SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No.___)
Filed by the Registrant [X] Filed by a Party other than the Registrant [ ] Check
the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission only (as permitted by
Rule 14a-6(e)(2)
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Materials Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Legg Mason Cash Reserve Trust
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement,
if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(2) or Item 22(a)(2) of
Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[X] Fee paid previously with preliminary materials
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
IMPORTANT NOTICE: Please complete the enclosed Proxy Card
and return it as soon as possible.
For your convenience, you may vote by calling Shareholder
Communications Corporation ("SCC") toll-free at 1-800-733-8481,
Ext. 422 from 9:00 a.m. to 8:00 p.m., eastern time. You also
may vote by faxing your Proxy Card to SCC at 1-800-733-1885.
A confirmation of your telephone or telefacsimile vote will be
mailed to you.
LEGG MASON CASH RESERVE TRUST
Dear Shareholder:
Enclosed you will find a Notice and Proxy Statement for a Special
Meeting of Shareholders of the Legg Mason Cash Reserve Trust to be held on
March 8, 1996. There are four matters on which you, as a shareholder of the
Trust, are being asked to vote -- election of the Board of Trustees, approval
of a Distribution Plan, approval of changes to the Trust's fundamental
investment limitations and policies, and ratification of the selection
of Ernst & Young LLP as the Trust's independent auditors for fiscal year
1996.
After reviewing each matter carefully, the Board of Trustees
unanimously recommends that you vote FOR each of the proposals.
YOUR VOTE IS IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
PLEASE TAKE A FEW MINUTES TO REVIEW THIS MATERIAL, CAST YOUR VOTE ON THE
ENCLOSED PROXY CARD AND RETURN THE PROXY CARD IN THE ENCLOSED POSTAGE-PAID
ENVELOPE OR, IF MORE CONVENIENT, PLEASE CALL OR FAX YOUR VOTE, FOLLOWING THE
INSTRUCTIONS IN THE BOX AT THE TOP OF THIS PAGE. YOUR PROMPT RESPONSE IS NEEDED
TO AVOID FOLLOW-UP MAILINGS WHICH WOULD INCREASE COSTS PAID BY ALL SHAREHOLDERS.
The Trust is using Shareholder Communications Corporation, a
professional proxy solicitation firm, to assist shareholders in the voting
process. As the date of the meeting approaches, if we have not already
heard from you, you may receive a telephone call from Shareholder
Communications reminding you to exercise your right to vote.
Thank you very much for your assistance.
Sincerely
/s/ John F. Curley, Jr.
January 9, 1996 John F. Curley, Jr.
Chairman
<PAGE>
LEGG MASON CASH RESERVE TRUST
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
MARCH 8, 1996
To The shareholders:
A special meeting of the shareholders ("Meeting") of the Legg Mason Cash
Reserve Trust ("Trust") will be held on March 8, 1996, at 10:00 a.m., eastern
time, at the offices of Legg Mason, Inc., 111 South Calvert Street, 20th
Floor, Baltimore, Maryland 21202 for the following purposes:
(1) To elect a Board of Trustees;
(2) To approve a Distribution Plan;
(3) To approve changes to the Trust's fundamental investment
limitations and policies by:
(a) designating as non-fundamental certain investment policies
currently deemed fundamental;
(b) eliminating the fundamental limitation regarding the purchase
of foreign securities;
(c) replacing the fundamental limitation regarding the purchase of
restricted securities with a non-fundamental limitation;
(d) eliminating the fundamental limitation restricting the
pledging of assets; and
(e) replacing the fundamental limitation regarding investment in
new issuers with a non-fundamental limitation.
(4) To ratify the selection of Ernst & Young LLP as independent
auditors of the Trust for the fiscal year ending August 31, 1996;
and
(5) To transact such other business as may properly come before the
Meeting or any adjournment thereof.
You will be entitled to vote at the Meeting and any adjournments
thereof if you owned Shares of the Trust at the close of business on
January 9, 1996. Whether or not you intend to attend the Meeting in person,
you may vote in any one of the following three ways:
1. Vote, sign, date and return the enclosed proxy card in the
enclosed postage-paid envelope; or
2. Vote by telephone by calling Shareholder Communications Corporation
("SCC") toll-free at 1-800-733-8481, Ext. 422 from 9:00 a.m. to
8:00 p.m. (eastern time) (a confirmation of your telephone vote
will be mailed to you); or
3. Vote, sign, date and fax the enclosed proxy card to SCC at
1-800-733-1885 (a confirmation of your telefacsimile vote will be
mailed to you).
By order of the Board of Trustees,
/s/ Kathi D. Bair
Kathi D. Bair
SECRETARY
January 9, 1996
YOUR VOTE IS IMPORTANT
NO MATTER HOW MANY SHARES YOU OWN
Please vote by mail, telephone or telefacsimile promptly. IF YOU SIGN, DATE
AND RETURN THE ENCLOSED PROXY CARD BUT GIVE NO VOTING INSTRUCTIONS, YOUR SHARES
WILL BE VOTED "FOR" THE NOMINEES NAMED IN THE ATTACHED PROXY STATEMENT AND "FOR"
ALL OTHER PROPOSALS NOTICED ABOVE. In order to avoid the additional expense of
further solicitation, we ask your cooperation in mailing in your proxy card
promptly. Unless proxy cards submitted by corporations and partnerships are
signed by the appropriate persons as indicated in the voting instructions on the
proxy card, they will not be voted.
<PAGE>
LEGG MASON CASH RESERVE TRUST
111 SOUTH CALVERT STREET
BALTIMORE, MARYLAND 21202
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS TO BE HELD MARCH 8, 1996
This Proxy Statement is furnished to the holders of shares of beneficial
interest of Legg Mason Cash Reserve Trust ("Trust") in connection with a
solicitation of proxies made by, and on behalf of, the Board of Trustees
("Board") of the Trust to be used at a special meeting of shareholders of the
Trust to be held March 8, 1996, and any adjournments thereof ("Meeting").
One-fourth of the total shares of the Trust ("Shares") outstanding on
January 9, 1996 ("Record Date"), represented in person or by proxy, must be
present at the Meeting for the transaction of business at the Meeting. In the
absence of a quorum or in the event that a quorum is present at the Meeting but
sufficient votes to approve any of the proposals are not received, the persons
named as proxies may propose one or more adjournments of the Meeting to permit
further solicitation of proxies. Any such adjournment will require the
affirmative vote of a majority of those Shares represented at the Meeting in
person or by proxy. The persons named as proxies will vote those proxies
which they are entitled to vote FOR any such proposal in favor of such an
adjournment, and will vote those proxies required to be voted AGAINST any such
proposal against such adjournment. A shareholder vote may be taken on one or
more of the proposals in this Proxy Statement prior to any such adjournment if
sufficient votes have been received and it is otherwise appropriate.
Broker non-votes are shares held in "street name" for which the broker
indicates that instructions have not been received from the beneficial owners or
other persons entitled to vote and the broker does not have discretionary voting
authority. Abstentions and broker non-votes will be counted as shares present
for purposes of determining whether a quorum is present but will not be voted
for or against any adjournment. Accordingly, abstentions and broker non-votes
effectively will be a vote against adjournment or against any proposal where the
required vote is a percentage of the shares present. Abstentions and broker
non-votes will not be counted, however, as votes cast for purposes of
determining whether sufficient votes have been received to approve a proposal.
The individuals named as proxies on the enclosed proxy card will vote in
accordance with your directions as indicated thereon if the proxy is received
properly executed. If you sign, date and return the proxy card but give no
voting instructions, your Shares will be voted in favor of the nominees for
Trustees named herein and in favor of the remaining proposals described in this
Proxy Statement. Your proxy card may be revoked by giving another proxy, by
letter or telegram received by the Secretary to the Trust prior to the Meeting;
by calling Shareholder Communications Corporation toll-free at 1-800-733-8481,
Ext. 422; or by appearing and voting at the Meeting.
As of January 2, 1996 (seven days prior to the record date), the Trust
had 1,139,303,948 shares of beneficial interest outstanding. Management does
not know of any person who owned beneficially 5% or more of the Trust's
shares on that date. The cost of soliciting proxies, including the cost of
third-party soliciting and tallying services and of printing and mailing
expenses, will be borne by the Trust. Proxies will be solicited by mail and
may be solicited in person, by telephone, telegraph or other electronic means by
personnel or agents of Legg Mason Wood Walker, Incorporated ("Legg Mason"), the
Trust's distributor, and its affiliates.
Each full Share of the Trust outstanding on the record date is entitled to
one vote, and each fractional Share is entitled to a proportionate share of one
vote for such purposes. This Proxy Statement will first be
1
<PAGE>
mailed to shareholders on or about January 10, 1996. The Trust's annual report,
containing financial statements for the year ended August 31, 1995, is available
upon request.
PROPOSAL 1. ELECTION OF TRUSTEES
Pursuant to the provisions of the Declaration of Trust, the Trustees have
determined that the number of Trustees will be fixed at eight. The eight
nominees are listed below. Messrs. Curley, Haugh and Lehman were elected to the
Board of Trustees by the Trust's shareholders at a special meeting held on July
15, 1988 and have served as Trustees since that date. Dr. McGovern was appointed
as Trustee by the Board on July 21, 1989 and has served as Trustee since that
date. On July 28, 1995, the Trust's Nominating Committee selected, and the Board
of Trustees has nominated, as Trustees Messrs. Rodgers, Gilmore, Cashman and
Taber and the current Trustees. The eight nominees shall constitute the entire
Board, each to hold office until his or her successor is elected and duly
qualified.
Each of the nominees has indicated his or her willingness to serve if elected.
If any of the nominees should withdraw or otherwise become unavailable for
election due to events not now known or anticipated, the proxy confers
discretionary power on the persons named therein to vote for such other nominee
or nominees as the Nominating Committee may recommend.
Trustees must be elected by a plurality of the shares present at the
Meeting in person or by proxy and entitled to vote thereon. Unless you give
contrary instructions in the form of proxy, your proxy will be voted for the
election of the eight nominees, and your shares will be voted in favor of such
other nominee or nominees as the Nominating Committee may recommend.
The Trustees and executive officers as a group (8 persons) beneficially
owned 166,221 Shares of the Trust on January 2, 1996, representing less than
1% of the Shares outstanding on that date.
<TABLE>
<CAPTION>
PRESENT POSITION WITH THE TRUST; SHARES OWNED
BUSINESS EXPERIENCE DURING PAST BENEFICIALLY ON
NOMINEE (AGE) FIVE YEARS; OTHER DIRECTORSHIPS JANUARY 2, 1996
<S> <C> <C>
John F. Curley, Jr.* (56) Chairman of the Board, President and Trustee. Vice Chairman 63,605
and Director of Legg Mason Wood Walker,
Incorporated and Legg Mason, Inc.; Director of
Legg Mason Fund Adviser, Inc. (a registered
investment adviser); Officer and/or Director of
various other affiliates of Legg Mason, Inc.;
President or Chairman of the Board and
Director/Trustee of nine Legg Mason
funds.
Edmund J. Cashman, Jr.* (59) Nominee for Trustee. Senior Executive Vice President and 5,002
various other affiliates of Legg Mason, Inc.; President or
Vice Chairman of the Board and Director/Trustee of three
Legg Mason funds; Director of Worldwide Value Fund, Inc.
Richard G. Gilmore (68) Nominee for Trustee. Independent Consultant. Director of CSS 6,886
Industries, Inc. (diversified holding company whose
subsidiaries are engaged the 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 eight 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).
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
PRESENT POSITION WITH THE TRUST; SHARES OWNED
BUSINESS EXPERIENCE DURING PAST BENEFICIALLY ON
NOMINEE (AGE) FIVE YEARS; OTHER DIRECTORSHIPS JANUARY 2, 1996
<S> <C> <C>
Charles F. Haugh (69) Trustee; Real Estate Developer and Investor; President and 61,710
Director of Resource Enterprises, Inc. (real estate
brokerage); Chairman of Resource Realty LLC (management of
retail and office space); Partner in Greater Laurel Health
Park Ltd. Partnership (real estate investment and
development); Director/Trustee of nine Legg Mason funds.
Arnold L. Lehman (51) Trustee; Director of the Baltimore Museum of Art. 14,966
Director/Trustee of nine Legg Mason funds.
Dr. Jill E. McGovern (50) Trustee; Chief Executive of the Marrow Foundation. 12,052
Director/Trustee of nine Legg Mason funds. Formerly: Executive
Director of the Baltimore International Festival (1991 -
1993); and Senior Assistant to the President of the Johns
Hopkins University (1986-1991).
T.A. Rodgers (60) Nominee for Trustee. Principal, T.A. Rodgers & Associates 0
(management consulting). Director/Trustee of eight Legg Mason
funds. Formerly: Director and Vice President of Corporate
Development, Polk Audio, Inc. (manufacturer of audio
components) (1991-1992).
Edward A. Taber* (51) Nominee for Trustee. Senior Executive Vice President of Legg 2,000
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 seven 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).
</TABLE>
* Messrs. Trustees Curley, Cashman and Taber are deemed to be "interested
persons" of the Trust as that term is defined in the Investment Company Act
of 1940 ("1940 Act").
The Board of Trustees met four times during the fiscal year ended August
31, 1995, and each Trustee attended all of the meetings of the Board. The Board
has an Audit Committee that reviews and evaluates the audit function, including
recommending to the Board the independent accountants to be selected for the
Trust (see Proposal 4). The Audit Committee met once during the Trust's fiscal
year ended August 31, 1995. The Board also has a Nominating Committee that is
responsible for the selection and nomination of disinterested trustees. The
Nominating Committee met once in the fiscal year ended August 31, 1995. Each
Committee consists of the Trustees who are not "interested persons" of the Trust
as defined in the 1940 Act ("Independent Trustees") (currently, Messrs. Haugh
and Lehman and Dr. McGovern). Officers and Trustees of the Trust who are
"interested persons" of the Trust receive no salary or fees from the Trust. Each
Independent Trustee receives a fee of $400 annually for serving as a trustee,
and a fee of $400 for each meeting of the Board of Trustees attended.
3
<PAGE>
The following table provides certain information relating to the
compensation of the Trust's Trustees and Executive Officers for the fiscal year
ended August 31, 1995.
COMPENSATION TABLE
<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
AGGREGATE RETIREMENT BENEFITS ESTIMATED ANNUAL FROM TRUST AND
NAME OF PERSON AND COMPENSATION ACCRUED AS PART OF BENEFITS UPON FUND COMPLEX(dagger)
POSITION FROM TRUST* TRUST EXPENSES RETIREMENT PAID TO TRUSTEES**
<S> <C> <C> <C> <C>
John F. Curley, Jr. -- Chairman of the
Board, President and Trustee None N/A N/A None
Edmund J. Cashman, Jr. -- Nominee for
Trustee None N/A N/A None
Richard G. Gilmore -- Nominee for
Trustee None N/A N/A $21,600
Marie K. Karpinski -- Vice President
and Treasurer None N/A N/A None
Arnold L. Lehman -- Trustee $2,000 N/A N/A $23,600
Charles F. Haugh -- Trustee $2,000 N/A N/A $23,600
Dr. Jill E. McGovern -- Trustee $2,000 N/A N/A $23,600
T.A. Rodgers -- Nominee for Trustee None N/A N/A $21,600
Edward A. Taber -- Nominee for 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 and nominee
during the calendar year ended December 31, 1995.
(dagger) Fund Complex consists of fourteen other investment company portfolios.
PROPOSAL 2. APPROVAL OF A PLAN OF DISTRIBUTION
Background
The Trust's Board of Trustees approved a plan of distribution pursuant to
Rule 12b-1 under the 1940 Act ("Plan") and determined to recommend it for
approval by shareholders. Under the Plan, the Trust would be able to pay Legg
Mason for its services in distributing Trust shares.
Currently, Legg Mason acts as distributor of the Trust's shares without
receiving any compensation for its distribution services.(1) Pursuant to an
Underwriting Agreement with the Trust, Legg Mason pays certain expenses in
connection with the offering of Trust shares, including 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 all costs of preparing and distributing supplementary sales
literature and advertising costs. In addition, Legg Mason pays for all
compensation and expenses, including overhead, of persons who engage in or
support share distribution and/or shareholder servicing.
The Plan would permit the Trust's Board of Trustees to authorize payments
to Legg Mason, for distribution-related activities and shareholder services, at
an annual rate of up to 0.15% of the Trust's average
(1) Legg Mason Fund Adviser, Inc., an affiliate of Legg Mason, receives a fee
for providing management services at an annual rate of 0.50% of the
first $500 million of 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.
4
<PAGE>
daily net assets. However, Legg Mason has agreed that, if the Plan is adopted,
it will not request payment of more than 0.10% annually from the Trust during
the first two years following adoption of the Plan.(2)
The Plan would not obligate the Trust to reimburse Legg Mason for all
expenses Legg Mason may incur in fulfilling its obligations under the
Underwriting Agreement. Thus, even if Legg Mason's expenses exceed the fee
payable to it under the Plan, the Trust will not be obligated to pay more than
the fee approved by the Board, and in no event can the fee exceed 15 basis
points (100 basis points = 1.0%). On the other hand, if the fees paid by the
Trust to Legg Mason under the Plan exceed Legg Mason's expenses, Legg Mason will
retain the excess amounts.
The following tables show (i) shareholder transaction expenses; and (ii),
for the fiscal year ended August 31, 1995, fees and expenses actually incurred
and pro forma fees and expenses that would have been incurred if the Plan had
been in place during that year.
<TABLE>
<CAPTION>
EXPENSES
ASSUMING EXISTING ASSUMING NEW
FEE STRUCTURE FEE STRUCTURE
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge on purchases or reinvested dividends............................ None None
Redemption or exchange fees.......................................................... None None
ANNUAL TRUST OPERATING EXPENSES
(as a percentage of average net assets)
Management fees...................................................................... 0.49% 0.49%
12b-1 fees........................................................................... None 0.10%*
Other expenses....................................................................... 0.22% 0.22%
Total operating expenses............................................................. 0.71% 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%.
HYPOTHETICAL 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.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Existing Fee............................................................... $7 $23 $40 $ 88
Proposed Fee (Including 12b-1 Plan Payments of 0.10%)...................... $8 $26 $45 $100
</TABLE>
Factors Considered by the Board of Trustees
In approving the Plan, the Trustees considered, among other things, the
extent to which the potential benefits of the Plan to existing 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 Trust shares would be likely to maintain or increase the amount of
compensation paid by the Trust to its manager.
The Trustees also considered the fact that many money market funds,
including many of the Trust's competitors, do pay for distribution. When the
Trust was first organized, it was uncommon for money market funds to pay the
costs of distribution. However, the Trustees believe that to effectively compete
in the current marketplace, the Trust should have the ability to pay for
distribution, to competitively retain
(2) The two other money market funds sponsored by Legg Mason, Legg Mason
U.S. Government Money Market Portfolio and Legg Mason Tax-Exempt
Trust, Inc., have adopted Rule 12b-1 distribution plans which permit
their Boards to authorize payments to Legg Mason for distribution
services at annual rates of up to 0.20% of average daily net assets.
Although these plans have existed since the inception of these other
funds, Legg Mason has not yet sought any reimbursement from the Boards
of those funds. For the same reasons described herein, Legg Mason may
request the Boards of those funds to authorize some payment under
their respective 12b-1 plans.
5
<PAGE>
the attention and services of investment executives who offer Trust shares, and
to attract the services of new investment representatives.
Among the potential benefits of the Plan, the Trustees noted that the
payment of compensation to Legg Mason and its investment executives could
motivate them to improve their sales efforts with respect to Trust shares and to
maintain and enhance their level of interaction with 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
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 redemption requests.
In considering the costs of the Plan, the Trustees gave particular
attention to 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 herein would be achieved if the
Plan were implemented.
Following their consideration, the Trustees, including a majority of the
Independent Trustees who have no direct or indirect financial interest in the
operation of the Trust's proposed plan of distribution ("12b-1 Trustees"),
concluded that the fees payable by the Trust under the Plan were reasonable in
view of the services that would be provided by Legg Mason and the anticipated
benefits of the Plan. The full Board and the 12b-1 Trustees determined that
implementation of the Plan would be in the best interest of the Trust and would
have a reasonable likelihood of benefitting the Trust and its shareholders.
Accordingly, the Board of Trustees approved the Plan, as described above, and
recommended that the Plan be submitted to the shareholders of the Trust for
their approval.
Additional Information Regarding the Plan
Under the Plan, as required by Rule 12b-1, the Trustees will receive and
review, at least quarterly, a written report of the amounts so expended and the
purposes for which expenditures were made. 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 12b-1 Trustees or by vote of a majority of
the outstanding voting securities of the Trust. Any change in the Plan that
would materially increase the distribution costs to the Trust requires
shareholder approval; otherwise, the Plan may be amended by the Trustees,
including a majority of the 12b-1 Trustees. Legg Mason is a wholly owned
subsidiary of Legg Mason, Inc., which also owns the manager and adviser to the
Trust.
If approved, the proposed Plan will be effective April 1, 1996. A copy of
the proposed Plan is provided as Exhibit A to this Proxy Statement.
Required Vote
THE PROPOSED PLAN MUST BE APPROVED BY THE HOLDERS OF A "MAJORITY OF THE
OUTSTANDING VOTING SECURITIES" AS DEFINED IN THE 1940 ACT, OF THE TRUST. AS SO
DEFINED, A "MAJORITY OF THE OUTSTANDING VOTING SECURITIES" MEANS THE LESSER OF
(1) 67% OF THE TRUST'S SHARES PRESENT AT THE MEETING IF THE OWNERS OF MORE THAN
50% OF THE OUTSTANDING SHARES OF THE TRUST ARE PRESENT IN PERSON OR BY PROXY, OR
(2) MORE THAN 50% OF THE TRUST'S OUTSTANDING SHARES.
6
<PAGE>
THE BOARD OF TRUSTEES RECOMMENDS THAT YOU VOTE FOR PROPOSAL 2.
PROPOSAL 3. APPROVAL OF CHANGES TO THE TRUST'S FUNDAMENTAL
INVESTMENT POLICIES AND LIMITATIONS
The Trust currently has certain investment policies and limitations which
may sometimes preclude it from taking full advantage of the investment
opportunities which have resulted from changes in the marketplace and in
securities laws. Since the Trust commenced operations in 1979, there have been
substantial changes in the marketplace for money market instruments, in the
money market fund industry and in the federal and state securities laws
applicable to money market funds. Other money market funds, which began
operations more recently than the Trust, now have considerable flexibility in
selecting portfolio instruments and adapting to new market developments.
However, when the Trust was established, many of its investment policies and
limitations were designated as "fundamental," that is, they can be changed only
with shareholder approval. To modernize the Trust's investment policies and
provide the Trust with greater flexibility in responding to future developments,
Proposals 3a-3e seek shareholder approval of a number of changes to the Trust's
fundamental investment policies and limitations.
If approved, the proposed changes to limitations and policies will be
effective April 1, 1996. The proposed changes are listed in Exhibit B to this
Proxy Statement.
The Board of Trustees has considered each of these proposals and, for the
reasons stated below, believes that each of the proposals is in the best
interests of the Trust's shareholders.
THE TRUSTEES RECOMMEND THAT SHAREHOLDERS VOTE FOR PROPOSALS 3A, 3B, 3C, 3D
AND 3E.
PROPOSALS 3A, 3B, 3C, 3D AND 3E EACH MUST BE APPROVED BY THE HOLDERS OF A
"MAJORITY OF THE OUTSTANDING VOTING SECURITIES" OF THE TRUST. THIS TERM MEANS
THE LESSER OF (1) 67% OF THE TRUST'S SHARES PRESENT AT THE MEETING IF THE
OWNERS OF MORE THAN 50% OF THE OUTSTANDING SHARES OF THE TRUST ARE PRESENT IN
PERSON OR BY PROXY, OR (2) MORE THAN 50% OF THE TRUST'S OUTSTANDING SHARES.
PROPOSAL 3A. TO DESIGNATE AS NON-FUNDAMENTAL THE INVESTMENT
POLICIES DESCRIBED IN THE TRUST'S PROSPECTUS,
EXCEPT AS OTHERWISE REQUIRED BY LAW
The Board of Trustees recommends that shareholders vote to designate as
"non-fundamental" all investment policies described in the prospectus, except
those investment limitations designated by law as fundamental. The Trust's
investment objective, which is "to achieve stability of principal and current
income consistent with stability of principal," would remain fundamental.
The Trust's current fundamental investment policies deal with the types of
instruments in which the Trust may invest, their maturities, the average
maturity of the Trust's investment portfolio, and the creditworthiness of the
issuers of those instruments. Rule 2a-7 under the 1940 Act imposes stringent
limits on all money market funds in each of these areas. That rule permits money
market funds to value their portfolios at amortized cost, provided certain
conditions are met. Several of the Trust's policies currently in effect impose
limitations different from those currently required by Rule 2a-7.
If this proposal is adopted, the Trust will change its investment policies
to conform to those currently permitted by Rule 2a-7. Specifically, the Trust is
currently limited by its investment policies to purchasing securities with a
remaining maturity (as defined by Securities and Exchange Commission ("SEC")
rules) of one year or less. Rule 2a-7 permits money market funds to purchase
securities with maturities of up to 397 days. The Trust would change its
policies to permit it to purchase instruments of up to 397 days maturity.
7
<PAGE>
In all other significant respects, the current requirements of Rule 2a-7
are the same as, or more stringent than, the Trust's current policies, and the
Trust would continue to observe these requirements. Specifically, those
requirements in place now that are not presently contemplated to change, are:
1. The dollar-weighted average maturity of the portfolio may not exceed 90
days.
2. The Trust will invest only in high quality money market instruments.
High quality instruments are those rated in one of the two highest
rating categories by at least two nationally recognized statistical
rating organizations ("NRSROs") (or by one, if only one NRSRO has rated
the security) or, if unrated, determined by Western Asset Management
Company ("Adviser"), the Trust's investment adviser, to be of comparable
quality to a rated security pursuant to procedures adopted by the Board
of Trustees. No more than 5% of the Trust's total assets may be invested
in securities rated in the second highest rating category, or comparable
unrated securities.
3. The Trust will invest only in those securities deemed by the Adviser to
present minimal credit risk over the life of the Trust's investment.
4. The Trust may invest only in instruments denominated in U.S. dollars.
The prospectus currently states that, as a fundamental investment policy,
the types of money market instruments in which the Trust may invest 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) if they have
capital, surplus and undivided profits of over $100,000,000
(including Eurodollar certificates of deposit), 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) obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities;
(Bullet) repurchase agreements; and
(Bullet) when-issued or delayed-delivery transactions.
It is proposed that this policy be changed to non-fundamental, allowing the
Board of Trustees to alter or expand this list from time to time, as the
instruments available for purchase and permitted by SEC rules change. If the
policy change is approved, the Board of Trustees currently intends to add to the
list of permissible investments 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.
The Board of Trustees does not believe that the proposed changes would
materially alter the risk of the Trust's investment portfolio.
Replacement of the Trust's fundamental investment policies with
non-fundamental investment policies would enable the Board of Trustees to amend
each of these policies in the future without having to call a shareholders'
meeting. Any future changes would have to be consistent with the basic
investment objective of the Trust, which would remain a fundamental policy
changeable only by shareholder vote, and with Rule 2a-7 as then in effect.
The Board of Trustees believes that, because implementation of this
proposal would afford the Trust greater flexibility to respond quickly to
changes in market conditions without the time and expense associated with
shareholder meetings, adoption of this proposal is in the best interests of the
Trust and its shareholders.
8
<PAGE>
Two of the investment limitations described in the prospectus will remain
fundamental, and the Trust is not proposing to change them. They are:
(Bullet) The Trust will not 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); and
(Bullet) 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.
PROPOSAL 3B. ELIMINATION OF THE TRUST'S FUNDAMENTAL INVESTMENT
LIMITATION REGARDING THE PURCHASE OF FOREIGN
SECURITIES
The Trust's investment policies currently permit the Trust to invest in
high-quality money market instruments of certain "domestic and foreign" banks
and savings and loan institutions. Under this policy, the Trust may invest, for
example, in U.S. dollar-denominated money market instruments of U.S. banks and
their overseas branches.
However, under one of the Trust's fundamental investment limitations, the
Trust is prohibited from investing in "foreign securities which are not publicly
traded in the United States." U.S. dollar-denominated obligations of foreign
banks comprise a substantial and increasing portion of the market for money
market instruments. Because some of these U.S. dollar-denominated instruments
may fall within the fundamental investment limitation, the Trust may be
precluded from taking advantage of certain desirable investment opportunities.
Thus, the Board of Trustees is seeking shareholder approval to eliminate the
fundamental investment limitation relating to the purchase of foreign
securities.
There would be no direct risk of currency fluctuation on the obligations in
which the Trust proposes to invest because they would all be U.S.
dollar-denominated instruments, as required by Rule 2a-7. However, 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 governmental 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.
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 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.
9
<PAGE>
If this fundamental investment limitation is eliminated, the Trust may in
the future invest in U.S. dollar-denominated securities of other foreign
issuers, in addition to banks and savings and loan institutions, consistent with
Rule 2a-7 and the Trust's other investment policies. The Trust has no present
plan to do so.
The Board of Trustees believes that elimination of the fundamental
investment limitation regarding foreign securities may benefit the Trust by
providing broader investment choices and access to higher yielding instruments.
However, there can be no assurance that the Trust's yield will be increased as a
result of the elimination of this investment limitation. The Board of Trustees
believes that adoption of this proposal is in the best interests of the Trust
and its shareholders.
PROPOSAL 3C. REPLACEMENT OF THE TRUST'S FUNDAMENTAL INVESTMENT
LIMITATION REGARDING THE PURCHASE OF RESTRICTED
SECURITIES WITH A NON-FUNDAMENTAL INVESTMENT
LIMITATION
Under one of the Trust's current fundamental investment limitations, the
Trust may not invest in "money market instruments which are subject to
restrictions on resale under federal securities laws." If this proposal is
approved by shareholders, the Trustees intend to delete this fundamental
investment limitation.
Restricted securities are those not registered under the Securities Act of
1933 ("1933 Act") or subject to contractual restrictions on resale. In recent
years, a large institutional market has developed for certain securities that
are not registered under the 1933 Act, including repurchase agreements,
commercial paper, many types of corporate and municipal securities and some
bonds and notes. These instruments are often either exempt from registration or
sold in transactions not requiring registration.
A great many money market funds participate in this market. The Trust,
however, is prohibited from participating by its investment limitation
prohibiting the purchase of restricted securities.
Regardless of whether the Trust's limit on restricted securities is
removed, the Trust will continue to observe a limit on illiquid securities, as
mandated by the SEC. The Trust currently has a non-fundamental investment
limitation that provides:
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.
For this purpose, the Trust interprets "illiquid investments" to mean securities
that cannot be disposed of within seven days in the ordinary course of business
at approximately the amount at which the Trust values the security.
Historically, the SEC considered all restricted securities to be illiquid.
With the development of the institutional market for such securities, however,
the SEC has determined that mutual funds may consider as liquid two categories
of restricted securities: (1) those eligible for trading among large
institutions under 1933 Act Rule 144A; and (2) commercial paper exempt from 1933
Act registration pursuant to Section 4(2) of that Act. Before deeming such a
security as liquid, a fund or its adviser must consider the nature of the
market, the number of dealers, and whether any dealer has pledged to make a
market in the security. In addition, Section 4(2) paper may be deemed liquid
only if it is not in default or traded flat, and if it is in one of the two
highest rating categories or, if unrated, determined to be of equivalent
quality.
If the proposal to eliminate the Trust's fundamental investment limitation
on restricted securities is adopted, the Board of Trustees of the Trust intends
to delegate to the Adviser the authority to determine
10
<PAGE>
whether Rule 144A securities and Section 4(2) paper held by the Trust is liquid,
subject to the standards established by the SEC.
Section 4(2) commercial paper differs from the more common commercial paper
program which complies with Section 3(a)(3) of the 1933 Act in terms of the use
of the proceeds of the issue. Section 3(a)(3) of the 1933 Act exempts from
registration prime quality notes having a maturity not exceeding 270 days and
arising from "current transactions." Proceeds are generally used for working
capital and are not allocated to specific purposes. Section 4(2) exempts from
registration "transactions by an issuer not involving any public offering" so
that the proceeds from Section 4(2) commercial paper may be used for any purpose
regardless of whether such purpose would be considered a current transaction.
Establishing a Section 4(2) commercial paper program therefore enables a
borrower to gain access to the commercial paper market to raise funds for
financing acquisitions, stock repurchases and construction as well as working
capital requirements. Certain Section 4(2) commercial paper programs have
attained a degree of liquidity comparable, in the view of the Adviser, to
commercial paper issued under Section 3(a)(3) of the 1933 Act.
The Trust's current limitation on restricted securities is overly broad and
unnecessarily restrictive. If this proposal is approved by shareholders,
so-called restricted securities may be purchased subject only to the investment
objective of the Trust and the judgment of the Adviser, and, if such securities
are illiquid, only up to 10% of the Trust's net assets. Approval of this
proposal would enable the Trust to take advantage of the institutional market in
securities or transactions exempt from registration.
PROPOSAL 3D. ELIMINATION OF THE TRUST'S FUNDAMENTAL INVESTMENT
LIMITATION RESTRICTING THE PLEDGING OF ASSETS
One of the Trust's current fundamental investment limitations prohibits the
Trust from pledging any securities. This limitation potentially conflicts with
the Trust's ability to borrow money for temporary or emergency purposes, and to
make share redemptions without having to sell portfolio securities immediately,
because banks often require borrowers, such as the Trust, to pledge assets in
order to collateralize the amount borrowed. Because the Trust currently is not
permitted to pledge portfolio securities at all, the Trust's ability to secure
borrowings (of any amount) from banks is jeopardized.
If this proposal is adopted, the Trust could pledge its assets subject only
to the limitations in the Declaration of Trust. The Declaration of Trust
currently provides that the Trust may not pledge its assets except in connection
with any borrowing (i) as a temporary measure for extraordinary or emergency
purposes, or (ii) in order to meet redemption requests without immediately
selling any portfolio instruments. The Declaration of Trust states that the
Trust may not pledge assets in excess of the lesser of the dollar amounts
borrowed or 10% of the value of the Trust's total assets at the time of such
borrowing.
Borrowing money will cause the Trust to incur interest charges, and may
magnify the effect of fluctuations in the value of the Trust's investments while
the borrowing is outstanding. Further, because assets that have been pledged to
other parties may not be readily available to the Trust, the Trust may have less
flexibility in liquidating such assets, if needed. Therefore, in certain
situations, pledging assets could impair the Trust's ability to meet current
obligations or redemption requests, or could impede portfolio management. These
potential risks, however, should be considered together with the potential
benefits of the activity (borrowing money to meet redemption requests, for
example) that could make pledging assets necessary. The Adviser will take all
relevant factors into account when evaluating the relative merits of borrowing
money and other ways of responding to temporary or emergency needs to raise cash
(such as selling portfolio securities for immediate settlement or briefly
postponing payment of shareholder redemption proceeds).
Although it is not anticipated that the Trust will have any need to borrow
large amounts of money, the Trustees believe that restrictions on the Trust's
ability to respond to circumstances of an extraordinary or
11
<PAGE>
emergency nature should be avoided. Accordingly, the Trustees believe the
current investment limitation on the pledging of Trust assets should be
eliminated.
PROPOSAL 3E. REPLACEMENT OF THE TRUST'S FUNDAMENTAL
INVESTMENT LIMITATION REGARDING INVESTMENT IN
NEW ISSUERS WITH A NON-FUNDAMENTAL INVESTMENT
LIMITATION
Under one of the Trust's current fundamental investment limitations, the
Trust may not invest more than 5% of the value of its total assets in money
market instruments of unseasoned issuers -- that is, issuers which, in
combination with their predecessors, have been in operation for less than three
years. This investment limitation was originally adopted to address the "blue
sky" requirements of many states in connection with the registration of shares
of the Trust for sale. The Trustees believe that of the states that impose this
investment limitation on open-end management investment companies, none require
that this limitation be fundamental. Furthermore, even states that impose this
limitation appear to permit investments in asset pools (such as mortgage-backed,
automobile loan or other financial receivables), even though the issuers
involved in such pools may have been in operation for less than three years.
The Trustees believe that this fundamental investment limitation should be
eliminated to enable the Trust to respond to future changes in the policies of
state regulatory agencies and to allow the Trust to take advantage of
investments in asset pools, where appropriate. If this proposal is approved by
shareholders, the Trustees intend to replace this fundamental investment
limitation with an identical non-fundamental investment limitation in order to
conform to state requirements. This new policy could be changed by a vote of the
Trustees, as regulations permit, without further approval of shareholders.
PROPOSAL 4. TO RATIFY THE SELECTION OF ERNST & YOUNG LLP AS
INDEPENDENT AUDITORS OF THE TRUST
The financial statements for the Trust for the fiscal year ended August 31,
1995 were audited by Ernst & Young LLP, independent auditors.
The Board of Trustees has selected Ernst & Young LLP as independent
auditors for the Trust for the fiscal year ending August 31, 1996. As required
by the 1940 Act, the Trustees' selection is subject to the right of the Trust,
by vote of a majority of its outstanding voting securities at any meeting called
for the purpose of voting on such action, to terminate such employment without
penalty.
The ratification of the selection of independent auditors is to be voted
upon at the Meeting and it is intended that the persons named in the
accompanying proxy will vote for Ernst & Young LLP unless contrary instructions
are given. Ernst & Young LLP has advised the Trust that it has no direct or
material indirect ownership interest in the Trust. Representatives of Ernst &
Young LLP are not expected to be present at the Meeting, but have been given the
opportunity to make a statement if they so desire, and will be available should
any matter arise requiring their presence to answer any questions.
AN AFFIRMATIVE VOTE OF AT LEAST A MAJORITY OF THE SHARES OF THE TRUST
PRESENT, IN PERSON OR BY PROXY, IS REQUIRED FOR RATIFICATION.
OTHER INFORMATION
Western Asset Management Company, located at 117 East Colorado Boulevard,
Pasadena, California 91105, serves as the Trust's investment adviser. The
Adviser is an affiliate of Legg Mason. Legg Mason Fund Adviser, Inc.
("Manager"), investment manager for the Trust, is located at 111 South Calvert
Street,
12
<PAGE>
Baltimore, Maryland 21202. Legg Mason, Inc., a publicly-held financial services
corporation, is the "parent" of the Adviser and Manager.
OTHER BUSINESS
The Board knows of no other business to be brought before the Meeting.
However, if any other matters properly come before the Meeting, it is the
intention that proxies that do not contain specific instructions to the contrary
will be voted on such matters in accordance with the judgment of the persons
therein designated.
THE TRUST'S DISTRIBUTOR
Legg Mason, a registered broker-dealer and member of the New York and other
principal stock exchanges, is the principal distributor for shares of the Trust
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 compensation, if any, to its investment brokers,
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 and statements of additional
information have been prepared, set in type and mailed to existing shareholders
at the Trust's expense, and for supplementary sales literature and advertising
costs. Legg Mason currently receives no compensation from the Trust for these
expenses. However, a proposal has been submitted to approve a distribution plan
pursuant to Rule 12b-1 of the 1940 Act (See Proposal 2) which, upon shareholder
approval and authorization from the Board of Trustees, would permit the Trust to
pay Legg Mason an annual distribution fee as compensation for its services and
expenses in connection with the distribution of Trust shares. The offering of
shares is continuous.
SUBMISSION OF CERTAIN SHAREHOLDER PROPOSALS
The Trust does not hold annual shareholder meetings. Shareholders wishing
to submit proposals for inclusion in a proxy statement for a subsequent
shareholder meeting should send their written proposals to the Secretary of the
Trust, 111 South Calvert Street, Baltimore, Maryland 21202.
NOTICE TO BANKS, BROKER-DEALERS AND VOTING TRUSTEES AND THEIR NOMINEES
Please advise the Trust, in care of Legg Mason Cash Reserve Trust, 111
South Calvert Street, Baltimore, Maryland 21202 whether other persons are
beneficial owners of shares for which proxies are being solicited and, if so,
the number of copies of the Proxy Statement you wish to receive in order to
supply copies to the beneficial owners of the respective shares.
13
<PAGE>
EXHIBIT A
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.
A-1
<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.
A-2
<PAGE>
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:
Attest:
By:
Agreed and assented to by
LEGG MASON WOOD WALKER, INCORPORATED
By:
A-3
<PAGE>
EXHIBIT B
THE TRUST'S FUNDAMENTAL INVESTMENT LIMITATIONS
The Trust has adopted certain fundamental investment limitations which
cannot be changed without approval of shareholders.
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.
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.
PLEDGING ASSETS.(1) The Trust will not pledge any securities.
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.
UNDERWRITING. The Trust will not engage in underwriting of securities
issued by others.
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.
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.
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.
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.
B-1
<PAGE>
INVESTING IN NEW ISSUERS.(2) 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.
INVESTING IN FOREIGN SECURITIES.(1) The Trust will not invest in foreign
securities which are not publicly traded in the United States.
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.
DEALING IN PUTS AND CALLS. The Trust will not invest in puts, calls,
straddles, spreads, or any combination of them.
INVESTING IN RESTRICTED SECURITIES.(2) The Trust will not invest in money
market instruments which are subject to restrictions on resale under federal
securities laws.
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 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.
(1) Proposed to be eliminated. See Proposals 3b and 3d.
(2) Proposed to be replaced with non-fundamental policy. See Proposals 3c
and 3e.
B-2
<PAGE>
LEGG MASON
CASH RESERVE TRUST
PROXY FOR MEETING OF SHAREHOLDERS, FRIDAY, MARCH 8, 1996
The undersigned shareholder(s) of Legg Mason Cash Reserve Trust ("Trust")
hereby appoints as proxies Marie K. Karpinski and Kathi D. Bair and each of them
with power of substitution to vote all shares of the Trust which the undersigned
is entitled to vote, at the Meeting of Shareholders to be held on Friday, March
8, 1996 at 111 South Calvert Street, Baltimore, Maryland, at 10:00 a.m. eastern
time and at any adjournment thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES. The proxies
named will vote the Shares represented by this proxy in accordance with the
choices made on this card. IF NO CHOICE IS INDICATED AS TO ANY ITEM, THIS
PROXY WILL BE VOTED AFFIRMATIVELY ON THESE MATTERS.
Discretionary authority is hereby conferred as to all other matters as may
properly come before the Meeting.
PLEASE VOTE AND SIGN ON OTHER SIDE AND RETURN PROMPTLY IN ENCLOSED ENVELOPE
PLEASE SIGN THIS PROXY EXACTLY AS YOUR NAME APPEARS ON THE BOOKS OF THE TRUST.
JOINT OWNERS SHOULD EACH SIGN PERSONALLY. TRUSTEES AND OTHER FIDUCIARIES SHOULD
INDICATE THE CAPACITY IN WHICH THEY SIGN, AND WHERE MORE THAN ONE NAME APPEARS,
A MAJORITY MUST SIGN. IF A CORPORATION, THIS SIGNATURE SHOULD BE THAT OF
AN AUTHORIZED OFFICER WHO SHOULD STATE HIS OR HER TITLE.
[X] PLEASE MARK VOTES AS IN THIS EXAMPLE
1. Election of Trustees. [ ] FOR [ ] WITHHOLD [ ] FOR ALL EXCEPT
John F. Curley, Jr., Edmund J. Cashman, Jr., Richard G. Gilmore,
Charles F. Haugh, Arnold L. Lehman, Jill E. McGovern, T. A. Rodgers
and Edward A. Taber, III
NOTE: IF YOU DO NOT WISH YOUR SHARES VOTED "FOR" A PARTICULAR NOMINEE(S),
MARK THE "FOR ALL EXCEPT" BOX AND STRIKE A LINE THROUGH HIS (OR THEIR) NAME(S).
YOUR SHARES SHALL BE VOTED FOR THE REMAINING NOMINEE(S).
RECORD DATE SHARES:
2. Approval of a Distribution Plan. [ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Approval of changes to the Trust's fundamental investment limitations
and policies as follows:
(a) designating as non-fundamental certain investment policies currently
deemed fundamental, [ ] FOR [ ] AGAINST [ ] ABSTAIN
(b) eliminating the fundamental limitation regarding the purchase of
foreign securities, [ ] FOR [ ] AGAINST [ ] ABSTAIN
(c) replacing the fundamental limitation regarding the purchase of
restricted securities with a non-fundamental limitation,
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(d) eliminating the fundamental limitation restricting the pledging of
assets, and [ ] FOR [ ] AGAINST [ ] ABSTAIN
(e) replacing the fundamental limitation regarding investment in new
issuers with a non-fundamental limitation.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
<PAGE>
4. Ratification of the selection of Ernst & Young LLP as independent auditors
for the fiscal year ending August 31, 1996. [ ] FOR [ ] AGAINST [ ] ABSTAIN
Please be sure to sign and date this Proxy. Date
Shareholder sign here Co-owner sign here
