As filed with the Securities and Exchange Commission on September 24, 1996
Registration No. 33-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. [ ]
LEGG MASON CASH RESERVE TRUST
(Exact Name of Registrant as Specified in Charter)
111 South Calvert Street
Baltimore, Maryland 21202
(Address of Principal Executive Offices)
(410) 539-0000
(Registrant's Area Code and Telephone Number)
CHARLES A. BACIGALUPO
111 South Calvert Street
Baltimore, Maryland 21202
(Name and Address of Agent for Service)
Copies to:
LINDA L. RITTENHOUSE, ESQ.
BRIAN F. MCNALLY, ESQ.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
Second Floor
Washington, D.C. 20036-1800
Telephone: (202) 778-9000
Approximate Date of Proposed Public Offering: as soon as practicable
after this Registration Statement becomes effective.
The Registrant has filed a declaration registering an indefinite number
of securities pursuant to Rule 24f-2 under the Investment Company Act of 1940,
as amended. Accordingly, no filing fee is payable herewith. The Registrant filed
on October 26, 1995, the notice required by Rule 24f-2 for its fiscal year
ended August 31, 1995.
It is proposed that this filing will become effective on October 24,
1996 pursuant to Rule 488.
<PAGE>
LEGG MASON CASH RESERVE TRUST, INC.
Form N-14 Cross Reference Sheet
<TABLE>
<CAPTION>
Part A Item No. Prospectus/Proxy
and Caption Statement Caption
<S> <C>
1. Beginning of Registration Cover Page
Statement and Outside Front Cover
Page of Prospectus
2. Beginning and Outside Back Cover Table of Contents
Page of Prospectus
3. Synopsis Information and Risk Synopsis; Comparison of Principal
Factors Risk Factors
4. Information About the Transaction Synopsis; The Proposed
Transactions; General Information
5. Information About the Registrant Synopsis; Comparison of Principal
Risk Factors; See also, the
Prospectus of Legg Mason Cash
Reserve Trust, dated April 1,
1996, previously filed on EDGAR,
Accession Number: 0000950169-96-
000074
6. Information About the Company Synopsis; Comparison of Principal
Being Acquired Risk Factors; See also, the
Prospectus of Bartlett Cash
Reserves Fund, dated August 1,
1996, previously filed on EDGAR,
Accession Number: 0000950133-96-
001395; Supplement dated August
16, 1996 to Prospectus of
Bartlett Cash Reserves Fund,
previously filed on EDGAR,
Accession Number: 0000916641-
96-000720
7. Voting Information Voting Information
8. Interest of Certain Persons and Not Applicable
Experts
9. Additional Information Required Not Applicable
for Reoffering by Persons Deemed
to be Underwriters
<CAPTION>
Part B Item No. Statement of Additional
and Caption Information Caption
<S> <C>
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. Additional Information About the Statement of Additional
Registrant Information of Legg Mason Cash
Reserve Trust, dated April 1, 1996,
previously filed on EDGAR,
Accession Number: 0000950169-96-
000074
13. Additional Information About the Statement of Additional
Company Being Acquired Information of Bartlett Cash
Reserves Fund, dated August 1,
1996, previously filed on EDGAR,
Accession Number: 0000950133-96-
001395
14. Financial Statements Annual Report of Legg Mason Cash
Reserve Trust for Fiscal Year Ended
August 31, 1996 -- to be filed
Annual Report of Bartlett Cash
Reserves Fund for Fiscal Year
Ended March 31, 1996, previously
filed on EDGAR, Accession Number:
0000950169-96-000156
</TABLE>
Part C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE>
Dear Shareholder:
In January 1996, Bartlett & Co. became a wholly-owned subsidiary of Legg
Mason, Inc., an investment firm headquartered in Baltimore, Maryland. We are
pleased to report the merger of our operations has proceeded very smoothly.
Because our affiliation with Legg Mason, Inc. has increased the numbers and
types of products we can offer, we have evaluated the services and products we
provide our clients and fund shareholders. Our evaluation helped us determine
that we should consider the reorganization of several of the Bartlett mutual
funds into two existing Legg Mason mutual funds and enclosed is a proxy
statement asking you to vote on the following reorganization proposals:
(bullet) The reorganization of Bartlett Cash Reserves Fund into Legg Mason
Cash Reserve Trust.
(bullet) The reorganization of both Bartlett Short Term Bond Fund and
Bartlett Fixed Income Fund into Legg Mason U.S. Government
Intermediate-Term Portfolio.
In each case, the objectives of the funds to be reorganized are similar. We
believe these reorganizations to be in your best interest, as shareholders,
because the Legg Mason funds generally have better historical performance
records (although historical performance is not indicative or predictive of
future performance) and because of the added diversification and economies of
scale larger funds can provide. We encourage you to read the proxy statement
which provides additional detail on the reasons for the reorganizations. IF YOU
ARE A BARTLETT CASH RESERVES FUND SHAREHOLDER, PLEASE PARTICULARLY REVIEW
PROPOSAL 1. IF YOU ARE A SHAREHOLDER OF EITHER BARTLETT SHORT TERM BOND FUND
OR BARTLETT FIXED INCOME FUND, PLEASE PARTICULARLY REVIEW PROPOSAL 2.
After reviewing each matter carefully, the Boards of Trustees of the
Bartlett Funds unanimously recommend that you vote FOR each proposal applicable
to you.
YOUR VOTE IS IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. PLEASE
TAKE A FEW MINUTES TO REVIEW THIS MATERIAL, CAST YOUR VOTE ON THE ENCLOSED PROXY
CARD AND RETURN THE PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE. YOUR
PROMPT RESPONSE IS NEEDED TO AVOID COSTLY FOLLOW-UP MAILINGS.
Thank you very much for your assistance.
Sincerely,
- ------------------------------- --------------------------------
Dale H. Rabiner, CFA James B. Reynolds, CFA
Chairman Chairman
Bartlett Capital Trust Bartlett Management Trust
<PAGE>
BARTLETT CASH RESERVES FUND
BARTLETT FIXED INCOME FUND
BARTLETT SHORT TERM BOND FUND
36 East Fourth Street
Cincinnati, Ohio 45202
- --------------------------------------------------------------------------------
JOINT NOTICE OF
SPECIAL MEETINGS OF SHAREHOLDERS
TO BE HELD ON
DECEMBER 6, 1996
- --------------------------------------------------------------------------------
Special Meetings of Shareholders of Bartlett Cash Reserves Fund ("Cash
Fund"), a series of Bartlett Management Trust ("Management Trust"), Bartlett
Fixed Income Fund ("Fixed Income"), a series of Bartlett Capital Trust ("Capital
Trust"), and Bartlett Short Term Bond Fund ("Short Term"), also a series of
Capital Trust, will be held on December 6, 1996, at 36 East Fourth Street,
Cincinnati, Ohio 45202, at 10:00 a.m., to act on the following matters, all as
described in accompanying Prospectus/Proxy Statement:
1. Approval or disapproval of an Agreement and Plan of Reorganization
and Termination under which Legg Mason Cash Reserve Trust ("Cash Reserve") would
acquire the assets of Cash Fund in exchange solely for shares of beneficial
interest in Cash Reserve and the assumption by Cash Reserve of Cash Fund's
liabilities, followed by the distribution of those shares to the shareholders of
Cash Fund and the termination of Cash Fund and Management Trust;
2. Approval or disapproval of an Agreement and Plan of Reorganization
and Termination under which Legg Mason U.S. Government Intermediate-Term
Portfolio ("Intermediate-Term"), a series of Legg Mason Income Trust, Inc.,
would acquire the assets of Fixed Income in exchange solely for shares of common
stock of Intermediate-Term and the assumption by Intermediate-Term of Fixed
Income's liabilities, followed by the distribution of those shares to the
shareholders of Fixed Income and the termination of Fixed Income;
3. Approval or disapproval of an Agreement and Plan of Reorganization
and Termination under which Intermediate-Term would acquire the assets of Short
Term in exchange solely for shares of common stock of Intermediate-Term and the
assumption by Intermediate-Term of Short Term's liabilities, followed by the
distribution of those shares to the shareholders of Short Term and the
termination of Short Term; and
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Shareholders of record of Cash Fund, Fixed Income and Short Term as of
____________, 1996, are entitled to notice of and to vote at the meeting or any
adjournment thereof.
By Order of the Boards of Trustees.
Cincinnati, Ohio
October __, 1996
Kathi D. Bair
Secretary
YOUR VOTE IS IMPORTANT
TO ENSURE A QUORUM, PLEASE COMPLETE AND RETURN THE PROXY FOR THE APPLICABLE
FUND IN THE ENCLOSED ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN THE
UNITED STATES. IF YOU ATTEND THE MEETING, YOUR PROXY WILL BE RETURNED TO YOU
UPON REQUEST TO THE SECRETARY OF THE MEETING.
<PAGE>
LEGG MASON CASH RESERVE TRUST
LEGG MASON U.S. GOVERNMENT INTERMEDIATE-TERM PORTFOLIO
(a series of Legg Mason Income Trust, Inc.)
Legg Mason Wood Walker, Inc.
111 South Calvert Street
Baltimore, MD 21203-1476
(Toll Free) 1-800-822-5544
BARTLETT CASH RESERVES FUND
(a series of Bartlett Management Trust)
BARTLETT FIXED INCOME FUND
BARTLETT SHORT TERM BOND FUND
(each a series of Bartlett Capital Trust)
Bartlett & Co.
36 East Fourth Street
Cincinnati, Ohio 45202
(Toll Free) 1-800-822-5544
PROSPECTUS/PROXY STATEMENT
October __, 1996
This Prospectus/Proxy Statement ("Proxy Statement") is being furnished
to shareholders of Bartlett Cash Reserves Fund ("Cash Fund"), a series of
Bartlett Management Trust ("Management Trust"), Bartlett Fixed Income Fund
("Fixed Income"), a series of Bartlett Capital Trust ("Capital Trust"), and
Bartlett Short Term Bond Fund ("Short Term"), also a series of Capital Trust
(each an "Acquired Fund" and collectively, the "Acquired Funds"), in connection
with the solicitation of proxies by Management Trust's and Capital Trust's
boards of trustees for use at a combined special meeting of shareholders of the
Acquired Funds to be held on December 6, 1996, at 10:00 a.m., and at any
adjournment thereof ("Meeting").
As more fully described in this Proxy Statement, the primary purpose of
the Meeting is to vote on three proposed reorganizations (each a
"Reorganization" and collectively, the "Reorganizations"). Under one
Reorganization, Legg Mason Cash Reserve Trust ("Cash Reserve") would acquire the
assets of Cash Fund in exchange solely for shares of beneficial interest in Cash
Reserve and the assumption by Cash Reserve of Cash Fund's liabilities. Those
Cash Reserve shares then would be distributed to the shareholders of Cash Fund,
so that each shareholder of Cash Fund would receive a number of full and
fractional shares of Cash Reserve having an aggregate net asset value that, on
the effective date of the Reorganization, is equal to the aggregate net asset
value of the shareholder's shares in Cash Fund. Following the distribution, Cash
Fund and Management Trust will be terminated.
Under the other Reorganizations, Legg Mason U.S. Government
Intermediate-Term Portfolio ("Intermediate-Term"), a series of Legg Mason Income
Trust, Inc. ("Income Trust"), would acquire the assets of Fixed Income and Short
Term, respectively, in exchange solely for shares of common stock of
Intermediate-Term and the assumption by Intermediate-Term of Fixed Income's and
Short Term's respective liabilities (Cash Reserve and Intermediate-Term are each
sometimes referred to as "Acquiring Fund" and collectively as the "Acquiring
Funds"). Those Intermediate-Term shares then would be distributed to the
shareholders of Fixed Income and Short Term, respectively, so that each
shareholder of Fixed Income and Short Term would receive a number of full and
fractional shares of Intermediate-Term having an aggregate net asset value that,
on the effective date of the Reorganizations, is equal to the aggregate net
asset value of the shareholder's shares in Fixed Income or Short Term. Following
these distributions, Fixed Income and Short Term will be terminated.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
1
<PAGE>
Cash Reserve is a diversified money market fund with an investment
objective to achieve stability of principal and current income consistent with
stability of principal. Cash Reserve seeks to achieve its investment objective
by investing in a portfolio of high-quality money market instruments maturing in
397 days or less. Both Cash Reserve and Cash Fund are money market funds that
seek to maintain a stable $1.00 price per share.
An investment in either Cash Reserve or Cash Fund is neither insured
nor guaranteed by the U.S. Government. While each Fund seeks to maintain a
stable net asset value of $1.00 per share, there can be no assurance that it
will be able to do so.
Intermediate-Term is a diversified bond fund with an investment
objective of high current income consistent with prudent investment risk and
liquidity needs. Under normal circumstances, Intermediate-Term invests at least
75% of its total assets in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities or instruments secured by such
securities, including repurchase agreements.
Bartlett & Co., the investment adviser of each Acquired Fund, is a
wholly-owned subsidiary of Legg Mason, Inc. Western Asset Management Company and
Legg Mason Fund Adviser, Inc., the investment adviser and manager, respectively,
of each Acquiring Fund, are also wholly-owned subsidiaries of Legg Mason, Inc.
This Proxy Statement, which should be retained for future reference,
sets forth concisely the information about the Reorganizations and the Acquiring
Funds that a shareholder should know before voting. This Proxy Statement is
accompanied by the Prospectus of Cash Reserve, dated April 1, 1996, the
Prospectus of Intermediate-Term, dated May 1, 1996, and the Annual Reports of
Cash Reserve and Intermediate-Term for the fiscal years ended August 31, 1996
and December 31, 1995, respectively, all of which are incorporated by this
reference into this Proxy Statement. A Statement of Additional Information dated
October__, 1996, relating to the Reorganizations and including historical
financial statements, has been filed with the Securities and Exchange Commission
("SEC") and is incorporated herein by this reference. A Prospectus and Statement
of Additional Information for each Acquired Fund, dated August 1, 1996 (as
supplemented August 16, 1996), a Statement of Additional Information of Cash
Reserve, dated April 1, 1996, and a Statement of Additional Information of
Intermediate-Term, dated May 1, 1996, have been filed with the SEC and also are
incorporated herein by this reference. Copies of these documents, as well as
each Acquired Fund's Annual Report to Shareholders for the fiscal year ended
March 31, 1996, may be obtained without charge and further inquiries may be made
by contacting your Bartlett & Co. investment representative or by calling
toll-free 1-800-822-5544.
2
<PAGE>
TABLE OF CONTENTS
Page
VOTING INFORMATION..........................................................
PROPOSAL 1: APPROVAL OF THE REORGANIZATION OF BARTLETT
CASH RESERVES FUND INTO LEGG MASON CASH
RESERVE TRUST..........................................
-- SYNOPSIS............................................
-- COMPARISON OF PRINCIPAL RISK FACTORS................
-- THE PROPOSED TRANSACTION............................
PROPOSAL 2: APPROVAL OF THE REORGANIZATIONS OF BARTLETT
FIXED INCOME FUND AND BARTLETT SHORT TERM
BOND FUND INTO LEGG MASON U.S. GOVERNMENT
INTERMEDIATE-TERM PORTFOLIO............................
-- SYNOPSIS............................................
-- COMPARISON OF PRINCIPAL RISK FACTORS................
-- THE PROPOSED TRANSACTIONS...........................
ADDITIONAL INFORMATION ABOUT LEGG MASON CASH RESERVE TRUST..................
ADDITIONAL INFORMATION ABOUT LEGG MASON U.S. GOVERNMENT
INTERMEDIATE-TERM PORTFOLIO.................................................
GENERAL INFORMATION.........................................................
MISCELLANEOUS...............................................................
APPENDIX A - AGREEMENTS AND PLANS OF REORGANIZATION AND TERMINATION
3
<PAGE>
BARTLETT CASH RESERVES FUND
(a series of Bartlett Management Trust)
BARTLETT FIXED INCOME FUND
BARTLETT SHORT TERM BOND FUND
(each a series of Bartlett Capital Trust)
PROSPECTUS/PROXY STATEMENT
Special Meeting of Shareholders
To Be Held On
December 6, 1996
VOTING INFORMATION
This Prospectus/Proxy Statement ("Proxy Statement") is being furnished
to shareholders of Bartlett Cash Reserves Fund ("Cash Fund"), a series of
Bartlett Management Trust ("Management Trust"), Bartlett Fixed Income Fund
("Fixed Income"), a series of Bartlett Capital Trust ("Capital Trust"), and
Bartlett Short Term Bond Fund ("Short Term"), also a series of Capital Trust
(each an "Acquired Fund" and collectively, the "Acquired Funds") in connection
with the solicitation of proxies by Management Trust's and Capital Trust's
boards of trustees for use at a combined special meeting of shareholders to be
held on December 6, 1996, and at any adjournment thereof ("Meeting"). This Proxy
Statement will first be mailed to shareholders on or about October __, 1996.
A majority of shares of an Acquired Fund outstanding on October __,
1996, represented in person or by proxy, must be present for the transaction of
business by that Acquired Fund at the Meeting. If, with respect to any Acquired
Fund, a quorum is not present at the Meeting or a quorum is present but
sufficient votes to approve the proposal are not received, the persons named as
proxies may propose one or more adjournments of the Meeting with respect to that
Acquired Fund to permit further solicitation of proxies. Any such adjournment
will require the affirmative vote of a majority of those shares of the Acquired
Fund represented at the Meeting in person or by proxy. The persons named as
proxies will vote those proxies that they are entitled to vote FOR the proposal
in favor of such an adjournment and will vote those proxies required to be voted
AGAINST the proposal against such adjournment. A shareholder vote may be taken
on the proposals in this Proxy Statement prior to any such adjournment if
sufficient votes have been received and it is otherwise appropriate.
Broker non-votes are shares held in street name for which the broker
indicates that instructions have not been received from the beneficial owners or
other persons entitled to vote and for which the broker does not have
discretionary voting authority. Abstentions and broker non-votes will be counted
as shares present for purposes of determining whether a quorum is present but
will not be voted for or against the adjournment or proposal. Accordingly,
abstentions and broker non-votes effectively will be a vote against adjournment
or against the proposal where the required vote is a percentage of the shares
present or outstanding. Abstentions and broker non-votes will not be counted,
however, as votes cast for purposes of determining whether sufficient votes have
been received to approve the proposal.
The individuals named as proxies on the enclosed proxy card will vote
in accordance with your direction as indicated thereon if your proxy card is
received properly executed by you or by your duly appointed agent or
attorney-in-fact. If you sign, date and return the proxy card, but give no
voting instructions, your shares will be voted in favor of approval of the
Agreement and Plan of Reorganization and Termination, dated as of September 20,
1996 (each a "Reorganization Plan"), that involves your Acquired Fund. A copy
of the Reorganization Plan is attached to this Proxy Statement as Appendix A.
Under one Reorganization Plan, Legg Mason Cash Reserve Trust ("Cash
Reserve") would acquire the assets of Cash Fund in exchange solely for
shares of beneficial interest in Cash Reserve and the assumption by Cash
Reserve of Cash Fund's liabilities; those Cash Reserve shares then would be
distributed pro rata to Cash Fund's shareholders. Under the other
Reorganization Plans, Legg Mason U.S. Government Intermediate-Term
Portfolio ("Intermediate-Term"), a series of Legg Mason Income Trust, Inc.
("Income Trust"), would acquire the assets of Fixed Income and Short Term,
respectively, in exchange solely for shares of common stock in Intermediate-Term
and the assumption by Intermediate-Term of Fixed Income's and Short Term's
respective liabilities; those Intermediate-Term shares then would be distributed
pro rata to Fixed Income and Short Term shareholders, respectively
(These transactions are referred to herein each as a "Reorganization" and
collectively, as the "Reorganizations"). After completion of the
Reorganizations, each Acquired Fund will be terminated.
In addition, if you sign, date and return the proxy card, but give no
voting instructions, the duly appointed proxies may vote your shares, in their
discretion, upon such other matters as may come before the Meeting. The proxy
card may be revoked by giving another proxy or by letter or telegram revoking
the initial proxy. To be effective, such revocation must be received by
Management Trust and Capital Trust, as applicable, prior to the Meeting and must
indicate your name and account number. In addition, if you attend the Meeting in
person, you may, if you wish, vote by ballot at the Meeting, thereby canceling
any proxy previously given.
As of the record date, [__________], 1996 ("Record Date"), Cash Fund
had [___________] shares, Fixed Income had [________] shares, and Short Term had
[________] shares of beneficial interest outstanding. The solicitation of
proxies, the cost of which will be borne by Legg Mason Fund Adviser, Inc. ("Fund
Adviser") and Western Asset Management Company ("Western"), will be made
primarily by mail but also may include telephone or oral communications by
representatives of Fund Adviser who will not receive any compensation therefor
from the Funds. Management does not know of any single shareholder or "group"
(as that term is used in Section 13(d) of the Securities Exchange Act of 1934)
who owned beneficially 5% or more of the shares of any Fund as of the Record
Date. Trustees and officers of Cash Reserve and Income Trust own in the
aggregate less than 1% of the shares of their respective funds.
For voting purposes, the shareholders of each Acquired Fund will vote
only on the Reorganization Plan applicable to that fund. Approval of a
Reorganization Plan and consummation of the transactions contemplated thereby
for one Acquired Fund do not depend on the approval of the other Reorganization
Plan by the other Acquired Fund's shareholders and consummation of the
transactions contemplated thereby.
With respect to each transaction, approval of a Reorganization Plan
requires the affirmative vote of a majority of the outstanding shares of the
applicable Acquired Fund, which is defined for this purpose, as the lesser of
(1) more than 50% of the outstanding shares of the applicable 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. Each
outstanding full share of each Acquired Fund is entitled to one vote, and each
outstanding fractional share thereof is entitled to a proportionate fractional
share of one vote. If a Reorganization Plan is not approved by the requisite
vote of shareholders of the applicable Acquired Fund, the persons named as
proxies may propose one or more adjournments of the Meeting to permit further
solicitation of proxies. Although the shareholders of the Acquired Funds may
exchange or redeem out of a Fund, they do not have the appraisal rights that may
be accorded to shareholders of corporations that propose similar types of
reorganizations under the laws of some states.
PROPOSAL 1: REORGANIZATION OF BARTLETT CASH RESERVE FUND INTO LEGG MASON
CASH RESERVE TRUST
SYNOPSIS
The following is a summary of certain information contained elsewhere
in this Proxy Statement, the Prospectuses of Cash Fund and Cash Reserve, which
are incorporated herein by reference, and the applicable Reorganization Plan.
Shareholders should read this Proxy Statement and the Prospectus of Cash Reserve
carefully. As discussed more fully below, Management Trust's board of trustees
believes that the Reorganization will benefit Cash Fund's shareholders. Cash
Fund and Cash Reserve have substantially similar investment objectives, although
their investment policies may differ in some respects. It is anticipated that
following the Reorganization, the former shareholders of Cash Fund will benefit
from a fund providing historically comparable performance (although past
performance is not indicative or predictive of future performance), with the
added diversity and liquidity only a substantially larger fund can provide.
The Proposed Reorganization
The board of trustees of Management Trust has considered and approved
the Reorganization Plan with respect to Cash Fund at a meeting held on August
12, 1996. The Reorganization Plan provides for the acquisition of the assets of
Cash Fund by Cash Reserve, in exchange solely for shares of beneficial interest
of Cash Reserve and the assumption by Cash Reserve of the liabilities of Cash
Fund. Cash Fund will then distribute those shares to its shareholders, so that
each Cash Fund shareholder will receive the number of full and fractional shares
that equals in value such shareholder's holdings in Cash Fund as of the Closing
Date (defined below). Cash Fund and Management Trust then will be terminated as
soon as practicable thereafter.
The exchange of Cash Fund's assets for Cash Reserve shares and Cash
Reserve's assumption of its liabilities will occur as of 4:00 p.m., on December
13, 1996 or such later date as the conditions to the closing are satisfied
("Closing Date").
For the reasons set forth below under "The Proposed Transaction --
Reasons for the Reorganization," the board of trustees of Management Trust,
including its trustees who are not "interested persons," as that term is defined
in the Investment Company Act of 1940 ("1940 Act") ("Independent Trustees"), has
determined that the Reorganization is in the best interests of Cash Fund, that
the terms of the Reorganization are fair and reasonable and that the interests
of Cash Fund's shareholders will not be diluted as a result of the
Reorganization. Accordingly, the board of trustees of Management Trust
recommends approval of the transaction. In addition, Cash Reserve's board of
trustees, including its Independent Trustees, has determined that the
Reorganization is in the best interests of Cash Reserve, that the terms of the
Reorganization are fair and reasonable and that the interests of Cash Reserve's
shareholders will not be diluted as a result of the Reorganization.
Comparative Fee Table
Certain fees and expenses that Cash Fund's shareholders pay, directly
or indirectly, are different from those incurred by Cash Reserve shareholders.
It is anticipated that, following the Reorganization, the former shareholders of
Cash Fund will, as shareholders of Cash Reserve, be subject to total operating
expenses as a percentage of net assets comparable to those experienced by Cash
Fund.
Bartlett & Co. ("Bartlett"), the investment adviser of Cash Fund, is
currently paid by Cash Fund a management fee at the annual rate of 0.78% of that
Fund's average daily net assets up to and including $500 million and 0.75% of
such assets in excess of $500 million. Unlike Cash Reserve, the management fee
paid by Cash Fund includes transfer agency, pricing, custodial, auditing and
legal services, and general administrative and other operating expenses.
Bartlett pays all of the expenses for Cash Fund except brokerage, taxes,
interest and extraordinary expenses. Based on Cash Fund's average net assets of
$81,590,332 for the year ended March 31, 1996, Cash Fund paid a management fee
equal to 0.78% of its average daily net assets. Based on Cash Reserve's average
net assets of $_____________ for the year ended August 31, 1996, Cash Reserve
paid total operating expenses at the annual rate of ____%. Fund Adviser, the
manager of Cash Reserve, is paid by that Fund a management fee, computed daily
and paid monthly, at an annual rate of 0.50% of average daily net assets for the
first $500 million, 0.475% of the next $500 million, 0.45% of the next $500
million, 0.425% of the next $500 million and 0.40% of assets in excess of $2
billion. With respect to Cash Reserve, Fund Adviser (not Cash Reserve) pays
Western a fee for its investment advisory services ("advisory fee") at an annual
rate of 30% of the fee received by Fund Adviser for management services.
Following the Reorganization, Fund Adviser will continue to pay Western an
advisory fee at the same annual rate. For the fiscal year ended August 31,
1996, Cash Reserve paid a management fee at the effective annual rate of ____%
of average daily net assets. Following the Reorganization, the management fee
and total expense ratio for the combined fund is expected to be 0.48% and 0.78%,
respectively, of average daily net assets.
Cash Reserve is authorized to pay a 12b-1 fee at the annual rate of up
to 0.15% of its average daily net assets, However, Legg Mason Wood Walker,
Inc. ("Legg Mason"), Cash Reserve's distributor, has not yet requested such
payments. Beginning in January 1997, Legg Mason will likely request payment
of a 12b-1 fee at the annual rate of 0.10% of Cash Reserve's average daily net
assets. Legg Mason has agreed that it will not request an increase in this
0.10% 12b-1 fee during the first two years. Cash Fund pays no 12b-1 fee.
Nonetheless, for at least the first year following the Reorganization, the
total operating expenses for the combined fund are not expected to exceed Cash
Fund's current 0.78% management fee. The following tables show (1)
transaction expenses currently incurred by shareholders of each Fund and
transaction expenses that each shareholder will incur after giving effect to
the Reorganization, and (2) the current fees and expenses incurred for the
fiscal year ended August 31, 1996 by Cash Reserve and for the fiscal year ended
March 31, 1996 by Cash Fund, and pro forma fees for Cash Reserve after giving
effect to the Reorganization (assuming imposition of an annual 0.10% 12b-1
fee).
Shareholder Transaction Expenses
Cash Cash Combined
Reserve Fund Fund
Sales charge on purchases of None None None
shares
Sales charge on reinvested None None None
dividends
Redemption fee or deferred None None None
sales charge
Annual Fund Operating Expenses
(as a percentage of average net assets)
Cash Cash Combined Fund
Reserve Fund (Pro Forma)
Management Fees 0.__% 0.78% 0.48%
12b-1 Fees 0.__% 0.00% 0.10%
Other Expenses 0.__% 0.00% 0.20%
Total Fund Operating Expenses 0.__% 0.78% 0.78%
Example of Effect on Fund Expenses
The following table illustrates the expenses on a $1,000 investment
under the fees and the expenses stated above, assuming a 5% annual return and
redemption at the end of each time period.
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
Cash Reserve................ $ $ $ $
Cash Fund................... $8 $25 $43 $97
Combined Fund............... $8 $25 $43 $97
- ------------------------------
This Example assumes that all dividends and other distributions are
reinvested and that the percentage amounts listed under Annual Fund Operating
Expenses remain the same in the years shown. The above tables and the assumption
in this Example of a 5% annual return are required by regulations of the
SEC applicable to all mutual funds; the assumed 5% annual return is not a
prediction of, and does not represent, either Fund's projected or actual
performance.
This Example should not be considered a representation of past or
future expenses, and each Fund's actual or pro forma expenses may be more or
less than those shown. The actual expenses of Cash Reserve and the Combined Fund
will depend upon, among other things, the level of their average net assets and
the extent to which they incur variable expenses, such as transfer agency costs.
Forms of Organization
Cash Reserve and Management Trust are both open-end management
investment companies organized as business trusts under the laws of the
Commonwealth of Massachusetts and the State of Ohio, respectively. Cash
Reserve's Declaration of Trust authorizes the issuance of an unlimited number of
shares of beneficial interest, no par value per share. Management Trust's
Declaration of Trust also authorizes the issuance of an unlimited number of
shares of beneficial interest, no par value per share. Cash Reserve commenced
operations on November 2, 1979. Cash Fund commenced operations on February 16,
1988. Neither Fund is required to (and neither does) hold annual shareholder
meetings.
Under certain circumstances, shareholders may be held personally liable
under Massachusetts law for obligations of Cash Reserve. To protect its
shareholders, Cash Reserve's Declaration of Trust, filed with the Commonwealth
of Massachusetts, expressly disclaims the liability of its shareholders for acts
or obligations of Cash Reserve. The Declaration requires notice of this
disclaimer to be given in each agreement, obligation or instrument Cash Reserve
or its trustees enter into or sign. In the unlikely event a shareholder, based
on the mere fact of being a shareholder, is held personally liable for Cash
Reserve's obligations, Cash Reserve is required to use its property to protect
or compensate the shareholder. On request, Cash Reserve will defend any claim
made, and pay any judgment, against such a shareholder for any act or obligation
of Cash Reserve. Therefore, financial loss resulting from liability as a
shareholder will occur only if Cash Reserve itself cannot meet its obligations
to indemnify shareholders and pay judgments against them.
Investment Objectives and Policies
The investment objective and policies of each Fund are set forth below.
There can be no assurance that either Fund will achieve its investment
objective. An investment in either Fund is neither insured nor guaranteed by the
U.S. Government. While each Fund seeks to maintain a stable net asset value of
$1.00 per share, there can be no assurance that it will be able to do so.
Cash Reserve. The investment objective of Cash Reserve is to achieve
stability of principal and current income consistent with stability of
principal. The Fund seeks to achieve its objective by investing in a portfolio
of high quality money market instruments maturing in 397 days or less, including
certain instruments of domestic and foreign banks and savings and loan
institutions; commercial paper rated A-1 by Standard & Poor's ("S&P"), Prime- 1
by Moody's Investors Service, Inc. ("Moody's") or F-1 by Fitch Investors Service
("Fitch"); marketable obligations issued or guaranteed by the U.S. government,
its agencies or instrumentalities; repurchase agreements; corporate bonds with a
remaining maturity of 397 days or less, rated AAA or AA by S&P or Aaa or Aa by
Moody's and comparable unrated bonds; and U.S. dollar-denominated securities of
foreign issuers.
Cash Reserve may purchase only money market instruments determined by
its adviser to present minimal credit risks and that are (1) rated in one of the
two highest rating categories by at least two nationally recognized statistical
rating organizations ("NRSROs") (or one, if only one NRSRO has rated the
security) or, (2) if unrated, determined to be of comparable quality by the
adviser pursuant to procedures adopted by Cash Reserve's Board of Trustees
("Eligible Securities"). The Fund may invest no more than 5% of its total assets
in securities that are Eligible Securities but have not been rated in the
highest short-term ratings category by at least two NRSROs (or by one NRSRO if
only one NRSRO has assigned the obligation a short-term rating) or, if the
obligations are unrated, determined by its adviser to be of comparable quality
("Second Tier Securities").
Cash Reserve will not invest more than 5% of the value of its total
assets in money market instruments of unseasoned issuers, including their
predecessors, that have been in operation for less than three years, or in
securities of any one issuer, except cash and cash items, repurchase agreements,
and U.S. government obligations. The Fund will also not purchase market money
instruments if, as a result, more than 25% of its total assets would be invested
in any one industry (although investing in bank instruments, U.S. government
obligations or instruments secured by these instruments, such as repurchase
agreements, are not considered investments in any one industry).
Cash Reserve may purchase variable and floating rate securities with
remaining maturities in excess of 13 months, but with effective maturities
calculated in accordance with Rule 2a-7 of the 1940 Act, as amended. Under the
Rule, the Fund may also hold securities with maturities greater than 397 days as
collateral for repurchase agreements and other collateralized transactions of
short duration.
Cash Fund. The investment objective of Cash Fund is to produce the
highest level of current income consistent with stability of principal and
liquidity. In seeking to achieve its objective, the Fund invests in a broad
range of short-term money market securities, including U.S. government
obligations; corporate debt securities (including commercial paper); municipal
obligations; mortgage-related securities; financial services industry
obligations; repurchase agreements; U.S. dollar denominated securities of
foreign issuers; and shares of money market funds.
Cash Fund invests only in U.S. dollar denominated securities that
present minimal credit risks and that are rated in one of the two highest rating
categories for debt obligations by at least two NRSROs (or one rating
organization if the instrument was rated by only one such organization) or, if
unrated, are of comparable quality. In addition, Cash Fund will not invest more
than 5% of its total assets in: (1) securities of any one issuer (other than
cash or U.S. government obligations), except that the Fund may invest more than
5% of its total assets in securities of an issuer in the highest rating category
for up to three business days or (2) securities rated in the second highest
rating category.
Under normal conditions, Cash Fund invests at least 25% of its total
assets in the financial services industry. Financial service industry
obligations include fixed income securities issued by domestic and foreign
banks, domestic savings and loan associations, consumer and industrial finance
companies, securities brokerage companies, real estate-related companies,
leasing companies, and a variety of firms in all segments of the insurance field
such as multiline, property and casualty, and life insurance. Such obligations
include certificates of deposit, bankers' acceptances and other debt
obligations.
Cash Fund may purchase floating and variable rate demand notes with
stated maturities in excess of 397 days but will not invest more than 10% of the
value of its net assets in floating or variable rate demand obligations as to
which the Fund cannot exercise the demand feature on not more than seven days'
notice if there is no secondary market available for these obligations and in
other securities that are not readily marketable.
Other Policies. Both Funds maintain a dollar-weighted average portfolio
of 90 days or less and purchase only instruments having remaining maturities of
397 days or less (except for Cash Fund's U.S. government obligations, which will
have remaining maturities of 762 days or less). Neither Fund may invest more
than 1% of its total assets or $1 million (whichever is greater) in the Second
Tier Securities of a single issuer; in accordance with internal operating
policies, both Funds currently invest only in securities rated in the highest
short-term ratings category by at least two NRSROs, or one, if only one NRSRO
has rated the security, or if unrated, determined by the respective advisers to
be of comparable quality ("First Tier Securities"). Both Funds may engage in
repurchase and reverse repurchase agreements; however, neither Fund will invest
more than 10% of its net assets in securities that are illiquid, including
repurchase agreements with maturities in excess of seven days.
Operations of Cash Reserve Following the Reorganization
As noted above, there are differences in the investment policies of the
two Funds. It is not expected, however, that Cash Reserve will revise its
investment policies following the Reorganization to reflect those of Cash Fund.
Based on its review of the investment portfolios of each Fund, Fund Adviser
believes that most, if not all, of the assets held by Cash Fund will be
consistent with the investment policies of Cash Reserve and thus can be
transferred to and held by Cash Reserve. If the Reorganization is approved, Cash
Fund will sell, prior to the effective time of the Reorganization, any assets
that are inconsistent with Cash Reserve's investment policies. The proceeds of
any such sales will be held in temporary investments or reinvested in assets
that qualify to be held by Cash Reserve. The possible need for Cash Fund to
dispose of assets prior to the effective time of the Reorganization could result
in selling securities at a disadvantageous time and could result in Cash Fund's
realizing losses that would not otherwise have been realized. After the
Reorganization, the trustees and officers of Cash Reserve and its investment
adviser, manager, distributor and other outside agents will continue to serve
Cash Reserve in their current capacities.
Purchases and Redemptions
Shares of Cash Reserve may be purchased through a brokerage account
with Legg Mason or with an affiliate that has a dealer agreement with Legg
Mason. The minimum initial investment in Cash Reserve for each account,
including investments made by exchange from other Legg Mason funds, is $1,000,
and the minimum investment for each purchase of additional shares is $500, with
certain exceptions set forth in Cash Reserve's prospectus. The minimum initial
investment in Cash Fund is $5,000 ($250 for IRAs or other tax sheltered
retirement plans). Additional purchases may be made in amounts of $100 or more.
Because the Funds incur certain fixed costs in maintaining shareholder
accounts, Cash Reserve and Cash Fund may elect to close any account with a
current value due to redemptions of less than $500 or $5,000 ($250 for tax
sheltered retirement plans), respectively. In both cases, shareholders will be
allowed 60 days (Cash Reserve) or 30 days (Cash Fund) in which to make
additional investments in order to avoid having their accounts closed. For a
discussion of Cash Reserve's redemption procedures, see "How You Can Redeem Your
Trust Shares" in the Cash Reserve prospectus.
If the Reorganization is approved, Cash Fund shares will cease to be
offered on _________, 1996, so that shares of Cash Fund will no longer be
available for purchase or exchange starting on _______, 1996 (the next business
day). If the Meeting is adjourned and the Reorganization is approved on a later
date, Cash Fund shares will no longer be available for purchase or exchange
on the business day following the date on which the Reorganization is approved
and all contingencies have been met. Redemptions of Cash Fund's shares and
exchanges of such shares for shares of any other Bartlett funds may be effected
through the Closing Date.
Exchanges
The exchange policies of the Funds are substantially identical. Shares
of Cash Reserve are exchangeable for shares of any other Legg Mason mutual fund,
and shares of Cash Fund may be exchanged for shares of any other Bartlett mutual
fund. Neither Fund charges an exchange fee. However, exchanges into any Legg
Mason fund with an initial sales charge will be made at net asset value plus the
applicable sales charge. See "Shareholder Services -- Exchange Privilege" in the
Cash Reserve prospectus for further information on exchanges.
Dividends and Other Distributions
Each Fund declares as dividends all of its net investment income each
Business Day and pays dividends in cash or additional Fund shares each month.
Since Cash Reserve's policy, under normal circumstances, is to hold portfolio
securities to maturity and to value portfolio securities at amortized cost, it
does not expect to realize any capital gain or loss. However, if Cash Reserve
does realize any net short-term capital gains it will distribute them at least
once every 12 months. Distributions by Cash Fund of net short-term gains, if
any, are distributed at least once a year.
On or before the Closing Date, Cash Fund will declare as a dividend
substantially all of its net tax-exempt interest income, taxable net investment
income and net short-term capital gain, if any, and distribute that amount plus
any previously declared but unpaid dividends, in order to continue to maintain
its tax status as a regulated investment company. Cash Fund will pay these
distributions only in cash.
Calculation of Net Asset Value
Net asset value per share of each Fund is determined twice daily, as of
12:00 noon, Eastern time, and the close of business of the New York Stock
Exchange (normally 4:00 p.m., Eastern time). Cash Reserve calculates net asset
value per share by subtracting its liabilities from its total assets and
dividing the result by the number of shares outstanding and attempts to maintain
a stable net asset value by using the amortized cost method of valuation. Cash
Fund computes net asset value per share by dividing the sum of the value of the
securities held by it plus any cash or other assets minus all liabilities
(including estimated accrued expenses) by the total number of shares outstanding
at such time, rounded to the nearest cent, known as the penny-rounding method of
pricing. While each Fund attempts to maintain a net asset value of $1.00, there
is no guarantee that they will be able to do so.
Federal Income Tax Consequences of the Reorganization
Cash Reserve has received an opinion of Kirkpatrick & Lockhart LLP, its
counsel, and Cash Fund has received an opinion of Brown, Cummins & Brown Co.,
L.P.A., its counsel, each to the effect that the Reorganization will constitute
a tax-free reorganization within the meaning of section 368(a)(1)(C) of the
Internal Revenue Code of 1986, as amended ("Code"). Accordingly, no gain or loss
will be recognized to either Fund or its shareholders as a result of the
Reorganization. See "The Proposed Transaction -- Federal Income Tax
Considerations."
COMPARISON OF PRINCIPAL RISK FACTORS
Because Cash Reserve's investment objective is substantially similar to
that of Cash Fund, the investment risks of the two Funds are generally similar.
These risks are those typically associated with investing in money market funds.
Certain differences are identified below. See the Prospectus of Cash Reserve,
which accompanies this Proxy Statement, for a more detailed discussion of the
investment risks of Cash Reserve.
There can be no assurance that either Fund will achieve its investment
objective. In periods of declining interest rates, the market value of the fixed
income securities in which the Funds invest generally will rise, and in periods
of rising interest rates the opposite generally will be true. Also, when
interest rates are falling, net cash inflows from the continuous sale of a
Fund's shares are likely to be invested in portfolio instruments producing lower
yields than the balance of that Fund's portfolio, thereby reducing its yield. In
periods of rising interest rates, the opposite can be true.
Each Fund may purchase variable and floating rate securities with
remaining maturities in excess of 13 months. The yield on these securities is
adjusted in relation to changes in specific rates, such as the prime rate, and
different securities may have different adjustment rates. The Funds' investments
in these securities must comply with conditions established by the SEC under
which they may be considered to have remaining maturities of 13 months or less.
Certain of these obligations carry a demand feature that gives a Fund the right
to tender them back to the issuer or a remarketing agent and receive the
principal amount of the obligation prior to maturity. The demand feature often
is backed by letters of credit or other credit support arrangements provided by
banks or other financial institutions, the credit standing of which affects the
credit quality of the obligation. The ability of a party to fulfill its
obligations under a letter of credit or guarantee might be affected by possible
financial difficulties of its borrowers, adverse interest rate or economic
conditions, regulatory limitations or other factors.
Cash Reserve and Cash Fund each is authorized to invest up to 10% of
its assets in repurchase agreements maturing in more than seven days. Repurchase
agreements carry certain risks not associated with direct investments in
securities, including possible decline in the market value of the underlying
securities and delays and costs to the Fund if the other party to the repurchase
agreement becomes insolvent.
Both Funds may purchase securities on a "when-issued" or
"delayed-delivery" basis, that is, for delivery beyond the normal settlement
date at a stated price and yield. A Fund generally would not pay for such
securities or start earning interest on them until they are received. However,
when a Fund purchases securities on a whenissued basis, it immediately assumes
the risks of ownership, including the risk of price fluctuation. In these
transactions, the Funds rely on the seller to complete the transaction. Failure
by the seller to do so may result in a missed opportunity to acquire a desired
money market instrument.
Cash Fund's investment concentration of up to 25% of its assets in
financial service industry obligations carries certain risks. The financial
services industry is subject to extensive governmental regulations which may
limit both the amounts and types of loans which may be made and interest rates
which may be charged. In addition, the profitability of the industry is largely
dependent upon the availability and cost of funds for lending purposes, general
economic conditions and exposure to credit losses arising from possible
financial difficulties of borrowers. Those financial services companies which
are engaged in insurance underwriting may be exposed to adverse competitive
conditions which may result in underwriting losses. If a Fund's portfolio
contains obligations issued by foreign branches of U.S. banks or those issued by
foreign banks, it may be subject to additional investment risks.
In addition, certain of Cash Fund's investments and techniques present
additional risks, in particular, investments in loan participation interests;
investments in mortgage-related securities, including collateralized mortgage
obligations ("CMOs"); investments in asset-backed and receivable-backed
securities, including Certificates for Automobile Receivables (sm) ("CARs"(sm));
the use of dollar roll transactions; loan participation interests; and the use
of short sales and short sales against the box. See pages ___ through ___ of
Cash Fund's Prospectus for further discussion on these additional risks.
Both Funds may invest only in high quality securities. As a matter of
operating policy, both Funds purchase only First Tier Securities.
THE PROPOSED TRANSACTION
Reorganization Plan
The terms and conditions under which the proposed transaction may be
consummated are set forth in the applicable Reorganization Plan. Significant
provisions of the Reorganization Plan are summarized below; however, this
summary is qualified in its entirety by reference to the Reorganization Plan, a
form of which is attached as Appendix A to this Proxy Statement.
The Reorganization Plan contemplates (a) the acquisition by Cash
Reserve on the Closing Date of the assets of Cash Fund in exchange solely for
Cash Reserve shares and the assumption by Cash Reserve of Cash Fund's
liabilities, and (b) the distribution of such shares to the shareholders of Cash
Fund, so that each Cash Fund shareholder will receive a number of full and
fractional shares of Cash Reserve equal in value to the shareholder's holdings
in Cash Fund.
Accordingly, immediately after the Reorganization, each former
shareholder of Cash Fund will own shares of Cash Reserve that will be equal in
value to that shareholder's shares of Cash Fund immediately prior to the
Reorganization. Moreover, because shares of Cash Reserve will be issued at net
asset value in exchange for the net assets of Cash Fund, the aggregate net asset
value of Cash Reserve shares so issued will equal the aggregate net asset value
of Cash Fund shares. The net asset value per share of Cash Reserve will be
unchanged by the transaction. Thus, the Reorganization will not result in a
dilution of any shareholder interest.
The assets of Cash Fund to be acquired by Cash Reserve include all
cash, cash equivalents, securities, receivables and other property owned by Cash
Fund. Cash Reserve will assume from Cash Fund all debts, liabilities,
obligations and duties of Cash Fund of whatever kind or nature; provided,
however, that Cash Fund will use its best efforts, to the extent practicable, to
discharge all of its known debts, liabilities, obligations and duties prior to
the Closing Date. Cash Reserve also will deliver its shares to Cash Fund, which
then will be constructively distributed to Cash Fund's shareholders.
The value of Cash Fund's assets to be acquired, and the amount of its
liabilities to be assumed, by Cash Reserve and the net asset value of a share of
Cash Reserve will be determined as of 4:00 p.m. on the Closing Date. The
amortized cost method of valuation will be used to value each Fund's securities.
If the difference between the respective net asset values of a share of Cash
Reserve and Cash Fund equals or exceeds $.0025 on the Closing Date, either Fund
may postpone the Closing Date until such difference is less than $.0025.
On, or as soon as practicable after, the Closing Date, Cash Fund will
distribute pro rata to its shareholders of record the shares of Cash Reserve it
received and Cash Fund and Management Trust both will be terminated as soon as
practicable thereafter. Such distribution will be accomplished by opening
accounts on the books of Cash Reserve in the names of Cash Fund shareholders and
by transferring thereto the shares previously credited to the account of Cash
Fund on those books. Fractional shares in Cash Reserve will be rounded to the
third decimal place.
Any transfer taxes payable upon issuance of shares of Cash Reserve in a
name other than that of the registered holder of the shares on the books of Cash
Fund shall be paid by the person to whom such shares are to be issued as a
condition of such transfer. Any reporting responsibility of Cash Fund will
continue to be its responsibility up to and including the Closing Date and such
later date on which it is terminated.
The cost of the Reorganization, including professional fees and the
cost of soliciting proxies for the Meeting, consisting principally of printing
and mailing expenses, together with the cost of any supplementary solicitation,
will be borne by Fund Adviser and Western.
The consummation of the Reorganization is subject to a number of
conditions set forth in the Reorganization Plan, some of which may be waived by
each Fund. In addition, the Reorganization Plan may be amended in any mutually
agreeable manner, except that no amendment may be made subsequent to the Meeting
that has a material adverse effect on the shareholders' interests.
Reasons for the Reorganization
Cash Fund's board of trustees, including a majority of its Independent
Trustees, has determined that the Reorganization is in the best interests of
Cash Fund, that the terms of the Reorganization are fair and reasonable and that
the interests of Cash Fund's shareholders will not be diluted as a result of the
Reorganization. Cash Reserve's board of trustees, including a majority of its
Independent Trustees, has determined that the Reorganization is in the best
interests of Cash Reserve, that the terms of the Reorganization are fair and
reasonable and that the interests of Cash Reserve's shareholders will not be
diluted as a result of the Reorganization.
In considering the Reorganization, the boards of trustees made an
extensive inquiry into a number of factors, including the following:
(1) the compatibility of the investment objectives, policies and
restrictions of the Funds;
(2) the comparative performance, as well as the effect of the
Reorganization on expected investment performance, of the Funds;
(3) the effect of the Reorganization on the expense ratio of Cash
Reserve relative to each Fund's current expense ratio;
(4) the costs to be incurred by each Fund as a result of the
Reorganization;
(5) the tax consequences of the Reorganization;
(6) possible alternatives to the Reorganization, including continuing
to operate on a stand-alone basis or liquidation; and
(7) the potential benefits of the Reorganization to other persons,
especially Western, Fund Adviser, Bartlett and Legg Mason.
The Reorganization was recommended to the Cash Reserve trustees by Fund
Adviser at a meeting of that board held on August 5, and to the Cash Fund
trustees by Fund Adviser and Bartlett at a meeting of Cash Fund's board held on
August 12, 1996. In recommending the Reorganization, Fund Adviser and Bartlett
advised the boards of trustees that the expense ratio applicable to Cash Reserve
after the Reorganization would be comparable to that currently in effect for
Cash Fund. Further, the trustees of Cash Fund were advised by Fund Adviser and
Bartlett that the historical returns of the two Funds were approximately the
same (although past performance is not indicative or predictive of future
performance) and that no costs of the Reorganization would be borne by Cash Fund
or its shareholders.
The Cash Fund trustees were further advised by Fund Adviser and
Bartlett that the Funds have substantially similar investment objectives and
generally similar investment policies, with the material differences noted. Fund
Adviser and Bartlett also indicated their belief that there is no compelling
reason to maintain and market two substantially similar funds that invest in
money market instruments. The trustees noted that shareholders of Cash Fund
would become shareholders of a fund historically providing approximately the
same return (although past performance is not indicative or predictive of future
performance) with the added diversification and liquidity that only a
substantially larger fund, such as Cash Reserve, can provide. In approving the
Reorganization, the trustees also noted that Cash Reserve's overall objective to
achieve stability of principal and current income consistent with stability of
principal remains an appropriate one to offer to investors as part of an overall
investment strategy.
THE BOARD OF TRUSTEES RECOMMENDS THAT THE
SHAREHOLDERS OF CASH FUND VOTE "FOR" THE REORGANIZATION
PROPOSAL 2: REORGANIZATIONS OF BARTLETT FIXED INCOME FUND AND BARTLETT SHORT
TERM BOND FUND INTO LEGG MASON U.S. GOVERNMENT INTERMEDIATE-TERM PORTFOLIO
SYNOPSIS
The following is a summary of certain information contained elsewhere
in this Proxy Statement, the Prospectuses of Fixed Income, Short Term and
Intermediate-Term (which are incorporated by reference), and the applicable
Reorganization Plans. Shareholders should read this Proxy Statement and the
Prospectus of IntermediateTerm carefully. As discussed more fully below, the
board of trustees of Capital Trust believes that the Reorganizations will
benefit Fixed Income's and Short Term's shareholders, respectively.
Intermediate-Term has an investment objective generally similar to the
investment objectives of Fixed Income and Short Term, respectively, although
Intermediate-Term's investment strategy and policies differ from those of Fixed
Income and Short Term in some material respects. It is anticipated that,
following the Reorganizations, the former shareholders of Fixed Income and Short
Term will, as shareholders of Intermediate-Term, benefit from a fund providing
historically better total returns (although past performance is not indicative
or predictive of future performance) with the added diversification and
liquidity a substantially larger fund can provide.
The Proposed Reorganizations
The board of trustees of Capital Trust considered and approved the
Reorganization Plans with respect to Fixed Income and Short Term, as applicable,
at a special meeting held on August 12, 1996. Each Reorganization Plan provides
for the acquisition of the assets of the applicable Acquired Fund by
Intermediate-Term in exchange solely for shares of common stock of
Intermediate-Term and the assumption by Intermediate-Term of the liabilities of
that Acquired Fund. Fixed Income and Short Term will then distribute those
shares to their shareholders so that each Fixed Income or Short Term shareholder
will receive the number of full and fractional shares that equals in value such
shareholder's holdings in Fixed Income or Short Term as of the Closing Date.
Fixed Income and Short Term then will be terminated as soon as practicable
thereafter.
The exchange of Fixed Income's and Short Term's assets for
Intermediate-Term shares and IntermediateTerm's assumption of Fixed Income's and
Short Term's liabilities will occur as of 4:00 p.m. on the Closing Date.
Intermediate-Term offers two classes of shares, Primary Shares and
Navigator Shares. Primary Shares currently are offered to all investors except
certain institutions. Navigator Shares are currently offered for sale only
to institutional clients of the Fairfield Group, Inc. for investment of
their own monies and monies for which they act in a fiduciary capacity, to
clients of Legg Mason Trust Company for which Trust Company exercises
discretionary investment management responsibility, to qualified
retirement plans managed on a discretionary basis and having net assets of at
least $200 million, and to The Legg Mason Profit Sharing Plan and Trust.
Only Primary Shares will be offered in connection with the Reorganizations.
For the reasons set forth below under "The Proposed Transaction --
Reasons for the Reorganization," the board of trustees of Capital Trust,
including its Independent Trustees, has determined that the applicable
Reorganization is in the best interests of each of Fixed Income and Short Term,
that the terms of the Reorganizations are fair and reasonable and that the
interests of each of Fixed Income's and Short Term's shareholders will not be
diluted as a result of the Reorganizations. Accordingly, the board of trustees
of Capital Trust recommends approval of the transactions. In addition, the board
of directors of Income Trust, including its directors who are not "interested
persons," as that term is defined in the 1940 Act ("Independent Directors"), has
determined that the Reorganizations are in the best interests of
Intermediate-Term, that the terms of the Reorganizations are fair and reasonable
and that the interests of Intermediate-Term's shareholders will not be diluted
as a result of the Reorganizations.
Comparative Fee Tables
Certain fees and expenses that Fixed Income's and Short Term's
shareholders pay, directly or indirectly, are different from those incurred by
Intermediate-Term shareholders. It is anticipated that following the
Reorganizations, the former shareholders of Fixed Income will, as shareholders
of Intermediate-Term, be subject to total operating expenses as a percentage of
net assets comparable to those experienced by Fixed Income, taking into account
voluntary fee waivers and expense reimbursements. It is anticipated that
following the Reorganizations, the former shareholders of Short Term will, as
shareholders of Intermediate-Term, be subject to higher total operating expenses
as a percentage of net assets than those experienced by Short Term, taking into
account voluntary fee waivers and expense reimbursements.
Bartlett is the investment adviser for each of Fixed Income and Short
Term. For the year ended March 31, 1996, Bartlett was paid by Fixed Income a
management fee at the annual rate of 1.00% of that Fund's average daily net
assets, and by Short Term a management fee at the annual rate of 0.85% of that
Fund's average daily net assets. Unlike Intermediate-Term, the management fees
paid by Fixed Income and Short Term include transfer agency, pricing, custodial,
auditing and legal services, and general administrative and other operating
expenses. Bartlett pays all of the expenses for Fixed Income and Short Term
except brokerage, taxes, interest and extraordinary expenses. Fixed Income and
Short Term pay no 12b-1 fees. Intermediate-Term is authorized to pay a 12b-1 fee
at the annual rate of up to 0.50% of its average daily net assets. After
reimbursements, IntermediateTerm's total operating expenses for the twelve
months ended June 30, 1996 were 0.97% of average daily net assets. Fund Adviser
has agreed, since May 1, 1996, to reimburse fees and/or assume other expenses to
the extent that Intermediate-Term's expenses during any month exceed an annual
rate of 1.00% of the Fund's average daily net assets for such month. However,
prior to May 1, 1996, Fund Adviser had agreed to reimburse fees and/or assume
other expenses to the extent that Intermediate-Term's expenses during any month
exceeded an annual rate of 0.95% of the Fund's average daily net assets for such
month. As indicated in the following tables, following the Reorganization of
either or both of the Funds, the total expense ratio for the combined fund is
expected to be 1.00% of average daily net assets, taking into account voluntary
fee waivers.
Fund Adviser, the manager of Intermediate-Term, is paid by that Fund an
annual management fee, computed daily and paid monthly, at an annual rate of
0.55% of average daily net assets. Following the Reorganizations, the management
fee for the combined fund is expected to be 0.55% of average daily net assets.
With respect to Intermediate-Term, Fund Adviser (not Intermediate-Term) pays
Western an advisory fee at an annual rate of 40-100% of the fee received by Fund
Adviser for management services, or up to .22% of the Fund's average daily net
assets. Following the Reorganizations, Fund Adviser will continue to pay Western
an advisory fee at the same annual rate.
Fund Adviser has agreed until December 31, 1997, or when
Intermediate-Term reaches net assets of $400 million, whichever occurs first, to
continue to reimburse fees and/or assume other expenses to the extent that
Intermediate-Term's expenses exceed during any month an annual rate of 1.00% of
the Fund's average daily net assets for such month. If Intermediate-Term's
assets total $400 million before December 31, 1997, Fund Adviser has agreed not
to increase this "cap" by more than 10 basis points. As of June 30,
1996, Intermediate-Term had assets of $226,535,966, Fixed Income had
assets of $75,159,656 and Short Term had assets of $14,134,867.
Reorganization of Fixed Income into Intermediate-Term
The following tables show (1) transaction expenses currently incurred
by shareholders of Intermediate-Term and Fixed Income and transaction expenses
that each such shareholder will incur after giving effect to the Reorganization,
and (2) the fees and expenses incurred for the twelve months ended June 30, 1996
(unaudited) by Intermediate-Term, restated to reflect current fees, and for the
fiscal year ended March 31, 1996 by Fixed Income, and pro forma fees for
Intermediate-Term after giving effect to the Reorganization.
Shareholder Transaction Expenses
Intermediate- Fixed Combined
Term Income Fund
Sales charge on purchases of None None None
shares
Sales charge on reinvested None None None
dividends
Redemption fee or deferred None None None
sales charge
Annual Fund Operating Expenses
(as a percentage of average net assets)
Intermediate- Fixed Combined Fund
Term Income (Pro Forma)
Management Fees 0.55% 1.00% 0.55%
12b-1 Fees 0.50% 0.00% 0.50%
Other Expenses 0.22% 0.00% 0.19%
Fee waiver (0.27)% ----- (0.24)%
Total Fund Operating 1.00%(1) 1.00% 1.00%(2)
Expenses
- ---------------------------------
(1) For the fiscal year ended December 31, 1995 and the twelve month period
ended June 30, 1996, the ratios of total operating expenses as a percentage
of average net assets were 0.93% and 0.96%, respectively, for
Intermediate-Term. For those periods, total operating expenses would have
been 1.24% and 1.26%, respectively, if Fund Adviser had not agreed to waive
fees and/or reimburse expenses. Intermediate-Term's fees and expenses for
the twelve months ended June 30, 1996 set forth in the table have been
restated to reflect the change, effective May 1, 1996, in Fund Adviser's
fee waiver and/or expense reimbursement arrangement with that Fund.
(2) Total operating expenses for the Combined Fund would be 1.23% if Fund
Adviser had not agreed to waive fees and/or reimburse expenses.
Example of Effect on Fund Expenses
The following table illustrates the expenses on a $1,000 investment
under the fees and the expenses stated above, assuming a 5% annual return and
redemption at the end of each time period.
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
Intermediate-Term............ $10 $32 $55 $122
Fixed Income................. $10 $32 $55 $122
Combined Fund................ $10 $32 $55 $122
- ------------------------------
This Example assumes that all dividends and other distributions are
reinvested and that the percentage amounts listed under Annual Fund Operating
Expenses remain the same in the years shown. The above tables and the assumption
in this Example of a 5% annual return are required by regulations of the
Securities and Exchange Commission ("SEC") applicable to all mutual funds; the
assumed 5% annual return is not a prediction of, and does not represent, either
Fund's projected or actual performance.
This Example should not be considered a representation of past or
future expenses, and each Fund's actual expenses may be more or less than those
shown. The actual expenses of Intermediate-Term and the Combined Fund will
depend upon, among other things, the level of their average net assets and the
extent to which they incur variable expenses, such as transfer agency costs.
Reorganization of Short Term into Intermediate-Term
The following tables show (1) transaction expenses currently incurred
by shareholders of Intermediate-Term and Short Term and transaction expenses
that each such shareholder will incur after giving effect to the Reorganization,
and (2) the fees and expenses incurred for the twelve months ended June 30, 1996
(unaudited) by Intermediate-Term, restated to reflect current fees, and for the
fiscal year ended March 31, 1996 by Short Term, and pro forma fees for
Intermediate-Term after giving effect to the Reorganization.
Shareholder Transaction Expenses
Intermediate- Short Combined
Term Term Fund
Sales charge on purchases of None None None
shares
Sales charge on reinvested None None None
dividends
Redemption fee or deferred None None None
sales charge
Annual Fund Operating Expenses
(as a percentage of average net assets)
Intermediate- Short Combined Fund
Term Term (Pro Forma)
Management Fees 0.55% 0.85% 0.55%
12b-1 Fees 0.50% 0.00% 0.50%
Other Expenses 0.22% 0.00% 0.21%
Fee waiver (0.27)% _____ (0.26)%
Total Fund Operating Expenses 1.00%(1) 0.85% 1.00%(2)
- ---------------------------------
(1) For the fiscal year ended December 31, 1995 and the twelve month period
ended June 30, 1996, the ratios of total operating expenses as a percentage
of average net assets were 0.93% and 0.96%, respectively, for
Intermediate-Term. For those periods, total operating expenses would have
been 1.24% and 1.26%, respectively, if Fund Adviser had not agreed to waive
fees and/or reimburse expenses. Intermediate-Term's fees and expenses for
the twelve months ended June 30, 1996 set forth in the table have been
restated to reflect the change, effective May 1, 1996, in Fund Adviser's
fee waiver and/or expense reimbursement arrangement with that Fund.
(2) Total operating expenses for the Combined Fund would be 1.23% if Fund
Adviser had not agreed to waive fees and/or reimburse expenses.
Example of Effect on Fund Expenses
The following table illustrates the expenses on a $1,000 investment
under the fees and the expenses stated above, assuming a 5% annual return and
redemption at the end of each time period.
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
Intermediate-Term........... $10 $32 $55 $122
Short Term.................. $ 9 $27 $47 $106
Combined Fund............... $10 $32 $55 $122
- ------------------------------
This Example assumes that all dividends and all other distributions are
reinvested and that the percentage amounts listed under Annual Fund Operating
Expenses remain the same in the years shown. The above tables and the assumption
in this Example of a 5% annual return are required by regulations of the SEC
applicable to all mutual funds; the assumed 5% annual return is not a prediction
of, and does not represent, either Fund's projected or actual performance.
This Example should not be considered a representation of past or
future expenses, and each Fund's actual or pro forma expenses may be more or
less than those shown. The actual expenses of Intermediate-Term and the Combined
Fund will depend upon, among other things, the level of their average net assets
and the extent to which they incur variable expenses, such as transfer agency
costs.
Reorganization of Fixed Income and Short Term into Intermediate-Term
The following tables show (1) transaction expenses currently incurred
by shareholders of IntermediateTerm, Fixed Income and Short Term and transaction
expenses that each such shareholder will incur after giving effect to the
Reorganizations, and (2) the fees and expenses incurred for the twelve months
ended June 30, 1996 (unaudited) by Intermediate-Term, restated to reflect
current fees, and for the fiscal year ended March 31, 1996 by Fixed Income and
Short Term, and pro forma fees for Intermediate-Term after giving effect to the
Reorganizations.
Shareholder Transaction Expenses
Inter-
mediate Fixed Short Combined
Term Income Term Fund
Sales charge on purchases of None None None None
shares
Sales charge on reinvested None None None None
dividends
Redemption fee or deferred None None None None
sales charge
Annual Fund Operating Expenses
(as a percentage of average net assets)
Intermediate- Fixed Short Combined Fund
Term Income Term (Pro Forma)
Management Fees 0.55% 1.00% 0.85% 0.55%
12b-1 Fees 0.50% 0.00% 0.00% 0.50%
Other Expenses 0.22% 0.00% 0.00% 0.18%
Fee waiver (0.27)% 0.07% 0.70% (0.23)%
Total Fund Operating Expenses 1.00%(1) 1.00% 0.85% 1.00%(2)
- ---------------------------------
(1) For the fiscal year ended December 31, 1995 and the twelve month period
ended June 30, 1996, the ratios of total operating expenses as a percentage
of average net assets were 0.93% and 0.96%, respectively, for
Intermediate-Term. For those periods, total operating expenses would have
been 1.24% and 1.26%, respectively, if Fund Adviser had not agreed to waive
fees and/or reimburse expenses. Intermediate-Term's fees and expenses for
the twelve months ended June 30, 1996 set forth in the table have been
restated to reflect the change, effective May 1, 1996, in Fund Adviser's
fee waiver and/or expense reimbursement arrangement with that Fund.
(2) Total operating expenses for the Combined Fund would be 1.23% if Fund
Adviser had not agreed to waive fees and/or reimburse expenses.
Example of Effect on Fund Expenses
The following table illustrates the expenses on a $1,000 investment
under the fees and the expenses stated above, assuming a 5% annual return and
redemption at the end of each time period.
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
Intermediate-Term.......... $10 $32 $55 $122
Fixed Income............... $10 $32 $55 $122
Short Term................. $ 9 $27 $47 $106
Combined Fund.............. $10 $32 $55 $122
- ------------------------------
This Example assumes that all dividends and other distributions are
reinvested and that the percentage amounts listed under Annual Fund Operating
Expenses remain the same in the years shown. The above tables and the assumption
in this Example of a 5% annual return are required by regulations of the
Securities and Exchange Commission SEC applicable to all mutual funds; the
assumed 5% annual return is not a prediction of, and does not represent, either
Fund's projected or actual performance.
This Example should not be considered a representation of past or
future expenses, and each Fund's actual or pro forma expenses may be more or
less than those shown. The actual expenses of Intermediate-Term and the Combined
Fund will depend upon, among other things, the level of their average net assets
and the extent to which they incur variable expenses, such as transfer agency
costs.
Forms of Organization
Income Trust, of which Intermediate-Term is a series, is an open-end
management investment company organized as a corporation under the laws of the
State of Maryland. Capital Trust, of which Fixed Income and Short Term are
series, is an open-end management investment company organized as a business
trust under the laws of the Commonwealth of Massachusetts. Income Trust has
authorized one billion shares of common stock, par value $0.001 per share. There
are currently three additional series of the corporation. Capital Trust's
Declaration of Trust authorizes the issuance of an unlimited number of shares of
beneficial interest, no par value per share. Intermediate-Term commenced
operations on August 7, 1987. Fixed Income commenced operations on April 22,
1986 and Short Term commenced operations on February 4, 1994. None of the Funds
is required to (and none does) hold annual shareholder meetings.
Investment Objectives and Policies
The investment objective and policies of each Fund are set forth below.
There can be no assurance that any of the Funds will achieve its investment
objective, and each Fund's net asset value will fluctuate based upon changes in
the value of its portfolio securities.
Intermediate-Term. The investment objective of Intermediate-Term is
high current income consistent with prudent investment risk and liquidity needs.
Under normal circumstances, Intermediate-Term invests at least 75% of its total
assets in obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities or instruments secured by such securities, including
repurchase agreements. The Fund expects to maintain an average dollar-weighted
maturity of between three and ten years. Investments in mortgage-related
securities issued by governmental or government-related entities are included in
the 75% limitation. The balance of the Fund, up to 25% of its total assets,
normally is invested in cash, commercial paper and investment grade debt
securities rated within one of the four highest grades assigned by S&P or
Moody's, comparably rated by another NRSRO, or unrated securities judged by
Fund Adviser to be of comparable quality.
Fixed Income. Fixed Income's investment objective is to seek to provide
a high level of current income by investing primarily in high quality
intermediate-term bonds, although it also may invest in short-term and long-term
bonds; capital appreciation is a secondary consideration. Historically, the
Fund's dollar weighted average effective portfolio maturity has ranged between
four and eight years. Under normal circumstances, at least 65% of the total
assets of Fixed Income will be invested in U.S. Government securities or high
quality fixed income securities rated AA or higher by S&P, Moody's, Duff &
Phelps ("D&P"), or Fitch. The Fund's portfolio securities will include U.S.
Government obligations, securities of foreign governments, domestic or foreign
corporate debt securities, municipal obligations, mortgage-related obligations,
preferred stock and repurchase agreements. The Fund generally will invest the
remainder of its assets, up to 35% of its portfolio, in debt securities rated at
the time of purchase as investment grade. The Fund may invest in fixed income
securities which are unrated if they are judged by Bartlett to be of investment
grade or higher quality. Fixed Income reserves the right to invest no more than
5% of its net assets in debt securities rated at the time of purchase as below
investment grade.
Short Term. Short Term's investment objective is to seek to provide a
high level of current income while maintaining a high degree of principal
stability by investing primarily in high quality short-term bonds. Under normal
circumstances, at least 65% of the total assets of the Fund will be invested in
a portfolio of high quality securities rated AA or higher by S&P, Moody's, D&P
or Fitch. These securities will include U.S. Government securities (including
bonds, notes and bills issued by the U.S. Treasury and securities issued by
agencies of the U.S. Government), securities of foreign governments, domestic or
foreign high-grade corporate debt securities (including bonds, notes, and
debentures), mortgage-related securities, financial service industry
obligations, municipal obligations, repurchase agreements and other asset-backed
securities. Eligible securities will include unrated securities judged by
Bartlett to be comparable to securities rated AA or higher. Under normal
circumstances, at least 65% of the total assets of the Fund will be invested in
bonds with a maturity of one year or more at issuance. Normally, Short Term
maintains a dollar weighted average effective portfolio maturity from one to
three years. The Fund will not invest in any debt security rated at the time of
purchase lower than investment grade.
Operations of Intermediate-Term Following the Reorganizations
As noted above, there are some material differences in the investment
policies of the Funds. It is not expected, however, that Intermediate-Term will
revise its investment policies following the Reorganizations to reflect those of
Fixed Income or Short Term. Fund Adviser believes that most, if not all, of the
assets held by Fixed Income and Short Term will be consistent with the
investment policies of Intermediate-Term and thus could be transferred to and
held by Intermediate-Term. If the Reorganizations are approved, Fixed Income and
Short Term will sell any assets that are inconsistent with Intermediate-Term's
investment policies prior to the effective time of the Reorganizations. The
proceeds of any such sales will be held in temporary investments or reinvested
in assets that qualify to be held by Fixed Income or Short-Term. The possible
need for Fixed Income or Short Term to dispose of assets prior to the effective
time of the Reorganizations could result in selling securities at a
disadvantageous time and could result in Fixed Income or Short Term realizing
losses that would not otherwise have been realized. Following the
Reorganizations, the directors and officers of Income Trust and
Intermediate-Term's investment adviser, manager, distributor and other outside
agents will continue to serve Intermediate-Term in their current capacities.
Following the Reorganizations, Bartlett investment executives may continue to
receive compensation in connection with their ongoing distribution efforts with
respect to Intermediate-Term shares formerly held by Fixed Income or Short Term
shareholders.
Purchases and Redemptions
Primary Shares of Intermediate-Term may be purchased through a
brokerage account with Legg Mason or with an affiliate that has a dealer
agreement with Legg Mason. The minimum initial investment in Primary Shares for
an account, including investments made by exchange from other Legg Mason funds,
is $1,000 and the minimum investment for each purchase of additional shares is
$500, with certain exceptions set forth in Intermediate-Term's prospectus. The
minimum initial investment in Fixed Income and Short Term is $5,000 ($250 for
IRAs and other tax sheltered retirement plans). Additional purchases made be
made in amounts of $100 or more.
Shares of Intermediate-Term may be redeemed by giving your Legg Mason
or affiliated investment executive an order for redemption or by sending a
written request to Intermediate-Term, c/o Legg Mason Funds Processing, P.O. Box
1476, Baltimore, Maryland 21203-1476. Shares of Fixed Income or Short Term may
be redeemed by written request, sent to Bartlett Mutual Funds, c/o Legg Mason
Funds Processing, P.O. Box 1476, Baltimore, Maryland, 21203-1476, or by
telephone. Each Fund will redeem your shares without charge at the next share
price calculated after receipt of a properly completed redemption request.
Shareholders of Short Term currently have checkwriting privileges in connection
with their accounts; Intermediate-Term shareholders do not have this privilege.
Because the Funds incur certain fixed costs in maintaining shareholder accounts,
they may elect to close any account with a current value due to redemptions of
less than $500 (Intermediate-Term) or $5,000 ($250 for tax sheltered retirement
plans) (Fixed Income and Short Term). In either case, shareholders will be
allowed 60 days (Intermediate-Term) or 30 days (Fixed Income and Short Term) in
which to make additional investments in order to avoid having their accounts
closed. For a discussion of Intermediate-Term's redemption procedures, see "How
You Can Redeem Your Primary Shares" in the Intermediate-Term prospectus.
If a Reorganization is approved as to either Fixed Income or Short
Term, shares of the applicable Fund will cease to be offered on _________, 1996,
so that their shares will no longer be available for purchase or exchange
starting on _______, 1996 (the next business day). If the Meeting is adjourned
and a Reorganization is approved on a later date, the applicable shares will no
longer be available for purchase or exchange on the business day following the
date on which each respective Reorganization is approved and all contingencies
have been met. Redemptions of Fixed Income's and Short Term's shares and
exchanges of such shares for shares of any other Bartlett funds may be effected
through the Closing Date.
Exchanges
The exchange policies of the Funds are substantially identical. Shares
of Intermediate-Term are exchangeable for shares of any other Legg Mason mutual
fund, and shares of Fixed Income and Short Term may be exchanged for shares of
any other Bartlett mutual fund. After the Reorganizations, the current exchange
policies of Intermediate-Term will continue. There is no exchange fee for
exchanges into Legg Mason funds; however, exchanges into Legg Mason funds with
an initial sales charge will be made subject to the applicable sales charge.
Dividends and Other Distributions
Each Fund declares dividends out of its investment company taxable
income, which consists of net investment income and net short-term capital gain.
Dividends from net investment income are declared daily and paid monthly. For
Intermediate-Term, dividends from net short-term capital gain and
distributions of substantially all net capital gain are declared and paid after
the end of the taxable year in which the gain is realized. Fixed Income and
Short Term each distributes net long-term and net short-term capital gains, if
any, at least once a year.
On or before the Closing Date, Fixed Income and Short Term will declare
as a distribution substantially all of its net investment income and net capital
gain in order to continue to maintain its tax status as a regulated investment
company. On or before the Closing Date, Intermediate-Term also may declare and
distribute as a dividend substantially all of any previously undistributed net
investment income.
Federal Income Tax Consequences of the Reorganizations
Intermediate-Term has received an opinion of Kirkpatrick & Lockhart
LLP, its counsel, and Fixed Income and Short Term have each received an opinion
of Brown, Cummins & Brown Co., L.P.A., their counsel, each to the effect that
the Reorganizations will constitute a tax-free reorganization within the meaning
of section 368(a)(1)(C) of the Internal Revenue Code of 1986, as amended
("Code"). Accordingly, no gain or loss will be recognized to any Fund or its
shareholders as a result of the Reorganizations. See "The Proposed Transaction
- -- Federal Income Tax Considerations."
COMPARISON OF PRINCIPAL RISK FACTORS
Because Intermediate-Term's investment objective and policies are
similar to those of Fixed Income and Short Term, the investment risks of the
Funds are similar. These risks are those typically associated with investing in
bond funds. Certain differences are identified below. See the Prospectus of
Intermediate-Term, which accompanies this Proxy Statement, for a more detailed
discussion of the investment risks of that Fund. There can be no assurance that
the Funds will achieve their investment objectives.
Debt securities. Each Fund may invest in obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, and high
quality debt securities. In periods of declining interest rates, the market
value of these securities generally will rise, and in periods of rising interest
rates the opposite generally will be true. Also, when interest rates are
falling, net cash inflows from the continuous sale of a Fund's shares are likely
to be invested in portfolio instruments producing lower yields than the balance
of that Fund's portfolio, thereby reducing its yield. In periods of rising
interest rates, the opposite can be true. In the case of obligations not backed
by the full faith and credit of the United States, a Fund must look principally
to the agency or instrumentality issuing or guaranteeing the obligation for
ultimate repayment and may not be able to assert a claim against the United
States itself in the event the agency or instrumentality does not meet its
commitment.
Short Term focuses on short-term fixed income investments, normally
maintaining a dollar weighted average portfolio maturity from one to three
years. Fixed Income and Intermediate-Term normally invest in fixed income
securities with intermediate-term maturities. Shorter-term fixed income
investments tend to offer more price stability in response to changes in
interest rates than do intermediate-term investments.
Each Fund is also permitted to invest in debt securities that are rated
investment grade. Securities rated BBB by S&P or Baa by Moody's are investment
grade, but Moody's considers securities rated Baa to have speculative
characteristics. Changes in economic conditions or other circumstances are more
likely to lead to a weakened capacity for such securities to make principal and
interest payments than is the case for higher-rated securities. Fixed Income may
invest up to 5% of its net assets in debt securities rated below investment
grade. These securities are deemed to be predominantly speculative with respect
to the issuer's capacity to pay interest and repay principal and may involve
major risk exposure to adverse conditions. Such securities are commonly referred
to as "junk bonds."
Foreign securities. Each Fund may invest in foreign debt securities.
Investing in foreign securities involves special risks, which include possible
adverse political and economic developments abroad, differing regulatory systems
and differing characteristics of foreign economies and markets, as well as the
fact that there is often less information publicly available about foreign
issuers.
Unlike Intermediate-Term, Fixed Income and Short Term may invest in
foreign securities denominated in currencies other than the U.S. dollar. Changes
in foreign currency exchange rates thus may affect Short Term's and Fixed
Income's net asset values, the value of dividends and interest earned, gains and
losses realized on the sale of securities and net investment income and capital
gains, if any, to be distributed to shareholders by these Funds. If the value
of a foreign currency rises against the U.S. dollar, the value of Fund assets
denominated in that currency will increase; correspondingly, if the value of a
foreign currency declines against the U.S. dollar, the value of Fund assets
denominated in that currency will decrease. The exchange rates between the
U.S. dollar and other currencies are determined by supply and demand in the
currency exchange markets, international balances of payments, speculation and
other economic and political conditions. In addition, some foreign currency
values may be volatile and there is the possibility of governmental controls on
currency exchange or governmental intervention in currency markets.
Hedging Strategies. Each Fund may use options and futures contracts.
There can be no assurance, however, that any strategy utilizing these
instruments will succeed. If Bartlett or Western incorrectly forecasts interest
rates, market values or other economic factors utilizing a strategy for a Fund,
the Fund might have been in a better position had the Fund not hedged at all.
The use of these instruments involve certain special risks, including (1) the
fact that skills needed to use hedging instruments are different from those
needed to select the Funds' securities, (2) possible imperfect correlation, or
even no correlation, between price movements of hedging instruments and price
movements of the investments being hedged, (3) the fact that, while hedging
strategies can reduce the risk of loss, they can also reduce the opportunity for
gain, or even result in losses, by offsetting favorable price movements in
hedged investments, and (4) the possible inability of a Fund to purchase or sell
a portfolio security at a time that otherwise would be favorable for it to do
so, or a possible need for a Fund to sell a portfolio security at a
disadvantageous time, due to the need for the Fund to maintain "cover" or to
segregate securities in connection with hedging transactions and the possible
inability of a Fund to close out or to liquidate its hedged position.
In addition, certain of the Funds' investments and techniques present
additional risks, in particular, investments in mortgage-related securities,
including CMOs; investments in asset-backed securities; the purchase of
securities on a when-issued basis; the use of dollar roll transactions; and the
use of certain hedging techniques. See pages ____ through ____ of the
Acquired Funds' prospectus and pages ____ through ____ of Intermediate-Term's
prospectus for a further discussion of risks.
THE PROPOSED TRANSACTIONS
Reorganization Plans
The terms and conditions under which the proposed transactions may be
consummated are set forth in the applicable Reorganization Plans. Approval of a
Reorganization Plan and consummation of the transactions contemplated thereby
for one Acquired Fund is not contingent upon approval of any other
Reorganization Plan by any other Acquired Fund's shareholders. Significant
provisions of the Reorganization Plans are summarized below; however, this
summary is qualified in its entirety by reference to the Reorganization Plans,
copies of which are attached as Appendix A to this Proxy Statement.
The Reorganization Plans contemplate (a) the acquisition by
Intermediate-Term on the Closing Date of the assets of Fixed Income and Short
Term in exchange solely for Intermediate-Term shares and the assumption by
Intermediate-Term of Fixed Income's and Short Term's liabilities, and (b) the
distribution of such shares to the shareholders of Fixed Income and Short Term,
respectively.
The assets of Fixed Income and Short Term to be acquired by
Intermediate-Term include all cash, cash equivalents, securities, receivables
and other property owned by Fixed Income and Short Term. Intermediate-Term will
assume from Fixed Income and Short Term all debts, liabilities, obligations and
duties of Fixed Income and Short Term of whatever kind or nature; provided,
however, that Fixed Income and Short Term will use their best efforts, to the
extent practicable, to discharge all of their known debts, liabilities,
obligations and duties prior to the Closing Date. Intermediate-Term also will
deliver its shares to Fixed Income and Short Term, which then will be
constructively distributed to Fixed Income and Short Term' shareholders.
The value of Fixed Income's and Short Term's assets to be acquired, and
the amount of Fixed Income and Short Term's liabilities to be assumed by
Intermediate-Term, and the net asset value of a share of Intermediate-Term will
be determined as of 4:00 p.m. on the Closing Date. Where market quotations are
readily available, portfolio securities will be valued based upon such market
quotations, provided such quotations adequately reflect, in Bartlett's judgment
(with respect to Fixed Income and Short Term) and in Western's judgment (with
respect to Intermediate-Term), the fair value of the security. Where such market
quotations are not readily available, such securities will be valued based upon
appraisals received from a pricing service using a computerized matrix system or
based upon appraisals derived from information concerning the security or
similar securities received from recognized dealers in those securities. The
amortized cost method of valuation generally will be used to value debt
instruments with 60 days or less remaining to maturity, unless Capital Trust's
board of trustees (with respect to Fixed Income and Short Term) or Income
Trust's board of directors (with respect to Intermediate-Term) determines that
this does not represent fair value. All other assets and liabilities will be
valued at fair value as determined in good faith by or under the direction of
each Fund's respective board.
On, or as soon as practicable after, the Closing Date, Fixed Income and
Short Term will distribute pro rata to their shareholders of record the shares
of Intermediate-Term they received, so that each Fixed Income and Short Term
shareholder will receive a number of full and fractional shares of
Intermediate-Term equal in value to the shareholder's holdings in Fixed Income
or Short Term; Fixed Income and Short Term will be terminated as soon as
practicable thereafter. Each such distribution will be accomplished by opening
accounts on the books of Intermediate-Term in the names of Fixed Income and
Short Term shareholders and by transferring thereto the shares previously
credited to the account of Fixed Income and Short Term on those books.
Fractional shares in Intermediate-Term will be rounded to the third decimal
place.
Accordingly, immediately after the Reorganizations, each former
shareholder of Fixed Income and Short Term respectively will own shares of
Intermediate-Term that will be equal in value to that shareholder's shares of
Fixed Income or Short Term immediately prior to the Reorganizations. Moreover,
because shares of Intermediate-Term will be issued at net asset value in
exchange for the net assets of Fixed Income and Short Term, the aggregate net
asset value of Intermediate-Term shares so issued will equal the aggregate net
asset value of Fixed Income and Short Term shares. The net asset value per
share of Intermediate-Term will be unchanged by the transaction. Thus, the
Reorganizations will not result in a dilution of any shareholder's interest.
Any transfer taxes payable upon issuance of shares of Intermediate-Term
in a name other than that of the registered holder of the shares on the books of
Fixed Income or Short Term shall be paid by the person to whom such shares are
to be issued as a condition of such transfer. Any reporting responsibility of
Fixed Income or Short Term will continue to be its responsibility up to and
including the Closing Date and such later date on which it is terminated.
The cost of the Reorganizations, including professional fees and the
cost of soliciting proxies for the Meeting, consisting principally of printing
and mailing expenses, together with the cost of any supplementary solicitation,
will be borne by Fund Adviser and Western.
The consummation of the Reorganizations are subject to a number of
conditions set forth in the Reorganization Plans, some of which may be waived by
each Fund. In addition, the Reorganization Plans may be amended in any mutually
agreeable manner, except that no amendment may be made subsequent to the Meeting
that has a material adverse effect on the shareholders' interests.
Reasons for the Reorganizations
The board of trustees of Capital Trust, including a majority of its
Independent Trustees, has determined that the Reorganizations are in the best
interests of each of Fixed Income and Short Term, that the terms of the
Reorganizations are fair and reasonable and that the interests of Fixed Income's
and Short Term's respective shareholders will not be diluted as a result of the
Reorganizations. The board of directors of Income Trust, including a majority
of its Independent Directors, has determined that the Reorganizations are
in the best interest of Intermediate-Term, that the terms of the Reorganizations
are fair and reasonable and that the interests of Intermediate-Term's
shareholders will not be diluted as a result of the Reorganizations.
In considering the Reorganizations, the boards made an extensive
inquiry into a number of factors, including the following:
(1) the compatibility of the investment objectives, policies and
restrictions of the Funds;
(2) the comparative performance, as well as the effect of the
Reorganizations on expected investment performance, of the Funds;
(3) the effect of the Reorganizations on the expense ratio of
Intermediate-Term relative to each Fund's current expense ratio;
(4) the costs to be incurred by each Fund as a result of the
Reorganizations;
(5) the tax consequences of the Reorganizations;
(6) possible alternatives to the Reorganizations, including continuing
to operate on a stand-alone basis or liquidation; and
(7) the potential benefits of the Reorganizations to other
persons, especially Western, Fund Adviser, Bartlett and Legg
Mason.
The Reorganizations were recommended by Fund Adviser and Bartlett to
the Income Trust and Capital Trust board of directors/trustees at meetings held
on August 5 and 12, 1996, respectively. In recommending the Reorganizations,
Fund Adviser and Bartlett advised the boards that the investment policies of
Intermediate-Term, Fixed Income and Short Term were generally similar, although
they differ in certain material respects. Among other things, Short Term
focuses on short term debt instruments, normally maintaining a dollar-weighted
average effective portfolio maturity of from one to three years.
Intermediate-Term, in contrast, expects to maintain an average dollar-weighted
maturity of between three and ten years.
<PAGE>
In addition, the Capital Trust board of trustees was advised that
Intermediate-Term's expense ratio after the Reorganizations, assuming voluntary
fee waivers and expense reimbursements, would be comparable to the current
expense ratio of Fixed Income. The board was also advised that Short Term
shareholders would pay higher total operating expenses (as a percentage of net
assets) as shareholders of Intermediate-Term. Those shareholders for Short
Term's most recent fiscal year paid total operating expenses of 0.85% while
Intermediate-Term shareholders, for its most recent fiscal year, paid total
operating expenses of 0.93%. In considering the higher expense ratio, Fund
Adviser and Bartlett noted that a very small fund is uneconomic to operate. At
its current asset size, Short Term is subsidized by Bartlett. With no apparent
prospects for growth in assets, Bartlett would have considered liquidating Short
Term if the opportunity to merge with Intermediate-Term had not arisen, or would
have considered asking Short Term shareholders to approve a significantly higher
advisory fee. Although it is anticipated that expenses to Short Term's
shareholders will increase from 0.85% to 1.00% if the Reorganization is
approved, the trustees noted that the shareholders would participate in a fund
whose viability is clear and whose past performance is good (although past
performance is not indicative or predictive of future performance). The trustees
also noted that the costs of the Reorganization would not be borne by the Funds
or their shareholders.
As indicated above, Fund Adviser has agreed until December 31, 1997, or
when Intermediate-Term reaches net assets of $400 million, whichever occurs
first, to continue to reimburse fees and/or assume other expenses to the extent
that Intermediate-Term's expenses exceed during any month an annual rate of
1.00% of the Fund's average daily net assets for such month. This ensures that
Intermediate-Term's expenses in the year following the proposed reorganizations
will remain consistent with current expense levels if net assets remain below
$400 million. If Intermediate-Term assets reach $400 million before December 31,
1997, Fund Adviser will not increase the cap by more than 10 basis points prior
to that date.
In considering the reorganizations, the trustees of Capital Trust also
discussed the comparative performance of the funds and noted that
Intermediate-Term generally outperformed each of the other funds, as indicated
in the table below.
<TABLE>
<CAPTION>
Total Return
----------------------------------------------------------------------------------------------------
6 months 1 year 2 years* 2/4/94*# 5 years* 7 years
ended June 30, 1996
------------------------ --------------- --------------- --------------- -------------- -----------
<S> <C>
Intermediate-Term -0.01% 4.64% 6.81% 4.57% 6.91% 7.42%
Fixed Income -1.33% 3.87% 6.04% 3.58% 6.51% 6.79%
Short Term 0.33% 4.57% 4.82% 4.13% n/a n/a
</TABLE>
* Average annual total return
# Inception of Short Term
The boards were further advised by Fund Adviser and Bartlett that there
is no compelling reason to maintain and market three similar funds that invest
in fixed income securities. The Capital Trust trustees noted that shareholders
of Fixed Income and Short Term would become shareholders, on a tax-free basis,
of a fund which has provided historically better total returns (although past
performance is not indicative or predictive of future performance) with the
added diversification and liquidity a substantially larger fund, such as
Intermediate-Term, can provide. In approving the Reorganizations, the trustees
noted that Intermediate-Term's overall objective of high current income
consistent with prudent investment risk and liquidity needs remains an
appropriate one to offer to investors as part of an overall investment strategy.
THE BOARD OF TRUSTEES RECOMMENDS THAT THE SHAREHOLDERS
OF FIXED INCOME AND SHORT TERM VOTE "FOR" THE REORGANIZATIONS
GENERAL INFORMATION
Description of Securities to be Issued in Each Transaction
Cash Reserve and Income Trust are registered with the SEC as open-end
management investment companies. Cash Reserve's trustees are authorized to issue
an unlimited number of shares of beneficial interest no par value. Income Trust
has authorized 1,000,000,000 (one billion) shares of common stock, par value
$.0001 per share. Shares of each Fund entitle their holders to one vote per full
share and fractional votes for fractional shares held.
Cash Reserve and Income Trust do not hold annual meetings of
shareholders. There normally will be no meetings of shareholders for the purpose
of electing trustees or directors unless fewer than a majority of the trustees
or directors holding office have been elected by shareholders, at which time the
trustees or directors then in office will call a shareholders' meeting for the
election of trustees or directors. The trustees or directors are required to
call a meeting of shareholders for the purpose of voting upon the question of
removal of any trustee or director when requested in writing to do so by the
shareholders of record holding at least 10% of Cash Reserve's or
Intermediate-Term's outstanding shares.
Federal Income Tax Considerations Applicable to Each Transaction
The exchange of an Acquired Fund's assets for shares of an Acquiring
Fund and Acquiring Fund's assumption of that Acquired Fund's liabilities is
intended to qualify for federal income tax purposes as a tax-free reorganization
under section 368(a)(1)(C) of the Code. With respect to each Reorganization, the
Acquiring Fund has received an opinion of Kirkpatrick & Lockhart LLP, its
counsel, and the Acquired Fund has received an opinion of Brown, Cummins & Brown
Co., L.P.A., its counsel, each substantially to the effect that --
(i) Acquiring Fund's acquisition of the Acquired Fund's assets in
exchange solely for Acquired Fund shares and Acquiring Fund's
assumption of the Acquired Fund's liabilities, followed by the Acquired
Fund's distribution of those shares to its shareholders constructively
in exchange for their Acquired Fund shares, will constitute a
"reorganization" within the meaning of section 368(a)(1)(C) of the
Code, and each Fund will be "a party to a reorganization" within the
meaning of section 368(b) of the Code;
(ii) No gain or loss will be recognized to the Acquired Fund on the
transfer to Acquiring Fund of its assets in exchange solely for
Acquiring Fund shares and Acquiring Fund's assumption of the Acquired
Fund's liabilities or on the subsequent distribution of those shares to
the Acquired Fund's shareholders in constructive exchange for their
Acquired Fund shares;
(iii) No gain or loss will be recognized to Acquiring Fund on its
receipt of the assets in exchange solely for Acquiring Fund shares and
its assumption of the Acquired Fund's liabilities;
(iv) Acquiring Fund's basis for the transferred assets will be the same
as the basis thereof in the Acquired Fund's hands immediately prior to
the Reorganization, and Acquiring Fund's holding period for those
assets will include the Acquired Fund's holding period therefor;
(v) An Acquired Fund shareholder will recognize no gain or loss on the
constructive exchange of all its Acquired Fund shares solely for
Acquiring Fund shares pursuant to the Reorganization; and
(vi) An Acquired Fund shareholder's basis for the Acquiring Fund shares
to be received by it in the Reorganization will be the same as the
basis for its Acquired Fund shares to be constructively surrendered in
exchange for those Acquiring Fund shares, and its holding period for
those Acquiring Fund shares will include its holding period for those
Acquired Fund shares, provided they are held as capital assets by the
shareholder on the Closing Date.
Each such opinion may state that no opinion is expressed as to the effect of the
Reorganizations on the Funds or any shareholder (regarding the recognition of
gain or loss and/or the determination of the basis or holding period) or with
respect to any asset (including certain options and futures) as to which any
unrealized gain or loss is required to be recognized for federal income tax
purposes at the end of a taxable year (or on the termination or transfer
thereof) under a mark-to-market system of accounting.
Utilization by Acquiring Fund after the Reorganizations of
pre-Reorganization capital losses realized by an Acquired Fund could be subject
to limitation in future years under the Code.
Shareholders of an Acquired Fund should consult their tax advisers
regarding the effect, if any, of the proposed Reorganizations in light of their
individual circumstances. Because the foregoing discussion only relates to the
federal income tax consequences of the Reorganizations, those shareholders also
should consult their tax advisers as to state and local tax consequences, if
any, of the Reorganizations.
Capitalization
The following tables show the capitalization of each Fund as of June
30, 1996 (unaudited) and on a pro forma combined basis (unaudited) as of that
date giving effect to the Reorganizations, and assuming that the Acquired Funds
indicated participate in the Reorganizations:
Reorganization of Cash Fund into Cash Reserve:
Combined Fund
Cash Reserve Cash Fund (Pro Forma)
Net Assets.................. $1,223,681,688 $51,429,381 $1,275,111,069
Net Asset Value Per Share... $1.00 $1.00 $1.00
Shares Outstanding.......... 1,223,984,016 51,525,059 1,275,509,075
Reorganization of Fixed Income into Intermediate-Term:
Intermediate- Combined Fund
Term Fixed Income (Pro Forma)
Net Assets.................. $226,535,966 $75,159,656 $301,695,622
Net Asset Value Per Share... $10.17 $ 9.79 $10.17
Shares Outstanding.......... 22,271,887 7,674,688 29,662,217
Reorganization of Short Term into Intermediate-Term:
Intermediate- Combined Fund
Term Short Term (Pro Forma)
Net Assets.................. $226,535,966 $14,134,867 $240,670,833
Net Asset Value Per Share... $10.17 $ 9.69 $10.17
Shares Outstanding.......... 22,271,887 1,458,169 23,661,750
Reorganization of Fixed Income and Short Term into Intermediate-Term:
<TABLE>
<CAPTION>
Intermediate- Fixed Short Combined Fund
Term Income Term (Pro Forma)
<S> <C>
Net Assets...................... $226,535,966 $75,159,656 $14,134,867 $315,830,489
Net Asset Value Per Share....... $10.17 $ 9.79 $ 9.69 $10.17
Shares Outstanding.............. 22,271,887 7,674,688 1,458,169 31,052,000
</TABLE>
ADDITIONAL INFORMATION ABOUT LEGG MASON CASH RESERVE TRUST
[Financial Highlights for Cash Trust -- to be inserted]
ADDITIONAL INFORMATION ABOUT LEGG MASON U.S. GOVERNMENT INTERMEDIATE-TERM
PORTFOLIO
Financial Highlights
Intermediate-Term offers two classes of shares, Primary Shares and
Navigator Shares. Only Primary Shares are involved in the Reorganizations. The
information for Primary Shares set forth below reflects the 12b-1 fees paid by
that Class.
The following financial highlights table for the years 1987 through
1995 has been derived from Intermediate-Term's financial statements which have
been audited by Coopers & Lybrand, L.L.P., independent accountants. Information
in the table for the six-month period ending June 30, 1996 has not been audited.
Intermediate-Term's financial statements for the year ended December 31, 1995
and the report of Coopers & Lybrand L.L.P. thereon are included in its Annual
Report to Shareholders and are incorporated by reference in the Statement of
Additional Information. The annual report is available to shareholders without
charge by calling your Legg Mason or affiliated investment executive or Legg
Mason's Funds Marketing Department at 800-822-5544.
<TABLE>
<CAPTION>
For Six YEARS ENDED DECEMBER 31,
Months Ended
June 30, 1996
(Unaudited)
1995 1994 1993 1992 1991 1990
<S> <C>
Per Share Operating Performance:
Net asset value, beginning of
period $10.47 $9.72 $10.43 $10.70 $10.77 $10.29 $10.20
Net investment income 0.30(B) 0.57(B) 0.51(B) 0.53(B) 0.60(B) 0.72(B) 0.78(B)
Net realized and unrealized
gain (loss) on investments,
options and futures (0.30) 0.75 (0.71) 0.17 0.05 0.70 0.09
Total from investment
operations --- 1.32 (0.20) 0.70 0.65 1.42 0.87
Distribution to shareholders:
Net investment income (0.30) (0.57) (0.51) (0.53) (0.60) (0.72) (0.78)
Net realized gain --- --- --- (0.39) (0.12) (0.22) ---
In excess of net realized gain
on investments --- --- --- (0.05) --- --- ---
Total distributions (0.30) (0.57) (0.51) (0.97) (0.72) (0.94) (0.78)
Net asset value, end of period $10.17 $10.47 $9.72 $10.43 $10.70 $10.77 $10.29
Total return(B,E) (0.01)%(C) 13.9% (1.9)% 6.6% 6.3% 14.4% 9.1%
Ratios/Supplemental Data:
Ratios to average net assets:
Expenses 0.97%(B,D,E) 0.9%(B,E) 0.9%(B,E) 0.9%(B,E) 0.9%(B,E) 0.8%(B,E) 0.6%(B,E)
Net investment income 5.8%(B,D,E) 5.6%(B,E) 5.1%(B,E) 4.8%(B,E) 5.5%(B,E) 6.7%(B,E) 7.7%(B,E)
Portfolio turnover rate 356.1%(D) 289.9% 315.7% 490.2% 512.6% 642.8% 67.0%
Net assets, end of period
(in thousands) $222,858 $231,886 $231,255 $299,529 $307,320 $211,627 $74,423
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1989 1988 1987(A)
<S> <C>
Per Share Operating Performance:
Net asset value, beginning of
period $9.79 $9.92 $10.00
Net investment income 0.80(B) 0.74(B) 0.30(B)
Net realized and unrealized
gain (loss) on investments,
options and futures 0.41 (0.12) (0.08)
Total from investment
operations 1.21 0.62 0.22
Distribution to shareholders:
Net investment income (0.80) (0.74) (0.30)
Net realized gain --- (0.01) ---
In excess of net realized gain
on investments --- --- ---
Total distributions (0.80) (0.75) (0.30)
Net asset value, end of period $10.20 $9.79 $9.92
Total return(B,E) 12.8% 6.4 2.2%
Ratios/Supplemental Data:
Ratios to average net assets:
Expenses 0.8%(B,E) 1.0%(B,E) 1.0%(B,D,E)
Net investment income 7.9%(B,E) 7.4%(B,E) 7.4%(B,D,E)
Portfolio turnover rate 57.3% 132.5% 66.3%
Net assets, end of period
(in thousands) $43,051 $27,087 $16,617
</TABLE>
- --------------------------------
(A) For the period August 7, 1987 (commencement of operations) to December
31, 1987.
(B) Net of fees waived and reimbursements made by the Manager for expenses in
excess of voluntary limitations as follows: 1.0% until September 10, 1989;
0.5% until March 31, 1990; 0.6% until December 31, 1990; 0.75% until April
30, 1991; 0.8% until December 31, 1991; 0.85% until August 31, 1992; 0.9%
until April 30, 1995; 0.95% until April 30, 1996; and 1.00% until December
31, 1996.
(C) Not annualized for periods of less than a full year.
(D) Annualized.
(E) Includes distribution fee of 0.5%
MISCELLANEOUS
Available Information
Each Trust is subject to the informational requirements of the
Securities Exchange Act of 1934 and the 1940 Act and in accordance therewith
files reports, proxy material and other information with the SEC. Such reports,
proxy material and other information can be inspected and copied at the Public
Reference Facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, the Midwest Regional Office of the SEC, CitiCorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60611, and the Northeast
Regional Office of the SEC, Seven World Trade Center, Suite 1300, New York, New
York 10048. Copies of such material can also be obtained from the Public
Reference Branch, Office of Consumer Affairs and Information Services,
Securities and Exchange Commission, Washington, D.C. 20459 at prescribed rates.
Legal Matters
Certain legal matters in connection with the issuance of Cash Reserve
and Intermediate-Term shares as part of the Reorganizations will be passed upon
by Kirkpatrick & Lockhart LLP, counsel to Cash Reserve and Intermediate-Term.
Experts
The audited financial statements of Cash Reserve, Cash Fund, Fixed
Income, Short Term and IntermediateTerm, incorporated herein by reference and
incorporated by reference or included in their respective Statements of
Additional Information, have been audited by Ernst & Young LLP (with respect to
Cash Reserve), Arthur Andersen LLP (with respect to the Acquired Funds) and
Coopers & Lybrand L.L.P. (with respect to Intermediate-Term), independent
auditors, whose reports thereon are included in the Funds' Annual Reports to
Shareholders for the fiscal years ended August 31, 1996 (with respect to Cash
Reserve), March 31, 1996 (with respect to the Acquired Funds) and December 31,
1995 (with respect to Intermediate-Term), respectively. The financial statements
audited by Ernst & Young LLP, Arthur Andersen LLP and Coopers & Lybrand L.L.P.
have been incorporated herein by reference in reliance on their reports given on
their authority as experts in auditing and accounting.
<PAGE>
LEGG MASON CASH RESERVE TRUST
LEGG MASON U.S. GOVERNMENT INTERMEDIATE-TERM PORTFOLIO
(a series of Legg Mason Income Trust, Inc.)
Legg Mason Wood Walker, Inc.
111 South Calvert Street
Baltimore, MD 21203-1476
(Toll Free) 1-800-822-5544
BARTLETT CASH RESERVES FUND
(a series of Bartlett Management Trust)
BARTLETT FIXED INCOME FUND
BARTLETT SHORT TERM BOND FUND
(each a series of Bartlett Capital Trust)
Bartlett & Co.
36 East Fourth Street
Cincinnati, Ohio 45202
(Toll Free) 1-800-822-5544
STATEMENT OF ADDITIONAL INFORMATION
This statement of Additional Information relates specifically to the
proposed reorganizations whereby Legg Mason Cash Reserve Trust ("Cash Reserve")
would acquire the assets of Bartlett Cash Reserves Fund ("Cash Fund"), a series
of Bartlett Management Trust, in exchange solely for shares of beneficial
interest in Cash Reserve and the assumption by Cash Reserve of Cash Fund's
liabilities, and Legg Mason U.S. Government Intermediate-Term Portfolio
("Intermediate-Term"), a series of Legg Mason Income Trust, Inc. ("Income
Trust"), would acquire the assets of Bartlett Fixed Income Fund ("Fixed
Income"), a series of Bartlett Capital Trust ("Capital Trust"), and Bartlett
Short Term Bond Fund ("Short Term"), also a series of Capital Trust, in exchange
solely for shares of common stock of Intermediate-Term and the assumption by
Intermediate-Term of Fixed Income's and Short Term's respective liabilities
("Cash Fund," "Fixed Income" and "Short Term" shall be collectively referred to
herein as the "Acquired Funds.") This Statement of Additional Information
consists of this two page statement and the following described documents, each
of which is incorporated by reference herein:
(1) The Statement of Additional Information of Cash Reserve, dated April
1, 1996, previously filed on EDGAR, Accession Number
0000950169-96-000074;
(2) The Statement of Additional Information of Intermediate-Term, dated
May 1, 1996, previously filed on EDGAR, Accession Number
0000916641-96-000344;
(3) The Statements of Additional Information of the Acquired Funds,
dated August 1, 1996 previously filed on EDGAR, Accession Numbers
0000950169-96-001395 and 0000950169-96-001396, respectively;
(4) Annual Report to Shareholders of Cash Reserve for the fiscal year
ended August 31, 1996, filed on EDGAR, Accession Number
_______________-96-__________;
(5) The Annual Report to Shareholders of Intermediate-Term for the
<PAGE>
fiscal year ended December 31, 1995, previously filed on EDGAR,
Accession Number 0000950169-96-000011;
(6) The Annual Report to Shareholders of the Acquired Funds for the
fiscal year ended March 31, 1996, previously filed on EDGAR,
Accession Numbers 0000950169-96-000156 and 0000950169-96-000155;
(7) The Semi-Annual Report to Shareholders of Intermediate-Term for the
six-months ended June 30, 1996, previously filed on EDGAR, Accession
Number 0000916641-96-000739; and
(8) Pro forma financial statements reflecting Intermediate-Term and
Fixed Income combined for the twelve-month period as of June 30,
1996.
This Statement of Additional Information is not a prospectus and should be
read only in conjunction with the Prospectus/Proxy Statement dated October ____,
1996 relating to the above-referenced matter. A copy of the Prospectus/Proxy
Statement may be obtained without charge and further inquiries may be made by
contacting your Bartlett & Co. investment representative or by calling toll-free
1-800-822-5544. This Statement of Additional Information is dated October _____,
1996.
<PAGE>
APPENDIX A
AGREEMENTS AND PLANS OF REORGANIZATION AND TERMINATION
[SEE EXHIBIT 4]
LEGG MASON CASH RESERVE TRUST, INC.
PART C
OTHER INFORMATION
Item 15. Indemnification
This item is incorporated by reference to Item 27 of Part C of
Post-Effective Amendment No. 33 to the Registration Statement, SEC File No.
2-62218, filed February 1, 1996.
(b) Exhibits:
(1) (a) Declaration of Trust 1/
(b) Amendment No. 1 to the Declaration of Trust 2/
(2) (a) By-Laws (As Restated and Amended February 2, 1987) 3/
(3) Voting trust agreement - none
(4) Agreement and Plan of Reorganization and Termination (filed
herewith)
(5) Instruments defining the rights of holders of the Registrant's
shares of beneficial interest - none
(6) (a) Management Agreement 4/
(b) Investment Advisory Contract 4/
(7) Underwriting Agreement (filed herewith)
(8) Bonus, profit sharing or pension plans - none
(9) (a) Custodian Agreement 3/
(b) Amendment to Custodian Agreement 5/
(10) Plan pursuant to Rule 12b-1 (filed herewith)
(11) Opinion and consent of Kirkpatrick & Lockhart LLP regarding the
legality of securities being registered (filed herewith)
(12) Opinion and consent of Kirkpatrick & Lockhart LLP regarding
certain tax matters (filed herewith)
(13) Transfer Agency and Service Agreement 7/
(14) (a) Consent of Ernst & Young LLP (to be filed)
(b) Consent of Arthur Andersen LLP (filed herewith)
(15) Financial statements omitted from Part B - none
(16) Copies of manually signed Power of Attorney (filed herewith as
part of signature page)
(17) Additional Exhibits
(a) Declaration of Rule 24f-2 (filed herewith)
(b) Proxy Card (filed herewith)
1/ Incorporated herein by reference to corresponding Exhibit of the initial
Registration Statement on Form S-5 filed on July 27, 1978.
2/ Incorporated herein by reference to corresponding Exhibit of Post-Effective
Amendment No. 2 to the initial Registration Statement filed on September 12,
1979.
3/ Incorporated herein by reference to corresponding Exhibit of Post-Effective
Amendment No. 21 to the initial Registration Statement filed on October 15,
1987.
4/ Incorporated herein by reference to corresponding Exhibit of Post-Effective
Amendment No. 22 to the initial Registration Statement filed on August 9,
1988.
5/ Incorporated herein by reference to corresponding Exhibit of Post-Effective
Amendment No. 26 to the Registration Statement filed on December 31, 1991.
Item 17. Undertakings
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of the
prospectus which is a part of this Registration Statement by any
person or party who is deemed to be an underwriter within the
meaning of Rule 145(c) of the Securities Act of 1933, the
reoffering prospectus will contain the information called for by
the applicable registration form for reoffering by persons who may
be deemed underwriters, in addition to the information called for
by the other items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is
filed under paragraph (1) above will be filed as a part of an
amendment to the Registration Statement and will not be used
until the amendment is effective, and that, in determining any
liability under the Securities Act of 1933, each post-effective
amendment shall be deemed to be a new Registration Statement for
the securities offered therein, and the offering of the securities
at that time shall be deemed to be the initial bona fide offering
of them.
2
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, as amended, this
Registration Statement has been signed on behalf of the Registrant, in the City
of Baltimore and the State of Maryland, on this 5th day of August, 1996.
LEGG MASON CASH RESERVE TRUST
By: /s/ John F. Curley, Jr.
John F. Curley, Jr.
Chairman of the Board,
President and Trustee
Each of the undersigned trustees and officers of Legg Mason Cash
Reserve Trust ("Trust") hereby severally constitutes and appoints Marie K.
Karpinski, Arthur J. Brown and Arthur C. Delibert, and each of them singly, our
true and lawful attorneys, with full power to them to sign for each of us, and
in each of our names and in the capacities indicated below, any and all
amendments to the Registration Statement of the Trust, and all instruments
necessary or desirable in connection therewith, filed with the Securities and
Exchange Commission, hereby ratifying and confirming our signatures as they may
be signed by said attorney to any and all amendments to said Registration
Statement.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/ John F. Curley Jr. Chairman of the Board, August 5, 1996
- ----------------------------- President and Trustee
John F. Curley, Jr.
/s/ Edmund J. Cashman, Jr. Trustee August 5, 1996
- -----------------------------
Edmund J. Cashman, Jr.
/s/ Richard G. Gilmore Trustee August 5, 1996
- -----------------------------
Richard G. Gilmore
/s/ Charles F. Haugh Trustee August 5, 1996
- -----------------------------
Charles F. Haugh
Trustee August 5, 1996
- -----------------------------
Arnold L. Lehman
/s/ Jill E. McGovern Trustee August 5, 1996
- -----------------------------
Jill E. McGovern
/s/ T.A. Rodgers Trustee August 5, 1996
- -----------------------------
T.A. Rodgers
/s/ Edward A. Taber Trustee August 5, 1996
- -----------------------------
Edward A. Taber
/s/ Marie K. Karpinski Vice President August 5, 1996
- ----------------------------- and Treasurer
Marie K. Karpinski
AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION
THIS AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION ("Agreement")
is made as of September 20, 1996, between Legg Mason Cash Reserve Trust, a
Massachusetts business trust ("Acquiring Fund"), and Bartlett Management Trust
("Bartlett Trust"), an Ohio business trust, on behalf of Bartlett Cash Reserves
Fund, a segregated portfolio of assets ("series") thereof ("Target"). (Acquiring
Fund and Target are sometimes referred to herein individually as a "Fund" and
collectively as the "Funds," and the Acquiring Fund and Bartlett Trust are
sometimes referred to herein collectively as the "Investment Companies").
This Agreement is intended to be, and is adopted as, a plan of a
reorganization described in section 368(a)(1)(C) of the Internal Revenue Code of
1986, as amended ("Code"). The reorganization will involve the transfer to
Acquiring Fund of Target's assets solely in exchange for voting shares of
beneficial interest in Acquiring Fund ("Acquiring Fund Shares") and the
assumption by Acquiring Fund of Target's liabilities, followed by the
constructive distribution of the Acquiring Fund Shares to the holders of shares
of beneficial interest in Target ("Target Shares") in exchange therefor, all
upon the terms and conditions set forth herein. The foregoing transactions are
referred to herein as the "Reorganization." All agreements, representations,
actions, and obligations described herein made or to be taken or undertaken by
Target are made and shall be taken or undertaken by Bartlett Trust on behalf of
Target.
In consideration of the mutual promises herein, the parties covenant
and agree as follows:
1. PLAN OF REORGANIZATION AND TERMINATION OF TARGET
1.1. Target agrees to assign, sell, convey, transfer, and
deliver all of its assets described in paragraph 1.2 ("Assets") to
Acquiring Fund. Acquiring Fund agrees in exchange therefor --
(a) to issue and deliver to Target the number of full and
fractional Acquiring Fund Shares determined by dividing the net value
of Target (computed as set forth in paragraph 2.1) by the net asset
value (computed as set forth in paragraph 2.2) ("NAV") of an Acquiring
Fund Share; and
(b) to assume all of Target's liabilities described in
paragraph 1.3 ("Liabilities").
Such transactions shall take place at the Closing (as defined in paragraph 3.1).
1.2. The Assets shall include, without limitation, all cash, cash
equivalents, securities, receivables (including interest and dividends
receivable), claims and rights of action, rights to register shares under
applicable securities laws, books and records, deferred and prepaid expenses
shown as assets on Target's books, and other property owned by Target at the
Effective Time (as defined in paragraph 3.1).
1.3. The Liabilities shall include (except as otherwise provided
herein) all of Target's liabilities, debts, obligations, and duties of whatever
kind or nature, whether absolute, accrued, contingent, or otherwise, whether or
not arising in the ordinary course of business, whether or not determinable at
the Effective Time, and whether or not specifically referred to in this
Agreement. Notwithstanding the foregoing, Target agrees to use its best
efforts to discharge all of its known Liabilities prior to the Effective Time.
1.4. Before the Effective Time, Target shall declare and pay to its
shareholders a dividend in an amount large enough so that it will have
distributed substantially all (and in any event not less than 90%) of its
investment company taxable income (computed without regard to any deduction for
dividends paid) and net interest income excludable from gross income under
section 103(a) of the Code for the current taxable year through the Effective
Time.
1.5. At the Effective Time (or as soon thereafter as is reasonably
practicable), Target shall constructively distribute the Acquiring Fund Shares
received by it pursuant to paragraph 1.1 to Target's shareholders of record,
determined as of the Effective Time (collectively "Shareholders" and
individually a "Shareholder"), in exchange for their Target Shares. Such
distribution shall be accomplished by the Funds' transfer agent ("Transfer
Agent") opening accounts on Acquiring Fund's share transfer books in the
Shareholders' names and transferring such Acquiring Fund Shares thereto. Each
Shareholder's account shall be credited with the respective pro rata number of
full and fractional (rounded to the third decimal place) Acquiring Fund Shares
due that Shareholder. All outstanding Target Shares, including any represented
by certificates, shall simultaneously be canceled on Target's share transfer
records. Acquiring Fund will not issue certificates representing the Acquiring
Fund Shares issued in connection with the Reorganization.
1.6. As soon as reasonably practicable after distribution of the
Acquiring Fund Shares pursuant to paragraph 1.5, Target shall be terminated as a
series of Bartlett Trust and any further actions shall be taken in connection
therewith as required by applicable law.
1.7. Any reporting responsibility of Target to a public authority is
and shall remain its responsibility up to and including the date on which it is
terminated.
1.8. Any transfer taxes payable upon issuance of Acquiring Fund Shares
in a name other than that of the registered holder on Target's books of the
Target Shares constructively exchanged therefor shall be paid by the person to
whom such Acquiring Fund Shares are to be issued, as a condition of such
transfer.
2. VALUATION
2.1. For purposes of paragraph 1.1(a), Target's net value shall be (a)
the value of the Assets computed as of 4:00 p.m. on the date of the Closing
("Valuation Time"), using the amortized cost method of valuation less (b) the
amount of the Liabilities as of the Valuation Time.
2.2. For purposes of paragraph 1.1(a), the NAV of an Acquiring Fund
Share shall be computed as of the Valuation Time, using the valuation procedures
set forth in Acquiring Fund's then-current prospectus and statement of
additional information.
2.3. All computations pursuant to paragraphs 2.1 and 2.2 shall be made
by or under the direction of Legg Mason Fund Adviser, Inc.
2.4 If the difference between the NAVs per share of the Funds equals or
exceeds $.0025 at the Valuation Time, or such earlier or later day and time as
the parties may agree and set forth in writing signed by their duly authorized
officers, as computed by using the amortized cost method of valuing the Funds'
assets in accordance with the policies and procedures established by the Funds
(or as otherwise determined by the Funds' boards of trustees), either Fund may
postpone the Valuation Time until such time as such per share NAV difference is
less than $.0025.
3. CLOSING AND EFFECTIVE TIME
3.1. The Reorganization, together with related acts necessary to
consummate the same ("Closing"), shall occur at the Acquiring Fund's principal
office on December 13, 1996, or at such other place and/or on such other date as
the parties may agree. All acts taking place at the Closing shall be deemed to
take place simultaneously as of 4:00 p.m. on the date thereof or at such other
time as the parties may agree ("Effective Time"). If, immediately before the
Valuation Time, (a) the New York Stock Exchange, Inc. ("NYSE") is closed to
trading or trading thereon is restricted or (b) trading or the reporting of
trading on the NYSE or elsewhere is disrupted, so that accurate appraisal of the
net value of Target and the NAV per Acquiring Fund Share is impracticable, the
Effective Time shall be postponed until the first business day after the day
when such trading shall have been fully resumed and such reporting shall have
been restored.
3.2. Bartlett Trust shall deliver to Acquiring Fund at the
Closing a schedule of the Assets as of the Effective Time, which shall set forth
for all portfolio securities included therein their adjusted tax basis and
holding period by lot. Target's custodian shall deliver at the Closing a
certificate of an authorized officer stating that (a) the Assets held by the
custodian will be trans ferred to Acquiring Fund at the Effective Time and (b)
all necessary taxes in conjunction with the delivery of the Assets, including
all applicable federal and state stock transfer stamps, if any, have been paid
or provision for payment has been made.
3.3. Bartlett Trust shall deliver to Acquiring Fund at the Closing a
list of the names and addresses of the Shareholders and the number of
outstanding Target Shares owned by each Shareholder, all as of the Effective
Time, certified by the Secretary or Assistant Secretary of Target. The Transfer
Agent shall deliver at the Closing a certificate as to the opening on Acquiring
Fund's share transfer books of accounts in the Shareholders' names. Acquiring
Fund shall issue and deliver a confirmation to Bartlett Trust evidencing the
Acquiring Fund Shares to be credited to Target at the Effective Time or provide
evidence satisfactory to Bartlett Trust that such Acquiring Fund Shares have
been credited to Target's account on Acquiring Fund's books. At the Closing,
each party shall deliver to the other such bills of sale, checks, assignments,
stock certificates, receipts, or other documents as the other party or its
counsel may reasonably request.
3.4. Each Investment Company shall deliver to the other at the Closing
a certificate executed in its name by its President or a Vice President in form
and substance satisfactory to the recipient and dated the Effective Time, to
the effect that the representations and warranties it made in this Agreement
are true and correct at the Effective Time except as they may be affected by
the transactions contemplated by this Agreement.
4. REPRESENTATIONS AND WARRANTIES
4.1. Target represents and warrants as follows:
4.1.1. Bartlett Trust is an unincorporated voluntary
association with transferable shares organized as a business trust
under a written instrument ("Business Trust"); it is duly organized,
validly existing, and in good standing under the laws of the State of
Ohio; and a copy of its Declaration of Trust is on file with the Ohio
Secretary of State;
4.1.2. Bartlett Trust is duly registered as an open-end
management investment company under the Investment Company Act
of 1940 ("1940 Act"), and such registration will be in full
force and effect at the Effective Time;
4.1.3. Target is a duly established and designated
series of Bartlett Trust;
4.1.4. At the Closing, Target will have good and marketable
title to the Assets and full right, power, and authority to sell,
assign, transfer, and deliver the Assets free of any liens or other
encumbrances; and upon delivery and payment for the Assets, Acquiring
Fund will acquire good and marketable title thereto;
4.1.5. Target's current prospectus and statement of additional
information conform in all material respects to the applicable
requirements of the Securities Act of 1933 ("1933 Act") and the 1940
Act and the rules and regulations thereunder and do not include any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading;
4.1.6. Target is not in violation of, and the execution and
delivery of this Agreement and consummation of the transactions
contemplated hereby will not conflict with or violate, Ohio law or any
provision of Bartlett Trust's Declaration of Trust or By-Laws or of any
agreement, instrument, lease, or other undertaking to which Target is a
party or by which it is bound or result in the acceleration of any
obligation, or the imposition of any penalty, under any agreement,
judgment, or decree to which Target is a party or by which it is bound,
except as previously disclosed in writing to and accepted by Acquiring
Fund;
4.1.7. Except as disclosed in writing to and accepted by
Acquiring Fund, all material contracts and other commitments of or
applicable to Target (other than this Agreement and investment
contracts) will be terminated, or provision for discharge of any
liabilities of Target thereunder will be made, at or prior to the
Effective Time, without either Fund's incurring any liability or
penalty with respect thereto and without diminishing or releasing any
rights Target may have had with respect to actions taken or omitted to
be taken by any other party thereto prior to the Closing;
4.1.8. Except as otherwise disclosed in writing to and
accepted by Acquiring Fund, no litigation, administrative proceeding,
or investigation of or before any court or governmental body is
presently pending or (to Target's knowledge) threatened against
Bartlett Trust with respect to Target or any of its properties or
assets that, if adversely determined, would materially and adversely
affect Target's financial condition or the conduct of its business;
Target knows of no facts that might form the basis for the institution
of any such litigation, proceeding, or investigation and is not a party
to or subject to the provisions of any order, decree, or judgment of
any court or governmental body that materially or adversely affects its
business or its ability to consummate the transactions contemplated
hereby;
4.1.9. The execution, delivery, and performance of this
Agreement have been duly authorized as of the date hereof by all
necessary action on the part of Bartlett Trust's board of trustees,
which has made the determinations required by Rule 17a-8(a) under the
1940 Act; and, subject to approval by Target's shareholders and
receipt of any necessary exemptive relief or no-action assurances
requested from the Securities and Exchange Commission ("SEC") or its
staff with respect to sections 17(a) and 17(d) of the 1940 Act, this
Agreement will constitute a valid and legally binding obligation of
Target, enforceable in accordance with its terms, except as the same
may be limited by bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium, and similar laws relating to or affecting
creditors' rights and by general principles of equity;
4.1.10. At the Effective Time, the performance of this
Agreement shall have been duly authorized by all necessary
action by Target's shareholders;
4.1.11. No governmental consents, approvals, authorizations,
or filings are required under the 1933 Act, the Securities Exchange
Act of 1934 ("1934 Act"), or the 1940 Act for the execution or
performance of this Agreement by Bartlett Trust, except for (a) the
filing with the SEC of a registration statement by Acquiring Fund on
Form N-14 relating to the Acquiring Fund Shares issuable hereunder, and
any supplement or amendment thereto ("Registration Statement"),
including therein a prospectus/proxy statement ("Proxy Statement"), (b)
receipt of the exemptive relief referenced in subparagraph 4.1.9, and
(c) such consents, approvals, authorizations, and filings as have been
made or received or as may be required subsequent to the Effective
Time;
4.1.12. On the effective date of the Registration Statement,
at the time of the shareholders' meeting referred to in paragraph 5.2,
and at the Effective Time, the Proxy Statement will (a) comply in all
material respects with the applicable provisions of the 1933 Act, the
1934 Act, and the 1940 Act and the regulations thereunder and (b) not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which such
statements were made, not misleading; provided that the foregoing
shall not apply to statements in or omissions from the Proxy Statement
made in reliance on and in conformity with information furnished by
Acquiring Fund for use therein;
4.1.13. The Liabilities were incurred by Target in the
ordinary course of its business;
4.1.14. Target is a "fund" as defined in section 851(h)(2) of
the Code; it qualified for treatment as a regulated investment company
under Subchapter M of the Code ("RIC") for each past taxable year since
it commenced operations and will continue to meet all the
requirements for such qualification for its current taxable year;
and it has no earnings and profits accumulated in any taxable year
in which the provisions of Subchapter M did not apply to it. The
Assets shall be invested at all times through the Effective Time in
a manner that ensures compliance with the foregoing;
4.1.15. Target is not under the jurisdiction of a court
in a proceeding under Title 11 of the United States Code or
similar case within the meaning of section 368(a)(3)(A) of the
Code;
4.1.16. Not more than 25% of the value of Target's total
assets (excluding cash, cash items, and U.S. government securities) is
invested in the stock and securities of any one issuer, and not more
than 50% of the value of such assets is invested in the stock and
securities of five or fewer issuers; and
4.1.17. Target will be terminated as soon as reasonably
practicable after the Reorganization, but in all events within six
months after the Effective Time.
4.2. Acquiring Fund represents and warrants as follows:
4.2.1. Acquiring Fund is a Business Trust; it is duly
organized, validly existing, and in good standing under the laws of the
Commonwealth of Massachusetts, and a copy of its Declaration of Trust
is on file with the Secretary of the Commonwealth of Massachusetts;
4.2.2. Acquiring Fund is duly registered as an open-end
management investment company under the 1940 Act, and such
registration will be in full force and effect at the Effective
Time;
4.2.3. No consideration other than Acquiring Fund Shares
(and Acquiring Fund's assumption of the Liabilities) will be
issued in exchange for the Assets in the Reorganization;
4.2.4. The Acquiring Fund Shares to be issued and delivered
to Target hereunder will, at the Effective Time, have been duly
authorized and, when issued and delivered as provided herein, will be
duly and validly issued and outstanding shares of Acquiring Fund, fully
paid and non-assessable. Except as contemplated by this Agreement,
Acquiring Fund does not have outstanding any options, warrants, or
other rights to subscribe for or purchase any of its shares, nor is
there outstanding any security convertible into any of its shares;
4.2.5. Acquiring Fund's current prospectus and statement
of additional information conform in all material respects to
the applicable requirements of the 1933 Act and the 1940 Act
and the rules and regulations thereunder and do not include
any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading;
4.2.6. Acquiring Fund is not in violation of, and the
execution and delivery of this Agreement and consummation of the
transactions contemplated hereby will not conflict with or violate,
Massachusetts law or any provision of Acquiring Fund's Declaration of
Trust or By-Laws or of any provision of any agreement, instrument,
lease, or other undertaking to which Acquiring Fund is a party or by
which it is bound or result in the acceleration of any obligation, or
the imposition of any penalty, under any agreement, judgment, or
decree to which Acquiring Fund is a party or by which it is bound,
except as previously disclosed in writing to and accepted by Bartlett
Trust;
4.2.7. Except as otherwise disclosed in writing to and
accepted by Bartlett Trust, no litigation, administrative proceeding,
or investigation of or before any court or governmental body is
presently pending or (to Acquiring Fund's knowledge) threatened against
Acquiring Fund or any of its properties or assets that, if adversely
determined, would materially and adversely affect Acquiring Fund's
financial condition or the conduct of its business; Acquiring Fund
knows of no facts that might form the basis for the institution of any
such litigation, proceeding, or investigation and is not a party to or
subject to the provisions of any order, decree, or judgment of any
court or governmental body that materially or adversely affects its
business or its ability to consummate the transactions contemplated
hereby;
4.2.8. The execution, delivery, and performance of this
Agreement have been duly authorized as of the date hereof by all
necessary action on the part of Acquiring Fund's board of trustees,
which has made the determinations required by Rule 17a-8(a) under the
1940 Act; and, subject to receipt of any necessary exemptive relief or
no-action assurances requested from the SEC or its staff with respect
to sections 17(a) and 17(d) of the 1940 Act, this Agreement will
constitute a valid and legally binding obligation of Acquiring Fund,
enforceable in accordance with its terms, except as the same may be
limited by bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium, and similar laws relating to or affecting
creditors' rights and by general principles of equity;
4.2.9. No governmental consents, approvals, authorizations,
or filings are required under the 1933 Act, the 1934 Act, or the 1940
Act for the execution or performance of this Agreement by Acquiring
Fund, except for (a) the filing with the SEC of the Registration
Statement, (b) receipt of the exemptive relief referenced in
subparagraph 4.2.8, and (c) such consents, approvals, authorizations,
and filings as have been made or received or as may be required
subsequent to the Effective Time;
4.2.10. On the effective date of the Registration Statement,
at the time of the shareholders' meeting referred to in paragraph 5.2,
and at the Effective Time, the Proxy Statement will (a) comply in all
material respects with the applicable provisions of the 1933 Act, the
1934 Act, and the 1940 Act and the regulations thereunder and (b) not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
state ments therein, in light of the circumstances under which such
statements were made, not misleading; provided that the foregoing
shall not apply to statements in or omissions from the Proxy Statement
made in reliance on and in conformity with information furnished by
Bartlett Trust for use therein;
4.2.11. Acquiring Fund qualified for treatment as a RIC for
each past taxable year since it commenced operations and will continue
to meet all the requirements for such qualification for its current
taxable year; Acquiring Fund intends to continue to meet all such
requirements for the next taxable year; and it has no earnings and
profits accumulated in any taxable year in which the provisions of
Subchapter M of the Code did not apply to it;
4.2.12. Acquiring Fund has no plan or intention to issue
additional Acquiring Fund Shares following the Reorganization except
for shares issued in the ordinary course of its business as an
open-end investment company; nor does Acquiring Fund have any plan or
intention to redeem or otherwise reacquire any Acquiring Fund Shares
issued to the Shareholders pursuant to the Reorganization, other than
through redemptions arising in the ordinary course of that business;
4.2.13. Acquiring Fund (a) will actively continue Target's
business in substantially the same manner that Target conducted that
business immediately before the Reorganization, (b) has no plan or
intention to sell or otherwise dispose of any of the Assets, except for
dispositions made in the ordinary course of that business and
dispositions necessary to maintain its status as a RIC, and (c) expects
to retain substantially all the Assets in the same form as it receives
them in the Reorganization, unless and until subsequent investment
circumstances suggest the desirability of change or it becomes
necessary to make dispositions thereof to maintain such status;
4.2.14. There is no plan or intention for Acquiring Fund to be
dissolved or merged into another corporation or business trust or any
"fund" thereof (within the meaning of section 851(h)(2) of the Code)
following the Reorganization;
4.2.15. Immediately after the Reorganization, (a) not
more than 25% of the value of Acquiring Fund's total assets
(excluding cash, cash items, and U.S. government securities)
will be invested in the stock and securities of any one issuer
and (b) not more than 50% of the value of such assets will be invested
in the stock and securities of five or fewer issuers; and
4.2.16. Acquiring Fund does not own, directly or indirectly,
nor at the Effective Time will it own, directly or indirectly, nor has
it owned, directly or indirectly, at any time during the past five
years, any shares of Target.
4.3. Each Fund represents and warrants as follows:
4.3.1. The fair market value of the Acquiring Fund Shares,
when received by the Shareholders, will be approximately equal to the
fair market value of their Target Shares constructively surrendered in
exchange therefor;
4.3.2. Its management (a) is unaware of any plan or intention
of Shareholders to redeem or otherwise dispose of any portion of the
Acquiring Fund Shares to be received by them in the Reorganization and
(b) does not anticipate dispositions of those Acquiring Fund Shares at
the time of or soon after the Reorganization to exceed the usual rate
and frequency of dispositions of shares of Target as an open-end
investment company. Consequently, its management expects that the
percentage of Shareholder interests, if any, that will be disposed of
as a result of or at the time of the Reorganization will be de
minimis. Nor does its management anticipate that there will be
extraordinary redemptions of Acquiring Fund Shares immediately
following the Reorganization;
4.3.3. The Shareholders will pay their own expenses, if
any, incurred in connection with the Reorganization;
4.3.4. Immediately following consummation of the
Reorganization, Acquiring Fund will hold substantially the same assets
and be subject to substantially the same liabilities that Target
held or was subject to immediately prior thereto;
4.3.5. The fair market value on a going concern basis of
the Assets will equal or exceed the Liabilities to be assumed
by Acquiring Fund and those to which the Assets are subject;
4.3.6. There is no intercompany indebtedness between the
Funds that was issued or acquired, or will be settled, at a
discount;
4.3.7. Pursuant to the Reorganization, Target will transfer to
Acquiring Fund, and Acquiring Fund will acquire, at least 90% of the
fair market value of the net assets, and at least 70% of the fair
market value of the gross assets, held by Target immediately before the
Reorganization. For the purposes of this representation, any amounts
used by Target to pay redemptions and distributions made by it
immediately before the Reorganization (except for (a) distributions
made to conform to its policy of distributing all or substantially
all of its income and gains to avoid the obligation to pay federal
income tax and/or the excise tax under section 4982 of the Code and (b)
redemptions not made as part of the Reorganization) will be included as
assets thereof held immediately before the Reorganization;
4.3.8. None of the compensation received by any Shareholder
who is an employee of Target will be separate consideration for, or
allocable to, any of the Target Shares held by such
Shareholder-employee; none of the Acquiring Fund Shares received by any
such Shareholder-employee will be separate consideration for, or
allocable to, any employment agreement; and the consideration paid to
any such Shareholder-employee will be for services actually rendered
and will be commensurate with amounts paid to third parties bargaining
at arm's-length for similar services; and
4.3.9. Immediately after the Reorganization, the Shareholders
will not own shares constituting "control" of Acquiring Fund within
the meaning of section 304(c) of the Code.
5. COVENANTS
5.1. Each Fund covenants to operate its respective business in the
ordinary course between the date hereof and the Closing, it being understood
that (a) such ordinary course will include declaring and paying customary
dividends and other distributions and such changes in operations as are
contemplated by each Fund's normal business activities and (b) each Fund will
retain exclusive control of the composition of its portfolio until the Closing;
provided that Target shall not dispose of more than an insignificant portion of
its historic business assets during such period without Acquiring Fund's prior
consent.
5.2. Target covenants to call a shareholders' meeting to consider and
act upon this Agreement and to take all other action necessary to obtain
approval of the transactions contemplated hereby.
5.3. Target covenants that the Acquiring Fund Shares to be delivered
hereunder are not being acquired for the purpose of making any distribution
thereof, other than in accordance with the terms hereof.
5.4. Target covenants that it will assist Acquiring Fund in obtaining
such information as Acquiring Fund reasonably requests concerning the beneficial
ownership of Target Shares.
5.5. Target covenants that Target's books and records (including all
books and records required to be maintained under the 1940 Act and the rules and
regulations thereunder) will be turned over to Acquiring Fund at the Closing.
5.6. Each Fund covenants to cooperate in preparing the Proxy Statement
in compliance with applicable federal securities laws.
5.7. Each Fund covenants that it will, from time to time, as and when
requested by the other Fund, execute and deliver or cause to be executed and
delivered all such assignments and other instruments, and will take or cause to
be taken such further action, as the other Fund may deem necessary or desirable
in order to vest in, and confirm to, (a) Acquiring Fund, title to and possession
of all the Assets, and (b) Target, title to and possession of the Acquiring
Fund Shares to be delivered hereunder, and otherwise to carry out the intent and
purpose hereof.
5.8. Acquiring Fund covenants to use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act, the 1940 Act, and
such state securities laws it may deem appropriate in order to continue its
operations after the Effective Time.
5.9. Subject to this Agreement, each Fund covenants to take or cause to
be taken all actions, and to do or cause to be done all things, reasonably
necessary, proper, or advisable to consummate and effectuate the transactions
contemplated hereby.
6. CONDITIONS PRECEDENT
Each Fund's obligations hereunder shall be subject to (a) performance
by the other Fund of all the obligations to be performed hereunder at or before
the Effective Time, (b) all representations and warranties of the other Fund
contained herein being true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated
hereby, as of the Effective Time, with the same force and effect as if made at
and as of the Effective Time, and (c) the following further conditions that, at
or before the Effective Time:
6.1. This Agreement and the transactions contemplated hereby shall have
been duly adopted and approved by Bartlett Trust's board of trustees and shall
have been approved by Target's shareholders in accordance with applicable law.
6.2. All necessary filings shall have been made with the SEC and state
securities authorities, and no order or directive shall have been received that
any other or further action is required to permit the parties to carry out the
transactions contemplated hereby. The Registration Statement shall have become
effective under the 1933 Act, no stop orders suspending the effectiveness
thereof shall have been issued, and the SEC shall not have issued an unfavorable
report with respect to the Reorganization under section 25(b) of the 1940 Act
nor instituted any proceedings seeking to enjoin consummation of the
transactions contemplated hereby under section 25(c) of the 1940 Act. All
consents, orders, and permits of federal, state, and local regulatory
authorities (including the SEC and state securities authorities) deemed
necessary by either Fund to permit consummation, in all material respects, of
the transactions contemplated hereby shall have been obtained, except where
failure to obtain same would not involve a risk of a material adverse effect
on the assets or properties of either Fund, provided that either Fund may for
itself waive any of such conditions.
6.3. At the Effective Time, no action, suit, or other proceeding shall
be pending before any court or governmental agency in which it is sought to
restrain or prohibit, or to obtain damages or other relief in connection with,
the transactions contemplated hereby.
6.4. Bartlett Trust shall have received an opinion of Kirkpatrick &
Lockhart LLP, counsel to Acquiring Fund, substantially to the effect that:
6.4.1. Acquiring Fund is a Business Trust duly organized and
validly existing under the laws of the Commonwealth of Massachusetts
with power under its Declaration of Trust to own all of its properties
and assets and, to the knowledge of such counsel, to carry on its
business as presently conducted;
6.4.2. This Agreement (a) has been duly authorized, executed,
and delivered by Acquiring Fund and (b) assuming due authorization,
execution, and delivery of this Agreement by Bartlett Trust on behalf
of Target, is a valid and legally binding obligation of Acquiring Fund,
enforceable in accordance with its terms, except as the same may be
limited by bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium, and similar laws relating to or affecting creditors'
rights and by general principles of equity;
6.4.3. The Acquiring Fund Shares to be issued and distributed
to the Shareholders under this Agreement, assuming their due delivery
as contemplated by this Agreement, will be duly authorized and validly
issued and outstanding and fully paid and non-assessable, and no
shareholder of Acquiring Fund has any preemptive right to subscribe for
or purchase such shares;
6.4.4. The execution and delivery of this Agreement did not,
and the consummation of the transactions contemplated hereby will not,
materially violate Acquiring Fund's Declaration of Trust or By-Laws or
any provision of any agreement (known to such counsel, without any
independent inquiry or investigation) to which Acquiring Fund is a
party or by which it is bound or (to the knowledge of such counsel,
without any independent inquiry or investigation) result in the
acceleration of any obligation, or the imposition of any penalty, under
any agreement, judgment, or decree to which Acquiring Fund is a party
or by which it is bound, except as set forth in such opinion or as
previously disclosed in writing to and accepted by Bartlett Trust;
6.4.5. To the knowledge of such counsel (without any
independent inquiry or investigation), no consent, approval,
authorization, or order of any court or governmental authority is
required for the consummation by Acquiring Fund of the transactions
contemplated herein, except such as have been obtained under the 1933
Act, the 1934 Act, and the 1940 Act and such as may be required under
state securities laws;
6.4.6. Acquiring Fund is registered with the SEC as an
investment company, and to the knowledge of such counsel no
order has been issued or proceeding instituted to suspend such
registration; and
6.4.7. To the knowledge of such counsel (without any
independent inquiry or investigation), (a) no litigation,
administrative proceeding, or investigation of or before any court
or governmental body is pending or threatened as to Acquiring
Fund or any of its properties or assets and (b) Acquiring Fund is
not a party to or subject to the provisions of any order, decree,
or judgment of any court or governmental body that materially and
adversely affects Acquiring Fund's business, except as set forth in
such opinion or as otherwise disclosed in writing to and accepted by
Bartlett Trust.
In rendering such opinion, such counsel may (i) rely, as to matters governed by
the laws of the Commonwealth of Massachusetts, on an opinion of competent
Massachusetts counsel, (ii) make assumptions regarding the authenticity,
genuineness, and/or conformity of documents and copies thereof without
independent verification thereof, (iii) limit such opinion to applicable federal
and state law, and (iv) define the word "knowledge" and related terms to mean
the knowledge of attorneys then with such firm who have devoted substantive
attention to matters directly related to this Agreement and the Reorganization.
6.5. Acquiring Fund shall have received an opinion of Brown, Cummins &
Brown, counsel to Bartlett Trust, substantially to the effect that:
6.5.1. Target is a duly established series of Bartlett Trust,
a Business Trust duly organized and validly existing under the laws of
the State of Ohio with power under its Declaration of Trust to own all
of its properties and assets and, to the knowledge of such counsel, to
carry on its business as presently conducted;
6.5.2. This Agreement (a) has been duly authorized, executed,
and delivered by Bartlett Trust on behalf of Target and (b) assuming
due authorization, execution, and delivery of this Agreement by
Acquiring Fund, is a valid and legally binding obligation of Bartlett
Trust with respect to Target, enforceable in accordance with its terms,
except as the same may be limited by bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium, and similar laws relating to or
affecting creditors' rights and by general principles of equity;
6.5.3. The execution and delivery of this Agreement did not,
and the consummation of the transactions contemplated hereby will not,
materially violate Bartlett Trust's Declaration of Trust or By-Laws or
any provision of any agreement (known to such counsel, without any
independent inquiry or investigation) to which Bartlett Trust (with
respect to Target) is a party or by which it is bound or (to the
knowledge of such counsel, without any independent inquiry or
investigation) result in the acceleration of any obligation, or the
imposition of any penalty, under any agreement, judgment, or decree to
which Bartlett Trust (with respect to Target) is a party or by which it
is bound, except as set forth in such opinion or as previously
disclosed in writing to and accepted by Acquiring Fund;
6.5.4. To the knowledge of such counsel (without any
independent inquiry or investigation), no consent, approval,
authorization, or order of any court or governmental authority is
required for the consummation by Bartlett Trust on behalf of Target of
the transactions contemplated herein, except such as have been obtained
under the 1933 Act, the 1934 Act, and the 1940 Act and such as may be
required under state securities laws;
6.5.5. Bartlett Trust is registered with the SEC as an
investment company, and to the knowledge of such counsel no
order has been issued or proceeding instituted to suspend such
registration; and
6.5.6. To the knowledge of such counsel (without any
independent inquiry or investigation), (a) no litigation,
administrative proceeding, or investigation of or before any court
or governmental body is pending or threatened as to Bartlett Trust
(with respect to Target) or any of its properties or assets
attributable or allocable to Target and (b) Bartlett Trust (with
respect to Target) is not a party to or subject to the provisions of
any order, decree, or judgment of any court or governmental body
that materially and adversely affects its business, except as set
forth in such opinion or as otherwise disclosed in writing to and
accepted by Acquiring Fund.
In rendering such opinion, such counsel may (i) make assumptions regarding the
authenticity, genuineness, and/or conformity of documents and copies thereof
without independent verification thereof, (ii) limit such opinion to applicable
federal and state law, and (iii) define the word "knowledge" and related terms
to mean the knowledge of attorneys then with such firm who have devoted
substantive attention to matters directly related to this Agreement and
the Reorganization.
6.6. Acquiring Fund shall have received an opinion of Kirkpatrick &
Lockhart LLP, its counsel, addressed to and in form and substance satisfactory
to it, and Bartlett Trust shall have received an opinion of Brown, Cummins &
Brown, its counsel, addressed to and in form and substance satisfactory to
it, each as to the federal income tax consequences mentioned below (each a
"Tax Opinion"). In rendering its Tax Opinion, each such counsel may rely as
to factual matters, exclusively and without independent verification, on the
representations made in this Agreement (or in separate letters addressed to
such counsel) and the certificates delivered pursuant to paragraph 3.4.
Each Tax Opinion shall be substantially to the effect that, based on the
facts and assumptions stated therein, for federal income tax purposes:
6.6.1. Acquiring Fund's acquisition of the Assets in exchange
solely for Acquiring Fund Shares and Acquiring Fund's assumption of the
Liabilities, followed by Target's distribution of those shares to the
Shareholders constructively in exchange for the Shareholders' Target
Shares, will constitute a reorganization within the meaning of section
368(a)(1)(C) of the Code, and each Fund will be "a party to a
reorganization" within the meaning of section 368(b) of the Code;
6.6.2. No gain or loss will be recognized to Target on the
transfer to Acquiring Fund of the Assets in exchange solely for
Acquiring Fund Shares and Acquiring Fund's assumption of the
Liabilities or on the subsequent distribution of those shares to the
Shareholders in constructive exchange for their Target Shares;
6.6.3. No gain or loss will be recognized to Acquiring
Fund on its receipt of the Assets in exchange solely for
Acquiring Fund Shares and its assumption of the Liabilities;
6.6.4. Acquiring Fund's basis for the Assets will be the same
as the basis thereof in Target's hands immediately before the
Reorganization, and Acquiring Fund's holding period for the Assets will
include Target's holding period therefor;
6.6.5. A Shareholder will recognize no gain or loss on
the constructive exchange of all its Target Shares solely for
Acquiring Fund Shares pursuant to the Reorganization; and
6.6.6. A Shareholder's basis for the Acquiring Fund Shares to
be received by it in the Reorganization will be the same as the basis
for its Target Shares to be constructively surrendered in exchange for
those Acquiring Fund Shares, and its holding period for those Acquiring
Fund Shares will include its holding period for those Target Shares,
provided they are held as capital assets by the Shareholder at the
Effective Time.
Notwithstanding subparagraphs 6.6.2 and 6.6.4, each Tax Opinion may state that
no opinion is expressed as to the effect of the Reorganization on the Funds or
any Shareholder with respect to any asset as to which any unrealized gain or
loss is required to be recognized for federal income tax purposes at the end of
a taxable year (or on the termination or transfer thereof) under a
mark-to-market system of accounting.
At any time before the Closing, (a) Acquiring Fund may waive any of the
foregoing conditions if, in the judgment of its board of trustees, such waiver
will not have a material adverse effect on its shareholders' interests, and (b)
Target may waive any of the foregoing conditions if, in the judgment of Bartlett
Trust's board of trustees, such waiver will not have a material adverse effect
on the Shareholders' interests.
7. BROKERAGE FEES AND EXPENSES
7.1. Each Investment Company represents and warrants to the other that
there are no brokers or finders entitled to receive any payments in connection
with the transactions provided for herein.
7.2. Except as otherwise provided herein, all expenses incurred in
connection with the transactions contemplated by this Agreement (whether or not
they are consummated) will be borne by entities other than the Funds.
8. ENTIRE AGREEMENT; SURVIVAL
Neither party has made any representation, warranty, or covenant not
set forth herein, and this Agreement constitutes the entire agreement between
the parties. The representations, warranties, and covenants contained herein or
in any document delivered pursuant hereto or in connection herewith shall
survive the Closing.
9. TERMINATION OF AGREEMENT
This Agreement may be terminated at any time at or prior to the
Effective Time, whether before or after approval by Target's shareholders:
9.1. By either Fund (a) in the event of the other Fund's material
breach of any representation, warranty, or covenant contained herein to be
performed at or prior to the Effective Time, (b) if a condition to its
obligations has not been met and it reasonably appears that such condition will
not or cannot be met, or (c) if the Closing has not occurred on or before June
30, 1997; or
9.2. By the parties' mutual agreement.
In the event of termination under paragraphs 9.1.(c) or 9.2, there shall be no
liability for damages on the part of either Fund, or the trustees or officers of
either Investment Company, to the other Fund.
10. AMENDMENT
This Agreement may be amended, modified, or supplemented at any time,
notwithstanding approval thereof by Target's shareholders, in such manner as
may be mutually agreed upon in writing by the parties; provided that following
such approval no such amendment shall have a material adverse effect on the
Shareholders' interests.
11. MISCELLANEOUS
11.1. This Agreement shall be governed by and construed in accordance
with the internal laws of the State of Ohio; provided that, in the case of any
conflict between such laws and the federal securities laws, the latter shall
govern.
11.2. Nothing expressed or implied herein is intended or shall be
construed to confer upon or give any person, firm, trust, or corporation other
than the parties and their respective successors and assigns any rights or
remedies under or by reason of this Agreement.
11.3. The parties acknowledge that each Investment Company is a
Business Trust. Notice is hereby given that this instrument is executed on
behalf of each Investment Company's trustees solely in their capacity as
trustees, and not individually, and that each Investment Company's obligations
under this instrument are not binding on or enforceable against any of its
trustees, officers, or shareholders, but are only binding on and enforceable
against the assets and property of the respective Funds. Each Fund agrees that,
in asserting any rights or claims under this Agreement, it shall look only to
the other Fund's assets and property in settlement of such rights or claims and
not to such trustees or shareholders.
IN WITNESS WHEREOF, each party has caused this Agreement to be executed
by its duly authorized officer.
ATTEST: LEGG MASON CASH RESERVE TRUST
By: /s/ Kathi D. Bair /s/ Marie K. Karpinski
Secretary Vice President
ATTEST: BARTLETT MANAGEMENT TRUST, on
behalf of BARTLETT CASH
RESERVES FUND
/s/ Thomas A. Steele /s/ Donna M. Prieshoff
By:
Assistant Secretary Vice President
AMENDED UNDERWRITING AGREEMENT
This UNDERWRITING AGREEMENT, made this 10th day of May, 1996, by and
between Legg Mason Cash Reserve Trust, a Massachusetts business trust ("Trust"),
and Legg Mason Wood Walker, Incorporated, a Maryland corporation (the
"Distributor").
WHEREAS, the Trust is registered with the Securities and Exchange
Commission as an open-end investment company under the Investment Company Act of
1940, as amended (the "1940 Act"), and has registered shares of beneficial
interest of the Trust for sale to the public under the Securities Act of 1933
(the "1933 Act") and various state securities laws; and
WHEREAS, the Trust wishes to retain the Distributor as the principal
underwriter in connection with the offering and sale of the shares of beneficial
interest of the Trust ("Shares") and to furnish certain other services to the
Trust as specified in this Agreement; and
WHEREAS, this Agreement has been approved by separate votes of the
Trust's Board of Trustees and of certain disinterested directors in conformity
with Section 15 of, and paragraph (b)(2) of Rule 12b-1 under, the 1940 Act; and
WHEREAS, the Distributor is willing to act as principal underwriter and
to furnish such services on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed as follows:
1. (a) The Trust hereby appoints the Distributor as principal
underwriter in connection with the offering and sale of shares of the Trust. The
Distributor, as exclusive agent for the Trust, upon the commencement of
operations of the Trust and subject to applicable federal and state law and the
Articles of Incorporation and By-Laws of the Trust, shall: (i) promote the
Trust; (ii) solicit orders for the purchase of the Shares subject to such terms
and conditions as the Trust may specify; and (iii) accept orders for the
purchase of the Shares on behalf of the Trust (collectively, "Distribution
Services"). The Distributor shall comply with all applicable federal and state
laws and offer the Shares of the Trust on an agency or "best efforts" basis
under which the Trust or any other list of investors which it obtains in
connection with its provision of services under this Agreement; provided,
however, that the Distributor shall not sell or knowingly provide such list or
lists to any unaffiliated person without the consent of the Trust's Board of
Trustees.
(b) The Distributor shall provide ongoing shareholder liaison services,
including responding to shareholder inquiries, providing shareholders with
information on their investments, and any other services now or hereafter deemed
to be appropriate subjects for the payments of "service fees" under Article III,
Section 26 of the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. (collectively, "Shareholder Services").
2. The Distributor may enter into dealer agreements with registered and
qualified securities dealers it may select for the performance of Distribution
and Shareholder Services, and may enter into agreements with qualified dealers
and other qualified entities to perform recordkeepin and sub-accounting
services, the form of such agreements to be as mutually agreed upon and approved
by the Trust and the Distributor. In making such arrangements, the Distributor
shall act only as principal and not as agent for the Trust. No such dealer or
other entity is authorized to act as agent for the Trust in connection with the
offering or sale of Shares to the public or otherwise.
3. The public offering price of the Shares of the Trust shall be
the net asset value per share (as determined by the Trust) of the outstanding
Shares of the Trust plus any applicable sales charge as
<PAGE>
described in the Registration Statement of the Trust. The Trust shall furnish
the Distributor with a statement of each computation of public offering price
and of the details entering into such computation.
4. As compensation for providing Distribution Services under this
Agreement, the Distributor shall retain the sales charge, if any, on purchases
of Shares as set forth in the Registration Statement. The Distributor is
authorized to collect the gross proceeds derived from the sale of the Shares,
remit the net asset value thereof to the Trust upon receipt of the proceeds and
retain the sales charge, if any. The Distributor shall receive from the Trust a
distribution fee and a service fee at the rates and under the terms and
conditions of the Plan of Distribution ("Plan") adopted by the Trust as such
Plan is in effect from time to time, and subject to any further limitations on
such fees as the Trust's Board of Trustees may impose. The Distributor may
reallow any or all of the sales charge, distribution fee and service fee that it
has received under this Agreement to such dealers or sub-accountants as it may
from time to time determine; provided, however, that the Distributor may not
reallow to any dealer for Shareholder Services an amount in excess of .25% of
the average annual net asset value of the shares with respect to which said
dealer provides Shareholder Services.
5. As used in this Agreement, the term "Registration Statement" shall
mean the registration statement most recently filed by the Trust with the
Securities and Exchange Commission and effective under the 1940 Act and 1933
Act, as such Registration Statement is amended by any amendments thereto at the
time in effect, and the terms "Prospectus" and "Statement of Additional
Information" shall mean, respectively, the form of prospectus and statement of
additional information filed by the Trust as part of the Registration Statement,
or as they may be amended from time to time.
6. The Distributor shall print and distribute to prospective investors
Prospectuses, and shall print and distribute, upon request, to prospective
investors Statements of Additional Information, and may print and distribute
such other sales literature, reports, forms and advertisements in connection
with the sale of the Shares as comply with the applicable provisions of federal
and state law. In connection with such sales and offers of sale, the Distributor
and any dealer or sub-accountant shall give only such information and make only
such statements or representations as are contained in the Prospectus, Statement
of Additional Information, or in information furnished in writing to the
Distributor by the Trust, and the Trust shall not be responsible in any way for
any other information, statements or representations given or made by the
Distributor, any dealer or sub-accountant, or their representatives or agents.
Except as specifically provided in this Agreement, the Trust shall bear none of
the expenses of the Distributor in connection with its offer and sale of the
Shares.
7. The Trust agrees at its own expense to register the Shares with the
Securities and Exchange Commission, state and other regulatory bodies, and to
prepare and file from time to time such Prospectuses, Statements of Additional
Information, amendments, reports and other documents as may be necessary to
maintain the Registration Statement. The Trust shall bear all expenses related
to preparing and typesetting such Prospectuses, Statements of Additional
Information, and other materials required by law and such other expenses,
including printing and mailing expenses, related to such Trust's communications
with persons who are shareholders of the Trust.
8. The Trust agrees to indemnify, defend and hold the Distributor, its
several officers and directors, and any person who controls the Distributor
within the meaning of Section 15 of the 1933 Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Distributor, its
officers or directors, or any such controlling person may incur, under the 1933
Act or under common law or otherwise, arising out of or based upon any alleged
untrue statement of a material fact contained in the Registration Statement or
arising out of or based upon any alleged omission to state a material fact
required to be stated or necessary to make the Registration Statement not
misleading, provided that in no event shall anything contained in this Agreement
be construed so as to protect the Distributor against any liability to the Trust
or its shareholders to which the Distributor would otherwise be subject by
reason of willful misfeasance, bad faith, or gross negligence in
<PAGE>
the performance of its duties, or by reason of its reckless disregard of its
obligations and duties under this Agreement, and further provided that the Trust
shall not indemnify the Distributor for conduct set forth in paragraph 9.
9. The Distributor agrees to indemnify, defend and hold the Trust, its
several officers and directors, and any person who controls the Trust within the
meaning of Section 15 of the 1933 Act, free and harmless from and against any
and all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which the Trust, its officers or
directors, or any such controlling person may incur, under the 1933 Act or under
common law or otherwise, on account of any wrongful act of the Distributor or
any of its employees or arising out of or based upon any alleged untrue
statement of a material fact contained in information furnished in writing by
the Distributor to the Trust for use in the Registration Statement or arising
out of or based upon any alleged omission to state a material fact in connection
with such information required to be stated in the Registration Statement or
necessary to make such information not misleading. As used in this paragraph,
the term "employee" shall not include a corporate entity under contract to
provide services to the Trust or the Trust, or any employee of such a corporate
entity, unless such person is otherwise an employee of the Trust.
10. The Trust reserves the right at any time to withdraw all offerings
of the Shares of the Trust by written notice to the Distributor at its principal
office.
11. The Trust shall not issue certificates representing Shares unless
requested by a shareholder. If such request is transmitted through the
Distributor, the Trust will cause certificates evidencing the Shares owned to be
issued in such names and denominations as the Distributor shall from time to
time direct, provided that no certificates shall be issued for fractional
Shares.
12. The Distributor may at its sole discretion, directly or through
dealers, repurchase Shares offered for sale by the shareholders or dealers.
Repurchase of Shares by the Distributor shall be at the net asset value next
determined after a repurchase order has been received. The Distributor will
receive no commission or other remuneration for repurchasing Shares. At the end
of each business day, the Distributor shall notify by telex or in writing, the
Trust and State Street Bank and Trust Company, the Trust's transfer agent, of
the orders for repurchase of Shares received by the Distributor since the last
such report, the amount to be paid for such Shares, and the identity of the
shareholders or dealers offering Shares for repurchase. Upon such notice, the
Trust shall pay the Distributor such amounts as are required by the Distributor
for the repurchase of such Shares in cash or in the form of a credit against
moneys due the Trust from the Distributor as proceeds from the sale of Shares.
The Trust reserves the right to suspend such repurchase right upon written
notice to the Distributor. The Distributor further agrees to act as agent for
the Trust to receive and transmit promptly to the Trust's transfer agent
shareholder and dealer requests for redemption of Shares.
13. The Distributor is an independent contractor and shall be agent for
the Trust only in respect to the sale and redemption of the Shares.
14. The services of the Distributor to the Trust under this Agreement
are not to be deemed exclusive, and the Distributor shall be free to render
similar services or other services to others so long as its services hereunder
are not impaired thereby.
15. The Distributor shall prepare reports for the Trust's Board of
Trustees on a quarterly basis showing such information concerning expenditures
related to this Agreement as from time to time shall be reasonably requested by
the Board of Trustees.
16. As used in this Agreement, the terms "assignment", "interested
person", and "majority of the outstanding voting securities" shall have the
meanings given to them by Section 2(a) of the 1940 Act,
<PAGE>
subject to such exemptions as may be granted by the Securities and Exchange
Commission by any rule, regulation or order.
17. This Agreement will become effective on the date first written
above and, unless sooner terminated as provided herein, will continue in effect
for one year from the above written date. Thereafter, if not terminated, this
Agreement shall continue in effect for successive annual periods ending on the
same date of each year, provided that such continuance is specifically approved
at least annually (i) by the Trust's Board of Trustees or (ii) by a vote of a
majority of the outstanding voting securities of the Trust (as defined in the
1940 Act), provided that in either event the continuance is also approved by a
majority of the Trust's Trustees who are not interested persons (as defined in
the 1940 Act) of any party to this Agreement, by vote cast in person at a
meeting called for the purpose of voting on such approval.
18. This Agreement is terminable or in its entirety without penalty by
the Trust's Board of Trustees, by vote of a majority of the outstanding voting
securities of the Trust (as defined in the 1940 Act), or by the Distributor, on
not less than 60 days' notice to the other party and will be terminated upon the
mutual written consent of the Distributor and the Trust. This Agreement will
also automatically and immediately terminate in the event of its assignment.
19. No provision of this Agreement may be changed, waived, discharged
or terminated orally, except by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought.
20. In the event this Agreement is terminated by either party or upon
written notice from the Distributor at any time, the Trust hereby agrees that it
will eliminate from its corporate name any reference to the name of "Legg
Mason." The Trust shall have the non-exclusive use of the name "Legg Mason" in
whole or in part only so long as this Agreement is effective or until such
notice is given.
IN WITNESS WHEREOF, the parties hereto caused this Agreement to be
executed by their officers thereunto duly authorized.
Attest: LEGG MASON CASH RESERVE TRUST
By:/s/Kathi D. Bair By:/s/Marie K. Karpinski
Attest: LEGG MASON WOOD WALKER, INCORPORATED
By:/s/Ana Ramage By:/s/John F. Curley
AMENDED
DISTRIBUTION PLAN OF
LEGG MASON CASH RESERVE TRUST
WHEREAS, Legg Mason Cash Reserve Trust ("Trust") is an open-end
management investment company registered under the Investment Company Act of
1940, as amended ("1940 Act"), and offers for public sale shares of beneficial
interest;
WHEREAS, the Trust has registered the offering of its shares of
beneficial interest under a Registration Statement filed with the Securities and
Exchange Commission and that Registration Statement is in effect as of the date
hereof;
WHEREAS, the Trust desires to adopt a Distribution Plan pursuant to
Rule 12b-1 under the 1940 Act and the Board of Trustees has determined that
there is a reasonable likelihood that adoption of the Distribution Plan will
benefit the Trust and its shareholders; and
WHEREAS, the Trust has employed Legg Mason Wood Walker, Incorporated
("Legg Mason") as principal underwriter of the shares of the Trust;
NOW, THEREFORE, the Trust hereby adopts this Distribution Plan ("Plan")
in accordance with Rule 12b-1 under the 1940 Act on the following terms and
conditions:
1. A. The Trust shall pay to Legg Mason, as compensation for Legg
Mason's services as principal underwriter of the Trust's shares, a distribution
and shareholder services fee at the rate of 0.15% on an annualized basis of the
average daily net assets of the Trust's shares, such fee to be calculated and
accrued daily and paid monthly or at such other intervals as the Board shall
determine.
B. The Trust may pay a distribution and service fee to Legg
Mason at a lesser rate than the fee specified in paragraph 1.A. of this Plan, as
agreed upon by the Board and Legg Mason and as approved in the manner specified
in paragraph 3 of this Plan. The distribution and service fee payable hereunder
is payable without regard to the aggregate amount that may be paid over the
years, provided that, so long as the limitations set forth in Article III,
Section 26(d) of the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. ("NASD") remain in effect and apply to distributors or
dealers in the Trust's shares, the amounts paid hereunder shall not exceed those
limitations, including permissible interest.
2. As principal underwriter of the Trust's shares, Legg Mason may spend
such amounts as it deems appropriate on any activities or expenses primarily
intended to result in the sale of the shares of the Trust and/or the servicing
and maintenance of shareholder accounts, including, but not limited to,
compensation to employees of Legg Mason; compensation to Legg Mason, other
broker-dealers and other entities that engage in or support the distribution of
shares or who service shareholder accounts or provide sub-accounting and
recordkeeping services; expenses of Legg Mason and such other broker-dealers and
other entities, including overhead and telephone and other communication
expenses; the printing of prospectuses, statements of additional information,
and reports for other than existing shareholders; and preparation and
distribution of sales literature and advertising materials.
3. This amended Plan shall take effect on May 10, 1996 and shall
continue in effect for successive periods of one year from its execution for so
long as such continuance is specifically approved at least annually together
with any related agreements, by votes of a majority of both (a) the Board of
Trustees of the Trust and (b) those Trustees who are not "interested persons" of
the Trust, as defined in the 1940 Act, and who have no direct or indirect
financial interest in the operation of this Plan or any agreements related to it
(the "Rule 12b-1 Trustees"), cast in person at a meeting or meetings called for
the purpose of voting on this Plan and such related agreements; and only if the
Trustees who approve the Plan taking effect have reached the conclusion required
by Rule 12b-1(e) under the 1940 Act.
<PAGE>
4. Any person authorized to direct the disposition of monies paid or
payable by the Trust pursuant to this Plan or any related agreement shall
provide to the Trust's Board of Trustees and the Board shall review, at least
quarterly, a written report of the amounts so expended and the purposes for
which such expenditures were made. Legg Mason shall submit only information
regarding amounts expended for "distribution activities," as defined in this
paragraph 4, to the Board in support of the distribution fee payable hereunder
and shall submit only information regarding amounts expended for "service
activities," as defined in this paragraph 4, to the Board in support of the
service fee payable hereunder.
For purposes of this Plan, "distribution activities" shall
mean any activities in connection with Legg Mason's performance of its
obligations under the underwriting agreement, dated May 10, 1996, by and between
the Trust and Legg Mason, that are not deemed "service activities." As used
herein, "distribution activities" also includes sub-accounting or recordkeeping
services provided by an entity if the entity is compensated, directly or
indirectly, by the Fund or Legg Mason for such services. Such entity may also be
paid a service fee if it provides appropriate services. Nothing in the foregoing
is intended to or shall cause there to be any implication that compensation for
such services must be made only pursuant to a plan of distribution under Rule
12b-1. "Service activities" shall mean activities covered by the definition of
"service fee" contained in amendments to Article III, Section 26(d) of the
NASD's Rules of Fair Practice that became effective July 7, 1993, including the
provision by Legg Mason of personal, continuing services to investors in the
Trust's shares. Overhead and other expenses of Legg Mason related to its
"distribution activities" or "service activities," including telephone and other
communications expenses, may be included in the information regarding amounts
expended for such distribution or service activities, respectively.
5. This Plan may be terminated with respect to the Trust at any time by
vote of a majority of the Rule 12b-1 Trustees or by vote of a majority of the
outstanding voting securities of the Trust.
6. This Plan may not be amended to increase materially the amount of
distribution and service fee provided for in paragraph 1.A. hereof unless such
amendment is approved by a vote of at least a majority of the outstanding
securities, as defined in the 1940 Act, of the Trust, and no material amendment
to the Plan shall be made unless such amendment is approved in the manner
provided for continuing approval in paragraph 3 hereof.
7. While this Plan is in effect, the selection and nomination of
Trustees who are not interested persons of the Trust, as defined in the 1940
Act, shall be committed to the discretion of Trustees who are themselves not
interested persons.
8. The Trust shall preserve copies of this Plan and any related
agreements for a period of not less than six years from the date of expiration
of the Plan or agreement, as the case may be, the first two years in an easily
accessible place; and shall preserve copies of each report made pursuant to
paragraph 4 hereof for a period of not less than six years from the date of such
report, the first two years in an easily accessible place.
IN WITNESS WHEREOF, the Trust has executed this Distribution Plan as of
the day and year set forth below.
2
<PAGE>
Date: May 10, 1996 LEGG MASON CASH RESERVE TRUST
----------------
By: /s/Marie K. Karpinski
Attest:
By: /s/Kathi D. Bair
Agreed and assented to by
LEGG MASON WOOD WALKER, INCORPORATED
By: /s/John F. Curley
3
Exhibit 11
September 20, 1996
Legg Mason Cash Reserve Trust
111 South Calvert Street
Baltimore, Maryland 21202
Ladies and Gentlemen:
You have requested our opinion as to certain matters regarding the
issuance by Legg Mason Cash Reserve Trust (the "Trust"), a voluntary association
known as a business trust organized under the laws of the Commonwealth of
Massachusetts, of shares of beneficial interest (the "Shares") of the Trust,
pursuant to an Agreement and Plan of Reorganization and Termination ("Plan")
between the Trust and Bartlett Management Trust ("Management Trust"), on behalf
of Bartlett Cash Reserves Fund ("Cash Fund"), a series of Management Trust.
Under the Plan, the Trust would acquire the assets of Cash Fund in exchange for
the Shares and the assumption by the Trust of Cash Fund's liabilities. In
connection with the Plan, the Trust is about to file a Registration Statement on
Form N-14 (the "N-14") for the purpose of registering the Shares under the
Securities Act of 1933, as amended ("1933 Act"), to be issued pursuant to the
Plan.
We have examined originals or copies believed by us to be genuine of
the Trust's Declaration of Trust and By-Laws, minutes of meetings of the Trust's
board of trustees, the form of Plan, and such other documents relating to the
authorization and issuance of the Shares as we have deemed relevant. Based upon
that examination, we are of the opinion that the Shares being registered by the
N-14 may be issued in accordance with the Plan and the Trust's Declaration of
Trust and By-Laws, subject to compliance with the 1933 Act, the Investment
Company Act of 1940, as amended, and applicable state laws regulating the
distribution of securities, and when so issued, those Shares will be legally
issued, fully paid and non-assessable.
We hereby consent to this opinion accompanying the Form N-14 that the
Trust plans to file with the Securities and Exchange Commission and to the
reference to our firm under the caption "Miscellaneous -- Legal Matters" in the
Prospectus/Proxy Statement filed as part of the Form N-14.
Sincerely yours,
KIRKPATRICK & LOCKHART LLP
By: /s/ Arthur C. Delibert
Arthur C. Delibert
--------------------------
KIRKPATRICK & LOCKHART LLP
--------------------------
ONE INTERNATIONAL PLACE
BOSTON, MASSACHUSETTS 02110-2637
TELEPHONE (617) 261-3100
FACSIMILE (617) 261-3175
JOEL D. ALMQUIST
(617) 261-3104
[email protected]
September 16, 1996
Legg Mason Cash Reserve Trust
111 South Calvert Street
Baltimore, Maryland 21202
Ladies and Gentlemen:
Legg Mason Cash Reserve Trust, a Massachusetts business trust
("Acquiring Fund"), has requested our opinion as to certain federal income tax
consequences of the proposed acquisition of Bartlett Cash Reserves Fund
("Target"), a series of Bartlett Management Trust, an Ohio business trust
("Bartlett Trust"),1/ by Acquiring Fund, pursuant to an Agreement and Plan of
Reorganization and Termination between them dated as of September 20,
1996 ("Plan"), attached as an exhibit to the prospectus/proxy statement to
be furnished in connection with the solicitation of proxies by Bartlett
Trust's Board of Trustees for use at a special meeting of Target shareholders
("Special Meeting") to be held on December 6, 1996 ("Proxy"), included in the
registration statement on Form N-14 to be filed with the Securities and
Exchange Commission ("SEC") on the date hereof ("Registration Statement").
Specifically, Acquiring Fund has requested our opinion:
- --------
1/ Target and Acquiring Fund are sometimes referred to herein
individually either by such names or as a "Fund" and collectively as
the "Funds," and Bartlett Trust and Acquiring Fund are sometimes referred
to herein individually either by such names or as an "Investment
Company" and collectively as the "Investment Companies."
(1) that the acquisition by Acquiring Fund of Target's assets
in exchange solely for voting shares of beneficial interest in
Acquiring Fund and the assumption by Acquiring Fund of Target's
liabilities, followed by the distribution of those shares by Target pro
rata to its shareholders of record as of the Effective Time (as
hereinafter defined) ("Shareholders") constructively in exchange for
their shares of beneficial interest in Target ("Target Shares") (such
transaction sometimes being referred to herein as the
"Reorganization"), will constitute a "reorganization" within the
meaning of section 368(a)(1)(C)2/ and that each Fund will be a "party
to a reorganization" within the meaning of section 368(b),
2/ All section references are to the Internal Revenue Code of 1986, as amended
("Code"), and all "Treas. Reg. ss." references are to the regulations under
the Code ("Regulations").
(2) that Target, the Shareholders, and Acquiring Fund will
recognize no gain or loss upon the Reorganization, and
(3) regarding the basis and holding period after the
Reorganization of the transferred assets and the shares of Acquiring
Fund issued pursuant thereto.
In rendering this opinion, we have examined (1) Target's prospectus
dated August 1, 1996 and statement of additional information dated August 1,
1996 ("SAI"), and the currently effective prospectus and SAI of Acquiring Fund,
both dated April 1, 1996, (2) the Proxy, (3) the Plan, and (4) such other
documents as we have deemed necessary or appropriate for the purposes hereof. As
to various matters of fact material to this opinion, we have relied, exclusively
and without independent verification, on statements of responsible officers of
each Investment Company and the representations described below and made in the
Plan (as contemplated in paragraph 6.6 thereof) (collectively
"Representations").
FACTS
Acquiring Fund is an unincorporated voluntary association with
transferable shares formed as a business trust (commonly referred to as a
"business trust") under the laws of the Commonwealth of Massachusetts pursuant
to a Declaration of Trust; Acquiring Fund commenced operations on November 2,
1979. Bartlett Trust is a business trust formed under the laws of the State of
Ohio pursuant to a Declaration of Trust. Target commenced operations as a series
thereof on February 16, 1988. Each Investment Company is registered with the SEC
as an open-end management investment company under the Investment Company Act of
1940 ("1940 Act"). Legg Mason Fund Adviser, Inc. ("LM Fund Adviser"), a wholly
owned subsidiary of Legg Mason, Inc. ("Legg Mason"), serves as manager to
Acquiring Fund; Western Asset Management Company, another wholly owned
subsidiary of Legg Mason, serves as investment adviser to Acquiring Fund, and
Legg Mason is the distributor of Acquiring Fund's shares. Bartlett & Co. serves
as manager and investment adviser to Target.
The Reorganization, together with all related acts necessary to
consummate the same ("Closing"), shall occur as of 4:00 p.m. on December 13,
1996 (or on such other date or at such other time as the parties may agree)
("Effective Time"). Before the Effective Time, Target shall declare and pay to
its shareholders a dividend in an amount large enough so that it will have
distributed substantially all (and in any event not less than 90%) of its
investment company taxable income (computed without regard to any
deduction for dividends paid) for the current taxable year through the Effective
Time.
The Funds' investment objectives, which are substantially identical,
and investment policies, which are generally similar, are described in the Proxy
and their respective prospectuses and SAIs. Although there are differences in
those policies, it is not expected that Acquiring Fund will revise its
investment policies following the Reorganization to reflect Target's. Because
Target is permitted to invest in securities having characteristics different
from those permitted for Acquiring Fund, certain of the securities currently
held by Target may need to be sold rather than transferred to Acquiring Fund. If
the Reorganization is approved, Target will sell prior to the Effective Time any
assets that are inconsistent with Acquiring Fund's investment policies, and the
proceeds thereof will be held in temporary investments or reinvested in assets
that qualify to be held by Acquiring Fund.
The Reorganization was recommended by LM Fund Adviser to Acquiring
Fund's board of trustees at a meeting thereof held on August 5, 1996 and by
Bartlett & Co. to Bartlett Trust's board of trustees at a meeting thereof held
on August 12, 1996. In considering the Reorganization, each board of trustees
made an extensive inquiry into a number of factors (which are described in the
Proxy, together with LM Fund Adviser's and Bartlett & Co.'s advice and
recommendations to the respective boards of trustees and the purposes of the
Reorganization). Pursuant thereto, each board of trustees approved the Plan,
subject to the approval of Target's stockholders. In doing so, each board of
trustees, including a majority of its members who are not "interested persons"
(as that term is defined in the 1940 Act) of either Investment Company,
determined that the Reorganization is in its Fund's best interests, that the
terms of the Reorganization are fair and reasonable, and that its Fund's
shareholders' interests will not be diluted as a result of the Reorganization.
The Plan, which specifies that it is intended to be, and is adopted as,
a plan of a reorganization described in section 368(a)(1)(C), provides in
relevant part for the following:
(1) The acquisition by Acquiring Fund of all cash, cash
equivalents, securities, receivables (including interest and dividends
receivable), claims and rights of action, rights to register shares
under applicable securities laws, books and records, deferred and
prepaid expenses shown as assets on Target's books, and other property
owned by Target at the Effective Time (collectively "Assets") in
exchange solely for
(a) the number of full and fractional shares of
beneficial interest in Acquiring Fund ("Aquiring Fund Shares")
determined by dividing the net value of Target by the net
asset value ("NAV") of an Acquiring Fund Share, and
(b) Acquiring Fund's assumption of all of Target's
liabilities, debts, obligations, and duties of whatever kind
or nature, whether absolute, accrued, contingent, or
otherwise, whether or not arising in the ordinary course of
business, whether or not determinable at the Effective Time,
and whether or not specifically referred to in the Plan
(collectively "Liabilities") (Target having agreed in the Plan
to use its best efforts to discharge all of its known
liabilities and obligations prior to the Effective Time),
(2) The constructive distribution of such Acquiring Fund
Shares to the Shareholders, and
(3) The subsequent termination of Target.
The distribution described in (2) will be accomplished by transferring
the Acquiring Fund Shares then credited to Target's account on Acquiring Fund's
share transfer records to open accounts on those records established in the
Shareholders' names, with each Shareholder's account being credited with the
respective pro rata number of full and fractional (rounded to three decimal
places) Acquiring Fund Shares due such Shareholder. All outstanding Target
Shares, including any represented by certificates, simultaneously will be
canceled on Target's share transfer records.
REPRESENTATIONS
The representations enumerated below have been made to us by
appropriate officers of each Investment Company.
Each of Acquiring Fund, and Bartlett Trust, on behalf of Target, has
represented and warranted to us as follows:
1. The fair market value of the Acquiring Fund Shares, when
received by the Shareholders, will be approximately equal to the fair
market value of their Target Shares constructively surrendered in
exchange therefor;
2. Its management (a) is unaware of any plan or intention of
Shareholders to redeem or otherwise dispose of any portion of the
Acquiring Fund Shares to be received by them in the Reorganization and
(b) does not anticipate dispositions of those Acquiring Fund Shares at
the time of or soon after the Reorganization to exceed the usual rate
and frequency of dispositions of shares of Target as an open-end
investment company. Consequently, its management expects that the
percentage of Shareholder interests, if any, that will be disposed
of as a result of or at the time of the Reorganization will be de
minimis. Nor does its management anticipate that there will be
extraordinary redemptions of Acquiring Fund Shares immediately
following the Reorganization;
3. The Shareholders will pay their own expenses, if any,
incurred in connection with the Reorganization;
4. Immediately following consummation of the Reorganization,
Acquiring Fund will hold substantially the same assets and be subject
to substantially the same liabilities that Target held or was subject
to immediately prior thereto;
5. The fair market value on a going concern basis of the
Assets will equal or exceed the Liabilities to be assumed by Acquiring
Fund and those to which the Assets are subject;
6. There is no intercompany indebtedness between the Funds
that was issued or acquired, or will be settled, at a discount;
7. Pursuant to the Reorganization, Target will transfer to
Acquiring Fund, and Acquiring Fund will acquire, at least 90% of the
fair market value of the net assets, and at least 70% of the fair
market value of the gross assets, held by Target immediately before the
Reorganization. For the purposes of this representation, any amounts
used by Target to pay redemptions and distributions made by it
immediately before the Reorganization (except for (a) distributions
made to conform to its policy of distributing all or substantially all
of its income and gains to avoid the obligation to pay federal income
tax and/or the excise tax under section 4982 and (b) redemptions not
made as part of the Reorganization) will be included as assets thereof
held immediately before the Reorganization;
8. None of the compensation received by any Shareholder who is
an employee of Target will be separate consideration for, or allocable
to, any of the Target Shares held by such Shareholder-employee; none of
the Acquiring Fund Shares received by any such Shareholder-employee
will be separate consideration for, or allocable to, any employment
agreement; and the consideration paid to any such Shareholder-employee
will be for services actually rendered and will be commensurate with
amounts paid to third parties bargaining at arm's-length for similar
services; and
9. Immediately after the Reorganization, the Shareholders will
not own shares constituting "control" of Acquiring Fund within the
meaning of section 304(c).
Bartlett Trust also has represented and warranted to us on behalf of
Target as follows:
1. The Liabilities were incurred by Target in the ordinary
course of its business;
2. Target is a "fund" as defined in section 851(h)(2) of the
Code; it qualified for treatment as a regulated investment company
("RIC") under Subchapter M of the Code ("Subchapter M") for each past
taxable year since it commenced operations and will continue to meet
all the requirements for such qualification for its current taxable
year; and it has no earnings and profits accumulated in any taxable
year in which the provisions of Subchapter M did not apply to it. The
Assets shall be invested at all times through the Effective Time in a
manner that ensures compliance with the foregoing;
3. Target is not under the jurisdiction of a court in a
proceeding under Title 11 of the United States Code or similar case
within the meaning of section 368(a)(3)(A);
4. Not more than 25% of the value of Target's total assets
(excluding cash, cash items, and U.S. government securities) is
invested in the stock or securities of any one issuer, and not more
than 50% of the value of such assets is invested in the stock or
securities of five or fewer issuers; and
5. Target will be terminated as soon as reasonably practicable
after the Reorganization, but in all events within six months after the
Effective Time.
Acquiring Fund also has represented and warranted to us on behalf of
Acquiring Fund as follows:
1. Acquiring Fund qualified for treatment as a RIC under
Subchapter M for each past taxable year since it commenced operations
and will continue to meet all the requirements for such qualification
for its current taxable year; Acquiring Fund intends to continue to
meet all such requirements for the next taxable year; and it has no
earnings and profits accumulated in any taxable year in which the
provisions of Subchapter M did not apply to it;
2. Acquiring Fund has no plan or intention to issue additional
Acquiring Fund Shares following the Reorganization except for shares
issued in the ordinary course of its business as an open-end investment
company; nor does Acquiring Fund have any plan or intention to redeem
or otherwise reacquire any Acquiring Fund Shares issued to the
Shareholders pursuant to the Reorganization, other than through
redemptions arising in the ordinary course of that business;
3. Acquiring Fund (a) will actively continue Target's
business in substantially the same manner that Target conducted that
business immediately before the Reorganization, (b) has no plan or
intention to sell or otherwise dispose of any of the Assets, except
for dispositions made in the ordinary course of that business and
dispositions necessary to maintain its status as a RIC under
Subchapter M, and (c) expects to retain substantially all the
Assets in the same form as it receives them in the Reorganization,
unless and until subsequent investment circumstances suggest the
desirability of change or it becomes necessary to make
dispositions thereof to maintain such status;
4. There is no plan or intention for Acquiring Fund to be
dissolved or merged into another corporation or business trust or any
"fund" thereof (within the meaning of section 851(h)(2)) following the
Reorganization;
5. Immediately after the Reorganization, (a) not more than 25%
of the value of Acquiring Fund's total assets (excluding cash, cash
items, and U.S. government securities) will be invested in the stock
or securities of any one issuer and (b) not more than 50% of the value
of such assets will be invested in the stock or securities of five or
fewer issuers; and
6. Acquiring fund does not own, directly or indirectly, nor at
the Effective Time will it own, directly or indirectly, nor has it
owned, directly or indirectly, at any time during the past five years,
any shares of Target.
OPINION
Based solely on the facts set forth above, and conditioned on (1) the
Representations being true at the time of Closing and (2) the Reorganization
being consummated in accordance with the Plan, our opinion (as explained more
fully in the next section of this letter) is as follows:
1. Acquiring Fund's acquisition of the Assets solely in
exchange for the Acquiring Fund Shares and Acquiring Fund's assumption
of the Liabilities, followed by Target's distribution of those shares
pro rata to the Shareholders constructively in exchange for their
Target Shares, will constitute a reorganization within the meaning of
section 368(a)(1)(C), and each Fund will be "a party to a
reorganization" within the meaning of section 368(b);
2. No gain or loss will be recognized to Target on the
transfer of the Assets to Acquiring Fund solely in exchange for the
Acquiring Fund Shares and Acquiring Fund's assumption of the
Liabilities or upon the subsequent distribution of those shares to the
Shareholders in constructive exchange for their Target Shares (section
361);
3. No gain or loss will be recognized to Acquiring Fund on
its receipt of the Assets solely in exchange for the Acquiring Fund
Shares and its assumption of the Liabil ities (section 1032(a));
4. Acquiring Fund's basis for the Assets will be the same as
the basis thereof in Target's hands immediately before the
Reorganization (section 362(b)), and Acquiring Fund's holding period
for the Assets will include Target's holding period therefor (section
1223(2));
5. A Shareholder will recognize no gain or loss on the
constructive exchange of all its Target Shares solely for Acquiring
Fund Shares pursuant to the Reorganization (section 354(a)); and
6. A Shareholder's basis for the Acquiring Fund Shares to be
received by it in the Reorganization will be the same as the basis for
its Target Shares to be constructively surrendered in exchange for
those Acquiring Fund Shares (section 358(a)), and its holding period
for those Acquiring Fund Shares will include its holding period for
those Target Shares, provided they are held as capital assets by the
Shareholder on the Closing Date (section 1223(1)).
The foregoing opinion (1) is based on, and is conditioned on the
continued applicability of, the provisions of the Code and the Regulations,
judicial decisions, and rulings and other pronouncements of the Internal Revenue
Service ("Service") in existence on the date hereof and (2) is applicable only
to the extent each Fund is solvent. We express no opinion about the tax
treatment of the transactions described herein if either Fund is insolvent.
ANALYSIS
I. The Reorganization Will Be a Reorganization under Section 368(a)(1)(C),
and Each Fund Will Be a Party to a Reorganization.
A. Each Fund Is a Separate Corporation.
A reorganization under section 368(a)(1)(C) (a "C reorganization")
involves the acquisition by one corporation, in exchange solely for all or a
part of its voting stock, of substantially all of the properties of another
corporation. For the transaction to qualify under that section, therefore, both
entities involved therein must be corporations (or associations taxable as
corporations). Acquiring Fund, however, is a business trust, not a corporation.
Bartlett Trust is also a Business trust, and Target is a separate series of
Bartlett Trust.
Treasury Regulation section 301.7701-4(b) provides that certain
arrangements known as trusts (because legal title is conveyed to trustees for
the benefit of beneficiaries) will not be classified as trusts for purposes of
the Code because they are not simply arrangements to protect or conserve the
property for the beneficiaries. These "business or commercial trusts" are
created simply as devices to carry on profit-making businesses that normally
would have been carried on through corporations or partnerships. Treasury
Regulation section 301.7701-4(c) further provides that an "`investment' trust
will not be classified as a trust if there is a power under the trust agreement
to vary the investment of the certificate holders." See Commissioner v. North
American Bond Trust, 122 F.2d 545 (2d Cir. 1941), cert. denied, 314 U.S. 701
(1942).
Based on these criteria, Acquiring Fund and Bartlett Trust do not
qualify as trusts for federal income tax purposes. While Acquiring Fund and
Bartlett Trust are "investment trusts," they do not have fixed pools of assets
- -- Acquiring Fund and Target have been a managed portfolios of securities, and
their respective investment advisers have had the authority to buy and sell
securities for them. Acquiring Fund and Bartlett Trust are not simply
arrangements to protect or conserve property for the beneficiaries, but are
designed to carry on profit-making businesses. In addition, the word
"association" has long been held to include "business trusts," such as Acquiring
Fund and Bartlett Trust. See Hecht v. Malley, 265 U.S. 144 (1924). Accordingly,
we believe that Acquiring Fund and Bartlett Trust will be treated as
corporations for federal income tax purposes.
Bartlett Trust as such, however, is not participating in the
Reorganization, but rather a series of Bartlett Trust is a participant.
Ordinarily, a transaction involving a segregated pool of assets (such as Target)
could not qualify as a reorganization, because the pool would not be a
corporation. Under section 851(h), however, Target is treated as a separate
corporation for all purposes of the Code save the definitional requirement of
section 851(a) (which is satisfied by Bartlett Trust). Thus, we believe that
Acquiring Fund and Target each will be a separate corporation, and the shares of
each will be treated as shares of corporate stock, for purposes of section
368(a)(1)(C).
B. Satisfaction of Section 368(a)(2)(F).
Under section 368(a)(2)(F), if two or more parties to a transaction
described in section 368(a)(1) (other than subparagraph (E) thereof) are
"investment companies," the transaction will not be considered a reorganization
with respect to any such investment company or its shareholders unless, among
other things, the investment company is a RIC or --
(1) not more than 25% of the value of its total assets is invested
in the stock or securities of any one issuer and
(2) not more than 50% of the value of its total assets is invested
in the stock or securities of five or fewer issuers.
Each Fund will meet the requirements for qualification and treatment as a RIC
for its respective current taxable year, and the foregoing percentage tests will
be satisfied by each Fund. Accordingly, we believe that section 368(a)(2)(F)
will not cause the Reorganization to fail to qualify as a C reorganization with
respect to either Fund.
C. Transfer of "Substantially All" of the Properties.
For an acquisition to qualify as a C reorganization, the acquiring
corporation must acquire "substantially all of the properties" of the transferor
corporation solely in exchange for all or part of the acquiring corporation's
stock. For purposes of issuing private letter rulings, the Service considers the
transfer of at least 70% of the transferor's gross assets, and at least 90% of
its net assets, held immediately before the reorganization to satisfy the
"substantially all" requirement. Rev. Proc. 77-37, 1977-2 C.B. 568. The
Reorganization will involve such a transfer. Accordingly, we believe that the
Reorganization will involve the transfer to Acquiring Fund of substantially all
of Target's properties.
D. Qualifying Consideration.
For an acquisition to qualify as a C reorganization, the acquiring
corporation must acquire at least 80% (by fair market value) of the transferor's
property solely in exchange for voting stock. Section 368(a)(2)(B)(iii). The
assumption of liabilities by the acquiring corporation or its acquisition of
property subject to liabilities normally are disregarded (section 368(a)(1)(C)),
but the amount of any such liabilities will be treated as money paid for the
transferor's property if the acquiring corporation exchanges any money or
property (other than its voting stock) therefor. Section 368(a)(2)(B). Because
Acquiring Fund will exchange only the Acquiring Fund Shares, and no money or
other property, for the Assets, we believe that the Reorganization will satisfy
the solely-for-voting-stock requirement to qualify as a C reorganization.
E. Requirements of Continuity.
Treasury Regulation section 1.368-1(b) sets forth two prerequisites to
a valid reorgan ization: (1) a continuity of the business enterprise under the
modified corporate form ("continuity of business") and (2) a continuity of
interest therein on the part of those persons who, directly or indirectly, were
the owners of the enterprise prior to the reorganization ("continuity of
interest").
1. Continuity of Business.
The continuity of business enterprise test as set forth in Treas. Reg.
ss. 1.368-1(d)(2) requires that the acquiring corporation must either (i)
continue the acquired corporation's historic business ("business continuity") or
(ii) use a significant portion of the acquired corporation's historic business
assets in a business ("asset continuity").
While there is no authority that deals directly with the requirement of
continuity of business in the context of a transaction such as the
Reorganization, Rev. Rul. 87-76, 1987-2 C.B. 84, deals with a somewhat similar
situation. In that ruling, P was a RIC that invested exclusively in municipal
securities. P acquired the assets of T in exchange for P common stock in a
transaction that was intended to qualify as a C reorganization. Prior to the
exchange, T sold its entire portfolio of corporate securities and purchased a
portfolio of municipal bonds. The Service held that this transaction did not
qualify as a reorganization for the following reasons: (1) because T had sold
its historic assets prior to the exchange, there was no asset continuity; and
(2) the failure of P to engage in the business of investing in corporate
securities after the exchange caused the transaction to lack business continuity
as well.
The Funds' investment objectives are substantially identical and their
investment policies are generally similar. Furthermore, Acquiring Fund will
actively continue Target's business in the same manner that Target conducted it
immediately before the Reorganization. Accordingly, there will be business
continuity.
Acquiring Fund not only will continue Target's historic business, but
Acquiring Fund also (1) has no plan or intention to sell or otherwise dispose of
any of the Assets, except for dispositions made in the ordinary course of its
business and dispositions necessary to maintain its status as a RIC, and (2)
expects to retain substantially all the Assets in the same form as it receives
them in the Reorganization, unless and until subsequent investment circumstances
suggest the desirability of change or it becomes necessary to make dispositions
thereof to maintain such status. Accordingly, there will be asset continuity as
well.
For all the foregoing reasons, we believe that the Reorganization will
meet the continuity of business requirement.
2. Continuity of Interest.
For purposes of issuing private letter rulings, the Service considers
the continuity of interest requirement of Treas. Reg. ss. 1.368-1(b) satisfied
if ownership in an acquiring corporation on the part of a transferor
corporation's former shareholders is equal in value to at least 50% of the value
of all the formerly outstanding shares of the transferor corporation. Rev.
Proc. 77-37, supra; but see Rev. Rul. 56-345, 1956-2 C.B. 206 (continuity of
interest was held to exist in a reorganization of two RICs where immediately
after the reorganization 26% of the shares were redeemed in order to allow
investment in a third RIC); also see Reef Corp. v. Commissioner, 368 F.2d 125
(5th Cir. 1966), cert. denied, 386 U.S. 1018 (1967) (a redemption of 48% of a
transferor corporation's stock was not a sufficient shift in proprietary
interest to disqualify a transaction as a reorganization under section
368(a)(2)(F) ("F Reorganization"), even though only 52% of the transferor's
shareholders would hold all the transferee's stock); Aetna Casualty and Surety
Co. v. U.S., 568 F.2d 811, 822-23 (2d Cir. 1976) (redemption of a 38.39%
minority interest did not prevent a transaction from qualifying as an F
Reorganization); Rev. Rul. 61-156, 1961-2 C.B. 62 (a transaction qualified as an
F Reorganization even though the transferor's shareholders acquired only 45% of
the transferee's stock, while the remaining 55% of that stock was issued to new
shareholders in a public underwriting immediately after the transfer).
No minimum holding period for shares of an acquiring corporation is
imposed under the Code on the acquired corporation's shareholders. Rev. Rul.
66-23, 1966-1 C.B. 67, provides generally that "unrestricted rights of ownership
for a period of time sufficient to warrant the conclusion that such ownership is
definite and substantial" will suffice and that "ordinarily, the Service will
treat five years of unrestricted . . . ownership as a sufficient period" for
continuity of interest purposes.
A preconceived plan or arrangement by or among an acquired
corporation's shareholders to dispose of more than 50% of an acquiring
corporation's shares could be problematic. Shareholders with no such
preconceived plan or arrangement, however, are basically free to sell any part
of the shares received by them in the reorganization without fear of breaking
continuity of interest, because the subsequent sale will be treated as an
independent transaction from the reorganization.
Neither Fund (1) is aware of any plan or intention of Shareholders to
dispose of any portion of the Acquiring Fund Shares to be received by them in
the Reorganization or (2) anticipates dispositions thereof at the time of or
soon after the Reorganization to exceed the usual rate and frequency of
dispositions of shares of Target as an open-end investment company.
Consequently, each Fund expects that the percentage of Shareholder interests, if
any, that will be disposed of as a result of or at the time of the
Reorganization will be de minimis. Accordingly, we believe that the
Reorganization will meet the continuity of interest requirement of Treas. Reg.
ss. 1.368-1(b).
F. Distribution by Target.
Section 368(a)(2)(G)(i) provides that a transaction will not qualify as
a C reorganization unless the corporation whose properties are acquired
distributes the stock it receives and its other property in pursuance of the
plan of reorganization. Under the Plan -- which we believe constitutes a "plan
of reorganization" within the meaning of Treas. Reg. ss. 1.368-2(g) -- Target
will distribute all the Acquiring Fund Shares to its shareholders in
constructive exchange for their Target Shares; as soon as is reasonably
practicable thereafter, Target will be terminated. Accordingly, we believe that
the requirements of section 368(a)(2)(G)(i) will be satisfied.
G. Business Purpose.
All reorganizations must meet the judicially imposed requirements of
the "business purpose doctrine," which was established in Gregory v. Helvering,
293 U.S. 465 (1935), and is now set forth in Treas. Reg. ss.ss. 1.368-1(b),
- -1(c), and -2(g) (the last of which provides that, to qualify as a
reorganization, a transaction must be "undertaken for reasons germane to the
continuance of the business of a corporation a party to the reorganization").
Under that doctrine, a transaction must have a bona fide business purpose (and
not a purpose to avoid federal income tax) to constitute a valid reorganization.
The substantial business purposes of the Reorganization are outlined above.
Accordingly, we believe that the Reorganization is being undertaken for bona
fide business purposes (and not a purpose to avoid federal income tax) and
therefore meets the requirements of the business purpose doctrine.
For all the foregoing reasons, we believe that the Reorganization will
constitute a reorganization within the meaning of section 368(a)(1)(C).
H. Both Funds are Parties to the Reorganization.
Section 368(b)(2) and Treas. Reg. ss. 1.368-1(f) provide that if one
corporation transfers substantially all of its properties to a second
corporation in exchange for all or a part of the voting stock of the second
corporation, then both corporations are parties to a reorganization. Target is
transferring substantially all of its properties to Acquiring Fund in exchange
for Acquiring Fund Shares. Accordingly, we believe that each Fund will be "a
party to a reorganization."
II. No Gain or Loss Will Be Recognized to Target.
Under sections 361(a) and (c), no gain or loss will be recognized to a
corporation that is a party to a reorganization (1) on the exchange of property,
pursuant to the plan of reorganization, solely for stock or securities in
another corporate party to the reorganization or (2) on the distribution to its
shareholders, pursuant to that plan, of stock in such other corporation that was
received by the distributing corporation in the exchange. (Such a distribution
is required by section 368(a)(2)(G)(i) for a reorganization to qualify as a C
reorganization.) Section 361(c)(4) provides that specified provisions requiring
recognition of gain on certain distributions shall not apply to a distribution
described in (2) above.
Section 357(a) provides in pertinent part that, except as provided in
section 357(b), if a taxpayer receives property that would be permitted to be
received under section 361 without recognition of gain if it were the sole
consideration and, as part of the consideration, another party to the exchange
assumes a liability of the taxpayer or acquires from the taxpayer property
subject to a liability, then that assumption or acquisition shall not be treated
as money or other property and shall not prevent the exchange from being within
section 361. Section 357(b) applies where the principal purpose of the
assumption or acquisition was a tax avoidance purpose or not a bona fide
business purpose.
As noted above, the Reorganization will constitute a C reorganization,
each Fund will be a party to a reorganization, and the Plan constitutes a plan
of reorganization. Target will exchange the Assets solely for the Acquiring
Fund Shares and Acquiring Fund's assumption of the Liabilities and then will be
terminated pursuant to the Plan, distributing those shares to its shareholders
in constructive exchange for their Target Shares. As also noted above, we
believe that the Reorganization is being undertaken for bona fide business
purposes (and not a purpose to avoid federal income tax); we also do not believe
that the principal purpose of Acquiring Fund's assumption of the Liabilities is
avoidance of federal income tax on the proposed transaction. Accordingly, we
believe that no gain or loss will be recognized to Target on the
Reorganization.3/
- --------
3/ Notwithstanding anything herein to the contrary, no opinion is expressed as
to the effect of the Reorgan ization on the Funds or any Shareholder with
respect to any asset (including certain options, futures, and forward
contracts included in the Assets) as to which any unrealized gain or
loss is required to be recognized for federal income tax purposes at the
end of a taxable year (or on the termination or transfer thereof)
under a mark-to-market system of accounting.
III. No Gain or Loss Will Be Recognized to Acquiring Fund.
Section 1032(a) provides that no gain or loss will be recognized to a
corporation on the receipt by it of money or other property in exchange for its
shares. Acquiring Fund will issue the Acquiring Fund Shares to Target in
exchange for the Assets, which consist of money and securities. Accordingly, we
believe that no gain or loss will be recognized to Acquiring Fund on the
Reorganization.
IV. Acquiring Fund's Basis for the Assets Will Be a Carryover Basis, and
Its Holding Period Will Include Target's Holding Period.
Section 362(b) provides that property acquired by a corporation in
connection with a reorganization will have the same basis in that corporation's
hands as the basis of the property in the transferor corporation's hands
immediately before the exchange, increased by any gain recognized to the
transferor on the transfer. As noted above, the Reorganization will constitute a
C reorganization and Target will recognize no gain on the Reorganization under
section 361(a). Accordingly, we believe that Acquiring Fund's basis for the
Assets will be the same as the basis thereof in Target's hands immediately
before the Reorganization.
Section 1223(2) provides that where property acquired in an exchange
has a carryover basis, the property will have a holding period in the hands of
the acquiror that includes the holding period of the property in the
transferor's hands. As stated above, Acquiring Fund's basis for the Assets
will be a carryover basis. Accordingly, we believe that Acquiring Fund's
holding period for the Assets will include Target's holding period therefor.
V. No Gain or Loss Will Be Recognized to a Shareholder.
Under section 354(a), no gain or loss is recognized to a shareholder
who exchanges shares for other shares pursuant to a plan of reorganization,
where the shares exchanged, as well as the shares received, are those of a
corporation that is a party to the reorganization. As stated above, the
Reorganization will constitute a C reorganization, the Plan constitutes a plan
of reorganization, and each Fund will be a party to a reorganization.
Accordingly, we believe that under section 354 a Shareholder will recognize no
gain or loss on the constructive exchange of all its Target Shares solely for
Acquiring Fund Shares pursuant to the Reorganization.
VI. A Shareholder's Basis for Acquiring Fund Shares Will Be a Substituted
Basis, and its Holding Period therefor Will Include its Holding Period
for its Target Shares.
Section 358(a)(1) provides, in part, that in the case of an exchange to
which section 354 applies, the basis of any shares received in the transaction
without the recognition of gain is the same as the basis of the property
transferred in exchange therefor, decreased by, among other things, the fair
market value of any other property and the amount of any money received in the
transaction and increased by the amount of any gain recognized on the exchange
by the shareholder.
As noted above, the Reorganization will constitute a C reorganization
and under section 354 no gain or loss will be recognized to a Shareholder on the
constructive exchange of its Target Shares for Acquiring Fund Shares in the
Reorganization. No property will be distributed to the Shareholders other than
the Acquiring Fund Shares, and no money will be distributed to them pursuant to
the Reorganization. Accordingly, we believe that a Shareholder's basis for the
Acquiring Fund Shares to be received by it in the Reorganization will be the
same as the basis for its Target Shares to be constructively surrendered in
exchange for those Acquiring Fund Shares.
Under section 1223(1), the holding period of property received in an
exchange includes the holding period of the property exchanged therefor if the
acquired property has, for the purpose of determining gain or loss, the same
basis in the holder's hands as the property exchanged therefor ("substituted
basis") and such property was a capital asset. As noted above, a Shareholder
will have a substituted basis for the Acquiring Fund Shares it receives in the
Reorganization; accordingly, provided that the Shareholder held its Target
Shares as capital assets on the Closing Date, we believe its holding period
for those Acquiring Fund Shares will include its holding period for those Target
Shares.
We hereby consent to this opinion accompanying the Registration
Statement and to the references to our firm under the captions "Approval of the
Reorganization of Bartlett Cash Reserves Fund into Legg Mason Cash Reserve Trust
- -- Synopsis -- Federal Income Tax Con sequences of the Reorganizations" and
"General Information -- Federal Income Tax Considerations Applicable to Each
Transaction" in the Proxy.
Very truly yours,
KIRKPATRICK & LOCKHART LLP
/s/ Joel D. Almquist
--------------------
Joel D. Almquist
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement on Form N-14 of our report dated May 3,
1996 and to all references to our Firm included in or made a part of this
filing.
/s/ Arthur Andersen LLP
-----------------------
ARTHUR ANDERSEN LLP
Cincinnati, Ohio,
September 14, 1996
File No. 2-
AMENDMENT NO. 1
TO
FORM S-5
REGISTRATION STATEMENT
under
The Securities Act of 1933
---------------
FEDERATED FIDUCIARY TRUST
(Exact name of registrant as specified in charter)
421 Seventh Avenue
Pittsburgh, Pennsylvania 15219
(Address of principal executive offices)
John W. McGonigle, Esq.
421 Seventh Avenue
Pittsburgh, Pennsylvania 15219
(Name and address of agent for service)
Copies to:
Thomas J. Donnelly, Esq. Charles H. Morin, Esq.
Houston, Houston & Donnelly Dickstein, Shapiro & Morin
1128 Union Trust Building 2101 L. Street, N.W.
Pittsburgh, Pennsylvania 15219 Washington, D.C. 20037
Approximate date of proposed public offering: As soon as practicable after
the effective date of the Registration Statement.
CALCULATION OF REGISTRATION FEE
================================================================================
Proposed
Title of Maximum
Securities Amount Offering Amount of
Being Being Price Registration
Registered Registered* Per Unit Fee
- --------------------------------------------------------------------------------
Shares
of
Beneficial Indefinite $1.00 $500
Interest
No Par Value
================================================================================
*Pursuant to the provisions of Rule 24f-2 of the Securities Act of 1933,
Registrant hereby elects to register an indefinite number of shares.
PROXY
-----
BARTLETT CASH RESERVES FUND
Special Meeting of Shareholders - December 6, 1996
The undersigned hereby appoints as proxies Marie K. Karpinski and
_______________ and each of them (with power of substitution) to vote for the
undersigned all shares of beneficial interest in the undersigned at the
aforesaid meeting and any adjournment thereof with all the power the undersigned
would have if personally present. The shares represented by this proxy will be
voted as instructed. Unless indicated to the contrary, this proxy shall be
deemed to indicate authority to vote "FOR" all proposals. This proxy is
solicited on behalf of the Board of Trustees of Bartlett Management Trust.
YOUR VOTE IS IMPORTANT
Please date and sign this proxy on the reverse side and return it in the
enclosed envelope to Legg Mason Fund Adviser, Inc., P.O. Box 1476, Baltimore, MD
21203.
This proxy will not be voted unless it is dated and signed exactly
as instructed below.
Sign exactly as name appears hereon.
<TABLE>
<S> <C>
If the shares are held jointly, each
Shareholder named should sign. If only
one signs, his or her signature will be
binding. If the Shareholder is a
corporation, the President or Vice
President should sign in his or her own
name, indicating title. If the
____________________(L.S.) shareholder is a partnership, should sign
in his or her own name, indicating that
____________________(L.S.) Date ____________, 1996 he or she is a "Partner."
</TABLE>
<PAGE>
Please indicate your vote by an "X" in the appropriate box below.
The board of trustees recommends a vote "FOR"
1. Approval of an Agreement and Plan of Reorganization and Termination between
Legg Mason Cash Reserve Trust and Bartlett Cash Reserves Fund.
FOR _______ AGAINST _______ ABSTAIN ______
Please sign and date the reverse side of this card
