As filed with the Securities and Exchange Commission on May 29, 1998
1933 Act Registration No. 33-89090
1940 Act Registration No. 811-8966
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ]
Pre-Effective Amendment No.__ [ ]
Post-Effective Amendment No. 6 [ X ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]
Amendment No. 8 [ X ]
(Check appropriate box or boxes.)
LEGG MASON FOCUS TRUST, INC.
(Exact name of registrant as specified in charter)
100 Light Street
Baltimore, Maryland 21202
(Address of principal executive offices)
Registrant's telephone number, including area code: (410) 539-0000
CHARLES A. BACIGALUPO
100 Light Street
Baltimore, Maryland 21202
(Name and address of agent for service)
Copies to:
ARTHUR J. BROWN, Esq.
STEPHANIE BOURQUE, Esq.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W., 2nd Floor
Washington, D.C. 20036-1800
Telephone: (202) 778-9000
It is proposed that this filing will become effective:
[___] Immediately upon filing pursuant to Rule 485(b)
[ ] On pursuant to Rule 485(b)
[ X ] 60 days after filing pursuant to Rule 485 (a)(1). It is requested
that the effective date be accelerated to June 30, 1998.
[ ] On ______________ pursuant to Rule 485 (a)(1)
[ ] 75 days after filing pursuant to Rule 485(a)(2)
[ ] On ______________pursuant to Rule 485(a)(2)
Title of Securities Being Registered: Shares of Common Stock.
<PAGE>
Legg Mason Focus Trust, Inc.
Contents of Registration Statement
This Registration Statement consists of the following papers and documents:
Cover Sheet
Contents of Registration Statement
Cross Reference Sheet
Legg Mason Focus Trust
- ----------------------
Part A - Prospectus
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
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Legg Mason Focus Trust, Inc.
Form N-1A Cross Reference Sheet
Part A
Item No. Prospectus Caption
- -------- ----------------
1 Cover Page
2 Prospectus Highlights; Expenses
3 Performance Information; Financial Highlights
4 Investment Objectives and Policies; Description of the
Corporation and Its Shares
5 Expenses; The Corporation's Management and Investment Adviser;
The Corporation's Distributor
6 Prospectus Highlights; Description of the Corporation and Its
Shares; How Your Shareholder Account is Maintained; Dividends
and Other Distributions; Shareholder Services; Tax Treatment of
Dividends and Other Distributions
7 How You Can Invest in the Corporation; How Your Shareholder
Account is Maintained; How Net Asset Value is Determined; The
Corporation's Distributor
8 How You Can Redeem Your Shares
9 Not Applicable
Part B
Item No. Statement of Additional Information Caption
- -------- -------------------------------------------
10 Cover Page
11 Table of Contents
12 Not Applicable
13 Additional Information About Investment Limitations and
Policies; Portfolio Transactions and Brokerage
14 The Corporation's Directors and Officers
15 The Corporation's Directors and Officers
16 The Corporation's Investment Adviser; The Corporation's
Distributor; The Corporation's Independent Accountants; The
Corporation's Custodian and Transfer and Dividend-Disbursing
Agent
17 Portfolio Transactions and Brokerage
18 Not Applicable
<PAGE>
Part B
Item No. Statement of Additional Information Caption
- -------- -------------------------------------------
19 Valuation of Fund Shares; Additional Purchase and Redemption
Information
20 Additional Tax Information; Tax-Deferred Retirement Plans
21 The Corporation's Distributor; Portfolio Transactions and
Brokerage; The Corporation's Custodian and Transfer and
Dividend-Disbursing Agent
22 Performance Information
23 Financial Statements
Part C
- ------
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE>
LEGG MASON FOCUS TRUST, INC.
PROSPECTUS
TABLE OF CONTENTS
PROSPECTUS HIGHLIGHTS........................................................4
EXPENSES.....................................................................5
FINANCIAL HIGHLIGHTS.........................................................7
PERFORMANCE INFORMATION......................................................7
INVESTMENT OBJECTIVES AND POLICIES...........................................8
HOW YOU CAN INVEST IN THE FUND..............................................12
HOW YOUR SHAREHOLDER ACCOUNT IS MAINTAINED..................................14
HOW YOU CAN REDEEM YOUR SHARES..............................................14
DIVIDENDS AND OTHER DISTRIBUTIONS...........................................16
TAX TREATMENT OF DIVIDENDS AND OTHER DISTRIBUTIONS..........................16
SHAREHOLDER SERVICES........................................................18
THE FUND'S MANAGEMENT AND INVESTMENT ADVISER................................19
THE FUND'S DISTRIBUTOR......................................................20
DESCRIPTION OF THE CORPORATION AND ITS SHARES...............................21
<PAGE>
ADDRESSES
DISTRIBUTOR:
Legg Mason Wood Walker, Inc.
100 Light Street
P.O. Box 1476
Baltimore, MD 21203-1476
410-539-0000 800-822-5544
TRANSFER AND SHAREHOLDER SERVICING AGENT:
Boston Financial Data Services
P.O. Box 953
Boston, MA 02103
COUNSEL:
Kirkpatrick & Lockhart LLP 1800 Massachusetts Ave., N.W.
Washington, DC 20036
INDEPENDENT ACCOUNTANTS:
Coopers & Lybrand, L.L.P.
2400 Eleven Penn Center
Philadelphia, PA 19103
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR THE STATEMENT OF ADDITIONAL
INFORMATION IN CONNECTION WITH THE OFFERING MADE BY THE PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY ANY FUND OR ITS DISTRIBUTOR. THE PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY ANY FUND OR BY THE PRINCIPAL UNDERWRITER IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
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<PAGE>
LEGG MASON
FOCUS TRUST, INC.
Prospectus
June __, 1998
LEGG MASON FOCUS TRUST, INC.
This Prospectus sets forth concisely the information about the fund that a
prospective investor ought to know before investing. It should be read and
retained for future reference. A Statement of Additional Information about the
fund dated June , 1998 has been filed with the Securities and Exchange
Commission ("SEC") and, as amended or supplemented from time to time, is
incorporated herein by reference. The Statement of Additional Information is
available without charge upon request from the distributor, Legg Mason Wood
Walker, Incorporated ("Legg Mason") (address and telephone numbers listed
below).
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY,
ANY BANK OR OTHER DEPOSITARY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC,
THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY, AND ARE SUBJECT TO INVESTMENT
RISK, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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<PAGE>
PROSPECTUS
June , 1998
Legg Mason Wood Walker, Incorporated
100 Light Street
P.O. Box 1476
Baltimore, MD 21203-1476
410-539-0000
800-822-5544
PROSPECTUS HIGHLIGHTS
The following summary is qualified in its entirety by the more detailed
information appearing in the body of this Prospectus and in the Statement of
Additional Information.
The LEGG MASON FOCUS TRUST, INC. ("Focus Trust") is a non-diversified,
open-end management investment company. The Fund seeks to attain maximum
long-term capital appreciation with minimum long-term risk to principal by
investing primarily in common stocks, preferred stocks and securities
convertible into or exchangeable for common stocks. Any income realized will be
incidental to the Fund's objective. The selection of common stocks will be made
through an investment strategy referred to as "Focus Investing."
Of course, there can be no assurance that the Fund will achieve its
objective. The value of shares of the Fund will fluctuate and your proceeds upon
redemption can be less than your purchase price. See "Investment Objectives and
Policies," page __, which also includes a discussion of risks.
Shares of the Fund may be appropriate for investments by Individual
Retirement Accounts, Self-Employed Individual Retirement Plans, Simplified
Employee Pension Plans, Savings Incentive Match Plans for Employees and other
qualified retirement plans (collectively referred to as "Retirement Plans").
DISTRIBUTOR:
Legg Mason Wood Walker, Incorporated
INVESTMENT ADVISER:
Legg Mason Fund Adviser, Inc. ("LMFA")
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PURCHASE METHODS:
Send bank/personal check or wire federal funds. There is a $1,000 minimum,
generally, for initial purchases, and a $100 minimum, generally, for subsequent
purchases. Lower minimums for initial and subsequent purchases apply for
automatic investments. See "How You Can Invest in the Fund," page __.
REDEMPTION METHODS:
Redeem by calling your financial advisor or service provider, or redeem by
mail. See "How You Can Redeem Your Shares," page __.
PUBLIC OFFERING PRICE PER SHARE:
Net asset value.
EXCHANGE PRIVILEGE:
All funds in the Legg Mason Family of Funds. See "Exchange Privilege,"
page __.
DIVIDENDS:
Declared and paid after the end of each taxable year. See "Dividends and
Other Distributions," page __.
REINVESTMENT:
All dividends and other distributions are automatically reinvested in
shares of the Fund unless cash payments are requested.
EXPENSES
The purpose of the following table is to assist an investor in
understanding the various costs and expenses that an investor in the Fund will
bear directly or indirectly. The expenses and fees set forth below are based on
average net assets and annual Fund operating expenses for the year ended
December 31, 1997. Fees are adjusted for current expense limits and fee waiver
levels.
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<PAGE>
Annual Fund Operating Expenses(a)(b)
(as a % of average net assets)
- --------------------------------------
Management fees 0.70%
12b-1 fees 1.00%
Other expenses (after fee waivers 0.20%
and reimbursements)
-----
Total operating expenses (after fee 1.90%
waivers and reimbursements)
(a) LMFA has agreed to waive management fees to the extent necessary to limit
total operating expenses (exclusive of taxes, brokerage commissions, interest
and extraordinary expenses) to 1.90% of the Fund's average daily net assets
until June 26, 2000. In the absence of such waiver, the management fee, 12b-1
fee, other estimated expenses and total estimated operating expenses for the
current fiscal year would have been as follows: .70%, 1.00%, 2.34% and 4.04% of
average net assets, respectively.
(b) The expense information has been restated to reflect current fees and
expenses.
For further information concerning the Fund's expenses, please see "The Fund's
Management and Investment Adviser" and "The Fund's Distributor," pages _____.
Because the Fund pays 12b-1 fees, long-term investors in the Fund may pay more
in distribution expenses than the economic equivalent of the maximum front-end
sales charge permitted by the National Association of Securities Dealers, Inc.
("NASD").
EXAMPLE
The following example illustrates the expenses that you would pay on a
$1,000 investment in the Fund over various time periods assuming (1) a 5% annual
rate of return and (2) redemption at the end of each time period. The Fund
charges no redemption fees of any kind.
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$19 $60 $103 $222
This example assumes that all dividends and other distributions are reinvested
and that the percentage amounts listed under Annual Fund Operating Expenses
remain the same over the time periods shown. The above table and the assumption
in the example of a 5% annual return are required by regulations of the SEC
applicable to all mutual funds. THE ASSUMED 5% ANNUAL RETURN IS NOT A PREDICTION
OF, AND DOES NOT REPRESENT THE PROJECTED OR ACTUAL PERFORMANCE OF, THE FUND. THE
ABOVE TABLE AND EXAMPLE SHOULD NOT BE CONSIDERED REPRESENTATIONS OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The
actual expenses will depend upon, among other things, the level of average net
assets, the levels of sales and redemptions of shares, the extent to which LMFA
waives its fee and the extent to which the Fund incurs variable expenses, such
as transfer agency costs.
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<PAGE>
FINANCIAL HIGHLIGHTS
The financial information in the table that follows has been audited by
Coopers & Lybrand, L.L.P., independent accountants. The Fund's financial
statements for the year ended December 31, 1997 and the report of Coopers &
Lybrand, L.L.P. thereon are included in its annual report and are incorporated
by reference in the Statement of Additional Information. The annual report is
available to shareholders without charge by calling your Legg Mason or
affiliated financial advisor or Legg Mason's Funds Marketing Department at
800-822-5544.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
12/31/97 12/31/96 12/31/95**
--------- ---------- ------------
<S> <C> <C> <C>
Net Asset Value, beginning of period $13.01 $11.17 $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) (0.11) (0.05) 0.06
Net realized and unrealized gain on investments 3.89 1.96 1.17
Total from investment operations 3.78 1.91 1.23
DIVIDENDS TO SHAREHOLDERS
Dividends from net investment income -- -- (0.06)
Dividends from net realized gain on investments (0.47) (0.07) --
Total distributions (0.47) (0.07) (0.06)
Net Asset Value, end of period $16.32 $13.01 $ 11.17
TOTAL RETURN 29.10% 17.14% 12.29%(2)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) $8,093 $7,327 $ 5,061
Ratio of expenses to average net assets after 2.00% 2.00% 1.92%(1)(3)
reimbursement of expenses by Adviser
Ratio of expenses to average net assets 4.04% 4.96% 7.89%(1)
before reimbursement of expenses by Adviser
Ratio of net investment income to average (0.74%) (0.40%) 1.19%(1)
net assets after reimbursement of
expenses by Adviser
Ratio of net investment income to average (2.78%) (3.36%) (4.78%)(1)
net assets before reimbursement of
expenses by Adviser
Portfolio turnover 14.47%+ 8.47% 0.00%
Average commission rate paid* $ 0.1006 $ 0.0979 N/A
</TABLE>
(1) Annualized
(2) Not annualized
(3) Prior to September 1, 1995, annualized expenses were capped at 1.75%.
+ Portfolio turnover was higher than anticipated due to fund share redemptions.
* Pursuant to SEC regulations effective for fiscal years beginning after
September 1, 1995, this is the average commission rate paid on securities
purchased and sold by the Fund.
** For the period April 17, 1995 (commencement of operations) to December 31,
1995.
PERFORMANCE INFORMATION
From time to time the Fund may quote the TOTAL RETURN of its shares in
advertisements or in reports or other communications to shareholders. A mutual
fund's total return is a measurement of the overall change in value of an
investment in the fund, including changes in share price and assuming
reinvestment of dividends and other distributions. CUMULATIVE TOTAL RETURN shows
the fund's performance over a specific period of time. AVERAGE ANNUAL TOTAL
RETURN is the average annual compounded return that would have produced the same
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<PAGE>
cumulative total return if the fund's performance had been constant over the
entire period. Average annual returns, which differ from actual year-to-year
results, tend to smooth out variations in a fund's returns.
The investment return and principal value of an investment in the Fund
will fluctuate so that an investor's shares, when redeemed, may be worth more or
less than their original cost. Returns of the Fund would have been lower if its
adviser had not waived certain fees for the fiscal years ended December 31, 1997
and 1996 and the period April 17, 1995 through December 31, 1995.
Performance figures reflect past performance only and are not intended to
and do not indicate future performance. Further information about the Fund's
performance is contained in its Annual Report to Shareholders, which may be
obtained without charge by calling your Legg Mason or affiliated financial
advisor or Legg Mason's Funds Marketing Department at 800-822-5544.
The average annual total return for the Fund for the period April 17, 1995
(commencement of operations) through December 31, 1997 was 21.59%. For the
fiscal year ended December 31, 1997, the annual total return for the Fund was
29.10%.
Although U.S. equity markets have grown significantly in recent years, the
average annual return of the U.S. equity markets has been ___% over the past ___
years, with several years showing a net decline in value.
INVESTMENT OBJECTIVES AND POLICIES
The Fund's investment objective is to seek maximum long-term capital
appreciation with minimum long-term risk to principal by investing primarily in
common stock, preferred stocks and securities convertible into or exchangeable
for common stock. Any income realized will be incidental to the Fund's
objective. The selection of common stocks will be made through an investment
strategy referred to as "focus investing," as described below. There can be no
assurance that the Fund's investment objective will be achieved. The value of
shares of the Fund will fluctuate and your proceeds upon redemption can be less
than your purchase price.
The value of the securities held by the Fund is subject to market risk,
including changes in economic conditions, growth rates, profits, interest rates
and the market's perception of these securities. The Fund's net asset value will
increase and decrease, reflecting fluctuations in the value of securities held
by the Fund. Investors should not invest in the Fund unless they are prepared
and able to lose a portion of their investment or to maintain or add to their
investment during periods of adverse market conditions and should not rely on an
investment in the Fund for their short-term financial needs.
The investment objective of the Fund may not be changed without
shareholder approval. Unless otherwise stated in this Prospectus, the Fund's
investment policies may be changed by the Fund's Board of Directors without
shareholder approval. Additional investment policies and restrictions are
described in the Statement of Additional Information.
LMFA identifies eligible portfolio securities according to a methodology
known as "focus investing." Focus investing is an investment strategy whereby
companies (or businesses) are identified and selected as eligible for investment
by the examination of all fundamental quantitative and qualitative aspects of
the company, the company's management and financial position as compared to its
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<PAGE>
stock price. This is a bottom up, fundamental, method of analysis as opposed to
technical analysis. Technical analysis often depends on the identification of
market cycles and timing techniques.
Focus investing is based on the principle that a shareholder's return from
owning a stock is ultimately determined by the fundamental economics of the
underlying business. Of course, investment results either can be enhanced or
diminished by changes in valuation. LMFA theorizes that in shorter periods,
changes in valuation tend to dominate investment returns, but as the time
horizon lengthens, the economic returns of the business increasingly dominate
the investment return.
A focus investor, according to LMFA, should disregard short-term nuances
and instead focus on the long-term economic progress of the investment. The
economic progress of a business is determined by its earnings power. The return
on shareholder's capital is one measure that distinguishes the operating
earnings power of a business.
LMFA believes that an outstanding business can be identified by focusing
on a company's economic competitive position, its financial strength, and the
capabilities of the company's management. There are certain business, financial,
and management tenets that encapsulate an outstanding business such as those
with favorable long-term prospects that are operated by honest and competent
people and are available at attractive prices. Focus investors expend much
energy determining the difference between a company's intrinsic value and its
current price in the marketplace.
LMFA selects common stocks to be held by the Fund according to focus
investing. Such securities will be selected and held for the long term. LMFA is
less concerned with short term price fluctuations and instead seeks to achieve
minimum risk to principal together with long-term capital appreciation. For
these purposes LMFA ignores technical stock market studies and expends no energy
attempting to forecast the general direction of the stock market.
LMFA will seek maximum long-term capital appreciation for this Fund
primarily by purchasing common stocks through "focus investing," as described
above. The Fund may also purchase preferred stocks and securities convertible
into common stocks, such as convertible bonds and debentures. The securities in
which the Fund invests generally will be listed on a national stock exchange or
traded on the over-the-counter market. However, the Fund may invest up to 10% of
its total assets in securities for which there is no ready market, known as
illiquid securities.
Security selection for the Fund is based on LMFA's analysis of a company's
financial characteristics, economic competitive position and an assessment of
the quality and capability of the company's management. Companies acceptable for
investment by the Fund typically possess, in the opinion of LMFA, favorable
long-term prospects, shareholder-oriented management, and strong financial
positions including high return on capital, healthy balance sheets,
predictability in the growth of earnings, and cash generating abilities in
excess of the company's operating needs. The Fund will only invest in those
companies which, in LMFA's opinion, are undervalued at the time of purchase.
While it is the Fund's policy to remain substantially invested in common
stock or securities convertible into common stock, it may invest in
non-convertible preferred stock and non-convertible debt securities. The Fund's
investment in debt securities will be made only in those considered to be
investment grade. Investment grade securities include those securities which are
rated in one of the four highest rating categories by a nationally recognized
statistical rating organization ("NRSRO") at the time of purchase, or, if
unrated, are determined to be of comparable quality by LMFA. Securities rated in
the fourth highest category (e.g., BBB by Standard & Poor's or Baa by Moody's
Investors Service, Inc.), although considered investment grade, may have
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<PAGE>
speculative characteristics and may be subject to greater fluctuations in value
than higher rated securities. In the event a security held by the Fund is
downgraded below investment grade, LMFA will promptly reassess the risks
involved and take such actions as it determines will be in the best interests of
the Fund and its shareholders.
Under normal circumstances, LMFA expects to make concentrated investments
in a limited number of companies. The Fund is able to invest more than 5% of its
total assets at the time of purchase in the securities of a single issuer. Thus,
it would be more susceptible to losses or underperformance if the securities of
one or more large holdings declines. This may also increase the volatility of
Fund shares. See "Types of Investments and Associated Risks." When purchasing
portfolio securities for the Fund, LMFA's philosophy is a buy and hold strategy
versus buying for short-term trading. Accordingly, the portfolio turnover rate
is not expected to exceed 25%.
While the Fund has no present intention to invest in foreign securities,
the Fund may invest up to 25% of its total assets in foreign securities, either
directly or indirectly through the purchase of American Depositary Receipts
("ADRs") or European Depositary Receipts ("EDRs"). See "Types of Investments and
Associated Risks."
When, in the opinion of LMFA, a temporary defensive position is warranted,
the Fund is permitted to temporarily invest up to 100% of its assets in
short-term U.S. Government securities, bank certificates of deposit, prime
commercial paper and other high-quality short-term fixed income securities and
repurchase agreements with respect to the foregoing securities. High quality
securities are securities that have received a rating from at least one NRSRO in
one of the two highest rating categories or, if not rated by any NRSRO, such as
U.S. Government securities, have been determined by LMFA to be of comparable
quality. In addition, the Fund may hold cash reserves, when necessary, for
anticipated securities purchases and redemptions or temporarily during periods
when prevailing market conditions call for a defensive posture. The Fund's
investment objective may not be achieved at such times when a temporary
defensive position is taken.
The Fund may not use any of the following forms of derivatives or hedging
instruments such as options, futures contracts, puts, calls or options on
futures contracts, and therefore will not be subject to the risks inherent in
these types of investments. The Fund may, however, invest in forward
commitments, when-issued securities and delayed delivery transactions which are
considered derivative securities.
TYPES OF INVESTMENTS AND ASSOCIATED RISKS:
All investments involve risk and there can be no guarantee against loss
resulting from an investment in the Fund, nor can there be any assurance that
the Fund's investment objective will be attained. The risks inherent in
investing in the Fund are those risks which are common to any mutual fund
investment. These include the risks that the net asset value will fluctuate in
response to changes in economic conditions, interest rates and the market's
perception of the underlying portfolio securities of the Fund.
The Fund is designed for long-term investors who are willing to accept the
risks entailed in seeking long-term growth of capital through investment
primarily in common stock. The Fund is not meant to provide a vehicle for
playing short-term swings in the stock market nor is it intended to be a
complete investment program. The value of the Fund's portfolio securities will
fluctuate based on market and other conditions. Consistent with a long term
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<PAGE>
investment approach, investors in the Fund should be prepared and able to lose a
portion of their investment or to maintain or add to their investment during
periods of adverse market conditions and should not rely on an investment in the
Fund for their short-term financial needs.
The Fund is classified as a "non-diversified" investment company within
the meaning of the Investment Company Act of 1940, as amended (the "1940 Act")
which means, in general, that the Fund may invest more than 5% of its total
assets in the securities of a single issuer, but only if, at the close of each
quarter of the Fund's taxable year, the aggregate amount of such holdings does
not exceed 50% of the value of its total assets and no more than 25% of the
value of its total assets is invested in the securities of a single issuer. An
investment in the Fund therefore will entail greater price risk than an
investment in a diversified investment company because a higher percentage of
investments among fewer issuers may result in greater fluctuation in the total
market value of the Fund's portfolio, and economic, political or regulatory
developments may have a greater impact on the value of the Fund's portfolio than
would be the case if the portfolio were diversified among more issuers.
In attempting to achieve its investment objective, the Fund may, in
addition to the investment policies stated above, engage in the following
practices:
FOREIGN SECURITIES
The Fund may invest directly in the securities of foreign issuers. There
are certain risks and costs involved in investing in securities of companies and
governments of foreign nations, which are in addition to the usual risks
inherent in U.S. investments. Investments in foreign securities involve higher
costs than investments in U.S. securities, including higher transaction costs as
well as the imposition of additional taxes by foreign governments. In addition,
foreign investments may include additional risks associated with the level of
currency exchange rates, less complete financial information about the issuers,
less market liquidity, more market volatility and political instability. Future
political and economic developments, the possible imposition of withholding
taxes on dividend income, the possible seizure or nationalization of foreign
holdings, the possible establishment of exchange controls, or the adoption of
other governmental restrictions might adversely affect an investment in foreign
securities. Additionally, foreign banks and foreign branches of domestic banks
may be subject to less stringent reserve requirements, and to different
accounting, auditing and recordkeeping requirements.
ADRS AND EDRS
For many foreign securities, there are U.S. dollar denominated American
Depositary Receipts ("ADRs"), which are bought and sold in the United States and
are issued by domestic banks. ADRs represent the right to receive securities of
foreign issuers deposited in the domestic bank or a correspondent bank. ADRs do
not eliminate all the risk inherent in investing in the securities of foreign
issuers. By investing in ADRs rather than directly in foreign issuer's stock,
the Fund may avoid currency risks during the settlement period for either
purchases or sales. In general, there is a large, liquid market in the United
States for most ADRs. The Fund may also invest in European Depositary Receipts
("EDRs") which are receipts evidencing an arrangement with a European bank
similar to that for ADRs and are designed for use in the European securities
markets. EDRs are not necessarily denominated in the currency of the underlying
security. The Fund has no current intention to invest in unsponsored ADRs and
EDRs.
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<PAGE>
SECURITIES LENDING
The Fund may lend its portfolio securities on a short-term basis to banks,
broker/dealers and other institutional investors pursuant to agreements
requiring that the loans be continuously secured by collateral equal at all
times in value to at least the market value of the securities loaned. The Fund
will not lend portfolio securities in excess of 33% of the value of its total
assets. There may be risks of delay in receiving additional collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by LMFA to be of good standing and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest in securities issued by other investment companies
within the limits prescribed by the 1940 Act. The Fund may invest up to 10% of
its assets in shares of investment companies and up to 5% of its assets in any
one investment company so long as the investment does not represent more than 3%
of the voting stock of the acquired investment company. Investments in other
investment companies will cause the Fund (and, indirectly the Fund's
shareholders) to bear proportionately the costs incurred in connection with the
investment companies' operations.
INVESTMENT LIMITATIONS
The Fund has adopted certain fundamental investment limitations that, like
its investment objective, can be changed only by a vote of the holders of a
majority of the outstanding voting securities of the Fund. For these purposes a
"vote of the holders of a majority of the outstanding voting securities" of the
Fund means the affirmative vote of the lesser of (1) more than 50% of the
outstanding shares of the Fund or (2) 67% or more of the shares present at a
shareholders' meeting if more than 50% of the outstanding shares are represented
at the meeting in person or by proxy. These investment limitations are set forth
in the Statement of Additional Information under "Additional Information About
Investment Limitations and Policies." Fund policies, unless described as
fundamental, can be changed by action of the Board of Directors.
The fundamental restrictions applicable to the Fund include a prohibition
on investing 25% or more of its total assets in the securities of issuers having
their principal business activities in the same industry (with the exception of
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities).
HOW YOU CAN INVEST IN THE FUND
You may purchase shares of the Fund through a brokerage account with Legg
Mason, with an affiliate that has an agreement with Legg Mason, or with an
unaffiliated entity having an agreement with Legg Mason ("Financial Advisor or
Service Provider"). Your Financial Advisor or Service Provider will be pleased
to explain the shareholder services available from the Fund and answer any
questions you may have. Documents available from your Financial Advisor or
Service Provider should be completed if you invest in shares of the Fund through
a Retirement Plan.
Investors who are considering establishing a Retirement Plan may wish to
consult their attorneys or tax advisers with respect to individual tax
questions. Your Financial Advisor or Service Provider can make available to you
forms of plans. The option of investing in these plans through regular payroll
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deductions may be arranged with Legg Mason and your employer. Additional
information with respect to these plans is available upon request from a
Financial Advisor or Service Provider.
Clients of certain institutions that maintain omnibus accounts with the
Fund's transfer agent may obtain shares through those institutions. Such
institutions may receive payments from the Fund's distributor for account
servicing, and may receive payments from their clients for other services
performed. Investors can purchase Fund shares from Legg Mason without receiving
or paying for such other services.
The minimum initial investment in the Fund account, including investments
made by exchange from other Legg Mason funds and investments in a Retirement
Plan, is $1,000, and the minimum investment for each purchase of additional
shares is $100, except as noted below. The minimum amount for subsequent
investments in a Retirement Plan will be waived if an investment will bring the
investment for the year to the maximum amount permitted under the Internal
Revenue Code of 1986, as amended ("Code"). For those investing through the
Fund's Future First Systematic Investment Plan, payroll deduction plans and
plans involving automatic payment of funds from financial institutions or
automatic investment of dividends from certain unit investment trusts, minimum
initial and subsequent investments are lower. The Fund may change these minimum
amount requirements at its discretion.
You should always furnish your shareholder account number when making
additional purchases of shares.
There are three ways you can invest in the Fund:
1. THROUGH A FINANCIAL ADVISOR OR SERVICE PROVIDER
Shares may be purchased through a Financial Advisor or Service Provider. A
Financial Advisor or Service Provider will be pleased to open an account for
you, explain to you the shareholder services available from the Fund and answer
any questions you may have. After you have established an account, you can order
shares from your Financial Advisor or Service Provider in person, by telephone
or by mail.
2. THROUGH THE FUTURE FIRST SYSTEMATIC INVESTMENT PLAN
You may also buy shares through the Future First Systematic Investment
Plan. Under this plan, you may arrange for automatic monthly investments in the
Fund of $50 or more by authorizing Boston Financial Data Services ("BFDS"), the
Fund's transfer agent, to transfer funds each month from your Legg Mason account
or from your checking account. Please contact a Financial Advisor or Service
Provider for further information.
3. THROUGH AUTOMATIC INVESTMENTS
Arrangements may be made with some employers and financial institutions,
such as banks or credit unions, for regular automatic monthly investments of $50
or more in shares. In addition, it may be possible for dividends from certain
unit investment trusts to be invested automatically in shares. Persons
interested in establishing such automatic investment programs should contact the
Fund through a Financial Advisor or Service Provider.
Share purchases will be processed at the net asset value next determined
after your Financial Advisor or Service Provider has received your order;
payment must be made within three business days to Legg Mason. Orders received
by your Financial Advisor or Service Provider before the close of regular
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trading on the New York Stock Exchange ("Exchange") (normally 4:00 p.m. Eastern
time) ("close of the Exchange") on any day the Exchange is open will be executed
at the net asset value determined as of the close of the Exchange on that day.
Orders received by your Financial Advisor or Service Provider after the close of
the Exchange or on days the Exchange is closed will be executed at the net asset
value determined as of the close of the Exchange on the next day the Exchange is
open. See "How Net Asset Value is Determined," page __. The Fund reserves the
right to reject any order for its shares or to suspend the offering of shares
for a period of time.
HOW YOUR SHAREHOLDER ACCOUNT IS MAINTAINED
When you initially purchase shares, a shareholder account is established
automatically for you. Any shares that you purchase or receive as a dividend or
other distribution will be credited directly to your account at the time of
purchase or receipt. Shares may not be held in, or transferred to, an account
with any brokerage firm that does not have an agreement with Legg Mason. The
Fund does not issue share certificates.
HOW YOU CAN REDEEM YOUR SHARES
There are two ways you can redeem your shares. First, you may give your
Financial Advisor or Service Provider an order for redemption of your shares in
person or by telephone. 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. Second, you may send a written
request for redemption to: Legg Mason Focus Trust, Inc., c/o Legg Mason Funds
Processing, P.O. Box 1476, Baltimore, Maryland 21203-1476.
Requests for redemption received by your Financial Advisor or Service
Provider before the close of the Exchange on any day when the Exchange is open,
will be transmitted to BFDS, transfer agent for the Fund, for redemption at the
net asset value per share determined as of the close of the Exchange on that
day. Requests for redemption received by your Financial Advisor or Service
Provider after the close of the Exchange will be executed at the net asset value
determined as of the close of the Exchange on its next trading day. A redemption
request received by your Financial Advisor or Service Provider may be treated as
a request for repurchase and, if it is accepted, your shares will be purchased
at the net asset value per share determined as of the next close of the
Exchange.
Proceeds from your redemption will settle in your brokerage account two
business days after trade date. The proceeds of your redemption or repurchase
may be more or less than your original cost. If the shares to be redeemed or
repurchased were paid for by check (including certified or cashier's checks),
within 10 business days of the redemption or repurchase request, the proceeds
will not be disbursed unless the Fund can be reasonably assured that the check
has been collected.
Written requests for redemption must be in "good order." A redemption
request will be considered to be received in "good order" only if:
1. You have indicated in writing the number of shares (or dollar
amount) to be redeemed, the complete Fund name and your shareholder account
number;
2. The written request is signed by you and by any co-owner of the
account with exactly the same name or names used in establishing the account;
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3. The written request is accompanied by any certificates representing
the shares that have been issued to you, and you have endorsed the certificates
for transfer or an accompanying stock power exactly as the name or names appear
on the certificates; and
4. The signatures on the written redemption request and on any
certificates for your shares (or an accompanying stock power) have been
guaranteed without qualification by a national bank, a state bank, a member firm
of a principal stock exchange or other entity described in Rule 17Ad-15 under
the Securities Exchange Act of 1934.
Other supporting legal documents may be required from corporations or
other organizations, fiduciaries or persons other than the shareholder of record
making the request for redemption or repurchase. If you have a question
concerning the redemption of shares, contact your Financial Advisor or Service
Provider.
The Fund will not be responsible for the authenticity of redemption
instructions received by telephone, provided it follows reasonable procedures to
identify the caller. The Fund may request identifying information from callers
or employ identification numbers. The Fund may be liable for losses due to
unauthorized or fraudulent instructions if it does not follow reasonable
procedures. Telephone redemption privileges are available automatically to all
shareholders. Shareholders who do not wish to have telephone redemption
privileges should call their Financial Advisor or Service Provider for further
instructions.
Because of the relatively high cost of maintaining small accounts, the
Fund may elect to close any account with a current value of less than $500 by
redeeming all of the shares in the account and mailing the proceeds to you.
However, the Fund will not redeem accounts that fall below $500 solely as a
result of a reduction in net asset value per share. If the Fund elects to redeem
the shares in your account, you will be notified that your account is below $500
and will be allowed 60 days to make an additional investment to avoid having
your account closed.
To redeem your Legg Mason Fund retirement account, a Distribution Request
Form must be completed and returned to Legg Mason Client Services for
processing. This form can be obtained from your Financial Advisor or Service
Provider or Legg Mason Client Services in Baltimore, Maryland. Upon receipt of
your form, your shares will be redeemed at the net asset value per share
determined as of the next close of the Exchange.
To the extent permitted by law, the Fund reserves the right to take up to
seven days to make payment upon redemption if, in the judgment of its adviser,
the Fund could be adversely affected by immediate payment. (The Statement of
Additional Information describes several other circumstances in which the date
of payment may be postponed or the right of redemption suspended.)
HOW NET ASSET VALUE IS DETERMINED
Net asset value per share of the Fund is determined daily as of the close
of the Exchange, on every day that the Exchange is open, by subtracting the
liabilities attributable to Fund shares from the total assets attributable to
such shares and dividing the result by the number of shares outstanding.
Securities owned by the Fund for which market quotations are readily available
are valued at current market value. In the absence of readily available market
quotations, securities are valued at fair value as determined by the Fund's
Board of Directors. Where a security is traded on more than one market, which
may include foreign markets, the securities are generally valued on the market
considered by the Fund's adviser to be the primary market. Securities with
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remaining maturities of 60 days or less are valued at amortized cost. The Fund
will value its foreign securities in U.S. dollars on the basis of the
then-prevailing exchange rates.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Fund intends to distribute its net investment income annually in
December. Any net realized gain from the sale of portfolio securities is
distributed at least once each year unless it is used to offset losses carried
forward from prior years, in which case no such gain will be distributed.
Dividends and other distributions, if any, on Fund shares held in a
Retirement Plan and by shareholders maintaining a Systematic Withdrawal Plan
generally are reinvested in Fund Shares on the payment dates. Other
shareholders may elect to:
1. Receive both dividends and other distributions in Fund shares;
2. Receive dividends in cash and other distributions in Fund shares;
3. Receive dividends in Fund shares and other distributions in cash; or
4. Receive both dividends and other distributions in cash.
If a shareholder has elected to receive dividends and/or other
distributions in cash and the postal or other delivery service is unable to
deliver checks to the shareholder's address of record, such shareholder's
distribution option will automatically be converted to having all dividends and
other distributions reinvested in additional Fund shares. No interest will
accrue on amounts represented by uncashed distribution or redemption checks.
In certain cases, shareholders may reinvest dividends and other
distributions in shares of another Legg Mason fund. Please contact your
Financial Advisor or Service Provider for additional information about this
option.
If no election is made, both dividends and other distributions are
credited to your Fund account in Fund shares at the net asset value of the
shares determined as of the close of the Exchange on the reinvestment date.
Shares received pursuant to any of the first three (reinvestment) elections
above also are credited to your account at that net asset value. Shareholders
electing to receive dividends and/or other distributions in cash will be sent a
check or will have their Legg Mason account credited after the payment date. You
may elect at any time to change your option by notifying the Fund in writing at:
Legg Mason Focus Trust, Inc., c/o Legg Mason Funds Processing, P.O. Box 1476,
Baltimore, Maryland 21203-1476. Your election must be received at least 10 days
before the record date in order to be effective for dividends and other
distributions paid to shareholders as of that date.
TAX TREATMENT OF DIVIDENDS AND OTHER DISTRIBUTIONS
The Fund intends to continue to qualify for treatment as a regulated
investment company under the Code so that it will be relieved of federal income
tax on that part of its investment company taxable income and net capital gain
that it distributes to its shareholders.
Dividends from the Fund's investment company taxable income (whether paid
in cash or reinvested in Fund shares) are taxable to its shareholders (other
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than Retirement Plans and other tax-exempt investors) as ordinary income to the
extent of the Fund's earnings and profits. Distributions of the Fund's net
capital gain (whether paid in cash or reinvested in Fund shares), when
designated as such, are taxable to those shareholders as long-term capital gain,
regardless of how long they have held their Fund shares. Under the Taxpayer
Relief Act of 1997, different maximum tax rates apply to a noncorporate
taxpayer's net capital gain depending on the holding period of the security and
the taxpayer's marginal rate of federal income tax. The relevant holding period
is determined by how long the Fund has held the portfolio security on which the
gain was earned, not by how long you have held your Fund shares.
The Fund sends its shareholders a notice following the end of each
calendar year specifying, among other things, the amounts of all dividends and
other distributions paid (or deemed paid) during that year. The information
regarding capital gain distributions designates the portions thereof subject to
the different maximum rates of tax applicable to noncorporate taxpayers' net
capital gain indicated above.
The Fund is required to withhold 31% of all dividends, capital gain
distributions and redemption proceeds payable to any individuals and certain
other noncorporate shareholders who do not provide the Fund with a certified
taxpayer identification number. The Fund also is required to withhold 31% of all
dividends and capital gain distributions payable to such shareholders who
otherwise are subject to backup withholding.
A redemption of Fund shares may result in taxable gain or loss to the
redeeming shareholder, depending on whether the redemption proceeds are more or
less than the shareholder's adjusted basis for the redeemed shares. An exchange
of Fund shares for shares of any other Legg Mason fund generally will have
similar tax consequences. See "Shareholder Services -- Exchange Privilege." If
Fund shares are purchased within 30 days before or after redeeming at a loss
other shares of the same Fund (regardless of class), all or part of that loss
will not be deductible and instead will increase the basis of the newly
purchased shares.
A dividend or other distribution paid shortly after shares have been
purchased, although in effect a return of investment, is subject to federal
income tax. Accordingly, an investor should recognize that a purchase of Fund
shares immediately prior to the record date for a dividend or other distribution
could cause the investor to incur tax liabilities and should not be made solely
for the purpose of receiving the dividend or other distribution.
The foregoing is only a summary of some of the important federal tax
considerations generally affecting the Fund and its shareholders; see the
Statement of Additional Information for a further discussion. In addition to
federal income tax, you may also be subject to state, local or foreign taxes on
distributions from the Fund, depending on the laws of your home state and
locality. A portion of the dividends paid by the Fund attributable to direct
U.S. government obligations is not subject to state and local income taxes in
most jurisdictions; the Fund's annual notice to shareholders regarding the
amount of dividends identifies this portion. Prospective shareholders are urged
to consult their tax advisers with respect to the effects of this investment on
their own tax situations.
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SHAREHOLDER SERVICES
CONFIRMATIONS AND REPORTS
You will receive from Legg Mason a confirmation after each transaction
involving Fund shares (except a reinvestment of dividends, capital gain
distributions and shares purchased through the Future First Systematic
Investment Plan or through automatic investments).
An account statement will be sent to you monthly unless there has been no
activity in the account or you are purchasing shares only through the Future
First Systematic Investment Plan or through automatic investments, in which case
an account statement will be sent quarterly. Reports will be sent to the Fund's
shareholders at least semiannually showing its portfolio and other information;
the annual report for the Fund will contain financial statements audited by its
independent accountants.
Shareholder inquiries should be addressed to: Legg Mason Focus Trust,
Inc., c/o Legg Mason Funds Processing, P.O. Box 1476, Baltimore, Maryland
21203-1476.
SYSTEMATIC WITHDRAWAL PLAN
You may elect to make systematic withdrawals from your Fund account of a
minimum of $50 on a monthly basis if you are purchasing or already own shares
with a net asset value of $5,000 or more. Shareholders should not purchase
shares of the Fund while they are participating in the Systematic Withdrawal
Plan with respect to the Fund. Please contact your Financial Advisor or Service
Provider for further information.
EXCHANGE PRIVILEGE
As a Fund shareholder, you are entitled to exchange your Fund shares for
the corresponding class of shares of any of the Legg Mason Funds, provided that
(i) such shares are eligible for sale in your state of residence and (ii) the
shares are held in a Legg Mason brokerage account or an account at a Financial
Advisor or Service Provider eligible to purchase shares of the Legg Mason fund
into which you wish to exchange.
Investments by exchange into the Legg Mason funds sold without an initial
sales charge are made at the per share net asset value determined on the same
business day as redemption of the Fund shares you wish to exchange. Investments
by exchange into the Legg Mason funds sold with an initial sales charge are made
at the per share net asset value, plus the applicable sales charge, determined
on the same business day as redemption of the Fund shares you wish to redeem;
except that no sales charge will be imposed upon proceeds from the redemption of
Fund shares to be exchanged that were originally purchased by exchange from a
fund on which the same or higher initial sales charge previously was paid. There
is no charge for the exchange privilege, but the Fund reserves the right to
terminate or limit the exchange privilege of any shareholder who makes more than
four exchanges from the Fund in one calendar year. To obtain further information
concerning the exchange privilege and prospectuses of other Legg Mason funds, or
to make an exchange, please contact your Financial Advisor or Service Provider.
To effect an exchange by telephone, please call your Financial Advisor or
Service Provider with the information described in "How You Can Redeem Your Fund
Shares," page ___. The other factors relating to telephone redemptions described
in that section apply also to telephone exchanges. Please read the prospectus
for the other fund(s) carefully before you invest by exchange. The Fund reserves
the right to modify or terminate the exchange privilege upon 60 days' notice to
shareholders.
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THE FUND'S MANAGEMENT AND INVESTMENT ADVISER
BOARD OF DIRECTORS
The business and affairs of the Fund are managed under the direction of
its Board of Directors.
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
The Fund has an investment advisory and management agreement with LMFA
which was approved by the Fund's Board of Directors ("Investment Advisory and
Management Agreement"). Under the Investment Advisory and Management Agreement,
LMFA has responsibility for making investment decisions and placing orders to
buy or sell a particular security. It also is obligated to provide the Fund with
investment management and administrative services, and to oversee the Fund's
relationships with outside service providers, such as the custodian, transfer
agent, accountants, and lawyers.
For the period June 28, 1997 to June 26, 1998, Focus Capital Advisory,
L.P. ("Focus Capital") served as the Fund's investment adviser. Prior to
June 28, 1997, Lloyd, Leith & Sawin, Inc. served as investment adviser to the
Fund.
For services under the Investment Advisory and Management Agreement, LMFA
receives a fee from the Fund, calculated daily and payable monthly, at the
annual rate of 0.70% of average daily net assets. During the period January 1,
1997 through June 27, 1997, Lloyd, Leith & Sawin was entitled to receive
advisory fees of $26,527, all of which fees were waived by Lloyd, Leith & Sawin;
during the period June 28, 1997 through December 31, 1997, Focus Capital was
entitled to receive advisory fees of $26,721, all of which fees were waived by
Focus Capital.
Robert G. Hagstrom, Jr. serves as Portfolio Manager of the Fund and has
been primarily responsible for overseeing all investments made by the Fund
since the Fund's inception on April 17, 1995. From 1997 to the date of this
Prospectus, he was the General Partner of Focus Capital Advisory, L.P., the
assets of which were purchased by Legg Mason Fund Advisor, Inc. From 1992
through 1997 he was a Principal with Lloyd, Leith & Sawin, where he served as
Vice President from 1991 to 1992. Prior thereto, Mr. Hagstrom was a
portfolio manager with First Fidelity Bank from 1989 through 1991 and was an
investment broker for Legg Mason Wood Walker, Inc. from 1984 through 1989.
Mr. Hagstrom received his B.A. and M.A. from Villanova University. He is a
member of the Association of Investment Management and Research and the
Financial Analysts of Philadelphia. Mr. Hagstrom is a Chartered Financial
Analyst and author of two books titled THE WARREN BUFFETT WAY: INVESTMENT
STRATEGIES OF THE WORLD'S GREATEST INVESTOR (John Wiley & Sons, November,
1994) and THE NASCAR WAY: THE BUSINESS THAT DRIVES THE SPORT (John Wiley &
Sons, January, 1998).
LMFA acts as adviser or manager to seventeen investment company portfolios
which had aggregate assets under management of approximately $10 billion as of
April 30, 1998. LMFA's address is 100 Light Street, Baltimore, Maryland 21202.
Like other mutual funds, financial and business organizations around the
world, the Fund could be adversely affected if the computer systems used by LMFA
and other service providers do not properly process and calculate date-related
information and data from and after January 1, 2000. This is commonly known as
the "Year 2000 Problem." LMFA is taking steps that it believes are reasonably
designed to address the Year 2000 Problem with respect to the computer systems
that it uses and to obtain assurances that comparable steps are being taken by
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the Fund's other major service providers. At this time, however, there can be no
assurance that these steps will be sufficient to avoid any adverse impact on the
Fund.
LMFA is a wholly owned subsidiary of Legg Mason, Inc., a financial
services holding company.
FEE WAIVERS
LMFA has agreed to waive its fees in any month to the extent the Fund's
expenses (exclusive of taxes, interest, brokerage and extraordinary expenses)
exceed during that month 1.90% of the Fund's annual average daily net assets,
until June 26, 2000. The Fund pays all its other expenses which are not assumed
by LMFA.
EXPENSE RATIOS
For the fiscal year ending December 31, 1997, the ratio of the Fund's
expenses to its average net assets (after application of any fee waivers) was
2.00%.
BROKERAGE
The Fund may use Legg Mason, among others, as broker for agency
transactions in listed and over-the-counter securities at commission rates and
under circumstances consistent with the policy of best execution.
THE FUND'S DISTRIBUTOR
Legg Mason, a wholly owned subsidiary of Legg Mason, Inc., is the
distributor of the Fund's shares pursuant to an Underwriting Agreement. The
Underwriting Agreement obligates Legg Mason to pay certain expenses in
connection with the offering of shares, including any compensation to its
financial advisors, the printing and distribution of prospectuses, statements of
additional information and periodic reports used in connection with the offering
to prospective investors, after the prospectuses, statements of additional
information and reports have been prepared, set in type and mailed to existing
shareholders at the Fund's expense, and for any supplementary sales literature
and advertising costs.
The Board of Directors of the Fund has adopted a Distribution Plan
("Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940 ("1940
Act"). The Plan provides that as compensation for its ongoing services to
investors in Fund shares and its activities and expenses related to the sale and
distribution of shares, Legg Mason receives from the Fund an annual distribution
fee payable from the assets attributable to Fund shares, of up to 0.75% of the
average daily net assets attributable to Fund shares; and an annual service fee
equal to 0.25% of the average daily net assets attributable to Fund shares. The
distribution fee and service fee are calculated daily and paid monthly. The fees
received by Legg Mason during any year may be more or less than its cost of
providing distribution and shareholder services for Fund shares.
NASD rules limit the amount of annual distribution and service fees that
may be paid by mutual funds and impose a ceiling on the cumulative distribution
fees received. The Fund's Plan complies with those rules.
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Legg Mason may enter into agreements with unaffiliated dealers to sell
shares of the Fund. Legg Mason pays such dealers up to 90% of the distribution
and shareholder service fees that it receives from the Fund with respect to
shares sold by the dealers. The Chairman, President and Treasurer of the Fund
are employed by Legg Mason.
DESCRIPTION OF THE CORPORATION AND ITS SHARES
Legg Mason Focus Trust, Inc. was established as a Maryland corporation on
January 27, 1995. It has authorized capital of 100 million shares of common
stock, par value $0.001 per share and may issue additional series of shares. The
Fund currently offers one class of shares.
Shareholders of the Fund are entitled to one vote per share and fractional
votes for fractional shares held. Voting rights are not cumulative. All shares
of the Fund are fully paid and nonassessable and have no preemptive or
conversion rights.
Shareholders' meetings will not be held except where the 1940 Act requires
a shareholder vote on certain matters (including the election of directors,
approval of an advisory contract, and approval of a plan of distribution
pursuant to Rule 12b-1). The Fund will call a special meeting of the
shareholders at the request of 10% or more of the shares entitled to vote;
shareholders wishing to call such a meeting should submit a written request to
the Fund at 100 Light Street, Baltimore, Maryland 21202, stating the purpose of
the proposed meeting and the matters to be acted upon.
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LEGG MASON FOCUS TRUST, INC.
STATEMENT OF ADDITIONAL INFORMATION
JUNE [ ], 1998
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK OR OTHER DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE
FDIC, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Prospectus (dated June [ ], 1998), which has been
filed with the Securities and Exchange Commission ("SEC"). Copies of the
Prospectus are available without charge from the Fund's distributor, Legg Mason
Wood Walker, Incorporated ("Legg Mason"), at (410) 539-0000.
The LEGG MASON FOCUS TRUST, INC. ("Focus Trust") is a non-diversified
open-end management investment company. The Fund seeks to attain maximum
long-term capital appreciation with minimum long-term risk to principal by
investing primarily in common stocks, preferred stocks and securities
convertible into or exchangeable for common stocks. The selection of common
stocks will be made through an investment strategy referred to as "Focus
Investing."
The Fund pays investment advisory and management fees to Legg Mason Fund
Adviser, Inc. ("LMFA"). The Fund also pays a 12b-1 distribution fee.
See "The Fund's Distributor."
<PAGE>
LEGG MASON WOOD WALKER,
INCORPORATED
------------------------------------------
100 LIGHT STREET
P.O. BOX 1476
BALTIMORE, MARYLAND 21202
(410) 539-0000 (800) 822-5544
ADDITIONAL INFORMATION ABOUT INVESTMENT LIMITATIONS AND POLICIES
The investment restrictions set forth below are fundamental policies
and may not be changed without the approval of a majority of the outstanding
voting shares (as defined in the Investment Company Act of 1940 ("1940 Act")) of
the Fund. Unless otherwise indicated, all percentage limitations listed below
apply to the Fund only at the time of the transaction. Accordingly, if a
percentage restriction is adhered to at the time of investment, a later increase
or decrease in the percentage which results from a relative change in values or
from a change in the Fund's total assets will not be considered a violation.
Except as set forth under "Investment Objective and Policies" and
"Investment Practices" in the Prospectus, the Fund may not:
(1) Act as an underwriter of securities, except that, in connection with
the disposition of a security, the Fund may be deemed to be an
"underwriter" as that term is defined in the Securities Act of 1933;
(2) Purchase or sell real estate (but this restriction shall not prevent
the Fund from investing directly or indirectly in portfolio
instruments secured by real estate or interests therein or acquiring
securities of real estate investment trusts or other issuers that
deal in real estate), interests in oil, gas and/or mineral
exploration or development programs or leases;
(3) Purchase or sell commodities or commodity contracts;
(4) Make loans, except that this restriction shall not prohibit (a) the
purchase and holding of debt instruments in accordance with the
Fund's investment objectives and policies, (b) the lending of
portfolio securities, or (c) entry into repurchase agreements with
banks or broker-dealers;
(5) Borrow money or issue senior securities, except that the Fund may
borrow from banks and enter into reverse repurchase agreements for
temporary purposes in amounts up to one-third of the value of its
total assets at the time of such borrowing; or mortgage, pledge, or
hypothecate any assets, except in connection with any such borrowing
and in amounts not in excess of the lesser of the dollar amounts
borrowed or 5% of the value of the total assets of the Fund at the
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time of its borrowing. All borrowings will be done from a bank and
asset coverage of at least 300% is required;
(6) Sell securities short or purchase securities on margin, except for
such short-term credits as are necessary for the clearance of
transactions;
(7) Invest in puts, calls, straddles or combinations thereof;
(8) Participate on a joint or joint and several basis in any securities
trading account;
(9) Make investments in securities for the purpose of exercising
control;
(10) Purchase the securities of any one issuer if, immediately after such
purchase, the Fund would own more than 25% of the outstanding voting
securities of such issuer;
(11) Invest more than 25% of the value of its total assets (taken at
market value at the time of each investment) in securities of
issuers whose principal business activities are in the same
industry. For this purpose, "industry" does not include the U.S.
Government, its agencies instrumentalities; or
(12) Purchase securities of issuers having less than three years'
continuous operation, if such purchase would cause the value of the
Fund's investments in all such issuers to exceed 5% of the value of
its total assets. Such three year periods shall include the
operation of any predecessor company or companies.
Although not considered fundamental, the Fund will not invest: (1) more
than 5% of its net assets in warrants, including within that amount no more than
2% in warrants which are not listed on the New York or American Stock Exchanges,
except warrants acquired as a result of its holdings of common stock; and, (2)
purchase or retain the securities of any issuer if, to the knowledge of the
Fund, any officer or director of the Fund or of its investment manager owns
beneficially more than 1/2 of 1% of the outstanding securities of such issuer,
and such officers and directors of the Fund or of its investment manager who own
more than 1/2 of 1%, own in the aggregate, more than 5% of the outstanding
securities of such issuer.
The investment practices described below, except for the discussion of
portfolio loan transactions, are not fundamental and may be changed by the Board
of Directors without the approval of the shareholders of the Fund. Shareholders
however, will be notified within thirty (30) days of any changes in the
investment policies.
CONVERTIBLE SECURITIES
- ----------------------
The Fund may invest in convertible securities. Common stock occupies the
most junior position in a company's capital structure. Convertible securities
entitle the holder to exchange the securities for a specified number of shares
of common stock, usually of the same company, at specified prices within a
certain period of time and to receive interest or dividends until the holder
elects to convert. The provisions of any convertible security determine its
ranking in a company's capital structure. In the case of subordinated
convertible debentures, the holder's claims on assets and earnings are
subordinated to the claims of other creditors, and are senior to the claims of
preferred and common shareholders. In the case of preferred stock and
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convertible preferred stock, the holder's claims on assets and earnings are
subordinated to the claims of all creditors but are senior to the claims of
common shareholders.
To the extent that a convertible security's investment value is greater
than its conversion value, its price will be primarily a reflection of such
investment value and its price will be likely to increase when interest rates
fall and decrease when interest rates rise, as with a fixed-income security. If
the conversion value exceeds the investment value, the price of the convertible
security will rise above its investment value and, in addition, may sell at some
premium over its conversion value. At such times the price of the convertible
security will tend to fluctuate directly with the price of the underlying equity
security.
BORROWING
- ---------
The Fund has a fundamental policy that it may not borrow money, except (1)
from banks for temporary or emergency purposes and not for leveraging or
investment and (2) to enter into reverse repurchase agreements for any purpose,
so long as the aggregate amount of borrowings and reverse repurchase agreements
does not exceed one-third of the Fund's total assets less liabilities (other
than borrowings). In the event that such asset coverage shall at any time fall
below 300%, the Fund shall, within three business days thereafter or such longer
period as the U.S. Securities and Exchange Commission ("SEC") may prescribe by
rules and regulations, reduce the amount of its borrowings to such an extent
that the asset coverage of such borrowings shall be at least 300%. Investment
securities will not be purchased while the Fund has an outstanding borrowing
that exceeds 5% of the Fund's net assets.
FORWARD COMMITMENTS, WHEN-ISSUED SECURITIES AND DELAYED DELIVERY TRANSACTIONS
- -----------------------------------------------------------------------------
The Fund may purchase securities on a "when-issued" basis and may purchase
or sell securities on a "forward commitment" and "delayed delivery" basis. These
transactions involve a commitment by the Fund to purchase or sell particular
securities with payment and delivery taking place at a future date. They involve
the risk that the price or yield available in the market may be less favorable
than the price or yield available when the delivery takes place. The Fund's
when-issued purchases, forward commitments and delayed delivery transactions in
total will not exceed 5% of the value of the Fund's net assets. This 5%
limitation reflects the value of the underlying obligation together with its
initial payment.
Although the Fund may purchase securities on a when-issued basis, or
purchase or sell securities on a forward commitment basis or purchase securities
on a delayed delivery basis, the Fund does not have the current intention of
doing so in the foreseeable future. The Fund will normally realize a capital
gain or loss in connection with these transactions.
When the Fund purchases securities on a when-issued, delayed delivery or
forward commitment basis, the Fund's custodian will maintain in a segregated
account: cash, U.S. Government securities or other high grade liquid debt
obligations having a value (determined daily) at least equal to the amount of
the Fund's purchase commitments. In the case of a forward commitment to sell
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portfolio securities, the custodian will hold the portfolio securities
themselves in a segregated account while the commitment is outstanding. These
procedures are designed to ensure that the Fund will maintain sufficient assets
at all times to cover its obligations under when-issued purchases, forward
commitments and delayed delivery transactions.
LOANS OF PORTFOLIO SECURITIES
- -----------------------------
The Fund may lend portfolio securities to broker-dealers and financial
institutions, although at the present time it has no intention of lending
portfolio securities in the foreseeable future. The Fund may lend portfolio
securities, provided: (1) the loan is secured continuously by collateral
marked-to-market daily and maintained in an amount at least equal to the current
market value of the securities loaned; (2) the Fund may call the loan at any
time and receive the securities loaned; (3) the Fund will receive any interest
or dividends paid on the loaned securities; and (4) the aggregate market value
of securities loaned will not at any time exceed 33% of the total assets of the
Fund.
ILLIQUID SECURITIES
- -------------------
The Fund may invest up to 10% of its net assets in securities that are
illiquid. Illiquid securities are assets which may not be sold or disposed of in
the ordinary course of business within seven days at approximately the price at
which they are valued by the Fund. Due to the absence of an active trading
market, the Fund may experience difficulty in valuing or disposing of illiquid
securities. Repurchase agreements with deemed maturities in excess of seven days
and certain securities that are not registered under the Securities Act of 1933
but that may be purchased by institutional buyers under SEC Rule 144A (known as
"restricted securities") are subject to this 10% limit. LMFA determines the
liquidity of the Fund's securities, under supervision of the Board of Directors.
PORTFOLIO TURNOVER RATE
- -----------------------
Generally, the Fund will purchase portfolio securities for capital
appreciation and not for short-term trading profits. Due to the nature of "focus
investing," however, LMFA anticipates that the portfolio turnover levels will be
held at low levels. This is consistent with the Fund's buy and hold strategy.
The rate of portfolio turnover will not be a limiting factor in making portfolio
decisions. A high rate of portfolio turnover may result in the realization of
substantial capital gains and involves correspondingly greater transaction
costs. It is currently estimated that under normal market conditions the annual
portfolio turnover rate for the Fund will not exceed 25%. Portfolio turnover
rates may vary from year to year as well as within a particular year.
REPURCHASE AGREEMENTS
- ---------------------
The Fund may enter into repurchase agreements. The Fund may only enter
into repurchase agreements with financial institutions that are deemed to be
creditworthy by LMFA, pursuant to guidelines established by the Fund's Board of
Directors. During the term of any repurchase agreement, LMFA will continue to
monitor the creditworthiness of the seller. Repurchase agreements are considered
under the 1940 Act to be collateralized loans by the Fund to the seller secured
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by the securities transferred to the Fund. Repurchase agreements under the 1940
Act will be fully collateralized by securities in which the Fund may invest
directly. Such collateral will be marked-to-market daily. If the seller of the
underlying security under the repurchase agreement should default on its
obligation to repurchase the underlying security, the Fund may experience delay
or difficulty in exercising its right to realize upon the security and, in
addition, may incur a loss if the value of the security should decline, as well
as disposition costs in liquidating the security. The Fund will not invest more
than 10% of its net assets in repurchase agreements maturing in more than seven
days.
The repurchase price under the repurchase agreements described above
generally equals the price paid by the Fund plus interest negotiated on the
basis of current short-term rates (which may be more or less than the rate on
the securities underlying the repurchase agreement). Repurchase agreements are
considered loans by the Fund under the 1940 Act.
The financial institutions with which the Fund may enter into repurchase
agreements are banks and non-bank dealers of U.S. Government securities that are
listed on the Federal Reserve Bank of New York's list of reporting dealers and
banks, if such banks and non-bank dealers are deemed creditworthy by LMFA. LMFA
will continue to monitor the creditworthiness of the seller under a repurchase
agreement, and will require the seller to maintain during the term of the
agreement the value of the securities subject to the agreement at not less than
the repurchase price. The Fund will only enter into a repurchase agreement where
the market value of the underlying security, including interest accrued, will be
at all times equal to or exceed the value of the repurchase agreement.
REVERSE REPURCHASE AGREEMENTS
- -----------------------------
The Fund may enter into reverse repurchase agreements but it does not
currently have the intention of doing so in the foreseeable future. Reverse
repurchase agreements involve the sale of securities held by the Fund pursuant
to the Fund's agreement to repurchase the securities at an agreed upon price,
date and rate of interest. Such agreements are considered to be borrowings under
the 1940 Act, and may be entered into only for temporary or emergency purposes.
While reverse repurchase transactions are outstanding, the Fund will maintain in
a segregated account cash, U.S. Government securities or other liquid, high
grade debt securities in an amount at least equal to the market value of the
securities, plus accrued interest, subject to the agreement. Reverse repurchase
agreements involve the risk that the market value of the securities sold by the
Fund may decline below the price of the securities the Fund is obligated to
repurchase.
RESTRICTED SECURITIES AND RULE 144A SECURITIES
- ----------------------------------------------
Restricted securities cannot be sold to the public without registration
under the Securities Act of 1933 (the "1933 Act"). Unless registered for sale,
these securities can only be sold in privately negotiated transactions or
pursuant to an exemption from registration. Some restricted securities may be
illiquid securities.
The Fund may invest in securities that are exempt under SEC Rule 144A from
the registration requirements of the Securities Act of 1933. Those securities,
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<PAGE>
purchased under Rule 144A, are traded among qualified institutional investors
and may be subject to the Fund's limitation on illiquid investment.
Investing in securities under Rule 144A could have the effect of
increasing the levels of the Fund's illiquidity to the extent that qualified
institutional buyers become, for a time, uninterested in purchasing these
securities. The Fund will limit its investment in securities of issues which the
Fund is restricted from selling to the public without registration under the
Securities Act of 1933 to no more than 10% of the Fund's total assets, excluding
restricted securities eligible for resale pursuant to Rule 144A that have been
determined to be liquid by the Fund's Board of Directors.
OTHER INVESTMENTS
- -----------------
Subject to prior disclosure to shareholders, the Board of Directors may,
in the future, authorize the Fund to invest in securities other than those
listed here and in the prospectus, provided that such investment would be
consistent with the Fund's investment objective and that it would not violate
any fundamental investment policies or restrictions applicable to the Fund.
ADDITIONAL TAX INFORMATION
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). In order to so qualify for any taxable year, the Fund must, among other
things, (i) derive at least 90% of its gross income from dividends, interest,
payments with respect to certain securities loans and gains from the sale or
other disposition of stock, securities of foreign currencies, or other income
(including but not limited to gains from options, futures or forward contracts)
derived with respect to its business of investing in such stock, securities or
currencies; (ii) distribute at least 90% of its dividend, interest and certain
other taxable income each year; and (iii) at the end of each fiscal quarter
maintain at least 50% of the value of its total assets in cash, U.S. Government
securities, securities of other regulated investment companies, and other
securities, with such other securities limited, in respect of any one to each
issuer, to not more than 5% of the value of the Fund's total assets and 10% of
the outstanding voting securities of such issuer, and have no more than 25% of
its assets invested in the securities (other than those of the U.S. Government
or other regulated investment companies) of any one issuer or of two or more
issuers which the Fund controls and which are engaged in the same, similar or
related trades or businesses.
To the extent the Fund qualifies for treatment as a regulated investment
company, it generally will not be subject to federal income tax on income paid
to shareholders in the form of dividends or capital gains distributions.
An excise tax at the rate of 4% will be imposed on the excess, if any, of
the Fund's "required distributions" over actual distributions in any calendar
year. Generally, the "required distribution" is 98% of the Fund's ordinary
income for the calendar year plus 98% of its capital gain net income recognized
during the one-year period ending on October 31 plus undistributed amounts from
prior years. The Fund intends to make distributions sufficient to avoid
imposition of the excise tax. A distribution will be treated as paid on December
31 of the current calendar year if it is declared by the Fund during October,
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November or December to shareholders of record during such month and paid during
January of the following year. Such distributions will be taxable in the year
they are declared, rather than the year in which they are received.
Shareholders generally will be subject to federal income taxes on
distributions made by the Fund whether received in cash or additional shares of
the Fund. Distributions of net investment income and net short-term capital
gains, if any, will be taxable to shareholders as ordinary income. Distributions
of net investment income may be eligible for the corporate dividends-received
deduction to the extend attributable to the Fund's qualifying dividend income.
However, the alternative minimum tax applicable to corporations may reduce the
benefit of the dividends-received deduction. Distributions of net capital gains,
if any, designated by the Fund as capital gain dividends, will be taxable to
shareholders as long-term capital gains, without regard to how long a
shareholder has held shares of the Fund, and are not eligible for the dividends
received deduction. A loss on the sale of shares held for six months or less
will be treated as a long-term capital loss to the extent of any capital gain
dividend paid to the shareholder with respect to such shares.
Certain of the debt securities acquired by the Fund may be treated as debt
securities that were originally issued at a discount. Original issue discount
can generally be defined as the difference between the price at which a security
was issued and its stated redemption price at maturity. Generally, the amount of
the original issue discount is treated as interest income and is included in
income over the term of the debt security, even though payment of the amount is
not received until a later time, usually when the debt security matures.
Some debt securities may be purchased by the Fund at a discount which
exceeds the original issue discount on such debt securities, if any. This
additional discount represents market discount for federal income tax purposes.
The gain realized on the disposition of any debt security having market discount
will be treated as ordinary income to the extent it does not exceed the accrued
market discount on such debt security. Generally, market discount accrues on a
daily basis for each day the debt security is held by the Fund at a constant
rate over the time remaining to the debt security's maturity. In the case of
certain short-term debt securities with market discount, the amount of the
market discount is included in income over the remaining term of the debt
security, even though payment of the amount is not received until a later time,
usually when the debt security matures.
The Fund may invest in stocks of foreign companies that are classified
under the Code as passive foreign investment companies ("PFICs"). In general, a
foreign company is classified as a PFIC if at least one-half of its assets
constitute investment-type assets or 75% or more of its gross income is
investment-type income. Under the PFIC rules, an "excess distribution" received
with respect to PFIC stock is treated as having been realized ratably over the
period during which the Fund held the PFIC stock. The Fund itself will be
subject to tax on the portion, if any, of the excess distribution that is
allocated to the Fund's holding period in prior taxable years (and an interest
factor will be added to the tax as if the tax had actually been payable in such
prior taxable years) even though the Fund distributed the corresponding income
to shareholders. Excess distributions include any gain from the sale of PFIC
stock as well as certain distributions from a PFIC. All excess distributions are
taxable as ordinary income.
-8-
<PAGE>
The Fund may be able to elect alternative tax treatment with respect to
PFIC stock. Under an election that currently may be available, the Fund
generally would be required to include in its gross income its share of the
earnings of a PFIC on a current basis, regardless of whether any distributions
are received from the PFIC. If this election is made, the special rules,
discussed above, relating to the taxation of excess distributions, would not
apply. Alternatively, the Fund may be able to elect to mark to market its PFIC
stock, resulting in the stock being treated as sold at fair market value on the
last business day of each taxable year. Any resulting gain would be reported as
ordinary income, and any resulting loss would not be recognized. If this
election were made, the special rules described above with respect to excess
distributions would still apply. The Fund's intention to qualify annually as a
regulated investment company may limit its elections with respect to PFIC stock.
Because the application of the PFIC rules may affect, among other things,
the character of gains, the amount of gain or loss and the timing of the
recognition of income with respect to PFIC stock, as well as subject the Fund
itself to tax on certain income from PFIC stock, the amount that must be
distributed to shareholders, and which will be taxed to shareholders as ordinary
income or long-term capital gain, may be increased or decreased substantially as
compared to a Fund that did not invest in PFIC stock.
Under the Code, gains or losses attributable to fluctuations in foreign
currency exchange rates which occur between the time the Fund accrues income or
other receivables or accrues expenses or other liabilities denominated in
foreign currency and the time the Fund actually collects such receivables or
pays such liabilities generally are treated as ordinary income or ordinary loss.
Similarly, on disposition of debt securities denominated in a foreign currency,
gains or losses attributable to fluctuations in the value of foreign currency
between the date of acquisition of the security and the date of disposition also
are treated as ordinary gain or loss. These gains and losses, referred to under
the Code as "Section 988" gains and losses, may increase or decrease the amount
of the Fund's net investment income to be distributed to its shareholders as
ordinary income. For example, fluctuations in exchange rates may increase the
amount of income that the Fund must distribute in order to qualify for treatment
as a regulated investment company and to prevent application of an excise tax on
undistributed income. Alternatively, fluctuations in exchange rates may decrease
or eliminate income available for distribution. If Section 988 losses exceed
other net investment income during a taxable year, the Fund would not be able to
make ordinary dividend distributions, or distributions made before the losses
were realized would be recharacterized as return of capital to shareholders for
federal income tax purposes, rather than as an ordinary dividend, reducing each
shareholder's basis in his Fund shares.
Upon the sale or exchange of shares in the Fund, a shareholder will
realize a taxable gain or loss depending upon his basis in the shares. Such gain
or loss will be treated as capital gain or loss if the shares are capital assets
in the shareholder's hands, and generally will be long-term if the shareholder's
holding period for the shares is more than one year and generally otherwise will
be short-term. Any loss realized on a sale or exchange will be disallowed to the
extent that the shares disposed of are replaced (including replacement through
the reinvesting of dividends and capital gain distributions in the Fund) within
a period of 61 days beginning 30 days before and ending 30 days after the
disposition of the shares. In such a case, the basis of the shares acquired will
be adjusted to reflect the disallowed loss. The Fund will notify shareholders
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<PAGE>
each year of the amount of dividends and distributions, including the amount of
any distribution of capital gain dividends, and the portion of its dividends
which may be eligible for the 70% dividend-received deduction.
The above discussion and the related tax discussion in the Prospectus are
general in nature and are not intended to be complete discussions of all
applicable federal tax consequences relating to an investment in the Fund. The
Fund's legal counsel has expressed no opinion in respect thereof. Dividends and
distributions also may be subject to state and local taxes. Shareholders are
urged to consult their tax advisors regarding specific questions as to federal,
state and local taxes.
The foregoing discussion relates solely to U.S. federal income tax law.
Non-U.S. investors should consult their tax advisors concerning the tax
consequences of ownership of shares of the Fund, including the possibility
that distributions may be subject to a 30% U.S. withholding tax (or a reduced
rate of withholding provided by treaty).
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Future First Systematic Investment Plan and Transfer of Funds from Financial
Institutions
If you invest in the Fund, the Prospectus explains that you may buy shares
through the Future First Systematic Investment Plan. Under this plan you may
arrange for automatic monthly investments in Fund 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
account to be used to buy Fund 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 Fund shares may also buy Fund 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 Fund 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
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$50 on a monthly basis. The amounts paid to you each month are obtained by
redeeming sufficient shares from your account to provide the withdrawal amount
that you have specified. The Systematic Withdrawal Plan is not currently
available for shares held in an Individual Retirement Account ("IRA"),
Self-Employed Individual Retirement Plan ("Keogh Plan"), Simplified Employee
Pension Plan ("SEP"), 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 Fund
shares' net asset value per share determined as of the close of regular trading
of the New York Stock Exchange ("Exchange") (normally 4:00 p.m., eastern time)
("close of the Exchange") on the first day of each month. If the Exchange is not
open for business on that day, the shares will be redeemed at the per share net
asset value determined as of the close of regular trading of the Exchange on the
preceding business day. The check for the withdrawal payment will usually be
mailed to you on the next business day following redemption. If you elect to
participate in the Systematic Withdrawal Plan, dividends and other distributions
on all Fund shares in your account must be automatically reinvested in Fund
shares. You may terminate the Systematic Withdrawal Plan at any time without
charge or penalty. The Fund, its transfer agent, and Legg Mason also reserve the
right to modify or terminate the Systematic Withdrawal Plan at any time.
Withdrawal payments are treated as a sale of shares rather than as a
dividend or other distribution. These payments are taxable to the extent that
the total amount of the payments exceeds the tax basis of the shares sold. If
the periodic withdrawals exceed reinvested dividends and distributions, the
amount of your original investment may be correspondingly reduced.
Ordinarily, you should not purchase additional shares of the Fund if you
maintain a Systematic Withdrawal Plan, because you may incur tax liabilities in
connection with such purchases and withdrawals. The Fund will not knowingly
accept purchase orders from you for additional shares if you maintain a
Systematic Withdrawal Plan unless your purchase is equal to at least one year's
scheduled withdrawals. In addition, if you maintain a Systematic Withdrawal Plan
you may not make periodic investments under the Future First Systematic
Investment Plan.
Other Information Regarding Redemption
The date of payment for redemption may not be postponed for more than
seven days, and the right of redemption may not be suspended, 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 or combination of requests for redemption from the same shareholder in
any 90-day period, totaling $250,000 or 1% of the net assets of the Fund,
whichever is less, by making payment in whole or in part in securities valued in
the same way as they would be valued for purposes of computing the Fund's net
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<PAGE>
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 LMFA determines that it would be in the best interests of
the Fund's shareholders as a whole.
VALUATION OF FUND SHARES
Net asset value of a Fund share is determined daily as of the close of the
Exchange, on every day the Exchange is open, by dividing the value of the total
assets, less liabilities, by the number of shares outstanding. Pricing will not
be done on days when the Exchange is closed. The Exchange currently observes the
following holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving, and
Christmas. As described in the Prospectus, securities for which market
quotations are readily available are valued at current market value. Securities
traded on an exchange or Nasdaq Stock Market securities are normally valued at
last sale prices. Other over-the-counter securities, and securities traded on
exchanges for which there is no sale on a particular day (including debt
securities), are valued at the mean of latest closing bid and asked prices.
Securities with remaining maturities of 60 days or less are valued at amortized
cost. Securities and other assets quoted in foreign currencies will be valued in
U.S. dollars based on the currency exchange rates prevailing at the time of the
valuation. All other securities are valued at fair value as determined by or
under the direction of the Fund's Board of Directors. Premiums received on the
sale of call options are included in the net asset value of the Fund, and the
current market value of options sold by the Fund will be subtracted from its net
assets.
PERFORMANCE INFORMATION
GENERAL
From time to time, the Fund may include general comparative information,
such as statistical data regarding inflation, securities indices or the features
or performance of alternative investments, in advertisements, sales literature
and reports to shareholders. The Fund may also include calculations, such as
hypothetical compounding examples or tax-free compounding examples, which
describe hypothetical investment results in such communications. Such
performance examples will be based on an express set of assumptions and 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.
TOTAL RETURN CALCULATION
Current yield and total return quotations used by the Fund are based on
standardized methods of computing performance mandated by SEC Rules. As the
following formula indicates, the average annual total return is determined by
multiplying a hypothetical initial purchase order of $1,000 by the average
compound rate of return (including capital appreciation/depreciation and
dividends and distributions paid and reinvested) for the stated period less any
fees charged to all shareholder accounts and annualizing the result. The
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<PAGE>
calculation assumes that all dividends and distributions are reinvested at the
net asset value on the reinvestment dates during the period. The quotation
assumes the account was completely redeemed at the end of each period and
deduction of applicable charges and fees. This calculation can be expressed as
follows:
Average Annual Total Return = P(1+T)/n/ = ERV
Where: ERV= ending redeemable value at the end of the period covered
by the computation of a hypothetical $1,000 payment made at the
beginning of the period.
P= hypothetical initial payment of $1,000.
n= period covered by the computation, expressed in terms of years.
The Fund computes its aggregate total return by determining the aggregate
compounded rate of return during specified period that likewise equate the
initial amount invested to the ending redeemable value of such investment. The
formula for calculating aggregate total return is as follows:
Aggregate Total Return = [ (ERV) - 1 ]
---
P
Where: ERV = ending redeemable value at the end of the period covered
by the computation of a hypothetical $1,000 payment made at
the beginning of the period.
P = hypothetical initial payment of $1,000.
The calculations of average annual total return and aggregate total return
assume the reinvestment of all dividends and capital gain distributions on the
reinvestment dates during the period. The ending redeemable value (variable
"ERV" in each formula) is determined by assuming complete redemption of the
hypothetical investment and the deduction of all nonrecurring charges at the end
of the period covered by the computations. Based upon the foregoing
calculations, the average annual total return for the Fund for the period April
17, 1995 (commencement of operations) through December 31, 1997 was 21.59%. For
the fiscal year ended December 31, 1997, the annual total return for the Fund
was 29.10%.
Since performance will fluctuate, performance data for the Fund should not
be used to compare an investment in the Fund's shares with bank deposits,
savings accounts and similar investment alternatives which often provide an
agreed-upon or guaranteed fixed yield for a stated period of time. Shareholders
should remember that performance is generally a function of the kind and quality
of the instruments held in a portfolio, portfolio maturity, operating expenses
and market conditions.
PERFORMANCE AND ADVERTISEMENTS
From time to time, in marketing and other fund literature, the Fund's
performance may be compared to the performance of other mutual funds in general
or to the performance of particular types of mutual funds with similar
investment goals, as tracked by independent organizations. Among these
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organizations, Lipper Analytical Services, Inc. ("Lipper"), a widely used
independent research firm which ranks mutual funds by overall performance,
investment objectives, and assets, may be cited. Lipper performance figures are
based on changes in net asset value, with all income and capital gain dividends
reinvested. Such calculations do not include the effect of any sales charges
imposed by other funds. The Fund will be compared to Lipper's appropriate fund
category, that is, by fund objective and portfolio holdings. The Fund's
performance may also be compared to the average performance of its Lipper
category.
The Fund's performance may also be compared to the performance of other
mutual funds by Morningstar, Inc. which ranks funds on the basis of historical
risk and total return. Morningstar's rankings range from five stars (highest) to
one star (lowest) and represent Morningstar's assessment of the historical risk
level and total return of a fund as a weighted average for three, five and ten
year periods. Ranks are not absolute or necessarily predictive of future
performance.
In assessing such comparisons of total return, or volatility, an investor
should keep in mind that the composition of the investments in the reported
indices and averages is not identical to those of the Fund, that the averages
are generally unmanaged, and that the items included in the calculations of such
averages may not be identical to the formula used by the Fund to calculate its
figures.
TAX-DEFERRED RETIREMENT PLANS
In general, income earned through the investment of assets of qualified
retirement plans is not taxed to the beneficiaries of such plans until the
income is distributed to them. Investors who are considering establishing an
IRA, Keogh Plan, 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 these plans with respect to the Fund through regular
payroll deductions may be arranged with a Legg Mason or affiliated financial
advisor and your employer. Additional information with respect to these plans is
available upon request from any Legg Mason or affiliated financial advisor.
Individual Retirement Account -- IRA
Certain investors may obtain tax advantages by establishing IRAs.
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, 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. 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
neither contribution exceeds $2,000. If your employer's plan permits voluntary
contributions and meets certain requirements, you may make voluntary
contributions to that plan that are treated as deductible IRA contributions.
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Even if you are not in one of the categories described in the preceding
paragraph, you may find it advantageous to invest in Fund shares through IRA
contributions, up to certain limits, because all dividends and other
distributions on your Fund shares are then not immediately taxable to you or the
IRA; they become taxable only when distributed to you. To avoid penalties, your
interest in an IRA must be distributed, or start to be distributed, to you not
later than the end of the taxable year in which you attain age 70 1/2.
Distributions made before age 59 1/2, in addition to being taxable, generally
are subject to a penalty equal to 10% of the distribution, except in the case of
death or disability or where the distribution is rolled over into another
qualified plan or certain other situations.
Roth IRA. A shareholder whose adjusted gross income (or combined adjusted
gross income with his or her spouse) does not exceed certain levels may
establish and contribute up to $2,000 per tax year to a Roth IRA. In addition,
for a shareholder whose adjusted gross income does not exceed $100,000 (or is
not married filing a separate return), certain distributions from traditional
IRAs may be rolled over to a Roth IRA and any of the shareholder's traditional
IRAs may be converted to a Roth IRA; these rollover distributions and
conversions are, however, subject to federal income tax.
Contributions to a Roth IRA are not deductible; however, earnings
accumulate tax-free in a Roth IRA, and withdrawals of earnings are not subject
to federal income tax if the account has been held for at least five years (or
in the case of earnings attributable to rollover contributions from or
conversions of a traditional IRA, the rollover or conversion occurred more than
five years before the withdrawal) and the account holder has reached age 59 1/2
(or certain other conditions apply).
Education IRA. Although not technically for retirement savings, Education
IRAs provide 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 member of his or
her family).
Self-Employed Individual Retirement Plan -- Keogh Plan
Legg Mason makes available to self-employed individuals a Plan and Trustee
Agreement for a Keogh Plan through which Fund shares may be purchased. Investors
have the right to use a bank of their own choice to provide these services at
their own cost. There are penalties for distributions from a Keogh Plan prior to
age 59 1/2, except in the case of death or disability.
Simplified Employee Pension Plan -- SEP
Legg Mason makes available to corporate and other employers a SEP for
investment in Fund shares.
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Savings Incentive Match Plan for Employees - SIMPLE
An employer with no more than 100 employees that does not maintain another
retirement plan instead may establish a SIMPLE either as separate IRAs or as
part of a Code section 401(k) plan. A SIMPLE, which is not subject to the
complicated nondiscrimination rules that generally apply to qualified retirement
plans, will allow certain employees to make elective contributions of up to
$6,000 per year and will require the employer to make matching contributions up
to 3% of each such employee's salary.
Withholding at the rate of 20% is required for federal income tax purposes
on certain distributions (excluding, for example, certain periodic payments)
from the foregoing retirement plans (except IRAs and SEPs), unless the recipient
transfers the distribution directly to an "eligible retirement plan" (including
IRAs and other qualified plans) that accepts those distributions. Other
distributions generally are subject to regular wage withholding at the rate of
10% (depending on the type and amount of the distribution), unless the recipient
elects not to have any withholding apply.
THE CORPORATION'S DIRECTORS AND OFFICERS
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.
The executive officers of the Fund, other than those who also serve as
directors, are:
EDWARD A. TABER, III* [8/25/43], President; Senior Executive Vice
President of Legg Mason, Inc. and Legg Mason Wood Walker, Inc.; Vice Chairman
and Director of Legg Mason Fund Adviser, Inc.; Director of three Legg Mason
funds; President and Director of two Legg Mason funds; Trustee of one Legg Mason
fund; President of Bartlett Capital Trust.
MARIE K. KARPINSKI* [1/1/49], Vice President and Treasurer of the Fund;
Treasurer of Legg Mason Fund Advisor, Inc.; Vice President and Treasurer of
the Legg Mason funds, Bartlett Capital Trust and Western Asset Trust, Inc.;
Vice President of Legg Mason Wood Walker, Inc.
KATHI D. BAIR* [12/15/64], Secretary of the Legg Mason funds and
Bartlett Capital Trust; Assistant Treasurer of three Legg Mason funds;
employee of Legg Mason Wood Walker, Inc. since February 1988.
W. SHANE HUGHES* [4/24/68], Assistant Secretary; employee of Legg Mason
Wood Walker, Inc. since May 1997. Formerly: Supervisor, C. W. Amos & Co.
(regional public accounting firm) (1990-1996).
Officers and directors of the Fund who are "interested persons" of the
Fund receive no salary or fees from the Fund. Each Director of the Fund who is
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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, as follows:
DECEMBER 31
AVG. NET ASSETS ANNUAL RETAINER PER MEETING FEE
Up to $250 million $ 600 $150
250 Million - $1 billion $1,200 $300
Over $1 billion $2,000 $400
As of April 1, 1998, the directors and officers of the Fund beneficially owned
in the aggregate less than 1% of the Fund's outstanding shares. As of April 1,
1998, the following persons owned of record or beneficially more than 5% of the
outstanding voting shares of the Fund.
NAME & ADDRESS PERCENTAGE
- -------------- ----------
Charles Schwab & Co., Inc. 9.15%
San Francisco, CA
The following table provides certain information relating to the
compensation of the Fund's directors for the fiscal year ended December 31,
1997. None of the Legg Mason funds has any retirement plan for its directors.
COMPENSATION TABLE
TOTAL COMPENSATION
AGGREGATE FROM FUND AND FUND
NAME OF PERSON AND COMPENSATION FROM COMPLEX PAID TO
POSITION FUND* DIRECTORS**
John F. Curley, Jr. - Director None None
Richard G. Gilmore - Director None $29,400
Arnold L. Lehman - Director None $29,400
Jill E. McGovern - Director None $29,400
T. A. Rodgers - Director None $29,400
* Represents fees paid to each director during the fiscal year ended December
31, 1997. None of the Fund's current directors served as a director of the
Fund during the fiscal year ended December 31, 1997.
** Represents aggregate compensation paid to each director during the 12 months
ended December 31, 1997. There are nine open-end investment companies in the
Legg Mason Complex (with a total of seventeen funds).
THE FUND'S INVESTMENT ADVISER AND MANAGER
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
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also the parent of Legg Mason. LMFA serves as manager and investment adviser to
the Fund under an Investment Advisory and Management Agreement with the Fund
("Investment Advisory and Management Agreement"). The Investment Advisory and
Management Agreement was approved by the Directors, including a majority who are
not "interested persons" of the Fund or LMFA, on May 11, 1998 and by the
shareholders on June 24, 1998. From June 27, 1997 through June 26, 1998, Focus
Capital Advisory, L.P. served as the Fund's investment adviser under an
investment advisory agreement with the Fund. Prior to June 27, 1997, Lloyd,
Leith & Sawin, Inc. served as the Fund's investment adviser under an investment
advisory agreement with the Fund.
The Investment Advisory and 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 Prospectus 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. 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. LMFA receives from the Fund a management fee at an
annual rate of 0.70% of the average daily net assets of the Fund. LMFA has
agreed to waive its fees for the Fund's expenses (exclusive of taxes, interest,
brokerage and extraordinary expenses) in excess of 1.90% of average net assets
until June 26, 2000.
For the period June 28, 1997 through December 31, 1997, Focus Capital
Advisory, L.P. served as the Fund's investment adviser. For that period, the
adviser was entitled to receive advisory fees of $26,721. However, the adviser
agreed to waive its fees and reimburse expenses so that the Fund's annual
operating expenses would not exceed 2.00%. Prior to June 28, 1997, Lloyd, Leith
& Sawin, Inc. served as investment adviser to the Fund. For the period April 17,
1995 (commencement of operations) through December 31, 1995, the fiscal year
ended December 31, 1996 and the period January 1, 1997 through June 27, 1997,
Lloyd, Leith & Sawin, Inc. was entitled to receive advisory fees of $15,371,
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$43,364, and $26,527, respectively. However, Lloyd, Leith & Sawin, Inc. waived
its fees to reimburse the Fund for expenses so that the Fund's expenses would
not exceed 2.00%.
Under the Investment Advisory and 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.
Under the Investment Advisory and Management Agreement, LMFA will not be
liable for any error of judgment or mistake of law or for any loss by the Fund
in connection with the performance of the Investment Advisory and Management
Agreement, except a loss resulting from a breach of fiduciary duty with respect
to the receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith or gross negligence on its part in the performance of its
duties or from reckless disregard of its obligations or duties under the
Agreement.
The Investment Advisory and Management Advisory Agreement terminates
automatically upon assignment and is 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, or by LMFA, 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 Fund 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 for the Fund is calculated by dividing the
lesser of purchases of sales of portfolio investments for the reporting period
by the monthly average value of the portfolio investments owned during the
reporting period.
The calculation excludes all securities whose maturities or expiration
dates at the time of acquisition are one year or less. Portfolio turnover may
vary greatly from year to year as well as within a particular year, and may be
affected by cash requirements for redemption of shares and by requirements which
enable the Fund to receive favorable tax treatment. In any event, the annual
portfolio turnover for the Fund is not expected to exceed 25%. This relatively
low portfolio turnover rate reflects LFMA's buy and hold strategy for the
portfolio securities held by the Fund.
Under the Investment Advisory and Management Agreement with the Fund, LMFA
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
LMFA also takes into account such factors as size of the order, difficulty of
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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, LMFA may
give consideration to research, statistical and other services furnished by
brokers or dealers to LMFA for its use, may place orders with brokers who
provide supplemental investment and market research and securities and economic
analysis and may pay to these brokers a higher brokerage commission than may be
charged by other brokers. Such services include, without limitation, advice as
to the value of securities; the advisability of investing in, purchasing, or
selling securities; advice as to the availability of securities or of purchasers
or sellers of securities; and furnishing analyses and reports concerning
issuers, industries, securities, economic factors and trends, portfolio strategy
and the performance of accounts. Such research and analysis may be useful to
LMFA in connection with services to clients other than the Fund whose brokerage
generated the service. LMFA's fee is not reduced by reason of its receiving such
brokerage and research services.
While in the future the Fund may use Legg Mason as broker for agency
transactions in listed and over-the-counter securities, the Fund has no
intention of doing so prior to June 26, 2000.
For the period April 17, 1995 (commencement of operations) through
December 31, 1995 and the fiscal years ended December 31, 1996 and 1997, the
Fund incurred aggregate brokerage commissions of $6,042, $8,781 and $9,663,
respectively.
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
Investment Advisory and Management Agreement expressly provides such consent.
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Investment decisions for the Fund are made independently from those of
other funds and accounts advised by LMFA. 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.
The Fund has adopted a Distribution Plan ("Plan") which, among other
things, permits the Fund to pay Legg Mason fees for its services related to
sales and distribution of shares and the provision of ongoing services to Fund
shareholders. Under the Plan, the aggregate fees may not exceed an annual rate
of 1.00% of the Fund's average daily net assets. 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.
The Plan was approved by the shareholders on June 24, 1998. The Plan makes
clear that, of the aggregate 1.00% fees, 0.75% is paid for distribution services
and 0.25% is paid for ongoing services to shareholders. The Plan also specifies
that the Fund may not pay more in cumulative distribution fees than 6.25% of
total new gross assets attributable to Fund shares, plus interest, as specified
in the Conduct Rules of the National Association of Securities Dealers, Inc.
("NASD"). Legg Mason may pay all or a portion of the fee to its financial
advisors. The Plan was approved on May 11, 1998 by the Board of Directors of the
Fund including a majority of the directors who are not "interested persons" of
the Fund as that term is defined in the 1940 Act and who have no direct or
indirect financial interest in the operation of the Plan or the Underwriting
Agreement ("12b-1 Directors").
In approving the Plan, in accordance with the requirements of Rule 12b-1,
the directors determined that there was a reasonable likelihood that the Plan
would benefit the Fund and its shareholders. The directors considered, among
other things, the extent to which the potential benefits of the Plan to the
Fund's 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 shares would be likely to maintain or
increase the amount of compensation paid by the Fund to LMFA.
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In considering the cost of the Plan, the directors gave particular
attention to the fact that any payments made by the Fund to Legg Mason under the
Plan would increase the Fund's level of expenses in the amount of such payments.
Further, the directors recognized that 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 Plan was
implemented.
Among the potential benefits of the Plan, the directors noted that the
payment of commissions and service fees to Legg Mason and its investment
executives could motivate them to improve their sales efforts with respect to
the Fund's shares and to maintain and enhance the level of services they provide
to the Fund's 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 the Plan. Furthermore, the investment management of the
Fund could be enhanced, as net inflows of cash from new sales might enable its
portfolio manager to take advantage of attractive investment opportunities, and
reduced redemptions could eliminate the potential need to liquidate attractive
securities positions in order to raise the funds necessary to meet the
redemption requests.
The Plan will continue in effect only so long as it is approved at least
annually by the vote of a majority of the Board of Directors, including a
majority of the 12b-1 Directors, cast in person at a meeting called for the
purpose of voting on the Plan. The Plan may be terminated by a vote of a
majority of the 12b-1 Directors or by a vote of a majority of the outstanding
voting shares. Any change in the Plan that would materially increase the
distribution cost to a Fund requires shareholder approval; otherwise the Plan
may be amended by the directors, including a majority of the 12b-1 Directors, as
previously described.
In accordance with Rule 12b-1, the 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.
Prior to the approval of the Plan by shareholders on June 24, 1998, the
Fund had no distribution plan.
THE FUND'S CUSTODIAN AND TRANSFER AND DIVIDEND-DISBURSING AGENT
State Street Bank and Trust Company, P.O. Box 1713, Boston, Massachusetts
02105, serves as custodian of the Fund's assets. Boston Financial Data Services,
P.O. Box 953, Boston, Massachusetts, 02103, serves as transfer and
dividend-disbursing agent, and administrator of various shareholder services.
Legg Mason assists BFDS with certain of its duties as transfer agent and
receives compensation from State Street 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.
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THE FUND'S LEGAL COUNSEL
Kirkpatrick & Lockhart LLP, 1800 Massachusetts Ave., N.W., Washington,
D.C. 20036, serves as counsel to the Fund.
THE FUND'S INDEPENDENT ACCOUNTANTS
Coopers & Lybrand, L.L.P. has been selected by the Directors to serve
as independent accountants for the Fund.
FINANCIAL STATEMENTS
Focus Trust's Financial Statements, including the notes thereto, dated as
of December 31, 1997, which have been audited by Coopers & Lybrand, L.L.P. are
incorporated by reference from Focus Trust's 1997 Annual Report to Shareholders.
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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 exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa -Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A-Bonds which are rated A possess many favorable investment attributes and
are to be considered upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
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 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 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.
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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-This is the highest rating assigned by S&P to an obligation and
indicates an extremely strong capacity to pay principal and interest.
AA -Bonds rated AA also qualify as high-quality debt obligations. Capacity
to pay principal and interest is very strong, and in the majority of instances
they differ from AAA issues only in small degree.
A-Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB-Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.
BB, B, CCC, CC-Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominately speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and CC the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposure to adverse
conditions.
D-Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
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TABLE OF CONTENTS
PAGE
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Additional Information About Investment Limitations and Policies
Additional Tax Information
Additional Purchase and Redemption Information
Valuation of Fund Shares
Performance Information
Tax-Deferred Retirement Plans
The Corporation's Directors and Officers
The Fund's Investment Adviser and Manager
Portfolio Transactions and Brokerage
The Fund's Distributor
The Fund's Custodian and Transfer and Dividend-Disbursing Agent
The Fund's Legal Counsel
The Fund's Independent Accountants
Financial Statements
Appendix A
No person has been authorized to give any information or to make any
representations not contained in the Prospectus or this Statement of Additional
Information in connection with the offerings made by the Prospectus and, if
given or made, such information or representations must not be relied upon as
having been authorized by the Fund or its distributor. The Prospectus 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.
LEGG MASON WOOD WALKER, INCORPORATED
100 LIGHT STREET
P.O. BOX 1476
BALTIMORE, MARYLAND 21203-1476
(410)539-0000 (800)822-5544
-26-
<PAGE>
Legg Mason Focus Trust, Inc.
PART C. OTHER INFORMATION
-------------------------
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements:
Included in Part A:
(1) The Financial Highlights for the period from April 17, 1995
(commencement of operations) through December 31, 1995 and the
fiscal years ended December 31, 1996 and 1997 (audited).
Incorporated by reference in Part B:
(1) Schedule of Investments at December 31, 1997 (audited).
(2) Statement of Assets and Liabilities at December 31, 1997 (audited).
(3) Statement of Operations for the fiscal year ended December 31, 1997
(audited).
(4) Statement of Changes in Net Assets for the fiscal years ended
December 31, 1996 and 1997 (audited).
(5) Notes to Financial Statements.
(6) Financial Highlights for the period from April 17, 1995
(commencement of operations) through December 31, 1995 and the
fiscal years ended December 31, 1996 and 1997 (audited).
(7) Report of Independent Accountants.
(b) Exhibits
(1) Articles of Incorporation (1)
(2) By-Laws (1)
(3) Voting trust agreement -- none.
(4) Specimen security -- not applicable.
(5) Form of Investment Advisory and Management Agreement -- filed
herewith.
(6) Form of Underwriting Agreement -- filed herewith.
(7) Bonus, profit sharing or pension plans -- none.
(8) Form of Custodian agreement -- to be filed.
(9) (i) Form of Transfer Agent Agreement -- to be filed.
(ii) Credit Agreement - Incorporated herein by reference to
the corresponding exhibit of the Post-Effective Amendment
No. 2 to the registration statement of Legg Mason Global
Trust, Inc., filed April 30, 1998.
(10) Opinion and consent of counsel - Incorporated herein by reference
to the Rule 24f-2 Notice, filed electronically on behalf of Focus
Trust, Inc. on February 27, 1997.
(11) Other opinions, appraisals, rulings and consents -- Accountants'
consent -- filed herewith.
(12) Financial statements omitted from Item 23 - none.
(13) Agreement for providing initial capital (1)
(14) (a) Prototype IRA (2)
(b) Prototype SEP (2)
(c) Prototype SIMPLE (2)
(15) Form of Plan pursuant to Rule 12b-1 --filed herewith.
(16) Schedule for computation of performance quotations (1)
(17)(27) Financial Data Schedule -- Incorporated herein by reference
to the corresponding exhibit of Post- Effective Amendment No. 5
to the registration statement of Focus Trust, Inc., SEC File No.
33-89090, filed April 29, 1998.
(18) Plan Pursuant to Rule 18f-3 - none.
- ---------------
(1) Incorporated herein by reference to the corresponding exhibit of
Post-Effective Amendment No. 2 to the registration statement of Focus Trust,
Inc., as electronically filed on April 29, 1996.
<PAGE>
(2) Incorporated by reference from the corresponding exhibit of Post-Effective
Amendment No. 35 to the registration statement of Legg Mason Cash Reserve Trust,
SEC File No. 2-62218, filed December 31, 1997.
Item 25. Persons Controlled by or under Common Control with Registrant
-------------------------------------------------------------
None.
Item 26. Number Of Holders of Securities as of April 1, 1998
----------------------------------------------------
674
Item 27. Indemnification
---------------
This item is incorporated by reference to the corresponding exhibit of
Post-Effective Amendment No. 5 to the registration statement of Focus Trust,
Inc., SEC File No. 33-89090, as electronically filed on April 29, 1998.
Item 28. Business and Connections of Investment Adviser
----------------------------------------------
Legg Mason Fund Adviser, Inc. ("LMFA"), is a registered investment adviser
incorporated on January 20, 1982. LMFA is engaged primarily in the investment
advisory business. It serves as manager and/or investment adviser to seventeen
open-end investment companies or portfolios. Information as to the officers and
directors of LMFA is included in its Form ADV filed February 17, 1998 with the
Securities and Exchange Commission (Registration Number 801-16958) and is
incorporated herein by reference.
Item 29. Principal Underwriters
----------------------
(a) Legg Mason Value Trust, Inc.
Legg Mason Total Return Trust, Inc.
Legg Mason Special Investment Trust, Inc.
Legg Mason Tax-Exempt Trust, Inc.
Legg Mason Cash Reserve Trust
Legg Mason Income Trust, Inc.
Legg Mason Global Trust, Inc.
Legg Mason Tax-Free Income Fund
Legg Mason Investors Trust, Inc.
Western Asset Trust, Inc.
(b) The following table sets forth information concerning each director and
officer of the Registrant's principal underwriter, Legg Mason Wood Walker,
Incorporated ("LMWW").
<PAGE>
Positions and
Name and Principal Position and Offices With Offices With
Business Address* Underwriter - LMWW Registrant
- ------------------ ------------------------- ---------------
Raymond A. Mason Chairman of the Board None
John F. Curley, Jr. Retired Vice Chairman of Director
the Board
James W. Brinkley President and Director None
Edmund J. Cashman, Jr. Senior Executive Vice None
President and Director
Richard J. Himelfarb Senior Executive Vice None
President and Director
Edward A. Taber, III. Senior Executive Vice President
President and Director
Robert A. Frank Executive Vice President None
and Director
Robert G. Sabelhaus Executive Vice President None
and Director
Charles A. Bacigalupo Senior Vice President, None
Secretary and Director
F. Barry Bilson Senior Vice President None
and Director
Thomas M. Daly, Jr. Senior Vice President None
and Director
Jerome M. Dattel Senior Vice President None
and Director
Robert G. Donovan Senior Vice President None
and Director
Thomas E. Hill Senior Vice President None
One Mill Place and Director
Easton, MD 21601
Arnold S. Hoffman Senior Vice President None
1735 Market Street and Director
Philadelphia, PA 19103
Carl Hohnbaum Senior Vice President None
24th Floor and Director
Two Oliver Plaza
Pittsburgh, PA 15222
William B. Jones, Jr. Senior Vice President None
1747 Pennsylvania Ave., N.W. and Director
Washington, D.C. 20006
Laura L. Lange Senior Vice President None
and Director
Marvin H. McIntyre Senior Vice President None
1747 Pennsylvania Ave., N.W. and Director
Washington, D.C. 20006
Mark I. Preston Senior Vice President None
and Director
Joseph Sullivan Senior Vice President None
and Director
<PAGE>
Positions and
Name and Principal Position and Offices With Offices With
Business Address* Underwriter - LMWW Registrant
- ------------------ ------------------------- ---------------
M. Walter D'Alessio, Jr. Director None
1735 Market Street
Philadelphia, PA 19103
W. William Brab Senior Vice President None
Deepak Chowdhury Senior Vice President None
255 Alhambra Circle
Coral Gables, FL 33134
Harry M. Ford, Jr. Senior Vice President None
Dennis A. Green Senior Vice President None
William F. Haneman, Jr. Senior Vice President None
One Battery Park Plaza
New York, NY 10005
Theodore S. Kaplan Senior Vice President None
and General Counsel
Seth J. Lehr Senior Vice President None
1735 Market Street
Philadelphia, PA 19103
Horace M. Lowman, Jr. Senior Vice President None
and Asst. Secretary
Robert L. Meltzer Senior Vice President None
One Battery Park Plaza
New York, NY 10004
Jonathan M. Pearl Senior Vice President None
1777 Reisterstown Road
Pikesville, MD 21208
John A. Pliakas Senior Vice President None
125 High Street
Boston, MA 02110
Gail Reichard Senior Vice President None
Timothy C. Scheve Senior Vice President None
and Treasurer
Elisabeth N. Spector Senior Vice President None
Robert J. Walker, Jr. Senior Vice President None
200 Gibraltar Road
Horsham, PA 19044
William H. Bass, Jr. Vice President None
Nathan S. Betnun Vice President None
John C. Boblitz Vice President None
Andrew Bowden Vice President None
D. Stuart Bowers Vice President None
<PAGE>
Positions and
Name and Principal Position and Offices With Offices With
Business Address* Underwriter - LMWW Registrant
- ------------------ ------------------------- ---------------
Edwin J. Bradley, Jr. Vice President None
Scott R. Cousino Vice President None
Joseph H. Davis, Jr. Vice President None
1735 Market Street
Philadelphia, PA 19380
Terrence R. Duvernay Vice President None
1100 Poydras Street
New Orleans, LA 70163
John R. Gilner Vice President None
Richard A. Jacobs Vice President None
C. Gregory Kallmyer Vice President None
Edward W. Lister, Jr. Vice President None
Marie K. Karpinski Vice President Vice President
and Treasurer
Mark C. Micklem Vice President None
1747 Pennsylvania Ave.
Washington, D.C. 20006
Hance V. Myers, III Vice President None
1100 Poydras Street
New Orleans, LA 70163
Gerard F. Petrik, Jr. Vice President None
Douglas F. Pollard Vice President None
K. Mitchell Posner Vice President None
1735 Market Street
Philadelphia, PA 19103
Carl W. Reidy, Jr. Vice President None
Jeffrey W. Rogatz Vice President None
Thomas E. Robinson Vice President None
Douglas M. Schmidt Vice President None
Robert W. Schnakenberg Vice President None
1111 Bagby Street
Houston, TX 77002
Henry V. Sciortino Vice President None
1735 Market Street
Philadelphia, PA 19103
Chris Scitti Vice President None
Eugene B. Shepherd Vice President None
1111 Bagby Street
Houston, TX 77002-2510
Lawrence D. Shubnell Vice President None
<PAGE>
Positions and
Name and Principal Position and Offices With Offices With
Business Address* Underwriter - LMWW Registrant
- ------------------ ------------------------- ---------------
Alexsander M. Stewart Vice President None
One World Trade Center
New York, NY 10048
Robert S. Trio Vice President None
1747 Pennsylvania Ave., N.W.
Washington, D.C. 20006
William A. Verch Vice President None
Lewis T. Yeager Vice President None
________________________
* All addresses are 100 Light Street, Baltimore, Maryland 21202, unless
otherwise indicated.
(c) The Registrant has no principal underwriter which is not an affiliated
person of the Registrant or an affiliated person of such an affiliated
person.
Item 30. Location of Accounts and Records
--------------------------------
State Street Bank and Trust Company
P.O. Box 1713
Boston, Massachusetts 02105-1713
Item 31. Management Services
-------------------
None.
Item 32. Undertakings
------------
Registrant hereby undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to shareholders
upon request and without charge.
<PAGE>
SIGNATURE PAGE
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(a) under the Securities Act of 1933 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the Town of Wayne and Commonwealth of Pennsylvania, on the
29th day of May, 1998.
Focus Trust, Inc.
By: /s/ Robert G. Hagstrom, Jr.*
------------------------------
Robert G. Hagstrom, Jr.
President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ Robert G. Hagstrom, Jr.* Director, President May 27, 1998
------------------------ and Principal
Robert G. Hagstrom, Jr. Executive Officer
/s/ Allan S. Mostoff, Esq.* Director May 27, 1998
--------------------------
Allan S. Mostoff, Esq.
/s/ Robert J. Coleman, Jr.* Director May 27, 1998
--------------------------
Robert J. Coleman, Jr.
/s/ Joan Lamm-Tennant* Director May 27, 1998
--------------------------
Joan Lamm-Tenant
/s/ Erika M. Merluzzi** Treasurer, Principal May 27, 1998
----------------------- Accounting and
Erika M. Merluzzi Financial Officer
*Signatures affixed by William J. Baltrus pursuant to a power of attorney
incorporated by reference to Post-Effective Amendment No. 2 to the registration
statement of Focus Trust, Inc., SEC File No. 33-89090, filed April 29, 1996.
** Signature affixed by William J. Baltrus pursuant to a power of attorney dated
May 26, 1998, filed herewith.
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes and
appoints WILLIAM J. BALTRUS, GERALD J. HOLLAND and CAROLYN F. MEAD and each of
them, with full power to act without the other, as a true and lawful
attorney-in-fact and agent, with full and several power of substitution, to take
any appropriate action to execute any amendment of the registration statement of
Focus Trust, Inc. (the "Corporation"), file for exemptive orders or to qualify
or register all or part of the securities of the Corporation for sale in various
states, to perform on behalf of the Corporation any and all such acts as such
attorneys-in-fact may deem necessary or advisable in order to comply with the
applicable laws of any such state, and in connection therewith to execute and
file all requisite papers and documents, including but not limited to,
applications, reports, surety bonds, irrevocable consents and appointments of
attorneys for service of process; granting to such attorneys-in-fact and agents,
and each of them, full power and authority to do and perform each and every act
requisite and necessary to be done in connection therewith, as fully as each
might or could do in person, hereby ratifying and confirming all that such
attorneys-in-fact and agents or any of them, or their substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney on
the 26th day of May, 1998.
/s/ Ericka M. Merluzzi
-------------------------------
Ericka M. Merluzzi
Treasurer, Principal Accounting
and Financial Officer
EXHIBIT 5
FORM OF
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
LEGG MASON FOCUS TRUST, INC.
This INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT ("Agreement") is made
this ___ day of _________, 1998, by and between Legg Mason Focus Trust, Inc., a
Maryland corporation (the "Fund"), and Legg Mason Fund Adviser, Inc., a Maryland
corporation (the "Adviser").
WHEREAS, the Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended ("1940 Act") and
has registered its shares of common stock for sale to the public under the
Securities Act of 1933 and various state securities laws; and
WHEREAS, the Fund wishes to retain the Adviser to provide investment
advisory, management, and administrative services to the Fund; and
WHEREAS, the Adviser is willing to furnish such services on the terms
and conditions hereinafter set forth:
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed as follows:
1. The Fund hereby appoints Legg Mason Fund Adviser, Inc. as Adviser of
the Fund for the period and on the terms set forth in this Agreement. The
Adviser accepts such appointment and agrees to render the services herein set
forth, for the compensation herein provided.
2. The Fund shall at all times keep the Adviser fully informed with
regard to the securities owned by it, its funds available, or to become
available, for investment, and generally as to the condition of its affairs. It
shall furnish the Adviser with such other documents and information with regard
to its affairs as the Adviser may from time to time reasonably request.
3. (a) Subject to the supervision of the Fund's Board of Directors, the
Adviser shall regularly provide the Fund with investment research, advice,
management and supervision and shall furnish a continuous investment program for
the Fund's portfolio of securities consistent with the Fund's investment goals
and policies. The Adviser shall determine from time to time what securities will
be purchased, retained or sold by the Fund, and shall implement those decisions,
all subject to the provisions of the Fund's Articles of Incorporation and
Bylaws, the 1940 Act, the applicable rules and regulations of the Securities and
Exchange Commission, and other applicable federal and state law, as well as the
investment goals and policies of the Fund. The Adviser will place orders
pursuant to its investment determinations for the Fund either directly with the
issuer or with any broker or dealer. In placing orders with brokers and dealers
the Adviser will attempt to obtain the best net price and the most favorable
execution of its orders; however, the Adviser may, in its discretion, purchase
and sell portfolio securities through brokers who provide the Fund with
<PAGE>
research, analysis, advice and similar services, and the Adviser may pay to
these brokers, in return for research and analysis, a higher commission or
spread than may be charged by other brokers. The Adviser is authorized to
combine orders on behalf of the Fund with orders on behalf of other clients of
the Adviser, consistent with guidelines adopted by the Board of Directors of the
Fund. The Adviser shall also provide advice and recommendations with respect to
other aspects of the business and affairs of the Fund, and shall perform such
other functions of management and supervision as may be directed by the Board of
Directors of the Fund.
(b) The Fund hereby authorizes any entity or person associated
with the Adviser which is a member of a national securities exchange to effect
any transaction on the exchange for the account of the Fund which is permitted
by Section 11(a) of the Securities Exchange Act of 1934 and Rule 11a2-2(T)
thereunder, and the Fund hereby consents to the retention by such person
associated with the Adviser of compensation for such transactions in accordance
with Rule 11a2-2(T)(2)(iv).
4. The Adviser may enter into a contract ("Advisory Agreement") with an
investment adviser in which the Adviser delegates to such investment adviser any
or all its duties specified in Paragraph 3 hereunder, provided that such
Advisory Agreement imposes on the investment adviser bound thereby all duties
and conditions to which the Adviser is subject hereunder, and further provided
that such Advisory Agreement meets all requirements of the 1940 Act and rules
thereunder.
5. (a) The Adviser, at its expense, shall supply the Board of Directors
and officers of the Fund with all statistical information and reports reasonably
required by them and reasonably available to the Adviser and shall furnish the
Fund with office facilities, including space, furniture and equipment and all
personnel reasonably necessary for the operation of the Fund. The Adviser shall
oversee the maintenance of all books and records with respect to the Fund's
securities transactions and the keeping of the Fund's books of account in
accordance with all applicable federal and state laws and regulations. In
compliance with Rule 31a-3 under the 1940 Act, the Adviser hereby agrees that
any records which it maintains for the Fund are the property of the Fund, and
further agrees to surrender promptly to the Fund any of such records upon the
Fund's request. The Adviser further agrees to arrange for the preservation of
the records required to be maintained by Rule 31a-1 under the 1940 Act for the
periods prescribed by Rule 31a-2 under the 1940 Act. The Adviser shall authorize
and permit any of its directors, officers and employees, who may be elected as
directors or officers of the Fund, to serve in the capacities in which they are
elected.
(b) Other than as herein specifically indicated, the Adviser
shall not be responsible for the Fund's expenses. Specifically, the Adviser will
not be responsible, except to the extent of the reasonable compensation of
employees of the Fund whose services may be used by the Adviser hereunder, for
any of the following expenses of the Fund, which expenses shall be borne by the
Fund: advisory fees; distribution fees; interest, taxes, governmental fees,
2
<PAGE>
fees, voluntary assessments and other expenses incurred in connection with
membership in investment company organizations; the cost (including brokerage
commissions or charges, if any) of securities purchased or sold by the Fund and
any losses in connection therewith; fees of custodians, transfer agents,
registrars or other agents; legal expenses; expenses relating to the redemption
or repurchase of the Fund's shares; expenses of registering and qualifying
shares of the Fund for sale under applicable federal and state law; expenses of
preparing, setting in print, printing and distributing prospectuses, reports,
notices and dividends to Fund shareholders; costs of stationery; costs of
stockholders' and other meetings of the Fund; directors' fees; audit fees;
travel expenses of officers, directors and employees of the Fund, if any; and
the Fund's pro rata portion of premiums on any fidelity bond and other insurance
covering the Fund and its officers and directors.
6. No director, officer or employee of the Fund shall receive from the
Fund any salary or other compensation as such director, officer or employee
while he or she is at the same time a director, officer, or employee of the
Adviser or any affiliated company of the Adviser. This paragraph shall not apply
to directors, executive committee members, consultants and other persons who are
not regular members of the Adviser's or any affiliated company's staff.
7. As compensation for the services performed and the facilities
furnished and expenses assumed by the Adviser, including the services of any
consultants or sub-advisers retained by the Adviser, the Fund shall pay the
Adviser, as promptly as possible after the last day of each month, a fee,
computed daily at an annual rate of 0.70% of the Fund's average daily net
assets. The first payment of the fee shall be made as promptly as possible at
the end of the month succeeding the effective date of this Agreement. If this
Agreement is terminated as of any date not the last day of a month, such fee
shall be paid as promptly as possible after such date of termination, shall be
based on the average daily net assets of the Fund in that period from the
beginning of such month to such date of termination, and shall be based on that
proportion of such average daily net assets as the number of business days in
such period bears to the number of business days in such month. The average
daily net assets of the Fund shall in all cases be based only on business days
and be computed as of the time of the regular close of business of the New York
Stock Exchange, or such other time as may be determined by the Board of
Directors of the Fund. Each such payment shall be accompanied by a report
prepared either by the Fund or by a reputable firm of independent accountants,
which shall show the amount properly payable to the Adviser under this Agreement
and the detailed computation thereof.
8. The Adviser assumes no responsibility under this Agreement other
than to render the services called for hereunder, in good faith, and shall not
be responsible for any action of the Board of Directors of the Fund in following
or declining to follow any advice or recommendations of the Adviser; provided,
that nothing in this Agreement shall protect the Adviser against any liability
to the Fund or its shareholders to which it would otherwise be subject by reason
of willful misfeasance, bad faith, or gross negligence in the performance of its
3
<PAGE>
duties or by reason of its reckless disregard of its obligations and duties
hereunder.
9. Nothing in this Agreement shall limit or restrict the right of any
director, officer, or employee of the Adviser who may also be a director,
officer, or employee of the Fund, to engage in any other business or to devote
his time and attention in part to the management or other aspects of any other
business, whether of a similar nature or a dissimilar nature, or to limit or
restrict the right of the Adviser to engage in any other business or to render
services of any kind, including investment advisory and management services, to
any other corporation, firm, individual or association.
10. As used in this Agreement, the terms "assignment," "interested
person," and "majority of the outstanding voting securities" shall have the
meanings given to them by Section 2(a) of the 1940 Act, subject to such
exemptions as may be granted by the Securities and Exchange Commission by any
rule, regulation or order.
11. This Agreement will become effective on the date first written
above, provided that it shall have been approved by the Fund's Board of
Directors and by the shareholders of the Fund in accordance with the
requirements of the 1940 Act and, unless sooner terminated as provided herein,
will continue in effect for two years from the above written date. Thereafter,
if not terminated, this Agreement shall continue in effect for successive annual
periods ending on the same date of each year, provided that such continuance is
specifically approved at least annually (i) by the Fund's Board of Directors or
(ii) by a vote of a majority of the outstanding voting securities of the Fund
(as defined in the 1940 Act), provided that in either event the continuance is
also approved by a majority of the Fund's Board of Directors who are not
interested persons (as defined in the 1940 Act) of any party to this Agreement,
by vote cast in person at a meeting called for the purpose of voting on such
approval.
12. This Agreement is terminable without penalty by the Fund's Board of
Directors, by vote of a majority of the outstanding voting securities of the
Fund (as defined in the 1940 Act), or by the Adviser, on not less than 60 days'
notice to the other party and will be terminated upon the mutual written consent
of the Adviser and the Fund. This Agreement shall terminate automatically in the
event of its assignment by the Adviser and shall not be assignable by the Fund
without the consent of the Adviser.
13. In the event this Agreement is terminated by either party or upon
written notice from the Adviser at any time, the Fund hereby agrees that it will
eliminate from its corporate name any reference to the name of "Legg Mason." The
Fund shall have the non-exclusive use of the name "Legg Mason" in whole or in
part only so long as this Agreement is effective or until such notice is given.
4
<PAGE>
14. This Agreement shall be governed by and construed and interpreted
in accordance with the laws of the State of Maryland.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers thereunto duly authorized.
Attest: LEGG MASON FOCUS TRUST, INC.
By: By:
----------------------------- ------------------------------
Attest: LEGG MASON FUND ADVISER, INC.
By: By:
----------------------------- ------------------------------
EXHIBIT 6
FORM OF
UNDERWRITING AGREEMENT
This UNDERWRITING AGREEMENT, made this _____ day of _____________,
1998, by and between Legg Mason Focus Trust, Inc., a Maryland corporation
("Corporation"), and Legg Mason Wood Walker, Incorporated, a Maryland
corporation ("Distributor").
WHEREAS, the Corporation is registered with the Securities and Exchange
Commission as an open-end management investment company under the Investment
Company Act of 1940, as amended ("1940 Act"), and has registered its shares of
common stock for sale to the public under the Securities Act of 1933 ("1933
Act") and various state securities laws; and
WHEREAS, the Corporation wishes to retain the Distributor as the
principal underwriter in connection with the offering and sale of the shares of
common stock of the Corporation ("Shares") and to furnish certain other services
to the Corporation as specified in this Agreement; and
WHEREAS, this Agreement has been approved by separate votes of the
Corporation's Board of Directors and of certain disinterested directors in
conformity with Section 15 of, and paragraph (b)(2) of Rule 12b-1 under, the
1940 Act; and
WHEREAS, the Distributor is willing to act as principal underwriter and
to furnish such services on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed as follows:
1. (a) The Corporation hereby appoints the Distributor as principal
underwriter in connection with the offering and sale of the Corporation. The
Distributor, as exclusive agent for the Corporation, upon the commencement of
operations of the Corporation and subject to applicable federal and state law
and the Articles of Incorporation and By-Laws of the Corporation, shall: (i)
promote the Corporation; (ii) solicit orders for the purchase of the Shares
subject to such terms and conditions as the Corporation may specify; and (iii)
accept orders for the purchase of the Shares on behalf of the Corporation
(collectively, "Distribution Services"). The Distributor shall comply with all
applicable federal and state laws and offer the Shares of the Corporation on an
agency or "best efforts" basis under which the Corporation shall issue only such
Shares as are actually sold. The Distributor shall have the right to use any
list of shareholders of the Corporation or any other list of investors which it
obtains in connection with its provision of services under this Agreement;
provided, however, that the Distributor shall not sell or knowingly provide such
list or lists to any unaffiliated person without the consent of the
Corporation's Board of Directors.
(b) The Distributor shall provide ongoing shareholder liaison
services, including responding to shareholder inquiries, providing shareholders
with information on their investments, and any other services now or hereafter
<PAGE>
deemed to be appropriate subjects for the payments of "service fees" under
Conduct Rule 2830(d) of the National Association of Securities Dealers, Inc.
(collectively, "Shareholder Services").
2. The Distributor may enter into dealer agreements with registered and
qualified securities dealers it may select for the performance of Distribution
and Shareholder Services and may enter into agreements with qualified dealers
and other qualified entities to perform recordkeeping and subaccounting
services, the form of such agreements to be as mutually agreed upon and approved
by the Corporation and the Distributor. In making such arrangements, the
Distributor shall act only as principal and not as agent for the Corporation. No
such dealer or other entity is authorized to act as agent for the Corporation in
connection with the offering or sale of Shares to the public or otherwise.
3. The public offering price of the Shares of the Corporation shall be
the net asset value per share (as determined by the Corporation) of the
outstanding Shares of the Corporation plus any applicable sales charge as
described in the Registration Statement of the Corporation. The Corporation
shall furnish the Distributor with a statement of each computation of public
offering price and of the details entering into such computation.
4. As compensation for providing Distribution Services under this
Agreement, the Distributor shall retain the sales charge, if any, on purchases
of Shares as set forth in the Registration Statement. The Distributor is
authorized to collect the gross proceeds derived from the sale of the Shares,
remit the net asset value thereof to the Corporation upon receipt of the
proceeds and retain the sales charge, if any. The Distributor shall receive from
the Corporation a distribution fee and a service fee at the rates and under the
terms and conditions of the Plan of Distribution ("Plan") adopted by the
Corporation, as such Plan is in effect from time to time, and subject to any
further limitations on such fees as the Corporation's Board of Directors may
impose. The Distributor may reallow any or all of the sales charge, distribution
fee and service fee that it has received under this Agreement to such dealers or
sub-accountants as it may from time to time determine; provided, however, that
the Distributor may not reallow to any dealer for Shareholder Services an amount
in excess of .25% of the average annual net asset value of the Shares with
respect to which said dealer provides Shareholder Services.
5. As used in this Agreement, the term "Registration Statement" shall
mean the registration statement most recently filed by the Corporation with the
Securities and Exchange Commission and effective under the 1940 Act and 1933
Act, as such Registration Statement is amended by any amendments thereto at the
time in effect, and the terms "Prospectus" and "Statement of Additional
Information" shall mean, respectively, the form of prospectus and statement of
additional information filed by the Corporation as part of the Registration
Statement, or as they may be amended from time to time.
6. The Distributor shall print and distribute to prospective investors
Prospectuses, and shall print and distribute, upon request, to prospective
investors Statements of Additional Information, and may print and distribute
such other sales literature, reports, forms and advertisements in connection
with the sale of the Shares as comply with the applicable provisions of federal
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and state law. In connection with such sales and offers of sale, the Distributor
and any dealer or sub-accountant shall give only such information and make only
such statements or representations as are contained in the Prospectus, Statement
of Additional Information, or in information furnished in writing to the
Distributor by the Corporation, and the Corporation shall not be responsible in
any way for any other information, statements or representations given or made
by the Distributor, any dealer or sub-accountant, or their representatives or
agents. Except as specifically provided in this Agreement, the Corporation shall
bear none of the expenses of the Distributor in connection with its offer and
sale of the Shares.
7. The Corporation agrees at its own expense to register the Shares
with the Securities and Exchange Commission, state and other regulatory bodies,
and to prepare and file from time to time such Prospectuses, Statements of
Additional Information, amendments, reports and other documents as may be
necessary to maintain the Registration Statement. The Corporation shall bear all
expenses related to preparing and typesetting such Prospectuses, Statements of
Additional Information, and other materials required by law and such other
expenses, including printing and mailing expenses, related to the Corporation's
communications with persons who are shareholders of the Corporation.
8. The Corporation agrees to indemnify, defend and hold the
Distributor, its several officers and directors, and any person who controls the
Distributor within the meaning of Section 15 of the 1933 Act, free and harmless
from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which the
Distributor, its officers or directors, or any such controlling person may
incur, under the 1933 Act or under common law or otherwise, arising out of or
based upon any alleged untrue statement of a material fact contained in the
Registration Statement or arising out of or based upon any alleged omission to
state a material fact required to be stated or necessary to make the
Registration Statement not misleading, provided that in no event shall anything
contained in this Agreement be construed so as to protect the Distributor
against any liability to the Corporation or its shareholders to which the
Distributor would otherwise be subject by reason of willful misfeasance, bad
faith, or gross negligence in the performance of its duties, or by reason of its
reckless disregard of its obligations and duties under this Agreement, and
further provided that the Corporation shall not indemnify the Distributor for
conduct set forth in paragraph 9.
9. The Distributor agrees to indemnify, defend and hold the
Corporation, its several officers and directors, and any person who controls the
Corporation within the meaning of Section 15 of the 1933 Act, free and harmless
from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which the
Corporation, its officers or directors, or any such controlling person may
incur, under the 1933 Act or under common law or otherwise, on account of any
wrongful act of the Distributor or any of its employees or arising out of or
based upon any alleged untrue statement of a material fact contained in
information furnished in writing by the Distributor to the Corporation for use
in the Registration Statement or arising out of or based upon any alleged
omission to state a material fact in connection with such information required
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to be stated in the Registration Statement or necessary to make such information
not misleading. As used in this paragraph, the term "employee" shall not include
a corporate entity under control to provide services to the Corporation, or any
employee of such a corporate entity, unless such person is otherwise an employee
of the Corporation.
10. The Corporation reserves the right at any time to withdraw all
offerings of the Shares of the Corporation by written notice to the Distributor
at its principal office.
11. The Corporation shall not issue certificates representing Shares
unless requested by a shareholder. If such request is transmitted through the
Distributor, the Corporation will cause certificates evidencing the Shares owned
to be issued in such names and denominations as the Distributor shall from time
to time direct, provided that no certificates shall be issued for fractional
Shares.
12. The Distributor may at its sole discretion, directly or through
dealers, repurchase Shares offered for sale by the shareholders or dealers.
Repurchase of Shares by the Distributor shall be at the net asset value next
determined after a repurchase order has been received. The Distributor will
receive no commission or other remuneration for repurchasing Shares. At the end
of each business day, the Distributor shall notify by telex or in writing, the
Corporation and State Street Bank and Trust Company, the Corporation's transfer
agent, of the orders for repurchase of Shares received by the Distributor since
the last such report, the amount to be paid for such Shares, and the identity of
the shareholders or dealers offering Shares for repurchase. Upon such notice,
the Corporation shall pay the Distributor such amounts as are required by the
Distributor for the repurchase of such Shares in cash or in the form of a credit
against moneys due the Corporation from the Distributor as proceeds from the
sale of Shares. The Corporation reserves the right to suspend such repurchase
right upon written notice to the Distributor. The Distributor further agrees to
act as agent for the Corporation to receive and transmit promptly to the
Corporation's transfer agent shareholder and dealer requests for redemption of
Shares.
13. The Distributor is an independent contractor and shall be agent for
the Corporation only in respect to the sale and redemption of the Shares.
14. The services of the Distributor to the Corporation under this
Agreement are not to be deemed exclusive, and the Distributor shall be free to
render similar services or other services to others so long as its services
hereunder are not impaired thereby.
15. The Distributor shall prepare reports for the Corporation's Board
of Directors on a quarterly basis showing such information concerning
expenditures related to this Agreement as from time to time shall be reasonably
requested by the Board of Directors.
16. As used in this Agreement, the terms "assignment," "interested
person," and "majority of the outstanding voting securities" shall have the
meanings given to them by Section 2(a) of the 1940 Act, subject to such
exemptions as may be granted by the Securities and Exchange Commission by any
rule, regulation or order.
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17. This Agreement will become effective on the date first written
above and, unless sooner terminated as provided herein, will continue in effect
for one year from the above written date. Thereafter, if not terminated, this
Agreement shall continue in effect for successive annual periods ending on the
same date of each year, provided that such continuance is specifically approved
at least annually (i) by the Corporation's Board of Directors or (ii) by a vote
of a majority of the outstanding voting securities of the Corporation (as
defined in the 1940 Act), provided that in either event the continuance is also
approved by a majority of the Corporation's Directors who are not interested
persons (as defined in the 1940 Act) of any party to this Agreement, by vote
cast in person at a meeting called for the purpose of voting on such approval.
18. This Agreement is terminable in its entirety without penalty by the
Corporation's Board of Directors, by vote of a majority of the outstanding
voting securities of the Corporation (as defined in the 1940 Act), or by the
Distributor, on not less than 60 days' notice to the other party and will be
terminated upon the mutual written consent of the Distributor and the
Corporation. This Agreement will also automatically and immediately terminate in
the event of its assignment.
19. No provision of this Agreement may be changed, waived, discharged
or terminated orally, except by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought.
20. In the event this Agreement is terminated by either party or upon
written notice from the Distributor at any time, the Corporation hereby agrees
that it will eliminate from its corporate name any reference to the name of
"Legg Mason." The Corporation shall have the non-exclusive use of the name "Legg
Mason" in whole or in part only so long as this Agreement is effective or until
such notice is given.
IN WITNESS WHEREOF, the parties hereto caused this Agreement to be
executed by their officers thereunto duly authorized.
Attest: LEGG MASON FOCUS TRUST, INC.
By: By:
-------------------------- ---------------------------------
Attest: LEGG MASON WOOD WALKER,
INCORPORATED
By: By:
-------------------------- ---------------------------------
5
EXHIBIT 11
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in Post-Effective Amendment No. 6
to the Registration Statement under the Securities Act of 1933 (File No.
33-89090) of Legg Mason Focus Trust, Inc. on Form N-1A of our report dated
January 14, 1998 on our audit of the financial statements and financial
highlights of Focus trust, Inc., which report is included in the Annual Report
to Shareholders for the year ended December 31, 1997. We also consent to the
reference to our firm under the captions "Financial Highlights" in the
Prospectus and "The Fund's Independent Accountants" and "Financial Statements"
in the Statement of Additional Information.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
May 26, 1998
EXHIBIT 15
FORM OF
DISTRIBUTION PLAN OF
LEGG MASON FOCUS TRUST, INC.
WHEREAS, Legg Mason Focus Trust, Inc. (the "Corporation") is an
open-end management investment company registered under the Investment Company
Act of 1940, as amended ("1940 Act"), and has offered, and intends to continue
offering, for public sale distinct series of shares of common stock ("Series"),
each corresponding to a distinct portfolio;
WHEREAS, the Corporation has registered the offering of its shares of
common stock under a Registration Statement filed with the Securities and
Exchange Commission and that Registration Statement is in effect as of the date
hereof;
WHEREAS, the Corporation's Board of Directors has established one
Series of shares of common stock of the Corporation: Legg Mason Focus Trust;
WHEREAS, the Corporation desires to adopt a Distribution Plan pursuant
to Rule 12b-1 under the 1940 Act and the Board of Directors has determined that
there is a reasonable likelihood that adoption of the Distribution Plan will
benefit the Corporation and its shareholders;
WHEREAS, the Corporation intends to employ Legg Mason Wood Walker,
Incorporated ("Legg Mason") as principal underwriter of the shares of the
Corporation;
NOW, THEREFORE, the Corporation hereby adopts this Distribution Plan
(the "Plan") in accordance with Rule 12b-1 under the 1940 Act on the following
terms and conditions:
1. A. Legg Mason Focus Trust shall pay to Legg Mason, as compensation
for Legg Mason's services as principal underwriter of the Series' shares, a
distribution fee at the rate of 0.75% on an annualized basis of the average
daily net assets of the Corporation's shares, such fee to be calculated and
accrued daily and paid monthly or at such other intervals as the Board shall
determine.
B. The Corporation shall pay to Legg Mason, as compensation for
ongoing services provided to the Corporation's shareholders, a service fee at
the rate of 0.25% on an annualized basis of the average daily net assets of the
Corporation's shares, such fee to be calculated and accrued daily and paid
monthly or at such other intervals as the Board shall determine.
C. The Corporation may pay a distribution or service fee to Legg
Mason at a lesser rate than the fees specified in paragraphs 1.A. and 1.B.,
respectively, of this Plan, in either case as agreed upon by the Board and Legg
Mason and as approved in the manner specified in paragraph 4 of this Plan. The
distribution and service fees payable hereunder are payable without regard to
the aggregate amount that may be paid over the years, provided that, so long as
the limitations set forth in Conduct Rule 2830(d) of the National Association of
<PAGE>
Securities Dealers, Inc. ("NASD") remain in effect and apply to distributors or
dealers in the Corporation's shares, the amounts paid hereunder shall not exceed
those limitations, including permissible interest.
2. As principal underwriter of the Corporation's shares, Legg Mason may
spend such amounts as it deems appropriate on any activities or expenses
primarily intended to result in the sale of the shares of the Series and/or the
servicing and maintenance of shareholder accounts, including, but not limited
to, compensation to employees of Legg Mason; compensation to Legg Mason, other
broker-dealers and other entities that engage in or support the distribution of
shares or who service shareholder accounts or provide sub-accounting and
recordkeeping services; expenses of Legg Mason and such other broker-dealers and
other entities, including overhead and telephone and other communication
expenses; the printing of prospectuses, statements of additional information,
and reports for other than existing shareholders; and preparation and
distribution of sales literature and advertising materials.
3. This Plan shall not take effect with respect to any additional
Series until it has been approved by a vote of at least a majority of the
outstanding voting securities, as defined in the 1940 Act, of that Series.
4. This Plan shall take effect on __________________, 1998 and shall
continue in effect for successive periods of one year from its execution for so
long as such continuance is specifically approved at least annually together
with any related agreements, by votes of a majority of both (a) the Board of
Directors of the Corporation and (b) those Directors who are not "interested
persons" of the Corporation, as defined in the 1940 Act, and who have no direct
or indirect financial interest in the operation of this Plan or any agreements
related to it (the "Rule 12b-1 Directors"), cast in person at a meeting or
meetings called for the purpose of voting on this Plan and such related
agreements; and only if the Directors who approve the Plan taking effect have
reached the conclusion required by Rule 12b-1(e) under the 1940 Act.
5. Any person authorized to direct the disposition of monies paid or
payable by any Series pursuant to this Plan or any related agreement shall
provide to the Corporation's Board of Directors and the Board shall review, at
least quarterly, a written report of the amounts so expended and the purposes
for which such expenditures were made. Legg Mason shall submit only information
regarding amounts expended for "distribution activities," as defined in this
paragraph 5, to the Board in support of the distribution fee payable hereunder
and shall submit only information regarding amounts expended for "service
activities," as defined in this paragraph 5, to the Board in support of the
service fee payable hereunder.
For purposes of this Plan, "distribution activities" shall mean any
activities in connection with Legg Mason's performance of its obligations under
the underwriting agreement, dated _________________, 1998 by and between the
Corporation and Legg Mason, that are not deemed "service activities." As used
herein, "distribution activities" also includes sub-accounting or recordkeeping
services provided by an entity if the entity is compensated, directly or
indirectly, by the Fund or Legg Mason for such services. Such entity may also be
paid a service fee if it provides appropriate services. Nothing in the foregoing
is intended to or shall cause there to be any implication that compensation for
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such services must be made only pursuant to a plan of distribution under Rule
12b-1. "Service activities" shall mean activities covered by the definition of
"service fee" contained in Conduct Rule 2830(b) of the NASD, including the
provision by Legg Mason of personal, continuing services to investors in the
Corporation's shares. Overhead and other expenses of Legg Mason related to its
"distribution activities" or "service activities," including telephone and other
communications expenses, may be included in the information regarding amounts
expended for such distribution or service activities, respectively.
6. This Plan may be terminated with respect to any Series at any time
by vote of a majority of the Rule 12b-1 Directors or by vote of a majority of
the outstanding voting securities of that Series.
7. This Plan may not be amended to increase materially the amount of
distribution fees provided for in paragraph 1.A. hereof or the amount of service
fees provided for in paragraph 1.B. hereof unless such amendment is approved by
a vote of at least a majority of the outstanding securities, as defined in the
1940 Act, of the Corporation, and no material amendment to the Plan shall be
made unless such amendment is approved in the manner provided for continuing
approval in paragraph 4 hereof.
8. While this Plan is in effect, the selection and nomination of
directors who are not interested persons of the Corporation, as defined in the
1940 Act, shall be committed to the discretion of directors who are themselves
not interested persons.
9. The Corporation shall preserve copies of this Plan and any related
agreements for a period of not less than six years from the date of expiration
of the Plan or agreement, as the case may be, the first two years in an easily
accessible place; and shall preserve copies of each report made pursuant to
paragraph 5 hereof for a period of not less than six years from the date of such
report, the first two years in an easily accessible place.
IN WITNESS WHEREOF, the Corporation has executed this Distribution Plan
as of the day and year set forth below:
LEGG MASON FOCUS TRUST, INC.
Date: By:
------------------------- -----------------------------------
Attest: Agreed and assented to by
By: LEGG MASON WOOD WALKER, INC.
--------------------------
By:
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