As filed with the Securities and Exchange Commission on February 1, 1996.
1933 Act File No. 2-62218
1940 Act File No. 811-2853
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No: [ ]
Post-Effective Amendment No: 33 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No: 26
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)
Registrant's Telephone Number, including Area Code: (410) 539-0000
Copies to:
CHARLES A. BACIGALUPO ARTHUR C. DELIBERT, ESQ.
111 South Calvert Street Kirkpatrick & Lockhart
Baltimore, Maryland 21202 1800 Massachusetts Ave., N.W.
(Name and Address of Second Floor
Agent for Service) Washington, D.C. 20036-1800
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to Rule 485(b)
[ ] on , 1996 pursuant to Rule 485(b)
[ ] 60 days after filing pursuant to Rule 485(a)(i)
[X] on April 1, 1996 pursuant to Rule 485(a)(i)
[ ] 75 days after filing pursuant to Rule 485(a)(ii)
[ ] on , 1996 pursuant to Rule 485(a)(ii)
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Registrant has filed a declaration pursuant to Rule 24f-2 under the
Investment Company Act of 1940 and filed the notice required by
such Rule for its most recent fiscal year on October 26, 1995.
<PAGE>
Legg Mason Cash Reserve Trust
Contents of Registration Statement
This registration statement consists of the following papers and documents:
Table of Contents
Cross Reference Sheets
Part A - Prospectus
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
<PAGE>
Legg Mason Cash Reserve Trust
Form N-1A Cross Reference Sheet
Part A Item No. Prospectus Caption
1 Cover Page
2 Prospectus Highlights;
Trust Expenses
3 Financial Highlights;
Performance Information
4 The Trust's Investment Objective
and Policies;
Description of the Trust and
Its Shares
5 Trust Expenses;
The Trust's Board of Trustees
and Manager;
The Trust's Investment Adviser
The Trust's Custodian and
Transfer Agent
6 Cover Page;
Prospectus Highlights;
Description of the Trust and
its Shares;
Dividends;
Shareholder Services;
Tax Treatment of Dividends
7 How You Can Invest in the Trust;
How Your Shareholder Account is
Maintained;
How Net Asset Value is Determined;
The Trust's Distributor;
Investing Through Tax-Deferred
Retirement Accounts and Plans
8 How You Can Redeem Your Trust
Shares
9 Not Applicable
<PAGE>
Statement of Additional
Part B Item No. Information Caption
10 Cover Page
11 Table of Contents
12 Not Applicable
13 Additional Information About
Investment Limitations and Policies;
Portfolio Transactions and Brokerage
14 The Trust's Trustees and Officers
15 The Trust's Trustees and Officers
16 Management Agreement;
Investment Advisory Agreement;
The Trust's Trustees and Officers;
The Trust's Independent Auditors;
The Trust's Custodian and Transfer and
Dividend-Disbursing Agent
17 Portfolio Transactions and Brokerage
18 Massachusetts Trust Law
19 Valuation of Shares;
Additional Purchase and Redemption
Information
20 Additional Tax Information;
Tax-Deferred Retirement Accounts
and Plans
21 Not Applicable
22 How the Trust's Yield is Calculated
23 Financial Statements
<PAGE>
TABLE OF CONTENTS
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Prospectus Highlights 2 PROSPECTUS
Trust Expenses 3 APRIL 1, 1996
Financial Highlights 4
Performance Information 5
Investment Objective and Policies 5
How You Can Invest in the Trust 7
How Your Shareholder Account is
Maintained 8
How You Can Redeem Your Trust
Shares 8 LEGG MASON
How Net Asset Value is Determined 10 CASH
Dividends 10 RESERVE
Tax Treatment of Dividends 10 TRUST
Shareholder Services 11
Investing through Tax-Deferred
Retirement Accounts and Plans 13
The Trust's Board of Trustees and
Manager 13
The Trust's Investment Adviser 13
The Trust's Distributor 13
The Trust's Custodian and Transfer
Agent 14
Description of the Trust and its
Shares 14
</TABLE>
ADDRESSES
DISTRIBUTOR:
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Legg Mason Wood Walker, Inc.
111 South Calvert Street PUTTING YOUR FUTURE FIRST
P.O. Box 1476, Baltimore, MD 21203-1476
410 (Bullet) 539 (Bullet) 0000 800 (Bullet) 822 (Bullet) 5544
</TABLE>
TRANSFER AND SHAREHOLDER SERVICING AGENT:
Boston Financial Data Services
P.O. Box 953, Boston, MA 02103
COUNSEL:
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
Washington, DC 20036-1800
INDEPENDENT AUDITORS:
Ernst & Young LLP
One North Charles Street, Baltimore, MD 21201
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR THE STATEMENT OF
ADDITIONAL INFORMATION IN CONNECTION WITH THE OFFERING MADE BY THE
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST OR ITS
DISTRIBUTOR. THE PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE TRUST
OR BY THE PRINCIPAL UNDERWRITER IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
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<S> <C>
LMF-017 LM Logo
</TABLE>
<PAGE>
THE LEGG MASON CASH RESERVE TRUST
PROSPECTUS
Legg Mason Cash Reserve Trust ("Trust") is a no-load, open-end,
diversified management investment company investing in money market
instruments to achieve stability of principal and current income
consistent with stability of principal. AN INVESTMENT IN THE TRUST IS
NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. WHILE THE TRUST
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.
This Prospectus concisely sets forth information about the Trust you
should read and know before you invest in the Trust. Keep this Prospectus
for future reference.
The Trust has also filed a Statement of Additional Information dated
April 1, 1996 with the Securities and Exchange Commission ("SEC"). The
information contained in the Statement of Additional Information, as
amended from time to time, is incorporated by reference in this
Prospectus. You may request a copy of the Statement of Additional
Information free of charge or obtain other information or make inquiries
about the Trust by contacting Legg Mason Wood Walker, Incorporated ("Legg
Mason") (address and telephone numbers listed at right).
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. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Dated: April 1, 1996
Legg Mason Wood Walker, Incorporated
111 South Calvert Street
P.O. Box 1476
Baltimore, MD 21203-1476
410 (Bullet) 539 (Bullet) 0000
800 (Bullet) 822 (Bullet) 5544
<PAGE>
PROSPECTUS HIGHLIGHTS
THE LEGG MASON CASH RESERVE TRUST
The following summary is qualified in its entirety by the more
detailed information appearing in the body of this Prospectus and in the
Statement of Additional Information.
FUND TYPE:
The Trust is a no-load money market fund. You may purchase or redeem
shares of the Trust through a brokerage account with Legg Mason or certain
of its affiliates. See "How You Can Invest in the Trust," page 7, and "How
You Can Redeem Your Trust Shares," page 8.
INVESTMENT OBJECTIVE AND POLICIES:
The Trust's investment objective is stability of principal and current
income consistent with stability of principal. The Trust pursues this
investment objective by investing in a portfolio of high-quality money
market instruments maturing in 397 days or less. Of course, there can be
no assurance that the Trust will achieve its objective. See "The Trust's
Investment Objective and Policies," page 5.
NET ASSETS:
Over $[ ] billion as of February 29, 1996
DISTRIBUTOR :
Legg Mason Wood Walker, Incorporated
MANAGER AND ADVISER :
Legg Mason Fund Adviser, Inc. serves as the Trust's manager and
Western Asset Management Company serves as investment adviser to the
Trust.
TRANSFER AND SHAREHOLDER SERVICING AGENT :
Boston Financial Data Services
CUSTODIAN:
State Street Bank and Trust Company
EXCHANGE PRIVILEGE:
All funds in the Legg Mason Family of Funds. See "Exchange Privilege,"
page 11.
YIELD:
Based on current money market rates; quoted in the financial section
of most newspapers.
DIVIDENDS:
Declared daily and paid monthly. See "Dividends," page 10.
REINVESTMENT :
All dividends are automatically reinvested in Trust shares unless cash
payments are requested.
INITIAL PURCHASE:
$1,000 minimum, generally.
SUBSEQUENT PURCHASES:
$500 minimum, generally.
PURCHASE METHODS:
Send bank/personal check or wire federal funds. See "How You Can
Invest in the Trust," page 7.
PUBLIC OFFERING PRICE PER SHARE:
Net asset value, which the Trust seeks to maintain at $1.00 per share.
CHECKWRITING:
Available to qualified shareholders upon request.
Unlimited number of checks
Minimum amount per check: $500
2
<PAGE>
TRUST EXPENSES
The purpose of the following table is to assist an investor in
understanding the various costs and expenses that an investor in the Trust
will bear directly or indirectly. The expenses and fees set forth in the
table are based on average net assets and annual Trust operating expenses
for the year ended August 31, 1995.
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SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge on purchases or
reinvested dividends None
Redemption or exchange fees None
ANNUAL TRUST OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management fees 0.49%
12b-1 fees 0.10%*
Other expenses 0.22%
Total operating expenses 0.81%*
</TABLE>
*Reflects determination by Legg Mason to request payment of, and
determination by the Board to pay, less than the full amount of the
authorized 12b-1 fee. Had the full amount of the fee been paid, 12b-1
fees would be 0.15% and total operating expenses would be 0.86%.
For further information concerning Trust expenses, please see "The
Trust's Board of Trustees and Manager," page 13 and "The Trust's
Distributor," page 14.
EXAMPLE OF EFFECT OF TRUST EXPENSES
The following example illustrates the expenses that you would pay on a
$1,000 investment over various time periods assuming (1) a 5% annual rate
of return and (2) redemption at the end of each time period. As noted in
the table above, the Trust charges no redemption fees of any kind.
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1 YEAR 3 YEARS 5 YEARS 10 YEARS
$8 $26 $45 $100
</TABLE>
This example assumes that all dividends are reinvested and that the
percentage amounts listed under "Annual Trust Operating Expenses" remain
the same over the time periods shown.
The above tables and the assumption in the example of a 5% annual
return are required by regulations of the SEC applicable to all mutual
funds. THE ASSUMED 5% ANNUAL RETURN IS NOT A PREDICTION OF, AND DOES NOT
REPRESENT, THE TRUST'S PROJECTED OR ACTUAL PERFORMANCE. THE ABOVE TABLE
AND EXAMPLE SHOULD NOT BE CONSIDERED REPRESENTATIONS OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The
Trust's actual expenses will depend upon, among other things, the level of
average net assets, the levels of sales and redemptions of shares, the
extent (if any) to which Legg Mason waives its fees and the extent to
which the Trust incurs variable expenses, such as transfer agency costs.
3
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights for each of the ten years in the period ended
August 31, 1995 have been derived from financial statements which have been
audited by Ernst & Young LLP, independent auditors. The Trust's financial
statements for the year ended August 31, 1995 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.
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For the Years Ended August 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 1994 1993 1992 1991 1990 1989 1988* 1987 1986
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of year $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
Net investment income .05 .03 .03 .04 .06 .08 .08 .06 .06 .07
Net realized gain
(loss) on
investments Nil (Nil) -- Nil -- -- -- -- -- --
Total from investment
operations .05 .03 .03 .04 .06 .08 .08 .06 .06 .07
Dividends paid from:
Net investment
income (.05) (.03) (.03) (.04) (.06) (.08) (.08) (.06) (.06) (.07)
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 $1.00 $1.00 $1.00
Total return 5.08% 3.08% 2.85% 4.37% 6.41% 8.03% 8.56% 6.56% 5.69% 6.64%
RATIOS/SUPPLEMENTAL DATA:
RATIOS TO AVERAGE NET
ASSETS:
Expenses .71% .72% .76% .75% .74% .74% .88% .84% .83% .89%
Net investment income 5.03% 3.05% 2.82% 4.11% 6.26% 7.73% 8.30% 6.45% 5.50% 6.58%
Net assets, end of
year (in thousands) $1,153,130 $786,321 $754,996 $733,789 $860,954 $923,249 $723,662 $436,759 $321,109 $279,188
</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. SEE "THE TRUST'S
BOARD OF TRUSTEES AND MANAGER," AND "THE TRUST'S INVESTMENT ADVISER,"
PAGE 13.
4
<PAGE>
PERFORMANCE INFORMATION
From time to time, the Trust may quote its yield, including a compound
effective yield, in advertisements or in reports or other communications
to shareholders. The Trust's "yield" refers to the income generated by an
investment in the Trust over a stated seven-day period. This income is
then "annualized." That is, the average daily net income generated by the
investment during that week is assumed to be generated each day over a
365-day period and is shown as a percentage of the investment. The
"effective yield" is calculated similarly but assumes that the income
earned by an investment is reinvested. The Trust's "effective yield" will
be slightly higher than the Trust's "yield" because of the compounding
effect of this assumed reinvestment.
Yield information may be useful in reviewing the Trust's performance
and for providing a basis for comparison with other investment
alternatives. However, since the calculation is based on past performance
and the Trust's yield changes in response to fluctuations in interest
rates and Trust expenses, any given yield quotation should not be
considered representative of the Trust's yield for any future period.
The Trust's yield for the seven-day period ended August 31, 1995 was
5.09%. The effective yield for the same period was 5.22%.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Trust is stability of principal and
current income consistent with stability of principal. While there is no
assurance that the Trust will achieve its investment objective, it
endeavors to do so by following the investment policies described in this
Prospectus. The investment objective of the Trust may not be changed
without a vote of Trust shareholders; however, except as otherwise noted,
the investment policies of the Trust described below may be changed by the
Trust's Board of Trustees without a shareholder vote.
The Trust attempts to stabilize the net asset value of a Trust share
at $1.00. In general, the market value of the fixed income instruments in
which the Trust invests will rise when interest rates decline and fall
when interest rates increase. To maintain its $1.00 net asset value, the
Trust pursues several practices intended to minimize the effect of
interest rate fluctuations. It invests in a portfolio of money market
instruments maturing in 397 days or less; it maintains the dollar-weighted
average maturity of the portfolio at 90 days or less; and it buys only
high-quality securities with minimal credit risk. The Trust, of course,
cannot guarantee a net asset value of $1.00 per share.
ACCEPTABLE INVESTMENTS
The Trust invests in high-quality money market instruments which
include, but are not limited to:
(Bullet) instruments of domestic and foreign banks and savings and loan
institutions (such as certificates of deposit, demand and time deposits,
savings shares, and bankers' acceptances, including Eurodollar
certificates of deposit) if they have capital, surplus and undivided
profits of over $100,000,000, or if the principal amount of the instrument
is insured by the Federal Deposit Insurance Corporation;
(Bullet) 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");
(Bullet) marketable obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities;
(Bullet) repurchase agreements;
(Bullet) 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
(Bullet) U.S. dollar-denominated securities of foreign issuers.
5
<PAGE>
U.S. Government Obligations
The types of U.S. government obligations in which the Trust may invest
generally include direct obligations of the U.S. Treasury (such as U.S.
Treasury bills, notes and bonds) and obligations issued or guaranteed by
U.S. government agencies or instrumentalities. These securities are backed
by:
(Bullet) the full faith and credit of the U.S. Treasury;
(Bullet) the issuer's right to borrow from the U.S. Treasury;
(Bullet) the discretionary authority of the U.S. Government to purchase
certain obligations of agencies or instrumentalities; or
(Bullet) the credit of the agency or instrumentality issuing the
obligations.
Certain agencies and instrumentalities in which the Trust may invest
may not always receive financial support from the U.S. Government.
Examples of such agencies are:
(Bullet) Federal Farm Credit Banks;
(Bullet) Federal Land Banks;
(Bullet) Federal Home Loan Banks;
(Bullet) Farmers Home Administration; and
(Bullet) Federal National Mortgage Association.
Repurchase Agreements
Repurchase agreements are agreements under which either U.S.
government obligations or high-quality debt securities are acquired from a
securities dealer or bank subject to resale at an agreed-upon price and
date. The securities are held for the Trust by State Street Bank and Trust
Company ("State Street"), the Trust's custodian, as collateral until
resold and will be supplemented by additional collateral if necessary to
maintain a total value equal to or in excess of the value of the
repurchase agreement. The Trust bears a risk that the other party to a
repurchase agreement will default on its obligations and the Trust will be
delayed or prevented from exercising its rights to dispose of the
collateral securities, which may decline in value in the interim. The
Trust will enter into repurchase agreements only with financial
institutions determined by Western Asset Management Company ("Adviser") to
present minimal risk of default during the term of the agreement based on
guidelines which are periodically reviewed by the Board of Trustees. The
Trust will not enter into repurchase agreements and certain time deposits
of more than seven days' duration if more than 10% of its total assets
would be invested in such agreements, deposits and other illiquid
investments.
When-Issued and Delayed-Delivery Transactions
The Trust may enter into commitments to purchase short-term U.S.
government securities on a when-issued or delayed-delivery basis. These
transactions are arrangements in which the Trust purchases securities with
payment and delivery scheduled for a future time. When the Trust purchases
securities on a when-issued or delayed-delivery basis, it immediately
assumes the risks of ownership, including the risk of price fluctuation.
The Trust engages in when-issued and delayed-delivery transactions only
for the purpose of acquiring portfolio securities consistent with the
Trust's investment objective and policies, not for investment leverage;
however, such trades may have an effect on the Trust that is similar to
leverage. In when-issued and delayed-delivery transactions, the Trust
relies on the seller to complete the transaction. The seller's failure to
do so may cause the Trust to miss an opportunity to acquire a desired
money market instrument.
Variable and Floating Rate Securities
Variable and floating rate securities have interest rate adjustment
formulas that may help to stabilize their market value. Many of these
instruments carry a demand feature that permits the Trust to sell them
during a determined time period at par value plus accrued interest. The
demand feature is often backed by a credit instrument, such as a letter
of credit, or by a creditworthy insurer. The Trust may rely on the
credit instrument or the creditworthiness of the insurer in purchasing
a variable or floating rate security. For purposes of determining its
dollar-weighted average maturity, the Trust calculates the remaining
maturity of variable and floating rate instruments as provided in Rule
2a-7 under the 1940 Act.
INVESTMENT LIMITATIONS AND RISKS
As fundamental limitations, the Trust will not:
(Bullet) invest more than 5% of its total assets in securities of one
issuer, except cash and cash items, repurchase agreements, and U.S.
government obligations (the Trust considers the type of bank obligations
it purchases as cash items; however, as a non-fundamental policy, the
Trust will apply the 5% limitation to bank obligations other than demand
deposits); or
(Bullet) purchase money market instruments if, as a result of such
purchase, more than 25% of the value of its total assets would be invested
in any one industry. However, investing in bank instruments (such as time
and demand deposits and certificates of deposit), U.S. government
obligations or instruments secured by these money market instruments, such
as repurchase agreements, shall not be considered investments in any one
industry.
In accordance with SEC requirements concerning money market funds, the
Trust has adopted
6
<PAGE>
the following non-fundamental investment policies, which may be changed
without shareholder approval: The money market instruments purchased by
the Trust will consist only of instruments that the Adviser determines
present minimal credit risks and that are deemed by the SEC to be
eligible for investment by money market funds; these generally include
securities 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 the Board of Trustees
("Eligible Securities"). The Trust 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 the Adviser to
be of comparable quality ("Second Tier Securities"). In addition, the
Trust will not invest more than 1% of its total assets or $1 million
(whichever is greater) in the Second Tier Securities of a single issuer.
The Trust 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.
To the extent the Trust purchases Eurodollar certificates of deposit
issued by foreign branches of U.S. banks, consideration will be given to
their domestic marketability, the lower reserve requirements normally
mandated for overseas banking operations, and the possible impact of
interruptions in the flow of international currency transactions. The
Trust has no reason to believe that these factors should presently serve
to inhibit the purchase by the Trust of these types of instruments.
Additional investment limitations are set forth in the Statement of
Additional Information under "Additional Information about Investment
Limitations and Policies."
HOW YOU CAN INVEST IN THE TRUST
You may purchase shares of the Trust through a brokerage account with
Legg Mason or with an affiliate that has a dealer agreement with Legg
Mason. (Legg Mason is a wholly owned subsidiary of Legg Mason, Inc., a
financial services holding company.) Your Legg Mason or affiliated
investment executive will be pleased to explain the shareholder services
available from the Trust and answer any questions you may have. You should
complete documents which are available from your Legg Mason or affiliated
investment executive to invest in shares of the Trust through an
Individual Retirement Account ("IRA"), Self-Employed Individual Retirement
Plan ("Keogh Plan"), Simplified Employee Pension Plan ("SEP") or other
qualified retirement plan.
The minimum initial investment in the Trust 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, except as noted below. Those investing through the Trust's Future
First Systematic Investment Plan, payroll deduction plans and plans
involving automatic transfer of funds from Legg Mason brokerage accounts,
accounts with other financial institutions and certain unit investment
trusts are subject to lower minimum initial and subsequent investments.
The Trust reserves the right to change the minimum amount requirements
at its discretion. You should always furnish your shareholder account
number when making additional purchases of shares of the Trust.
Initial investments in an IRA account established on behalf of a
nonworking spouse of a shareholder who has an IRA invested in the Trust
require a minimum amount of only $250. Subsequent investments in an IRA or
similar plan require a minimum amount of $100. However, once an account is
established, the minimum amount for subsequent investments will be waived
if an investment in an IRA or similar plan will bring the account total to
the maximum amount permitted under the Internal Revenue Code of 1986, as
amended ("Code"). The Trust reserves the right to change these minimum
amount requirements at its discretion.
There are four ways you can invest:
1. BY MAIL
Once you have opened an account with the Trust, you may purchase
shares in person or by mailing a check for $500 or more (payable to
7
<PAGE>
"Legg Mason Cash Reserve Trust") to your Legg Mason or affiliated
investment executive.
2. BY TELEPHONE OR WIRE TRANSFER OF FUNDS
Once you have opened an account with the Trust, you may also purchase
shares by telephone, using available cash balances in your Legg Mason or
affiliated brokerage account, or by wire transfer of funds from your bank
directly to Legg Mason. Please contact any Legg Mason or affiliated
investment executive for further information. Wire transfers may be
subject to a service charge by your bank.
3. THROUGH THE FUTURE FIRST SYSTEMATIC INVESTMENT PLAN
You may also buy shares in the Trust through the Future First
Systematic Investment Plan. Under this plan, you may arrange for automatic
monthly investments in the Trust of $50 or more by authorizing Boston
Financial Data Services ("BFDS"), the Trust's transfer agent, to prepare a
check each month drawn on your checking account. There is no minimum
initial investment. Please contact any Legg Mason or affiliated investment
executive for further information.
4. THROUGH AUTOMATIC INVESTMENTS
Arrangements may be made with some employers and financial
institutions, such as banks or credit unions, for regular automatic
monthly investments of $50 or more in shares of the Trust. In addition, it
may be possible for dividends from certain unit investment trusts to be
invested automatically in Trust shares. Persons interested in establishing
such automatic investment programs should contact the Trust through any
Legg Mason or affiliated investment executive.
Shares of the Trust are issued at the net asset value next determined
after receipt of a purchase order and payment in proper form. Many
instruments in which the Trust invests must be paid for in immediately
available money called "federal funds." Therefore, payments received from
you for the purchase of shares in a form other than federal funds will
require conversion into federal funds before your purchase order may be
executed. For checks, this normally will take two days but may take up to
nine days. All checks are accepted subject to collection at full face
value in federal funds and must be drawn in U.S. dollars on a domestic
bank. Purchases made by telephone from available cash balances in your
Legg Mason or affiliated brokerage account or wire payments representing
federal funds will normally be completed on the same or the next business
day. If an order and payment in federal funds is received by your Legg
Mason or affiliated investment executive prior to 12:00 noon, Eastern
time, on any day that the New York Stock Exchange ("Exchange") is open,
the shares will be purchased and earn dividends on that day; if such an
order is received at 12:00 noon or later, or on days the Exchange is
closed, the shares will be purchased at the next determined net asset
value and will earn dividends on the next day the Exchange is open. See
"How Net Asset Value is Determined," page 10.
The Trust reserves the right to reject any order for shares of the
Trust or to suspend the offering of shares for a period of time.
HOW YOUR SHAREHOLDER ACCOUNT IS MAINTAINED
When you initially purchase shares of the Trust, a shareholder account
is automatically established for you. Any shares that you purchase or
receive as a dividend will be credited directly to your account at the
time of purchase or receipt. No certificates are issued unless you
specifically request them in writing. Shareholders who elect to receive
certificates can redeem their shares only by mail. Certificates will be
issued in full shares only. No certificates will be issued for shares
prior to 15 business days after purchase of such shares by check unless
the Trust can be reasonably assured during that period that payment for
the purchase of such shares has been collected. Trust shares may not be
held in, or transferred to, an account with any brokerage firm other than
Legg Mason or its affiliates.
HOW YOU CAN REDEEM YOUR TRUST SHARES
All redemptions will be made in cash at the net asset value per share
next determined after the receipt by the Trust of a redemption request in
proper form either in writing or by telephone as described below. Requests
for redemption received after 12:00 noon, Eastern time, will be executed
on the next day the Exchange is open, at the net asset value next
determined. However, payment of redemption proceeds for shares purchased
by
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check and shares acquired through reinvestment of dividends on such shares
may be delayed for up to 10 days after receipt of the check in order to
allow time for the check to clear. Any of the following methods may be
used to redeem shares:
1. REDEMPTION BY TELEPHONE
Telephone redemptions may be made by calling your Legg Mason or
affiliated investment executive. However, you may not redeem shares by
telephone for which certificates have been issued. The minimum amount for
telephone redemptions is $100 unless you require a lesser amount to
complete a transaction in your Legg Mason or affiliated brokerage account.
Proceeds of redemptions requested by telephone will be transmitted only to
you. They may be transferred by mail or wire, at your direction (see
below). Proceeds of redemptions authorized by telephone will be credited
directly to your Legg Mason or affiliated brokerage account the same day.
Checks representing redemption proceeds normally will be mailed within
three business days of redemption but may take longer (up to seven days in
some cases) if the Adviser believes that immediate payment could adversely
affect the Trust. (The Statement of Additional Information describes
several other circumstances in which the date of payment may be postponed
or the right of redemption suspended.) Wire transfers of proceeds to you
or your Legg Mason or affiliated brokerage account will normally be
transmitted the same day.
To make a telephone redemption, you should call your Legg Mason or
affiliated investment executive and provide your name, the Trust's name,
your Trust account number and the number of shares or dollar amount you
wish to redeem. In the event that you are unable to reach your Legg Mason
or affiliated investment executive by telephone, you may make a redemption
request by mail. There is no fee for telephone redemptions with the
exception of wire redemptions by telephone as described below.
You may request by telephone that your shares be redeemed and the
proceeds wired to your account at a commercial bank in the United States.
In order to initiate a wire redemption by telephone, you must inform your
Legg Mason or affiliated investment executive of the name and address of
your bank and your bank account number. If your designated bank is not a
member of the Federal Reserve System, the proceeds will be wired to a
member bank that has a correspondent relationship with your bank. The
failure of the member bank immediately to notify your bank of the wire
transfer could delay the crediting of redemption proceeds to your bank. An
$18 fee for using the wire redemption service will be deducted by Legg
Mason from the redemption proceeds that are wired to your bank.
The Trust will not be responsible for the authenticity of redemption
instructions received by telephone, provided it follows reasonable
procedures to identify the caller. The Trust may request identifying
information from callers or employ identification numbers. The Trust may
be liable for losses due to unauthorized or fraudulent instructions if it
does not follow reasonable procedures. Telephone redemption privileges are
available automatically to all shareholders unless certificates have been
issued. Shareholders who do not wish to have telephone redemption
privileges should call their Legg Mason or affiliated investment executive
for further instructions.
2. REDEMPTION BY CHECK
The Trust offers a free checkwriting service that permits you to write
checks to anyone in amounts of $500 or more. The checks will be paid at
the time they are received by BFDS for payment by redeeming the
appropriate number of shares in your account; the shares will earn
dividends until the check clears BFDS for payment. Please contact your
Legg Mason or affiliated investment executive for further information
regarding this service.
3. REDEMPTION BY MAIL
You may request the redemption of your shares by sending a letter
signed by all of the registered owners of the account to: "Legg Mason Cash
Reserve Trust, c/o Legg Mason Funds Processing, P.O. Box 1476, Baltimore,
Maryland 21203-1476." Any stock certificates issued for the shares must be
surrendered at the same time. For your protection, certificates, if any,
should be sent by registered mail. On all requests for the redemption of
shares valued at $10,000 or more, or when the proceeds of the redemption
are to be paid to someone other than you, your signature must have
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been guaranteed without qualification by a national bank, a state bank, a
member firm of a principal stock exchange, or other entity described in
Rule 17Ad-15 under the Securities Exchange Act of 1934. Legg Mason or its
affiliates may request further documentation from corporations, executors,
partnerships, administrators, trustees or custodians. Checks normally will
be mailed within three business days of receipt of the proper redemption
request to your address of record or, in accordance with your written
request, to some other person. However, it may take longer (up to seven
days in some cases) if the Adviser believes that immediate payment could
adversely affect the Trust.
4. REDEMPTION TO PAY FOR SECURITIES PURCHASES AT LEGG MASON
Legg Mason has established special redemption procedures for Trust
shareholders who wish to purchase stocks, bonds or other securities at
Legg Mason. You may place an order to buy securities through your Legg
Mason or affiliated investment executive and, in the absence of any
indication that you wish to make payment in another manner, Trust shares
will be redeemed on the settlement date for the amount due. Trust shares
may also be redeemed by Legg Mason to cover debit balances in your
brokerage account. Contact your Legg Mason or affiliated investment
executive for details.
Because of the relatively high cost of maintaining small accounts, the
Trust may elect to close any account with a current value due to
redemptions of less than $500, by redeeming all of the shares in the
account and mailing the proceeds to you. If the Trust elects to redeem the
shares in your account, you will be notified that your account is below
$500 and will be allowed 60 days in which to make an additional investment
in order to avoid having your account closed.
To redeem your Trust retirement account, a Distribution Request Form
must be completed and returned to Legg Mason Client Services for
processing. This form can be obtained through your Legg Mason or
affiliated investment executive or Legg Mason Client Services in
Baltimore, Maryland.
HOW NET ASSET VALUE IS DETERMINED
Net asset value per share of the Trust is determined twice daily, as
of 12:00 noon, Eastern time, and the close of business of the Exchange
(normally 4:00 p.m., Eastern time), on every day that the Exchange is
open, by subtracting the Trust's liabilities from its total assets and
dividing the result by the number of shares outstanding. The Trust
attempts to maintain a per share net asset value of $1.00 by using the
amortized cost method of valuation. The Trust cannot guarantee that net
asset value will always remain at $1.00 per share.
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are
automatically reinvested on the payment dates in additional shares of the
Trust unless cash payments are requested by writing to a Legg Mason or
affiliated investment executive. Requests for payments of dividends in
cash must be received at least 10 days prior to a payment date in order to
be honored on that date.
In certain cases, you may reinvest your dividends in shares of another
Legg Mason fund. Please contact your Legg Mason or affiliated investment
executive for additional information about this option.
Since the Trust's policy is, under normal circumstances, 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. If
the Trust does realize any net short-term capital gains, it will
distribute them at least once every 12 months.
TAX TREATMENT OF DIVIDENDS
The Trust intends to continue to qualify for treatment as a regulated
investment company under the Code so that it will be relieved of federal
income tax on that part of its investment company taxable income
(generally consisting of net investment income and any net short-term
capital gain) that is distributed to its shareholders. Such distributions
(whether paid in cash or reinvested in Trust shares) are taxable to the
Trust's shareholders (other than IRAs, Keogh Plans, SEPs, other qualified
retirement plans and other tax-exempt investors) as ordinary income to the
extent of the Trust's earnings and profits.
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The Trust sends each shareholder a notice following the end of each
calendar year specifying, among other things, the amount of all dividends
paid (or deemed paid) during that year. The Trust is required to withhold
31% of all dividends payable to any individuals and certain other
noncorporate shareholders who do not provide the Trust with a certified
taxpayer identification number or who otherwise are subject to backup
withholding.
The foregoing is only a summary of some of the important federal
income tax considerations generally affecting the Trust and its
shareholders; for further information, see the Statement of Additional
Information. In addition to federal income tax, you may also be subject to
state and local income taxes on dividends from the Trust, depending on the
laws of your home state and locality, though the portion of the dividends
paid by the Trust attributable to direct U.S. government obligations is
not subject to state and local income taxes in most jurisdictions. The
Trust's annual notice to shareholders regarding the amount of dividends
identifies this portion. Prospective shareholders are therefore urged to
consult their tax advisers with respect to the effects of this investment
on their own tax situations.
SHAREHOLDER SERVICES
CONFIRMATIONS AND REPORTS
As transfer agent for the Trust, BFDS maintains a share account for
each shareholder. Share certificates are not issued unless requested by
writing to a Legg Mason or affiliated investment executive.
An account statement will be sent to you monthly unless there has been
no activity in the account or you are purchasing shares through the Future
First Systematic Investment Plan or through automatic investments, in
which case an account statement will be sent quarterly. Reports will be
sent to shareholders at least semiannually showing the Trust's portfolio
and other information; the annual report will contain financial statements
audited by the Trust's independent auditors.
Shareholder inquiries should be addressed to "Legg Mason Cash Reserve
Trust, c/o Legg Mason Funds Processing, P.O. Box 1476, Baltimore, Maryland
21203-1476."
SYSTEMATIC WITHDRAWAL PLAN
You may elect to make systematic withdrawals from your Trust account
of a minimum of $50 on a monthly basis if you are purchasing or already
own shares with a net asset value of $5,000 or more. Please contact your
Legg Mason or affiliated investment executive for further information.
LEGG MASON PREMIER ASSET MANAGEMENT ACCOUNT
Shareholders may participate in Legg Mason's Premier Asset Management
Account, which combines the Trust Account, a preferred customer VISA Gold
debit card, a Legg Mason brokerage account with margin borrowing
availability and unlimited checks with no minimum check amount. Other
services include automatic transfer of free credit balances in a
participant's brokerage account to the Trust account and automatic
redemption of Trust shares to offset debit balances in the participant's
brokerage account. Legg Mason charges an annual fee for the Premier Asset
Management Account, which is currently $85 for individuals and $100 for
corporations and businesses. For further information, contact your Legg
Mason or affiliated investment executive.
EXCHANGE PRIVILEGE
As a Trust shareholder, you are entitled to exchange your shares of
the Trust for shares of the following funds in the Legg Mason Family of
Funds, provided that such shares are eligible for sale in your state of
residence:
Legg Mason U.S. Government Money Market Portfolio
A money market fund seeking high current income consistent with
liquidity and conservation of principal.
Legg Mason Tax Exempt Trust, Inc.
A money market fund seeking high current income exempt from federal
income tax, preservation of capital and liquidity.
Legg Mason Value Trust, Inc.
A mutual fund seeking long-term growth of capital.
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Legg Mason Special Investment Trust, Inc.
A mutual fund seeking capital appreciation by investing principally in
issuers with market capitalizations of less than $2.5 billion.
Legg Mason Total Return Trust, Inc.
A mutual fund seeking capital appreciation and current income in order
to achieve an attractive total investment return consistent with
reasonable risk.
Legg Mason American Leading Companies Trust
A mutual fund seeking long-term capital appreciation and current
income consistent with prudent investment risk.
Legg Mason Global Equity Trust
A mutual fund seeking maximum long-term total return, by investing
primarily in common stocks of companies located in at least three
different countries.
Legg Mason Global Government Trust
A mutual fund seeking capital appreciation and current income by
investing principally in debt securities issued or guaranteed by foreign
governments, the U.S. Government, their agencies, instrumentalities and
political subdivisions.
Legg Mason U.S. Government Intermediate-Term Portfolio
A mutual fund seeking high current income consistent with prudent
investment risk and liquidity needs, primarily by investing in debt
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, while maintaining an average dollar-weighted maturity
of between three and ten years.
Legg Mason Investment Grade Income Portfolio
A mutual fund seeking a high level of current income, primarily
through investment in a diversified portfolio of investment grade debt
securities.
Legg Mason High Yield Portfolio
A mutual fund primarily seeking a high level of current income and
secondarily, capital appreciation, by investing principally in
lower-rated, fixed-income securities.
Legg Mason Maryland Tax-Free Income Trust(A)
A tax-exempt municipal bond fund seeking a high level of current
income exempt from federal and Maryland state and local income taxes,
consistent with prudent investment risk and preservation of capital.
Legg Mason Pennsylvania Tax-Free Income Trust(A)
A tax-exempt municipal bond fund seeking a high level of current
income exempt from federal income tax and Pennsylvania personal income
tax, consistent with prudent investment risk and preservation of capital.
Legg Mason Tax-Free Intermediate-Term Income Trust(A,B)
A tax-exempt municipal bond fund seeking a high level of current
income exempt from federal income tax, consistent with prudent investment
risk.
(A)Shares of these funds are sold with an initial sales charge.
(B)From August 1, 1995 through March 31, 1996, the sales charge was
waived for all new accounts and subsequent investments into existing
accounts. After March 31, 1996, any exchanges of these shares will be
subject to the full sales charge, if any, since no sales charge was
paid on shares purchased during this period.
Investments by exchange into the Legg Mason funds sold without an
initial sales charge are made at the per share net asset value determined
on the same business day as redemption of the Trust shares you wish to
exchange. Investments by exchange into the Legg Mason funds sold with an
initial sales charge are made at the per share net asset value, plus the
applicable sales charge, determined on the same business day as redemption
of the Trust shares you wish to redeem; except that no sales charge will
be imposed upon proceeds from the redemption of Trust shares to be
exchanged that were originally purchased by exchange from a fund on which
the same or higher initial sales charge previously was paid. There is no
charge for the exchange privilege, but the Trust reserves the right to
terminate or limit the exchange privilege of any shareholder who makes
more than four exchanges from the Trust in one calendar year. To obtain
further information concerning the exchange privilege and prospectuses of
other Legg Mason funds, or to make an exchange, please contact your Legg
Mason or affiliated investment executive. To effect an exchange
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by telephone, please call your Legg Mason or affiliated investment
executive with the information described in the section "How You Can
Redeem Your Trust Shares," page 8. Please read the prospectus for the
other fund(s) carefully before you invest by exchange. The Trust reserves
the right to modify or terminate the exchange privilege upon 60 days'
notice to shareholders.
There is no assurance the money market funds will be able to maintain
a $1.00 share price. None of the funds is insured or guaranteed by the
U.S. Government.
INVESTING THROUGH TAX-DEFERRED RETIREMENT ACCOUNTS AND PLANS
Investors who are considering establishing an IRA, Keogh Plan, SEP or
other qualified retirement plan may wish to consult their attorneys or tax
advisers with respect to individual tax questions. Your Legg Mason or
affiliated investment executive can make available to you forms of plans.
The option of investing in these accounts and plans through regular
payroll deductions may be arranged with Legg Mason and your employer.
Additional information with respect to these accounts and plans is
available upon request from any Legg Mason or affiliated investment
executive.
THE TRUST'S BOARD OF TRUSTEES AND MANAGER
BOARD OF TRUSTEES
The business and affairs of the Trust are managed under the direction
of the Trust's Board of Trustees.
MANAGER
Pursuant to a management agreement with the Trust, which was approved
by the Trust's Board of Trustees, Legg Mason Fund Adviser, Inc.
("Manager"), a wholly owned subsidiary of Legg Mason, Inc., serves as the
Trust's manager. The Manager manages the non-investment affairs of the
Trust, directs all matters related to the operation of the Trust and
provides office space and administrative staff for the Trust. The Manager
receives for its services a management fee calculated daily and payable
monthly at an annual rate equal to 0.50% of the first $500 million of the
Trust's average daily net assets, 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. During the fiscal year ended August 31,
1995, the Trust paid the Manager, pursuant to the Management Agreement, a
fee equal to 0.49% of the Trust's average daily net assets.
The Manager acts as manager, investment adviser or consultant to
sixteen investment company portfolios which had aggregate assets under
management of approximately $ billion as of February 29, 1996. The
Manager's address is 111 South Calvert Street, Baltimore, Maryland 21202.
THE TRUST'S INVESTMENT ADVISER
Western Asset Management Company, another wholly owned subsidiary of
Legg Mason, Inc., serves as investment adviser to the Trust pursuant to
the terms of an Investment Advisory Agreement with the Manager, which was
approved by the Trust's Board of Trustees. The Adviser acts as the
portfolio manager for the Trust and is responsible for the actual
investment management of the Trust, including the responsibility for
making decisions and placing orders to buy, sell or hold a particular
security. For these services, the Manager (not the Trust) pays the Adviser
a fee, computed daily and payable monthly, at an annual rate equal to 30%
of the fee received by the Manager.
The Adviser also renders investment advice to fourteen open-end
investment companies and one closed-end investment company, which together
had aggregate assets under management of approximately $ billion as of
February 29, 1996. The Adviser also renders investment advice to private
accounts with fixed income assets under management of approximately $
billion as of that date. The address of the Adviser is 117 East Colorado
Boulevard, Pasadena, California 91105.
THE TRUST'S DISTRIBUTOR
Legg Mason is the distributor of the Trust's shares pursuant to an
Underwriting Agreement with the Trust. The Underwriting Agreement
obligates Legg Mason to pay all expenses in connection with the offering
of shares of the Trust, including any compensation to its investment
executives, the printing and distribution of prospectuses, statements of
additional information and periodic reports used in connection with the
offering to prospective investors, after the prospectuses,
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statements of additional information and reports have been prepared, set
in type and mailed to existing shareholders at the Trust's expense, and
for any supplementary sales literature and advertising costs. The Trust's
Board of Trustees has adopted a Distribution and Shareholder Services Plan
("Plan") pursuant to Rule 12b-1 under the 1940 Act. The Plan, which was
approved by shareholders on March 8, 1996, provides that as compensation
for Legg Mason's ongoing services to investors and its activities and
expenses related to the sale and distribution of shares, Legg Mason may
receive payments at an annual rate of up to 0.15% of the Trust's average
daily net assets. However, Legg Mason has agreed that it will not request
payment of more than 0.10% annually from the Trust during the first two
years following adoption of the Plan. The distribution fee and the service
fee are calculated daily and paid monthly. The fees received by Legg Mason
during any year may be more or less than its cost of providing
distribution and shareholder services to the Trust. The offering of shares
normally is continuous.
Legg Mason is a wholly owned subsidiary of Legg Mason, Inc., which is
also the parent of the Manager and Adviser. Legg Mason also assists BFDS
with certain of its duties as transfer agent; for the year ended August
31, 1995, Legg Mason received $518,547 for performing such services in
connection with the Trust.
The Chairman, President and Treasurer of the Trust are employed by
Legg Mason.
THE TRUST'S CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company, P.O. Box 1713, Boston, MA 02105,
is custodian for the securities and cash of the Trust. Boston Financial
Data Services, P.O. Box 953, Boston, MA 02103, is transfer agent for Trust
shares and dividend-disbursing agent for the Trust.
DESCRIPTION OF THE TRUST AND ITS SHARES
The Trust was established as a Massachusetts business trust under a
Declaration of Trust dated July 24, 1978. The Declaration of Trust
authorizes the Trust to issue an unlimited number of shares. Each share of
the Trust gives the shareholder one vote in trustee elections and other
matters submitted to shareholders for vote. Shares of the Trust are
fully-paid and non-assessable, and have no preemptive or conversion
rights.
The Trust does not hold annual shareholder meetings. Shareholder
approval will be sought only for certain changes in the Trust's operation
and for the election of trustees under certain circumstances. Trustees may
be removed by the trustees or by shareholders at a special meeting. A
special meeting of the Trust will be called by the trustees upon the
written request of shareholders owning at least 10% of the Trust's
outstanding shares; shareholders wishing to call such a meeting should
submit a written request to the Trust at 111 South Calvert Street,
Baltimore, Maryland 21202, stating the purpose of the proposed meeting and
the matters to be acted upon.
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THE
LEGG MASON
CASH RESERVE TRUST
STATEMENT OF ADDITIONAL INFORMATION
Legg Mason Cash Reserve Trust ("Trust") is a no-load, open-end,
diversified management investment company investing in money market instruments
to achieve stability of principal and current income consistent with stability
of principal. In attempting to achieve this objective, the Trust's investment
adviser, Western Asset Management Company ("Adviser"), invests in a portfolio of
high-quality money market instruments maturing in 397 days or less. The Trust
attempts to maintain a stable net asset value per share of $1.00 and a
dollar-weighted average maturity of 90 days or less, although there can be no
assurance that it will always be able to do so.
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the Trust's Prospectus dated April 1, 1996 which has
been filed with the Securities and Exchange Commission ("SEC"). A copy of the
Prospectus is available without charge from the Trust's distributor, Legg Mason
Wood Walker, Incorporated ("Legg Mason") (address and telephone numbers listed
below).
Dated: April 1, 1996
Legg Mason Wood Walker
Incorporated
111 South Calvert Street
Baltimore, Maryland 21202
(410) 539-0000 (800) 822-5544
<PAGE>
TABLE OF CONTENTS
Page
Additional Information About Investment
Limitations and Policies 2
Additional Tax Information 5
Additional Purchase and Redemption Information 5
Tax-Deferred Retirement Accounts and Plans 9
Valuation of Shares 10
How the Trust's Yield is Calculated 11
Massachusetts Trust Law 13
The Trust's Trustees and Officers 13
Management Agreement 15
Investment Advisory Agreement 17
The Trust's Distributor 17
Portfolio Transactions and Brokerage 18
The Trust's Custodian and Transfer and Dividend-
Disburing Agent 19
The Trust's Legal Counsel 19
The Trust's Independent Auditors 19
Financial Statements 20
No person has been authorized to give any information or to make any
representations not contained in the Prospectus or this Statement of
Additional Information in connection with the offering made by the
Prospectus and, if given or made, such information or representations
must not be relied upon as having been authorized by the Trust or its
distributor. The Prospectus and the Statement of Additional Information do
not constitute an offering by the Trust or by the principal underwriter in
any jurisdiction in which such offering may not lawfully be made.
LEGG MASON WOOD WALKER
Incorporated
111 South Calver Street
P.O. Box 1476
Baltimore, Maryland 21203-1476
(410) 539-0000
<PAGE>
ADDITIONAL INFORMATION ABOUT INVESTMENT
LIMITATIONS AND POLICIES
The Trust's investment objective is stability of principal and current
income consistent with stability of principal. The investment objective cannot
be changed without shareholder approval.
TYPES OF INVESTMENTS The Trust invests in high-quality money market instruments
that mature in 397 days or less and that include, but are not limited to, bank
instruments, commercial paper and variable rate demand master notes, corporate
bonds, U.S. government obligations, repurchase agreements and instruments
secured by any of these obligations.
BANK INSTRUMENTS In addition to domestic bank obligations such as
certificates of deposit, demand and time deposits, savings shares and bankers'
acceptances, the Trust may invest in Eurodollar certificates of deposit issued
by foreign branches of U.S. or foreign banks.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS These transactions are
made to secure what is considered to be an advantageous price and yield for the
Trust. Settlement dates may be a month or more after entering into these
transactions, and the market values of the securities purchased may vary from
the purchase prices. No fees or other expenses, other than normal transaction
costs, are incurred. However, liquid assets of the Trust sufficient to make
payment for the securities to be purchased are maintained in a segregated
account with the Trust's custodian until the transaction is settled.
REVERSE REPURCHASE AGREEMENTS The Trust may enter into reverse
repurchase agreements to the extent permitted by its investment limitations.
These transactions are similar to borrowing cash. In a reverse repurchase
agreement the Trust transfers possession of a portfolio instrument to another
person, such as a financial institution or broker-dealer, in return for a
percentage of the instrument's market value in cash and agrees that on a
stipulated date in the future the Trust will repurchase the portfolio instrument
by remitting the original consideration plus interest at an agreed-upon rate.
The use of reverse repurchase agreements may enable the Trust to avoid selling
portfolio instruments at a time when a sale may be deemed to be disadvantageous,
but the ability to enter into reverse repurchase agreements does not ensure such
an outcome.
When effecting reverse repurchase agreements, liquid assets in a dollar
amount sufficient to make payment for the obligations to be purchased are
maintained in a segregated account with the Trust's custodian until the
transaction is settled.
FOREIGN SECURITIES The Trust may invest in foreign securities that are
not publicly traded in the United States. Investments in obligations of banking
entities located outside the United States involve certain risks that are
different from investments in securities of domestic banks. These risks may
include adverse foreign economic and political developments, the imposition of
foreign laws or restrictions that may adversely affect payment of principal and
interest on such obligations held by the Trust, and the imposition of foreign
exchange controls and of withholding taxes on interest income payable on such
obligations held by the Trust. In addition, there may be less public
information available about a foreign bank than is generally available about
domestic banks. Furthermore, foreign banking institutions may not be subject to
the same accounting, auditing and financial recordkeeping standards and
requirements as are domestic banks and branches. All securities purchased by the
Trust will be denominated in U.S. dollars.
In an effort to minimize these risks, the Adviser will purchase
foreign-issued money market instruments only from the branches of those banks
that are among the largest and most highly rated in various
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industrialized nations. On an ongoing basis, the Adviser will monitor the credit
risk of such foreign banks by using third party services which provide credit
and sovereign risk analysis. Also, the Adviser will not purchase obligations
that it believes, at the time of purchase, will be subject to exchange controls
or withholding taxes. Investment will be limited to obligations of bank branches
located in countries where sovereign risk is considered by the Adviser to be
minimal; however, there can be no assurance that exchange control laws,
withholding taxes or other similar laws will not become applicable to certain of
the Trust's investments.
RESTRICTED SECURITIES Restricted securities are securities subject to
legal or contractual restrictions on their resale, such as private placements.
Such restrictions might prevent the sale of restricted securities at a time when
sale would otherwise be desirable. Repurchase agreements maturing in more than
seven days are considered illiquid. Illiquid securities may be difficult to
value, and the Trust may have difficulty disposing of such securities promptly.
PORTFOLIO TURNOVER The Trust normally holds portfolio instruments to maturity
but may dispose of them prior to maturity if the Adviser believes it advisable.
Investing in short-term money market instruments will result in high portfolio
turnover. Because the cost of these transactions is small, this turnover is not
expected to adversely affect net asset value or yield to any significant degree.
INVESTMENT LIMITATIONS The Trust has adopted certain fundamental investment
limitations, described below, which cannot be changed without approval of
shareholders.
1. SELLING SHORT AND BUYING ON MARGIN The Trust will not sell any money market
instruments short or purchase any money market instruments on margin but may
obtain such short-term credits as may be necessary for clearance of purchases
and sales of money market instruments.
2. BORROWING MONEY The Trust will not borrow money except as a temporary measure
for extraordinary or emergency purposes and then only in amounts not in excess
of 5% of the value of its total assets. In addition, the Trust may enter into
reverse repurchase agreements and otherwise borrow up to one-third of the value
of its total assets, including the amount borrowed, in order to meet redemption
requests without immediately selling portfolio instruments. This latter practice
is not for investment leverage but solely to facilitate management of the
portfolio by enabling the Trust to meet redemption requests when the liquidation
of portfolio instruments would be inconvenient or disadvantageous.
Interest paid on borrowed funds will not be available for investment.
The Trust will liquidate any such borrowings as soon as possible and may not
purchase any portfolio instruments while any borrowings are outstanding.
However, during the period any reverse repurchase agreements are outstanding,
but only to the extent necessary to assure completion of the reverse repurchase
agreements, the Trust will restrict the purchase of portfolio instruments to
money market instruments maturing on or before the expiration date of the
reverse repurchase agreements.
3. INVESTING IN COMMODITIES, MINERALS, OR REAL ESTATE The Trust will not invest
in commodities, commodity contracts, oil, gas, or other mineral programs, or
real estate, except that it may purchase money market instruments issued by
companies that invest in or sponsor such interests.
4. UNDERWRITING The Trust will not engage in underwriting of securities issued
by others.
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5. LENDING CASH OR SECURITIES The Trust will not lend any of its assets, except
that it may purchase or hold money market instruments, including repurchase
agreements and variable amount demand master notes, permitted by its investment
objective and policies.
6. ACQUIRING SECURITIES The Trust will not acquire the voting securities of any
issuer. It will not invest in securities issued by any other investment company,
except as part of a merger, consolidation, or other acquisition. It will not
invest in securities of a company for the purpose of exercising control or
management.
7. DIVERSIFICATION OF INVESTMENTS The Trust will not purchase securities issued
by any one issuer having a value of more than 5% of the value of its total
assets except cash or cash items, repurchase agreements, and U.S. government
obligations. The Trust considers the type of bank obligations it purchases as
cash items (however, as a non-fundamental policy, the Trust will apply the 5%
limitation to bank obligations other than demand deposits).
8. CONCENTRATION OF INVESTMENTS The Trust will not purchase money market
instruments if, as a result of such purchase, more than 25% of the value of its
total assets would be invested in any one industry. However, investing in bank
instruments (such as time and demand deposits and certificates of deposit), U.S.
government obligations or instruments secured by these money market instruments,
such as repurchase agreements, shall not be considered investments in any one
industry.
9. INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS OF THE TRUST The
Trust will not purchase or retain the securities of any issuer if the officers
and trustees of the Trust or its investment adviser owning individually more
than 1/2 of 1% of the issuer's securities together own more than 5% of the
issuer's securities.
10. DEALING IN PUTS AND CALLS The Trust will not invest in puts, calls,
straddles, spreads, or any combination of these.
11. ISSUING SENIOR SECURITIES The Trust will not issue senior securities, except
as permitted by the investment objective and policies and investment limitations
of the Trust.
Except with respect to the 331/3% limitation on borrowing money, if a
percentage limitation is adhered to at the time of investment, a later increase
or decrease in percentage resulting from any change in value or net assets will
not result in a violation of such restriction.
The Trust did not borrow money or invest in reverse repurchase
agreements in excess of 5% of the value of its total assets during the last
fiscal year and, at present, has no intent to do so.
As noted above, the investment objective and fundamental investment
policies and limitations of the Trust, described in the preceding paragraphs and
in the Prospectus, may not be changed without the vote of the holders of a
majority of the Trust's outstanding voting securities. Under the Investment
Company Act of
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1940, as amended ("1940 Act"), a "vote of a majority of the outstanding voting
securities" of the Trust means the affirmative vote of the lesser of (1) more
than 50% of the outstanding shares of the Trust 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.
ADDITIONAL TAX INFORMATION
In order to continue to qualify for treatment as a regulated investment
company under the Internal Revenue Code of 1986, as amended, the Trust must
distribute annually to its shareholders at least 90% of its investment company
taxable income (generally, net investment income plus any net short-term capital
gain) and must meet several additional requirements. Among these requirements
are the following: (1) at least 90% of the Trust's gross income each taxable
year must be derived from dividends, interest and gains from the sale or other
disposition of securities, or other income derived with respect to its business
of investing in securities; (2) the Trust must derive less than 30% of its gross
income each taxable year from the sale or other disposition of securities held
for less than three months; (3) at the close of each quarter of the Trust's
taxable year, at least 50% of the value of its total assets must be represented
by cash and cash items, U.S. government securities, and other securities, with
those other securities limited, in respect of any one issuer, to an amount that
does not exceed 5% of the value of the Trust's total assets; and (4) at the
close of each quarter of the Trust's taxable year, not more than 25% of the
value of its total assets may be invested in securities (other than U.S.
government securities) of any one issuer.
The Trust will be subject to a nondeductible 4% excise tax to the
extent it fails to distribute by the end of any calendar year substantially all
of its ordinary income for that year and any capital gain net income for the
one-year period ending on October 31 of that year, plus certain other amounts.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares are sold at their net asset value without a sales charge on days
the New York Stock Exchange ("Exchange") is open for business. The procedure for
purchasing shares of the Trust is explained in the Prospectus under "How You Can
Invest in the Trust".
Conversion to Federal Funds
It is the Trust's policy to be as fully invested as possible so that
maximum interest may be earned. To this end, all payments from shareholders must
be in federal funds or be converted into federal funds. This conversion must be
made before shares are purchased. Legg Mason or Boston Financial Data Services
("BFDS") acts as the shareholders' agent in depositing checks and converting
them to federal funds, normally within two to nine business days of receipt of
checks.
A cash deposit made after the daily cashiering deadline of the Legg
Mason office in which the deposit is made will be credited to your Legg Mason
brokerage account ("Brokerage Account") on the next business day following the
day of deposit, and the resulting free credit balance will be invested on the
second business day following the day of receipt.
Redemption By Wire
The Trust redeems shares at the next computed net asset value after
Legg Mason receives the redemption request. Redemption procedures are explained
in the Prospectus under "How You Can Redeem
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Your Trust Shares". When payment for shares is in the form of federal funds,
the 10-day potential delay described in the Prospectus does not apply.
Redemption in Kind
The Trust reserves the right, under certain conditions, to honor any
request for a redemption, or combination of requests from the same shareholder
in any 90-day period, totalling $250,000 or 1% of the net assets of the Trust,
whichever is less, by making payment in whole or in part by securities valued in
the same way as they would be valued for purposes of computing the Trust's net
asset value per share. If payment is made in securities, a shareholder should
expect to incur brokerage expenses in converting those securities into cash and
will be subject to fluctuation in the market price of those securities until
they are sold. The Trust does not redeem in kind under normal circumstances, but
would do so where the Adviser determines that it would be in the best interests
of the shareholders as a whole.
Future First Systematic Investment Plan and Transfer of Funds from Financial
Institutions
When you purchase shares through the Future First Systematic Investment
Plan, BFDS, the Trust's transfer agent, will send a check each month to your
bank for collection and the proceeds of the check will be used to buy shares of
the Trust. Legg Mason, the Trust's distributor, will send an account statement
quarterly. The check also will be reflected on your regular checking account
statement. You may terminate the Future First Systematic Investment Plan at any
time without charge or penalty.
You may also buy additional shares of the Trust through a plan
permitting transfers of funds from a financial institution. Certain financial
institutions may allow you, on a pre-authorized basis, to have $50 or more
automatically transferred monthly for investment in shares of the Trust to:
Legg Mason Wood Walker, Incorporated
Funds Processing
P.O. Box 1476
Baltimore, Maryland 21203-1476
If the investor's check is not honored by the institution on which it
is drawn, the investor may be subject to extra charges in order to cover
collection costs. These charges may be deducted from the investor's account.
Systematic Withdrawal Plan
You may also elect to make systematic withdrawals from your Trust
account of a minimum of $50 on a monthly basis if you own shares with a net
asset value of $5,000 or more. The amounts paid to you each month are obtained
by redeeming sufficient shares from your account to provide the withdrawal
amount that you have specified. The Systematic Withdrawal Plan is not currently
available for shares held in an Individual Retirement Account ("IRA"),
Self-Employed Individual Retirement Plan ("Keogh Plan"), Simplified Employee
Pension Plan ("SEP") or other qualified retirement plan. You may change the
monthly amount to be paid to you without charge not more than once a year by
notifying Legg Mason or the affiliate with which you have an account.
Redemptions will be made at the net asset value determined as of the close of
the Exchange on the first day of each month. If the Exchange is not open for
business on that day, the shares will be redeemed at the net asset value
determined as of the close of the Exchange on the preceding business day. The
check for the withdrawal payment will usually be mailed to you on the next
business day following redemption. If you elect to participate in the Systematic
Withdrawal Plan, dividends and distributions on all shares in your Trust account
must be automatically reinvested in Trust shares. You may terminate the
Systematic Withdrawal Plan
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at any time without charge or penalty. The Trust, its transfer agent, Legg Mason
and its affiliates also reserve the right to modify or terminate the Systematic
Withdrawal Plan at any time.
Withdrawal payments are treated as a sale of shares rather than as a
dividend. If the periodic withdrawals exceed reinvested dividends and
distributions, the amount of your original investment will be correspondingly
reduced.
Legg Mason Premier Asset Management Account/VISA Account
Shareholders of the Trust who have cash or negotiable securities
(including Trust shares) valued at $20,000 or more in accounts with Legg Mason
may subscribe to Legg Mason's Premier Asset Management Account ("Premier"). This
program provides a direct link between a shareholder's Trust account and his or
her Brokerage Account. Premier provides shareholders with a convenient method to
invest in the Trust through their Brokerage Account, which includes automatic
daily investment of free credit balances of $100 or more and automatic weekly
investment of free credit balances of less than $100.
Premier is a comprehensive financial service which combines a
shareholder's Trust account, a preferred customer VISA Gold debit card, a
Brokerage Account and unlimited checks with no minimum check amount. Premier is
offered as an exclusive preferred customer service for shareholders of certain
Legg Mason funds.
The VISA Gold debit card may be used to purchase merchandise or
services from merchants honoring VISA or to obtain cash advances (which a bank
may limit to $5,000 or less, per account per day) from any bank honoring VISA.
Checks, VISA charges and cash advances are posted to the shareholder's
margin account and create automatic same day redemptions if shares are available
in the Trust. If Trust shares have been exhausted, the debits will remain in the
margin account, reducing the cash available. The shareholder will receive one
consolidated monthly statement which details all Trust transactions, securities
activity, check writing activity and VISA Gold purchases and cash advances.
BancOne Columbus ("BancOne"), 757 Carolyn Avenue, Columbus, Ohio 43271,
is the Trust's agent for processing payment of VISA Gold debit card charges and
clearance of checks written on the Premier account. Shareholders are subject to
BancOne's rules and regulations governing VISA accounts, including the right of
BancOne not to honor VISA drafts in amounts exceeding the authorization limit of
the shareholder's account at the time the VISA draft is presented for payment.
The authorization limit is determined daily by taking the shareholder's Trust
account balance and subtracting (1) all shares purchased by other than federal
funds wired within 15 days; (2) all shares for which certificates have been
issued; and (3) any previously authorized VISA transaction.
Preferred Customer Card Services Unlike some other investment programs
which offer the VISA card privilege, Premier also includes travel/accident
insurance at no added cost when shareholders purchase travel tickets with their
Premier VISA Gold debit card. Coverage is provided through VISA and extends up
to $250,000.
If a VISA Gold debit card is lost or stolen, the shareholder should
report the loss immediately by contacting Legg Mason directly between the hours
of 8:30 a.m. and 5:00 p.m., or BancOne collect after hours at 1-614-248-4242.
Those shareholders who subscribe to the Premier VISA account privilege may be
liable for the unauthorized use of their VISA Gold debit card in amounts up to
$50.
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Legg Mason is responsible for all Premier VISA Gold debit card
inquiries as well as billing and account resolutions. Simply call Legg Mason
Premier Client Services directly between 8:30 a.m. and 5:00 p.m., Eastern time,
at 1-800-253-0454 or 1-410-528-2066 with your account inquiries.
Automatic Purchases of Trust Shares For shareholders participating in
the Premier program who sell shares held in their Brokerage Account, any free
credit balances of $100 or more resulting from any such sale will automatically
be invested in shares of the Trust on the same business day the proceeds of sale
are credited to the Brokerage Account. Free credit balances of less than $100
will be invested in Trust shares weekly.
Free credit balances arising from sales of Brokerage Account shares for
cash (i.e., same-day settlement), redemption of debt securities, dividend and
interest payments and cash deposits will be invested automatically in Trust
shares on the next business day following the day the transaction is credited to
the Brokerage Account.
Trust shares will receive the next dividend declared following purchase
(normally 12:00 noon, Eastern time, on the following business day). A purchase
order will not become effective until cash in the form of federal funds is
received by the Trust.
How to Open a Premier Account To subscribe to Premier services, clients
must contact Legg Mason to execute both a Premier Agreement with Legg Mason and
a VISA Account Application and Agreement with BancOne. Legg Mason charges a fee
for the Premier service, which is currently $85 per year for individuals and
$100 per year for businesses and corporations. Legg Mason reserves the right to
alter or waive the conditions upon which a Premier account may be opened. Both
Legg Mason and BancOne reserve the right to terminate or modify any
shareholder's Premier services at their discretion.
You may request Premier Account status by filling out the Premier Asset
Management Account Agreement and Check Application which can be obtained from
your investment executive. You will receive your VISA Gold debit card (if
applicable) from BancOne. The Premier VISA Gold debit card may be used at over 8
million locations, including 23,000 ATMs, in 24 countries around the world.
Premier checks will be sent to you directly. There is no limit on the number of
checks you may write against your Premier account.
Shareholders should be aware that the various features of the Premier
program are intended to provide easy access to assets in their accounts and that
the Premier account is not a bank account. Additional information about the
Premier program is available by calling your investment executive or Legg
Mason's Premier Client Services.
Other Information Regarding Redemption
The Trust reserves the right to modify or terminate the check, wire,
telephone or VISA Gold card redemption services described in the Prospectus and
this Statement of Additional Information at any time.
You may request the Trust's checkwriting service by sending a written
request to Legg Mason. State Street Bank and Trust Company ("State Street"), the
Trust's custodian, will supply you with checks which can be drawn on an account
of the Trust maintained with State Street. When honoring a check presented for
payment, the Trust will cause State Street to redeem exactly enough full and
fractional shares from your account to cover the amount of the check. Cancelled
checks will be returned to you.
Check redemption is subject to State Street's rules and regulations
governing checking accounts. Checks should not be used to close a Trust account
because when the check is written you will not know the
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exact total value of the account, including accrued dividends, on the day the
check clears. Persons obtaining certificates for their shares may not use the
checkwriting service.
The date of payment for a redemption may not be postponed for more than
seven days, and the right of redemption may not be suspended except (1) for any
periods during which the Exchange is closed (other than for customary weekend
and holiday closings), (2) when trading in markets the Trust normally utilizes
is restricted, or an emergency, as defined by rules and regulations of the SEC,
exists, making disposal of the Trust's investments or determination of its net
asset value not reasonably practicable, or (3) for such other periods as the SEC
by regulation or order may permit for protection of the Trust's shareholders. In
the case of any such suspension, you may either withdraw your request for
redemption or receive payment based upon the net asset value next determined
after the suspension is lifted.
Although the Trust may elect to redeem any shareholder account with a
current value of less than $500, the Trust will not redeem accounts that fall
below $500 solely as a result of a reduction in net asset value per share.
TAX-DEFERRED RETIREMENT ACCOUNTS AND PLANS
In general, income earned through the investment of assets of
qualified retirement accounts and plans is not taxed to the beneficiaries
thereof until the income is distributed to them. Investors who are considering
establishing such an account or plan should consult their attorneys or tax
advisers with respect to individual tax questions. The option of investing in
these accounts or plans through regular payroll deductions may be arranged with
a Legg Mason or affiliated investment executive and your employer. Additional
information with respect to these accounts or plans is available upon request
from any Legg Mason or affiliated investment executive.
Individual Retirement Account - IRA
Certain investors may obtain tax advantages by establishing IRAs.
Specifically, if neither you nor your spouse is an active participant in a
qualified employer or government retirement plan, or if either you or your
spouse is an active participant and your adjusted gross income does not exceed a
certain level, you may deduct cash contributions made to an IRA in an amount for
each taxable year not exceeding the lesser of 100% of your earned income or
$2,000. In addition, if your spouse is not employed and you file a joint return,
you may establish a separate IRA for your spouse and contribute up to a total of
$2,250 to the two IRAs, provided that the contribution to either does not exceed
$2,000. If you and your spouse are both employed and neither of you is an active
participant in a qualified employer or government retirement plan and you
establish separate IRAs, you each may contribute all of your earned income, up
to $2,000 each, and thus may together receive tax deductions of up to $4,000 for
contributions to your IRAs. If your employer's plan qualifies as a SEP, permits
voluntary contributions and meets certain other requirements, you may make
voluntary contributions to that plan that are treated as deductible IRA
contributions.
Even if you are not in one of the categories described in the preceding
paragraph, you may find it advantageous to invest in shares of the Trust through
IRA contributions up to certain limits, because all dividends on your Trust
shares are then not immediately taxable to you or the IRA; they become taxable
only when distributed to you. To avoid penalties, your interest in an IRA must
be distributed, or start to be distributed, to you not later than the end of the
taxable year in which you attain age 70 1/2. Distributions made before age 59
1/2, in addition to being taxable, generally are subject to a penalty equal to
10% of the distribution, except in the case of death or disability, when the
distribution is rolled over into another qualified plan or certain other
situations.
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Self-Employed Individual Retirement Plan - Keogh Plan
Legg Mason makes available to self-employed individuals a Plan and
Trustee Agreement for a Keogh Plan through which shares of the Trust may be
purchased. Investors have the right to use a bank of their own choice to provide
these services at their own cost. There are penalties for distributions from a
Keogh Plan prior to age 59 1/2, except in the case of death or disability.
Simplified Employee Pension Plan - SEP
Legg Mason makes available to corporate and other employers a SEP for
investment in shares of the Trust.
Withholding at the rate of 20% is required for federal income tax
purposes on certain distributions (excluding, for example, certain periodic
payments) from the foregoing retirement plans (except IRAs and SEPs), unless the
recipient transfers the distribution directly to an "eligible retirement plan"
(including IRAs and other qualified plans) that accepts those distributions.
Other distributions generally are subject to regular wage withholding or
withholding at the rate of 10% (depending on the type and amount of the
distribution), unless the recipient elects not to have any withholding apply.
Investors should consult their plan administrator or tax adviser for further
information.
VALUATION OF SHARES
The Trust attempts to stabilize the value of a share at $1.00. Net
asset value will not be calculated on days when the Exchange is closed. The
Exchange currently observes the following holidays: New Year's Day, President's
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas.
Use of the Amortized Cost Method The trustees have decided that the
best method for determining the value of portfolio instruments is amortized
cost. Under this method, portfolio instruments are valued at the acquisition
cost as adjusted for amortization of premium or accretion of discount rather
than at current market value. The Board of Trustees continually assesses this
method of valuation.
The Trust's use of the amortized cost method of valuing portfolio
instruments depends on its compliance with Rule 2a-7 under the 1940 Act. Under
that Rule, the trustees must establish procedures reasonably designed to
stabilize the net asset value per share, as computed for purposes of
distribution and redemption, at $1.00 per share, taking into account current
market conditions and the Trust's investment objective.
Under the Rule, the Trust is permitted to purchase instruments which
are subject to demand features or standby commitments. As defined by the Rule, a
demand feature entitles the Trust to receive the principal amount of the
instrument from the issuer or a third party (1) on no more than 30 days' notice
or (2) at specified intervals, not exceeding one year, on no more than 30 days'
notice. A standby commitment entitles the Trust to achieve same day settlement
and to receive an exercise price equal to the amortized cost of the underlying
instrument plus accrued interest at the time of exercise.
Although demand features and standby commitments are techniques that
are defined as "puts" under the Rule, the Trust does not consider them to be
"puts" as that term is used in the Trust's investment limitations. Demand
features and standby commitments are features which enhance an instrument's
liquidity, and the investment limitation which proscribes puts is designed to
prohibit the purchase and sale of put and call options and is not designed to
prohibit the Trust from using techniques which enhance the liquidity of
portfolio instruments.
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Monitoring Procedures The Trust's procedures include monitoring the
relationship between the amortized cost value per share and net asset value per
share based upon available indications of market value. If there is a difference
of more than 0.5% between the two, the trustees will take any steps they
consider appropriate (such as shortening the dollar-weighted average portfolio
maturity) to minimize any material dilution or other potentially unfair results
arising from differences between the two methods of determining net asset value.
Investment Restrictions Rule 2a-7 requires the Trust, if it wishes to
value its assets at amortized cost, to limit its investments to instruments
that, (i) in the opinion of the Adviser, present minimal credit risk and (ii)(a)
are rated in 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, (b) if unrated, are determined to be of comparable
quality by the Adviser, all pursuant to procedures determined by the Board of
Trustees ("Eligible Securities"). Securities that were long-term when issued,
but that have 397 days or less remaining to maturity, and that lack an
appropriate short-term rating, may be eligible if they are comparable in
priority and security to a rated short-term security, even if the former
security has a long-term rating below AA/Aa. The Trust 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 the Adviser to be of
comparable quality ("Second Tier Securities"). In addition, the Trust will not
invest more than 1% of its total assets or $1 million (whichever is greater) in
the Second Tier Securities of a single issuer. The Rule requires the Trust to
maintain a dollar-weighted average portfolio maturity appropriate to the
objective of maintaining a stable net asset value of $1.00 per share and in any
event not more than 90 days. In addition, under the Rule, no instrument with a
remaining maturity (as defined by the Rule) of more than 397 days can be
purchased by the Trust; except that the Trust may hold securities with
maturities greater than 397 days as collateral for repurchase agreements and
other collateralized transactions of short duration. Certain variable rate
securities in which the Trust invests may have a remaining maturity of more than
397 days. However, pursuant to regulations of the SEC, the Trust is permitted
to treat these securities as having a maturity of no more than 397 days.
Should the disposition of a portfolio security result in a
dollar-weighted average portfolio maturity of more than 90 days, the Trust will
invest its available cash to reduce the average maturity to 90 days or less as
soon as possible.
It is the Trust's usual practice to hold portfolio securities to
maturity and realize par, unless the Adviser determines that sale or other
disposition is appropriate in light of the Trust's investment objective. Under
the amortized cost method of valuation, neither the amount of daily income nor
the net asset value is affected by any unrealized appreciation or depreciation
of the portfolio.
In periods of declining interest rates, the indicated daily yield on
shares of the Trust, computed by dividing the annualized daily income on the
Trust's investment portfolio by the net asset value computed as above, may tend
to be higher than a similar computation made by using a method of valuation
based upon market prices and estimates.
In periods of rising interest rates, the indicated daily yield on
shares of the Trust computed the same way may tend to be lower than a similar
computation made by using a method of calculation based upon market prices and
estimates.
HOW THE TRUST'S YIELD IS CALCULATED
The current annualized yield for the Trust is based on a seven-day
period and is computed by determining the net change in the value of a
hypothetical account in the Trust. The net change in the value of the account
includes the value of dividends and of additional shares purchased with
dividends, but does
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not include gains and losses or unrealized appreciation and depreciation. In
addition, the Trust may use a compound effective annualized yield quotation
which is calculated as prescribed by SEC regulations, by adding one to the base
period return (calculated as described above), raising the sum to a power equal
to 365 divided by 7, and subtracting one.
The Trust's yield may fluctuate daily depending upon such factors as
the average maturity of its securities, changes in investments, changes in
interest rates and variations in operating expenses. Therefore, current yield
does not provide a basis for determining future yields. The fact that the
Trust's current yield will fluctuate and that shareholders' principal is not
guaranteed or insured should be considered in comparing the Trust's yield with
yields on fixed-income investments, such as insured savings certificates. In
comparing the yield of the Trust to other investment vehicles, consideration
should be given to the investment policies of each, including the types of
investments owned, lengths of maturities of the portfolio, the method used to
compute the yield and whether there are any special charges that may reduce the
yield.
Other Information
The Trust's performance data quoted in advertising and other
promotional materials ("Performance Advertisements") represent past performance
and are not intended to predict or indicate future results. The return on an
investment in the Trust will fluctuate. In Performance Advertisements, the Trust
may compare its taxable yield with data published by Lipper Analytical Services,
Inc. for money funds ("Lipper"), CDA Investment Technologies, Inc. ("CDA"),
IBC/Donoghue's Money Market Fund Report ("Donoghue"), Morningstar Mutual Funds
("Morningstar") or Wiesenberger Investment Companies Service ("Wiesenberger") or
with the performance of recognized stock and other indexes, including (but not
limited to) the Standard & Poor's 500 Composite Stock Price Index ("S&P 500"),
the Dow Jones Industrial Average ("Dow Jones") and the Consumer Price Index as
published by the U.S. Department of Commerce. The types of securities in which
the Trust invests are different from those included in the Standard & Poor's and
Dow Jones indices which track the performance of the equity markets. The S&P 500
and Dow Jones are accepted as broad-based measures of the equity markets.
Calculation of those indices assumes reinvestment of dividends and ignores
brokerage costs and the tax consequences of investing. The Trust also may refer
in such materials to mutual fund performance rankings and other data, such as
comparative asset, expense and fee levels, published by Lipper, CDA, Donoghue,
Morningstar or Wiesenberger. Performance Advertisements also may refer to
discussions of the Trust and comparative mutual fund data and ratings reported
in independent periodicals, including (but not limited to) THE WALL STREET
JOURNAL, MONEY Magazine, FORBES, BUSINESS WEEK, FINANCIAL WORLD, BARRON'S, THE
NEW YORK TIMES and FORTUNE.
The Trust may also compare its performance with the performance of bank
certificates of deposit ("CDs") as measured by the CDA Investment Technologies,
Inc. Certificate of Deposit Index and the Bank Rate Monitor National Index. In
comparing the Trust's performance to CD performance, investors should keep in
mind that bank CDs are insured in whole or part by an agency of the U.S.
Government and offer fixed principal and fixed or variable rates of interest,
and that bank CD yields may vary depending on the financial institution offering
the CD and prevailing interest rates. Trust shares are not insured or guaranteed
by the U.S. Government or any agency thereof and returns thereon will fluctuate.
While the Trust 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.
In advertising, the Trust may illustrate hypothetical investment plans
designed to help investors meet long-term financial goals, such as saving for a
child's college education or for retirement. Sources such as the Internal
Revenue Service, the Social Security Administration, the Consumer Price Index
and Chase Global Data and Research may supply data concerning interest rates,
college tuitions, the rate of inflation, Social Security benefits, mortality
statistics and other relevant information. The Trust may use other recognized
sources as they become available.
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The Trust may use data prepared by Ibbotson Associates of Chicago,
Illinois ("Ibbotson") to compare the returns of various capital markets and to
show the value of a hypothetical investment in a capital market. Ibbotson relies
on different indices to calculate the performance of common stocks, corporate
and government bonds and Treasury bills.
The Trust may illustrate and compare the historical volatility of
different portfolio compositions where the performance of stocks is represented
by the performance of an appropriate market index, such as the S&P 500 and the
performance of bonds is represented by a nationally recognized bond index, such
as the Lehman Brothers Long-Term Government Bond Index.
The Trust may also include in advertising biographical information on
key investment and managerial personnel.
The Trust may discuss Legg Mason's tradition of service. Since 1899,
Legg Mason and its affiliated companies have helped investors meet their
specific investment goals and have grown to provide a full spectrum of financial
services. Legg Mason affiliates serve as investment advisors for private
accounts and mutual funds with assets of more than $31 billion as of December
31, 1995.
In advertising, the Trust may discuss the advantages of saving through
tax-deferred retirement plans or accounts, including the advantages and
disadvantages of "rolling over" a distribution from a retirement plan into an
IRA, factors to consider in determining whether you qualify for such a rollover,
and the other options available. These discussions may include graphs or other
illustrations that compare the growth of a hypothetical tax-deferred investment
to the after-tax growth of a taxable investment.
MASSACHUSETTS TRUST LAW
Under certain circumstances, shareholders may be held personally liable
under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust's Declaration of Trust, filed with the Commonwealth of
Massachusetts, expressly disclaims the liability of its shareholders for acts or
obligations of the Trust. The Declaration requires notice of this disclaimer to
be given in each agreement, obligation or instrument the Trust 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 the Trust's obligations, the Trust is
required to use its property to protect or compensate the shareholder. On
request, the Trust will defend any claim made, and pay any judgment, against
such a shareholder for any act or obligation of the Trust. Therefore, financial
loss resulting from liability as a shareholder will occur only if the Trust
itself cannot meet its obligations to indemnify shareholders and pay judgments
against them.
THE TRUST'S TRUSTEES AND OFFICERS
The Trust's officers are responsible for the operation of the Trust
under the direction of the Board of Trustees. The officers and trustees of the
Trust and their principal occupations during the past five years are set forth
below. An asterisk(*) indicates officers and/or trustees who are "interested
persons" of the Trust, as defined in the 1940 Act. The address of each officer
and trustee is 111 South Calvert Street, Baltimore, Maryland 21202, unless
otherwise indicated.
JOHN F. CURLEY, JR.*, [56] Chairman of the Board, President and
Trustee; Vice Chairman and Director of Legg Mason Wood Walker, Inc. and
Legg Mason, Inc.; Director of Legg Mason Fund Adviser, Inc. and Western
Asset Management Company (each a registered investment adviser); Officer
and/or Director
13
<PAGE>
of various other affiliates of Legg Mason, Inc.; Chairman of the
Board and Director of four other Legg Mason funds; President or
Chairman of the Board and Director/Trustee of nine Legg Mason funds.
CHARLES F. HAUGH, [70] Trustee; 14201 Laurel Park Drive, Ste.
208, Laurel, Maryland. Real Estate Developer and Investor; President
and Director of Resource Enterprises, Inc. (real estate brokerage);
Partner in Greater Laurel Health Park Ltd. Partnership (real estate
investment and development); Chairman of Resource Realty LLC (management
of retail and office space); Director/Trustee of nine Legg Mason funds.
ARNOLD L. LEHMAN, [52] Trustee; The Baltimore Museum of Art, Art Museum
Drive, Baltimore, Maryland. Director of The Baltimore Museum of Art;
Director/Trustee of nine Legg Mason funds .
JILL E. McGOVERN, [51] Trustee; 1500 Wilson Blvd., Arlington,
Virginia. Chief Executive Officer of the Marrow Foundation.
Director/Trustee of nine Legg Mason funds . Formerly: Executive
Director of the Baltimore International Festival (1991- 1993); Senior
Assistant to the President of the Johns Hopkins University (1986-1991).
RICHARD G. GILMORE, [68] Trustee; 948 Kennett Way, West
Chester, Pennsylvania. Independent Consultant. Director of CSS
Industries, Inc. (diversified holding company whose subsidiaries are
engaged in the manufacture and sale of decorative paper products,
business forms, and specialty metal packaging); Director of PECO Energy
Company (formerly Philadelphia Electric Company); Director/Trustee of
nine Legg Mason funds. Formerly: Senior Vice President and Chief
Financial Officer of Philadelphia Electric Company (now PECO Energy
Company) (1986-1991); Executive Vice President and Treasurer, Girard
Bank, and Vice President of its parent holding company, the Girard
Company (1972-1983); and Director of Finance, City of Philadelphia
(1984-1985).
T.A. RODGERS, [61] Trustee; 2901 Boston Street, Baltimore,
Maryland. Principal, T. A. Rodgers & Associates (management
consulting). Director/Trustee of nine Legg Mason funds. Formerly:
Director and Vice President of Corporate Development, Polk Audio, Inc.
(manufacturer of audio components) (1991-1992).
EDWARD A. TABER*, [51] Trustee; Senior Executive Vice President
of Legg Mason, Inc. and Legg Mason Wood Walker, Inc.; Chairman and
Director of Legg Mason Fund Adviser, Inc. and Director of Western Asset
Management Company (a registered investment adviser); President and/or
Director/Trustee of eight Legg Mason funds. Formerly: Executive Vice
President of T. Rowe Price-Fleming International, Inc. (1986- 1992) and
Director of the Taxable Fixed Income Division at T. Rowe Price
Associates, Inc. (1973-1992).
EDMUND J. CASHMAN, Jr. *, [59] Trustee; Senior Executive Vice President
and Director of Legg Mason, Inc.; Officer and/or Director of various other
affiliates of Legg Mason, Inc.; President or Vice Chairman of the Board and
Director/Trustee of four Legg Mason funds; Director of Worldwide Value Fund,
Inc.
The executive officers of the Trust, other than those who also
serve as trustees, are:
MARIE K. KARPINSKI*, [46] Vice President and Treasurer; Treasurer of
Legg Mason Fund Adviser, Inc.; Vice President and Treasurer of nine Legg Mason
funds and Vice President, Secretary and Treasurer of Worldwide Value Fund, Inc.;
Vice President of Legg Mason Wood Walker, Inc.
KATHI D. BAIR*, [31] Secretary; Secretary and Assistant Treasurer of
three other Legg Mason funds; Secretary of one other Legg Mason fund and
Assistant Secretary of two other Legg Mason funds.
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<PAGE>
Officers and trustees of the Trust who are interested persons of the
Trust receive no salary or fees from the Trust. Those trustees who are not
interested persons of the Trust receive a fee of $400 annually for serving as a
trustee, and a fee of $400 for each meeting of the Board of Trustees attended by
him or her.
The Nominating Committee of the Board of Trustees is responsible for
the selection and nomination of disinterested trustees. The Committee is
composed of Messrs. Haugh and Lehman and Dr. McGovern, each of whom is a
disinterested trustee as that term is defined in the 1940 Act.
At January 31, 1996, the trustees and officers of the Trust
beneficially owned, in the aggregate, less than 1% of the Trust's outstanding
shares.
Trustee Liability The Trust's Declaration of Trust provides that the trustees
will not be liable for errors of judgment or mistakes of fact or law. However,
they are not protected against any liability to which they would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of their office.
The following table provides certain information relating to the
compensation of the Trust's trustees for the fiscal year ended August 31, 1995.
COMPENSATION TABLE
<TABLE>
<CAPTION>
Pension or
Retirement Total
Benefits Compensation
Aggregate Accrued as Estimated From Trust and
Name of Person and Compensation Part of Trust's Annual Benefits Fund Complex
Position From Trust* Expenses Upon Retirement Paid to Trustees**
<S> <C> <C> <C> <C>
John F. Curley, Jr. -
Chairman of the Board
and Trustee None N/A N/A None
Charles F. Haugh -
Trustee $2,000 N/A N/A $23,600
Arnold L. Lehman -
Trustee $2,000 N/A N/A $23,600
Jill E. McGovern -
Trustee $2,000 N/A N/A $23,600
Richard G. Gilmore -
Trustee None N/A N/A $21,600
T.A. Rodgers -
Trustee None N/A N/A $21,600
Edward A. Taber -
Trustee None N/A N/A None
Edmund J. Cashman,
Jr. - Trustee None N/A N/A None
</TABLE>
* Represents fees paid to each trustee during the fiscal year
ended August 31, 1995.
** Represents aggregate compensation paid to each trustee
during the calendar year ended December 31, 1995.
MANAGEMENT AGREEMENT
Legg Mason Fund Adviser, Inc. ("Manager"), 111 South Calvert
Street, Baltimore, Maryland 21202, is a wholly owned subsidiary of Legg
Mason, Inc. which is also the parent of Legg Mason Wood Walker,
Incorporated. The Manager serves as the manager for the Trust under a
Management Agreement dated July 18, 1988, which provides that, subject
to the overall direction by the Board of Trustees, the Manager will
manage the investment and other affairs of the Trust. Under the
Management Agreement, the Manager is
15
<PAGE>
responsible for managing the Trust's securities and for making
purchases and sales of securities consistent with the investment
objectives and policies described in the Trust's Prospectus and
this Statement of Additional Information. The Manager has delegated
the portfolio management functions for the Trust to the adviser,
Western Asset Management Company ("Adviser"). The Manager is
obligated to furnish the Trust with office space and certain
administrative services, as well as executive and other personnel
necessary for the operation of the Trust. The Manager and its
affiliates also are responsible for the compensation of trustees and
officers of the Trust who are employees of the Manager and/or its
affiliates.
The Manager receives for its services a management fee, calculated daily
and payable monthly, based upon the average daily net assets of the Trust as
follows: 0.50% on the first $500 million; 0.475% on the next $500 million; 0.45%
on the next $500 million; 0.425% on the next $500 million and 0.4% thereafter.
The management fee paid by the Trust may be reduced under state regulations that
impose limitations on the annual expense ratio of the Trust. The most
restrictive state limitation of which the Trust is aware currently requires that
the Manager reimburse the Trust for certain expenses, including the management
fees received by it (but, in the Manager's opinion, excluding interest, taxes,
brokerage fees and commissions, distribution fees and certain extraordinary
charges), in any fiscal year in which the Trust's expenses exceed 2.5% of the
first $30 million of the Trust's average net assets, 2.0% of the next $70
million of average net assets, and 1.5% of average net assets in excess of $100
million. No reimbursements have been made nor have any been required to be made
pursuant to this undertaking. During the fiscal years ended August 31, 1995,
1994 and 1993, the Trust paid $4,640,893, $3,848,651 and $3,689,675,
respectively, to the Manager. During the fiscal years ended August 31, 1995 and
1994, Legg Mason contributed $480,000 and $1,100,000, respectively, to offset a
portion of the Trust's net realized losses.
Under the Management Agreement, the Manager will not be liable for any
error of judgment or mistake of law or for any loss suffered by the Trust in
connection with the performance of the Management Agreement, except a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or losses resulting from willful misfeasance, bad
faith or gross negligence in the performance of its duties or from reckless
disregard of its obligations or duties under the Agreement.
The Management Agreement terminates automatically upon assignment and is
terminable at any time without penalty by vote of the Trust's Board of Trustees,
by vote of a majority of the outstanding voting securities or by the Manager, on
not less than 60 days' notice to the other party, and may be terminated
immediately upon the mutual written consent of the Manager and the Trust.
The Trust pays all of its expenses which are not expressly assumed by the
Manager. These expenses include, among others, interest expense, taxes,
brokerage fees and commissions, expenses of preparing and printing prospectuses,
statements of additional information, proxy statements and reports and of
distributing them to existing shareholders, custodian charges, transfer agency
fees, compensation of the independent trustees, legal and audit expenses,
insurance expenses, expenses of registering and qualifying shares of the Trust
for sale under federal and state law, governmental fees and expenses incurred in
connection with membership in investment company organizations. The Trust also
is obligated to pay the expenses for maintenance of its financial books and
records, including computation of the Trust's net asset value per share, and
dividends. The Trust also is liable for such nonrecurring expenses as may arise,
including litigation to which the Trust may be a party. The Trust may also have
an obligation to indemnify the trustees and officers of the Trust with respect
to litigation.
Under the Management Agreement, the Trust has the non-exclusive right to
use the name "Legg Mason" until that Agreement is terminated, or until the right
is withdrawn in writing by the Manager.
16
<PAGE>
INVESTMENT ADVISORY AGREEMENT
The Adviser, Western Asset Management Company, 117 East Colorado Boulevard,
Pasadena, CA 91105, an affiliate of Legg Mason, serves as investment adviser to
the Trust under an Investment Advisory Agreement dated July 18, 1988, between
the Adviser and the Manager ("Advisory Agreement"). The Advisory Agreement was
most recently approved by the Board of Trustees, including a majority of the
trustees who are not "interested persons" of the Trust, the Adviser or the
Manager, on October 27, 1995. Under the Advisory Agreement, the Adviser is
responsible, subject to the general supervision of the Manager and the Trust's
Board of Trustees, for the actual management of the Trust's assets, including
the responsibility for making decisions and placing orders to buy, sell or hold
a particular security. For the Adviser's services to the Trust, the Manager (not
the Trust) pays the Adviser a fee, computed daily and payable monthly, at an
annual rate of 30% of the fee received by the Manager from the Trust. During the
years ended August 31, 1995, 1994 and 1993, the Manager paid the Adviser
$1,392,268, $1,154,595 and $1,106,903, respectively, pursuant to the Advisory
Agreement.
Under the Advisory Agreement, the Adviser will not be liable for any error
of judgment or mistake of law or for any loss suffered by the Manager or by the
Trust in connection with the performance of the Advisory Agreement, except a
loss resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or a loss resulting from willful misfeasance, bad
faith or gross negligence on its part in the performance of its duties or from
reckless disregard by it of its obligations or duties under the Agreement.
The Advisory Agreement terminates automatically upon assignment and is
terminable at any time without penalty by vote of the Trust's Board of Trustees,
by vote of a majority of the Trust's outstanding voting securities, by the
Manager or by the Adviser, on not less than 60 days' notice to the Trust and/or
the other party(ies). The Advisory Agreement will be terminated immediately upon
any termination of the Management Agreement or upon the mutual written consent
of the Adviser, the Manager and the Trust.
THE TRUST'S DISTRIBUTOR
Legg Mason acts as distributor of the Trust's shares pursuant to an
Underwriting Agreement. The Underwriting Agreement obligates Legg Mason to
promote the sale of Trust shares and to pay certain expenses in connection with
its distribution efforts, including expenses for the printing and distribution
of prospectuses and periodic reports used in connection with the offering to
prospective investors (after the prospectuses and reports have been prepared,
set in type and mailed to existing shareholders at the Trust's expense), and for
supplementary sales literature and advertising costs.
The Trust has adopted a Distribution and Shareholder Services Plan ("Plan")
which, among other things, permits the Trust to pay Legg Mason fees for its
services related to sales and distribution of shares and the provision of
ongoing services to shareholders. Under the Plan, the aggregate fees may not
exceed an annual rate of 0.15% of the Trust's average daily net assets.
Legg Mason has agreed that it will not request payment of more than 0.10%
annually from the Trust during the first two years following adoption of the
Plan. Distribution activities for which such payments may be made include, but
are not limited to, compensation to persons who engage in or support
distribution and redemption of shares, printing of prospectuses and reports
for persons other than existing shareholders, advertising, preparation and
distribution of sales literature, overhead, travel and telephone expenses.
The Plan was approved by the shareholders of the Trust on March 8, 1996. The
Plan specifies that the Trust may not pay more in cumulative distribution
fees than 6.25% of total new gross assets, plus interest, as specified in the
Rules of Fair Practice of the National Association of Securities Dealers, Inc.
("NASD"). Legg Mason may pay all or a portion of the fee to its investment
executives. The Plan was approved on September 27, 1995 by the Board of
Trustees including a majority of the trustees who are not "interested
persons" of the Trust as that term is defined in the 1940 Act and who have no
direct or indirect financial interest in the operation of the Plan or the
Underwriting Agreement ("12b-1Trustees").
17
<PAGE>
In approving the Plan, in accordance with the requirements of Rule 12b-1,
the trustees determined that there was a reasonable likelihood that the Plan
would benefit the Trust and its shareholders. The trustees considered, among
other things, the extent to which the potential benefits of the Plan to
theTrust's shareholders outweighed the costs of the Plan; the likelihood that
the Plan would succeed in producing such potential benefits; the merits of
certain possible alternatives to the Plan; and the extent to which the retention
of assets and additional sales of shares of the Trust would be likely to
maintain or increase the amount of compensation paid by the Trust to its
Manager.
In considering the costs of the Plan, the trustees particularly
considered the fact that any payments made by the Trust to Legg Mason under
the Plan would increase the Trust's level of expenses in the amount of such
payments. Further, the trustees recognized that the Manager would earn greater
management fees if the Trust's assets were increased, because such fees are
calculated as a percentage of the Trust's assets and thus would increase if net
assets increase. The trustees further recognized that there can be no
assurance that any of the potential benefits described below would be
achieved if the Plan were implemented.
The trustees noted that the payment of commissions and service fees
to Legg Mason and its investment executives could motivate them to improve
their sales efforts with respect to the Trust and to maintain and enhance the
level of services they provide to the Trust's shareholders. These efforts, in
turn, could lead to increased sales and reduced redemptions, eventually enabling
the Trust to achieve economies of scale and lower per share operating
expenses. Any reduction in such expenses would serve to offset, in whole or
in part, the additional expenses incurred by the Trust in connection with the
Plan. Furthermore, the investment management of the Trust could be enhanced, as
net inflows of cash from new sales might enable its portfolio manager to take
advantage of attractive investment opportunities, and reduced redemptions
could eliminate the potential need to liquidate attractive securities
positions in order to raise the funds necessary to meet the redemption
requests.
The Plan will continue in effect only so long as it is approved at least
annually by the vote of a majority of the Board of Trustees, including a
majority of the 12b-1 Trustees, cast in person at a meeting called for the
purpose of voting on the Plan. The Plan may be terminated by a vote of a
majority of the 12b-1 Trustees or by a vote of a majority of the outstanding
voting shares. Any change in the Plan that would materially increase the
distribution cost to the Trust requires shareholder approval; otherwise the Plan
may be amended by the trustees, including a majority of the 12b-1 Trustees, as
previously described.
In accordance with Rule 12b-1, the Plan provides that Legg Mason will
submit to the Trust's Board of Trustees, and the trustees will review, at least
quarterly, a written report of any amounts expended pursuant to the Plan and the
purposes for which expenditures were made. In addition, as long as the Plan is
in effect, the selection and nomination of the Independent Trustees will be
committed to the discretion of such Independent Trustees.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Under the Advisory Agreement, the Adviser is responsible for the execution
of portfolio transactions. Debt securities are generally traded on a "net" basis
without a stated commission, through dealers acting for their own account and
not as brokers. Prices paid to a dealer in debt securities will generally
include a "spread", which is the difference between the prices at which the
dealer is willing to purchase and sell the specific security at the time, and
includes the dealer's normal profit. Some portfolio transactions may be executed
through brokers acting as agents. In selecting brokers or dealers, the Adviser
must seek the most favorable price (including the applicable dealer spread) and
execution for such transactions, subject to the possible payment as described
below of higher brokerage commissions for agency transactions to brokers who
provide research and analysis. The Trust may not always pay the lowest
commission or spread available. Rather, in placing orders on behalf of the
Trust, the Adviser also takes into account such factors as size of the order,
18
<PAGE>
difficulty of execution, efficiency of the executing broker's facilities
(including the services described below) and any risk assumed by the executing
broker. The Trust paid no brokerage commissions, nor did it allocate any
transactions to dealers for research, analysis, advice or similar services
during any of its last three fiscal years.
Consistent with the policy of most favorable price and execution, the
Adviser may give consideration to research, statistical and other services
furnished by brokers or dealers to the Adviser for its use, may place orders
with brokers who provide supplemental investment and market research and
securities and economic analysis, and, for agency transactions, may pay to these
broker-dealers a higher brokerage commission or spread than may be charged by
other brokers. Such research and analysis may be useful to the Adviser in
connection with services to clients other than the Trust. The Adviser's fee is
not reduced by reason of its receiving such brokerage and research services.
The Trust may not buy securities from, or sell securities to, Legg Mason or
its affiliated persons as principal. However, the Trust's Board of Trustees has
adopted procedures in conformity with Rule 10f-3 under the 1940 Act whereby the
Trust may purchase securities that are offered in underwritings in which Legg
Mason or any of its affiliated persons is a participant.
Investment decisions for the Trust are made independently from those of
other funds and accounts advised by the Adviser. However, the same security may
be held in the portfolios of more than one fund or account. When two or more
accounts simultaneously engage in the purchase or sale of the same security, the
prices and amounts will be equitably allocated to each account. In some cases,
this procedure may adversely affect the price or quantity of the security
available to a particular account. In other cases, however, an account's ability
to participate in large-volume transactions may produce better executions and
prices.
The Trust may not always hold portfolio securities to maturity, but may
sell a security to buy another which has a higher yield because of short-term
market movements. This may result in high portfolio turnover. The Trust does not
anticipate incurring significant brokerage expense in connection with such
transactions, since ordinarily they will be made directly with the issuer or a
dealer on a net price basis.
THE TRUST'S CUSTODIAN AND TRANSFER AND
DIVIDEND-DISBURSING AGENT
State Street Bank and Trust Company, P.O. Box 1713, Boston, MA 02105 serves
as custodian of the Trust's assets. Boston Financial Data Services, P.O. Box
953, Boston, MA 02103 serves as transfer and dividend-disbursing agent and
administrator of various shareholder services.
THE TRUST'S LEGAL COUNSEL
Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue, N.W., Washington,
D.C. 20036-1800, serves as counsel to the Trust.
THE TRUST'S INDEPENDENT AUDITORS
Ernst & Young LLP, One North Charles Street, Baltimore, MD 21201 has been
selected by the Board of Trustees to serve as the Trust's independent auditors.
FINANCIAL STATEMENTS
The Trust's Statement of Net Assets as of August 31, 1995; the Statement of
Operations for the year ended August 31, 1995; the Statement of Changes in Net
Assets for the fiscal years ended August 31, 1995
19
<PAGE>
and 1994; the Financial Highlights for the years ended August 31, 1991 through
1995; the Notes to Financial Statements and the Report of the Independent
Auditors, all of which are included in the Trust's annual report for the year
ended August 31, 1995, are hereby incorporated by reference in this Statement of
Additional Information.
20
<PAGE>
Legg Mason Cash Reserve Trust
Part C. Other Information
Item 24. Financial Statements and Exhibits
(a) Financial Statements: The financial statements of Legg Mason
Cash Reserve Trust for the year ended August 31, 1995 and the
report of the independent auditors thereon are incorporated
into the Statement of Additional Information by reference to
the Annual Report to Shareholders for the same period.
(b) Exhibits
(1) (a) Declaration of Trust 1/
(b) Amendment No. 1 to the Declaration of Trust 2/
(2) By-Laws (As Restated and Amended February 2, 1987) 3/
(3) Voting trust agreement - none
(4) Specimen security 2/
(5) (a) Management Agreement 4/
(b) Investment Advisory Contract 4/
(6) Underwriting Agreement - (form of) filed herewith
(7) Bonus, profit sharing or pension plans - none
(8) (a) Custodian Agreement 3/
(b) Amendment to Custodian Agreement 7/
(9) Transfer Agency and Service Agreement 7/
(10) Opinion of Counsel 5/
(11) Consent of Independent Auditors - filed herewith
(12) Financial statements omitted from Item 23 - none
(13) Not Applicable
(14) (a) Prototype IRA Plan 6/
(b) Prototype Keogh Plan 6/
(15) Plan pursuant to Rule 12b-1 - (form of) filed herewith
(16) Schedule for Computation of Performance Quotations 9/
(17) Financial Data Schedule - filed herewith
(18) Plan pursuant to Rule 18f-3 - none
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.
<PAGE>
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
Pre-Effective Amendment No. 1 to the initial Registration
Statement filed on September 25, 1978.
6/ Incorporated herein by reference to corresponding Exhibit of
Post-Effective Amendment No. 8 of Legg Mason Income Trust, Inc.
file no. 33-12092, filed April 24, 1991.
7/ Incorporated herein by reference to corresponding Exhibit of
Post-Effective Amendment No. 26 to the Registration Statement
filed on December 31, 1991.
8/ Incorporated herein by reference to corresponding Exhibit of
Post-Effective Amendment No. 30 to the Registration Statement
filed on December 30, 1993.
9/ Incorporated herein by reference to corresponding Exhibit of
Post-Effective Amendment No. 32 to the Registration Statement
filed on December 22, 1995.
Item 25. Persons Controlled By or Under Common Control with Registrant
None
Item 26. Number of Holders of Securities
Number of Record Holders
Title of Class (as of January 29, 1996)
Shares of Beneficial
Interest (no par value) 99,983
Item 27. Indemnification
Pursuant to Section 4 of Article XI of the Registrant's Declaration of
Trust, indemnification may be provided to the Registrant's present and former
Officers, Trustees, employees and agents to the fullest extent permitted by law
against claims and expenses reasonably incurred or paid by them by virtue of
serving or having served in such a capacity or in settlement of any such claims.
No indemnification may be provided under the Declaration of Trust against any
liability to the Trust or its shareholders by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties involved in the
conduct of office.
Under Section 2 of Article XI of the Registrant's Declaration of Trust,
no Trustee or Officer of the Registrant shall be personally liable to any person
for incurring any debts, liabilities or obligations or in taking or omitting any
other actions for or in connection with the Registrant. Provided that the
Trustees and Officers have exercised reasonable care and have acted under the
belief that their actions are in the best of the Registrant, the Trustees and
<PAGE>
Officers shall not be responsible or liable in any event for neglect or
wrongdoing by them or any employee, agent, investment advisor or principal
underwriter of the Registrant.
Section 11 of the Underwriting Agreement between the Registrant and Legg
Mason Wood Walker, Incorporated ("Underwriter") provides that the Registrant
will indemnify and hold harmless the Underwriter within the meaning of Section
15 of the Securities Exchange Act of 1933 or Section 20 of the Securities
Exchange Act of 1934, as amended, against any and all loss, liability, claim,
damage and expense whatsoever (including but not limited to any and all expense
whatsoever reasonably incurred in investigating, preparing or defending against
any litigation, commenced or threatened, or any claim whatsoever) arising out of
or based upon any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement or the Prospectus (as from time to
time amended and supplemented) or the omission or alleged omission therefrom of
a material fact required to be stated therein or necessary to make the
statements therein not misleading, unless such statement or omission was made in
reliance upon and in conformity with written information furnished to the
Registrant with respect to the Underwriter by or on behalf of the Underwriter
expressly for use in the Registration Statement or Prospectus, or any amendment
or supplement thereof.
Similarly, the Underwriter agrees to indemnify and hold harmless the
Registrant, each of its Trustees, each of its Officers who have signed the
Registration Statement and each other person, if any, who controls the
Registrant within the meaning of Section 15 of the Securities Act of 1933,
("1933 Act") to the same extent as the foregoing indemnity from the Registrant
to the Underwriter but only with respect to statements or omissions, if any,
made in the Registration Statement or Prospectus or any amendment or supplement
thereof in reliance upon, and in conformity with, information furnished to the
Registrant with respect to the Underwriter by or on behalf of the Underwriter
expressly for use in the Registration Statement or Prospectus or any amendment
or supplement thereof.
Section 8 of the Management Agreement between the Registrant and Legg
Mason Fund Adviser, Inc. provides that the Manager shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Registrant
in connection with performance of the Management Agreement, except for losses
resulting from willful misfeasance, bad faith or gross negligence in the
Manager's performance of its duties, or by reason of the Manager's reckless
disregard of its obligations and duties under the Management Agreement.
Pursuant to Section 8 of the Investment Advisory Agreement, Western Asset
Management Company will not be liable for any error of judgment or mistake of
law or for any loss suffered by the Registrant in connection with the
performance of the Investment Advisory Agreement, except a loss resulting from
willful misfeasance, bad faith or gross negligence on the part of Western Asset
Management Company or from Western Asset Management Company's reckless disregard
of its obligations or duties under the Investment Advisory Agreement.
Insofar as indemnification for liabilities arising under the 1933 Act, as
amended, may be permitted for Trustees, Officers and controlling persons of the
Registrant by the Registrant,
<PAGE>
pursuant to the Declaration of Trust or otherwise, the Registrant is aware that
in the opinion of the Securities and Exchange Commission, such indemnification
is against public policy as expressed in the Act and, therefore, is
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by Trustees, Officers or controlling persons of the Registrant in
connection with the successful defense of any act, suit or proceeding) is
asserted by such Trustees, Officers or controlling persons in connection with
the shares being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issues.
Registrant undertakes to carry out all indemnification provisions of its
Declaration of Trust and the above-described contracts in accordance with
Investment Company Act Release No. 11330 (September 4, 1980) and successor
releases.
Item 28. Business and Other Connections of Manager and Investment Adviser
I. Legg Mason Fund Adviser, Inc. ("Manager"), the Registrant's manager,
is a registered investment adviser incorporated on January 20, 1982. The Manager
is engaged primarily in the investment advisory business. The Manager also
serves as investment adviser or manager to fifteen open-end investment companies
and as investment consultant for one closed-end investment company. Information
as to the officers and directors of the Manager is included in its Form ADV-S
filed on June 30, 1995 with the Securities and Exchange Commission (registration
number 801-16958) and is incorporated herein by reference.
II. Western Asset Management Company ("Western"), the Registrant's
investment adviser, is a registered investment adviser incorporated on October
5, 1971. Western is primarily engaged in the investment advisory business.
Western also serves as investment adviser for open-end investment companies and
one closed-end investment company. Information as to the officers and directors
of Western is included in its Form ADV filed on May 17, 1995 with the Securities
and Exchange Commission (registration number 801-08162) and is incorporated
herein by reference.
Item 29. Principal Underwriters
(a) Legg Mason Income Trust, Inc.
Legg Mason Special Investment Trust, Inc.
Legg Mason Value Trust, Inc.
Legg Mason Total Return Trust, Inc.
Legg Mason Tax-Exempt Trust, Inc.
Legg Mason Tax-Free Income Fund
Legg Mason Global Trust, Inc.
Legg Mason Investors Trust, Inc.
Western Asset Trust, Inc.
<PAGE>
(b) The following table sets forth information concerning each
director and officer of the Registrant's principal underwriter,
Legg Mason Wood Walker, Incorporated
("LMWW").
Position and Positions and
Name and Principal Offices with Offices with
Business Address* Underwriter-LMWW Registrant
Raymond A. Mason Chairman of the None
Board
John F. Curley, Jr. Vice Chairman Chairman of the Board,
President and Trustee
James W. Brinkley President and None
Director
Edmund J. Cashman, Jr. Senior Executive Trustee
Vice President and
Director
Richard J. Himelfarb Executive Vice None
President and
Director
Edward A. Taber, III Executive Vice Trustee
President and
Director
Charles A. Bacigalupo Senior Vice None
President,
Secretary and
Director
Thomas M. Daly, Jr. Senior Vice None
President and
Director
Jerome M. Dattel Senior Vice None
President and
Director
Robert G. Donovan Senior Vice None
President and
Director
<PAGE>
Thomas E. Hill Senior Vice None
One Mill Place President and
Easton, MD 21701 Director
Arnold S. Hoffman Senior Vice None
1735 Market Street President and
Philadelphia, PA 19103 Director
Carl Hohnbaum Senior Vice None
24th Floor President and
Two Oliver Plaza Director
Pittsburgh, PA 15222
William B. Jones, Jr. Senior Vice None
1747 Pennsylvania President and
Avenue, N.W. Director
Washington, D.C. 20006
Laura L. Lange Senior Vice None
President and
Director
Marvin H. McIntyre Senior Vice None
1747 Pennsylvania President and
Avenue, N.W. Director
Washington, D.C. 20006
Mark I. Preston Senior Vice None
President and
Director
F. Barry Bilson Senior Vice None
President and
Director
M. Walter D'Alessio, Jr. Director None
1735 Market Street
Philadelphia, PA 19103
Harry M. Ford, Jr. Senior Vice None
President
William F. Haneman, Jr. Senior Vice None
63 Wall Street President
New York, New York 10005
Theodore S. Kaplan Senior Vice None
President and
<PAGE>
General Counsel
Horace M. Lowman, Jr. Senior Vice None
President and
Assistant
Secretary
Robert L. Meltzer Senior Vice None
63 Wall Street President
New York, NY 10005
William H. Miller, III Senior Vice None
President
Douglas C. Petty, Jr. Senior Vice None
1747 Pennsylvania President
Avenue, N.W.
Washington, D.C. 20006
John A. Pliakas Senior Vice None
99 Summer Street President
Boston, MA 02101
E. Robert Quasman Senior Vice None
President
Gail Reichard Senior Vice None
7 E. Redwood St, President
Baltimore, MD 21202
Timothy C. Scheve Senior Vice None
President and
Treasurer
Elisabeth N. Spector Senior Vice None
President
Joseph Sullivan Senior Vice None
President
Peter J. Biche Vice President None
1735 Market Street
Philadelphia, PA 19103
John C. Boblitz Vice President None
7 E. Redwood St.
Baltimore, MD 21202
Andrew J. Bowden Vice President None
<PAGE>
D. Stuart Bowers Vice President None
7 E. Redwood St.
Baltimore, MD 21202
Edwin J. Bradley, Jr. Vice President None
Scott R. Cousino Vice President None
Robert Dickey, IV Vice President None
One World Trade Center
New York, NY 10048
John R. Gilner Vice President None
Richard A. Jacobs Vice President None
C. Gregory Kallmyer Vice President None
Seth J. Lehr Vice President None
1735 Market Street
Philadephia, PA 19103
Edward W. Lister, Jr. Vice President None
Eileen M. O'Rourke Vice President None
and Controller
Marie K. Karpinski Vice President Vice President
and Treasurer
Jonathan M. Pearl Vice President None
Douglas F. Pollard Vice President None
Chris Scitti Vice President None
7 E. Redwood St.
Baltimore, MD 21202
Eugene B. Shephard Vice President None
1111 Bagby St.
Houston, TX 77002-2510
Lawrence D. Shubnell Vice President None
Alexsander M. Stewart Vice President None
One World Trade Center
New York, NY 10048
Lewis T. Yeager Vice President None
<PAGE>
7 E. Redwood St.
Baltimore, MD 21202
Joseph F. Zunic Vice President None
Charles R. Spencer, Jr. Vice President None
600 Thimble Shoals Blvd.
Newport News, VA 23606
* All addresses are 111 South Calvert Street, Baltimore, Maryland 21202, unless
otherwise indicated.
(c) The Registrant has no principal underwriter which is not an
affiliated person of the Registrant or an affiliated person of
such an affiliated person.
Item 30. Location of Accounts and Records
State Street Bank and Trust Company
P. O. Box 1713
Boston, Massachusetts 02105
Item 30. Management Services
None
Item 31. Undertakings
Registrant hereby undertakes to provide each person to whom a
prospectus is delivered with a copy of its latest annual report to shareholders
upon request and without charge.
<PAGE>
SIGNATURE PAGE
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, Legg Mason Cash Reserve Trust,
certifies that it meets all the requirements for effectiveness in this
Post-Effective Amendment No. 33 to its Registration Statement pursuant to Rule
485 (a) under the Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Baltimore and State of Maryland, on the 31st day
of January, 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
Post-Effective Amendment No. 33 to the Registrant's 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,
John F. Curley, Jr. President and Trustee January 31, 1996
/s/ Charles F. Haugh Trustee January 31, 1996
Charles F. Haugh*
/s/ Arnold L. Lehman Trustee January 31, 1996
Arnold L. Lehman*
/s/ Jill E. McGovern Trustee January 31, 1996
Jill E. McGovern*
/s/ Marie K. Karpinski Vice President and
Marie K. Karpinski Treasurer January 31, 1996
*Signatures affixed by Marie K. Karpinski pursuant to a power of
attorney dated May 18, 1992, incorporated herein by reference to
Post-Effective Amendment No. 29, filed December 31, 1992.
<PAGE>
CONSENT TO BE NAMED AS
TRUSTEE
The following individuals who have been nominated to serve
as trustees of Legg Mason Cash Reserve Trust ("Trust") hereby
consent to be named as a trustee of the Trust in the Trust's
registration statement.
Signature Date
/s/ Edmund J. Cashman February 1, 1996
Edmund J. Cashman
/s/ Richard G. Gilmore February 1, 1996
Richard G. Gilmore
/s/ T.A. Rodgers February 1, 1996
T.A. Rodgers
/s/ Edward A. Taber February 1, 1996
Edward A. Taber
FORM OF UNDERWRITING AGREEMENT
This UNDERWRITING AGREEMENT, made this __ day of ____________, 1996, by
and between Legg Mason Cash Reserve Trust, a Massachusetts business trust
("Trust"), and Legg Mason Wood Walker, Incorporated, a Maryland corporation (the
"Distributor").
WHEREAS, the Trust is registered with the Securities and Exchange
Commission as an open-end investment company under the Investment Company Act of
1940, as amended (the "1940 Act"), and has registered shares of beneficial
interest of the Trust for sale to the public under the Securities Act of 1933
(the "1933 Act") and various state securities laws; and
WHEREAS, the Trust wishes to retain the Distributor as the principal
underwriter in connection with the offering and sale of the shares of beneficial
interest of the Trust ("Shares") and to furnish certain other services to the
Trust as specified in this Agreement; and
WHEREAS, this Agreement has been approved by separate votes of the
Trust's Board of Trustees and of certain disinterested directors in conformity
with Section 15 of, and paragraph (b)(2) of Rule 12b-1 under, the 1940 Act; and
WHEREAS, the Distributor is willing to act as principal underwriter and
to furnish such services on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed as follows:
1. (a) The Trust hereby appoints the Distributor as principal
underwriter in connection with the offering and sale of shares of the Trust. The
Distributor, as exclusive agent for the Trust, upon the commencement of
operations of the Trust and subject to applicable federal and state law and the
Articles of Incorporation and By-Laws of the Trust, shall: (i) promote the
Trust; (ii) solicit orders for the purchase of the Shares subject to such terms
and conditions as the Trust may specify; and (iii) accept orders for the
purchase of the Shares on behalf of the Trust (collectively, "Distribution
Services"). The Distributor shall comply with all applicable federal and state
laws and offer the Shares of the Trust on an agency or "best efforts" basis
under which the Trust shall issue only such Shares of the Trust as are actually
sold. The Distributor shall have the right to use any list of shareholders of
the Trust or the Trust or any other list of investors which it obtains in
connection with its provision of services under this Agreement; provided,
however, that the Distributor shall not sell or knowingly provide such list or
lists to any unaffiliated person without the consent of the Trust's Board of
Trustees.
(b) The Distributor shall provide ongoing shareholder liaison services,
including responding to shareholder inquiries, providing shareholders with
information on their investments, and any other services now or hereafter deemed
to be appropriate subjects for the payments of "service fees" under Article III,
Section 26 of the Rules of Fair Practice of the National
<PAGE>
Association of Securities Dealers, Inc. (collectively, "Shareholder
Services").
2. The Distributor may enter into dealer agreements with registered and
qualified securities dealers it may select for the performance of Distribution
and Shareholder Services, the form thereof to be as mutually agreed upon and
approved by the Trust and the Distributor. In making arrangements with such
dealers, the Distributor shall act only as principal and not as agent for the
Trust. No dealer is authorized to act as agent for the Trust in connection with
the offering or sale of Shares to the public or otherwise.
3. The public offering price of the Shares of the Trust shall be the
net asset value per share (as determined by the Trust) of the outstanding Shares
of the Trust plus any applicable sales charge as described in the Registration
Statement of the Trust. The Trust shall furnish the Distributor with a statement
of each computation of public offering price and of the details entering into
such computation.
4. As compensation for providing Distribution Services under this
Agreement, the Distributor shall retain the sales charge, if any, on purchases
of Shares as set forth in the Registration Statement. The Distributor is
authorized to collect the gross proceeds derived from the sale of the Shares,
remit the net asset value thereof to the Trust upon receipt of the proceeds and
retain the sales charge, if any. The Distributor shall receive from the Trust a
distribution fee and a service fee at the rates and under the terms and
conditions of the Plan of Distribution ("Plan") adopted by the Trust as such
Plan is in effect from time to time, and subject to any further limitations on
such fees as the Trust's Board of Trustees may impose. The Distributor may
reallow any or all of the sales charge, distribution fee and service fee that it
has received under this Agreement to such dealers as it may from time to time
determine; provided, however, that the Distributor may not reallow to any dealer
for Shareholder Services an amount in excess of .25% of the average annual net
asset value of the shares with respect to which said dealer provides Shareholder
Services.
5. As used in this Agreement, the term "Registration Statement" shall
mean the registration statement most recently filed by the Trust with the
Securities and Exchange Commission and effective under the 1940 Act and 1933
Act, as such Registration Statement is amended by any amendments thereto at the
time in effect, and the terms "Prospectus" and "Statement of Additional
Information" shall mean, respectively, the form of prospectus and statement of
additional information filed by the Trust as part of the Registration Statement,
or as they may be amended from time to time.
6. The Distributor shall print and distribute to prospective investors
Prospectuses, and shall print and distribute, upon request, to prospective
investors Statements of Additional Information, and may print and distribute
such other sales literature, reports, forms and advertisements in connection
with the sale of the Shares as comply with the applicable provisions of federal
and state law. In connection with such sales and offers of sale, the Distributor
and any dealer shall give only such information and make only such statements or
representations as are contained in the Prospectus, Statement of Additional
Information, or in information furnished
<PAGE>
in writing to the Distributor by the Trust, and the Trust shall not be
responsible in any way for any other information, statements or representations
given or made by the Distributor, any dealer, or their representatives or
agents. Except as specifically provided in this Agreement, the Trust shall bear
none of the expenses of the Distributor in connection with its offer and sale of
the Shares.
7. The Trust agrees at its own expense to register the Shares with the
Securities and Exchange Commission, state and other regulatory bodies, and to
prepare and file from time to time such Prospectuses, Statements of Additional
Information, amendments, reports and other documents as may be necessary to
maintain the Registration Statement. The Trust shall bear all expenses related
to preparing and typesetting such Prospectuses, Statements of Additional
Information, and other materials required by law and such other expenses,
including printing and mailing expenses, related to such Trust's communications
with persons who are shareholders of the Trust.
8. The Trust agrees to indemnify, defend and hold the Distributor, its
several officers and directors, and any person who controls the Distributor
within the meaning of Section 15 of the 1933 Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Distributor, its
officers or directors, or any such controlling person may incur, under the 1933
Act or under common law or otherwise, arising out of or based upon any alleged
untrue statement of a material fact contained in the Registration Statement or
arising out of or based upon any alleged omission to state a material fact
required to be stated or necessary to make the Registration Statement not
misleading, provided that in no event shall anything contained in this Agreement
be construed so as to protect the Distributor against any liability to the Trust
or its shareholders to which the Distributor would otherwise be subject by
reason of willful misfeasance, bad faith, or gross negligence in the performance
of its duties, or by reason of its reckless disregard of its obligations and
duties under this Agreement, and further provided that the Trust shall not
indemnify the Distributor for conduct set forth in paragraph 9.
9. The Distributor agrees to indemnify, defend and hold the Trust, its
several officers and directors, and any person who controls the Trust within the
meaning of Section 15 of the 1933 Act, free and harmless from and against any
and all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which the Trust, its officers or
directors, or any such controlling person may incur, under the 1933 Act or under
common law or otherwise, on account of any wrongful act of the Distributor or
any of its employees or arising out of or based upon any alleged untrue
statement of a material fact contained in information furnished in writing by
the Distributor to the Trust for use in the Registration Statement or arising
out of or based upon any alleged omission to state a material fact in connection
with such information required to be stated in the Registration Statement or
necessary to make such information not misleading. As used in this paragraph,
the term "employee" shall not include a corporate entity under contract to
provide services to the Trust or the Trust, or any
<PAGE>
employee of such a corporate entity, unless such person is otherwise an employee
of the Trust.
10. The Trust reserves the right at any time to withdraw all
offerings of the Shares of the Trust by written notice to the Distributor
at its principal office.
11. The Trust shall not issue certificates representing Shares unless
requested by a shareholder. If such request is transmitted through the
Distributor, the Trust will cause certificates evidencing the Shares owned to be
issued in such names and denominations as the Distributor shall from time to
time direct, provided that no certificates shall be issued for fractional
Shares.
12. The Distributor may at its sole discretion, directly or through
dealers, repurchase Shares offered for sale by the shareholders or dealers.
Repurchase of Shares by the Distributor shall be at the net asset value next
determined after a repurchase order has been received. The Distributor will
receive no commission or other remuneration for repurchasing Shares. At the end
of each business day, the Distributor shall notify by telex or in writing, the
Trust and State Street Bank and Trust Company, the Trust's transfer agent, of
the orders for repurchase of Shares received by the Distributor since the last
such report, the amount to be paid for such Shares, and the identity of the
shareholders or dealers offering Shares for repurchase. Upon such notice, the
Trust shall pay the Distributor such amounts as are required by the Distributor
for the repurchase of such Shares in cash or in the form of a credit against
moneys due the Trust from the Distributor as proceeds from the sale of Shares.
The Trust reserves the right to suspend such repurchase right upon written
notice to the Distributor. The Distributor further agrees to act as agent for
the Trust to receive and transmit promptly to the Trust's transfer agent
shareholder and dealer requests for redemption of Shares.
13. The Distributor is an independent contractor and shall
be agent for the Trust only in respect to the sale and redemption of the
Shares.
14. The services of the Distributor to the Trust under this
Agreement are not to be deemed exclusive, and the Distributor shall be free to
render similar services or other services to others so long as its services
hereunder are not impaired thereby.
15. The Distributor shall prepare reports for the Trust's Board of
Trustees on a quarterly basis showing such information concerning expenditures
related to this Agreement as from time to time shall be reasonably requested by
the Board of Trustees.
16. As used in this Agreement, the terms "assignment", "interested
person", and "majority of the outstanding voting securities" shall have the
meanings given to them by Section 2(a) of the 1940 Act, subject to such
exemptions as may be granted by the Securities and Exchange Commission by any
rule, regulation or order.
17. This Agreement will become effective on the date first written
above and, unless sooner terminated as provided herein, will continue in effect
for one year from the above written date. Thereafter, if not
<PAGE>
terminated, this Agreement shall continue in effect for successive annual
periods ending on the same date of each year, provided that such continuance
is specifically approved at least annually (i) by the Trust's Board of
Trustees or (ii) by a vote of a majority of the outstanding voting
securities of the Trust (as defined in the 1940 Act), provided that in
either event the continuance is also approved by a majority of the Trust's
Trustees who are not interested persons (as defined in the 1940 Act) of
any party to this Agreement, by vote cast in person at a meeting
called for the purpose of voting on such approval.
18. This Agreement is terminable in its entirety without penalty by
the Trust's Board of Trustees, by vote of a majority of the outstanding voting
securities of the Trust (as defined in the 1940 Act), or by the Distributor, on
not less than 60 days' notice to the other party and will be terminated upon the
mutual written consent of the Distributor and the Trust. This Agreement will
also automatically and immediately terminate in the event of its assignment.
19. No provision of this Agreement may be changed, waived, discharged
or terminated orally, except by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought.
20. In the event this Agreement is terminated by either party or upon
written notice from the Distributor at any time, the Trust hereby agrees that it
will eliminate from its corporate name any reference to the name of "Legg
Mason." The Trust shall have the non-exclusive use of the name "Legg Mason" in
whole or in part only so long as this Agreement is effective or until such
notice is given.
IN WITNESS WHEREOF, the parties hereto caused this Agreement to be
executed by their officers thereunto duly authorized.
Attest: LEGG MASON CASH RESERVE TRUST
By:___________________ By:_________________________________
Attest: LEGG MASON WOOD WALKER, INCORPORATED
By:___________________ By:_________________________________
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" in the Prospectus and "The Trust's Independent Auditors" and
"Financial Statements" in the Statement of Additional Information and to the
incorporation by reference in this Post-Effective Amendment No. 33 to
Registration Number 2-62218 (Form N-1A) of our report dated September 27,
1995, on the financial statements and financial highlights of The Legg
Mason Cash Reserve Trust for the year ended August 31, 1995, included in the
1995 Annual Report to Shareholders.
/s/Ernst & Young LLP
Baltimore, Maryland
January 29, 1996
FORM OF DISTRIBUTION PLAN OF
LEGG MASON CASH RESERVE TRUST
WHEREAS, Legg Mason Cash Reserve Trust ("Trust") is an open-end
management investment company registered under the Investment Company Act of
1940, as amended ("1940 Act"), and offers for public sale shares of beneficial
interest;
WHEREAS, the Trust has registered the offering of its shares of
beneficial interest under a Registration Statement filed with the Securities and
Exchange Commission and that Registration Statement is in effect as of the date
hereof;
WHEREAS, the Trust desires to adopt a Distribution Plan pursuant to
Rule 12b-1 under the 1940 Act and the Board of Trustees has determined that
there is a reasonable likelihood that adoption of the Distribution Plan will
benefit the Trust and its shareholders; and
WHEREAS, the Trust has employed Legg Mason Wood Walker, Incorporated
("Legg Mason") as principal underwriter of the shares of the Trust;
NOW, THEREFORE, the Trust hereby adopts this Distribution Plan ("Plan")
in accordance with Rule 12b-1 under the 1940 Act on the following terms and
conditions:
1. A. The Trust shall pay to Legg Mason, as compensation for Legg
Mason's services as principal underwriter of the Trust's shares, a distribution
and shareholder services fee at the rate of 0.15% on an annualized basis of the
average daily net assets of the Trust's shares, such fee to be calculated and
accrued daily and paid monthly or at such other intervals as the Board shall
determine.
B. The Trust may pay a distribution and service fee to Legg
Mason at a lesser rate than the fee specified in paragraph 1.A. of this Plan, as
agreed upon by the Board and Legg Mason and as approved in the manner specified
in paragraph 3 of this Plan. The distribution and service fee payable hereunder
is payable without regard to the aggregate amount that may be paid over the
years, provided that, so long as the limitations set forth in Article III,
Section 26(d) of the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. ("NASD") remain in effect and apply to distributors or
dealers in the Trust's shares, the amounts paid hereunder shall not exceed those
limitations, including permissible interest.
2. As principal underwriter of the Trust's shares, Legg Mason may spend
such amounts as it deems appropriate on any activities or expenses primarily
intended to result in the sale of the shares of the Trust and/or the servicing
and maintenance of shareholder accounts, including, but not limited to,
compensation to employees of Legg Mason; compensation to Legg Mason and other
broker-dealers that engage in or support the distribution of shares or who
service shareholder accounts; expenses of Legg Mason and such other
broker-dealers, including overhead and telephone and other communication
expenses; the printing of prospectuses, statements of additional information,
and reports for other than existing shareholders; and preparation and
distribution of sales literature and advertising materials.
3. This Plan shall take effect on April 1, 1996 and shall continue in
effect for successive periods of one year from its execution for so long as such
continuance is specifically approved at least annually together with any related
agreements, by votes of a majority of both (a) the Board of Trustees of the
Trust and (b) those Trustees who are not "interested persons" of the Trust, as
defined in the 1940 Act, and who have no direct or indirect financial interest
in the operation of this Plan or any agreements related to it (the "Rule 12b-1
Trustees"), cast in person at a meeting or meetings called for the purpose of
voting on this Plan and such related agreements; and only if the Trustees who
approve the Plan taking effect have reached the conclusion required by Rule
12b-1(e) under the 1940 Act.
<PAGE>
4. Any person authorized to direct the disposition of monies paid or
payable by the Trust pursuant to this Plan or any related agreement shall
provide to the Trust's Board of Trustees and the Board shall review, at least
quarterly, a written report of the amounts so expended and the purposes for
which such expenditures were made. Legg Mason shall submit only information
regarding amounts expended for "distribution activities," as defined in this
paragraph 4, to the Board in support of the distribution fee payable hereunder
and shall submit only information regarding amounts expended for "service
activities," as defined in this paragraph 4, to the Board in support of the
service fee payable hereunder.
For purposes of this Plan, "distribution activities" shall
mean any activities in connection with Legg Mason's performance of its
obligations under the underwriting agreement, dated December 30, 1993, by and
between the Trust and Legg Mason, that are not deemed "service activities."
"Service activities" shall mean activities covered by the definition of "service
fee" contained in amendments to Article III, Section 26(d) of the NASD's Rules
of Fair Practice that became effective July 7, 1993, including the provision by
Legg Mason of personal, continuing services to investors in the Trust's shares.
Overhead and other expenses of Legg Mason related to its "distribution
activities" or "service activities," including telephone and other
communications expenses, may be included in the information regarding amounts
expended for such distribution or service activities, respectively.
5. This Plan may be terminated with respect to the Trust at any time by
vote of a majority of the Rule 12b-1 Trustees or by vote of a majority of the
outstanding voting securities of the Trust.
6. This Plan may not be amended to increase materially the amount of
distribution and service fee provided for in paragraph 1.A. hereof unless such
amendment is approved by a vote of at least a majority of the outstanding
securities, as defined in the 1940 Act, of the Trust, and no material amendment
to the Plan shall be made unless such amendment is approved in the manner
provided for continuing approval in paragraph 3 hereof.
7. While this Plan is in effect, the selection and nomination of
Trustees who are not interested persons of the Trust, as defined in the 1940
Act, shall be committed to the discretion of Trustees who are themselves not
interested persons.
8. The Trust shall preserve copies of this Plan and any related
agreements for a period of not less than six years from the date of expiration
of the Plan or agreement, as the case may be, the first two years in an easily
accessible place; and shall preserve copies of each report made pursuant to
paragraph 4 hereof for a period of not less than six years from the date of such
report, the first two years in an easily accessible place.
IN WITNESS WHEREOF, the Trust has executed this Distribution Plan as of
the day and year set forth below.
Date: LEGG MASON CASH RESERVE TRUST
By:
2
<PAGE>
Attest:
By:
Agreed and assented to by
LEGG MASON WOOD WALKER, INCORPORATED
By:
3
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<NAME> Legg Mason Cash Reserve Trust
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Aug-31-1995
<PERIOD-START> Sep-01-1994
<PERIOD-END> Aug-31-1995
<INVESTMENTS-AT-COST> 1,173,602
<INVESTMENTS-AT-VALUE> 1,173,602
<RECEIVABLES> 62,735
<ASSETS-OTHER> 40
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,236,377
<PAYABLE-FOR-SECURITIES> 77,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6,247
<TOTAL-LIABILITIES> 83,247
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
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<SHARES-COMMON-PRIOR> 787,720
<ACCUMULATED-NII-CURRENT> 0
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<NET-ASSETS> 1,153,130
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<OTHER-INCOME> 0
<EXPENSES-NET> 6,754
<NET-INVESTMENT-INCOME> 47,830
<REALIZED-GAINS-CURRENT> 108
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 47,938
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (47,830)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 480
<NUMBER-OF-SHARES-SOLD> 4,083,397
<NUMBER-OF-SHARES-REDEEMED> (3,762,544)
<SHARES-REINVESTED> 45,368
<NET-CHANGE-IN-ASSETS> 366,809
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,641
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,754
<AVERAGE-NET-ASSETS> 950,714
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.05)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .71
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
