As filed with the Securities and Exchange Commission on April 12, 2000.
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. 10 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 12 [X]
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
Copies to:
MARC R. DUFFY, ESQ. ARTHUR C. DELIBERT, ESQ.
Legg Mason Wood Walker, Incorporated Kirkpatrick & Lockhart LLP
100 Light Street 1800 Massachusetts Avenue, N.W.
Baltimore, Maryland 21202 Second Floor
(Name and address of agent for service) Washington, D.C. 20036-1800
It is proposed that this filing will become effective:
[ ] Immediately upon filing pursuant to Rule 485(b)
[X] On April 28, 2000, pursuant to Rule 485(b)
[ ] 60 days after filing pursuant to Rule 485 (a)(1)
[ ] On , 2000, pursuant to Rule 485(a)(1)
[ ] 75 days after filing pursuant to Rule 485(a)(2)
[ ] On , 2000, pursuant to Rule 485(a)(2)
If appropriate, check the following box: [ ] This post-effective amendment
designates a new effective date for a previously filed post-effective amendment.
<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
Legg Mason Focus Trust
Part A - Prospectus
Legg Mason Focus Trust
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
<PAGE>
LEGG MASON
FOCUS TRUST, INC.
PROSPECTUS April 28, 2000
Logo
THE ART OF INVESTING(SM)
As with all mutual funds, the Securities and Exchange Commission
has not passed upon the accuracy or adequacy of this prospectus, nor has it
approved or disapproved these securities. It is a criminal offense
to state otherwise.
<PAGE>
TABLE OF CONTENTS
About the fund:
- --------------
Investment objective
Principal risks
Performance
Fees and expenses of the fund
Management
About your investment:
- ---------------------
How to invest
How to sell your shares
Account policies
Services for investors
Dividends and taxes
Financial highlights
<PAGE>
LEGG MASON FOCUS TRUST, INC.
INVESTMENT OBJECTIVE
INVESTMENT OBJECTIVE: Maximum long-term capital appreciation with minimum
long-term risk to principal.
PRINCIPAL INVESTMENT STRATEGIES:
The fund invests primarily in common stocks, preferred stocks and securities
convertible or exchangeable for common stocks, such as convertible bonds and
debentures. A convertible security entitles the holder to receive the interest
paid or accrued on debt or the dividend paid on preferred stock until the
convertible security matures or is redeemed, converted or exchanged. Before
conversion, such securities ordinarily provide a stream of income with generally
higher yields than common stocks of the same or similar issuers, but lower than
the yield on non-convertible debt. The price of a convertible security often
reflects variations in the price of the underlying common stock in a way that
non-convertible debt does not. Any income realized will be incidental to the
fund's objective.
The fund's policy is to remain substantially invested in common stocks or
securities convertible into common stock.
The securities in which the fund invests will generally be listed on a national
stock exchange or traded on the over-the-counter market. Under normal
circumstances, the adviser expects to concentrate its investments in a limited
number of companies.
The selection of common stocks will be made through an investment strategy
referred to as "focus investing," whereby companies (or businesses) are
identified and selected as eligible investments by examining all fundamental
quantitative and qualitative aspects of the company, its management and its
financial position as compared to its stock price. This is a bottom up,
fundamental method of analysis as opposed to technical analysis, which is based
on the study of trading volumes and prices. 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. The adviser
believes that a focus investor should focus on the long-term economic progress
of the investment and disregard short-term nuances. The fund will only invest in
those companies that, in the adviser's opinion, are undervalued at the time of
purchase.
The portfolio manager sells securities when they have realized what the manager
believes is their potential value or when the portfolio manager believes that
they are not likely to achieve that value in a reasonable period of time.
For temporary defensive purposes, the fund may 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 those securities. In
addition, the fund may hold cash reserves, when necessary, for anticipated
securities purchases, shareholder redemptions or temporarily during periods when
the adviser believes prevailing market conditions call for a defensive posture.
If the fund invests substantially in such instruments, the fund may not be
pursuing its principle investment strategies and the fund may not achieve its
investment objective.
<PAGE>
PRINCIPAL RISKS
IN GENERAL:
There is no assurance that the fund will meet its investment objective;
investors could lose money by investing in the fund. As with all mutual funds,
an investment in this fund is not insured or guaranteed by the Federal Deposit
Insurance Company or any other government agency.
NON-DIVERSIFICATION RISK:
The fund is non-diversified. The percentage of its assets invested in any single
issuer is not limited by the Investment Company Act of 1940. When the fund's
assets are invested in the securities of a limited number of issuers or it holds
a large portion of its assets in a few issuers, the value of its shares will be
more susceptible to any single economic, political or regulatory event affecting
those issuers or their securities than shares of a diversified fund.
MARKET RISK:
Stock prices generally fluctuate more than those of other securities, such as
debt securities. Market risk, the risk that prices of securities may go down
because of the interplay of market forces, may affect a single issuer, industry
or section of the economy or may affect the market as a whole. The fund may
experience a substantial or complete loss on an individual stock.
STYLE RISK:
The fund invests in stocks believed to be attractively priced relative to their
intrinsic value. Such an approach involves the risk that those stocks may remain
undervalued. Value stocks as a group may be out of favor for a long period of
time, while the market concentrates on "growth" stocks. There is also a risk
that other investors will not see the potential value of the issuer, and the
security will not realize that potential.
CONVERTIBLE SECURITIES:
A convertible security is a bond, debenture, note, preferred stock or other
security that may be converted into or exchanged for a prescribed amount of
common stock of the same or a different issuer within a particular period of
time at a specified price or formula.
The value of a convertible security is a function of (1) its yield in comparison
with the yields of other securities of comparable maturity and quality that do
not have a conversion privilege and (2) its worth, at market value, if converted
into the underlying common stock. Convertible securities are typically issued by
smaller capitalized companies whose stock prices may be volatile. The price of a
convertible security often reflects such variations in the price of the
underlying common stock in a way that non-convertible debt does not.
<PAGE>
PERFORMANCE
The information below provides an indication of the risks of
investing in the fund by showing changes in its performance from
year to year. Annual returns assume reinvestment of dividends and
distributions. Historical performance of the fund does not
necessarily indicate what will happen in the future.
YEAR BY YEAR TOTAL RETURN AS OF DECEMBER 31 OF EACH YEAR (%):
1996 17.14
-----
1997 29.10
-----
1998 41.17
-----
1999 18.59
-----
DURING THE PAST FOUR CALENDAR YEARS:
Quarter Ended Total Return
------------- ------------
Best quarter: December 31, 1998 36.94%
Worst quarter: September 30, 1998 -15.91%
In the following table, average annual returns as of December 31, 1999,
are compared with the Standard & Poor's 500 Index (S&P 500).
1 Year Life of Fund
------ ------------
Focus Trust 18.59% 24.90%(a)
S&P 500 21.04% 27.41%(b)
These figures include changes in principal value, reinvested dividends
and capital gain distributions, if any.
(a) April 17, 1995 (commencement of operations) to December 31, 1999.
(b) For the period April 30, 1995 to December 31, 1999.
<PAGE>
FEES AND EXPENSES OF THE FUND
The table below describes the fees and expenses you will incur directly
or indirectly as an investor in the fund. The fund pays operating
expenses directly out of its assets so they lower the fund's share
price and dividends. Other expenses include transfer agency, custody,
professional and registration fees. The fund has no initial sales
charge but is subject to a 12b-1 fee.
Annual Fund Operating Expenses
(expenses that are deducted from fund assets)(a)
------------------------------------------------
Management fees 0.70%
Distribution and/or Service (12b-1) fees 1.00%
Other expenses 0.23%
-------------- -----
Total Annual Fund Operating Expenses 1.93%
(a) Legg Mason Fund Adviser, Inc., as investment adviser, has
voluntarily agreed to waive fees so that expenses (exclusive of taxes,
interest, brokerage and extraordinary expenses) do not exceed an annual
rate of 1.90% of the fund's average daily net assets until April 30,
2001. This voluntary waiver may be terminated at any time. With the
waiver, management fees, 12b-1 fees and total annual fund operating
expenses for the fund were .67%, 1.00% and 1.90% for the fiscal year
ended December 31, 1999.
Example:
This example helps you compare the cost of investing in the fund with
the cost of investing in other mutual funds. Although your actual costs
may be higher or lower, you would pay the following expenses on a
$10,000 investment in the fund, assuming (1) a 5% return each year, (2)
the fund's operating expenses remain the same as shown in the table
above, and (3) you redeem all of your shares at the end of the time
periods shown. Actual returns may be higher or lower than 5% per year.
------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------------------------------------------------------
$196 $606 $1042 $2254
------------------------------------------------------
<PAGE>
MANAGEMENT
MANAGEMENT AND ADVISER:
Legg Mason Fund Adviser, Inc. ("LMFA"), 100 Light Street, Baltimore, Maryland
21202, is the fund's investment adviser. LMFA is responsible for the actual
investment management of the fund, including making investment decisions and
placing orders to buy, sell or hold a particular security. It also provides the
fund with investment management and administrative services and oversees the
fund's relationships with outside service providers, such as the custodian,
transfer agent, accountants, and lawyers. LMFA acts as manager or adviser to
investment companies with aggregate assets of about $18.2 billion as of March
31, 2000.
For its services during the fiscal year ended December 31, 1999, the fund paid
the Adviser a fee equal to .67% of its average daily net assets.
PORTFOLIO MANAGEMENT:
Robert G. Hagstrom, Jr. serves as portfolio manager and has been primarily
responsible for overseeing all investments made by the fund since its inception
on April 17, 1995. From 1997 to June 30, 1998, he was the General Partner of
Focus Capital Advisory, L.P., the assets of which were purchased by LMFA. From
1992 through 1997, he was a Principal with Lloyd, Leith & Sawin, Inc., an
investment adviser, where he served as Vice President from 1991 to 1992. Mr.
Hagstrom is a Chartered Financial Analyst and author of three books, titled: THE
WARREN BUFFET WAY: INVESTMENT STRATEGIES OF THE WORLD'S GREATEST INVESTOR (John
Wiley & Sons, November, 1994) THE WARREN BUFFET PORTFOLIO: MASTERING THE POWER
OF THE FOCUS INVESTMENT STRATEGY (John Wiley & Son, February, 1999) and THE
NASCAR WAY: THE BUSINESS THAT DRIVES THE SPORT (John Wiley & Sons, January,
1998).
DISTRIBUTOR OF THE FUND'S SHARES:
Legg Mason Wood Walker, Incorporated ("Distributor"), 100 Light Street,
Baltimore, Maryland 21202, distributes the fund's shares. The fund has adopted a
plan under Rule 12b-1 that allows it to pay distribution fees and shareholder
service fees for the sale of its shares and for services provided to
shareholders. Under the plan, the fund may pay the Distributor an annual
distribution fee equal to 0.75% of the fund's average daily net assets and an
annual service fee equal to 0.25% of its average daily net assets.
Because these fees are paid out of the fund's assets on an ongoing basis, over
time these fees will increase the cost of your investment and may cost you more
than paying other types of sales charges.
The Distributor may enter into agreements with other brokers to sell shares of
the fund. The Distributor pays these brokers up to 90% of the distribution and
service fee that it receives from the fund for those sales.
LMFA and the Distributor are wholly owned subsidiaries of Legg Mason, Inc., a
financial services holding company.
<PAGE>
[icon] H O W T O I N V E S T
To open a regular account or a retirement account contact a Legg Mason Financial
Advisor, Legg Mason Funds Investor Services ("FIS"), or another entity that has
entered into an agreement with the fund's distributor to sell shares of the
fund. The minimum initial investment is $1,000 and the minimum for each purchase
of additional shares is $100.
Retirement accounts include traditional IRAs, spousal IRAs, Education IRAs, Roth
IRAs, simplified employee pension plans, savings incentive match plans for
employees and other qualified retirement plans. The investment amount for an
Education IRA is $500. Contact your financial adviser, FIS, or other entity
offering the funds to discuss which one might be appropriate for you.
Certain investment methods (for example, through certain retirement plans) may
be subject to lower minimum initial and additional investments. Arrangements may
also be made with some employers and financial institutions for regular
automatic monthly investments of $50 or more in shares of the fund. Contact your
financial adviser or FIS with any questions regarding your investment options.
ONCE YOUR ACCOUNT IS OPEN, YOU MAY USE THE FOLLOWING METHODS TO PURCHASE SHARES
OF THE FUND:
- --------------------------------------------------------------------------------
IN PERSON Give your financial adviser a check for $100 or more
payable to the fund.
- --------------------------------------------------------------------------------
MAIL Mail your check, payable to the fund, for $100 or more
to your financial adviser or to Legg Mason Funds
Investor Services at P.O. Box 17023, Baltimore, MD
21297-0356.
- --------------------------------------------------------------------------------
TELEPHONE OR WIRE Call your financial adviser or FIS at 1-800-822-5544 to
transfer available cash balances in your brokerage
account or to transfer money from your bank directly.
Wire transfers may be subject to a service charge by
your bank.
- --------------------------------------------------------------------------------
INTERNET OR FIS clients may purchase shares of the fund through Legg
TELEFUND Mason's Internet site at http://www.leggmasonfunds.com
or through a telephone account management service
"TeleFund" at 1-877-6-LMFUNDS.
- --------------------------------------------------------------------------------
FUTURE FIRST Contact a Legg Mason Financial Advisor to enroll in Legg
SYSTEMATIC Mason's Future First Systematic Investment Plan. Under
INVESTMENT PLAN this plan, you may arrange for automatic monthly
investments in a fund of $50 or more. The transfer agent
will transfer funds monthly from your Legg Mason account
or from your checking/savings account to purchase shares
of the desired fund.
- --------------------------------------------------------------------------------
AUTOMATIC Arrangements may be made with some employers and
INVESTMENTS financial institutions for regular automatic monthly
investments of $50 or more in shares of the fund. You
may also reinvest dividends from certain unit investment
trusts in shares of the fund.
- --------------------------------------------------------------------------------
Investments made through entities other than Legg Mason may be subject to
transaction fees or other purchase conditions established by those entities. You
should consult their program literature for further information.
<PAGE>
Purchase orders received by your financial adviser, FIS or other authorized
entity before the close of the New York Stock Exchange ("Exchange") (normally
4:00 p.m., Eastern time) will be processed at the fund's net asset value as of
the close of the Exchange on that day. Orders received after the close of the
Exchange will be processed at the fund's net asset value as of the close of the
Exchange on the next day the Exchange is open. Payment must be made within three
business days.
<PAGE>
[icon] H O W T O S E L L Y O U R S H A R E S
YOU MAY USE ANY OF THE FOLLOWING METHODS TO SELL SHARES OF THE FUND:
- --------------------------------------------------------------------------------
TELEPHONE Call your financial adviser or FIS at 1-800-822-5544 or
entity offering the fund and request redemption. Please have
the following information ready when you call: the name of
the fund, the number of shares (or dollar amount) to be
redeemed and your shareholder account number.
Proceeds will be credited to your brokerage account or a
check will be sent to you, at your direction, at no charge to
you. Wire requests will be subject to a fee of $12. Be sure
that your financial adviser has your bank account information
on file.
The fund will follow reasonable procedures to ensure the
validity of any telephone redemption request, such as
requesting identifying information from callers or employing
identification numbers. Unless you specify that you do not
wish to have telephone redemption privileges, you may be held
responsible for any fraudulent telephone order.
- --------------------------------------------------------------------------------
INTERNET OR FIS clients may request a redemption of fund shares through
TELEFUND Legg Mason's Internet site at http://www.leggmasonfunds.com
or through TeleFund at 1-877-6-LMFUNDS.
- --------------------------------------------------------------------------------
MAIL Send a letter to the fund requesting redemption of your
shares. The letter should be signed by all of the owners of
the account and their signatures guaranteed without
qualification. You may obtain a signature guarantee from most
banks or securities dealers.
- --------------------------------------------------------------------------------
Fund shares will be sold at the next net asset value calculated after your
redemption request is received by your financial adviser or FIS.
Redemption orders will be processed promptly. You will generally receive the
proceeds within a week. Payment of the proceeds of redemptions of shares that
were recently purchased by check or acquired through reinvestment of
distributions on such shares may be delayed for up to 10 days from the purchase
date in order to allow for the check to clear.
Additional documentation may be required from corporations, executors,
partnerships, administrators, trustees or custodians.
Redemptions made through entities other than Legg Mason may be subject to
transaction fees or other conditions established by those entities. You should
consult their program literature for further information.
The fund has reserved the right under certain conditions to redeem its shares in
kind by distributing portfolio securities in payment for redemptions.
<PAGE>
ACCOUNT POLICIES
CALCULATION OF NET ASSET VALUE:
Net asset value per share is determined daily, as of the close of the Exchange,
on every day the Exchange is open. The Exchange is normally closed on all
national holidays and Good Friday. To calculate the fund's share price, the
fund's assets are valued and totaled, liabilities are subtracted, and the
resulting net assets are divided by the number of shares outstanding. The fund's
securities are valued on the basis of market quotations or, lacking such
quotations, at fair value as determined under policies approved by the Board of
Directors.
Where a security is traded on more than one market, the securities are generally
valued on the market considered by the adviser to be the primary market. Fixed
income securities generally are valued using market quotations or independent
pricing services that use prices provided by market makers or estimates of
market values. Securities with remaining maturities of 60 days or less are
valued at amortized cost.
To the extent that the fund has portfolio securities that are primarily listed
on foreign exchanges that trade on days when the fund does not price its shares,
the net asset value of the fund may change on days when shareholders will not be
able to purchase or redeem the fund's shares.
OTHER:
Fund shares may not be held in, or transferred to, an account with any firm that
does not have an agreement with Legg Mason.
If your account falls below $500, the fund may ask you to increase your balance.
If, after 60 days, your account is still below $500, the fund may close your
account and send you the proceeds. The fund will not redeem accounts that fall
below $500 solely as a result of a reduction in net asset value per share.
The fund reserves the right to:
- - reject any order for shares or suspend the offering of shares for a
period of time,
- - change its minimum investment amounts, and
- - delay sending out redemption proceeds for up to seven days. This
generally applies only in cases of very large redemptions or excessive
trading or during unusual market conditions. The fund may delay
redemptions beyond seven days, or suspend redemptions, only as
permitted by the SEC.
<PAGE>
SERVICES FOR INVESTORS
For further information regarding any of the services below, please contact your
financial adviser or other entity offering the fund for sale.
CONFIRMATIONS AND ACCOUNT STATEMENTS:
You will receive from Legg Mason a confirmation after each transaction (except a
reinvestment of dividends or capital gain distributions and purchases made
through the Future First Systematic Investment Plan or through automatic
investments). Legg Mason or the entity through which you invest will send you
account statements monthly unless there has been no activity in the account.
Legg Mason will send you statements quarterly if you participate in the Future
First Systematic Investment Plan or if you purchase shares through automatic
investments.
SYSTEMATIC WITHDRAWAL PLAN:
If you are purchasing or already own shares with a net asset value of $5,000 or
more, you may elect to make systematic withdrawals from the fund. The minimum
amount for each withdrawal is $50. You should not purchase shares of the fund
when you are a participant in the Plan.
EXCHANGE PRIVILEGE:
Fund shares may be exchanged for shares of any of the other Legg Mason funds,
provided these funds are eligible for sale in your state of residence. You can
request an exchange in writing or by phone. Be sure to read the current
prospectus for any fund into which you are exchanging.
There is currently no fee for exchanges; however, you may be subject to a sales
charge when exchanging into a fund that has one. In addition, an exchange of the
fund's shares will be treated as a sale of the shares and any gain on the
transaction may be subject to tax.
The fund reserves the right to:
- - terminate or limit the exchange privilege of any shareholder who makes
more than four exchanges from the fund in one calendar year.
- - terminate or modify the exchange privilege after 60 days' written
notice to shareholders.
<PAGE>
[icon] D I V I D E N D S A N D T A X E S
The fund declares and pays any dividends on an annual basis. The fund
distributes substantially all net capital gain (the excess of any net long-term
capital gain over net short-term capital loss) after the end of the taxable year
in which the gain is realized. A second distribution of net capital gain may be
necessary in some years to avoid imposition of a federal excise tax.
Your dividends and other distributions will be automatically reinvested in
additional shares of the fund, unless you elect to receive dividends and/or
other distributions in cash. To change your election, you must notify the fund
at least 10 days before the next dividend and/or other distribution is to be
paid.
If the postal or other delivery service is unable to deliver your distribution
check, your distribution option will automatically be converted to having all
dividends and other distributions reinvested in fund shares. No interest will
accrue on amounts represented by uncashed distribution or redemption checks.
Fund dividends and other distributions are taxable to most investors (other than
retirement plans and other tax-exempt investors) whether received in cash or
reinvested in additional shares of the fund. Dividends from investment company
taxable income (which includes net investment income and net short-term capital
gains) are taxable as ordinary income. Distributions of the fund's net capital
gain are taxable as long-term capital gain, regardless of how long you have held
your fund shares.
The sale or exchange of fund shares may result in a taxable gain or loss,
depending on whether the proceeds are more or less than the cost of your shares.
A tax statement is sent to you at the end of each year detailing the tax status
of your distributions.
The fund will withhold 31% of all dividends, capital gain distributions and
redemption proceeds payable to individuals and certain other non-corporate
shareholders who do not provide the fund with a valid taxpayer identification
number. The fund will also withhold 31% of all dividends and capital gain
distributions payable to shareholders who are otherwise subject to backup
withholding.
Because each investor's tax situation is different, please consult your tax
adviser about federal, state and local tax considerations.
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the fund's
financial performance since its inception. Total return represents the rate that
an investor would have earned (or lost) on an investment in the fund, assuming
reinvestment of all dividends and other distributions. This information has been
audited by the fund's independent accountants, PricewaterhouseCoopers LLP, whose
report, along with the fund's financial statements, is incorporated by reference
into the Statement of Additional Information (see back cover) and is included in
the annual report. The annual report is available upon request by calling
toll-free 1-800-822-5544.
Investment Operations
---------------------
Net Asset Net Net Realized
Years Value, Investment and Unrealized Total From
Ended Beginning Income Gain(Loss)on Investment
Dec. 31, of Year (Loss) Investments Operations
- -------- --------- ---------- -------------- ----------
1999 22.00 $(.15)A 4.24 4.09
1998 16.32 (.06)A 6.68 6.62
1997 13.01 (.11)A 3.89 3.78
1996 11.17 (.05)A 1.96 1.91
1995B 10.00 .06A 1.17 1.23
Distributions
-------------
From
From Net Net Asset
Years Net Realized Value,
Ended Investment Gain on Total End of
Dec 31, Income Investments Distributions Year
- ------- ---------- ----------- ------------- ---------
1999 $--- $--- $--- 26.09
1998 --- -0.94 -0.94 22.00
1997 --- -0.47 -0.47 16.32
1996 --- -0.07 -0.07 13.01
1995B -0.06 --- -0.06 11.17
Ratios/Supplemental Data
------------------------
Net
Investment Net Assets,
Years Expenses Income(Loss) Portfolio End of
Ended Total to Average to Average Turnover Year
Dec. 31, Return Net Assets Net Assets Rate (in thousands)
- -------- ------ ---------- ------------ --------- -------------
1999 18.59% 1.90%A (.91)%A 14% $275,624
1998 41.47% 1.93%A (.89)%A 21% 47,089
1997 29.10% 2.00%A (.74)%A 14% 8,093
1996 17.14% 2.00%A (.40)%A 8% 7,327
1995B 12.29%C 1.92%A,D 1.19%A,D --- 5,061
A Net of fees waived pursuant to a voluntary expense limitation of 1.75% of
average daily net assets through September 1, 1995, 2.00% through June 30,
1998, and 1.90% through April 30, 2001. If no fees had been waived, the
annualized ratio of expenses to average net assets for the years ended
December 31, 1999, 1998, 1997 and 1996, and for the period April 17, 1995
to December 31, 1995, would have been 1.93%, 2.71%, 4.04%, 4.96%, and
7.89%, respectively.
B For the period April 17, 1995 (commencement of operations) to December 31,
1995.
C Not annualized.
D Annualized.
<PAGE>
Legg Mason Focus Trust, Inc.
The following additional information about the fund is available upon request
and without charge:
STATEMENT OF ADDITIONAL INFORMATION (SAI) - The SAI is filed with the Securities
and Exchange Commission (SEC) and is incorporated by reference into (is
considered part of) this prospectus. The SAI provides additional details about
the fund and its policies.
ANNUAL AND SEMI-ANNUAL REPORTS - Additional information about the fund's
investments is available in the fund's annual and semi-annual reports to
shareholders. In the fund's annual report, you will find a discussion of the
market conditions and investment strategies that significantly affected the
fund's performance during its last fiscal year.
To request the SAI or any reports to shareholders, or to obtain more
information:
o call toll-free 1-800-822-5544
o visit us on the Internet via http://www.leggmasonfunds.com
o write to us at: Legg Mason Wood Walker, Incorporated
100 Light Street, P.O. Box 1476
Baltimore, Maryland 21203-1476
Information about the fund, including the SAI, can be reviewed and copied at the
SEC's Public Reference Room in Washington, D.C. Information on the operation of
the Public Reference Room may be obtained by calling the SEC at 1-202-942-8090.
Reports and other information about the fund are available on the EDGAR database
on the SEC's Internet site at http://www.sec.gov. Investors may also obtain this
information, after paying a duplicating fee, by electronic request at the
following e-mail address: [email protected] or by writing the SEC's Public
Reference Section, Washington, D.C. 20549-0102.
LMF- SEC file number: 811-8966
<PAGE>
LEGG MASON FOCUS TRUST, INC.
STATEMENT OF ADDITIONAL INFORMATION
April 28, 2000
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the Prospectus (dated April 28, 2000), which has been filed
with the Securities and Exchange Commission ("SEC"). The fund's annual report is
incorporated by reference into this Statement of Additional Information. Copies
of the annual report or the Prospectus are available without charge by writing
to or calling the fund's distributor, Legg Mason Wood Walker, Incorporated
("Legg Mason").
LEGG MASON WOOD WALKER,
INCORPORATED
100 LIGHT STREET
BALTIMORE, MARYLAND 21202
(410) 539-0000 (800) 822-5544
<PAGE>
TABLE OF CONTENTS
PAGE
----
DESCRIPTION OF THE FUND 3
FUND POLICIES 3
INVESTMENT STRATEGIES AND RISKS 4
MANAGEMENT OF THE FUND 8
THE FUND'S INVESTMENT ADVISER AND MANAGER 10
THE FUND'S DISTRIBUTOR 12
PORTFOLIO TRANSACTIONS AND BROKERAGE 13
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION 14
VALUATION OF FUND SHARES 16
ADDITIONAL TAX INFORMATION 16
TAX-DEFERRED RETIREMENT PLANS 18
PERFORMANCE INFORMATION 19
CAPITAL STOCK INFORMATION 21
THE FUND'S CUSTODIAN AND TRANSFER AND DIVIDEND-DISBURSING AGENT 22
THE FUND'S LEGAL COUNSEL 22
THE FUND'S INDEPENDENT ACCOUNTANTS 22
FINANCIAL STATEMENTS 22
APPENDIX A 23
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.
<PAGE>
DESCRIPTION OF THE FUND
Legg Mason Focus Trust, Inc., ("Focus Trust" or " Corporation" or "fund") is a
non-diversified open-end, management investment company that was established as
a Maryland corporation on January 27, 1995.
FUND POLICIES
Focus Trust's investment objective is to seek maximum long-term capital
appreciation with minimum long-term risk to principal.
In addition to the investment objective described in the prospectus, the fund
has adopted certain fundamental investment limitations that cannot be changed
except by vote of its shareholders.
Focus Trust 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 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 or
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.
<PAGE>
The investment objective and fundamental investment limitations of the fund,
described in the preceding paragraphs and in the Prospectus, may be changed only
with the vote of a majority of the fund's outstanding voting securities. Under
the Investment Company Act of 1940, as amended ("1940 Act"), a "vote of a
majority of the 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.
Except as otherwise stated, if a fundamental or non-fundamental percentage
limitation set forth above is complied with at the time an investment is made, a
later increase or decrease in percentage resulting from a change in value of
portfolio securities, in the net asset value of the fund, or in the number of
securities an issuer has outstanding, will not be considered to be outside the
limitation. The fund will monitor the level of borrowing and illiquid securities
in its portfolio and will make necessary adjustments to maintain the required
asset coverage and adequate liquidity.
Unless otherwise stated, the fund's investment policies and limitations set
forth in the prospectus and this statement of additional information are not
fundamental, and can be changed without shareholder approval.
INVESTMENT STRATEGIES AND RISKS
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.
This section supplements the information in the Prospectus concerning the
investments the fund may make and the techniques the fund may use. The fund,
unless otherwise stated, may use any of the following instruments or techniques,
including but not limited to:
CONVERTIBLE SECURITIES
A convertible security entitles the holder to receive interest paid or accrued
on debt or the dividend paid on preferred stock until the convertible security
matures or is redeemed, converted or exchanged. Before conversion, convertible
securities ordinarily provide a stream of income with generally higher yields
than those of common stocks of the same or similar issuers, but lower than the
yield of non-convertible debt. Convertible securities are usually subordinated
to comparable-tier non-convertible securities but rank senior to common stock in
a corporation's capital structure. A convertible security may be subject to
redemption at the option of the issuer at a price established in the convertible
security's governing instrument, which may be less than the ultimate conversion
value.
Many convertible securities are rated below investment grade or, if unrated, are
considered of comparable quality. Moody's describes securities rated Ba as
having "speculative elements; their future cannot be considered as well-assured.
Often the protection of interest and principal payments may be very moderate,
and thereby not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class."
If an investment grade security purchased by the fund is subsequently given a
rating below investment grade, the adviser will consider that fact in
determining whether to retain that security in the fund's portfolio, but is not
required to dispose of it.
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.
<PAGE>
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. Purchases of
forward commitments also involve a risk of loss of the seller fails to deliver
after the value of the security has risen. 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. 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 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. 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. When the fund loans a
security to another party, it runs the risk that the other party will default on
its obligation, and that the value of the collateral will decline before the
fund can dispose of it.
ILLIQUID AND RESTRICTED INVESTMENTS
The fund may invest up to 10% of its net assets in illiquid investments. For
this purpose, "illiquid investments" are those that cannot be disposed of within
seven days for approximately the price at which the fund values the security.
Illiquid investments include repurchase agreements with terms of greater than
seven days, restricted investments other than those the adviser has determined
are liquid pursuant to guidelines established by the Corporation's Board of
Directors.
Restricted securities may be sold only in privately negotiated transactions,
pursuant to a registration statement filed under the Securities Act of 1933, as
amended, or pursuant to an exemption from registration. The fund may be required
to pay part or all of the costs of such registration, and a considerable period
may elapse between the time a decision is made to sell a restricted security and
the time the registration statement becomes effective. Judgment plays a greater
role in valuing illiquid securities than those for which a more active market
exists.
SEC regulations permit the sale of certain restricted securities to qualified
institutional buyers. The investment adviser to the fund, acting pursuant to
guidelines established by the Corporation's Board of Directors, may determine
that certain restricted securities qualified for trading on this newly
developing market are liquid. If the market does not develop as anticipated, or
if qualified institutional buyers become uninterested for a time, restricted
securities in the fund's portfolio may adversely affect the fund's liquidity.
<PAGE>
PORTFOLIO TURNOVER
The portfolio turnover rate for the fund is calculated by dividing the lesser of
purchases or 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 the adviser's buy and hold strategy for the
portfolio securities held by the fund.
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, the adviser anticipates that the portfolio turnover levels will be held
at low levels. 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. 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, agreements under which U.S.
Government obligations or high-quality debt securities are acquired from a
securities dealer or bank subject to resale at an agreed-upon price and date.
Repurchase agreements are considered under the 1940 Act to be collateralized
loans by the fund to the seller secured 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. 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 the fund is obligated to pay upon their repurchase. There is also a
risk that the contra-party to the reverse repurchase agreement will be unable or
unwilling to complete the transaction as scheduled, which may result in losses
to the fund.
<PAGE>
FOREIGN SECURITIES
The fund may invest in foreign securities. Investment in foreign securities
presents certain risks, including those resulting from fluctuations in currency
exchange rates, revaluation of currencies, future political and economic
developments and the possible imposition of currency exchange blockages or other
foreign governmental laws or restrictions, reduced availability of public
information concerning issuers, and the fact that foreign issuers are not
generally subject to uniform accounting, auditing and financial reporting
standards or other regulatory practices and requirements comparable to those
applicable to domestic issuers. These risks are intensified when investing in
countries with developing economies and securities markets, also known as
"emerging markets." Moreover, securities of many foreign issuers may be less
liquid and their prices more volatile than those of comparable domestic issuers
and transactions in foreign securities may be subject to less efficient
settlement practices, including extended clearance and settlement periods.
Issuers may be less liquid and their prices more volatile than those of
comparable domestic issuers. In addition, with respect to certain foreign
countries, there is the possibility of expropriation, confiscatory taxation,
withholding taxes and limitations on the use or removal of funds or other
assets.
The costs associated with investment in foreign issuers, including withholding
taxes, brokerage commissions and custodial fees, are higher than those
associated with investment in domestic issuers. In addition, foreign securities
transactions may be subject to difficulties associated with the settlement of
such transactions. Delays in settlement could result in temporary periods when
assets of the fund are uninvested and no return is earned thereon. The inability
of the fund to make intended security purchases due to settlement problems could
cause the fund to miss attractive investment opportunities. Inability to dispose
of a portfolio security due to settlement problems could result in losses to the
fund due to subsequent declines in value of the portfolio security or, if the
fund has entered into a contract to sell the security, could result in liability
to the purchaser.
Since the fund may invest in securities denominated in currencies other than the
U.S. dollar and may hold foreign currencies, it may be affected favorably or
unfavorably by exchange control regulations or changes in the exchange rates
between such currencies and the U.S. dollar. Changes in the currency exchange
rates may influence the value of the fund's shares and also may affect the value
of dividends and interest it earns and gains and losses it realizes. Exchange
rates are determined by the forces of supply and demand in the foreign exchange
markets. These forces are affected by the international balance of payments,
other economic and financial conditions, government intervention, speculation
and other factors.
In addition to purchasing foreign securities, the fund may invest in American
Depository Receipts ("ADRs"). Generally, ADRs, in registered form, are
denominated in U.S. dollars (but subject to currency risk if the underlying
security is denominated in another currency) and are designed for use in the
domestic market. Usually issued by a U.S. bank or trust company, ADRs are
receipts that demonstrate ownership of the underlying securities. For purposes
of the fund's investment policies and limitations, ADRs are considered to have
the same classification as the securities underlying them. ADRs may be sponsored
or unsponsored; issuers of securities underlying unsponsored ADRs are not
contractually obligated to disclose material information in the United States.
Accordingly, there may be less information available about such issuers than
there is with respect to domestic companies and issuers of securities underlying
sponsored ADRs. The fund may also invest in Global Depository Receipts ("GDRs"),
which are receipts, often denominated in U.S. dollars, issued by either a U.S.
or non-U.S. bank evidencing its ownership of the underlying foreign securities.
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.
Although the fund has no present intention to invest in foreign securities, it
may invest up to 25% of its total assets in foreign securities, either directly
or indirectly through the purchase of ADRs, GDRs or EDRs.
<PAGE>
SECURITIES OF OTHER INVESTMENT COMPANIES
The fund may invest in the securities of other investment companies only if it:
(i) will not own more than 3% of the total outstanding voting stock of any
investment company, (ii) does not invest more than 5% of its total assets in any
one investment company or (iii) does not invest more than 10% of its total
assets in investment companies in general. Such investments may involve the
payment of substantial premiums above the net asset value of such issuers'
portfolio securities, and the total return on such investments will be reduced
by the operating expenses and fees of such investment companies, including
advisory fees.
OTHER INVESTMENTS
Even though the fund's policy is to remain substantially invested in common
stocks or securities convertible into common stock it may invest in
non-convertible preferred stock and non-convertible debt securities. Investments
in debt securities will be rated investment grade.
RATINGS OF DEBT OBLIGATIONS
The fund may invest in convertible securities and, for temporary defensive
purposes, high quality short-term debt obligations rated investment grade.
Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's ("S&P") and other
nationally recognized or foreign statistical rating organizations are private
organizations that provide ratings of the credit quality of debt obligations. A
description of the ratings assigned to corporate debt obligations by Moody's and
S&P is included in Appendix A. A fund may consider these ratings in determining
whether to purchase, sell or hold a security. Ratings issued by Moody's or S&P
represent only the opinions of those agencies and are not guarantees of credit
quality. Consequently, securities with the same maturity, interest rate and
rating may have different market prices. Credit rating agencies attempt to
evaluate the safety of principal and interest payments and do not evaluate the
risks of fluctuations in market value. Also, rating agencies may fail to make
timely changes in credit ratings in response to subsequent events, so that an
issuer's current financial condition may be better or worse than the rating
indicates.
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.
MANAGEMENT OF THE FUND
The Corporation's officers are responsible for the operation of the Corporation
under the direction of the Board of Directors. The officers and directors, their
dates of birth and their principal occupations during the past five years are
set forth below. An asterisk (*) indicates those officers and/or directors who
are "interested persons" of the Corporation as defined by the 1940 Act. The
business address of each officer and director is 100 Light Street, Baltimore,
Maryland, unless otherwise indicated.
JOHN F. CURLEY, JR.,* [07/24/39], Chairman of the Board and Director; President
and/or Chairman of the Board and Director/Trustee of all Legg Mason retail
funds. Retired: Vice Chairman and Director of Legg Mason Wood Walker, Inc. and
Legg Mason, Inc. Formerly: Director of Legg Mason Fund Adviser, Inc. and Western
Asset Management Company (each a registered investment adviser); Officer and/or
Director of various other affiliates of Legg Mason, Inc.
ARNOLD L. LEHMAN, [07/18/44], Director; 200 Eastern Parkway, Brooklyn, NY.
Director, The Brooklyn Museum of Art; Director/Trustee of all Legg Mason retail
funds. Formerly: Director, Baltimore Museum of Art.
JILL E. McGOVERN, [08/29/44], Director; 400 Seventh St., NW, Washington, DC.
Chief Executive Officer of the Marrow Foundation; Director/Trustee of all Legg
Mason retail funds. Formerly: Executive Director of the Baltimore International
Festival (January 1991 - March 1993); and Senior Assistant to the President of
The Johns Hopkins University (1986 - 1991).
<PAGE>
RICHARD G. GILMORE [6/9/27], Director; 10310 Tamo Shanter Place, Bradenton,
Florida. Independent Consultant. Director of CSS Industries, Inc. (diversified
holding company whose subsidiaries are engaged in the manufacture and sale of
decorative paper products, business forms, and specialty metal packaging);
Director of PECO Energy Company (formerly Philadelphia Electric Company);
Director/Trustee of all Legg Mason retail funds. Formerly: Senior Vice President
and Chief Financial Officer of Philadelphia Electric Company (now PECO Energy
Company); Executive Vice President and Treasurer, Girard Bank, and Vice
President of its parent holding company the Girard Company; and Director of
Finance, City of Philadelphia.
T.A. RODGERS [10/22/34], Director; 2901 Boston Street, Baltimore, Maryland.
Principal, T.A. Rodgers & Associates (management consulting). Director/Trustee
of all Legg Mason retail funds. Formerly: Director and Vice President of
Corporate Development, Polk Audio, Inc. (manufacturer of audio components).
G. PETER O'BRIEN [10/13/45], Director; Trustee of Colgate University;
Director/Trustee of all Legg Mason retail funds except Legg Mason Income Trust,
Inc., and Legg Mason Tax Exempt Trust, Inc. Retired: Managing Director/Equity
Capital Markets Group of Merrill Lynch & Co. (1971-1999).
NELSON A. DIAZ [5/23/47], Director; One Logan Square, Philadelphia, PA. Partner,
Blank Rome Comisky, & McCauley LLP (law firm) since 1997. Trustee of Temple
University and of Philadelphia Museum of Art. Board member of U.S. Hispanic
Leadership Institute, Democratic National Committee, and National Association
for Hispanic Elderly. Formerly: General Counsel, United States Department of
Housing and Urban Development (1993 - 1997). Director/Trustee of all Legg Mason
retail funds except Legg Mason Income Trust, Inc. and Legg Mason Tax Exempt
Trust, Inc.
The executive officers of the Corporation, other than those who serve as
directors are:
EDWARD A. TABER, III* [08/25/43], President; Senior Executive Vice President of
Legg Mason, Inc. and Legg Mason Wood Walker, Inc.; Chairman and Director of Legg
Mason Fund Adviser, Inc. and Director of Western Asset Management Company (each
a registered investment adviser); President and/or Director/Trustee of all Legg
Mason retail funds except Legg Mason Tax Exempt Trust. Formerly: Executive Vice
President of T. Rowe Price-Fleming International, Inc. (1986-1992) and Director
of the Taxable Income Division at T. Rowe Price Associates, Inc. (1973-1992).
MARIE K. KARPINSKI* [1/1/49], Vice President and Treasurer; Treasurer of LMFA;
Vice President and Treasurer of all Legg Mason retail funds; Vice President of
Legg Mason.
PATRICIA A. MAXEY* [7/10/67], Secretary, employee of Legg Mason since November
1999. Formerly: employee of Select Appointments International (1998-1999) and
Fidelity Investments (1995-1997).
WM. SHANE HUGHES* [4/24/68], Assistant Secretary and Assistant Treasurer;
employee of Legg Mason since May 1997. Formerly: Senior Associate of C.W. Amos
and Co. (a regional public accounting firm).
The Nominating Committee of the Board of Directors is responsible for the
selection and nomination of disinterested directors. The Committee is composed
of Messrs. Gilmore, Lehman, Rodgers, O'Brien, Diaz and Dr. McGovern.
Officers and directors of the fund who are "interested persons" of the fund
receive no salary or fees from the fund. Each Director who is not an interested
person of the fund ("Independent Directors") receives an annual retainer and a
per meeting fee based on the average net assets of the fund at December 31 of
the previous year.
On April 5, 2000, the directors and officers of the Corporation beneficially
owned in the aggregate less than 1% of the fund's outstanding shares.
<PAGE>
The following table provides certain information relating to the compensation of
the Corporation's directors. None of the Legg Mason funds has any retirement
plan for its directors.
COMPENSATION TABLE
- --------------------------------------------------------------------------------
Aggregate Total Compensation from Fund
Compensation and Fund Complex
Name of Person and Position From Fund* Paid to Directors**
- --------------------------------------------------------------------------------
John F. Curley, Jr. - None None
Chairman of the Board
and Director
- --------------------------------------------------------------------------------
Arnold L. Lehman - Director $1,200 $41,100
- --------------------------------------------------------------------------------
Jill E. McGovern - Director $1,200 $41,100
- --------------------------------------------------------------------------------
Richard G. Gilmore - Director $1,200 $41,100
- --------------------------------------------------------------------------------
T.A. Rodgers - Director $1,200 $41,100
- --------------------------------------------------------------------------------
G. Peter O'Brien - Director*** $ 600 $15,000
- --------------------------------------------------------------------------------
Nelson A. Diaz - Director**** $ None $ None
- --------------------------------------------------------------------------------
* Represents compensation paid to the directors for the fiscal year ending
December 31, 1999.
** Represents aggregate compensation paid to each director during the calendar
year ended December 31, 1999. There are twelve open-end investment
companies in the Legg Mason Complex (with a total of twenty-four funds).
*** Mr. O'Brien was appointed to the Board on November 11, 1999.
**** Mr. Diaz was appointed to the Board on February 10, 2000.
THE FUND'S INVESTMENT ADVISER/MANAGER
Legg Mason Fund Adviser, Inc. ("LMFA"), a Maryland corporation, is located at
100 Light Street, Baltimore, Maryland 21202. LMFA is a wholly owned subsidiary
of Legg Mason, Inc., which is also the parent of Legg Mason. LMFA serves as
manager and investment adviser to the fund under an Investment Advisory and
Management Agreement with the fund ("Management Agreement"). From June 27, 1997
to June 30, 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 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
<PAGE>
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 at an annual rate of 0.70% of the average daily net assets
of the fund. LMFA has agreed to waive its fees to the extent necessary to limit
the fund's expenses (exclusive of taxes, interest, brokerage and extraordinary
expenses) to 1.90% of average net assets until at least April 30, 2001.
For the years ended December 31, 1999, 1998, and 1997, the fund paid management
fees of $1,197,873, $0, and $0, respectively.
For the period July 1, 1998 through December 31, 1998, LMFA was entitled to
receive advisory fees of $74,216. However, LMFA waived all of its fees. For the
period June 28, 1997 through June 30, 1998, 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 January 1, 1997 through June 27,
1997, Lloyd, Leith & Sawin, Inc. was entitled to receive $26,527; however,
Lloyd, Leith & Sawin, Inc., waived its fees and reimbursed the fund for expenses
so that the fund's expenses would not exceed 2.00%.
Under the Management Agreement, the fund has the non-exclusive right to use the
name "Legg Mason" until that Agreement is terminated, or until the right is
withdrawn in writing by LMFA.
Under the 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 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 Management Agreement.
The Management 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
Management 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.
THE FUND'S DISTRIBUTOR
Legg Mason Wood Walker, Incorporated ("Legg Mason"), 100 Light Street,
Baltimore, Maryland, 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.
<PAGE>
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 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.
If necessary to achieve limits described in "The Fund's Investment Adviser and
Manager" section above, Legg Mason has also agreed to waive its fees for the
fund.
The Plan was adopted, as required by Rule 12b-1 under the 1940 Act, by a vote of
the Board of Directors, including a majority of the directors who are not
"interested persons" of the Corporation as that term is defined in the 1940 Act,
and who have no direct or indirect financial interest in the operation of the
Plan or the Underwriting Agreement ("12b-1 Directors"). In approving the
continuation of 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. 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.
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.
As compensation for its services and expenses, Legg Mason receives from the fund
an annual distribution fee equivalent to 0.75% of its average daily net assets
and a service fee equivalent to 0.25% of its average daily net assets, in
accordance with the Plan. All distribution and service fees are calculated daily
and paid monthly.
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.
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
<PAGE>
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. For the period June 30, 1998 to December 31, 1998, Legg
Mason was entitled to receive distribution and service fees of $95,814; however,
Legg Mason waived $12,830 of these fees. For the fiscal year ended December 31,
1999, the fund paid distribution and service fees of $1,774,398.
During the year ended December 31, 1999, Legg Mason incurred the following
expenses in connection with distribution and shareholder services:
Sales and Commissions $ 746,000
Retail Branch Distribution/
Sales Management 1,010,000
Promotion & Advertising/
Funds Marketing 523,000
Printing and mailing of prospectuses 250,000
Administration and Overhead 38,000
----------------
Total expenses $2,567,000
The foregoing are estimated and do not include all expenses fairly allocable to
LMFA's, Legg Mason's or their affiliates' efforts to distribute the fund's
shares.
PORTFOLIO TRANSACTIONS AND BROKERAGE
For the fiscal year ended December 31, 1999, the portfolio turnover rate was
14.4%.
Under the 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 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.
After June 30, 2000, from time to time the fund may use Legg Mason as broker for
agency transactions in listed and over-the-counter securities at commission
rates and under circumstances consistent with the policy of best execution.
Commissions paid to Legg Mason will not exceed "usual and customary brokerage
commissions." Rule 17e-1 under the 1940 Act defines "usual and customary"
commissions to include amounts which are "reasonable and fair compared to the
commission, fee or other remuneration received by other brokers in connection
with comparable transactions involving similar securities being purchased or
sold on a securities exchange during a comparable period of time." In the
<PAGE>
over-the-counter market, the fund generally deals with responsible primary
market-makers unless a more favorable execution can otherwise be obtained.
For the fiscal years ended December 31, 1999, 1998 and 1997, the fund paid total
brokerage commissions of $198,578, $28,298, and $ 9,663, respectively. Legg
Mason received no brokerage commissions from the fund for the same period.
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.
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.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
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.
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 the fund's transfer agent to transfer funds each month from your
Legg Mason account or from your checking/savings account to be used to buy 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.
<PAGE>
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 $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"), 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 fund reserves the right to modify the wire or telephone redemption services
described in the prospectus at any time.
The date of payment for redemption may not be postponed for more than seven
days, and the right of redemption may not be suspended, by the fund or its
distributor except (i) for any period during which the Exchange is closed (other
than for customary weekend and holiday closings), (ii) when trading in markets
the fund normally utilizes is restricted, or an emergency, as defined by rules
and regulations of the SEC, exists, making disposal of the fund's investments or
determination of its net asset value not reasonably practicable, or (iii) for
such other periods as the SEC by regulation or order may permit for protection
of the fund's shareholders. In the case of any such suspension, you may either
withdraw your request for redemption or receive payment based upon the net asset
value next determined after the suspension is lifted.
The fund reserves the right, under certain conditions, to honor any request for
redemption from the same shareholders in any 90-day period, totaling $250,000 or
1% of the net assets of the fund, which 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 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.
<PAGE>
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 Day,
and Christmas Day. 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.
ADDITIONAL TAX INFORMATION
The following is a general summary of certain federal tax considerations
affecting the fund and its shareholders. Investors are urged to consult their
own tax advisers for more detailed information and for information regarding any
federal, state or local taxes that might apply to them.
GENERAL
To continue to qualify for treatment as a regulated investment company ("RIC")
under the Internal Revenue Code of 1986, as amended ("Code"), the fund must
distribute annually to its shareholders at least 90% of its investment company
taxable income (generally, net investment income plus any net short-term capital
gain and any net gains from certain foreign currency transactions)
("Distribution Requirement") and must meet several additional requirements.
These requirements include the following: (1) the fund must derive at least 90%
of its gross income each taxable year from dividends, interest, payments with
respect to securities loans and gains from the sale or other disposition of
securities or foreign currencies, or other income (including gains from futures
or forward currency contracts) derived with respect to its business of investing
in securities or those currencies ("Income Requirement"); (2) at the close of
each quarter of the fund's taxable year, at least 50% of the value of its total
assets must be represented by cash and cash items, U.S. government securities,
securities of other RIC's and other securities, with those other securities
limited, in respect of any one issuer, to an amount that does not exceed 5% of
the value of the fund's total assets and that does not represent more than 10%
of the issuer's outstanding voting securities; and (3) at the close of each
quarter of the fund's taxable year, not more than 25% of the value of its total
assets may be invested in the securities (other than U.S. government securities
or the securities of other RICs) of any one issuer.
By qualifying for treatment as a RIC, the fund (but not its shareholders) will
be relieved of federal income tax on the part of its investment company taxable
income and net capital gain (i.e. the excess of net long-term capital gain over
net short-term capital loss) that it distributes to its shareholders. If the
fund failed to qualify for that treatment for any taxable year, (i) it would be
taxed at corporate rates on the full amount of its taxable income for that year
without being able to deduct the distributions it makes to its shareholders and
(ii) the shareholders would treat all those distributions, including
distributions of net capital gain, as dividends (that is, ordinary income) to
the extent of the fund's earnings and profits. In addition, the fund could be
required to recognize unrealized gains, pay substantial taxes and interest and
make substantial distributions before requalifying for RIC treatment.
The fund will be subject to a nondeductible 4% excise tax ("Excise Tax") to the
extent it fails to distribute by the end of any calendar year substantially all
of its ordinary income for that year and capital gain net income for the
one-year period ending on October 31 of that year, plus certain other amounts.
Dividends and other distributions declared by the fund in December of any year
and payable to its shareholders of record on a date in that month will be deemed
to have been paid by the fund and received by the shareholders on December 31 if
the fund pays the distribution during the following January. Accordingly, those
distributions will be taxed to shareholders for the year in which that December
31 falls.
<PAGE>
DIVIDENDS AND OTHER DISTRIBUTIONS
If the fund invests in shares of common stock or preferred stock or otherwise
holds dividend-paying securities as a result of exercising a conversion
privilege, a portion of the dividends from its investment company taxable income
(whether paid in cash or reinvested in additional fund shares) may be eligible
for the dividends-received deduction allowed to corporations. The eligible
portion may not exceed the aggregate dividends received by the fund from U.S.
corporations. However, dividends received by a corporate shareholder and
deducted by it pursuant to the dividends-received deduction are subject
indirectly to the federal alternative minimum tax. Distributions of net capital
gain made by the fund do not qualify for the dividends-received deduction.
If fund shares are sold at a loss after being held for six months or less, the
loss will be treated as a long-term, instead of a short-term, capital loss to
the extent of any capital gain distributions received on those shares. Investors
also should be aware that if shares are purchased shortly before the record date
for a dividend or other distribution, the investor will pay full price for the
shares and receive some portion of the price back as a taxable distribution.
FOREIGN TAXES
Interest and dividends received by the fund, and gains realized thereby, may be
subject to income, withholding or other taxes imposed by foreign countries and
U.S. possessions that would reduce the total return on its securities. Tax
conventions between certain countries and the United States may reduce or
eliminate these taxes, however, and many foreign countries do not impose taxes
on capital gains in respect of investments by foreign investors.
PASSIVE FOREIGN INVESTMENT COMPANIES
The fund may invest in the stock of "passive foreign investment companies"
("PFICs"). A PFIC is any foreign corporation (with certain exceptions) that, in
general, meets either of the following tests: (1) at least 75% of its gross
income is passive or (2) an average of at least 50% of its assets produce, or
are held for the production of, passive income. Under certain circumstances, the
fund will be subject to federal income tax on a portion of any "excess
distribution" received on the stock of a PFIC or of any gain on disposition of
that stock (collectively "PFIC income"), plus interest thereon, even if the Fund
distributes the PFIC income as a taxable dividend to its shareholders. The
balance of the PFIC income will be included in the Fund's investment company
taxable income and, accordingly, will not be taxable to it to the extent it
distributes that income to its shareholders.
If the fund invests in a PFIC and elects to treat the PFIC as a "qualified
electing fund" ("QEF"), then in lieu of the foregoing tax and interest
obligation, the fund would be required to include in income each year its pro
rata share of the QEF's annual ordinary earnings and net capital gain -- which
the fund probably would have to distribute to satisfy the Distribution
Requirement and avoid imposition of the Excise Tax -- even if the QEF did not
distribute those earnings and gain to the fund. In most instances it will be
very difficult, if not impossible, to make this election because of certain
requirements thereof.
The fund may elect to "mark-to-market" its stock in any PFIC.
"Marking-to-market," in this context, means including in ordinary income each
taxable year the excess, if any, of the fair market value of the stock over the
fund's adjusted basis therein as of the end of that year. Pursuant to the
election, the fund also may deduct (as an ordinary, not capital, loss) the
excess, if any, of its adjusted basis in PFIC stock over the fair market value
thereof as of the taxable year-end, but only to the extent of any net
mark-to-market gains with respect to that stock included in income by the fund
for prior taxable years under the election (and under regulations proposed in
1992 that provided a similar election with respect to the stock of certain
PFICs). The fund's adjusted basis in each PFIC's stock subject to the election
would be adjusted to reflect the amounts of income included and deductions taken
thereunder.
ORIGINAL ISSUE DISCOUNT AND PAYMENT-IN-KIND SECURITIES
The fund may purchase zero coupon or other debt securities issued with original
issue discount ("OID"). As a holder of those securities, the fund must include
in its income the OID that accrues thereon during the taxable year, even if it
receives no corresponding payment on the securities during the year. Similarly,
the fund must include in its gross income securities it receives as "interest"
on payment-in-kind securities. Because the fund annually must distribute
substantially all of its investment company taxable income, including any OID
and other non-cash income, to satisfy the Distribution Requirement and avoid
<PAGE>
imposition of the Excise Tax, it may be required in a particular year to
distribute as a dividend an amount that is greater than the total amount of cash
it actually receives. Those distributions will be made from the fund's cash
assets or from the proceeds of sales of portfolio securities, if necessary. The
fund may realize capital gains or losses from those dispositions, which would
increase or decrease its investment company taxable income and/or net capital
gain.
TAX-DEFERRED RETIREMENT PLANS
Investors may invest in fund shares through Individual Retirement Accounts
("IRAs"), and through SEPs, SIMPLEs and other qualified retirement plans
(collectively, "qualified plans"). In general, income earned through the
investment of assets of qualified plans is not taxed to their beneficiaries
until the income is distributed to them. Investors who are considering
establishing a qualified plan should consult their attorneys or other tax
advisers with respect to individual tax questions. Please contact Legg Mason or
your affiliated financial adviser for further information with respect to these
plans.
TRADITIONAL IRA
Certain investors may obtain tax advantages by establishing an IRA.
Specifically, except as noted below, if neither you nor your spouse is an active
participant in a qualified employer or government retirement plan, or if either
you or your spouse is an active participant in such a plan and your adjusted
gross income does not exceed a certain level, then each of you may deduct cash
contributions made to an IRA in an amount for each taxable year not exceeding
the lesser of 100% of your earned income or $2,000. However, a married investor
who is not an active participant in such a plan and files a joint income tax
return with his or her spouse (and their combined adjusted gross income does not
exceed $150,000) is not affected by the spouse's active participant status. In
addition, if your spouse is not employed and you file a joint return, you may
establish a separate IRA for your spouse and contribute up to a total of $4,000
to the two IRAs, provided that the contribution to either does not exceed
$2,000. If your employer's plan qualifies as a SIMPLE, permits voluntary
contributions and meets certain requirements, you may make voluntary
contributions to that plan that are treated as deductible IRA contributions.
Even if you are not in one of the categories described in the preceding
paragraph, you may find it advantageous to invest in fund shares through
non-deductible IRA contributions, up to certain limits, because all dividends
and other distributions on your shares are then not immediately taxable to you
or the IRA; they become taxable only when distributed to you. To avoid
penalties, your interest in an IRA must be distributed, or start to be
distributed, to you not later than April 1 following the calendar year in which
you attain age 70 1/2. Distributions made before age 59 1/2, in addition to
being taxable, generally are subject to a penalty equal to 10% of the
distribution, except in the case of death or disability, where the distribution
is rolled over into another qualified plan or certain other situations.
ROTH IRA
A shareholder whose adjusted gross income (or combined adjusted gross income
with his or her spouse) does not exceed certain levels may establish and
contribute up to $2,000 per tax year to a Roth IRA. In addition, for a
shareholder whose adjusted gross income does not exceed $100,000 (or is not
married filing a separate return), certain distributions from traditional IRAs
may be rolled over to a Roth IRA and any of the shareholder's traditional IRAs
may be converted to a Roth IRA; these rollover distributions and conversions
are, however, subject to federal income tax.
Contributions to a Roth IRA are not deductible; however, earnings accumulate
tax-free in a Roth IRA, and withdrawals of earnings are not subject to federal
income tax if the account has been held for at least five years (or in the case
of earnings attributable to rollover contributions from or conversions of a
traditional IRA, the rollover or conversion occurred more than five years before
the withdrawal) and the account holder has reached age 59 1/2 (or certain other
conditions apply).
EDUCATION IRA
Although not technically for retirement savings, an Education IRA provides a
vehicle for saving for a child's higher education. An Education IRA may be
<PAGE>
established for the benefit of any minor, and any person whose adjusted gross
income does not exceed certain levels may contribute to an Education IRA,
provided that no more than $500 may be contributed for any year to Education
IRAs for the same beneficiary. Contributions are not deductible and may not be
made after the beneficiary reaches age 18; however, earnings accumulate
tax-free, and withdrawals are not subject to tax if used to pay the qualified
higher education expenses of the beneficiary (or a qualified family member).
SIMPLIFIED EMPLOYEE PENSION PLAN - SEP
Legg Mason also makes available to corporate and other employers a SEP for
investment in fund shares.
SAVINGS INCENTIVE MATCH PLAN FOR EMPLOYEES - SIMPLE
An employer with no more than 100 employees that does not maintain another
qualified plan may establish a SIMPLE either as separate IRAs or as part of a
Code section 401(k) plan. A SIMPLE, which is not subject to the complicated
nondiscrimination rules that generally apply to other qualified 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 or a 2% non-elective contribution.
Withholding at the rate of 20% is required for federal income tax purposes on
certain distributions (excluding, for example, certain periodic payments) from
the foregoing plans (except IRAs and SEPs), unless the recipient transfers the
distribution directly to an "eligible retirement plan" (including IRAs and other
qualified plans) that accepts those distributions. Other distributions generally
are subject to regular wage withholding or to 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. Investors should consult their plan
administrator or tax adviser for further information.
PERFORMANCE INFORMATION
TOTAL RETURN CALCULATIONS
Average annual total return quotes used in the Fund's advertising and other
promotional materials ("Performance Advertisements") are calculated according to
the following formula:
P(1+T)n = ERV
where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a
hypothetical $1,000 payment made at
the beginning of that period
Under the foregoing formula, the time periods used in Performance Advertisements
will be based on rolling calendar quarters, updated at least to the last day of
the most recent quarter prior to submission of the Performance Advertisements
for publication. Total return, or "T" in the formula above, is computed by
finding the average annual change in the value of an initial $1,000 investment
over the period. In calculating the ending redeemable value, all dividends and
other distributions by the fund are assumed to have been reinvested at net asset
value on the reinvestment dates during the period.
The following table shows the value, as of the end of the fiscal year, of a
hypothetical investment of $10,000 made in the fund at commencement of
operations. The table assumes that all dividends and other distributions are
reinvested in the fund. It includes the effect of all charges and fees the fund
has paid. (There are no fees for investing or reinvesting in the fund imposed by
the fund, and there are no redemption fees.) It does not include the impact of
any income taxes that an investor would pay on such distributions. Performance
data is only historical, and is not intended to indicate the fund's future
performance.
<PAGE>
Value of Original
Shares Plus Shares Value of Shares
Obtained Through Acquired Through
Fiscal Reinvestment of Capital Reinvestment of
Year Gain Distributions ($) Income Dividends ($) Total Value ($)
1995* 11,170 59 11,229
1996 13,086 68 13,154
1997 16,896 86 16,982
1998 23,909 116 24,025
1999 28,355 137 28,492
* For the period April 17, 1995 (commencement of operations ) to December 31,
1995.
If the investor had not reinvested dividends and other distributions, the total
value of the hypothetical investment as of December 31, 1999 would have been
$26,090, and the investor would have received a total of $1,584, in
distributions. If the adviser had not waived certain fees in the 1999 fiscal
year, returns would have been lower.
From time to time the fund may compare the performance of the fund to the
performance of other investment companies, groups of investment companies,
various market indices, the features or performance of alternative investments,
in advertisements, sales literature, and reports to shareholders. One such
market index is the S&P 500, a widely recognized, unmanaged index composed of
the capitalization-weighted average of the prices of 500 of the largest publicly
traded stocks in the U.S. The S&P 500 includes reinvestment of all dividends. It
takes no account of the costs of investing or the tax consequences of
distributions. The fund invests in many securities that are not included in the
S&P 500. The fund may also include calculations, such as hypothetical
compounding examples or tax-free compounding examples, which describe
hypothetical investment results in such communications. Such performance
examples will be based on an express set of assumptions that are not indicative
of the performance of the fund.
From time to time, the total return of the fund may be quoted in advertisements,
shareholder reports, or other communications to shareholders.
The fund may also cite rankings and ratings, and compare the return of the fund
with data published by Lipper Analytical Services, Inc. ("Lipper"), CDA
Investment Technologies, Inc., Wiesenberger Investment Company Services, Value
Line, Morningstar, and other services or publications that monitor, compare
and/or rank the performance of investment companies. The fund may also refer in
such materials to mutual fund performance rankings, ratings, comparisons with
funds having similar investment objectives, and other mutual funds reported in
independent periodicals, including, but not limited to, FINANCIAL WORLD, MONEY
Magazine, FORBES, BUSINESS WEEK, BARRON'S, FORTUNE, THE KIPLINGER LETTERS, THE
WALL STREET JOURNAL, and THE NEW YORK TIMES. The fund also may quote from such
periodicals.
The fund may compare the investment return of the fund to the return on
certificates of deposit and other forms of bank deposits, and may quote from
organizations that track the rates offered on such deposits. Bank deposits are
insured by an agency of the federal government up to specified limits. In
contrast, fund shares are not insured, the value of fund shares may fluctuate,
and an investor's shares, when redeemed, may be worth more or less than the
investor originally paid for them. Unlike the interest paid on many certificates
of deposit, which remains at a specified rate for a specified period of time,
the return of the fund will vary.
Fund advertisements may reference the history of the distributor and its
affiliates, the education, experience, investment philosophy and strategy of the
portfolio manager, and the fact that the portfolio manager engages in certain
approaches to investing. The fund may also include in advertising biographical
information on key investment and managerial personnel.
In advertising, the fund may illustrate hypothetical investment plans designed
to help investors meet long-term financial goals, such as saving for a child's
college education or for retirement. Sources such as the Internal Revenue
Service, the Social Security Administration, the Consumer Price Index and Chase
Global Data and Research may supply data concerning interest rates, college
tuitions, the rate of inflation, Social Security benefits, mortality statistics
and other relevant information. The fund may use other recognized sources as
they become available.
<PAGE>
The fund may use data prepared by independent third parties such as Ibbotson
Associates and Frontier Analytics, Inc. to compare the returns of various
capital markets and to show the value of a hypothetical investment in a capital
market. Typically, different indices are used to calculate the performance of
common stocks, corporate and government bonds and Treasury bills.
The fund may illustrate and compare the historical volatility of different
portfolio compositions where the performance of stocks is represented by the
performance of an appropriate market index, such as the S&P 500, and the
performance of bonds is represented by a nationally recognized bond index, such
as the Lehman Brothers Long-Term Government Bond Index.
The fund may advertise examples of the potential benefits of periodic investment
plans, such as dollar cost averaging, a long-term investment technique designed
to lower average cost per share. Under such a plan, an investor invests in a
mutual fund at regular intervals a fixed dollar amount thereby purchasing more
shares when prices are low and fewer shares when prices are high. Although such
a plan does not guarantee profit or guard against loss in declining markets, the
average cost per share could be lower than if a fixed number of shares were
purchased at the same intervals. Investors should consider their ability to
purchase shares through periods of low price levels.
The fund may discuss Legg Mason's tradition of service. Since 1899, Legg Mason
and its affiliated companies have helped investors meet their specific
investment goals and have provided a full spectrum of financial services. Legg
Mason affiliates serve as investment advisers for private accounts and mutual
funds with assets of more than $104.2 billion as of December 31, 1999.
In advertising, the fund may discuss the advantages of saving through
tax-deferred retirement plans or accounts, including the advantages and
disadvantages of "rolling over" a distribution from a retirement plan into an
IRA, factors to consider in determining whether you qualify for such a rollover,
and the other options available. These discussions may include graphs or other
illustrations that compare the growth of a hypothetical tax-deferred investment
to the after-tax growth of a taxable investment.
CAPITAL STOCK INFORMATION
The fund 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 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 non-assessable and have no preemptive
or conversion rights.
Shareholder meetings will not be held except where the Investment Company Act of
1940 requires a shareholder vote on certain matters (including the election of
directors, approval of an advisory contract and certain amendments to the plan
of distribution pursuant to Rule 12b-1), at the request of 10% or more of the
shares entitled to vote as set forth in the by-laws of the Corporation; or as
the Board of Directors from time to time deems appropriate.
THE FUND'S CUSTODIAN AND TRANSFER AND DIVIDEND-DISBURSING AGENT
State Street Bank and Trust Company ("State Street"), P.O. Box 1713, Boston,
Massachusetts 02105, serves as custodian of the Fund's assets. Boston Financial
Data Services ("BFDS"), P.O. Box 953, Boston, Massachusetts 02103, as agent for
State Street, serves as transfer and dividend-disbursing agent, and
administrator of various shareholder services. Legg Mason assists BFDS with
certain of its duties as transfer agent and receives compensation from BFDS for
its services. Shareholders who request an historical transcript of their account
will be charged a fee based upon the number of years researched. The fund
reserves the right, upon 60 days' written notice, to make other charges to
investors to cover administrative costs.
<PAGE>
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
PricewaterhouseCoopers LLP, 250 W. Pratt St., Baltimore, Maryland, serves as
independent accountants for the fund.
FINANCIAL STATEMENTS
The Statement of Net Assets as of December 31, 1999, the Statement of Operations
for the year ended December 31, 1999; the Statement of Changes in Net Assets for
the fiscal years ended December 31, 1999 and December 31, 1998; the Financial
Highlights for the periods presented; the Notes to Financial Statements and the
Report of Independent Accountants, each with respect to Focus Trust, are
included in the annual report for the year ended December 31, 1999, and are
hereby incorporated by reference in this Statement of Additional Information.
<PAGE>
APPENDIX A
RATINGS OF SECURITIES
Description of Moody's Investors Service, Inc.("Moody's")corporate bond ratings:
- -------------------------------------------------------------------------------
Aaa-Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa -Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risk appear somewhat larger than in Aaa securities.
A-Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa-Bonds which are rated Baa are considered medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba-Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa-Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca- Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C-Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Description of Standard & Poor's ("S&P") corporate bond ratings:
- ---------------------------------------------------------------
AAA-An obligation rated AAA has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
AA -An obligation rated AA differs from the highest rated obligations only
in small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A-An obligation rated A is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than obligations in higher
rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
<PAGE>
BBB-An obligation rated BBB exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation. Obligations rated BB, B, CCC, CC, and C are regarded as
having significant speculative characteristics. BB indicates the least degree of
speculation and C the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
BB-An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
B-An obligation rated B is more vulnerable to nonpayment than obligations
rated BB, but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
CCC-An obligation rated CCC is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
CC-An obligation rated CC is currently highly vulnerable to nonpayment.
C-A subordinated debt or preferred stock obligation rated C is currently
highly vulnerable to nonpayment. The C rating may be used to cover a situation
where a bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued. A C also will be assigned to a
preferred stock issue in arrears on dividends or sinking fund payments but that
is currently paying.
D-An obligation rated D is in payment default. The D rating category is
used when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.
Plus (+) or minus (-)-The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
r-This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk-such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
N.R.-This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular obligation as a matter of policy.
<PAGE>
Legg Mason Focus Trust, Inc.
Part C. Other Information
Item 23. Exhibits
(A) Articles of Incorporation (1)
(B) By-Laws (1)
(C) Specimen security -- not applicable.
(D) Investment Advisory and Management Agreement (2)
(E) Underwriting Agreement (2)
(F) Bonus, profit sharing or pension plans -- none.
(G) Custody Agreement (1)
(H) (i) Transfer Agent Services Agreement (1)
(ii) Amended and Restated Credit Agreement (3)
(I) Opinion and consent of counsel -- filed herewith.
(J) Other opinions, accountants' consent -- filed herewith.
(K) Financial statements omitted from Item 23 -- none.
(L) Agreement for providing initial capital (1)
(M) Plan pursuant to Rule 12b-1 (2)
(N) Financial Data Schedule -- - none.
(O) Plan Pursuant to Rule 18f-3 -- none.
(P) Code of ethics for the fund, its investment advisers, and its principal
underwriter (3)
(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 30, 1996.
(2) Incorporated herein by reference to the corresponding exhibit of
Post-Effective Amendment No. 8 to the registration statement of Focus
Trust, Inc. as electronically filed on March 2, 1999.
(3) Incorporated herein by reference to the corresponding exhibit of
Post-Effective Amendment No. 2 to the registration statement of Legg Mason
Investment Trust, Inc. as electronically filed on March 28, 2000.
Item 24. Persons Controlled by or under Common Control with Registrant
None.
Item 25. Indemnification
Reference is made to Article VII of the Registrant's Articles of
Incorporation and Article VI of the Registrant's By-Laws which are filed as
exhibits 1 and 2 respectively, and are incorporated by reference herein. Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to directors, officers and controlling persons of the Registrant by
the Registrant pursuant to the Fund's Articles of Incorporation, its By-Laws or
otherwise, the Registrant is aware that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Act and, therefore, is unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by directors, officers or controlling
persons of the Registrant in connection with the successful defense of any act,
suit or proceeding) is asserted by such directors, officers or controlling
persons in connection with shares being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issues.
<PAGE>
Item 26. Business and Connections of Investment Adviser
Legg Mason Fund Adviser, Inc. ("LMFA"), the Registrant's administrator,
is a registered investment adviser incorporated on January 20, 1982.
LMFA is engaged primarily in the investment advisory business.
Information as to the officers and directors of LMFA is included in its
Form ADV that was most recently amended on November 9, 1999, and is on
file with the Securities and Exchange Commission (Registration No.
801-16958) and is incorporated herein by reference.
Item 27. Principal Underwriters
(a) Legg Mason Cash Reserve Trust
Legg Mason Income Trust, Inc.
Legg Mason Tax Exempt Trust, Inc.
Legg Mason Tax-Free Income Fund
Legg Mason Value Trust, Inc.
Legg Mason Total Return Trust, Inc.
Legg Mason Special Investment Trust, Inc.
Legg Mason Global Trust, Inc.
Legg Mason Investors Trust, Inc.
Legg Mason Light Street Trust, Inc
Legg Mason Investment Trust, Inc.
LM Institutional Fund Advisors I, Inc.
LM Institutional Fund Advisors II, 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").
Name and Principal Position and Offices Positions and
Business Address* with Underwriter - Offices with
LMWW Registrant
-----------------------------------------------------------------------------
Raymond A. Mason Chairman of the None
Board and Director
James W. Brinkley President, Chief None
Operating Officer
and Director
Edmund J. Cashman, Jr. Senior Executive None
Vice President and
Director
Richard J. Himelfarb Senior Executive None
Vice President and
Director
Edward A. Taber III Senior Executive Director
Vice President
<PAGE>
Name and Principal Position and Offices Positions and
Business Address* with Underwriter - Offices with
LMWW Registrant
-----------------------------------------------------------------------------
Robert G. Donovan Executive Vice None
President
Robert A. Frank Executive Vice None
President
Robert G. Sabelhaus Executive Vice None
President
Timothy C. Scheve Executive Vice None
President and
Treasurer and
Director
Manoochehr Abbaei Senior Vice President None
Charles A. Bacigalupo Senior Vice None
President and
Secretary
F. Barry Bilson Senior Vice President None
D. Stuart Bowers Senior Vice President None
W. William Brab Senior Vice President None
Deepak Chowdhury Senior Vice President None
Thomas M. Daly, Jr. Senior Vice President None
Jeffrey W. Durkee Senior Vice President None
Harry M. Ford, Jr. Senior Vice President None
Dennis A. Green Senior Vice President None
<PAGE>
Name and Principal Position and Offices Positions and
Business Address* with Underwriter - Offices with
LMWW Registrant
-----------------------------------------------------------------------------
Thomas E. Hill Senior Vice President None
218 N. Washington Street
Suite 31
Easton, MD 21601
Arnold S. Hoffman Senior Vice President None
1735 Market Street
Philadelphia, PA 19103
Carl Hohnbaum Senior Vice President None
2500 CNG Tower
625 Liberty Avenue
Pittsburgh, PA 15222
William B. Jones, Jr. Senior Vice President None
1747 Pennsylvania Avenue N.W.
Washington, D.C. 20006
Theodore S. Kaplan Senior Vice President None
Laura L. Lange Senior Vice President None
Horace M. Lowman, Jr. Senior Vice None
President and Asst.
Secretary
Marvin H. McIntyre Senior Vice President None
1747 Pennsylvania Avenue N.W.
Washington, D.C. 20006
Thomas P. Mulroy Senior Vice President None
Jonathan M. Pearl Senior Vice President None
Mark I. Preston Senior Vice President None
Robert F. Price Senior Vice None
President and
General Counsel
Thomas L. Souders Senior Vice None
President and Chief
Financial Officer
Elisabeth N. Spector Senior Vice President None
<PAGE>
Name and Principal Position and Offices Positions and
Business Address* with Underwriter - Offices with
LMWW Registrant
-----------------------------------------------------------------------------
Joseph A. Sullivan Senior Vice President None
Richard L. Baker Vice President None
William H. Bass, Jr. Vice President None
Nathan S. Betnun Vice President None
John C. Boblitz Vice President None
Andrew J. Bowden Vice President and None
Deputy General Counsel
Edwin J. Bradley, Jr. Vice President None
Carol A. Brown Vice President None
Scott R. Cousino Vice President None
Thomas W. Cullen Vice President None
Charles J. Daley, Jr. Vice President and None
Controller
Norman C. Frost, Jr. Vice President None
James E. Furletti Vice President None
John R. Gilner Vice President None
Daniel R. Greller Vice President None
Richard A. Jacobs Vice President None
C. Gregory Kallmyer Vice President None
56 West Main Street
Newark, DE 19702
Kurt A. Lalomia Vice President None
Edward W. Lister, Jr. Vice President None
Theresa McGuire Vice President None
Julia A. McNeal Vice President None
Gregory B. McShea Vice President None
<PAGE>
Name and Principal Position and Offices Positions and
Business Address* with Underwriter - Offices with
LMWW Registrant
-----------------------------------------------------------------------------
Edward P. Meehan Vice President None
12021 Sunset Hills Road
Suite 100
Reston, VA 20190
Thomas C. Merchant Vice President and None
Assistant General
Counsel
Paul Metzger Vice President None
Mark C. Micklem Vice President None
1747 Pennsylvania Ave., N.W.
Washington, DC 20006
John A. Moag, Jr. Vice President None
Hance V. Myers, III Vice President None
1100 Poydras St.
New Orleans, LA 70163
Ann O'Shea Vice President None
Robert E. Patterson Vice President and None
Deputy General
Counsel
Gerard F. Petrik, Jr. Vice President None
Douglas F. Pollard Vice President None
Judith L. Ritchie Vice President None
Thomas E. Robinson Vice President None
Theresa M. Romano Vice President None
James A. Rowan Vice President None
1747 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
Douglas M. Schmidt Vice President None
B. Andrew Schmucker Vice President None
1735 Market Street
Philadelphia, PA 19103
Robert W. Schnakenberg Vice President None
<PAGE>
Name and Principal Position and Offices Positions and
Business Address* with Underwriter - Offices with
LMWW Registrant
-----------------------------------------------------------------------------
Henry V. Sciortino Vice President None
1735 Market St.
Philadelphia, PA 19103
Chris A. Scitti Vice President None
Eugene B. Shephard Vice President None
1111 Bagby St.
Houston, TX 77002-2510
Lawrence D. Shubnell Vice President None
Jane Soybelman Vice President None
Alexsander M. Stewart Vice President None
L. Kay Strohecker Vice President None
Joseph E. Timmins III Vice President None
Joyce Ulrich Vice President None
William A. Verch Vice President None
Sheila M. Vidmar Vice President and None
Deputy General Counsel
Lewis T. Yeager Vice President None
Carol Converso-Burton Assistant Vice None
President
Diana L. Deems Assistant Vice None
President and
Assistant Controller
Ronald N. McKenna Assistant Vice None
President
Suzanne E. Peluso Assistant Vice None
President
Lauri F. Smith Assistant Vice None
President
Janet B. Straver Assistant Vice None
President
Leslee Stahl Assistant Secretary None
<PAGE>
* All addresses are 100 Light Street, Baltimore, Maryland 21202, unless
otherwise indicated.
(c) The Registrant has no principal underwriter who is not an affiliated person
of the Registrant or an affiliated person of such an affiliated person.
Item 28. Location of Accounts and Records
State Street Bank and Trust Company Legg Mason Fund Adviser, Inc.
P. O. Box 1713 and 100 Light Street
Boston, Massachusetts 02105 Baltimore, Maryland 21202
Item 29. Management Services
None
Item 30. Undertakings
None
<PAGE>
SIGNATURE PAGE
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant, Legg Mason Focus Trust, Inc., certifies
that it meets all the requirements for effectiveness of this Post-Effective
Amendment No. 10 to its Registration Statement pursuant to Rule 485(b) 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 City
of Baltimore and State of Maryland, on the 12th day of April, 2000.
LEGG MASON FOCUS TRUST, INC.
By: /s/ Marie K. Karpinski
--------------------------------
Marie K. Karpinski
Vice President and Treasurer
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 date indicated:
Signature Title Date
--------- ----- ----
/s/ John F. Curley, Jr.* Director April 12, 2000
- ------------------------
John F. Curley, Jr.
/s/ Richard G. Gilmore* Director April 12, 2000
- ------------------------
Richard G. Gilmore
/s/ Arnold L. Lehman * Director April 12, 2000
- ------------------------
Arnold L. Lehman
/s/ Jill E. McGovern* Director April 12, 2000
- ------------------------
Jill E. McGovern
/s/ T.A. Rodgers* Director April 12, 2000
- ------------------------
T.A. Rodgers
/s/ G. Peter O'Brien* Director April 12, 2000
- ------------------------
G. Peter O'Brien
Director
- ------------------------ ---------------
Nelson A. Diaz
/s/ Marie K. Karpinski Vice President April 12, 2000
- ------------------------- and Treasurer
Marie K. Karpinski
* Signatures affixed by Marc R. Duffy pursuant to a Power of Attorney dated
November 12, 1999, filed herewith.
<PAGE>
POWER OF ATTORNEY
I, the undersigned Director/Trustee of one or more of the following investment
companies (as set forth in the companies' Registration Statements on form N-1A):
LEGG MASON CASH RESERVE TRUST LEGG MASON VALUE TRUST, INC.
LEGG MASON INCOME TRUST, INC. LEGG MASON TOTAL RETURN TRUST, INC.
LEGG MASON GLOBAL TRUST, INC. LEGG MASON SPECIAL INVESTMENT TRUST, INC.
LEGG MASON TAX EXEMPT TRUST, INC. LEGG MASON INVESTORS TRUST, INC.
LEGG MASON TAX-FREE INCOME FUND LEGG MASON LIGHT STREET TRUST, INC.
LEGG MASON FOCUS TRUST, INC. LEGG MASON INVESTMENT TRUST, INC.
plus any other investment company for which Legg Mason Fund Adviser, Inc. acts
as investment adviser or manager and for which the undersigned individual serves
as Director/Trustee hereby severally constitute and appoint each of MARIE K.
KARPINSKI, MARC R. DUFFY, ANDREW J. BOWDEN, ARTHUR J. BROWN and ARTHUR C.
DELIBERT my true and lawful attorney-in-fact, with full power of substitution,
and with full power to sign for me and in my name in the appropriate capacity
and only for those above-listed companies for which I serve as Director/Trustee,
any Registration Statements on Form N-lA, all Pre-Effective Amendments to any
Registration Statements of the Funds, any and all subsequent Post-Effective
Amendments to said Registration Statements, and any and all supplements or other
instruments in connection therewith, to file the same with the Securities and
Exchange Commission and the securities regulators of appropriate states and
territories, and generally to do all such things in my name and behalf in
connection therewith as said attorney-in-fact deems necessary or appropriate, to
comply with the provisions of the Securities Act of 1933 and the Investment
Company Act of 1940, all related requirements of the Securities and Exchange
Commission and all requirements of appropriate states and territories. I hereby
ratify and confirm all that said attorney-in-fact or their substitutes may do or
cause to be done by virtue hereof.
WITNESS my hand on the date set forth below.
SIGNATURE DATE
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/s/ Edmund J. Cashman, Jr. November 12, 1999
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Edmund J. Cashman, Jr.
/s/ John F. Curley, Jr. November 12, 1999
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John F. Curley, Jr.
/s/ Richard G. Gilmore November 12, 1999
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Richard G. Gilmore
/s/ Arnold L. Lehman November 12, 1999
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Arnold L. Lehman
/s/ Raymond A. Mason November 12, 1999
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Raymond A. Mason
/s/ Jill E. McGovern November 12, 1999
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Jill E. McGovern
/s/ Jennifer W. Murphy November 12, 1999
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Jennifer W. Murphy
/s/ G. Peter O'Brien November 12, 1999
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G. Peter O'Brien
/s/ T. A. Rodgers November 12, 1999
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T. A. Rodgers
/s/ Edward A. Taber, III November 12, 1999
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Edward A. Taber, III
<PAGE>
Legg Mason Focus Trust, Inc.
Exhibits
(A) Articles of Incorporation (1)
(B) By-Laws (1)
(C) Specimen security -- not applicable.
(D) Investment Advisory and Management Agreement (2)
(E) Underwriting Agreement (2)
(F) Bonus, profit sharing or pension plans -- none.
(G) Custody Agreement (1)
(H) (i) Transfer Agent Services Agreement (1)
(ii) Amended and Restated Credit Agreement (3)
(I) Opinion and consent of counsel -- filed herewith.
(J) Other opinions, accountants' consent -- filed herewith.
(K) Financial statements omitted from Item 23 -- none.
(L) Agreement for providing initial capital (1)
(M) Plan pursuant to Rule 12b-1 (2)
(N) Financial Data Schedule -- none.
(O) Plan Pursuant to Rule 18f-3 -- none.
(P) Code of ethics for the fund, its investment advisers, and its principal
underwriter (3)
(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 30, 1996.
(2) Incorporated herein by reference to the corresponding exhibit of
Post-Effective Amendment No. 8 to the registration statement of Focus
Trust, Inc. as electronically filed on March 2, 1999.
(3) Incorporated herein by reference to the corresponding exhibit of
Post-Effective Amendment No. 2 to the registration statement of Legg
Mason Investment Trust, Inc. as electronically filed on March 28, 2000.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
2nd Floor
Washington, DC 20036
ARTHUR C. DELIBERT
(202) 778-9042
[email protected]
April 10, 2000
Legg Mason Focus Trust, Inc.
100 Light Street
Baltimore, MD 21202
Dear Sir or Madam:
Legg Mason Focus Trust, Inc. (the "Corporation") is a corporation
organized under the laws of the State of Maryland by Articles of Incorporation
dated January 27, 1995. You have requested our opinion as to certain matters
regarding the issuance of Shares of common stock of the Corporation ("Shares").
As used in this letter, the term "Shares" means shares of common stock of the
Corporation issued during the time that Post-Effective Amendment No. 10 to the
Corporation's registration statement is effective and has not been superseded by
another post-effective amendment purporting to register the same Shares covered
in this opinion.
We have, as counsel, participated in various corporate and other
matters relating to the Corporation. We have examined certified copies of the
Articles of Incorporation and By-Laws, the minutes of meetings of the directors
and other documents relating to the organization and operation of the
Corporation, and we are generally familiar with its business affairs. Based upon
the foregoing, it is our opinion that the issuance of the Shares has been duly
authorized by the Corporation and that, when sold in accordance with the
Corporation's Articles of Incorporation, By-Laws and the terms described in
Post-Effective Amendment No. 10 to the Corporation's Registration Statement, the
Shares will have been legally issued, fully paid and nonassessable by the
Corporation.
We hereby consent to the filing of this opinion in connection with
Post-Effective Amendment No. 10 to the Company's Registration Statement on Form
N-1A (File No. 33-89090) being filed with the Securities and Exchange
Commission. We also consent to the reference to our firm in the Statement of
Additional Information filed as part of the Registration Statement.
Sincerely,
KIRKPATRICK & LOCKHART LLP
/s/ Kirkpatrick & Lockhart LLP
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Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 10 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated February 10, 2000, relating to the financial
statements and financial highlights which appear in the December, 31, 1999
Annual Report to Shareholders of Legg Mason Focus Trust, Inc., also incorporated
by reference into the Registration Statement. We also consent to the references
to us under the heading "Financial Highlights" in the Prospectus and under the
heading "The Fund's Independent Accountants" in the Statement of Additional
Information.
/s/PricewaterhouseCoopers LLP
Baltimore, Maryland
April 11, 2000
