no brokerage commissions from the Fund for
those same periods.

Except as permitted by SEC rules or orders, the Fund may not buy
securities from, or sell securities to, Legg Mason or its affiliated persons as
principal. The 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
the Fund's investment in the amount of securities of any class of securities
offered in an underwriting in which Legg Mason or any of its affiliated persons
is a participant so that: the Fund together with all other registered investment
companies having the same adviser, may not purchase more than 25% of the
principal amount of the offering of such class. In addition, the Fund may not
purchase securities during the existence of an underwriting if Legg Mason is the
sole underwriter for those securities.

Section 11(a) of the Securities Exchange Act of 1934 prohibits Legg
Mason from executing transactions on an exchange for its affiliates, such as the
Fund, unless the affiliate expressly consents by written contract. The Fund's
Advisory Agreement expressly provides such consent.

Among the broker-dealers regularly used by the Fund during the fiscal
year ended December 31, 1999, Financial Services Fund owned securities of its
regular broker/dealers or their parents as follows: 10,000 shares of A.G.
Edwards, with a market value of $320,625; 7,000 shares of Merrill Lynch & Co.
Inc. with a market value of $584,500; 9,500 shares of Paine Webber Group, Inc
$368,719; 18,000 shares of Ragen MacKenzie Group Inc. with a market value of
$324,000. Investment decisions for the Fund are made independently from those of
other funds and accounts advised by Gray, Seifert. 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 FUND'S DISTRIBUTOR

Legg Mason acts as distributor of the Fund's shares pursuant to an
Underwriting Agreement with the 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.

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<PAGE>

The Fund has adopted a Distribution Plan for Primary Class shares
("Primary Class Plan"), and a Distribution Plan for Class A shares ("Class A
Plan"), which, among other things, permit the Fund to pay Legg Mason fees for
its services related to sales and distribution of Primary Class shares or Class
A shares and the provision of ongoing services to holders of those shares.
Payments are made only from assets attributable to Primary Class shares or Class
A shares. Under the Primary Class Plan, the aggregate fees may not exceed an
annual rate of 1.00% of the Fund's average daily net assets attributable to
Primary Class shares. Under the Class A Plan, the aggregate fees may not exceed
an annual rate of 0.25% of the Fund's average daily net assets attributable to
Class A shares. Distribution activities for which such payments may be made
include, but are not limited to, compensation to persons who engage in or
support distribution and redemption of shares, printing of prospectuses and
reports for persons other than existing shareholders, advertising, preparation
and distribution of sales literature, overhead, travel and telephone expenses,
all with respect to the respective class of shares only.

Each Plan was adopted, as required by Rule 12b-1 under the 1940 Act,
by a vote of the Board of Directors, including a majority of the directors who
are not "interested persons" of the Corporation as that term is defined in the
1940 Act, and who have no direct or indirect financial interest in the operation
of the Plan or the Underwriting Agreement ("12b-1 Directors"). In approving the
continuation of each 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 Fund and its Primary Class or Class A shareholders. The
directors considered, among other things, the extent to which the potential
benefits of the Plan to the Fund's Primary Class or Class A shareholders could
offset the costs of the Plan; the likelihood that the Plan would succeed in
producing such potential benefits; the merits of certain possible alternatives
to the Plan; and the extent to which the retention of assets and additional
sales of the Fund's Primary Class shares or Class A shares would be likely to
maintain or increase the amount of compensation paid by the Fund to the
adviser/LMFA.

In considering the costs of the Plans, the directors gave particular
attention to the fact that any payments made by the Fund to Legg Mason under the
Plan would increase the Fund's level of expenses in the amount of such payments.
Further, the directors recognized that the adviser/LMFA would earn greater
management fees if the Fund's assets were increased, because such fees are
calculated as a percentage of the Fund's assets and thus would increase if net
assets increase. The directors further recognized that there can be no assurance
that any of the potential benefits described below would be achieved if the
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
the Fund's Primary Class shares and Class A shares and to maintain and enhance
the level of services they provide to the Fund's Primary Class and Class A
shareholders. These efforts, in turn, could lead to increased sales and reduced
redemptions, eventually enabling the Fund to achieve economies of scale and
lower per share operating expenses. Any reduction in such expenses would serve
to offset, at least in part, the additional expenses incurred by the Fund in
connection with its Plan. Furthermore, the investment management of the Fund
could be enhanced, as net inflows of cash from new sales might enable its
portfolio manager to take advantage of attractive investment opportunities, and
reduced redemptions could eliminate the potential need to liquidate attractive
securities positions in order to raise the funds necessary to meet the
redemption requests.

As compensation for its services and expenses, Legg Mason receives
from the Fund an annual distribution fee equivalent to .75% and 0% of its
average daily net assets attributable to Primary Class shares and Class A
shares, respectively and a service fee equivalent to .25% and .25% of its
average daily net assets attributable to Primary Class and Class A shares,
respectively in accordance with the respective Plans. All distribution and
service fees are calculated daily and paid monthly. 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 Class shares or Class A
shares. Any change in a Plan that would materially increase the distribution
cost to the Fund requires shareholder approval; otherwise the Plan may be

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<PAGE>

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.

Until October 5, 1999, LM Financial Partners, Inc. ("LMFP") served as
distributor of Financial Services Fund's Class A and Primary Class shares under
arrangements with LMFP substantially similar to those with Legg Mason. For the
period November 16, 1998 to December 31, 1998, Financial Services Fund paid LMFP
$1,785 and $12,955 in distribution and/or service fees under the Plans, from
assets attributable to Class A shares and Primary Class shares, respectively and
for the period January 1, 1999 to October 5, 1999, the Fund paid LMFP $9,779 and
$191,690 in distribution and/or service fees under the Plans, from assets
attributable to Class A shares and Primary Class shares, respectively. For the
period October 6, 1999 to December 31, 1999, the Fund paid Legg Mason $2,953 and
$70,443 in distribution and/or service fees under the Plans, from assets
attributable to Class A shares and Primary Class shares, respectively.

During the period January 1, 1999 to October 5, 1999, LMFP incurred
the following expenses with respect to Primary Class shares and Class A shares:

Primary Class Class A Shares
Shares

Sales and Commissions $ 98,861 $ 9,361

Retail Branch Distribution/ $ 58,820 $ 22,270
Sales Management

Promotion & Advertising/ $ 54,235 $ 20,535
Funds Marketing

Printing and mailing of $ 8,413 $ 3,185
prospectuses

Administration & Overhead $ 20,271 $ 7,675
------------------------------------------
Total expenses $240,600 $ 63,026

During the year ended December 31, 1999, Legg Mason incurred the
following expenses with respect to Primary Class shares and Class A shares:

Primary Class Class A Shares
Shares

Sales and Commissions $ 30,939 $ 2,930

Retail Branch Distribution/
Sales Management $ 18,408 $ 6,970
Promotion & Advertising/
Funds Marketing $ 16,973 $ 6,426

Printing and mailing of
prospectuses $ 2,633 $ 997

Administration & Overhead $ 6,343 $ 2,402
------------------------------------------
Total expenses $ 75,296 $ 19,725

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<PAGE>

The foregoing are estimated and do not include all expenses fairly
allocable to LMFP's, Legg Mason's or their affiliates' efforts to distribute
Primary Class shares or Class A shares.

CAPITAL STOCK INFORMATION

The Articles of Incorporation of the Corporation authorize issuance of
three hundred seventy five million shares of par value $.001 per share of
Financial Services Fund. The Corporation has issued additional series of shares.
The Fund currently has three classes of shares - Primary Class shares, Navigator
Class shares, and Class A shares. Each class represents interests in the same
pool of assets. A separate vote is taken by a Class of Shares of the Fund if a
matter affects just that Class of Shares. Each Class of Shares may bear certain
differing Class-specific expenses and sales charges, which may affect
performance. Voting rights are not cumulative. All shares in the Fund are fully
paid and nonassessable and have no preemptive or conversion rights.

Shareholder meetings will not be held except where the Investment
Company Act of 1940 requires a shareholder vote on certain matters (including
the election of directors, approval of an advisory contract and certain
amendments to the plan of distribution pursuant to Rule 12b-1), at the request
of 10% or more of the shares entitled to vote as set forth in the bylaws of the
Corporation; or as the Board of Directors from time to time deems appropriate.

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

State Street Bank and Trust Company ("State Street"), P.O. Box 1713,
Boston, Massachusetts 02105, serves as custodian of the Fund's assets. Boston
Financial Data Services ("BFDS"), P.O. Box 953, Boston, Massachusetts 02103, as
agent for State Street, serves as transfer and dividend-disbursing agent, and
administrator of various shareholder services. Legg Mason assists BFDS with
certain of its duties as transfer agent and receives compensation from BFDS for
its services. Shareholders who request an historical transcript of their account
will be charged a fee based upon the number of years researched. The Fund
reserves the right, upon 60 days' written notice, to make other charges to
investors to cover administrative costs.

THE FUND'S LEGAL COUNSEL

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

THE FUND'S INDEPENDENT AUDITORS

Ernst & Young LLP, Two Commerce Square, 2001 Market Street,
Philadelphia, PA 19103, serves as independent auditors for Financial Services
Fund.

FINANCIAL STATEMENTS

The Statement of Net Assets as of December 31, 1999, the Statement of
Operations for the year ended December 31, 1999; the Statement of Changes in Net
Assets for the fiscal years ended December 31, 1999 and December 31, 1998; the
Financial Highlights for the periods presented; the Notes to Financial
Statements and the Report of Independent Public Accountants, each with respect
to Financial Services Fund, are included in the annual report for the year ended
December 31, 1999, and are hereby incorporated by reference in this Statement of
Additional Information.

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Appendix A

RATINGS OF SECURITIES

Description of Moody's Investors Service, Inc. ("Moody's") corporate bond
ratings:
- --------------------------------------------------------------------------------

Aaa-Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.

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

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

Baa-Bonds which are rated Baa are considered medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

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

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

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

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

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

Description of Standard & Poor's ("S&P") corporate bond ratings:
- ---------------------------------------------------------------

AAA-An obligation rated AAA has the highest rating assigned by S&P.
The obligor's capacity to meet its financial commitment on the obligation is
extremely strong.

AA -An obligation rated AA differs from the highest rated obligations
only in small degree. The obligor's capacity to meet its financial commitment on
the obligation is very strong.

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<PAGE>

A-An obligation rated A is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.

BBB-An obligation rated BBB exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation. Obligations rated BB, B, CCC, CC, and C are regarded as
having significant speculative characteristics. BB indicates the least degree of
speculation and C the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.

BB-An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.

B-An obligation rated B is more vulnerable to nonpayment than
obligations rated BB, but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.

CCC-An obligation rated CCC is currently vulnerable to nonpayment, and
is dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.

CC-An obligation rated CC is currently highly vulnerable to
nonpayment.

C-A subordinated debt or preferred stock obligation rated C is
currently highly vulnerable to nonpayment. The C rating may be used to cover a
situation where a bankruptcy petition has been filed or similar action has been
taken, but payments on this obligation are being continued. A C also will be
assigned to a preferred stock issue in arrears on dividends or sinking fund
payments but that is currently paying.

D-An obligation rated D is in payment default. The D rating category
is used when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.

Plus (+) or minus (-)-The ratings from AA to CCC may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.

r-This symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or volatility of
expected returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk-such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.

N.R.-This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular obligation as a matter of policy.

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