As filed with the Securities and Exchange Commission on October 16, 1996
Registration No. 333-12541
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. 1 [ X ]
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 and will shortly file the notice required by Rule 24f-2
for its fiscal year ended August 31, 1996.
The Registrant amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, by action pursuant to Section 8(a),
may determine.
<PAGE>
LEGG MASON CASH RESERVE TRUST
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,
previously filed on EDGAR,
Accession Number:
0000950169-96-000381
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 each Reorganization Plan is attached to this Proxy Statement at 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 $1,227,159,121 for the year ended August 31, 1996, Cash Reserve
paid total operating expenses at the annual rate of 0.70%. 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 0.48%
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 0.48% 0.78% 0.48%
12b-1 Fees 0.00% 0.00% 0.10%
Other Expenses 0.22% 0.00% 0.20%
Total Fund Operating Expenses 0.70% 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................ $7 $22 $39 $87
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 1.24% 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 1.26% 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
The financial information in the table below, insofar as it relates to
each of the periods presented in the ten-year period ended August 31, 1996, has
been audited by Ernst & Young LLP, independent auditors. The Trust's financial
statements for the year ended August 31, 1996 and the report of Ernst & Young
LLP thereon are included in the Trust's annual report and are incorporated by
reference in the Statement of Additional Information. The annual report is
available to shareholders without charge by calling your Legg Mason or
affiliated investment executive or Legg Mason's Funds Marketing Department at
800-822-5544.
<TABLE>
<CAPTION>
For the Years Ended August 31,
-------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Per Share Operating Performance:
Net asset value,
beginning of year $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
-------------------------------------------------------------------------------------------------
Net investment income .05 .05 .03 .03 .04 .06 .08
Net realized gain (loss)
on investments Nil Nil (Nil) -- Nil -- --
-------------------------------------------------------------------------------------------------
Total from investment
operations .05 .05 .03 .03 .04 .06 .08
-------------------------------------------------------------------------------------------------
Dividends paid from:
Net investment
income (.05) (.05) (.03) (.03) (.04) (.06) (.08)
Realized gain on
investments -- -- -- -- (Nil) -- --
-------------------------------------------------------------------------------------------------
Net asset value, end of
year $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
-------------------------------------------------------------------------------------------------
Total return 4.92% 5.08% 3.08% 2.85% 4.37% 6.41% 8.03%
Ratios/Supplemental Data:
Ratios to average net assets:
Expenses .70% .71% .72% .76% .75% .74% .74%
Net investment income 4.81% 5.03% 3.05% 2.82% 4.11% 6.26% 7.73%
Net assets, end of year (in
thousands) $1,224,481 $1,153,130 $786,321 $754,996 $733,789 $860,954 $923,249
</TABLE>
<TABLE>
<CAPTION>
For the Years Ended August 31,
-----------------------------------
1989 1988* 1987
- ---------------------------------------------------------------------
<S> <C>
Per Share Operating Performance:
Net asset value,
beginning of year $1.00 $1.00 $1.00
-----------------------------------
Net investment income .08 .06 .06
Net realized gain (loss)
on investments -- -- --
-----------------------------------
Total from investment
operations .08 .06 .06
-----------------------------------
Dividends paid from:
Net investment
income (.08) (.06) (.06)
Realized gain on
investments -- -- --
-----------------------------------
Net asset value, end of
year $1.00 $1.00 $1.00
-----------------------------------
Total return 8.56% 6.56% 5.69%
Ratios/Supplemental Data:
Ratios to average net assets:
Expenses .88% .84% .83%
Net investment income 8.30% 6.45% 5.50%
Net assets, end of year (in
thousands) $723,662 $436,759 $321,109
</TABLE>
- ------------
* On July 18, 1988, the responsibility for the Trust's management was
transferred from LM Research Limited Partnership to Legg Mason Fund Adviser,
Inc. and Western Asset Management Company.
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
0000950169-96-000381;
(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 6/
(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 6/
(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 6/
(11) Opinion and consent of Kirkpatrick & Lockhart LLP regarding the
legality of securities being registered 6/
(12) Opinion and consent of Kirkpatrick & Lockhart LLP regarding
certain tax matters 6/
(13) Transfer Agency and Service Agreement 5/
(14) (a) Consent of Ernst & Young LLP (filed herewith)
(b) Consent of Arthur Andersen LLP 6/
(15) Financial statements omitted from Part B - none
(16) Copies of manually signed Power of Attorney (filed herewith)
(17) Additional Exhibits
(a) Declaration of Rule 24f-2 6/
(b) Proxy Card 6/
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.
6/ Incorporated herein by reference to corresponding Exhibit of Registration
Statement on Form N-14, filed September 24, 1996.
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>
SIGNATURE PAGE
As required by the Securities Act of 1933, as amended, this
amended Registration Statement has been signed on behalf of the Registrant, in
the City of Baltimore and the State of Maryland, on the 14th day of October,
1996.
LEGG MASON CASH RESERVE TRUST
By: /s/ John F. Curley, Jr.
John F. Curley, Jr.
Chairman of the Board,
President and Trustee
Pursuant to the requirements of the Securities Act of 1933, this
amended 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, October 14, 1996
- ----------------------------- President and Trustee
John F. Curley, Jr.
/s/ Edmund J. Cashman, Jr. Trustee October 14, 1996
- -----------------------------
Edmund J. Cashman, Jr.
/s/ Richard G. Gilmore* Trustee October 14, 1996
- -----------------------------
Richard G. Gilmore*
/s/ Charles F. Haugh* Trustee October 14, 1996
- -----------------------------
Charles F. Haugh*
/s/ Arnold L. Lehman* Trustee October 14, 1996
- -----------------------------
Arnold L. Lehman*
/s/ Jill E. McGovern* Trustee October 14, 1996
- -----------------------------
Jill E. McGovern*
/s/ T.A. Rodgers* Trustee October 14, 1996
- -----------------------------
T.A. Rodgers*
/s/ Edward A. Taber, III* Trustee October 14, 1996
- -----------------------------
Edward A. Taber, III*
/s/ Marie K. Karpinski Vice President October 14, 1996
- ----------------------------- and Treasurer
Marie K. Karpinski
- -------------
* Signatures affixed by Marie K. Karpinski pursuant to a power of attorney dated
May 10, 1996, a copy of which is filed herewith.
Exhibit 14(a)
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Additional
Information About Legg Mason Cash Reserve Trust" and "Experts" in the
Prospectus/Proxy Statement, "Financial Highlights" in the Prospectus of Legg
Mason Cash Reserve Trust, dated April 1, 1996, and "The Trust's Independent
Auditors" and "Financial Statements" in the Statement of Additional Information
of Legg Mason Cash Reserve Trust, dated April 1, 1996, and to the use of our
report dated September 24, 1996 on the financial statements and financial
highlights of The Legg Mason Cash Reserve Trust for the year ended
August 31, 1996, included in the 1996 Annual Report to Shareholders, included
or incorporated by reference in this Pre-Effective Amendment Number 1 to
Registration Statement No. 333-12541 (Form N-14), relating to the Special
Meeting of Shareholders to be held on December 6, 1996.
/s/ Ernst & Young LLP
Baltimore, Maryland
October 15, 1996
Exhibit 16
POWER OF ATTORNEY
I, the undersigned Trustee of the following investment company:
Legg Mason Cash Reserve Trust
plus any other investment company for which Legg Mason Fund Adviser, Inc. acts
as investment adviser or manager and for which the undersigned individual serves
as Trustee hereby severally constitute and appoint each of Marie K. Karpinski,
John F. Curley, Jr., Arthur J. Brown and Arthur C. Delibert my true and lawful
attorney-in-fact, with full power of substitution, and with full power to sign
for me and in my name in the appropriate capacity, any Registration Statements
on Form N-1A or Form N-14, all Pre-Effective Amendments to any Registration
Statements of the Funds, any and all subsequent Post-Effective Amendments to
said Registration Statements, any supplements or other instruments in connection
therewith, to file the same with the Securities and Exchange Commission and the
securities regulators of appropriate states and territories, and generally to do
all such things in my name and behalf in connection therewith as said
attorney-in-fact deems necessary or appropriate, to comply with the provisions
of the Securities Act of 1933 and the Investment Company Act of 1940, all
related requirements of the Securities and Exchange Commission and all
requirements of appropriate states and territories. I hereby ratify and confirm
all that said attorney-in-fact or their substitutes may do or cause to be done
by virtue hereof.
WITNESS my hand on the date set forth below.
Signature Date
/s/ Richard G. Gilmore May 10, 1996
- -----------------------------------
Richard G. Gilmore
/s/ T. A. Rodgers May 10, 1996
- -----------------------------------
T. A. Rodgers
/s/ Charles F. Haugh May 10, 1996
- -----------------------------------
Charles F. Haugh
/s/ Arnold L. Lehman May 10, 1996
- -----------------------------------
Arnold L. Lehman
/s/ Jill E. McGovern May 10, 1996
- -----------------------------------
Jill E. McGovern
/s/ Edward A. Taber, III May 10, 1996
- -----------------------------------
Edward A. Taber, III
/s/ Edmund J. Cashman, Jr. May 10, 1996
- -----------------------------------
Edmund J. Cashman, Jr.
