As filed with the Securities and Exchange Commission on December 31, 1997.
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: 35 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No: 28
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.
100 Light Street Kirkpatrick & Lockhart LLP
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:
[X] immediately upon filing pursuant to Rule 485(b)
[ ] on , 1997 pursuant to Rule 485(b)
[ ] 60 days after filing pursuant to Rule 485(a)(i)
[ ] on , 1997 pursuant to Rule 485(a)(i)
[ ] 75 days after filing pursuant to Rule 485(a)(ii)
[ ] on , 1997 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.
<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 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
Prospectus Highlights 2
Trust Expenses 3
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 9
How Net Asset Value is Determined 10
Dividends 10
Tax Treatment of Dividends 11
Shareholder Services 11
The Trust's Board of Trustees and
Manager 12
The Trust's Investment Adviser 12
The Trust's Distributor 13
The Trust's Custodian and Transfer
Agent 13
Description of the Trust and its
Shares 13
ADDRESSES
DISTRIBUTOR:
Legg Mason Wood Walker, Inc.
100 Light Street
P.O. Box 1476, Baltimore, MD 21203-1476
410 (Bullet) 539 (Bullet) 0000 800 (Bullet) 822 (Bullet) 5544
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
2 Commerce Square
2001 Market Street
Philadelphia, PA 19103
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.
LMF-017
Prospectus
December 31, 1997
Legg Mason
Cash
Reserve
Trust
The Art of Investing
[LEGG MASON FUNDS LOGO]
<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
December 31, 1997 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 NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Dated: December 31, 1997
Legg Mason Wood Walker, Incorporated
100 Light 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 9.
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 "Investment
Objective and Policies," page 5.
NET ASSETS:
Over $1.2 billion as of November 30, 1997
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 and the Bartlett Mutual
Funds. See "Exchange Privilege," page 11.
YIELD:
Based on current money market rates; quoted in the financial section
of most major 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, 1997.
<TABLE>
<S> <C>
ANNUAL TRUST OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management fees 0.48%
12b-1 fees 0.10%*
Other expenses 0.20%
-----
Total operating expenses 0.78%*
-----
</TABLE>
---------------------
*The fee shown 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 until January 10, 1999. If the full amount of the
fee were paid, 12b-1 fees would be 0.15% and total operating expenses
would be 0.83%.
For further information concerning Trust expenses, please see "The
Trust's Board of Trustees and Manager," page 12, and "The Trust's
Distributor," page 13.
EXAMPLE
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. The Trust
charges no redemption fees of any kind.
<TABLE>
<S> <C> <C> <C>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -----------------------------------------
$8 $25 $43 $97
</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 table 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 information in the table below, insofar as it relates to
each of the periods presented in the ten-year period ended August 31, 1997,
has been audited by Ernst & Young LLP, independent auditors. The Trust's
financial statements for the year ended August 31, 1997 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 financial advisor or Legg Mason's Funds Marketing
Department at 800-822-5544.
<TABLE>
<CAPTION>
For the Years Ended August 31,
------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value,
beginning of year $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
------------------------------------------------------------------------------------------------------
Net investment
income .05 .05 .05 .03 .03 .04 .06 .08 .08
Net realized gain
(loss) on
investments Nil Nil Nil (Nil) -- Nil -- -- --
------------------------------------------------------------------------------------------------------
Total from
investment
operations .05 .05 .05 .03 .03 .04 .06 .08 .08
------------------------------------------------------------------------------------------------------
Dividends paid
from:
Net investment
income (.05) (.05) (.05) (.03) (.03) (.04) (.06) (.08) (.08)
Realized gain on
investments -- -- -- -- -- (Nil) -- -- --
------------------------------------------------------------------------------------------------------
Net asset value,
end of year $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
------------------------------------------------------------------------------------------------------
Total return 4.84% 4.92% 5.08% 3.08% 2.85% 4.37% 6.41% 8.03% 8.56%
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net
assets:
Expenses .75% .70% .71% .72% .76% .75% .74% .74% .88%
Net investment
income 4.73% 4.81% 5.03% 3.05% 2.82% 4.11% 6.26% 7.73% 8.30%
Net assets, end of year
(in thousands) $1,342,639 $1,224,481 $1,153,130 $786,321 $754,996 $733,789 $860,954 $923,249 $723,662
<CAPTION>
1988*
- -------------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value,
beginning of year $1.00
-----
Net investment
income .06
Net realized gain
(loss) on
investments --
-----
Total from
investment
operations .06
-----
Dividends paid
from:
Net investment
income (.06)
Realized gain on
investments --
-----
Net asset value,
end of year $1.00
-----
Total return 6.56%
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net
assets:
Expenses .84%
Net investment
income 6.45%
Net assets, end of year
(in thousands) $436,759
</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 12.
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, 1997 was
4.81%. The effective yield for the same period was 4.93%.
--------------------------------------------------------------------
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 are non-fundamental
and 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 and other 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 determined by the Adviser to present
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") and comparable unrated commercial paper;
(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;
(Bullet) U.S. dollar-denominated securities of foreign issuers; and
(Bullet) asset-backed securities.
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 (such as direct
obligations of the U.S. Treasury, a majority of Federal Land Bank
securities, Farmers Home Administration certificates);
(Bullet) the issuer's right to borrow from the U.S. Treasury (such as
Federal Home Loan Banks, Fannie Mae);
(Bullet) the discretionary authority of the U.S. Government to purchase
certain obligations of agencies or instrumentalities (such as Federal Home
Loan Banks); or
(Bullet) the credit of the agency or instrumentality issuing the
obligations (such as Federal Farm Credit Banks Funding Corporation).
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 a custodian bank 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 result in a loss. 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 established
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 net 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.
Such trades may have an effect on the Trust that is similar to leverage.
The seller's failure to complete a transaction may result in a loss.
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. The ability of a party to fulfill its
obligations under a letter of credit or guarantee might be affected by
possible financial difficulties of its borrowers, adverse interest rate or
economic conditions, regulatory limitations or other factors. 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 Investment Company Act of 1940 ("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 to be 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
6
<PAGE>
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 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 are, pursuant to procedures
adopted by the Trust's Board of Trustees, eligible for investment by money
market funds, under rules adopted by the SEC; 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 market prices of the
securities in which the Trust invests normally go up when market interest
rates go down, and vice-versa. By purchasing short-term high quality
instruments, the Fund attempts to minimize such fluctuations.
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 present reason to believe that these factors would 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, with an affiliate that has an agreement with Legg Mason, or
with an unaffiliated entity having an agreement with Legg Mason
("Financial Advisor or Service Provider"). Your Financial Advisor or
Service Provider will be pleased to explain the shareholder services
available from the Trust and answer any questions you may have. Documents
available from your Financial Advisor or Service Provider should be
completed if you invest in shares of the Trust through Individual
Retirement Accounts (including newly available "education individual
retirement accounts" and "Roth IRAs"), Simplified Employee Pension Plans,
Savings Incentive Match Plans for Employees or other qualified retirement
plans (collectively referred to as "Retirement Plans").
Investors who are considering establishing a Retirement Plan may wish
to consult their attorneys or tax advisers with respect to individual tax
questions. Your Financial Advisor or Service Provider can make available
to you forms of Retirement Plans. The option of investing in Retirement
Plans through regular payroll deductions may be arranged with Legg Mason
and your employer. Additional information with respect to Retirement Plans
is available upon request from a Financial Advisor or Service Provider.
The minimum initial investment in the Trust for each account,
including investments made by exchange from other Legg Mason funds and
investments in a Retirement Plan, 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,
7
<PAGE>
accounts with other financial institutions and certain unit investment
trusts are subject to lower minimum initial and subsequent investments.
The minimum amount for subsequent investments in a Retirement Plan
will be waived if an investment would 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 the minimum amount requirements
at its discretion. You should always furnish your shareholder account
number when making additional purchases of shares of the Trust.
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 "Legg
Mason Cash Reserve Trust") to your Financial Advisor or Service Provider.
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 your Financial Advisor or Service
Provider 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 transfer
funds each month from your Legg Mason account or from your checking
account. Please contact your Financial Advisor or Service Provider 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 your
Financial Advisor or Service Provider.
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
Financial Advisor or Service Provider 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. Trust shares may not be held in, or
transferred to, an account with any brokerage firm that does not
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have an agreement with Legg Mason. The Trust no longer issues share
certificates.
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 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, although those shareholders who wish to
redeem their shares previously evidenced by certificates may do so only by
mail:
1. REDEMPTION BY TELEPHONE
Telephone redemptions may be made by calling your Financial Advisor or
Service Provider. 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 they are executed. Wire
transfers of proceeds to you or your Legg Mason or affiliated brokerage
account normally will be transmitted the same day they are executed.
To make a telephone redemption, you should call your Financial Advisor
or Service Provider 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 Financial Advisor
or Service Provider by telephone, you may make a redemption request by
mail.
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
Financial Advisor or Service Provider 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 Financial Advisor or Service Provider 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
Financial Advisor or Service Provider 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
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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 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.
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
Financial Advisor or Service Provider 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 Financial Advisor or Service Provider for
details.
To the extent permitted by law, the Trust reserves the right to take
up to seven days to make payment upon redemption if, in the judgment of
the Adviser, the Trust could be adversely affected by immediate payment.
(The Statement of Additional Information describes several other
circumstances in which the date of payment may be postponed or the right
of redemption suspended.)
There is no fee for redemptions with the exception of wire redemptions
by telephone as described above.
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 Legg Mason 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 Financial Advisor or
Service Provider or Legg Mason Client Services in Baltimore, Maryland.
Upon receipt of your form, your shares will be redeemed at the net asset
value per share determined as of the next close of the Exchange.
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, but cannot guarantee that it will
always remain at $1.00.
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 your Financial
Advisor or Service Provider. 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.
If a shareholder has elected to receive dividends in cash and the
postal or other delivery service is unable to deliver checks to the
shareholder's address of record, such shareholder's distribution option
will automatically be converted to having all dividends reinvested in
additional shares. No interest will accrue on amounts represented by
uncashed distribution or redemption checks.
In certain cases, you may reinvest your dividends in shares of another
Legg Mason fund. Please contact your Financial Advisor or Service Provider
for additional information about this option.
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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 additional shares) are taxable to
the Trust's shareholders (other than Retirement Plans and other tax-exempt
investors) as ordinary income to the extent of the Trust's earnings and
profits.
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 urged to consult
their tax advisers with respect to the effects of an investment in the
Trust on their own tax situations.
SHAREHOLDER SERVICES
CONFIRMATIONS AND REPORTS
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
Financial Advisor or Service Provider for further information.
LEGG MASON PREMIER ASSET MANAGEMENT ACCOUNT
Certain 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
Financial Advisor or Service Provider.
EXCHANGE PRIVILEGE
As a Trust shareholder, you are entitled to exchange your shares of
the Trust for shares of any of the Legg Mason or Bartlett funds, provided
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that such shares are eligible for sale in your state of residence.
Investments by exchange into the Legg Mason or Bartlett 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 or Bartlett
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 or Bartlett funds, or to
make an exchange, please contact your Financial Advisor or Service
Provider. To effect an exchange by telephone, please call your Financial
Advisor or Service Provider with the information described in the section
"How You Can Redeem Your Trust Shares," page 9. 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.
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"), 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, 1997, the Trust paid the Manager, pursuant to
the Management Agreement, a fee equal to 0.48% of the Trust's average
daily net assets.
The Manager acts as manager or investment adviser to seventeen
investment company portfolios which had aggregate assets under management
of approximately $9.3 billion as of November 30, 1997. The Manager's
address is 100 Light Street, Baltimore, Maryland 21202. The Manager is a
wholly owned subsidiary of Legg Mason, Inc., a financial services holding
company.
The Manager has taken steps that it believes are reasonably designed
to address the potential failure of computer programs used by the Manager
and the Trust's service providers to address the Year 2000 issue. There
can be no assurance that these steps will be sufficient to avoid any
adverse impact.
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 sixteen open-end
investment companies and one closed-end investment company, which together
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had aggregate assets under management of approximately $4.8 billion as of
November 30, 1997. The Adviser also renders investment advice to private
accounts with fixed income assets under management of approximately $28.0
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 financial
advisors, 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, 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 has adopted a Distribution and Shareholder Services Plan
("Plan") pursuant to Rule 12b-1 under the 1940 Act. The Plan 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 until
January 10, 1999. 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 may enter into agreements with unaffiliated dealers to sell
shares of the Trust. Legg Mason pays such dealers up to 90% of the
distribution and shareholder service fees that it receives from the Trust
with respect to shares sold by the dealers.
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, 1997, Legg Mason received $566,000 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 100 Light 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 December 31, 1997 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: December 31, 1997
Legg Mason Wood Walker
Incorporated
- --------------------------------------------------------------------------------
100 Light Street
Baltimore, Maryland 21202
(410) 539-0000 (800) 822-5544
<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 in the interim. 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 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
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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 AND ILLIQUID 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. Although restricted securities
traditionally were considered illiquid, the Adviser, acting pursuant to
guidelines established by the Trust's Board of Trustees, may determine that
certain restricted securities are liquid.
Illiquid securities may be difficult to value, and the Trust may have
difficulty disposing of such securities promptly. Repurchase agreements maturing
in more than seven days are considered illiquid.
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. Except for the Trust's investment objective and the eleven
limitations described below, the investment policies and limitations of the
Trust are nonfundamental and can be changed by the Board of Trustees without
shareholder approval.
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.
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.
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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 one-third 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
limitations of the Trust, described in the preceding paragraphs and in the
Prospectus, may not be changed without the vote of a majority of the Trust's
outstanding voting securities. Under the Investment Company Act of 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) 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 (3) 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.
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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 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
the market price of those securities will be subject to fluctuation 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 transfer funds to be used to buy
shares of the Trust. Legg Mason, the Trust's distributor, will send an account
statement quarterly. The transfer also will be reflected on your Legg Mason
account statement or 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:
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Boston Financial Data Services, Inc.
2 Heritage Drive
North Quincy, MA 02171
Attn: Legg Mason Funds
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"),
Simplified Employee Pension Plan ("SEP"), Savings Incentive Match Plan for
Employees ("SIMPLE") or other qualified retirement plan. You may change the
monthly amount to be paid to you without charge not more than once a year by
notifying Legg Mason or the affiliate with which you have an account.
Redemptions will be made at the 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 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 Accounts, 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 Legg
Mason Brokerage Account and unlimited checkwriting 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
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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 within 15 days by other
than federal funds wired; (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.
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 in a single account 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 financial advisor. 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.
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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 financial advisor 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. Canceled
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 exact total value of the
account, including accrued dividends, on the day the check clears. Persons who
obtained 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, (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 financial advisor and your employer. Additional
information with respect to these accounts or plans is available upon request
from any Legg Mason or affiliated financial advisor.
Individual Retirement Account - IRA
Certain investors who have not reached age 70 1/2 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 in such a plan 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 and your spouse's earned income or $2,000 ($4,000 for
a married couple filing a joint return); notwithstanding the foregoing, however,
a married investor who is not an active participant in such a plan and files
jointly with his or her spouse (and their combined adjusted gross income does
not exceed $150,000) is not affected by the spouse's active participant status.
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In addition, if your spouse is not employed and you file a joint return, you may
establish a separate IRA for your spouse and contribute up to a total of $4,000
to the two IRAs, provided that neither contribution exceeds $2,000 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. Furthermore, individuals whose
earnings (together with their spouse's earnings) do not exceed a certain level
may establish an "education IRA" and/or a "Roth IRA", although contributions to
these new types of IRAs (established by the Taxpayer Relief Act of 1997) are
nondeductible, withdrawals from them will not be taxable under certain
circumstances.
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.
Simplified Employee Pension Plan - SEP
Legg Mason makes available to corporate and other employers a SEP for
investment in shares of the Trust.
Savings Incentive Match Plan for Employees - SIMPLE
An employer with no more than 100 employees that does not maintain
another retirement plan instead may establish a SIMPLE either as separate IRAs
or as part of a Code section 401(k) plan. A SIMPLE, which is not subject to the
complicated nondiscrimination rules that generally apply to qualified retirement
plans, allows certain employees to make elective contributions of up to $6,000
per year and requires the employer to make matching contributions up to 3% of
each such employee's salary.
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, Martin
Luther King's Birthday, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving and Christmas.
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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 periodically assesses the
accuracy and appropriateness of 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.
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, unless 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
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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, based on the times at which the interest rates of
these securities are reset and/or the Trust is permitted to redeem them on
demand.
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 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 market 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.
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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 and other costs 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.
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 advisers for private
accounts and mutual funds with assets of more than $51 billion as of September
30, 1997.
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
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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 100 Light Street, Baltimore, Maryland 21202, unless otherwise
indicated.
JOHN F. CURLEY, JR.*, [7/24/39] 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 of various other affiliates of Legg Mason, Inc.; President and/or
Chairman of the Board and Director/Trustee of nine Legg Mason funds.
CHARLES F. HAUGH, [12/27/25] 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, [7/18/44] Trustee; The Brooklyn Museum of Art, 200
Eastern Parkway, Brooklyn, NY. Director, The Brooklyn Museum of Art;
Director/Trustee of nine Legg Mason funds. Formerly: Director, Baltimore Museum
of Art;
JILL E. McGOVERN, [8/29/44] 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).
RICHARD G. GILMORE, [6/9/27] 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.
T.A. RODGERS, [10/22/34] 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).
13
<PAGE>
EDWARD A. TABER*, [8/25/43] 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.*, [8/31/36] 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.
The executive officers of the Trust, other than those who also serve as
trustees, are:
MARIE K. KARPINSKI*, [1/1/49] Vice President and Treasurer; Treasurer
of Legg Mason Fund Adviser, Inc.; Vice President and Treasurer of nine Legg
Mason funds and Vice President of Legg Mason Fund Adviser, Inc.,; Vice
President of Legg Mason Wood Walker, Inc.
KATHI D. BAIR*, [12/15/64] Secretary; Secretary of nine Legg Mason
funds; Assistant Treasurer of three Legg Mason funds.
BRIAN M. EAKES*, [12/9/69] Assistant Secretary and Assistant Treasurer;
employee of Legg Mason, Inc. since July 1995. Formerly: Senior Associate -
Audit of Coopers & Lybrand L.L.P. (Aug. 1992 - June 1995).
Officers and trustees of the Trust who are interested persons of the
Trust receive no salary or fees from the Trust. Each trustee who is not an
interested person of the Trust ("Independent Trustees") receives an annual
retainer and a per meeting fee based on the average net assets of the Trust at
December 31, of the previous year, as follows:
December 31 Annual Per Meeting
Avg. Net Assets Retainer Fee
--------------- -------- ---
Up to $250 million $600 $150
$250 mill - $1 bill $1,200 $300
Over $1 billion $2,000 $400
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, Gilmore, Rodgers and Lehman and Dr. McGovern, each of
whom is a disinterested trustee as that term is defined in the 1940 Act.
At December 1, 1997, 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, 1997.
The Trust has no retirement plan for its trustees.
COMPENSATION TABLE
14
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------- -------------------------------------- -------------------------------------
Name of Person and Position Aggregate Compensation From Trust* Total Compensation From Trust
and Fund Complex Paid to
Trustees**
- --------------------------------------- -------------------------------------- -------------------------------------
<S> <C>
John F. Curley, Jr. -
Chairman of the Board and Trustee None None
Charles F. Haugh - Trustee $3,200 $22,500
Arnold L. Lehman - Trustee $3,200 $22,500
Jill E. McGovern - Trustee $3,200 $22,500
Richard G. Gilmore - Trustee $3,200 $22,500
T.A. Rodgers - Trustee $3,200 $22,500
Edward A. Taber - Trustee None None
Edmund J. Cashman, Jr. - Trustee None None
- --------------------------------------- -------------------------------------- -------------------------------------
</TABLE>
* Represents fees paid to each trustee during the fiscal year ended August
31, 1997.
** Represents aggregate compensation paid to each trustee during the
calendar year ended December 31, 1997.
MANAGEMENT AGREEMENT
Legg Mason Fund Adviser, Inc. ("Manager"), 100 Light 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 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. 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. During the fiscal years ended August 31, 1997, 1996 and 1995, the
Trust paid $6,110,012, $5,896,533 and $4,640,893, respectively, to the Manager.
During the fiscal years ended August 31, 1996, and 1995, Legg Mason contributed
$400,000,and $480,000, 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.
15
<PAGE>
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 prospectuses, statements
of additional information, proxy statements and reports and of printing them for
and 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.
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 November 7, 1997. 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, 1997, 1996 and 1995, the Manager paid
the Adviser $1,833,004, $1,768,960 and $1,392,268, 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
16
<PAGE>
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 implementation of the Plan,
which occurred on January 10, 1997. 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.
Effective January 10, 1997, the Trust began compensating Legg Mason for
distribution costs and services at an annual rate equal to 0.10% of its average
daily net assets. During the year ended August 31, 1997, the Trust paid Legg
Mason $833,064 pursuant to the Underwriting Agreement. 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"). Shareholder
servicing fees paid under the Plan are not subject to that limit. Legg Mason may
pay all or a portion of the fee to its financial advisors or to dealers with
which Legg Mason has a dealer agreement with respect to the Trust.. The
continuation of the Plan was approved on November 7, 1997 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").
In approving the continuation of 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 the Trust'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 when the
Plan is 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.
17
<PAGE>
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 candidates to serve as
Independent Trustees will be committed to the discretion of the 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, 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 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.
18
<PAGE>
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, 2 Commerce Square, 2001 Market St., Philadelphia, PA
19103, 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, 1997; the
Statement of Operations for the year ended August 31, 1997; the Statement of
Changes in Net Assets for the fiscal years ended August 31, 1997 and 1996; the
Financial Highlights for the years ended August 31, 1993 through 1997; the Notes
to Financial Statements and the Report of Ernst & Young LLP, Independent
Auditors are hereby incorporated by reference in this Statement of Additional
Information from the Trust's annual report for the year ended August 31, 1997.
19
<PAGE>
TABLE OF CONTENTS
Page
----
Additional Information About Investment
Limitations and Policies
Additional Tax Information
Additional Purchase and Redemption Information
Tax-Deferred Retirement Accounts and Plans
Valuation of Shares
How the Trust's Yield is Calculated
Massachusetts Trust Law
The Trust's Trustees and Officers
Management Agreement
Investment Advisory Agreement
The Trust's Distributor
Portfolio Transactions and Brokerage
The Trust's Custodian and Transfer and Dividend-
Disbursing Agent
The Trust's Legal Counsel
The Trust's Independent Auditors
Financial Statements
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
- --------------------------------------------------------------------------------
100 Light Street
P.O. Box 1476
Baltimore, Maryland 21203-1476
(410) 539-0000
<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, 1997 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
<TABLE>
<S> <C>
(1) (a) Declaration of Trust -- filed herewith
(b) Amendment No. 1 to the Declaration of Trust -- filed herewith
(c) Amendment No. 2 to the Declaration of Trust -- filed herewith
(2) By-Laws (As Restated and Amended February 2, 1987) -- filed herewith
(3) Voting trust agreement - none
(4) Specimen security -- not applicable
(5) (a) Management Agreement -- filed herewith
(b) Investment Advisory Contract -- filed herewith
(6) Underwriting Agreement - (1)
(7) Bonus, profit sharing or pension plans - none
(8) (a) Custodian Agreement -- filed herewith
(b) Amendment to Custodian Agreement -- filed herewith
(9) Transfer Agency and Service Agreement -- filed herewith
(10) Opinion of Counsel -- filed herewith
(11) Consent of Independent Auditors - filed herewith
(12) Financial statements omitted from Item 23 - none
(13) Not Applicable
(14) (a) Prototype IRA Plan -- (Form of) filed herewith
(b) Prototype SEP -- (Form of) filed herewith
(c) Prototype SIMPLE -- (Form of) filed herewith
(15) Plan pursuant to Rule 12b-1 (1)
(16) Schedule for Computation of Performance Quotations - filed herewith
(17) Financial Data Schedule - filed herewith
(18) Plan pursuant to Rule 18f-3 - none
- ------------
(1) Incorporated herein by reference to corresponding Exhibit of
Post-Effective Amendment No. 34 to the Registration Statement filed on
December 31, 1996.
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 December 18, 1997)
-------------- -------------------------
Shares of Beneficial
Interest (no par value) 93,466
Item 27. Indemnification
<PAGE>
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 interest of the Registrant, the
Trustees and Officers shall not be responsible or liable in any event for
neglect or wrongdoing by them or any employee, agent, investment adviser 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. ("Manager") 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 ("Adviser") 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 the Adviser or
from the Adviser'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, 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
<PAGE>
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 seventeen open-end investment
companies. Information as to the officers and directors of the Manager is
included in its Form ADV filed on August 11, 1997 with the Securities and
Exchange Commission (registration number 801-16958) and is incorporated herein
by reference.
II. Western Asset Management Company ("Adviser"), the Registrant's
investment adviser, is a registered investment adviser incorporated on October
5, 1971. The Adviser is primarily engaged in the investment advisory business.
The Adviser also serves as investment adviser for open-end investment companies
and one closed-end investment company. Information as to the officers and
directors of the Adviser is included in its Form ADV filed on June 25, 1997 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.
(b) The following table sets forth information concerning each
director and officer of the Registrant's principal underwriter,
Legg Mason Wood Walker, Incorporated ("LMWW").
</TABLE>
<TABLE>
<CAPTION>
Position and Positions and
Name and Principal Offices with Offices with
Business Address* Underwriter - LMWW Registrant
- ----------------- ------------------ ----------
<S> <C>
Raymond A. Mason Chairman of the None
Board
John F. Curley, Jr. Vice Chairman Chairman of the
of the Board Board, President and
Trustee
</TABLE>
<PAGE>
<TABLE>
<S> <C>
James W. Brinkley President and None
Director
Edmund J. Cashman, Jr. Senior Executive Trustee
Vice President and
Director
Richard J. Himelfarb Senior Executive Vice None
President and
Director
Edward A. Taber III Senior Executive Vice Trustee
President and
Director
Robert A. Frank Executive Vice None
President and
Director
Robert G. Sabelhaus Executive Vice None
President and
Director
Charles A. Bacigalupo Senior Vice None
President,
Secretary and
Director
F. Barry Bilson Senior Vice None
President 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
Thomas E. Hill Senior Vice None
One Mill Place President and
Easton, MD 21601 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
</TABLE>
<PAGE>
<TABLE>
<S> <C>
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
Joseph Sullivan Senior Vice None
President and
Director
M. Walter D'Alessio, Jr. Director None
1735 Market Street
Philadelphia, PA 19103
W. William Brab Senior Vice None
President
Deepak Chowdhury Senior Vice None
255 Alhambra Circle President
Coral Gables, FL 33134
Harry M. Ford, Jr. Senior Vice None
President
Dennis A. Green Senior Vice None
President
William F. Haneman, Jr. Senior Vice None
One Battery Park Plaza President
New York, New York 10005
Theodore S. Kaplan Senior Vice None
President and
General Counsel
Seth J. Lehr Senior Vice None
1735 Market St President
Philadelphia, PA 19103
Horace M. Lowman, Jr. Senior Vice None
President and
Asst. Secretary
Robert L. Meltzer Senior Vice None
One Battery Park Plaza President
New York, NY 10004
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Jonathan M. Pearl Senior Vice None
1777 Reisterstown Rd. President
Pikesville, MD 21208
John A. Pliakas Senior Vice None
125 High Street President
Boston, MA 02110
Gail Reichard Senior Vice None
President
Timothy C. Scheve Senior Vice None
President and
Treasurer
Elisabeth N. Spector Senior Vice None
President
Robert J. Walker, Jr. Senior Vice None
200 Gibraltar Road President
Horsham, PA 19044
William H. Bass, Jr. Vice President None
Nathan S. Betnun Vice President None
John C. Boblitz Vice President None
Andrew J. Bowden Vice President None
D. Stuart Bowers Vice President None
Edwin J. Bradley, Jr. Vice President None
Scott R. Cousino Vice President None
Joseph H. Davis, Jr. Vice President None
1735 Market Street
Philadelphia, PA 19380
Terrence R. Duvernay Vice President None
1100 Poydras St.
New Orleans, LA 70163
John R. Gilner Vice President None
Richard A. Jacobs Vice President None
C. Gregory Kallmyer Vice President None
Edward W. Lister, Jr. Vice President None
Marie K. Karpinski Vice President Vice President
and Treasurer
Mark C. Micklem Vice President None
1747 Pennsylvania Ave.
Washington, DC 20006
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Hance V. Myers, III Vice President None
1100 Poydras St.
New Orleans, LA 70163
Gerard F. Petrik, Jr. Vice President None
Douglas F. Pollard Vice President None
K. Mitchell Posner Vice President None
1735 Market Street
Philadelphia, PA 19103
Carl W. Riedy, Jr. Vice President None
Jeffrey M. Rogatz Vice President None
Thomas E. Robinson Vice President None
Douglas M. Schmidt Vice President None
Robert W. Schnakenberg Vice President None
1111 Bagby St.
Houston, TX 77002
Henry V. Sciortino Vice President None
1735 Market St.
Philadelphia, PA 19103
Chris Scitti Vice President None
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
Robert S. Trio Vice President None
1747 Pennsylvania Ave.
Washington, DC 20006
William A. Verch Vice President None
Lewis T. Yeager Vice President None
Joseph F. Zunic Vice President None
</TABLE>
* All addresses are 100 Light 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.
<PAGE>
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. 35 to its Registration Statement pursuant to Rule
485 (b) under the Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Baltimore and State of Maryland, on the 27 th day of
December, 1997.
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. 35 to the Registrant's Registration Statement has
been signed below by the following persons in the capacities and on the dates
indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C>
/s/ John F. Curley, Jr.
- -------------------------- Chairman of the Board,
John F. Curley, Jr. President and Trustee December 27, 1997
/s/ Edward A. Taber, III Trustee December 27, 1997
- --------------------------
Edward A. Taber, III
/s/ Edmund J. Cashman, Jr. Trustee December 27, 1997
- --------------------------
Edmund J. Cashman, Jr.
/s/ Charles F. Haugh* Trustee December 27, 1997
- --------------------------
Charles F. Haugh*
/s/ Arnold L. Lehman* Trustee December 27, 1997
- --------------------------
Arnold L. Lehman*
/s/ Jill E. McGovern* Trustee December 27, 1997
- --------------------------
Jill E. McGovern*
/s/ Marie K. Karpinski
- -------------------------- Vice President and
Marie K. Karpinski Treasurer December 27, 1997
</TABLE>
*Signatures affixed by Marie K. Karpinski pursuant to a power of attorney dated
May 10, 1996, a copy of which is filed herewith.
<PAGE>
POWER OF ATTORNEY
I, the undersigned Trustee of the following investment company:
Legg Mason Cash Reserve Trust
plus any other investment company for which Legg Mason Fund Adviser, Inc. acts
as investment adviser or manager and for which the undersigned individual serves
as Trustee hereby severally constitute and appoint each of Marie K. Karpinski,
John F. Curley, Jr., Arthur J. Brown and Arthur C. Delibert my true and lawful
attorney-in-fact, with full power of substitution, and with full power to sign
for me and in my name in the appropriate capacity, any Registration Statements
on Form N-1A or Form N-14, all Pre-Effective Amendments to any Registration
Statements of the Funds, any and all subsequent Post-Effective Amendments to
said Registration Statements, any supplements or other instruments in connection
therewith, to file the same with the Securities and Exchange Commission and the
securities regulators of appropriate states and territories, and generally to do
all such things in my name and behalf in connection therewith as said
attorney-in-fact deems necessary or appropriate, to comply with the provisions
of the Securities Act of 1933 and the Investment Company Act of 1940, all
related requirements of the Securities and Exchange Commission and all
requirements of appropriate states and territorites. I hereby ratify and confirm
all that said attorney-in-fact or their substitutes may do or cause to be done
by virtue hereof.
WITNESS my hand on the date set forth below.
Signature Date
- --------- ----
/s/ Richard G. Gilmore May 10, 1996
- --------------------------
Richard G. Gilmore
/s/ T. A. Rodgers May 10, 1996
- --------------------------
T. A. Rodgers
/s/ Charles F. Haugh May 10, 1996
- --------------------------
Charles F. Haugh
/s/ Arnold L. Lehman May 10, 1996
- --------------------------
Arnold L. Lehman
/s/ Jill E. McGovern May 10, 1996
- --------------------------
Jill E. McGovern
/s/ Edward A. Taber, III May 10, 1996
- --------------------------
Edward A. Taber, III
/s/ Edmund J. Cashman, Jr. May 10, 1996
- --------------------------
Edmund J. Cashman, Jr.
FEDERATED FIDUCIARY TRUST
DECLARATION OF TRUST
<TABLE>
<CAPTION>
Page
----
<S> <C>
Article I Name and Definitions...................................................... 1
1. Name............................................................. 1
2. Definitions -
(a) Affiliated Person, Assignment, Commission,
Interested Person, Majority Shareholder Vote,
Principal Underwriter.................................... 1
(b) Trust.................................................... 1
(c) Accumulated Net Income................................... 2
(d) Shareholder.............................................. 2
(e) Trustees................................................. 2
(f) Shares................................................... 2
(g) 1940 Act................................................. 2
Article II Purpose of Trust.......................................................... 2
Article III Beneficial Interest....................................................... 2
1. Shares of Beneficial Interest.................................... 2
2. Ownership of Shares.............................................. 3
3. Investment in the Trust.......................................... 3
4. No Pre-emptive Rights............................................ 3
Article IV The Trustees.............................................................. 4
1. Management of the Trust.......................................... 4
2. Election of Trustees at 1979 Meeting of Shareholders............. 4
3. Term of Office of Trustees....................................... 4
4. Termination of Service and Appointment of Trustees............... 5
5. Temporary Absence of Trustee..................................... 5
6. Number of Trustees............................................... 5
7. Effect of Death, Resignation, Etc. of a Trustee.................. 6
8. Ownership of the Trust........................................... 6
Article V Powers of the Trustees.................................................... 6
1. Powers........................................................... 6
2. Principal Transactions........................................... 10
3. Trustees and Officers as Shareholders............................ 11
4. Parties to Contract.............................................. 11
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Article VI Trustees' Expenses and Compensation....................................... 12
1. Trustee Reimbursement............................................ 12
2. Trustee Compensation............................................. 13
Article VII Investment Adviser, Administrative Services, Principal
Underwriter and Transfer Agent............................................ 13
1. Investment Adviser............................................... 13
2. Administrative Services.......................................... 14
3. Principal Underwriter............................................ 14
4. Transfer Agent................................................... 15
5. Provisions and Amendments........................................ 15
Article VIII Shareholders' Voting Powers and Meetings.................................. 16
1. Voting Powers.................................................... 16
2. Meetings......................................................... 16
3. Quorum and Required Vote......................................... 17
4. Additional Provisions............................................ 17
Article IX Custodian................................................................. 18
1. Appointment and Duties........................................... 18
2. Central Certificate System....................................... 19
Article X Distributions and Redemptions............................................. 19
1. Distributions.................................................... 19
2. Redemptions and Repurchases...................................... 20
3. Determination of Accumulated Net Income.......................... 22
4. Net Asset Value of Shares........................................ 22
5. Suspension of the Right of Redemption............................ 24
6. Trust's Right to Redeem Shares................................... 25
Article XI Limitation of Liability and Indemnification............................... 25
1. Limitation of Personal Liability and
Indemnification of Shareholders.................................. 25
2. Limitation of Personal Liability of
Trustees, Officers, Employees or
Agents of the Trust.............................................. 26
3. Express Exculpatory Clauses and Instruments...................... 27
4. Indemnification of Trustees, Officers,
Employees and Agents............................................. 28
Article XII Miscellaneous............................................................. 29
1. Trust is not a Partnership....................................... 29
2. Trustee's Good Faith Action, Expert
Advice, No Bond or Surety........................................ 29
3. Establishment of Record Dates.................................... 29
4. Termination of Trust............................................. 30
5. Offices of the Trust, Filing of Copies,
References, Headings............................................. 31
6. Applicable Law................................................... 32
7. Amendments....................................................... 32
</TABLE>
<PAGE>
FEDERATED FIDUCIARY TRUST
DECLARATION OF TRUST
Dated July 24, 1978
DECLARATION OF TRUST made July 24, 1978 by John F. Donahue, Richard B.
Fisher, J. Joseph Maloney, Jr., Wesley W. Posvar, Edward E. Smuts, Thomas J.
Donnelly, Glen R. Johnson, Gregor F. Meyer, and Edward L. Flaherty, Jr.
WHEREAS the Trustees desire to establish a trust fund for the
investment and reinvestment of funds contributed thereto;
NOW, THEREFORE, the Trustees declare that all money and property
contributed to the trust fund hereunder shall be held and managed under this
Declaration of Trust IN TRUST as herein set forth below.
ARTICLE I
NAMES AND DEFINITIONS
Section 1. Name. This Trust shall be known as the "Federated
Fiduciary Trust."
Section 2. Definitions. Wherever used herein, unless otherwise
required by the context or specifically provided:
(a) The terms "Affiliated Person," "Assignment," "Commission,"
"Interested Person," "Majority Shareholder Vote" (the 67% or
50% requirement of the third sentence of Section 2(a)(42) of
the 1940 Act, whichever may be applicable) and "Principal
Underwriter" shall have the meanings given them in the
Investment Company Act of 1940, as amended from time to time;
(b) The "Trust" refers to Federated Fiduciary Trust;
<PAGE>
(c) "Accumulated Net Income" means the accumulated net income of
the Trust determined in the manner provided or authorized in
Article X, Section 3;
(d) "Shareholder" means a record owner of Shares of the Trust;
(e) The "Trustees" refer to the Individual Trustees in their
capacity as Trustees hereunder of the Trust and their
successor or successors for the time being in office as such
Trustees;
(f) "Shares" means the equal proportionate units of interest into
which the beneficial interest in the Trust shall be divided
from time to time and includes fractions of Shares as well as
whole Shares; and
(g) The "1940 Act" refers to the Investment Company Act of 1940,
as amended from time to time.
ARTICLE II
PURPOSE OF TRUST
The purpose of this Trust is to provide investors a continuous source
of managed investments primarily in securities.
ARTICLE III
BENEFICIAL INTEREST
Section 1. Shares of Beneficial Interest. The beneficial interest in
the Trust shall at all times be divided into transferable Shares, without par
value, each of which shall represent an equal proportionate interest in the
Trust with each other Share outstanding, none having priority or preference over
another. The number of Shares which may be issued is unlimited. The Trustees may
from time to time divide or combine the outstanding Shares into a greater or
lesser
2
<PAGE>
number without thereby changing the proportionate beneficial interest in the
Trust. Contributions to the Trust may be accepted for, and Shares shall be
redeemed as, whole Shares and/or fractions.
Section 2. Ownership of Shares. The ownership of Shares shall be
recorded in the books of the Trust or a transfer agent. The Trustees may make
such rules as they consider appropriate for the transfer of shares and similar
matters. The record books of the Trust or any transfer agent, as the case may
be, shall be conclusive as to who are the holders of Shares and as to the number
of Shares held from time to time by each.
Section 3. Investment in the Trust. The Trustees shall accept
investments in the Trust from such persons and on such terms as they may from
time to time authorize. After the date of the initial contribution of capital
(which shall occur prior to the initial public offering of Shares of the Trust),
the number of Shares to represent the initial contribution shall be considered
as outstanding and the amount received by the Trustees on account of the
contribution shall be treated as an asset of the Trust. Subsequent to such
initial contribution of capital, Shares (including Shares which may have been
redeemed or repurchased by the Trust) may be issued or sold at a price which
will net the Trust, before paying any taxes in connection with such issue or
sale, not less than the net asset value (as defined in Article X, Section 4)
thereof; provided, however, that the Trustees may in their discretion impose a
sales charge upon investments in the Trust.
Section 4. No Pre-emptive Rights. Shareholders shall have no pre-
emptive or other right to subscribe to any additional Shares or other
securities issued by the Trust or the Trustees.
3
<PAGE>
ARTICLE IV
THE TRUSTEES
Section 1. Management of the Trust. The business and affairs of the
Trust shall be managed by the Trustees, and they shall have all powers
necessary and desirable to carry out that responsibility. The Trustees who
shall serve until the election of Trustees at the 1979 Meeting of Shareholders
shall be John F. Donahue, Richard B. Fisher, J. Joseph Maloney, Jr., Wesley W.
Posvar, Edward E. Smuts, Thomas J. Donnelly, Glen R. Johnson, Gregor F. Meyer,
and Edward L. Flaherty, Jr.
Section 2. Election of Trustees at 1979 Meeting of Shareholders. In the
year 1979, on a date fixed by the Trustees, which shall be subsequent to the
initial public offering of Shares of the Trust, the Shareholder shall elect
Trustees. The number of Trustees shall be determined by the Trustees pursuant to
Article IV, Section 6.
Section 3. Term of Office of Trustees. The Trustees shall hold office
during the lifetime of this Trust, and until its termination as hereinafter
provided; except (a) that any Trustee may resign his trust by written instrument
signed by him and delivered to the other Trustees, which shall take effect upon
such delivery or upon such later date as is specified therein; (b) that any
Trustee may be removed at any time by written instrument signed by at least
two-thirds of the number of Trustees prior to such removal, specifying the date
when such removal shall become effective; (c) that any Trustee who requests in
writing to be retired or who has become mentally or physically incapacitated may
be retired by written instrument signed by a majority of the other Trustees,
specifying the date of his retirement; and (d) a Trustee may be removed at any
special meeting of Shareholders of the Trust by a vote of two-thirds of the
outstanding Shares.
4
<PAGE>
Section 4. Termination of Service and Appointment of Trustees. In case
of the death, resignation, retirement, removal or mental or physical incapacity
of any of the Trustees, or in case a vacancy shall, by reason of an increase in
number, or for any other reason, exist, the remaining Trustees shall fill such
vacancy by appointing such other person as they in their discretion shall see
fit. Such appointment shall be effected by the signing of a written instrument
by a majority of the Trustees in office. Within three months of such
appointment, the Trustees shall cause notice of such appointment to be mailed to
each Shareholder at his address as recorded on the books of the Trust. An
appointment of a Trustee may be made by the Trustees then in office and notice
thereof mailed to Shareholders as aforesaid in anticipation of a vacancy to
occur by reason of retirement, resignation or increase in number of Trustees
effective at a later date, provided that said appointment shall become effective
only at or after the effective date of said retirement, resignation or increase
in number of Trustees. As soon as any Trustee so appointed shall have accepted
this Trust, the trust estate shall vest in the new Trustee or Trustees, together
with the continuing Trustees, without any further act or conveyance, and he
shall be deemed a Trustee hereunder. Any appointment authorized by this Section
4 is subject to the provisions of Section 16(a) of the 1940 Act.
Section 5. Temporary Absence of Trustee. Any Trustee may, by power of
attorney, delegate his power for a period not exceeding six months at any one
time to any other Trustee or Trustees, provided that in no case shall less than
two of the Trustees personally exercise the other power hereunder except as
herein otherwise expressly provided.
Section 6. Number of Trustees. The number of Trustees, not less than
three (3) nor more than twenty (20) serving hereunder at any time shall be
determined by the Trustees themselves.
5
<PAGE>
Whenever a vacancy in the Board of Trustees shall occur, until such
vacancy is filled or while any Trustee is absent from the Commonwealth of
Massachusetts or, if not a domiciliary of Massachusetts, is absent from his
state of domicile, or is physically or mentally incapacitated, the other
Trustees shall have all the powers hereunder and the certificate signed by a
majority of the other Trustees of such vacancy, absence or incapacity, shall be
conclusive, provided, however, that no vacancy which reduces the number of
Trustees below three (3) shall remain unfilled for a period longer than six
calendar months.
Section 7. Effect of Death, Resignation, etc. of a Trustee. The death,
resignation, retirement, removal, or mental or physical incapacity of the
Trustees, or any one of them, shall not operate to annul the Trust or to revoke
any existing agency created pursuant to the terms of this Declaration of Trust.
Section 8. Ownership of the Trust. The assets of the Trust shall be
held separate and apart from any assets now or hereafter held in any capacity
other than as Trustee hereunder by the Trustees or any successor Trustee. All of
the assets of the Trust shall at all times be considered as vested in the
Trustees. No shareholder shall be deemed to have a severable ownership in any
individual asset of the Trust or any right of partition or possession thereof,
but each Shareholder shall have a proportionate undivided beneficial interest in
the Trust.
ARTICLE V
POWERS OF THE TRUSTEES
Section 1. Powers. The Trustees in all instances shall act as
principals, and are and shall be free from the control of the Shareholders.
The Trustees shall have full power and authority to do any and all acts and to
make an execute any and all contracts and instruments that they may consider
necessary or appropriate in connection with the management of the Trust. The
Trustees
6
<PAGE>
shall not be bound or limited by present or future laws or customs in regard to
trust investments, but shall have full authority and power to make any and all
investments which they, in their uncontrolled discretion, shall deem proper to
accomplish the purpose of this Trust. Without limiting the foregoing, the
Trustees shall have the following specific powers and authority, subject to any
applicable limitation in this Declaration of Trust or in the By-Laws of the
Trust.
(a) To buy, and invest funds in their hands in, securities
including, but not limited to, common stocks, preferred stocks, bonds,
debentures, warrants and rights to purchase securities, certificates of
beneficial interest, money market instruments, notes or other evidences
of indebtedness issued by corporations, trusts or associations,
domestic or foreign, or issued or guaranteed by the United State of
America or any agency or instrumentality thereof, by the government of
any foreign country, by any State of the United States, or by any
political subdivision or agency or instrumentality of any State or
foreign country, or in "when-issued" or "delayed-delivery" contracts
for any such securities, or in any repurchase agreement (agreements
under which the seller agrees at the time of sale to repurchase the
security at an agreed time and price), or retain Trust assets in cash,
and from time to time change the investments of the assets of the
Trust;
(b) To adopt By-Laws not inconsistent with the Declaration of
Trust providing for the conduct of the business of the Trust and to
amend and repeal them to the extent that they do not reserve that right
to the Shareholders;
(c) To Elect and remove such officers and appoint an terminate
such agents as they consider appropriate;
7
<PAGE>
(d) To appoint or otherwise engage a bank or trust company as
custodian of any assets of the Trust subject to any conditions set
forth in this Declaration of Trust or in the By-Laws;
(e) To appoint or otherwise engage transfer agents, dividend
disbursing agents, Shareholder servicing agents, investment advisers,
sub- investment advisers, principal underwriters, administrative
service agents, and such other agents as the Trustees may from time to
time appoint or otherwise engage;
(f) To provide for the distribution of interests of the Trust
either through a principal underwriter in the manner hereinafter
provided for or by the Trust itself, or both;
(g) To set record dates in the manner hereinafter provided for;
(h) To delegate such authority as they consider desirable to a
committee or committees composed of Trustees, including without
limitation, an Executive Committee, or to any officers of the Trust and
to any agent, custodian or underwriter;
(i) To sell or exchange any or all of the assets of the Trust,
subject to the provisions of Article XII, Section 4(b) hereof;
(j) To vote or give assent, or exercise any rights of ownership,
with respect to stock or other securities or property; and to execute
and deliver powers of attorney to such person or persons as the
Trustees shall deem proper, granting to such person or persons such
power and discretion with relation to securities or property as the
Trustees shall deem proper;
(k) To exercise powers and rights of subscription or otherwise
which in any manner arise out of ownership of securities;
8
<PAGE>
(l) To hold any security or property in a form not indicating any
trust, whether in bearer, unregistered or other negotiable form; or
either in its own name or in the name of a custodian or a nominee or
nominees, subject in either case to proper safeguards according to the
usual practice of Massachusetts trust companies or investment
companies;
(m) To consent to or participate in any plan for the
reorganization, consolidation or merger of any corporation or concern,
any security of which is held in the Trust; to consent to any contract,
lease, mortgage, purchase, or sale of property by such corporation or
concern, and to pay calls or subscriptions with respect to any security
held in the Trust;
(n) To engage in and to prosecute, compound, compromise, abandon,
or adjust, by arbitration, or otherwise, any actions, suits,
proceedings, disputes, claims, demands, and things relating to the
Trust, and out of the assets of the Trust to pay, or to satisfy, any
debts, claims or expenses incurred in connection therewith, including
those of litigation, upon any evidence that the Trustees may deem
sufficient (such powers shall include without limitation any actions,
suits, proceedings, disputes, claims, demands and things relating to
the Trust wherein any of the Trustees may be named individually and the
subject matter of which arises by reason of business for or on behalf
of the Trust);
(o) To make distributions of income and of capital gains to
Shareholders in the manner hereinafter provided for;
(p) To borrow money but only as a temporary measure for
extraordinary or emergency purposes and then (a) only in amounts not in
excess of 5% of the value of its total assets or (b) in any amount up
to one-third of the value of its total assets, including the amount
borrowed, in order to meet
9
<PAGE>
redemption requests without immediately selling any portfolio
securities. The Trustees shall not pledge, mortgage or hypothecate and
assets of the Trust.
(q) From time to time to issue and sell the Shares of the Trust
either for cash or for property whenever and in such amounts as the
Trustee may deem desirable, but subject to the limitation set forth in
Section 3 of Article III.
(r) To purchase insurance of any kind, including, without
limitation, insurance on behalf of any person who is or was a Trustee,
Officer, employee or agent of the Trust, or is or was serving at the
request of the Trust as a Trustee, Director, Officer, agent or employee
of another corporation, partnership, join venture, trust or other
enterprise against any liability asserted against him and incurred by
him any such capacity or arising out of his status as such.
No one dealing with the Trustees shall be under any obligation to make
any inquiry concerning the authority of the Trustees, or to see to the
application of any payments made or property transferred to the Trustees or upon
their order.
Section 2. Principal Transactions. The Trustees shall not on behalf of
the Trust buy any securities (other than Shares of the Trust) from or sell any
securities (other than Shares of the Trust) from or sell any securities (other
than Shares of the Trust) to, or lend any assets of the Trust to, any Trustee or
officer or employee of the Trust or any firm of which any such Trustee or
officer is a member acting as principal unless permitted by the 1940 Act, but
the Trust may employ any such other party or any such person or firm or company
in which any such person is an interested person in any capacity not prohibited
by the 1940 Act.
10
<PAGE>
Section 3. Trustees and Officers as Shareholders. Any Trustee, officer
or other agent of the Trust may acquire, own and dispose of shares of the Trust
to the same extent as if he were not a Trustee, officer or agent; and the
Trustees may issue and sell or cause to be issued or sold Shares of the Trust to
and buy such Shares from any such person or any firm or company in which he is
an interested person subject only to the general limitations herein contained as
to the sale and purchase of such Shares; and all subject to any restrictions
which may be contained in the By-Laws.
Section 4. Parties to Contract. The Trustee may enter into any contract
of the character described in Section 1, 2, 3, or 4 of Article VII or in Article
IX hereof or any other capacity not prohibited by the 1940 Act with any
corporation, firm, trust or association, although one or more of the
shareholders, Trustees, offices, employees or agents of the Trust or their
affiliates may be an officer, director, Trustee, shareholder or interested
person of such other party to the contract, and no such contract shall be
invalidated or rendered voidable by reason of the existence of any such
relationship, nor shall any person holding such relationship be liable merely by
reason of such relationship for any loss or expense to the Trust under or by
reason of said contract or accountable for any profit realized directly or
indirectly therefrom, in the absence of actual fraud. The same person (including
a firm, corporation, trust or association) may be the other party to contracts
entered into pursuant to Section 1, 2, 3 and 4 of Article VII or Article IX or
any other capacity deemed legal under the 1940 Act, and any individual may be
financially interested or otherwise an interested person of persons who are
parties to any or all of the contracts mentioned in this Section 4.
11
<PAGE>
ARTICLE VI
TRUSTEES' EXPENSES AND COMPENSATION
Section 1. Trustee Reimbursement. The Trustee shall be reimbursed from
the Trust estate for all of their expenses and disbursements, including, without
limitation, expenses of organizing the Trust and continuing its existence; fees
and expenses of Trustees and Officers of the Trust; fees for investment advisory
services, administrative services and principal underwriting services provided
for in Article VII, Sections 1, 2, and 3; fees and expenses of preparing and
printing its Registration Statements under the Securities Act of 1933 and the
Investment Company Act of 1940 and any amendments thereto; expenses of
registering and qualifying the Trust and its shares under federal and state laws
and regulations; expenses of preparing, printing and distributing prospectuses
and any amendments thereof sent to shareholders, underwriters, broker-dealers
and to investors who may be considering the purchase of shares; expenses of
registering, licensing or other authorization of the Trust as a broker-dealer
and of its Officers as agents and salesmen under federal and state laws and
regulations; interest expense, taxes, fees and commissions of every kind;
expenses of issue (including cost of share certificates), repurchase and
redemption of shares, including expenses attributable to a program of periodic
issue; charges and expenses of custodians, transfer agents, dividend disbursing
agents, shareholder servicing agents and registrars; printing and mailing costs;
auditing, accounting and legal expenses; reports to shareholders and
governmental officers and commissions; expenses of meetings of shareholders and
proxy solicitations therefore; insurance expenses; association membership dues
and nonrecurring items as may arise, including all losses and liabilities by
them incurred in administering the
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Trust, including expenses incurred in connection with litigation, proceedings
and claims and the obligations of the Trust under Article XI, hereof to
indemnify its Trustees, Officers employees, shareholders and agents, and for the
payment of such expenses, disbursements, losses and liabilities, the Trustees
shall have a lien on the Trust estate prior to any rights or interests of the
Shareholders thereto. This section shall not preclude the Trust from directly
paying any of the aforementioned fees and expenses.
Section 2. Trustee Compensation. The Trustees shall be entitled to
compensation from the Trust for their respective services as Trustees, to be
determined from time to time by vote of the Trustees, and the Trustees shall
also determine the compensation of all Officers, consultants and agents who they
may elect or appoint. The Trust may pay any Trustee or any corporation, firm,
trust or association of which a Trustee is an interested person for services
rendered to the Trust in any capacity not prohibited by the 1940 Act, and such
payments shall not be deemed compensation for services as a Trustee under the
first sentence of this Section 2 of Article VI.
ARTICLE VII
INVESTMENT ADVISER, ADMINISTRATIVE SERVICES,
PRINCIPAL UNDERWRITER AND TRANSFER AGENT
Section 1. Investment Adviser. Subject to a Majority Shareholder Vote,
the Trustees may in their discretion from time to time enter into an investment
advisory contract whereby the other party to such contract shall undertake to
furnish the Trustees investment advisory services upon such terms and conditions
and for such compensation as the Trustees may in their discretion determine.
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Subject to a Majority Shareholder Vote, the investment adviser may enter into a
sub-investment advisory contract to receive investment advice, statistical and
factual information from the sub-investment adviser upon such terms and
conditions and for such compensation as the Trustees may in their discretion
agree to. Notwithstanding any provisions of this Declaration of Trust, the
Trustees may authorize the investment adviser or sub-investment adviser or any
person furnishing administrative personnel and services as set forth in Article
VII, Section 2 (subject to such general or specific instructions as the Trustees
may from time to time adopt) to effect purchases, sales, or exchanges of
portfolio securities of the Trust on behalf of the Trustees or may authorize any
officer or Trustee to effect such purchases, sales, or exchanges pursuant to
recommendations of the investment adviser (and all without further action by the
Trustees). Any such purchases, sales and exchanges shall be deemed to have been
authorized by the Trustees. The Trustees may also authorize the investment
adviser to determine what firms shall be employed to effect transactions in
securities for the account of the Trust and to determine what firms shall
participate in any such transactions or shall share in commissions or fees
charged in connection with such transactions.
Section 2. Administrative Services. The Trustees may in their
discretion from time to time contract for administrative personnel and services
hereby the other party shall agree to provide the Trustees administrative
personnel and services to operate the Trust on a daily basis, on such terms and
conditions as the Trustees may in their discretion determine. Such services may
be provided by one or more entities.
Section 3. Principal Underwriter. The Trustees may in their
discretion from time to time enter into an exclusive or nonexclusive contract or
contracts
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providing for the sale of the Shares of the Trust to net the Trust not less than
the amount provided in Article III, Section 3 hereof, whereby the Trust may
either agree to sell the Shares to the other party to the contract or appoint
such other party its sales agent for such shares. In either case, the contract
shall be on such terms and conditions as the Trustees may in their discretion
determine not inconsistent with the provisions of this Article VII; and such
contract may also provide for the repurchase or sale of Shares of the Trust by
such other party as principal or as agent of the Trust and may provide that the
other party may maintain a market for shares of the Trust.
Section 4. Transfer Agent. The Trustees may in their discretion from
time to time enter into transfer agency and shareholder services contracts
whereby the other party shall undertake to furnish the Trustees transfer agency
and shareholder services. The contracts shall be on such terms and conditions as
the Trustees may in their discretion determine not inconsistent with the
provisions of this Declaration of Trust or of the By-Laws. Such services may be
provided by one or more entities.
Section 5. Provisions and Amendments. Any contract entered into
pursuant to Sections 1 or 3 of this Article VII shall be consistent with and
subject to the requirements of Section 15 of the 1940 Act (including any
amendments thereof or other applicable Act of Congress hereafter enacted) with
respect to its continuance in effect, its termination, and the method of
authorization and approval of such contract or renewal thereof.
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ARTICLE VIII
SHAREHOLDERS' VOTING POWERS AND MEETINGS
Section 1. Voting Powers. The Shareholders shall have power to vote (i)
for the election of Trustees as provided in Article IV, Section 2; (ii) for the
removal of Trustees as provided in Article IV, Section 3(d); (iii) with respect
to any investment adviser or sub-investment adviser as provided in Article VII,
Section 1; (iv) with respect to the amendment of this Declaration of Trust as
provided in Article XII, Section 7; (v) to the same extent as the shareholders
of a Massachusetts business corporation as to whether or not a court action,
proceeding or claim should be brought or maintained derivatively or as a class
action on behalf of the Trust or the Shareholders; and (vi) with respect to such
additional matters relating to the Trust as may be required by law, by this
Declaration of Trust, or by the ByLaws of the Trust or any regulation of the
Trust with the Commission or any State, or as the Trustees may consider
desirable. Each whole Share shall be entitled to one vote as to any matter on
which it is entitled to vote, and each fractional Share shall be entitled to a
proportionate fractional vote. There shall be no cumulative voting in the
election of Trustees. Shares may be voted in person or by proxy. Until Shares
are issued, the Trustees may exercise all rights of Shareholders and may take
any action required or permitted by law, this Declaration of Trust or any
By-Laws of the Trust to be taken by Shareholders.
Section 2. Meetings. A Shareholders meeting shall be held as
specified in Section 2 of Article IV at the principal office of the Trust or
such other place as the Trustees may designate. Special meetings of the
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Shareholders may be called by the Trustees or the Chief Executive Officer of the
Trust and shall be called by the Trust upon the written request of Shareholders
owning at least one-tenth of the outstanding Shares entitled to vote.
Shareholders shall be entitled to at least fifteen days' notice of any meeting.
Section 3. Quorum and Required Vote. Except as otherwise provided by
law, to constitute a quorum for the transaction of any business at any meeting
of Shareholders there must be present, in person or by proxy, holders of
one-fourth of the total number of Shares of the Trust then outstanding and
entitled to vote at such meeting. If a quorum, as above defined, shall not be
present for the purpose of any vote that may properly come before the meeting,
the Shareholders present in person or by proxy and entitled to vote at such
meeting on such matter holding a majority of the Shares present entitled to vote
at such meeting on such matter holding a majority of the Shares present entitled
to vote on such matter may by vote adjourn the meeting from time to time to be
held at the same place without further notice than by announcement to be given
at the meeting until a quorum, as above defined, entitled to vote on such matter
shall be present, whereupon any such matter may be voted upon at the meeting as
though held when originally convened. Subject to any applicable requirement of
law or of this Declaration of Trust or the By-Laws, a plurality of the votes
cast shall elect a Trustee and all other matters shall be decided by a majority
of the votes cast entitled to vote thereon.
Section 4. Additional Provisions. The By-Laws may include further
provisions for Shareholders' votes and meeting and related matters.
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ARTICLE IX
CUSTODIAN
Section 1. Appointment and Duties. The Trustees shall appoint or
otherwise engage a bank or trust company having an aggregate capital, surplus
and undivided profits (as shown in its last published report) of at least two
million dollars ($2,000,000) as custodian with authority as its agent, but
subject to such restrictions, limitations and other requirements, if any, as may
be contained in the By-Laws of the Trust:
(1) To receive and hold the securities owned by the Trust and
deliver the same upon written order;
(2) To receive and receipt for any monies due to the Trust and
deposit the same in its own banking department or elsewhere as the
Trustees may direct; and
(3) To disburse such funds upon orders or vouchers; and may also
employ such custodian as the agent of the Trust:
(4) To keep the books and accounts of the Trust and furnish
clerical and accounting services;
(5) To compute, if authorized to do so by the Trustees, the
Accumulated Net Income of the Trust and the net asset value of the
Shares in accordance with the provisions hereof;
all upon such basis of compensation as may be agreed upon between the Trustees
and the custodian. If so directed by a Majority Shareholder Vote, the custodian
shall deliver and pay over all property of the Trust held by it as specified in
such vote.
The Trustees may also authorize the custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services
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of the custodian and upon such terms and conditions, as may be agreed upon
between the custodian and such sub-custodian and approved by the Trustees,
provided that in every case such sub-custodian shall be a bank or trust company
organized under the laws of the United States or one of the states thereof and
having an aggregate capital, surplus and undivided profits (as shown in its last
published report) of at least two million dollars ($2,000,000).
Section 2. Central Certificate System. Subject to such rules,
regulations and orders as the Commission may adopt, the Trustees may direct the
custodian to deposit all or any part of the securities owned by the Trust in a
system for the central handling of securities established by a national
securities exchange or a national securities association registered with the
Commission under the Securities Exchange Act of 1934, or such other persona s
may be permitted by the Commission or otherwise in accordance with the 1940 Act
as from time to time amended, pursuant to which system all securities of any
particular class or series of any issuer deposited within the system are treated
as fungible and may be transferred or pledged by bookkeeping entry without
physical delivery of such securities, provided that all such deposits shall be
subject to withdrawal only upon the order of the custodian at the direction of
the Trustees.
ARTICLE X
DISTRIBUTIONS AND REDEMPTIONS
Section 1. Distributions.
(a) The Trustees may from time to time declare and pay dividends, and
the amount of such dividends and the payment of them shall be wholly in the
discretion of the Trustees.
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(b) The Trustees may, on each Accumulated Net Income of the Trust (as
defined in Section 3 of this Article X) is determined and is positive, declare
such Accumulated Net Income as a dividend to Shareholders of record at such time
as the Trustees shall designate, payable in addition full and fractional Shares
or in cash.
(c) The Trustees may distribute in respect of any fiscal year as
ordinary dividends and as capital gains distributions, respectively, amounts
sufficient to enable the Trust as a regulated investment company to avoid any
liability for federal income taxes in respect of that year.
(d) The decision of the Trustees as to what, in accordance with good
accounting practice, is income and what is principal shall be final, and except
as specifically provided herein the decision of the Trustees as to what expenses
and charges of the Trust shall be charged against principal and what against the
income shall be final. Any income not distributed in any year may be permitted
to accumulate and as long as not distributed may be invested from time to time
in the same manner as the principal funds of the Trust.
(e) The Trustees shall have power, to the fullest extent permitted by
the laws of Massachusetts, at any time, or from time to time, to declare and
cause to be paid dividends, which dividends, at the election of the Trustees,
may be accrued, automatically reinvested in additional Shares (or fractions
thereof) of the Trust or paid in cash or additional Shares, all upon such terms
and conditions as the Trustees may prescribe.
(f) Anything in this instrument to the contrary notwithstanding, the
Trustees may at any time declare and distribute a dividend consisting of shares
of the Trust.
Section 2. Redemptions and Repurchases
(a) In case any Shareholder of the record of the Trust at any time
desires to dispose of Shares recorded in his name, he may deposit a written
request
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(or such other form of request as the Trustees may from time authorize)
requesting that the Trust purchase his Shares, together with such other
instruments or authorizations to effect the transfer as the Trustees may from
time to time require, at the office of the Custodian, and the Trust shall
purchase his said Shares, but only at the net asset value of such Shares (as
defined in Section 4 of this Article X) determined by or on behalf of the
Trustees next after said deposit.
Payment for such Shares shall be made by the Trust to the Shareholder
of record within seven (7) days after the date upon which the request (and, if
required, such other instruments or authorizations of transfer) is deposited,
subject to the right of the Trustees to postpone the date of payment pursuant to
Section 5 of this Article X. If the redemption is postponed beyond the date on
which it would normally occur by reason of a declaration by the Trustees
suspending the right of redemption pursuant to Section 5 of this Article X, the
right of the Shareholder to have his Shares purchased by the Trust shall be
similarly suspended, and he may withdraw his request (or such other instruments
or authorizations of transfer) from deposit if he so elects; or, if he does not
so elect, the purchase price shall be the net asset value of his Shares,
determined next after termination of such Suspension and payment therefor shall
be made within seven (7) days thereafter.
(b) The Trust may purchase Shares of the Trust by agreement with the
owner thereof (1) at a price not exceeding the net asset value per Share
determined next after the purchase or contract of purchase is made or (2) at a
price not exceeding the net asset value per Share determined at some later time.
(c) Shares purchased by the Trust either pursuant to paragraph (a) or
paragraph (b) of this Section 2 shall be deemed treasury Shares and may be
resold by the Trust.
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(d) If the Trustees determined that economic conditions would make it
seriously detrimental to the best interests of the remaining Shareholders of the
Trust to make payment wholly or partly in cash, the Trust may pay the redemption
price in whole or in part by a distribution in kind of securities from the
portfolio of the Trust, in lieu of cash in conformity with applicable rules of
the Securities and Exchange Commission, taking such securities at the same value
employed in determining net asset value, and selecting the securities in such
manner as the Trustees may deem fair and equitable.
Section 3. Determination of Accumulated Net Income. The Accumulated Net
Income of the Trust shall be determined by or on behalf of the Trustees daily or
more frequently at the discretion of the Trustees, on each business day (which
term shall, whenever it appears in this Declaration of Trust, be deemed to mean
each day when the New York Stock Exchange is open for trading) at such time or
times as the Trustees shall in their discretion determine. Such determination
shall be made in accordance with generally accepted accounting principles and
practices and may include realized and/or unrealized gains from the sale or
other disposition of securities or other property of the Trust. The power and
duty to determine Accumulated Net Income may be delegated by the Trustees from
time to time to one or more of the Trustees or officers of the Trust, to the
other party to any contract entered into pursuant to Section 1 or 2 of Article
VII, or to the custodian or to a transfer agent.
Section 4. Net Asset Value of Shares. The net asset value of each Share
of the Trust outstanding shall be determined at least once on each business day
by or on behalf of the Trustees. The power and duty to determine net asset value
may be delegated by the Trustees from time to time to one or more of the
Trustees or Officers of the Trust, to the other party to any contract entered
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into pursuant to Section 1 or 2 of Article VII or to the custodian or to a
transfer agent.
The net asset value of each Share of the Trust as of any particular
time shall be the quotient (adjusted to the nearer cent) obtained by dividing
the value, as of such time, of the net assets of the Trust (i.e., the value of
the assets of the Trust less its liabilities exclusive of capital and surplus)
by the total number of Shares outstanding (exclusive of treasury Shares) at such
time in accordance with the requirements of the 1940 Act and applicable
provisions of the By-Laws of the Trust in conformity with generally accepted
accounting practices and principles.
The Trustees may declare a suspension of the determination of net
assets value for the whole or any part of any period (a) during which the New
York Stock Exchange is closed other than customary weekend and holiday closings,
(b) during which trading on the New York Stock Exchange is restricted, (c)
during which an emergency exists as a result of which disposal by the Trust of
securities owned by it is not reasonably practicable, or it is not reasonably
practicable for the Trust fairly to determine the value of its net assets, or
(d) during such other periods as the Commission (or any succeeding governmental
authority) may by order permit for the protection of security holders of the
Trust; provided that applicable rules and regulations of the Commission (or any
succeeding governmental authority) shall govern as to whether the conditions
prescribed in (b) or (c) exist. Such suspension shall take effect at such times
as the Trustees shall specify but not later than the close of business on a
business day next following the declaration, thereafter there shall be no
determination of net asset value until the Trustees shall declare the suspension
at an end, except
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that the suspension shall terminate in any event on the first day on which said
stock exchange shall have reopened or the period specified in (b) or (c) shall
have expired (as to which in the absence of an official ruling by said
Commission or succeeding authority, the determination of the Trustees shall be
conclusive).
Section 5. Suspension of the Right of Redemption. The Trustees may
declare a suspension of the right of redemption or postpone the date of payment
for the whole or any part of any period (i) during which the New York Stock
Exchange is closed other than customary weekend and holiday closings, (ii)
during which trading on the New York Stock Exchange is restricted, (iii) during
which an emergency exists as a result of which disposal by the Trust or
securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Trust fairly to determine the value of its net assets, or
(iv) during any other period when the Commission (or any succeeding governmental
authority) may for the protection of security holders of the Trust by order
permit suspension of the right of redemption or postponement of the date of
payment on redemption; provided that applicable rules and regulations of the
Commission (or any succeeding governmental authority) shall govern as to whether
the conditions prescribed in (ii) or (iii) exist. Such suspension shall take
effect at such time as the Trustees shall specify but not later than the close
of business on the business day next following the declaration of suspension,
and thereafter there shall be no right of redemption or payment until the
Trustees shall declare the suspension at an end, except that the suspension
shall terminate in any event on the first day on which said stock exchange shall
have reopened or the period specified in (ii) or (iii) shall have expired (as to
which in the absence of an official ruling by said Commission or succeeding
authority, the determination of the Trustees shall be conclusive).
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Section 6. Trust's Right to Redeem Shares. The Trust shall have
the right to cause the redemption of Shares in any Shareholder's account for
their then current net asset value (which will be promptly paid to the
Shareholder in cash), if at any time the total investment in the account does
not have a minimum dollar value determined from time to time by the Trustees in
their sole discretion. Shares of the Trust are redeemable at the option of the
Trust if, in the opinion of the Trustees, ownership of Trust Shares has or may
become concentrated to an extent which would cause the Trust to be a personal
holding company within the meaning of the Federal Internal Revenue Code (and
thereby disqualified under Sub-chapter M of said Code); in such circumstances
the Trust may compel the redemption of Shares, reject any order for the purchase
of Shares or refuse to give effect to the Transfer of Shares.
ARTICLE XI
LIMITATION OF LIABILITY AND INDEMNIFICATION
Section 1. Limitation of Personal Liability and Indemnification of
Shareholders. The Trustees, officers, employees or agents of the Trust shall
have no power to bind any Shareholder personally or to call upon any Shareholder
for the payment of any sum of money or assessment whatsoever, other than such as
the Shareholder may at any time agree to pay by way of subscription to any
Shares of otherwise.
No Shareholder or former Shareholder of the Trust shall be liable
solely by reason of his being or having been a Shareholder for any debt, claim,
action, demand, suit, proceeding, judgment, decree, liability or obligation of
any kind, against, or with respect to the Trust arising out of any action taken
or omitted
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for or on behalf of the Trust, and the Trust shall be solely liable therefor and
resort shall be had solely to the Trust property for the payment or performance
thereof.
Each Shareholder or former Shareholder of the Trust (or their heirs,
executors, administrators or other legal representatives or, in case of a
corporate entity, its corporate or general successor) shall be entitled to
indemnity and reimbursement out of the Trust property to the full extent of such
liability and the costs of any litigation or other proceedings in which such
liability shall have been determined, including, without limitation, the fees
and disbursements of counsel if, contrary to the provisions hereof, such
Shareholder or former Shareholder of the Trust shall be held to personal
liability.
The Trust shall, upon request by the Shareholder or former Shareholder,
assume the defense of any claim made against any Shareholder for any act or
obligation of the Trust and satisfy any judgement thereon.
Section 2. Limitation of Personal Liability of Trustees, Officers,
Employees or Agents of the Trust. No Trustee, officer, employee or agent of the
Trust shall have the power to bind any other Trustee, officer, employee or agent
of the Trust personally. The Trustees, officers, employees or agents of the
Trust incurring any debts, liabilities or obligations, or in the taking or
omitting any other actions for or in connection with the Trust are, and each
shall be deemed to be, acting as Trustee, officer, employee or agent of the
Trust and not in his own individual capacity.
Provided they have acted under the belief that their actions are in the
best interest of the Trust, the Trustee and officers shall not be responsible
for or liable in any event for neglect or wrongdoing by them or any office,
agent, employee, investment adviser or principal underwriter of the Trust or of
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any entity providing administrative services for the Trust, but nothing herein
contained shall protect any Trustee or officer against any liability to which he
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
Section 3. Express Exculpatory Clauses and Instruments. The Trustees
shall use every reasonable means to assure that all persons having dealings with
the Trust shall be informed that the property of the Shareholders and Trustees,
officers, employees and agents of the Trust shall not be subject to claims
against or obligations of the Trust to any extent whatsoever. The Trustees shall
cause to be inserted in any written agreement, undertaking or obligation made or
issued on behalf of the Trust (including certificates for Shares of the Trust)
an appropriate reference to this Declaration, providing that neither the
Shareholders, the Trustees, the officers, the employees nor any agent of the
Trust shall be liable thereunder, and that the other parties to such instrument
shall look solely to the Trust property for the payment of any claim thereunder
or for the performance thereof; but the omission of such provisions from any
such instrument shall not render any Shareholder, Trustee, officer, employee or
agent liable, nor shall the Trustee, or any officer, agent or employee of the
Trust be liable to anyone for such omission. If, notwithstanding this provision,
any Shareholder, Trustee, officer, employee or agent shall be held liable to any
other person by reason of the omission of such provision from any such
agreement, undertaking or obligation, the Shareholder, Trustee, officer,
employee or agent shall be entitled to indemnity and reimbursement out of the
Trust property, as provided in this Article XI.
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Section 4. Indemnification of Trustees, Officers, Employees and Agents.
(a) Every person who is or has been a Trustee, officer, employee or
agent of the Trust and persons who serve at the Trust's request as director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise shall be indemnified by the Trust to fullest extent
permitted by law against liability and against all expenses reasonably incurred
or paid by him in connection any debt, claim, action, demand, suit, proceeding,
judgment, decree, liability or obligation of any kind in which he becomes
involved as a party or otherwise by virtue of his being or having been a
Trustee, officer, employee or agent of the Trust or of another corporation,
partnership, joint venture, trust or other enterprise at the request of the
Trust and against amounts paid or incurred by him in the settlement thereof.
(b) The words "claim," "action," "suit" or "proceeding" shall apply to
all claims, actions, suits or proceedings (civil, criminal, administrative,
legislative, investigative or other, including appeals), actual or threatened,
and the words "liability" and "expenses" shall include, without limitation,
attorneys' fees, costs, judgements, amounts paid in settlement, fines, penalties
and other liabilities.
(c) No indemnification shall be provided hereunder to a Trustee,
officer, employee or agent against any liability to the Trust or its
Shareholders by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of duties involved in the conduct of his office.
(d) The rights of indemnification herein provided my be insured against
by policies maintained by the Trust, shall be severable, shall not affect any
other rights to which any Trustee, officer, employee or agent may now or
hereafter be entitled, shall continue as to a person who has ceased to be such
Trustee, officer, employee, or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
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(e) Expenses in connection with the preparation and presentation of a
defense to any claim, action, suit or proceeding of the character described in
paragraph (a) of this Section 4 may be paid by the Trust prior to final
disposition thereof upon receipt of an undertaking by or on behalf of the
Trustee, officer, employee or agent secured by a surety bond or other suitable
insurance that such amount will be paid over by him to the Trust if it is
ultimately determined that he is not entitled to indemnification under this
Section 4.
ARTICLE XII
MISCELLANEOUS
Section 1. Trust is not a Partnership. It is hereby expressly declared
that a trust and not a partnership is created hereby.
Section 2. Trustee's Good Faith Action, Expert Advice, No Bond or
Surety. The exercise by the Trustees of their powers and discretions hereunder
in good faith and with reasonable care under the circumstances then prevailing,
shall be binding upon everyone interested. Subject to the provisions of Article
XI, the Trustees shall not be liable for errors of judgement or mistakes of fact
or law. The Trustees may take advice of counsel or other experts with respect to
the meaning and operation of this Declaration of Trust, and subject to the
provisions of Article XI, shall be under no liability for any act or omission in
accordance with such advice or for failing to follow such advice. The Trustees
shall not be required to give any bond as such, nor any surety if a bond is
required.
Section 3. Establishment of Record Dates. The Trustees may close the
Share transfer books of the Trust for a period not exceeding sixty (60) days
preceding the date of any meeting of Shareholders, or the date for the payment
of any dividend or the making of any distribution to Shareholders, or the date
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for the allotment of rights, or the date when any change or conversion or
exchange of Shares shall go into effect; or in lieu of closing the Share
transfer books as aforesaid, the Trustees may fix in advance a date, not
exceeding sixty (60) days preceding the date of any meeting of Shareholders, or
the date for the payment of any dividend or the making of any distribution to
Shareholders, or the date for the allotment of rights, or the date when any
change or conversion or exchange of Shares shall go into effect, or the last day
on which the consent or dissent of Shareholders may be effectively expressed for
any purpose, as a record date for the determination of the Shareholders entitled
to notice of, and, to vote at, at such meeting and any adjournment thereof, or
entitled to receive payment of any such dividend or distribution, or to any such
allotment of rights, or to exercise the rights in respect of any such change,
conversion or exchange of shares, or to exercise the right to give such consent
or dissent, and in such case such Shareholder and only such Shareholder as shall
be Shareholders of record on the date so fixed shall be entitled to such notice
of, and to vote at, such meeting, or to receive payment of such dividend or
distribution, or to receive such allotment or rights, or to exercise such
rights, as the case may be, notwithstanding any transfer of any Shares on the
books of the Trust after any such date fixed as aforesaid.
Section 4. Termination of Trust.
(a) This Trust shall continue without limitation of time but subject to
the provisions of paragraphs (b), (c) and (d) of this Section 4.
(b) The Trustees, with the approval of the holders of at least
two-thirds of the outstanding Shares, may be unanimous action sell and convey
the assets of the Trust to another trust or corporation organized under the laws
of any
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state of the United States, which is a diversified open-end management
investment company as defined in the 1940 Act, for an adequate consideration
which may include the assumption of all outstanding obligations, taxes and other
liabilities, accrued or contingent, of the Trust and which may include shares of
beneficial interest or stock of such trust or corporation. Upon making provision
for the payment of all such liabilities, by such assumption or otherwise, the
Trustees shall distribute the remaining proceeds ratably among the holders of
the Shares of the Trust then outstanding.
(c) Subject to a Majority Shareholder Vote, the Trustees may at any
time sell and convert into money all the assets of the Trust. Upon making
provision for the payment of all outstanding obligations, taxes and other
liabilities, accrued or contingent, of the Trust, the Trustees shall distribute
the remaining proceeds of the remaining assets as provided in paragraphs (b) and
(c), the Trust shall terminate and the Trustees shall be discharged of any and
all further liabilities and duties hereunder and the right, title and interest
of all parties shall be canceled and discharged.
(d) Upon completion of the distribution of the remaining proceeds of
the remaining assets as provided in paragraphs (b) and (c), the Trust shall
terminate and the Trustees shall be discharge of any and all further liabilities
and duties hereunder and the right, title and interest of all parties shall be
canceled and discharged.
Section 5. Offices of the Trust, Filing of Copies, References,
Headings. The Trust shall maintain a usual place of business in Massachusetts,
which, initially, shall be 31 Milk Street, Boston Massachusetts, and shall
continue to maintain an office at such address unless changed by the Trustees to
another location in Massachusetts. The Trust may maintain other offices as the
Trustees may from time to time determine. The original or a copy of this
instrument and of each declaration of trust supplemental hereto shall be kept at
the office
31
<PAGE>
of the Trust where it may be inspected by any Shareholder. A copy of this
instrument and of each supplemental declaration of trust shall be filed by the
Trustees with the Massachusetts Secretary of State and the Boston City Clerk, as
well as any other governmental office where such filing may from time to time be
required. Anyone dealing with the Trust may rely on a certificate by an officer
of the Trust as to whether or not any such supplemental declaration of trust has
been made and as to any matters in connection with the Trust hereunder, and with
the same effect as if it were the original, may rely on a copy certified by an
officer of the Trust to be a copy of this instrument or of any such supplemental
declaration of trust. In this instrument or in any such supplemental declaration
of trust, references to this instrument, and all expressions like "herein,"
"hereof" and "hereunder," shall be deemed to refer to this instrument as amended
or affected by any such supplemental declaration of trust. Headings are placed
herein for convenience of reference only and in case of any conflict, the text
of this instrument, rather than the headings, shall control. This instrument may
be executed in any number of counterparts each of which shall be deemed an
original.
Section 6. Applicable Law. The Trust set forth in this instrument is
created under and is to be governed by and construed and administered according
to the laws of the Commonwealth of Massachusetts. The Trust shall be of the type
commonly called a Massachusetts business trust, and without limiting the
provisions hereof, the Trust may exercise all powers which are ordinarily
exercised by such a trust.
Section 7. Amendments. Prior to the initial issuance of Shares
pursuant to the second sentence of Section 3 of Article III, a majority of the
Trustees then
32
<PAGE>
in office may amend or otherwise supplement this instrument by making a
Declaration of Trust supplemental hereto, which thereafter shall form a part
hereof. Subsequent to such initial issuance of Shares, if authorized by a
majority of the Trustees then in office and by a Majority Shareholder Vote, or
by any larger vote which may be required by applicable law or this Declaration
of Trust in any particular case, the Trustees shall amend or otherwise
supplement this instrument, by making a Declaration of Trust supplemental
hereto, which thereafter shall form a part hereof. Any such supplemental
Declaration of Trust shall be signed by at least a majority of the Trustees then
in office. Copies of the supplemental Declaration of Trust shall be filed as
specified in Section 5 of this Article XII.
Section 8. The Trust acknowledges that Federated Investors, Inc. has
reserved the right to grant the non-exclusive use of the name "Federated" or any
derivative thereof to any other investment company, investment adviser,
distributor, or other business enterprise, and to withdraw from the Trust the
use of the name "Federated."
IN WITNESS WHEREOF, the undersigned have executed this instrument this
24th day of July, 1978.
/s/ John F. Donahue /s/ Richard B. Fisher
______________________________ _____________________________
John F. Donahue Richard B. Fisher
/s/ J. Joseph Maloney, Jr. /s/ Wesley W. Posvar
______________________________ _____________________________
J. Joseph Maloney, Jr. Wesley W. Posvar
/s/ Edward E. Smuts /s/ Thomas J. Donnelly
______________________________ _____________________________
Edward E. Smuts Thomas J. Donnelly
/s/ Glen R. Johnson /s/ Gregor F. Meyer
______________________________ _____________________________
Glen R. Johnson Gregor F. Meyer
/s/ Edward L. Flaherty, Jr.
______________________________
Edward L. Flaherty, Jr.
33
<PAGE>
COMMONWEALTH OF PENNSYLVANIA )
: ss:
COUNTY OF ALLEGHENY )
I hereby certify that on July 24, 1978 before me, the subscriber, a
Notary Public of the Commonwealth of Pennsylvania, in for the County of
Allegheny, personally appeared JOHN F. DONAHUE, RICHARD B. FISHER, J. JOSEPH
MALONEY, JR., WESLEY W. POSVAR, EDWARD E. SMUTS, THOMAS J. DONNELLY, GLEN R.
JOHNSON, GREGOR F. MEYER and EDWARD L. FLAHERTY, JR., who acknowledged the
foregoing Declaration of Trust to be their act.
Witnessed my hand and notarial seal the day and year last above
written.
/s/ Mary Anne Miller
______________________________
Notary Public
Mary Anne Miller, Notary Public
Pittsburgh, Allegheny County
My Commission Expires Nov. 15, 1979
Member, Pennsylvania Association of Notaries
34
FEDERATED FIDUCIARY TRUST
AMENDMENT NO. 1 TO
DECLARATION OF TRUST
Dated July 24, 1978
THIS AGREEMENT to the DECLARATION OF TRUST is made this 31st day
of August, 1979, by John F. Donahue, Thomas J. Donnelly, Richard B.
Fisher, Edward L. Flaherty, Jr., J. Joseph Maloney, Jr., Gregory F.
Meyer, Wesley W. Posvar, and Edward E. Smuts.
WHEREAS the Trustees executed a Declaration of Trust among themselves
on July 24, 1978, creating a Massachusetts Business Trust for the investment and
reinvestment of funds contributed thereto; and
WHEREAS the Trustees desire to amend the Declaration of Trust:
NOW, THEREFORE, the Trustees hereby amend and restate the Declaration
of Trust as follows:
1. By striking out Section 1 of Article I and substituting the
following in place thereof:
Section 1. Name. This Trust shall be known as the "Legg
Mason Cash Reserve Trust."
2. By striking out Section 8 of Article XI and substituting the
following in place thereof:
Section 8. The Trust acknowledges that Legg Mason Wood Walker
Incorporated has reserved the right to grant the non-exclusive use of
the name "Legg Mason" or any derivative thereof to any other investment
company, investment adviser, distributor, or other business enterprise,
and to
<PAGE>
withdraw from the Trust the use of the name "Legg Mason."
IN WITNESS WHEREOF, the undesigned have executed this instrument this
31st day of August, 1979.
/s/ John F. Donahue /s/ J. Joseph Maloney, Jr.
______________________________ _____________________________
John F. Donahue J. Joseph Maloney, Jr.
/s/ Thomas J. Donnelly /s/ Gregor F. Meyer
______________________________ _____________________________
Thomas J. Donnelly Gregor F. Meyer
/s/ Richard B. Fisher /s/ Wesley W. Posvar
______________________________ ______________________________
Richard B. Fisher Wesley W. Posvar
/s/ Edward L. Flaherty, Jr. /s/ Edward E. Smuts
______________________________ _____________________________
Edward L. Flaherty, Jr. Edward E. Smuts
COMMONWEALTH OF PENNSYLVANIA )
)
COUNTY OF ALLEGHENY )
I hereby certify that on August 31, 1979, before me, the
subscriber, a Notary Public of the Commonwealth of Pennsylvania, in and
for the County of Allegheny, personally appeared JOHN F. DONAHUE, THOMAS
J. DONNELLY, RICHARD B. FISHER, EDWARD L. FLAHERTY, JR., J. JOSEPH
MALONEY, JR., GREGOR F. MEYER, WESLEY W. POSVAR, and EDWARD E. SMUTS,
who acknowledged the foregoing Declaration of Trust to be their act.
WITNESS my hand and notarial seal the day and year first above written.
/s/ Loretta Yagesh
__________________________
Notary Public
Loretta Yagesh, Notary Public
Pittsburgh, Allegheny County, Pa.
My Commission Expires Aug. 23, 1982
2
LEGG MASON CASH RESERVE TRUST
Amendment No. 2
to
DECLARATION OF TRUST
Dated July 24, 1978
THIS Amendment to the Declaration of Trust is made this 16th day of
April, 1982, by John F. Donahue, Thomas J. Donnelly, Gregor F. Meyer, Wesley W.
Posvar and Edward E. Smuts.
WHEREAS, the Trustees executed a Declaration of Trust among themselves
on July 24, 1978, creating a Massachusetts Business Trust for the investment and
reinvestment of funds contributed thereto; and
WHEREAS, the Trustees amended the Declaration of Trust on August 31,
1979; and
WHEREAS, pursuant to Section 7 of Article XII of the Declaration of
Trust, the Trustees desire to amend the Declaration of Trust; and
WHEREAS, pursuant to Article V, Section 9 of the By-Laws of the Trust,
any action by the Trustees may be taken without a meeting by written Unanimous
Consent of Trustees.
NOW, THEREFORE, the Trustees hereby amend the Declaration of Trust as
follows:
1. By striking Section 1(p) of Article V from the Declaration of Trust
and substituting in its place the following:
<PAGE>
To borrow money but only as a temporary measure for
extraordinary or emergency purposes and then (a) only in amounts not in
excess of 5% of the value of its total assets or (b) in any amount up
to one-third of the value of its total assets, including the amount
borrowed, in order to meet redemption requests without immediately
selling any portfolio instruments. The Trust may also enter into
reverse repurchase agreements in amounts not in excess of one-third of
its total assets in order to meet redemption requests without
immediately selling any portfolio instruments. The Trustees shall not
pledge, mortgage or hypothecate the assets of the Trust, except in
connection with any borrowing described in (a) and (b) herein and in
amounts not 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.
IN WITNESS WHEREOF, the undersigned being all of the Trustees, have
executed this Amendment to the Declaration of Trust the day and year first above
written.
/s/ John F. Donahue /s/ J. Joseph Maloney, Jr.
______________________________ _____________________________
John F. Donahue J. Joseph Maloney, Jr.
/s/ Thomas J. Donnelly /s/ Gregor F. Meyer
______________________________ _____________________________
Thomas J. Donnelly Gregor F. Meyer
/s/ Richard B. Fisher /s/ Wesley W. Posvar
______________________________ _____________________________
Richard B. Fisher Wesley W. Posvar
/s/ Edward L. Flaherty, Jr. /s/ Edward E. Smuts
______________________________ _____________________________
Edward L. Flaherty, Jr. Edward E. Smuts
2
<PAGE>
COMMONWEALTH OF PENNSYLVANIA )
) ss:
COUNTY OF ALLEGHENY )
I hereby certify that on April 16, 1982, before me, the subscriber, a
Notary Public of the Commonwealth of Pennsylvania, in and for the County of
Allegheny, personally appeared JOHN F. DONAHUE, THOMAS J. DONNELLY, RICHARD B.
FISHER, EDWARD L. FLAHERTY, JR., J. JOSEPH MALONEY, JR., GREGOR F. MEYER, WESLEY
W. POSVAR, and EDWARD E. SMUTS, who acknowledged the foregoing Declaration of
Trust to be their act.
WITNESS my hand and notarial seal the day and year first above written.
/s/ Mary Jean Byrnes
_________________________________
Notary Public
Mary Jean Byrnes, Notary Public
Pittsburgh, Allegheny County
My Commission Expires Jan. 28, 1995
Member, Pennsylvania Association of Notaries
LEGG MASON CASH RESERVE TRUST
BY-LAWS
AS RESTATED AND AMENDED
(Effective February 2, 1987)
<PAGE>
LEGG MASON CASH RESERVE TRUST
OUTLINE OF BY-LAWS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Article I Officers and Their Election...................................................... 1
1. Officers................................................................... 1
2. Election of Officers....................................................... 1
3. Resignations and Removals and Vacancies.................................... 1
Article II Powers and Duties of Trustees and Officers....................................... 1
1. Trustees................................................................... 1
2. Chairman of the Trustees................................................... 1
3. President.................................................................. 2
4. Vice President............................................................. 2
5. Secretary.................................................................. 2
6. Treasurer.................................................................. 2
7. Assistant Vice President................................................... 2
8. Assistant Secretaries and Assistant Treasurers............................. 2
9. Salaries................................................................... 3
Article III Powers and Duties of the Executive and Other Committees.......................... 3
1. Executive and Other Committees............................................. 2
2. Vacancies in Executive Committee........................................... 3
3. Executive Committee to Report to Trustees.................................. 3
4. Procedure of Executive Committee........................................... 3
5. Powers of Executive Committee.............................................. 3
6. Compensation............................................................... 4
7. Informal Action by Executive Committee or Other
Committees................................................................. 4
Article IV Shareholders' Meetings........................................................... 4
1. Special Meetings........................................................... 4
2. Notices ................................................................... 4
3. Place of Meetings.......................................................... 4
4. Action by Consent.......................................................... 4
5. Proxies ................................................................... 4
Article V Trustees Meetings................................................................ 5
1. Number and Qualifications of Trustees...................................... 5
2. Special Meetings........................................................... 5
3. Regular Meetings........................................................... 5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Article V Trustees Meetings (Cont'd.).................................................... 5
4. Quorum and Vote........................................................... 5
5. Notices................................................................... 5
6. Place of Meeting.......................................................... 5
7. Telephone Meetings........................................................ 6
8. Special Action............................................................ 6
9. Action by Consent......................................................... 6
10. Compensation of Trustees.................................................. 6
Article VI Shares of Beneficial Interest.................................................. 6
1. Beneficial Interest....................................................... 6
2. Certificates.............................................................. 6
3. Transfer of Shares........................................................ 7
4. Equitable Interest not Recognized......................................... 7
5. Lost, Destroyed or Mutilated Certificates................................. 7
6. Transfer Agent and Registrar: Regulations................................ 7
Article VII Inspection of Books............................................................ 7
Article VIII Agreements, Checks, Drafts, Endorsements, Etc.................................. 7
1. Agreements, Etc........................................................... 7
2. Checks, Drafts, Etc....................................................... 8
3. Endorsements, Assignments and Transfer of Securities...................... 8
4. Evidence of Authority..................................................... 8
Article IX Seal........................................................................... 8
Article X Fiscal Year.................................................................... 8
Article XI Amendments..................................................................... 8
Article XII Waivers of Notice.............................................................. 8
Article XIII Report to Shareholders......................................................... 9
Article XIV Books and Records.............................................................. 9
</TABLE>
<PAGE>
BY-LAWS
of
LEGG MASON CASH RESERVE TRUST
ARTICLE I
OFFICERS AND THEIR ELECTION
Section 1. Officers. The offices of the Trust shall be a Chairman of
the Trustees, a President, one or more Vice Presidents, a Treasurer, a Secretary
and such other officers as the Trustees may from time to time elect. It shall
not be necessary for any Trustee or other officer to be a holder of shares in
the Trust.
Section 2. Election of Officers. The President, Vice President(s),
Treasurer and Secretary shall be chosen annually by the Trustees. The Chairman
of the Trustees shall be chosen annually by and from the Trustees.
Two or more offices may be held by a single person except
the offices of President and Secretary. The officers shall hold office until
their successors are chosen and qualified.
Section 3. Resignations and Removals and Vacancies. Any officer of the
Trust may resign by filing a written resignation wit the Chairman of the
Trustees or with the Trustees or with the Secretary, which shall take effect on
being so filed or at such time as may be therein specified. The Trustees may
remove any officer, with or without cause, by a majority vote of all of the
Trustees. The Trustees may fill any vacancy created in any office whether by
resignation, removal or otherwise.
ARTICLE II
POWERS AND DUTIES OF TRUSTEES AND OFFICERS
Section 1. Trustees. The business and affairs of the Trust shall be
managed by the Trustees, and they shall have all powers necessary and desirable
to carry out that responsibility.
Section 2. Chairman of the Trustees ("Chairman"). The Chairman shall be
the chief executive officer of the Trust. He shall have general supervision over
the business of the Trust and policies of the Trust. He shall employ and define
the duties of all employees of the Trust, shall have power to discharge any such
employees, shall exercise general supervision over the affairs of the Trust and
shall perform such other duties as may be assigned to him from time to time by
the Trustees. He shall preside a the meetings of shareholders and of the
Trustees. The Chairman shall appoint a Trustee or officer to preside at such
meetings in his absence.
<PAGE>
Section 3. President. The President, in the absence of the Chairman,
shall perform all duties and may exercise any of the powers of the Chairman
subject to the control of the other Trustees. He shall counsel and advise the
Chairman on matters of major importance and shall perform such other duties as
may be assigned to him from time to time by the Trustees, the Chairman or the
Executive Committee.
Section 4. Vice President. The Vice President (or if more than one, the
senior vice President) in the absence of the President shall perform all duties
and may exercise any of the powers of the President subject to the control of
the Trustees. Each Vice President shall perform such other duties as may be
assigned to him from time to time by the Trustees, the Chairman or the Executive
Committee.
Section 5. Secretary. The Secretary shall keep or cause to be kept in
books provided for the purpose the Minutes of the Meetings of Shareholders and
of the Trustees; shall see that all Notices are duly given in accordance with
the provisions of these By-Laws and as required by law; shall be custodian of
the records and of the Seal of the Trust and see that the Seal is affixed to all
documents, the execution of which on behalf of the Trust under its Seal is duly
authorized; shall keep directly or through a transfer agent a register of the
post office address of each shareholder, and make all proper changes in such
register, retaining and filing his authority for such entries; shall see that
the books, reports, statements, certificates and all other documents and records
required by law are properly kept and filed; and in general shall perform all
duties incident to the Office of the Secretary and such other duties as may from
time to time be assigned to him by the Trustees, Chairman or the Executive
Committee.
Section 6. Treasurer. The Treasurer shall be the principal financial
and accounting officer of the Trust. He shall deliver all funds and securities
of the Trust which may come into his hands to such bank or trust company as the
Trustees shall employ as custodian or sub-custodian in accordance with Article
IX of the Declaration of Trust. The Treasurer shall perform such duties
additional to the foregoing as the Trustees, Chairman or the Executive Committee
may from time to time designate.
Section 7. Assistant Vice President. the Assistant Vice or Vice
Presidents of the Trust shall have such authority and perform such duties as may
be assigned to them by the Trustees, the Executive Committee or the Chairman.
Section 8. Assistant Secretaries and Assistant Treasurers. The
Assistant Secretary or Secretaries and the Assistant Treasurer or Treasurers
shall perform the duties of the Secretary and of the Treasurer, respectively, in
the absence of those Officers and shall have such further powers and perform
such other duties as may be assigned to them respectively by the Trustees or the
Executive Committee or the Chairman.
- 2 -
<PAGE>
Section 9. Salaries. The salaries of the Officers shall be fixed from
time to time by the Trustees. No officer shall be prevented from receiving such
salary by reason of the fact that he is also a Trustee.
ARTICLE III
POWERS AND DUTIES OF THE
EXECUTIVE AND OTHER COMMITTEES
Section 1. Executive and Other Committees. The Trustees may elect from
their own number an executive committee to consist of not less than two members.
The executive committee shall be elected by a resolution passed by a vote of at
least a majority of the Trustees then in office. The Trustees may also elect
from their own number other committees from time to time, the number composing
such committees and the powers conferred upon the same to be determined by vote
of the Trustees.
Section 2. Vacancies in Executive Committee. Vacancies occurring in
the Executive Committee from any cause shall be filled by the Trustees by a
resolution passed by the vote of at least a majority of the Trustees then in
office.
Section 3. Executive Committee to Report to Trustees. All action by
the Executive Committee shall be reported to the Trustees at their meeting next
succeeding such action.
Section 4. Procedure of Executive Committee. The Executive Committee
shall fix its own rules of procedure not inconsistent with these By-Laws or with
any directions of the Trustees. It shall meet at such times and places and upon
such notice as shall be provided by such rules or by resolution of the Trustees.
The presence of a majority shall constitute a quorum for the transaction of
business, and in every case an affirmative vote of a majority of all the members
of the Committee present shall be necessary for the taking of any action.
Section 5. Powers of Executive Committee. During the intervals between
the Meetings of the Trustees, the Executive Committee, except as limited by the
By-Laws of the Trust or by specific directions of the Trustees, shall possess
and may exercise all the powers of the Trustees in the management and direction
of the business and conduct of the affairs of the Trust in such manner as the
Executive Committee shall deem for the best interests of the Trust, and shall
have power to authorize the Seal of the Trust to be affixed to all instruments
and documents requiring same. Notwithstanding the foregoing, the Executive
Committee shall not have the power to elect Trustees, increase or decrease the
number of Trustees, elect or remove any Officer, declare dividends, issue shares
or recommend to shareholders any action requiring shareholder approval.
- 3 -
<PAGE>
Section 6. Compensation. The members of any duly appointed committee
shall receive such compensation and/or fees as from time to time may be fixed by
the Trustees.
Section 7. Informal Action by Executive Committee or Other Committee.
Any action required or permitted to be taken at any meeting of the Executive
Committee or any other duly appointed Committee may be taken without a meeting
if a consent in writing setting forth such action is signed by all members of
such committee and such consent is filed with the records of the Trust.
ARTICLE IV
SHAREHOLDERS' MEETINGS
Section 1. Special Meetings. A special meeting of the shareholders
shall be called by the Secretary whenever ordered by the Trustees, the Chairman
or requested in writing by the holder or holders of at least one-tenth of the
outstanding shares entitled to vote. If the Secretary, when so ordered or
requested, refuses or neglects for more than two days to call such special
meeting, the Trustees, Chairman or the shareholders so requesting may, in the
name of the Secretary, call the meeting by giving notice thereof in the manner
required when notice is given by the Secretary.
Section 2. Notices. Except as above provided, notices of any special
meeting of the shareholders shall be given by the Secretary by delivering or
mailing, postage prepaid, to each shareholder entitled to vote at said meeting,
a written or printed notification of such meeting, at least fifteen days before
the meeting, so such address as may be registered with the Trust by the
shareholder.
Section 3. Place of Meeting. Meetings of the Shareholders shall be held
at the principal place of business of the Trust in Pittsburgh, Pennsylvania, or
at such place within or without the Commonwealth of Massachusetts as fixed from
time to time by resolution of the Trustees.
Section 4. Action by Consent. Any action required or permitted to be
taken at any meeting of shareholders may be taken without a meeting, if a
consent in writing, setting forth such action, is signed by all the shareholders
entitled to vote on the subject matter thereof, and such consent is filed with
the records of the Trust.
Section 5. Proxies. Any shareholder entitled to vote at any meeting of
shareholders may vote either in person or by proxy. Every proxy shall be in
writing subscribed by the shareholder or his duly authorized attorney and dated,
but need not be sealed, witnessed or acknowledged. All proxies shall be filed
with and verified by the Secretary or an Assistant Secretary of the Trust or, if
the meeting shall so decide, by the Secretary of the Meeting.
- 4 -
<PAGE>
ARTICLE V
TRUSTEES' MEETINGS
Section 1. Number and Qualifications of Trustees. The number of
Trustees shall be as fixed from time to time by a majority of the Trustees but
shall be no less than three nor more than twenty. The Trustees may from time to
time increase or decrease the number of Trustees to such number as they deem
expedient, not to be less than three nor more than twenty, however, and fill the
vacancies so created. The term of office of a Trustee shall not be affected by
any decrease in the number of Trustees made by the Trustees pursuant to the
foregoing authorities.
Section 2. Special Meetings. Special meetings of the Trustees shall be
called by the Secretary at the written request of the Chairman or any Trustee,
and if the Secretary when so requested refuses or fails for more than
twenty-four hours to call such meeting, the Chairman or such Trustee may in the
name of the Secretary call such meeting by giving due notice in the manner
required when notice is given by the Secretary.
Section 3. Regular Meetings. Regular meetings of the Trustees may be
held without call or notice at such places and at such times as the Trustees may
from time to time determine, provided that any Trustee who is absent when such
determination is made shall be given notice of the determination.
Section 4. Quorum and Vote. A majority of the Trustees shall constitute
a quorum for the transaction of business. The act of a majority of the Trustees
present at any meeting at which a quorum is present shall be the act of the
Trustees unless a greater proportion is required by the Declaration of Trust or
these By-Laws or applicable law. In the absence of a quorum, a majority of the
Trustees present may adjourn the meeting from time to time until a quorum shall
be present. Notice of any adjourned meeting need not be given.
Section 5. Notices. Except as otherwise provided, notice of any special
meeting of the Trustees shall be given by the Secretary to each Trustee, by
mailing to him, postage prepaid, addressed to him at his address as registered
on the books of the Trust or, if not so registered, at his last known address, a
written or printed notification of such meeting at least four days before the
meeting or by sending to him at least one day before the meeting, by prepaid
telegram, addressed to him at his said registered address, if any, or if he has
no such registered address, at his last known address, notice of such meeting.
Subject to compliance with Section 15(c) of the Investment Company Act of 1940,
notice or waiver of notice need not specify the purpose of any special meeting.
Section 6. Place of Meeting. Meetings of the Trustees shall be held a
the principal place of business of the Trust in Pittsburgh, Pennsylvania, or at
such place within or without the Commonwealth of Massachusetts as fixed from
time to time by resolution of the Trustees, or as the person or persons
requesting said meeting to be called may designate, but any meeting may adjourn
to any other place.
- 5 -
<PAGE>
Section 7. Telephonic Meeting. Subject to compliance with Sections
15(c) and 32(a) of the Investment Company Act of 1940, if it is impractical for
the Trustees to meet in person, the Trustees may meet by means of a telephone
conference circuit to which all Trustees are connected or of which all Trustees
shall have waived notice, which meeting shall be deemed to have been held at a
place designated by the Trustees at the meeting.
Section 8. Special Action. When all the Trustees shall present at any
meeting, however called, or whenever held, or shall assent to the holding of the
meeting without notice, or after the meeting shall sign a written assent thereto
on the record of such meeting, the acts of such meeting shall be valid as if
such meeting has been regularly held.
Section 9. Action by Consent. Any action by the Trustees may be taken
without a meeting if a written consent thereto is signed by all the Trustees and
filed with the records of the Trustees' meetings. Such consent shall be treated
as a vote of the Trustees for all purposes.
Section 10. Compensation of Trustees. The Trustees may receive a stated
salary for their services as Trustees, and by Resolution of Trustees a fixed fee
and expenses of attendance may be allowed for attendance at each Meeting.
Nothing herein contained shall be construed to preclude any Trustee from serving
the Trust in any other capacity, as an officer, agent or otherwise, and
receiving compensation therefor.
ARTICLE VI
SHARES OF BENEFICIAL INTEREST
Section 1. Beneficial Interest. The beneficial interest in the Trust
shall at all times be divided into an unlimited number of shares without par
value. The shares of beneficial interest shall have one vote per share at any
meeting of the shareholders and a fractional vote for each fraction of a share.
Section 2. Certificates. All certificates for shares shall be signed by
the Chairman, President or any Vice President and by the Treasurer or Secretary
or any Assistant Treasurer of Assistant Secretary and sealed with the seal of
the Trust. The signatures may be either manual or facsimile signatures and the
seal may be either facsimile or any other form of seal. Certificates for shares
for which the Trust has appointed an independent Transfer Agent and Registrar
shall not be valid unless countersigned by such Transfer Agent and registered by
such Registrar. In case any officer who has signed any certificate ceases to be
an officer of the Trust before the certificate is issued, the certificate may
nevertheless be issued by the Trust with the same effect as if the officer had
not ceased to be such officer as of the date of its issuance. Share certificates
shall be in such form not inconsistent with law or the Declaration of Trust or
these By-Laws as may be determined by the Trustees.
- 6 -
<PAGE>
Section 3. Transfer of Shares. The shares of the Trust shall be
transferable, so as to affect the rights of the Trust, only by transfer recorded
on the books of the Trust, in person or by attorney.
Section 4. Equitable Interest not Recognized. The Trust shall be
entitled to treat the holder of record of any share or shares as the absolute
owner thereof and shall not be bound to recognize any equitable or other claim
or interest in such share or shares on the part of any other person except as
may be otherwise expressly provided by law.
Section 5. Lost, Destroyed or Mutilated Certificates. In case any
certificate for shares is lost, mutilated or destroyed, the Trustees may issue a
new certificate in place thereof upon indemnity to the Trust against loss and
upon such other terms and conditions as the Trustees may deem advisable.
Section 6. Transfer Agent and Registrar: Regulations. The Trustees
shall have power and authority to make all such rules and regulations as they
may deem expedient concerning the issuance, transfer and registration of
certificates for shares and may appoint a Transfer Agent and/or Registrar of
certificates for shares, and may require all such share certificates to bear the
signature of such Transfer Agent and/or of such Registrar.
ARTICLE VII
INSPECTION OF BOOKS
The Trustees shall from time to time determine whether and to what
extent, and at what times and places, and under what conditions and regulations
the accounts and books of the Trust or any of them shall be open to the
inspection of the shareholders; and no shareholder shall have any right of
inspecting any account or book or document of the Trust except as conferred by
laws or authorized by the Trustees or by resolution of the shareholders.
ARTICLE VIII
AGREEMENTS, CHECKS, DRAFTS, ENDORSEMENTS, ETC.
Section 1. Agreements, Etc. The Trustees or the Executive Committee may
authorize any Officer or Officers, or Agent or Agents of the Trust to enter into
any Agreement or execute and deliver any instrument in the name of and on behalf
of the Trust, and such authority may be general or confined to specific
instances; and, unless so authorized by the Trustees or by the Executive
Committee or by these ByLaws, no Officer, Agent or Employee shall have any power
or authority to bind the Trust by any Agreement or engagement or to pledge its
credit or to render it liable pecuniarily for any purpose or to any amount.
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<PAGE>
Section 2. Checks, Drafts, Etc. All checks, drafts, or orders for the
payment of money, notes and other evidence of indebtedness shall be signed by
such Officer or Officers, Employee or Employees, or Agent or Agents, as shall
from time to time be designated by the Trustees or the Executive Committee, or
as may be specified in or pursuant to the agreement between the Trust and the
Bank or Trust Company appointed as custodian, pursuant to the provisions of the
Declaration of Trust.
Section 3. Endorsements, Assignments and Transfer of Securities. All
endorsements, assignments, stock powers or other instruments of transfer of
securities standing in the name of the Trust or its nominee or directions for
the transfer of securities belonging to the Trust shall be made by such Officer
or Officers, Employee or Employees, or Agent or Agent as may be authorized by
the Trustees or the Executive Committee.
Section 4. Evidence of Authority. Anyone dealing with the Trust shall
be fully justified in relying on a copy of a resolution of the Trustees or of
any committee thereof empowered to act in the premises which is certified as
true by the Secretary or an Assistant Secretary under the seal of the Trust.
ARTICLE IX
SEAL
The seal of Trust shall be circular in form, bearing the inscription:
LEGG MASON CASH RESERVE TRUST - 1978 - MASSACHUSETTS
ARTICLE X
FISCAL YEAR
The fiscal year of the Trust shall be the period of twelve months
ending on the last day of August in each calendar year.
ARTICLE XI
AMENDMENTS
These By-Laws may be amended by a majority vote of all of the Trustees.
ARTICLE XII
WAIVERS OF NOTICE
Whenever any notice whatever is required to be given under the
provisions of any statute of the Commonwealth of Massachusetts, or under the
provisions of the Declaration of Trust or these By-Laws, a waiver thereof in
writing, signed
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<PAGE>
by the person or persons entitled to said notice, whether before of after the
time stated therein, shall be deemed equivalent thereto. A notice shall be
deemed to have been given if telegraphed, cabled, or sent by wireless when it
has been delivered to a representative of any telegraph, cable or wireless
company with instructions that it be telegraphed, cabled or sent by wireless.
Any notice shall be deemed to be given if mailed at the time when the same shall
be deposited in the mail.
ARTICLE XIII
REPORT TO SHAREHOLDERS
The Trustees shall at least semi-annually submit to the shareholders a
written financial report of the transactions of the Trust, including financial
statements which shall at least annually be certified by independent public
accountants.
ARTICLE XIV
BOOKS AND RECORDS
The books and records of the Trust, including the stock ledger or
ledgers, may be kept in or outside the Commonwealth of Massachusetts at such
office or agency of the Trust as may be from time to time determined by the
Trustees.
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MANAGEMENT AGREEMENT
MANAGEMENT AGREEMENT, made this 18th day of July, 1988, by and between
Legg Mason Cash Reserve Trust, a Massachusetts business trust ("Fund"), and Legg
Mason Fund Adviser, Inc., a Maryland corporation (the "Manager"), having its
principal place of business at 111 South Calvert Street, Baltimore, MD 21203.
WHEREAS, the Fund is registered as an open-end, diversified management
investment company under the Investment Company Act of 1940 (the "1940 Act") and
has registered its shares of beneficial interest for sale to the public under
the Securities Act of 1933 and various state securities laws; and
WHEREAS, the Fund wishes to retain the Manager to provide investment
advisory, management, and administrative services to the Fund; and
WHEREAS, the Manager is willing 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. The Fund hereby appoints Legg Mason Fund Adviser, Inc. as Manager of
the Fund for the period and on the terms set forth in this Agreement. The
Manager accepts such appointment and agrees to render the services herein set
forth, for the compensation herein provided.
2. The Fund shall at all times keep the Manager fully informed with
regard to the securities owned by it, its funds available, or to become
available, for investment, and generally
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<PAGE>
as to the condition of its affairs. It shall furnish the Manager with such
other documents and information with regard to its affairs as the Manager may
from time to time reasonably request.
3. (a) Subject to the supervision of the Fund's Board of Trustees, the
Manager shall regularly provide the Fund with investment research, advice,
management and supervision and shall furnish a continuous investment program for
the Fund's portfolio of securities consistent with the Fund's investment
objective, policies and limitations as stated in the minutes of Fund's Trustees,
including the formulation, from time to time, of lists of specific approved
investments for the Fund. The Manager shall determine from time to time what
securities will be purchased, retained or sold by the Fund, and shall implement
those decisions, all subject to the provisions of the Fund's Declaration of
Trust and By-laws, the 1940 Act, the applicable rules and regulations of the
Securities and Exchange Commission, and other applicable federal and state law,
as well as the investment goals and policies of the Fund. The Manager will place
orders pursuant to its investment determinations for the Fund either directly
with the issuer or with any broker or dealer. In placing orders with brokers and
dealers, the Manager may, in its discretion, purchase and sell portfolio
securities from and to brokers and dealers who provide the Fund with research,
analysis, advice and similar services, and the Manager may pay to these brokers,
in return for research and analysis, a higher commission than may be charged by
other brokers. In no
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<PAGE>
instance will portfolio securities be purchased from or sold to the Manager, or
any affiliated person thereof except in accordance with the rules, regulations
or orders promulgated by the Securities and Exchange Commission pursuant to the
1940 Act. The Manager shall also provide advice and recommendations with respect
to other aspects of the business and affairs of the Fund, and shall perform such
other functions of management and supervision as may be directed by the Board of
Trustees of the Fund.
(b) The Manager will oversee the maintenance of all books and records
with respect to the securities transactions of the Fund and the Fund's books of
account in accordance with all applicable federal and state laws and
regulations, and will furnish the Board of Trustees of the Fund with such
periodic and special reports as the Board may reasonably request.
4. The Manager may enter into a contract ("Investment Advisory
Agreement") with an investment adviser in which the Manager delegates to such
investment adviser any or all its duties specified in Paragraph 3 hereunder,
provided that such Investment Advisory Agreement imposes on the investment
adviser bound thereby all duties and conditions to which the Manager is subject
hereunder, and further provided that such Investment Advisory Agreement meets
all requirements of the 1940 Act and rules thereunder.
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<PAGE>
5. (a) The Manager, at its expense, shall supply the Board of Trustees
and officers of the Fund with information and reports reasonably required by
them and reasonably available to the Manager and shall furnish the Fund with
office facilities, including space, furniture and equipment and all personnel
reasonably necessary for the operation of the Fund.
(b) In compliance with the requirements of Rule 31a-3 under the 1940
Act, the Manager hereby agrees that all books and records which it maintains for
the Fund are the property of the Fund, and further agrees to surrender promptly
to the Fund or its agents any of such records upon the Fund's request. The
Manager further agrees to preserve for the periods prescribed by Rule 31a-2
under the 1940 Act any such records required to be maintained by Rule 31a-1
under the 1940 Act.
(c) The Manager, at its own expense, shall provide a system whereby
information is supplied to shareholders and their brokers concerning their
accounts and the operation of the Fund. The Manager shall also provide, at its
own expense, a system whereby orders for purchases and redemption of Fund shares
which are received by the Fund's distributor, Legg Mason Wood Walker,
Incorporated, are promptly processed and transmitted to the Fund's transfer
agent. The Manager may delegate some or all of the functions specified in this
subparagraph to Legg Mason Wood Walker, Incorporated or another appropriate
person. The Manager shall have the right to use any list of shareholders of the
Fund or any other list of investors which it obtains in connection
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<PAGE>
with its provisions of services under this Agreement; provided, however, that
the Manager shall not sell or knowingly provide such list or lists to any
unaffiliated person.
(d) Other than as herein specifically indicated, the Manager shall not
be responsible for the Fund's expenses. Specifically, the Manager will not be
responsible, except to the extent of the reasonable compensation of employees of
the Fund whose services may be used by the Manager hereunder, for any of the
following expenses of the Fund, which expenses shall be borne by the Fund: legal
expenses, interest, taxes, governmental fees; fees, voluntary assessments and
other expenses incurred in connection with membership in investment company
organizations; the cost (including brokerage commissions or charges, if any) of
securities purchased or sold by the Fund and any losses incurred in connection
therewith; distribution fees, if any; fees of custodians, transfer agents,
registrars or other agents; expenses relating to the redemption or repurchase of
the Fund's shares; expenses of registering and qualifying Fund shares for sale
under applicable federal and state law and maintaining such registrations and
qualifications; expenses of preparing, setting in print, printing and
distributing prospectuses, proxy statements, reports, notices and dividends to
Fund shareholders; cost of stationery; costs of stockholders' and other meetings
of the Fund; traveling expenses of officers, trustees and employees
- 5 -
<PAGE>
of the Fund, if any; expenses for fidelity bonds and other insurance covering
the Fund and its officers and trustees; costs of indemnification and any
extraordinary expenses.
(e) The Manager shall authorize and permit any of its directors,
officers and employees, who may be elected as trustees or officers of the Fund,
to serve in the capacities in which they are elected, and shall bear their
salary or other compensation and expenses, if any.
6. No trustee, officer or employee of the Fund shall receive from the
Fund any salary or other compensation as such trustee, officer or employee while
he is at the same time a director, officer, or employee of the Manager or any
affiliated company of the Manager.
7. As compensation for the services performed and the facilities
furnished and expenses assumed by the Manager, including the services of any
consultants oragents retained by the Manager, the Fund shall pay the Manager, as
promptly as possible after the last day of each month, a fee, calculated daily,
of 0.5% annually of the first $500 million of average daily net assets of the
Fund; .475% of net assets in excess of $500 million up to $1 billion; .45% of
net assets in excess of $1 billion up to $1.5 billion; .425% of net assets in
excess of $1.5 billion up to $2 billion; and 0.4% of net assets in excess of $2
billion.
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<PAGE>
In the event that the Manager's right to such fee commences on a date
other than the first day of the month, the fee for such months shall be based on
the average daily assets of the Fund in that period from the date of
commencement to the last day of the month. If this Agreement is terminated as of
any date not the last day of a month, such fee shall be paid as promptly as
possible after such date of termination, and shall be based on the average daily
net assets of the Fund in that period from the beginning of such month to such
date of termination. The average daily net assets of the Fund shall in all cases
be computed as of such time as may be determined by the Board of Trustees of the
Fund. The manner of calculating the Fund's average daily net assets for the
purpose of this Agreement shall be determined by the Fund's Board of Trustees
and shall be binding on the parties.
8. The Manager shall not be liable for any error of judgment or mistake
of law or for any loss suffered by the Fund in connection with performance of
this Agreement, except a loss resulting from breach of fiduciary duty with
respect to receipt of compensation for services or losses resulting from 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 hereunder.
9. Nothing in this Agreement shall limit or restrict the right of any
director, officer, or employee of the Manager who may also be a trustee,
officer, or employee of the Fund, to engage in any other business or to devote
his time and attention
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<PAGE>
in part to the management or other aspects of any other business, whether of a
similar nature or a dissimilar nature, or limit or restrict the right of the
Manager to engage in any other business or to render services of any kind,
including investment advisory and management services, to any other corporation,
firm, individual or association.
10. The Fund acknowledges that the Manager may make payments from the
fees paid to it under this Agreement, from past profits or from any other source
available to it to other persons, including but not limited to Western Asset
Management Company, Legg Mason Wood Walker, Incorporated, and Howard, Weil,
Labouisse, Friedrichs Incorporated, for shareholder, administrative, advisory,
recordkeeping and distribution services provided by such persons in connection
with the Fund's shares.
11. As used in this Agreement, the terms "assignment", "interested
persons", 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 and interpretations as may be granted by the Securities and Exchange
Commission by any rule, regulation or order.
12. This Agreement will become effective on the date first set forth
above, provided that it shall have been approved by the Fund's Board of Trustees
and by the shareholders of the Fund in accordance with the requirements of the
1940 Act and, unless sooner terminated as provided for herein, shall continue in
effect for two years from the date of its execution and for
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<PAGE>
successive annual periods, provided that its continuance is specifically
approved annually (i) by the Fund's Board of Trustees or (ii) by a vote of a
majority of the outstanding voting securities of the Fund, provided that in
either event such continuance is also approved by a majority of the trustees of
the Fund who are not parties to this Agreement or "interested" persons as
defined by the 1940 Act, of any such party ("Disinterested Trustees") cast in
person at a meeting called for the purpose of voting on such Agreement.
This Agreement is terminable without penalty, by vote of the Fund's
Board of Trustees, by vote of a majority (as defined in the 1940 Act) of the
outstanding voting securities of the Fund 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 Fund. This Agreement will
automatically and immediately terminate in the event of its assignment.
13. In the event this Agreement is terminated by either party or upon
written notice from the Manager at any time, the Fund hereby agrees that it will
eliminate from its corporate name any reference to the name of "Legg Mason." The
Fund shall have the non-exclusive use of the name "Legg Mason" in whole or in
part so long as this Agreement is effective or until such notice is given.
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<PAGE>
14. No provision of this Agreement may be changed, waived, discharged
or terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought, and no material amendment of this Agreement shall be effective until
approved by vote of the holders of a majority of the Fund's outstanding voting
securities.
15. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors.
16. Manager is hereby expressly put on notice of the limitation of
liability as set forth in Article IX of the Declaration of Trust and agrees that
the obligations assumed by the Fund pursuant to this Agreement shall be limited
in any case to the Fund and its assets and that Manager shall not seek
satisfaction of any such obligation from the shareholders of the Fund, the
trustees, officers, employees or agents of the Fund, or any of them.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers thereunto duly authorized.
[SEAL] LEGG MASON CASH RESERVE TRUST
Attest:
By: /s/ Barbara W. Diehl By: /s/ John F. Curley, Jr.
________________________ _____________________________
[SEAL] LEGG MASON FUND ADVISER, INC.
Attest:
By: /s/ Barbara W. Diehl By: /s/ Victoria M. Schwatka
________________________ _____________________________
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<PAGE>
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this 18th day of July, 1988 by and between LEGG MASON
FUND ADVISER, INC. ("Manager"), a Maryland corporation, and WESTERN ASSET
MANAGEMENT COMPANY ("Western"), a California corporation, each of which is
registered as an investment adviser under the Investment Advisers Act of 1940.
WHEREAS, Manager is the manager of Legg Mason Cash Reserve Trust (the
"Fund"), an open-end, diversified, management investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), and
WHEREAS, Manager wishes to retain Western to provide it with certain
investment advisory services in connection with Manager's management of the
Fund; and
WHEREAS, Western is willing 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 between the parties hereto as follows:
1. Appointment. Manager hereby appoints Western investment adviser for
the Fund for the period and on the terms set forth in this Agreement. Western
accepts such appointment and agrees to furnish the services herein set forth for
the compensation herein provided.
<PAGE>
2. Delivery of Documents. Manager has furnished Western with copies
properly certified or authenticated of each of the following:
(a) The Fund's Declaration of Trust, as filed with the
Massachusetts Secretary of State on July 24, 1978 and all
amendments thereto (such Declaration of Trust, as
presently in effect and as it shall from time to time be
amended, is herein called the "Declaration");
(b) The Fund's By-Laws and all amendments thereto (such
By-Laws, as presently in effect and as they shall from
time to time be amended, are herein called the "By-Laws");
(c) Resolutions of the Fund's Board of Trustees authorizing
the appointment of Manager as the manager and Western as
investment adviser and approving the Management Agreement
between Manager and the Fund dated July 18, 1988 (the
"Management Agreement") and this Agreement;
(d) The Fund's Notification of Registration on Form N-8A under
the 1940 Act as filed with the Securities and Exchange
Commission on July 27, 1978 and all amendments thereto;
(e) The Fund's Registration Statement on Form N-1 under the
Securities Act of 1933, as amended, and the 1940 Act (File
No. 811-2853) as filed with the
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<PAGE>
Securities and Exchange Commission on September 27, 1978,
including all exhibits thereto, relating to shares of the
Fund's beneficial interest without par value (herein
called "Shares") and all amendments thereto; and
(f) The Fund's most recent prospectus (such prospectus, as
presently in effect and all amendments and supplements
thereto is herein called the "Prospectus").
(g) The Fund's most recent statement of additional information
(suchdocument as presently in effect and all amendments
and supplements thereto is herein called the "Statement of
Additional Information").
Manager will furnish Western from time to time with copies, properly
certified or authenticated, of all amendments of or supplements to the
foregoing.
3. (a) Investment Advisory Services. Subject to the supervision of the
Fund's Board of Trustees and Manager, Western shall regularly provide the Fund
with investment research, advice, management and supervision and shall furnish a
continuous investment program for the Fund's portfolio of securities consistent
with the Fund's investment objective, policies, and limitations as stated in the
minutes of the Fund's Trustees, including the formulation, from time to time, of
lists of specific approved investments for the Fund. Western shall
- 3 -
<PAGE>
determine from time to time what securities shall be purchased, retained or sold
by the Fund, and shall implement those decisions, all subject to the provisions
of the Fund's Declaration of Trust and By-Laws, the 1940 Act, the applicable
rules and regulations of the Securities and Exchange Commission, and other
applicable federal and state law, as well as the investment objective, policies,
and limitations of the Fund. Western will place orders pursuant to its
investment determinations for the Fund either directly with the issuer or with
any broker or dealer. In placing orders with brokers and dealers, Western will
attempt to obtain the best net price and the most favorable execution of its
orders; however, Western may, in its discretion, purchase and sell portfolio
securities from and to brokers and dealers who provide the Fund with research,
analysis, advice and similar services, and Western may pay to these brokers, in
return for research and analysis, a higher commission than may be charged by
other brokers. In no instance will portfolio securities be purchased from or
sold to Western or any affiliated person thereof except in accordance with the
rules, regulations or orders promulgated by the Securities and Exchange
Commission pursuant to the 1940 Act. Western shall also perform such other
functions of management and supervision as may be requested by the Manager and
agreed to by Western.
(b) Western will oversee the maintenance of all books and records with
respect to the securities transactions of the Fund in accordance with all
applicable federal and state laws and
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<PAGE>
regulations, and will furnish Manager or the Fund's Board of Trustees of the
Fund with such daily, periodic and special reports as either may request.
4. Services Not Exclusive. Western's services hereunder are not deemed
to be exclusive, and Western shall be free to render similar services to others.
It is understood that persons employed by Western to assist in the performance
of its duties hereunder might not devote their full time to such service.
Nothing herein concerned shall be deemed to limit or restrict the right of
Western or any affiliate of Western to engage in and devote time and attention
to other businesses or to render services of whatever kind or nature.
5. Books and Records. In compliance with the requirements of Rule 31a-3
under the 1940 Act, Western hereby agrees that all records which it maintains
for the Fund are property of the Fund and further agrees to surrender promptly
to the Fund any of such records upon the Fund's request. Western further agrees
to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act, any
such records required to be maintained by Rule 31a-1 under the 1940 Act.
6. Expenses. During the term of this Agreement, Western will pay all
expenses incurred by it in connection with its services under this Agreement
other than the cost of securities (including brokerage commissions, if any)
purchased for the Fund.
7. Compensation. For the services which Western will render to Manager
under this Agreement, Manager will pay Western
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<PAGE>
a fee, computed daily and paid monthly, at an annual rate equal to 30 percent of
the amount, net of the Manager's monthly payments to The Standard Fire Insurance
Company for transition services, that the Manager receives from the Fund
pursuant to the Management Agreement. Fees with regard to the Fund shall be paid
promptly following the end of each calendar month. If this Agreement is
terminated as of any date not the last day of a calendar month, a final fee with
regard to the Fund shall be paid promptly after the date of termination and
shall be based only on the average daily net assets of the fund in that period
from the beginning of such month to such date of termination. The average daily
net assets of the Fund shall in all cases be based only on business days and be
computed as of such time and in such manner as may be determined by the Board of
Trustees of the Fund.
8. Limitation of Liability. Western will not be liable for any error of
judgment or mistake of law or for any loss suffered by Manager or by the Fund in
connection with the performance of this 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 this Agreement.
9. Definitions. As used in this Agreement, the terms "assignment,"
"interested person," and "majority of the outstanding voting securities" shall
have the meanings given to
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<PAGE>
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.
10. Duration and Termination. This Agreement will become effective on
the date first written above, provided that it shall have been approved by the
Fund's Board of Trustees and by the shareholders of the Fund in accordance with
the requirements of the 1940 Act and, unless sooner terminated as provided for
herein, will continue in effect for two years from the above written date.
Thereafter, if not terminated, this Agreement shall continue in effect for
successive annual periods ending on the same date of each year, provided that
such continuance is specifically approved at least annually (i) by the Fund's
Board of Trustees or (ii) by a vote of a majority of the outstanding voting
securities of the Fund (as defined in the 1940 Act), provided that in either
event the continuance is also approved by a majority of the Fund'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.
This Agreement is terminable without penalty by the Fund's Board of
Trustees, by vote of a majority of the outstanding voting securities of the Fund
(as defined in the 1940 Act), by Manager or by Western, on not less than 60
days' notice to the Fund and/or the other party(ies) and will be terminated
immediately upon any termination of the Management Agreement with
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<PAGE>
respect to the Fund or upon the mutual written consent of Western, the Manager,
and the Fund. This Agreement will also automatically and immediately terminate
in the event of its assignment.
11. Further Actions. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
12. Amendments. No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought, and no material amendment of this Agreement shall be
effective until approved by vote of the holders of a majority of the Fund's
outstanding voting securities.
13. Miscellaneous. This Agreement embodies the entire agreement and
understanding between the parties hereto, and supersedes all prior agreements
and understandings relating to the subject matter hereof. The captions in this
Agreement are included for convenience of reference only and in no way define or
delimit any of the provisions hereof or otherwise affect their construction or
effect. Should any part of this Agreement be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement shall not
be affected thereby. This Agreement shall be binding and shall inure to the
benefit of the parties hereto and their respective successors and shall be
governed by Maryland law.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first above
written.
[SEAL] LEGG MASON FUND ADVISER, INC.
Attest:
By: /s/ Barbara W. Diehl By: /s/ Victoria M. Schwatka
________________________ _____________________________
[SEAL] WESTERN ASSET MANAGMENT COMPANY
Attest:
By: /s/ Pamela Thomas-Cox By: /s/ W. Curtis Livingston, III
________________________ _____________________________
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071288-1
CUSTODIAN CONTRACT
Between
LEGG MASON CASH RESERVE TRUST
and
STATE STREET BANK AND TRUST COMPANY
SCG 4/88
WP0017c
<PAGE>
TABLE OF CONTENTS
Page
1. Employment of Custodian and Property to be Held By
It...................................................................1
2. Duties of the Custodian with Respect to Property
of the Fund Held by the Custodian in the United States...............1
2.1 Holding Securities..........................................1
2.2 Delivery of Securities......................................2
2.3 Registration of Securities..................................4
2.4 Bank Accounts...............................................4
2.5 Availability of Federal Funds...............................4
2.6 Collection of Income........................................4
2.7 Payment of Fund Monies......................................5
2.8 Liability for Payment in Advance of
Receipt of Securities Purchased.............................6
2.9 Appointment of Agents.......................................6
2.10 Deposit of Fund Assets in Securities System.................6
2.10A Fund Assets Held in the Custodian's Direct
Paper System................................................8
2.11 Segregated Account..........................................8
2.12 Ownership Certificates for Tax Purposes.....................9
2.13 Proxies ...................................................9
2.14 Communications Relating to Portfolio Securities.............9
2.15 Reports to Fund by Independent Public Accountants...........9
3. Duties of the Custodian with Respect to Property of
the Fund Held Outside of the United States..........................10
3.1 Appointment of Foreign Sub-Custodians......................10
3.2 Assets to be Held..........................................10
3.3 Foreign Securities Depositories............................10
3.4 Segregation of Securities..................................10
3.5 Agreements with Foreign Banking Institutions...............10
3.6 Access of Independent Accountants of the Fund..............11
3.7 Reports by Custodian.......................................11
3.8 Transactions in Foreign Custody Account....................11
3.9 Liability of Foreign Sub-Custodians........................12
3.10 Liability of Custodian.....................................12
3.11 Reimbursement for Advances.................................12
3.12 Monitoring Responsibilities................................12
3.13 Branches of U.S. Banks.....................................13
4. Payments for Sales or Repurchase or Redemptions
of Shares of the Fund...............................................13
5. Proper Instructions.................................................14
6. Actions Permitted Without Express Authority.........................14
7. Evidence of Authority...............................................14
8. Duties of Custodian With Respect to the Books
of Account and Calculation of Net Asset Value
and Net Income......................................................15
9. Records.............................................................15
10. Opinion of Fund's Independent Accountants...........................15
11. Compensation of Custodian...........................................15
12. Responsibility of Custodian.........................................16
13. Effective Period, Termination and Amendment.........................16
14. Successor Custodian.................................................17
15. Interpretive and Additional Provisions..............................18
16. Massachusetts Law to Apply..........................................18
17. Prior Contracts.....................................................18
18. Miscellaneous.......................................................18
<PAGE>
20
CUSTODIAN CONTRACT
This Contract between Legg Mason Cash Reserve Trust , a business trust
organized and existing under the laws of Massachusetts , having its principal
place of business at 111 South Calvert, Baltimore, Maryland 21202, hereinafter
called the "Fund", and State Street Bank and Trust Company, a Massachusetts
trust company, having its principal place of business at 225 Franklin Street,
Boston, Massachusetts, 02110, hereinafter called the "Custodian",
WITNESSETH: That in consideration of the mutual covenants and
agreements hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of its assets,
including securities which it desires to be held in places within the United
States ("domestic securities") and securities it desires to be held outside the
United States ("foreign securities") pursuant to the provisions of the
Declaration of Trust. The Fund agrees to deliver to the Custodian all securities
and cash owned by it, and all payments of income, payments of principal or
capital distributions received by it with respect to all securities owned by the
Fund from time to time, and the cash consideration received by it for such new
or treasury shares of beneficial interest, ("Shares") of the Fund as may be
issued or sold from time to time. The Custodian shall not be responsible for any
property of the Fund held or received by the Fund and not delivered to the
Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Article
5), the Custodian shall from time to time employ one or more sub-custodians
located in the United States, but only in accordance with an applicable vote by
the Board of Trustees of the Fund, and provided that the Custodian shall have no
more or less responsibility or liability to the Fund on account of any actions
or omissions of any sub-custodian so employed than any such sub-custodian has to
the Custodian. The Custodian may employ as sub-custodian for the Fund's foreign
securities and other assets the foreign banking institutions and foreign
securities depositories designated in Schedule A hereto but only in accordance
with the provisions of Article 3.
2. Duties of the Custodian with Respect to Property of the Fund Held By
the Custodian in the United States
2.1 Holding Securities. The Custodian shall hold and physically segregate
for the account of the Fund all non-cash property, to be held by it in
the United States including all domestic securities owned by the Fund,
other than (a) securities which are maintained pursuant to Section 2.10
in a clearing agency which acts as a securities depository or in a
book-entry system authorized by the U.S. Department of the Treasury,
collectively referred to herein as "Securities System" and (b)
commercial paper of an issuer for which State Street Bank and Trust
Company acts as issuing and paying agent ("Direct Paper") which is
deposited and/or maintained in the Direct Paper System of the Custodian
pursuant to Section 2.10A.
2.2 Delivery of Securities. The Custodian shall release and deliver
domestic securities owned by the Fund held by the Custodian or in a
Securities System account of the Custodian or in the Custodian's Direct
Paper book entry system account ("Direct Paper System Account") only
upon receipt of Proper Instructions, which may be continuing
instructions when deemed appropriate by the parties, and only in the
following cases:
1) Upon sale of such securities for the account of the Fund and
receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Fund;
3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section 2.10 hereof;
4) To the depository agent in connection with tender or other
similar offers for securities of the Fund;
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable;
provided that, in any such case, the cash or other
consideration is to be delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the
name of the Fund or into the name of any nominee or nominees
of the Custodian or into the name or nominee name of any agent
appointed pursuant to Section 2.9 or into the name or nominee
name of any sub-custodian appointed pursuant to Article 1; or
for exchange for a different number of bonds, certificates or
other evidence representing the same aggregate face amount or
number of units; provided that, in any such case, the new
securities are to be delivered to the Custodian;
7) Upon the sale of such securities for the account of the Fund,
to the broker or its clearing agent, against a receipt, for
examination in accordance with "street delivery" custom;
provided that in any such case, the Custodian shall have no
responsibility or liability for any loss arising from the
delivery of such securities prior to receiving payment for
such securities except as may arise from the Custodian's own
negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion contained
in such securities, or pursuant to any deposit agreement;
provided that, in any such case, the new securities and cash,
if any, are to be delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that,
in any such case, the new securities and cash, if any, are to
be delivered to the Custodian;
10) For delivery in connection with any loans of securities made
by the Fund, but only against receipt of adequate collateral
as agreed upon from time to time by the Custodian and the
Fund, which may be in the form of cash or obligations issued
by the United States government, its agencies or
instrumentalities, except that in connection with any loans
for which collateral is to be credited to the Custodian's
account in the book-entry system authorized by the U.S.
Department of the Treasury, the Custodian will not be held
liable or responsible for the delivery of securities owned by
the Fund prior to the receipt of such collateral;
11) For delivery as security in connection with any borrowings by
the Fund requiring a pledge of assets by the Fund, but only
against receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any
agreement among the Fund, the Custodian and a broker-dealer
registered under the Securities Exchange Act of 1934 (the
"Exchange Act") and a member of The National Association of
Securities Dealers, Inc. ("NASD"), relating to compliance with
the rules of The Options Clearing Corporation and of any
registered national securities exchange, or of any similar
organization or organizations, regarding escrow or other
arrangements in connection with transactions by the Fund;
13) For delivery in accordance with the provisions of any
agreement among the Fund, the Custodian, and a Futures
Commission Merchant registered under the Commodity Exchange
Act, relating to compliance with the rules of the Commodity
Futures Trading Commission and/or any Contract Market, or any
similar organization or organizations, regarding account
deposits in connection with transactions by the Fund;
14) Upon receipt of instructions from the transfer agent
("Transfer Agent") for the Fund, for delivery to such Transfer
Agent or to the holders of shares in connection with
distributions in kind, as may be described from time to time
in the Fund's currently effective prospectus and statement of
additional information ("prospectus"), in satisfaction of
requests by holders of Shares for repurchase or redemption;
and
15) For any other proper corporate purpose, but only upon receipt
of, in addition to Proper Instructions, a certified copy of a
resolution of the Board of Trustees or of the Executive
Committee signed by an officer and certified by the Secretary
or an Assistant Secretary, specifying the securities of the
Fund to be delivered, setting forth the purpose for which such
delivery is to be made, declaring such purpose to be a proper
corporate purpose, and naming the person or persons to whom
delivery of such securities shall be made.
2.3 Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Fund or in the name of any nominee of the Fund or of any nominee of the
Custodian which nominee shall be assigned exclusively to the Fund,
unless the Fund has authorized in writing the appointment of a nominee
to be used in common with other registered investment companies having
the same investment adviser as the Fund, or in the name or nominee name
of any agent appointed pursuant to Section 2.9 or in the name or
nominee name of any sub-custodian appointed pursuant to Article 1. All
securities accepted by the Custodian on behalf of the Fund under the
terms of this Contract shall be in "street name" or other good delivery
form. If, however, the Fund directs the Custodian to maintain
securities in "street name", the Custodian shall utilize its best
efforts only to timely collect income due the Fund on such securities
and to notify the Fund on a best efforts basis only of relevant
corporate actions including, without limitation, pendency of calls,
maturities, tender or exchange offers.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of the Fund,
subject only to draft or order by the Custodian acting pursuant to the
terms of this Contract, and shall hold in such account or accounts,
subject to the provisions hereof, all cash received by it from or for
the account of the Fund, other than cash maintained by the Fund in a
bank account established and used in accordance with Rule 17f-3 under
the Investment Company Act of 1940. Cash held hereunder shall be deemed
to be a special deposit. Funds held by the Custodian for the Fund may
be deposited by it to its credit as Custodian in the Banking Department
of the Custodian or in such other banks or trust companies as it may in
its discretion deem necessary or desirable; provided, however, that
every such bank or trust company shall be qualified to act as a
custodian under the Investment Company Act of 1940 and that each such
bank or trust company and the funds to be deposited with each such bank
or trust company shall be approved by vote of a majority of the Board
of Trustees of the Fund. Such funds shall be deposited by the Custodian
in its capacity as Custodian and shall be withdrawable by the Custodian
only in that capacity.
2.5 Availability of Federal Funds. Upon mutual agreement between the Fund
and the Custodian, the Custodian shall, upon the receipt of Proper
Instructions, make federal funds available to the Fund as of specified
times agreed upon from time to time by the Fund and the Custodian in
the amount of checks received in payment for Shares of the Fund which
are deposited into the Fund's account.
2.6 Collection of Income. The Custodian shall collect on a timely basis all
income and other payments with respect to United States registered
securities held hereunder to which the Fund shall be entitled either by
law or pursuant to custom in the securities business, and shall collect
on a timely basis all income and other payments with respect to United
States bearer domestic securities if, on the date of payment by the
issuer, such securities are held by the Custodian or its agent thereof
and shall credit such income, as collected, to the Fund's custodian
account. Without limiting the generality of the foregoing, the
Custodian shall detach and present for payment all coupons and other
income items requiring presentation as and when they become due and
shall collect interest when due on securities held hereunder. Income
due the Fund on United States securities loaned pursuant to the
provisions of Section 2.2 (10) shall be the responsibility of the Fund.
The Custodian will have no duty or responsibility in connection
therewith, other than to provide the Fund with such information or data
as may be necessary to assist the Fund in arranging for the timely
delivery to the Custodian of the income to which the Fund is properly
entitled.
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions, which may
be continuing instructions when deemed appropriate by the parties, the
Custodian shall pay out monies of the Fund in the following cases only:
1) Upon the purchase of domestic securities, options, futures
contracts or options on futures contracts for the account of
the Fund but only (a) against the delivery of such securities
or evidence of title to such options, futures contracts or
options on futures contracts to the Custodian (or any bank,
banking firm or trust company doing business in the United
States or abroad which is qualified under the Investment
Company Act of 1940, as amended, to act as a custodian and has
been designated by the Custodian as its agent for this
purpose) registered in the name of the Fund or in the name of
a nominee of the Custodian referred to in Section 2.3 hereof
or in proper form for transfer; (b) in the case of a purchase
effected through a Securities System, in accordance with the
conditions set forth in Section 2.10 hereof; (c) in the case
of a purchase involving the Direct Paper System, in accordance
with the conditions set forth in Section 2.11; (d) in the case
of repurchase agreements entered into between the Fund and the
Custodian, or another bank, or a broker-dealer which is a
member of NASD, (i) against delivery of the securities either
in certificate form or through an entry crediting the
Custodian's account at the Federal Reserve Bank with such
securities or (ii) against delivery of the receipt evidencing
purchase by the Fund of securities owned by the Custodian
along with written evidence of the agreement by the Custodian
to repurchase such securities from the Fund or (e) for
transfer to a time deposit account of the Fund in any bank,
whether domestic or foreign; such transfer may be effected
prior to receipt of a confirmation from a broker and/or the
applicable bank pursuant to Proper Instructions as defined in
Article 5;
2) In connection with conversion, exchange or surrender of
securities owned by the Fund as set forth in Section 2.2
hereof;
3) For the redemption or repurchase of Shares issued by the Fund
as set forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by the
Fund, including but not limited to the following payments for
the account of the Fund: interest, taxes, management,
accounting, transfer agent and legal fees, and operating
expenses of the Fund whether or not such expenses are to be in
whole or part capitalized or treated as deferred expenses;
5) For the payment of any dividends declared pursuant to the
governing documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short;
7) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions, a certified copy of a
resolution of the Board of Trustees or of the Executive
Committee of the Fund signed by an officer of the Fund and
certified by its Secretary or an Assistant Secretary,
specifying the amount of such payment, setting forth the
purpose for which such payment is to be made, declaring such
purpose to be a proper purpose, and naming the person or
persons to whom such payment is to be made.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased.
Except as specifically stated otherwise in this Contract, in any and
every case where payment for purchase of domestic securities for the
account of the Fund is made by the Custodian in advance of receipt of
the securities purchased in the absence of specific written
instructions from the Fund to so pay in advance, the Custodian shall be
absolutely liable to the Fund for such securities to the same extent as
if the securities had been received by the Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act of
1940, as amended, to act as a custodian, as its agent to carry out such
of the provisions of this Article 2 as the Custodian may from time to
time direct; provided, however, that the appointment of any agent shall
not relieve the Custodian of its responsibilities or liabilities
hereunder.
2.10 Deposit of Fund Assets in Securities Systems. The Custodian may deposit
and/or maintain domestic securities owned by the Fund in a clearing
agency registered with the Securities and Exchange Commission under
Section 17A of the Securities Exchange Act of 1934, which acts as a
securities depository, or in the book-entry system authorized by the
U.S. Department of the Treasury and certain federal agencies,
collectively referred to herein as "Securities System" in accordance
with applicable Federal Reserve Board and Securities and Exchange
Commission rules and regulations, if any, and subject to the following
provisions:
1) The Custodian may keep domestic securities of the Fund in a
Securities System provided that such securities are
represented in an account ("Account") of the Custodian in the
Securities System which shall not include any assets of the
Custodian other than assets held as a fiduciary, custodian or
otherwise for customers;
2) The records of the Custodian with respect to domestic
securities of the Fund which are maintained in a Securities
System shall identify by book-entry those securities belonging
to the Fund;
3) The Custodian shall pay for domestic securities purchased for
the account of the Fund upon (i) receipt of advice from the
Securities System that such securities have been transferred
to the Account, and (ii) the making of an entry on the records
of the Custodian to reflect such payment and transfer for the
account of the Fund. The Custodian shall transfer domestic
securities sold for the account of the Fund upon (i) receipt
of advice from the Securities System that payment for such
securities has been transferred to the Account, and (ii) the
making of an entry on the records of the Custodian to reflect
such transfer and payment for the account of the Fund. Copies
of all advices from the Securities System of transfers of
domestic securities for the account of the Fund shall identify
the Fund, be maintained for the Fund by the Custodian and be
provided to the Fund at its request. Upon request, the
Custodian shall furnish the Fund confirmation of each transfer
to or from the account of the Fund in the form of a written
advice or notice and shall furnish to the Fund copies of daily
transaction sheets reflecting each day's transactions in the
Securities System for the account of the Fund;
4) The Custodian shall provide the Fund with any report obtained
by the Custodian on the Securities System's accounting system,
internal accounting control and procedures for safeguarding
securities deposited in the Securities System;
5) The Custodian shall have received the initial or annual
certificate, as the case may be, required by Article 13
hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for any loss or damage
to the Fund resulting from use of the Securities System by
reason of any negligence, misfeasance or misconduct of the
Custodian or any of its agents or of any of its or their
employees or from failure of the Custodian or any such agent
to enforce effectively such rights as it may have against the
Securities System; at the election of the Fund, it shall be
entitled to be subrogated to the rights of the Custodian with
respect to any claim against the Securities System or any
other person which the Custodian may have as a consequence of
any such loss or damage if and to the extent that the Fund has
not been made whole for any such loss or damage.
2.10A Fund Assets Held in the Custodian's Direct Paper System. The Custodian
may deposit and/or maintain securities owned by the Fund in the Direct
Paper System of the Custodian subject to the following provisions:
1) No transaction relating to securities in the Direct
Paper System will be effected in the absence of Proper
Instructions;
2) The Custodian may keep securities of the Fund in the Direct
Paper System only if such securities are represented in an
account ("Account") of the Custodian in the Direct Paper
System which shall not include any assets of the Custodian
other than assets held as a fiduciary, custodian or otherwise
for customers;
3) The records of the Custodian with respect to securities of the
Fund which are maintained in the Direct Paper System shall
identify by book-entry those securities belonging to the Fund;
4) The Custodian shall pay for securities purchased for the
account of the Fund upon the making of an entry on the records
of the Custodian to reflect such payment and transfer of
securities to the account of the Fund. The Custodian shall
transfer securities sold for the account of the Fund upon the
making of an entry on the records of the Custodian to reflect
such transfer and receipt of payment for the account of the
Fund;
5) The Custodian shall furnish the Fund confirmation of each
transfer to or from the account of the Fund, in the form of a
written advice or notice, of Direct Paper on the next business
day following such transfer and shall furnish to the Fund
copies of daily transaction sheets reflecting each day's
transaction in the Securities System for the account of the
Fund;
6) The Custodian shall provide the Fund with any report on its
system of internal accounting control as the Fund may
reasonably request from time to time.
2.11 Segregated Account. The Custodian shall upon receipt of Proper
Instructions establish and maintain a segregated account or accounts
for and on behalf of the Fund, into which account or accounts may be
transferred cash and/or securities, including securities maintained in
an account by the Custodian pursuant to Section 2.10 hereof, (i) in
accordance with the provisions of any agreement among the Fund, the
Custodian and a broker-dealer registered under the Exchange Act and a
member of the NASD (or any futures commission merchant registered under
the Commodity Exchange Act), relating to compliance with the rules of
The Options Clearing Corporation and of any registered national
securities exchange (or the Commodity Futures Trading Commission or any
registered contract market), or of any similar organization or
organizations, regarding escrow or other arrangements in connection
with transactions by the Fund, (ii) for purposes of segregating cash or
government securities in connection with options purchased, sold or
written by the Fund or commodity futures contracts or options thereon
purchased or sold by the Fund, (iii) for the purposes of compliance by
the Fund with the procedures required by Investment Company Act Release
No. 10666, or any subsequent release or releases of the Securities and
Exchange Commission relating to the maintenance of segregated accounts
by registered investment companies and (iv) for other proper corporate
purposes, but only, in the case of clause (iv), upon receipt of, in
addition to Proper Instructions, a certified copy of a resolution of
the Board of Trustees or of the Executive Committee signed by an
officer of the Fund and certified by the Secretary or an Assistant
Secretary, setting forth the purpose or purposes of such segregated
account and declaring such purposes to be proper corporate purposes.
2.12 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other
payments with respect to domestic securities of the Fund held by it and
in connection with transfers of securities.
2.13 Proxies. The Custodian shall, with respect to the domestic securities
held hereunder, cause to be promptly executed by the registered holder
of such securities, if the securities are registered otherwise than in
the name of the Fund or a nominee of the Fund, all proxies, without
indication of the manner in which such proxies are to be voted, and
shall promptly deliver to the Fund such proxies, all proxy soliciting
materials and all notices relating to such securities.
2.14 Communications Relating to Fund Securities. Subject to the provisions
of Section 2.3, the Custodian shall transmit promptly to the Fund all
written information (including, without limitation, pendency of calls
and maturities of domestic securities and expirations of rights in
connection therewith and notices of exercise of call and put options
written by the Fund and the maturity of futures contracts purchased or
sold by the Fund) received by the Custodian from issuers of the
domestic securities being held for the Fund. With respect to tender or
exchange offers, the Custodian shall transmit promptly to the Fund all
written information received by the Custodian from issuers of the
domestic securities whose tender or exchange is sought and from the
party (or his agents) making the tender or exchange offer. If the Fund
desires to take action with respect to any tender offer, exchange offer
or any other similar transaction, the Fund shall notify the Custodian
at least three business days prior to the date on which the Custodian
is to take such action.
2.15 Reports to Fund by Independent Public Accountants The Custodian shall
provide the Fund, at such times as the Fund may reasonably require,
with reports by independent public accountants on the accounting
system, internal accounting control and procedures for safeguarding
securities, futures contracts and options on futures contracts,
including domestic securities deposited and/or maintained in a
Securities System, relating to the services provided by the Custodian
under this Contract; such reports, shall be of sufficient scope and in
sufficient detail, as may reasonably be required by the Fund to provide
reasonable assurance that any material inadequacies would be disclosed
by such examination, and, if there are no such inadequacies, the
reports shall so state.
3. Duties of the Custodian with Respect to Property of the Fund Held
Outside of the United States
3.1 Appointment of Foreign Sub-Custodians. The Fund hereby authorizes and
instructs the Custodian to employ as sub-custodians for the Fund's
securities and other assets maintained outside the United States the
foreign banking institutions and foreign securities depositories
designated on Schedule A hereto ("foreign sub-custodians"). Upon
receipt of "Proper Instructions", as defined in Section 5 of this
Contract, together with a certified resolution of the Fund's Board of
Trustees, the Custodian and the Fund may agree to amend Schedule A
hereto from time to time to designate additional foreign banking
institutions and foreign securities depositories to act as
sub-custodian. Upon receipt of Proper Instructions, the Fund may
instruct the Custodian to cease the employment of any one or more such
sub-custodians for maintaining custody of the Fund's assets.
3.2 Assets to be Held. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to: (a)
"foreign securities", as defined in paragraph (c)(1) of Rule 17f-5
under the Investment Company Act of 1940, and (b) cash and cash
equivalents in such amounts as the Custodian or the Fund may determine
to be reasonably necessary to effect the Fund's foreign securities
transactions. The Custodian shall identify on its books as belonging to
the Fund, the foreign securities of the Fund held by each foreign
sub-custodian.
3.3 Foreign Securities Depositories. Except as may otherwise be agreed upon
in writing by the Custodian and the Fund, assets of the Funds shall be
maintained in foreign securities depositories only through arrangements
implemented by the foreign banking institutions serving as
sub-custodians pursuant to the terms hereof. Where possible, such
arrangements shall include entry into agreements containing the
provisions set forth in Section 3.5 hereof.
3.4 Segregation of Securities. The Custodian shall identify on its books as
belonging to the Fund, the foreign securities of the Fund held by each
foreign sub-custodian. Each agreement pursuant to which the Custodian
employs a foreign institution shall require that such institution
establish custody account(s) for the Custodian on behalf of the Fund
and physically segregate in each such account securities and other
assets of the Fund, and, in the event that such institution deposits
the Fund's securities in a foreign securities depository, that it shall
identify on its books as belonging to the Custodian, as agent for the
Fund, the securities so deposited.
3.5 Agreements with Foreign Banking Institutions. Each agreement with a
foreign banking institution shall be substantially in the form set
forth in Exhibit 1 hereto and shall provide that: (a) the Fund's assets
will not be subject to any right, charge, security interest, lien or
claim of any kind in favor of the foreign banking institution or its
creditors or agent, except a claim of payment for their safe custody or
administration; (b) beneficial ownership of the Fund's assets will be
freely transferable without the payment of money or value other than
for custody or administration; (c) adequate records will be maintained
identifying the assets as belonging to the Fund; (d) officers of or
auditors employed by, or other representatives of the Custodian,
including to the extent permitted under applicable law the independent
public accountants for the Fund, will be given access to the books and
records of the foreign banking institution relating to its actions
under its agreement with the Custodian; and (e) assets of the Fund held
by the foreign sub-custodian will be subject only to the instructions
of the Custodian or its agents.
3.6 Access of Independent Accountants of the Fund. Upon request of the
Fund, the Custodian will use its best efforts to arrange for the
independent accountants of the Fund to be afforded access to the books
and records of any foreign banking institution employed as a foreign
sub-custodian insofar as such books and records relate to the
performance of such foreign banking institution under its agreement
with the Custodian.
3.7 Reports by Custodian. The Custodian will supply to the Fund from time
to time, as mutually agreed upon, statements in respect of the
securities and other assets of the Fund held by foreign sub-custodians,
including but not limited to an identification of entities having
possession of the Fund's securities and other assets and advices or
notifications of any transfers of securities to or from each custodial
account maintained by a foreign banking institution for the Custodian
on behalf of the Fund indicating, as to securities acquired for the
Fund, the identity of the entity having physical possession of such
securities.
3.8 Transactions in Foreign Custody Account. (a) Except as otherwise
provided in paragraph (b) of this Section 3.8, the provision of
Sections 2.2 and 2.7 of this Contract shall apply, mutatis mutandis to
the foreign securities of the Fund held outside the United States by
foreign sub-custodians.
(b) Notwithstanding any provision of this Contract to the contrary,
settlement and payment for securities received for the account of the
Fund and delivery of securities maintained for the account of the Fund
may be effected in accordance with the customary established securities
trading or securities processing practices and procedures in the
jurisdiction or market in which the transaction occurs, including,
without limitation, delivering securities to the purchaser thereof or
to a dealer therefor (or an agent for such purchaser or dealer) against
a receipt with the expectation of receiving later payment for such
securities from such purchaser or dealer.
(c) Securities maintained in the custody of a foreign sub-custodian may
be maintained in the name of such entity's nominee to the same extent
as set forth in Section 2.3 of this Contract, and the Fund agrees to
hold any such nominee harmless from any liability as a holder of record
of such securities.
3.9 Liability of Foreign Sub-Custodians. Each agreement pursuant to which
the Custodian employs a foreign banking institution as a foreign
sub-custodian shall require the institution to exercise reasonable care
in the performance of its duties and to indemnify, and hold harmless,
the Custodian and the Fund from and against any loss, damage, cost,
expense, liability or claim arising out of or in connection with the
institution's performance of such obligations. At the election of the
Fund, it shall be entitled to be subrogated to the rights of the
Custodian with respect to any claims against a foreign banking
institution as a consequence of any such loss, damage, cost, expense,
liability or claim if and to the extent that the Fund has not been made
whole for any such loss, damage, cost, expense, liability or claim.
3.10 Liability of Custodian. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set
forth with respect to sub-custodians generally in this Contract and,
regardless of whether assets are maintained in the custody of a foreign
banking institution, a foreign securities depository or a branch of a
U.S. bank as contemplated by paragraph 3.13 hereof, the Custodian shall
not be liable for any loss, damage, cost, expense, liability or claim
resulting from nationalization, expropriation, currency restrictions,
or acts of war or terrorism or any loss where the sub-custodian has
otherwise exercised reasonable care. Notwithstanding the foregoing
provisions of this paragraph 3.10, in delegating custody duties to
State Street London Ltd., the Custodian shall not be relieved of any
responsibility to the Fund for any loss due to such delegation, except
such loss as may result from (a) political risk (including, but not
limited to, exchange control restrictions, confiscation, expropriation,
nationalization, insurrection, civil strife or armed hostilities) or
(b) other losses (excluding a bankruptcy or insolvency of State Street
London Ltd. not caused by political risk) due to Acts of God, nuclear
incident or other losses under circumstances where the Custodian and
State Street London Ltd. have exercised reasonable care.
3.11 Reimbursement for Advances. If the Fund requires the Custodian to
advance cash or securities for any purpose including the purchase or
sale of foreign exchange or of contracts for foreign exchange, or in
the event that the Custodian or its nominee shall incur or be assessed
any taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Contract, except such as may
arise from its or its nominee's own negligent action, negligent failure
to act or willful misconduct, any property at any time held for the
account of the Fund shall be security therefor and should the Fund fail
to repay the Custodian promptly, the Custodian shall be entitled to
utilize available cash and to dispose of such Funds assets to the
extent necessary to obtain reimbursement.
3.12 Monitoring Responsibilities. The Custodian shall furnish annually to
the Fund, during the month of June, information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be
similar in kind and scope to that furnished to the Fund in connection
with the initial approval of this Contract. In addition, the Custodian
will promptly inform the Fund in the event that the Custodian learns of
a material adverse change in the financial condition of a foreign
sub-custodian or any material loss of the assets of the Fund or in the
case of any foreign sub-custodian not the subject of an exemptive order
from the Securities and Exchange Commission is notified by such foreign
sub-custodian that there appears to be a substantial likelihood that
its shareholders' equity will decline below $200 million (U.S. dollars
or the equivalent thereof) or that its shareholders' equity has
declined below $200 million (in each case computed in accordance with
generally accepted U.S. accounting principles).
3.13 Branches of U.S. Banks. (a) Except as otherwise set forth in this
Contract, the provisions hereof shall not apply where the custody of
the Funds assets are maintained in a foreign branch of a banking
institution which is a "bank" as defined by Section 2(a)(5) of the
Investment Company Act of 1940 meeting the qualification set forth in
Section 26(a) of said Act. The appointment of any such branch as a
sub-custodian shall be governed by paragraph 1 of this Contract.
(b) Cash held for the Fund in the United Kingdom shall be maintained in
an interest bearing account established for the Fund with the
Custodian's London branch, which account shall be subject to the
direction of the Custodian, State Street London Ltd. or both.
4. Payments for Repurchases or Redemptions and Sales of Shares of the Fund
From such funds as may be available for the purpose but subject to the
limitations of the Declaration of Trust and any applicable votes of the Board of
Trustees of the Fund pursuant thereto, the Custodian shall, upon receipt of
instructions from the Transfer Agent, make funds available for payment to
holders of Shares who have delivered to the Transfer Agent a request for
redemption or repurchase of their Shares. In connection with the redemption or
repurchase of Shares of the Fund, the Custodian is authorized upon receipt of
instructions from the Transfer Agent to wire funds to or through a commercial
bank designated by the redeeming shareholders. In connection with the redemption
or repurchase of Shares of the Fund, the Custodian shall honor checks drawn on
the Custodian by a holder of Shares, which checks have been furnished by the
Fund to the holder of Shares, when presented to the Custodian in accordance with
such procedures and controls as are mutually agreed upon from time to time
between the Fund and the Custodian.
The Custodian shall receive from the distributor for the Fund's Shares
or from the Transfer Agent of the Fund and deposit into the Fund's account such
payments as are received for Shares of that Fund issued or sold from time to
time by the Fund. The Custodian will provide timely notification to the Fund and
the Transfer Agent of any receipt by it of payments for Shares of the Fund.
5. Proper Instructions
Proper Instructions as used herein means a writing signed or initialled
by one or more person or persons as the Board of Trustees shall have from time
to time authorized. Each such writing shall set forth the specific transaction
or type of transaction involved, including a specific statement of the purpose
for which such action is requested. Oral instructions will be considered Proper
Instructions if the Custodian reasonably believes them to have been given by a
person authorized to give such instructions with respect to the transaction
involved. The Fund shall cause all oral instructions to be confirmed in writing.
Upon receipt of a certificate of the Secretary or an Assistant Secretary as to
the authorization by the Board of Trustees of the Fund accompanied by a detailed
description of procedures approved by the Board of Trustees, Proper Instructions
may include communications effected directly between electro-mechanical or
electronic devices provided that the Board of Trustees and the Custodian are
satisfied that such procedures afford adequate safeguards for the Fund's assets.
For purposes of this Section, Proper Instructions shall include instructions
received by the Custodian pursuant to any three-party agreement which requires a
segregated asset account in accordance with Section 2.11.
6. Actions Permitted without Express Authority
The Custodian may in its discretion, without express authority from the
Fund:
1) make payments to itself or others for minor expenses of
handling securities or other similar items relating to its
duties under this Contract, provided that all such payments
shall be accounted for to the Fund;
2) surrender securities in temporary form for securities in
definitive form;
3) endorse for collection, in the name of the Fund, checks,
drafts and other negotiable instruments; and
4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase,
transfer and other dealings with the securities and property
of the Fund except as otherwise directed by the Board of
Trustees of the Fund.
7. Evidence of Authority
The Custodian shall be protected in acting upon any instructions,
notice, request, consent, certificate or other instrument or paper believed by
it to be genuine and to have been properly executed by or on behalf of the Fund.
The Custodian may receive and accept a certified copy of a vote of the Board of
Trustees of the Fund as conclusive evidence (a) of the authority of any person
to act in accordance with such vote or (b) of any determination or of any action
by the Board of Trustees pursuant to the Declaration of Trust as described in
such vote, and such vote may be considered as in full force and effect until
receipt by the Custodian of written notice to the contrary.
8. Duties of Custodian with Respect to the Books of Account and
Calculation of Net Asset Value and Net
Income
The Custodian shall cooperate with and supply necessary information
to the entity or entities appointed by the Board of Trustees of the Fund to keep
the books of account of the Fund and/or compute the net asset value per share of
the outstanding shares of the Fund or, if directed in writing to do so by the
Fund, shall itself keep such books of account and/or compute such net asset
value per share. If so directed, the Custodian shall also calculate daily the
net income of the Fund as described in the Fund's currently effective prospectus
related to the Fund and shall advise the Fund and the Transfer Agent daily of
the total amounts of such net income and, if instructed in writing by an officer
of the Fund to do so, shall advise the Transfer Agent periodically of the
division of such net income among its various components. The calculations of
the net asset value per share and the daily income of the Fund shall be made at
the time or times described from time to time in the Fund's currently effective
prospectus.
9. Records
The Custodian shall create and maintain all records relating to its
activities and obligations under this Contract in such manner as will meet the
obligations of the Fund under the Investment Company Act of 1940, with
particular attention to Section 31 thereof and Rules 31a-1 and 31a-2 thereunder.
All such records shall be the property of the Fund and shall at all times during
the regular business hours of the Custodian be open for inspection by duly
authorized officers, employees or agents of the Fund and employees and agents of
the Securities and Exchange Commission. The Custodian shall, at the Fund's
request, supply the Fund with a tabulation of securities owned by the Fund and
held by the Custodian and shall, when requested to do so by the Fund and for
such compensation as shall be agreed upon between the Fund and the Custodian,
include certificate numbers in such tabulations.
10. Opinion of Fund's Independent Accountant
The Custodian shall take all reasonable action, as the Fund may from
time to time request, to obtain from year to year favorable opinions from the
Fund's independent accountants with respect to its activities hereunder in
connection with the preparation of the Fund's Form N-1A, and Form N-SAR or other
annual reports to the Securities and Exchange Commission and with respect to any
other requirements of such Commission.
11. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between the
Fund and the Custodian.
12. Responsibility of Custodian
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties,
including any futures commission merchant acting pursuant to the terms of a
three-party futures or options agreement. The Custodian shall be held to the
exercise of reasonable care in carrying out the provisions of this Contract, but
shall be kept indemnified by and shall be without liability to the Fund for any
action taken or omitted by it in good faith without negligence. It shall be
entitled to rely on and may act upon advice of counsel (who may be counsel for
the Fund) on all matters, and shall be without liability for any action
reasonably taken or omitted pursuant to such advice.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution appointed pursuant to the provisions of Article 3 to the
same extent as set forth in Article 1 hereof with respect to sub-custodians
located in the United States and, regardless of whether assets are maintained in
the custody of a foreign banking institution, a foreign securities depository or
a branch of a U.S. bank as contemplated by paragraph 3.11 hereof, the Custodian
shall not be liable for any loss, damage, cost, expense, liability or claim
resulting from, or caused by, the direction of or authorization by the Fund to
maintain custody or any securities or cash of the Fund in a foreign country
including, but not limited to, losses resulting from nationalization,
expropriation, currency restrictions, or acts of war or terrorism.
If the Fund requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action may, in
the opinion of the Custodian, result in the Custodian or its nominee assigned to
the Fund being liable for the payment of money or incurring liability of some
other form, the Fund, as a prerequisite to requiring the Custodian to take such
action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.
If the Fund requires the Custodian to advance cash or securities for
any purpose or in the event that the Custodian or its nominee shall incur or be
assessed any taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Contract, except such as may arise from
its or its nominee's own negligent action, negligent failure to act or willful
misconduct, any property at any time held for the account of the Fund shall be
security therefor and should the Fund fail to repay the Custodian promptly after
receipt of written notice, the Custodian shall be entitled to utilize available
cash and to dispose of the Fund's assets to the extent necessary to obtain
reimbursement.
13. Effective Period, Termination and Amendment
This Contract shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter provided, may
be amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than thirty (30) days after the date of such delivery or mailing; provided,
however that the Custodian shall not act under Section 2.10 hereof in the
absence of receipt of an initial certificate of the Secretary or an Assistant
Secretary that the Board of Trustees of the Fund has approved the initial use of
a particular Securities System, as required by Rule 17f-4 under the Investment
Company Act of 1940, as amended and that the Custodian shall not act under
Section 2.10A hereof in the absence of receipt of an initial certificate of the
Secretary or an Assistant Secretary that the Board of Trustees has approved the
initial use of the Direct Paper System; provided further, however, that the Fund
shall not amend or terminate this Contract in contravention of any applicable
federal or state regulations, or any provision of the Declaration of Trust, and
further provided, that the Fund may at any time by action of its Board of
Trustees (i) substitute another bank or trust company for the Custodian by
giving notice as described above to the Custodian, or (ii) immediately terminate
this Contract in the event of the appointment of a conservator or receiver for
the Custodian by the Comptroller of the Currency or upon the happening of a like
event at the direction of an appropriate regulatory agency or court of competent
jurisdiction.
Upon termination of the Contract, the Fund shall pay to the Custodian
such compensation as may be due as of the date of such termination and shall
likewise reimburse the Custodian for its costs, expenses and disbursements.
14. Successor Custodian
If a successor custodian shall be appointed by the Board of Trustees of
the Fund, the Custodian shall, upon termination, deliver to such successor
custodian at the office of the Custodian, duly endorsed and in the form for
transfer, all securities then held by it hereunder and shall transfer to an
account of the successor custodian all of the Fund's securities held in a
Securities System.
If no such successor custodian shall be appointed, the Custodian shall,
in like manner, upon receipt of a certified copy of a vote of the Board of
Trustees of the Fund, deliver at the office of the Custodian and transfer such
securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Trustees shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act of 1940,
doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian and all instruments held by the Custodian
relative thereto and all other property held by it under this Contract and to
transfer to an account of such successor custodian all of the Fund's securities
held in any Securities System. Thereafter, such bank or trust company shall be
the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Trustees to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
15. Interpretive and Additional Provisions
In connection with the operation of this Contract, the Custodian and
the Fund, may from time to time agree on such provisions interpretive of or in
addition to the provisions of this Contract as may in their joint opinion be
consistent with the general tenor of this Contract. Any such interpretive or
additional provisions shall be in a writing signed by both parties and shall be
annexed hereto, provided that no such interpretive or additional provisions
shall contravene any applicable federal or state regulations or any provision of
the Declaration of Trust of the Fund. No interpretive or additional provisions
made as provided in the preceding sentence shall be deemed to be an amendment of
this Contract.
16. Massachusetts Law to Apply
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
17. Prior Contracts
This Contract supersedes and terminates, as of the date hereof, all
prior contracts between the Fund and the Custodian relating to the custody of
the Fund's assets.
18. Miscellaneous
18.1 The Custodian agrees to treat all records and other information
relative to the Fund and its prior, present or potential Shareholders
confidentially and the Custodian on behalf of itself and its employees agrees to
keep confidential all such information, except after prior notification to an
approval in writing by the Fund, which approval shall not be unreasonably
withheld. The preceding notwithstanding, in the event legal process is served
upon the Custodian requiring certain disclosure, the Custodian may divulge such
information. In such event, the Custodian shall, if legally permissible, advise
the Fund of its receipt of such legal process.
18.2 Notwithstanding any other provision in this Agreement, the
parties agree that the assets and liabilities of each Portfolio of the Fund are
separate and distinct from the assets and liabilities of each other Portfolio
and that no Portfolio shall be liable or shall be charged for any debt,
obligation or liability of any other Portfolio, whether arising under the
Agreement or otherwise.
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the 1st day of August , 1990.
ATTEST LEGG MASON CASH RESERVE TRUST
/s/ Susan T. Lind /s/ Marie K. Karpinski
By__________________________________
ATTEST STATE STREET BANK AND TRUST COMPANY
/s/ /s/ Jeff Fletcher
By__________________________________
Vice President
<PAGE>
Schedule A
The following foreign banking institutions and foreign securities
depositories have been approved by the Board of Trustees of Legg Mason Cash
Reserve Trust for use as sub-custodians for the Fund's securities and other
assets:
(Insert banks and securities depositories)
Certified:
Fund's Authorized Officer
Date:
AMENDMENT TO CUSTODIAN CONTRACT
Agreement made by and between State Street Bank and Trust Company (the
"Custodian") and Legg Mason Cash Reserve Trust, Inc. (the "Fund").
WHEREAS, the Custodian and the Fund are parties to a custodian contract
dated August 1, 1990 (the "Custodian Contract") governing the terms and
conditions under which the Custodian maintains custody of the securities and
other assets of the Fund; and
WHEREAS, the Custodian and the Fund desire to amend the terms and
conditions under which the Custodian maintains the Fund's securities and other
non-cash property in the custody of certain foreign sub-custodians in conformity
with the requirements of Rule 17f-5 under the Investment Company Act of 1940, as
amended;
NOW THEREFORE, in consideration of the premises and covenants contained
herein, the Custodian and the Fund hereby amend the Custodian Contract by the
addition of the following terms and provisions;
1. Notwithstanding any provisions to the contrary set forth in the
Custodian Contract, the Custodian may hold securities and other non-cash
property for all of its customers, including the Fund, with a foreign
sub-custodian in a single account that is identified as belonging to the
Custodian for the benefit of its customers, provided however, that (i) the
records of the Custodian with respect to securities and other non-cash property
of the Fund which are maintained in such account shall identify by book-entry
those securities and other non-cash property belonging to the Fund and (ii) the
Custodian shall require that securities and other non-cash property so held by
the foreign sub-custodian be held separately from any assets of the foreign
sub-custodian or of others.
2. Except as specifically superseded or modified herein, the terms and
provisions of the Custodian Contract shall continue to apply with full force and
effect.
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed as a sealed instrument in its name and behalf by its duly authorized
representative this 28th day of May, 1996.
LEGG MASON CASH RESERVE TRUST, INC.
By: /s/ Marie K. Karpinski
________________________________
Title: Vice President and Treasurer
_____________________________
STATE STREET BANK AND TRUST COMPANY
By: /s/ M. L. Summers
________________________________
Title: Vice President
_____________________________
TRANSFER AGENCY AND SERVICE AGREEMENT
between
LEGG MASON CASH RESERVE TRUST
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Article 1 Terms of Appointment; Duties of the Bank............................ 1
Article 2 Fees and Expenses................................................... 4
Article 3 Representations and Warranties of the Bank.......................... 5
Article 4 Representations and Warranties of the Fund.......................... 5
Article 5 Indemnification..................................................... 7
Article 6 Covenants of the Fund and the Bank.................................. 9
Article 7 Termination of Agreement............................................ 10
Article 8 Assignment.......................................................... 11
Article 9 Amendment........................................................... 11
Article 10 Massachusetts Law to Apply.......................................... 11
Article 11 Merger of Agreement................................................. 12
Article 12 Limitation of Liability of the Trustees
Shareholders, Officers, Employees and Agents ....................... 12
Article 13 Miscellaneous....................................................... 12
Article 14 Counterparts........................................................ 12
</TABLE>
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the 1st day of August, 1990, by and between LEGG
MASON CASH RESERVE TRUST, a Massachusetts business trust, having its principal
office and place of business at 111 South Calvert Street, Baltimore, Maryland
21202 (the "Fund"), and STATE STREET BANK AND TRUST COMPANY, a Massachusetts
trust company having its principal office and place of business at 225 Franklin
Street, Boston, Massachusetts 02110 (the "Bank").
WHEREAS, the Fund desires to appoint the Bank as its transfer agent,
dividend disbursing agent, custodian of certain retirement plans and agent in
connection with certain other activities and the Bank desires to accept such
appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
Article l Terms of Appointment; Duties of the Bank
1.01 Subject to the terms and conditions set forth in this
Agreement, the Fund hereby employs and appoints the Bank to act as, and the Bank
agrees to act as its transfer agent for the Fund's authorized and issued shares
of beneficial interest of the Fund, dividend disbursing agent, custodian of
certain retirement plans and agent in connection with any accumulation,
open-account or similar plans provided to the shareholders of the Fund
("Shareholders") and set out in the currently effective prospectus and statement
of additional information ("prospectus") of the Fund, including without
limitation any periodic investment plan or periodic withdrawal program.
<PAGE>
1.02 The Bank agrees that it will perform the following
services:
(a) In accordance with procedures established from time to
time by agreement between the Fund on behalf of each of the Portfolios, as
applicable and the Bank, the Bank shall:
(i) Receive for acceptance, orders for the purchase of
Shares, and promptly deliver payment and
appropriate documentation thereof to the Custodian
of the Fund authorized pursuant to the Declaration
of Trust of the Fund (the "Custodian");
(ii) Pursuant to purchase orders, issue the appropriate
number of Shares and hold such Shares in the
appropriate Shareholder account;
(iii) Receive for acceptance redemption requests and
redemption directions and deliver the appropriate
documentation thereof to the Custodian;
(iv) In respect to the transactions in items (i), (ii)
and (iii) above, the Bank shall execute
transactions directly with broker-dealers
authorized by the Fund who shall thereby be deemed
to be acting on behalf of the Fund;
(v) At the appropriate time as and when it receives
monies paid to it by the Custodian with respect to
any redemption, pay over or cause to be paid
-2-
<PAGE>
over in the appropriate manner such monies as
instructed by the redeeming Shareholders;
(vi) Effect transfers of Shares by the registered owners
thereof upon receipt of appropriate instructions;
(vii) Prepare and transmit payments for dividends and
distributions declared by the Fund;
(viii) Prepare and transmit payments for dividends and
distributions declared by the Fund;
(ix) Maintain records of account for and advise the Fund
and its Shareholders as to the foregoing; and
(x) Record the issuance of Shares of the Fund and
maintain pursuant to SEC Rule 17Ad-10(e) a record
of the total number of Shares of the Fund which are
authorized, based upon data provided to it by the
Fund, and issued and outstanding. The Bank shall
also provide the Fund on a regular basis with the
total number of Shares which are authorized and
issued and outstanding and shall have no
obligation, when recording the issuance of Shares,
to monitor the issuance of such Shares or to take
cognizance of any laws relating to the issue or
sale of such Shares, which functions shall be the
sole responsibility of the Fund.
(b) In addition to and neither in lieu nor in contravention
of the services set forth in the above paragraph (a), the Bank shall: (i)
-3-
<PAGE>
perform all of the customary services of a transfer agent, dividend disbursing
agent, custodian of certain retirement plans and, as relevant, agent in
connection with accumulation, open-account or similar plans (including without
limitation any periodic investment plan or periodic withdrawal program),
including but not limited to: maintaining all Shareholder accounts, preparing
Shareholder meeting lists, mailing proxies, mailing Shareholder reports and
prospectuses to current Shareholders, withholding taxes on U.S. resident and
non-resident alien accounts, preparing and filing U.S. Treasury Department Forms
1099 and other appropriate forms required with respect to dividends and
distributions by federal authorities for all Shareholders, preparing and mailing
confirmation forms and statements of account to Shareholders for all purchases
and redemptions of Shares and other confirmable transactions in Shareholder
accounts, preparing and mailing activity statements for Shareholders, and
providing Shareholder account information and (ii) provide a system which will
enable the Fund to monitor the total number of Shares sold in each State.
(c) In addition, the Fund shall (i) identify to the Bank in
writing those transactions and assets to be treated as exempt from blue sky
reporting for each State and (ii) verify the establishment of transactions for
each State on the system prior to activation and thereafter monitor the daily
activity for each State. The responsibility of the Bank for the Fund's blue sky
State registration status is solely limited to the initial establishment of
transactions subject to blue sky compliance by
-4-
<PAGE>
the Fund and the reporting of such transactions to the Fund as provided above.
(d) Procedures as to who shall provide certain of these
services in Article 1 may be established from time to time by agreement between
the Fund and the Bank per the attached service responsibility schedule. The Bank
may at times perform only a portion of these services and the Fund or its agent
may perform these services on the Fund's behalf.
Procedures applicable to certain of these services may be established
from time to time by agreement between the Fund and the Bank.
Article 2 Fees and Expenses
2.01 For the performance by the Bank pursuant to this
Agreement, the Fund agrees to pay the Bank an annual maintenance fee for each
Shareholder account as set out in the initial fee schedule attached hereto. Such
fees and out-of-pocket expenses and advances identified under Section 2.02 below
may be changed from time to time subject to mutual written agreement between the
Fund and the Bank.
2.02 In addition to the fee paid under Section 2.01 above,
the Fund agrees to reimburse the Bank for out-of-pocket expenses or advances
incurred by the Bank for the items set out in the fee schedule attached hereto.
In addition, any other expenses incurred by the Bank at the request or with the
consent of the Fund, which are not properly borne by the Bank as part of its
duties and obligations under the Agreement, will be reimbursed by the Fund.
-5-
<PAGE>
2.03 The Fund agrees to pay all fees and reimbursable
expenses within five days following the mailing of the respective billing
notice. Postage for mailing of dividends, proxies, Fund reports and other
mailings to all Shareholder accounts shall be advanced to the Bank by the Fund
at least seven (7) days prior to the mailing date of such materials.
Article 3 Representations and Warranties of the Bank
The Bank represents and warrants to the Fund that:
3.01 It is a trust company duly organized and existing and
in good standing under the laws of The Commonwealth of Massachusetts.
3.02 It is duly qualified to carry on its business in The
Commonwealth of Massachusetts.
3.03 It is empowered under applicable laws and by its
Charter and By-Laws to enter into and perform this Agreement.
3.04 All requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement.
3.05 It has and will continue to have access to the
necessary facilities, equipment and personnel to perform its duties and
obligations under this Agreement.
Article 4 Representations and Warranties of the Fund
The Fund represents and warrants to the Bank that:
4.01 It is a business trust duly organized and existing and
in good standing under the laws of Massachusetts.
4.02 It is empowered under applicable laws and by its
Declaration of Trust and By-Laws to enter into and perform this Agreement.
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<PAGE>
4.03 All corporate proceedings required by said Declaration
of Trust and By-Laws have been taken to authorize it to enter into and perform
this Agreement.
4.04 It is an open-end and diversified management investment
company registered under the Investment Company Act of 1940.
4.05 A registration statement under the Securities Act of
1933, as amended on behalf of each of the Portfolios is currently effective and
will remain effective, and appropriate state securities law filings have been
made and will continue to be made, with respect to all Shares of the Fund being
offered for sale.
Article 5 Indemnification
5.01 The Bank shall not be responsible for, and the Fund
shall indemnify and hold the Bank harmless from and against, any and all losses,
damages, costs, charges, counsel fees, payments, expenses and liability arising
out of or attributable to:
(a) All actions of the Bank or its agent or subcontractors
required to be taken pursuant to this Agreement, provided that such actions are
taken in good faith and without negligence or willful misconduct.
(b) The Fund's refusal or failure to comply with the terms
of the Agreement, or which arises out of the Fund's lack of good faith,
negligence or willful misconduct which arise out of the breach of any
representation or warranty of the Fund hereunder.
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<PAGE>
(c) The reliance on or use by the Bank or its agents or
subcontractors of information, records and documents which (i) are received by
the Bank or its agents or subcontractors, and (ii) have been prepared,
maintained or performed by the Fund or any other person or firm on behalf of the
Fund including but not limited to any previous transfer agent or registrar.
(d) The reliance on, or the carrying out by the Bank or its
agents or subcontractors of any instructions or requests of the Fund on behalf
of the applicable Portfolio.
(e) The offer or sale of Shares in violation of any
requirement under the federal securities laws or regulations or the securities
laws or regulations of any state that such Shares be registered in such state or
in violation of any stop order or other determination or ruling by any federal
agency or any state with respect to the offer or sale of such Shares in such
state.
5.02 The Bank shall indemnify and hold the Fund harmless
from and against any and all losses and damages, and any and all reasonable
costs, charges, counsel fees, payments, expenses and liability arising out of or
attributable to a breach of this Agreement by the Bank, or to any action or
failure or omission to act by the Bank as a result of the Bank's lack of good
faith, negligence or willful misconduct.
5.03 At any time the Bank may apply to any officer of the
Fund for instructions, and may consult with legal counsel with respect to any
matter arising in connection with the services to be performed by the Bank under
this Agreement, and the Bank and its agents or subcontractors shall not be
liable and
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<PAGE>
shall be indemnified by the Fund for any action taken or omitted by it in
reliance upon such instructions or upon the opinion of such counsel that such
actions or omissions comply with the terms of the Agreement and with all
applicable laws, provided the Bank acts in good faith and without negligence or
willful misconduct. The Bank, its agents and subcontractors shall be protected
and indemnified in acting upon any paper or document furnished by or on behalf
of the Fund, reasonably believed to be genuine and to have been signed by the
proper person or persons, or upon any instruction, information, data, records or
documents provided the Bank or its agents or subcontractors by machine readable
input, telex, CRT data entry or other similar means authorized by the Fund, and
shall not be held to have notice of any change of authority of any person, until
receipt of written notice thereof from the Fund. The Bank, its agents and
subcontractors shall also be protected and indemnified in recognizing stock
certificates which are reasonably believed to bear the proper manual or
facsimile signatures of the officers of the Fund, and the proper
countersignature of any former transfer agent or former registrar, or of a
co-transfer agent or co-registrar.
5.04 In the event either party is unable to perform its
obligations under the terms of the Agreement because of acts of God, strikes,
equipment or transmission failure or damage reasonably beyond its control, or
other causes reasonably beyond its control, such party shall not be liable for
damages to the other for any damages resulting from such failure to perform or
otherwise from such causes. In addition, the Bank shall further
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<PAGE>
use reasonable care to minimize the likelihood of such damage, loss of data,
delays and/or errors and should such damage, loss of data, delays and/or errors
occur, the Bank shall use its best efforts to mitigate the effects of such
occurrence.
5.05 Neither party to this Agreement shall be liable to the
other party for consequential damages under any provision of this Agreement or
for any consequential damages arising out to any act or failure to act
hereunder.
5.06 In order that the indemnification provisions contained
in this Article 5 shall apply, upon the assertion of a claim for which either
party may be required to indemnify the other, the party seeking indemnification
shall promptly notify the other party of such assertion, and shall keep the
other party advised with respect to all developments concerning such claim. The
party who may be required to indemnify shall have the option to participate with
the Bank in the defense of such claim. The party seeking indemnification shall
in no case confess any claim or make any compromise in any case in which the
other party may be required to indemnify it except with the other party's prior
written consent.
Article 6 Covenants of the Fund and the Bank
6.01 The Fund shall promptly furnish to the Bank the
following:
(a) A certified copy of the resolution of the Board of
Trustees of the Fund authorizing the appointment of the Bank and the execution
and delivery of this Agreement.
(b) A copy of the Declaration of Trust and By-Laws of the
Fund and all amendments thereto.
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<PAGE>
6.02 The Bank hereby agrees to establish and maintain
facilities and procedures reasonably acceptable to the Fund for safekeeping of
stock certificates, check forms and facsimile signature imprinting devices, if
any; and for the preparation or use, and for keeping account of, such
certificates, forms and devices and to make changes in said procedures and
facilities as the Fund may from time to time reasonably request.
6.03 The Bank shall keep records relating to the services to
be performed hereunder, in the form and manner as it may deem advisable. To the
extent required by Section 31 of the Investment Company Act of 1940, as amended,
and the Rules thereunder, the Bank agrees that all such records prepared or
maintained by the Bank relating to the services to be performed by the Bank
hereunder are the property of the Fund and will be preserved, maintained and
made available in accordance with such Section and Rules, and will be
surrendered promptly to the Fund on and in accordance with its request.
6.04 The Bank and the Fund agree that all books, records,
information and data pertaining to the business of the other party which are
exchanged or received pursuant to the negotiation or the carrying out of this
Agreement shall remain confidential, and shall not be voluntarily disclosed to
any other person, except as may be required by law and shall not be used by the
Bank for any purpose not directly related to the business of the Fund.
6.05 In case of any requests or demands for the inspection
of the Shareholder records of the Fund, the Bank will
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<PAGE>
endeavor to notify the Fund and to secure instructions from an authorized
officer of the Fund as to such inspection. The Bank reserves the right, however,
to exhibit the Shareholder records to any person whenever it is advised by its
counsel that it may be held liable for the failure to exhibit the Shareholder
records to such person.
Article 7 Termination of Agreement
7.01 This Agreement may be terminated by either party upon
one hundred twenty (120) days written notice to the other.
7.02 Should the Fund exercise its right to terminate, all
out-of-pocket expenses associated with the movement of records and material will
be borne by the Fund . Additionally, the Bank reserves the right to charge for
any other reasonable expenses associated with such termination, including but
not limited to training Fund employees, training materials and procedural
documentation required by the Fund. In the event that the Fund designates a
successor to any of the Bank's obligations hereunder, the Bank shall, at the
expense and direction of the Fund, transfer to such successor a certified list
of Shareholders of the Fund, a complete record of the account of each
Shareholder, and all other necessary or relevant books, records and other data
established or maintained by the Bank hereunder.
Article 8 Assignment
8.01 Except as provided in Section 8.03 below, neither this
Agreement nor any rights or obligations hereunder may be assigned by either
party without the written consent of the other party.
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<PAGE>
8.02 This Agreement shall inure to the benefit of and be
binding upon the parties and their respective permitted successors and assigns.
8.03 The Bank may, without further consent on the part of
the Fund, subcontract for the performance hereof with (i) Boston Financial Data
Services, Inc., a Massachusetts corporation ("BFDS") which is duly registered as
a transfer agent pursuant to Section 17A(c)(1) of the Securities Exchange Act of
1934, as amended ("Section 17A(c)(1)"), (ii) a BFDS subsidiary duly registered
as a transfer agent pursuant to Section 17A(c)(1) or (iii) a BFDS affiliate;
provided, however, that the Bank shall be as fully responsible to the Fund for
the acts and omissions of any subcontractor as it is for its own acts and
omissions.
Article 9 Amendment
9.01 This Agreement may be amended or modified by a written
agreement executed by both parties and authorized or approved by a resolution of
the Board of Trustees of the Fund.
Article 10 Massachusetts Law to Apply
10.01 This Agreement shall be construed and the provisions
thereof interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
Article 11 Merger of Agreement
11.01 This Agreement constitutes the entire agreement
between the parties hereto and supersedes any prior agreement with respect to
the subject matter hereof whether oral or written.
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<PAGE>
Article 12 Limitation of Liability of the Trustees, Shareholders,
Officers, Employees and Agents
12.01 A copy of the Declaration of Trust of the Fund is on
file with the Secretary of the Commonwealth of Massachusetts. The parties agree
that neither the Shareholders, Trustees, officers, employees nor any agent of
the Fund shall be liable hereunder and that the parties to this Agreement other
than the Fund shall look solely to the Fund property for the performance of this
Agreement or payment of any claim under this Agreement.
Article 13 Miscellaneous
13.01 The Bank agrees to treat all records and other
information relative to the Fund and its prior, present or potential
Shareholders confidentially and the Bank on behalf of itself and its employees
agrees to keep confidential all such information, except after prior
notification to an approval in writing by the Fund, which approval shall not be
unreasonably withheld and may not be withheld where the Bank may be exposed to
civil or criminal contempt proceedings for failure to comply, when requested to
divulge such information by duly constituted authorities, or when so requested
by the Fund.
13.02 Notwithstanding any other provision in this Agreement,
the parties agree that the assets and liabilities of each Portfolio of the Fund
are separate and distinct from the assets and liabilities of each other
Portfolio and that no Portfolio shall be liable or shall be charged for any
debt,
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<PAGE>
obligation or liability of any other Portfolio, whether arising under the
Agreement or otherwise.
Article 14 Counterparts
14.01 This Agreement may be executed by the parties hereto
on any number of counterparts, and all of said counterparts taken together shall
be deemed to constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in their names and on their behalf by and through their
duly authorized officers, as of the day and year first above written.
LEGG MASON CASH RESERVE TRUST
BY: /s/ Marie K. Karpinski
_______________________________
Marie K. Karpinski
ATTEST:
/s/ Susan T. Lind
______________________________
Susan T. Lind
STATE STREET BANK AND TRUST COMPANY
BY: /s/ Phyllis A. Schroder
_______________________________
Vice President
ATTEST:
______________________________
Assistant Secretary
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<PAGE>
STATE STREET BANK & TRUST COMPANY
FUND SERVICE RESPONSIBILITIES*
Service Performed Responsibility
Bank Fund
1. Receives orders for the purchase
of Shares.
2. Issue Shares and hold Shares in Shareholders accounts.
3. Receive redemption requests.
4. Effect transactions 1-3 above directly with broker-dealers.
5. Pay over monies to redeeming Shareholders.
6. Effect transfers of Shares.
7. Prepare and transmit dividends and distributions.
8. Issue Replacement Certificates.
9. Reporting of abandoned property.
10. Maintain records of account.
11. Maintain and keep a current and accurate control book for each
issue of securities.
12. Mail proxies.
13. Mail Shareholder reports.
14. Mail prospectuses to current Shareholders.
15. Withhold taxes on U.S. resident and non-resident alien
accounts.
16. Prepare and file U.S. Treasury Department forms.
17. Prepare and mail account and confirmation statements for
Shareholders.
18. Provide Shareholder account information.
19. Blue sky reporting.
* Such services are more fully described in Article 1.02 (a), (b) and (c) of the
Agreement.
BY:
/s/ Marie K. Karpinski
__________________________________
ATTEST:
/s/ Susan T. Lind
______________________________
STATE STREET BANK AND TRUST COMPANY
BY:
/s/ Phyllis A. Schroder
___________________________________
Vice President
ATTEST:
________________________________
[Houston, Houston & Donnelly letterhead]
September 25, 1978
The Trustees of Federated Fiduciary Trust
421 Seventh Avenue
Pittsburgh, Pennsylvania 15219
Gentlemen:
Federated Fiduciary Trust ("Trust") proposes to offer and sell Shares
of Beneficial Interest ("Shares") in the manner and on the terms set forth in
its Registration Statement filed on July 27, 1978 with the Securities and
Exchange Commission under the Securities Act of 1933, as amended by Amendment
No. 1.
As counsel we have participated in the organization of the Trust, its
registration under the Investment Company Act of 1940 and the preparation and
filing of its Registration Statement under the Securities Act of 1933. We have
examined and are familiar with the provisions of the written Declaration of
Trust dated July 24, 1978 ("Declaration of Trust"), the Bylaws of the Trust and
such other documents and records deemed relevant. We have also reviewed
questions of law and consulted with counsel thereon as deemed necessary or
appropriate by us for the purposes of this opinion.
Based upon the foregoing, it is our opinion that:
1. The Trust is duly organized and validly existing pursuant to the
Declaration of Trust.
2. The Shares which are currently being registered by the Registration
Statement referred to above may be legally and validly issued from time to time
in accordance with the Declaration of Trust upon receipt of consideration
sufficient to comply with the provisions of Article III, Section 3, of the
Declaration of Trust and subject to compliance with the Securities Act of 1933,
as amended, the Investment Company Act of 1940, as amended, and applicable state
laws regulating the sale of securities. Such Shares, when so issued, will be
fully paid and non-assessable.
<PAGE>
The Trustees of
Federated Fiduciary Trust
Page 2
September 25, 1978
We consent to your filing this opinion as an exhibit to the
Registration Statement referred to above and to any application or registration
statement filed under the securities laws of any of the States of the United
States. We further consent to the reference to our firm under the caption "Legal
Counsel and Accountants" in the prospectus filed as part of such Registration
Statement, applications and registration statements.
Very truly yours,
HOUSTON, HOUSTON & DONNELLY
By /s/ Thomas J. Donnelly
---------------------------
TJD/heh
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 of Legg Mason
Cash Reserve Trust and to the incorporation by reference in this Post-Effective
Amendment No. 35 to Registration Number 2- 62218 (Form N-1A) of our report dated
September 26, 1997, with respect to the financial statements and financial
highlights of The Legg Mason Cash Reserve Trust for the year ended August 31,
1997, included in its 1997 Annual Report to Shareholders.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
December 29, 1997
LEGG MASON WOOD WALKER, INC.
PROTOTYPE INDIVIDUAL RETIREMENT PLAN
AND CUSTODIAL AGREEMENT
<PAGE>
ARTICLE I
ESTABLISHMENT OF THE LEGG MASON WOOD WALKER, INC.
PROTOTYPE INDIVIDUAL RETIREMENT PLAN AND
CUSTODIAL AGREEMENT
1.01 ESTABLISHMENT OF PLAN. By execution of the Legg Mason Retirement
Account Adoption Agreement, the Participant hereby establishes this Legg Mason
Wood Walker, Inc. Prototype Individual Retirement Plan and Custodial Agreement
and intends to provide contributions to his or her Custodial Account in
accordance with section 408(a) of the Internal Revenue Code. The contributions
to be made to the Custodial Account and earnings thereon will be maintained for
the exclusive benefit of the Participant and his or her Beneficiary.
ARTICLE II
DEFINITIONS
The following terms when used in the Plan with an initial capital letter
shall have the following meaning, unless the context otherwise requires:
2.01 ACTIVE PARTICIPANT means, with respect to any plan year of a
retirement plan described in Code section 219(g)(5), an "active participant" as
defined in Code section 219(g) or its successor.
2.02 ADJUSTED GROSS INCOME means a Participant's "adjusted gross income" as
defined in Code section 219(g)(3).
2.03 ADOPTION AGREEMENT means the Legg Mason Retirement Account Adoption
Agreement by which this Plan is adopted by the Participant.
2.04 APPLICABLE DOLLAR AMOUNT means, in the case of a married Participant
filing a joint return, $40,000, in the case of any other individual other than a
married individual filing a separate return, $25,000, and in the case of a
married individual filing a separate return, zero. The Applicable Dollar Amounts
shall increase as provided in Code section 219(g)(2)(A)(ii) and (3)(B).
Effective for Tax Years beginning after December 31, 1997, with respect to an
individual who is not an Active Participant at any time during any plan year
ending with or within the Tax Year, but whose spouse files a joint return with
the individual and is an Active Participant for any part of such plan year, the
Applicable Dollar Amount shall be $150,000.
2.05 APPLICABLE LIFE EXPECTANCY means the life expectancy (or joint and
last survivor expectancy) calculated using the attained age of the Participant
(or Designated Beneficiary) as of the Participant's (or Designated
Beneficiary's) birthday in the applicable calendar year reduced by one for each
calendar year which has elapsed since the date life expectancy was first
calculated for purposes of making a Minimum Required Distribution from a
Participant's Custodial Account. If life expectancy is being recalculated, the
Applicable Life Expectancy shall be the life expectancy as so recalculated. The
applicable calendar year shall be the first Distribution Calendar Year, and if
life expectancy is being recalculated, such succeeding calendar year. Life
expectancy and joint and last survivor expectancy are computed by use of the
expected return multiples in Tables V and VI of section 1.72-9 of the Treasury
regulations.
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<PAGE>
Effective January 1, 1997, unless otherwise elected by the Participant
(or the Participant's spouse, in the case of distributions described in Section
6.03) by the time distributions are required to begin under Code section
408(a)(6), life expectancies shall be recalculated annually. Any such election
(or deemed election in the case of a failure to elect) shall be irrevocable as
to the Participant (or spouse) and shall apply to all subsequent years after the
election (or deemed election). A Participant shall not be entitled to elect to
have his or her joint and last survivor expectancy recalculated unless the
Participant's Designated Beneficiary is his or her spouse.
2.06 BENEFICIARY means the person, persons, trust or any other entity
designated by any Participant as his or her beneficiary in the Adoption
Agreement or other form acceptable to the Custodian. Effective January 1, 1997,
if no Beneficiary shall have been validly selected at the death of the
Participant, or if all of the Participant's chosen Beneficiaries have
predeceased the Participant or disclaim their interest(s) in the Participant's
IRA in accordance with applicable law, the Participant's spouse (or, in the case
of a Participant who is not married on the date of death, the Participant's
estate) shall be deemed to be his or her Beneficiary for all purposes hereunder.
2.07 CODE means the Internal Revenue Code of 1986, as amended, and any
regulations thereunder.
2.08 COMPENSATION means the wages, salaries, professional fees, or other
amounts derived from or received for personal services actually rendered
(including, but not limited to, commissions paid to salesmen, compensation for
services on the basis of a percentage or profits, commissions on insurance
premiums, and tips and bonuses) and including the net earnings from
self-employment in the trade or business with respect to which the Plan is
established, provided the personal services of the self-employed individual are
a material income-producing factor to those net earnings, reduced by the
deduction taken by the self-employed individual for contributions to his or her
self-employed retirement plan. The term "compensation" does not include amounts
derived from or received as earnings or profits from property (including but not
limited to, interest and dividends) or amounts not includible in gross income.
Compensation also does not include any amount received as a pension or annuity
or as deferred compensation. The term "compensation" shall include any amount
includible in the individual's gross income under Code section 71 with respect
to a divorce or separation instrument described in Code section 71(b)(2)(A).
2.09 CUSTODIAL ACCOUNT means the account established under this Plan for
any Participant's contributions and the earnings thereon.
2.10 CUSTODIAN means Legg Mason Wood Walker, Inc. and any successor which
becomes a successor custodian in accordance with this Plan.
2.11 DESIGNATED BENEFICIARY means the "designated beneficiary" of the
Participant as described in proposed Treasury regulations section 1.401(a)(9)
and 1.408-8.
2.12 DESIGNATED NONDEDUCTIBLE CONTRIBUTIONS means any contribution
as described in Code section 408(o)(2)(C) (as limited by Section 3.03), and
designated as such on the Participant's tax return.
2
<PAGE>
2.13 DISABILITY means the inability to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment
which can be expected to result in death or to be of long continued or
indefinite duration.
2.14 DISTRIBUTION CALENDAR YEAR means a calendar year for which a Minimum
Required Distribution is required under Code section 408(a)(6). For
distributions beginning before the Participant's death, the first Distribution
Calendar Year is the calendar year in which the Participant attains age 70 1/2.
For distributions beginning after the Participant's death, the first
Distribution Calendar Year is the calendar year in which distributions are
required to begin pursuant to Article VI hereof.
2.15 DOLLAR LIMITATION means $2,000 or, if applicable, the limitation in
Code section 219(c)(1)(A).
2.16 EFFECTIVE DATE means the date as of which this Plan and the Adoption
Agreement are made effective; provided, however, that such date shall not be
prior to the first day of the calendar year for which this Plan is adopted.
2.17 ERISA means the Employee Retirement Income Security Act of 1974 and
any regulations thereunder, as that statute and those regulations shall be
amended and in effect from time to time.
2.18 EXCESS CONTRIBUTION means the portion of any contribution to a
Custodial Account in excess of the amount allowable as a deduction under the
Code and which is treated as an excess contribution under Code section 408(d).
2.19 INDIVIDUAL IRA means any Custodial Account established hereunder other
than a Marital IRA or Rollover IRA.
2.20 IRA means any of the Custodial Accounts described in Section 4.01 of
this Plan.
2.21 MARITAL IRA means the Custodial Account and IRA established under this
Plan for the benefit of a Non-Working Spouse.
2.22 MINIMUM REQUIRED DISTRIBUTION. A distribution required to be made from
a Participant's Custodial Account under Code section 408(a)(6).
3
<PAGE>
2.23 NONDEDUCTIBLE LIMIT means the Dollar Limitation less, if applicable,
the amount of the Participant's limitation on deductions determined under
Section 3.01 of this Plan, and less any deductible contributions to any of the
Participant's IRAs.
2.24 NON-WORKING SPOUSE means an individual who, for the Tax Year, files a
joint return with the individual's spouse if the amount of the individual's
Compensation, if any, for the Tax Year is less than the Compensation of the
individual's spouse for the Tax Year.
2.25 PARTICIPANT means each individual who is eligible to participate under
this Plan and who has executed the Adoption Agreement. A Non-Working Spouse must
execute an Adoption Agreement in order to establish a Marital IRA.
2.26 PARTICIPANT'S BENEFIT means the Participant's Custodial Account
balance as of the last Valuation Date in the calendar year immediately preceding
the Distribution Calendar Year (the "valuation calendar year") increased by the
amount of any contributions allocated to the Custodial Account balance as of
dates in the "valuation calendar year" after the Valuation Date and decreased by
distributions made in the "valuation calendar year" after the Valuation Date. If
any portion of the minimum distribution for the first Distribution Calendar Year
is made in the second Distribution Calendar Year on or before the Required
Beginning Date, that amount must be treated as having been made for purposes of
this Section 2.26 in the first Distribution Calendar Year.
2.27 PLAN means this Legg Mason Wood Walker, Inc. Prototype Individual
Retirement Plan and Custodial Agreement, the Adoption Agreement and the IRAs
provided by the Custodian pursuant to this Plan.
2.28 REQUIRED BEGINNING DATE means the first day of April following the
calendar year in which the Participant attains age 70 1/2.
2.29 ROLLOVER IRA means the Custodial Account and IRA established under
this Plan to accept Rollover Contributions.
2.30 ROLLOVER CONTRIBUTION means that portion of the amount distributed
from a qualified employee retirement plan, tax-sheltered annuity, qualified
annuity plan, or other individual retirement account to the Participant and then
transferred to his or her Custodial Account (by Transfer or by delivery by the
Participant to the Custodian of distributed funds following his or her receipt
of a distribution) and which satisfies the conditions of Code sections 402(c),
403(a)(4), 403(b)(8), 408(d)(3), as applicable.
2.31 TAX YEAR means the tax year of the Participant.
4
<PAGE>
2.32 TRANSFER means a direct transfer on behalf of a Participant from a
trustee or custodian of a tax-qualified retirement plan, individual retirement
annuity, tax sheltered annuity plan or qualified annuity plan of some or all of
the assets of such a plan, annuity or account to the Custodian and shall include
transfers described in Code sections 401(a)(31), 402(e)(6), 403(c)(5) or
403(b)(10).
2.33 VALUATION DATE means any business day on which the New York Stock
Exchange is open; provided, however, that the Custodian may postpone or
establish a special Valuation Date whenever, in its discretion, it considers
such postponement or establishment necessary.
ARTICLE III
LIMITATIONS ON DEDUCTIONS AND
NONDEDUCTIBLE CONTRIBUTIONS
3.01 LIMITATIONS ON DEDUCTIONS FOR ACTIVE PARTICIPANTS IN CERTAIN PENSION
PLANS -- GENERAL. If a Participant (or, until Tax Years beginning before January
1, 1998, the Participant's Spouse) is an Active Participant in a retirement plan
for any part of the retirement plan's year which ends in a Tax Year, the
Participant's Dollar Limitation for that Tax Year shall be reduced (but not
below zero) by the amount which bears the same ratio to the Dollar Limitation as
the excess of the Participant's Adjusted Gross Income for that Tax Year over the
Applicable Dollar Amount bears to $10,000. A Participant's Dollar Limitation
shall not be reduced below $200 pursuant to the previous sentence unless the
Dollar Limitation (without regard to this sentence) is reduced to zero. Any
amount determined under this Section which is not a multiple of $10 shall be
rounded to the next lowest $10.
3.02 SPECIAL RULE FOR MARRIED INDIVIDUALS FILING SEPARATELY; POST-1997
ACTIVE PARTICIPANT RULES. Subject to the calculation of the Participant's
Applicable Dollar Amount, in the case of a Participant who is married and files
a separate tax return for a Tax Year beginning before January 1, 1998, and in
the case of any married Participant for a Tax Year beginning after December 31,
1997, the limitation in Section 3.01 shall be applied without regard to whether
the Participant's spouse is an active Participant for that Tax Year.
3.03 DESIGNATED NONDEDUCTIBLE CONTRIBUTIONS.
(a) A Participant may make a Designated Nondeductible Contribution to
the extent of his or her Nondeductible Limit.
(b) A Participant who makes a Designated Nondeductible Contribution or
who receives any amount from an IRA for any Tax Year shall include on his or her
tax return such information as is required by the Internal Revenue Service under
Code section 408(a) or its successor.
ARTICLE IV
TYPES OF INDIVIDUAL RETIREMENT ACCOUNTS:
CONTRIBUTIONS AND TRANSFERS TO THE PLAN
4.01 CONTRIBUTIONS TO VARIOUS CUSTODIAL ACCOUNTS. Subject to the
limitations in Article III hereof, the Custodian may accept contributions from
each Participant, as follows:
(a) Individual IRA. An Individual IRA may be opened by anyone who has
Compensation and who will be less than 70 1/2 by the end of the calendar year.
Except in the case of a Rollover Contribution, no contribution will be accepted
by the Custodian to an Individual IRA unless it is in cash. Except in the case
of a Rollover Contribution or a contribution to a simplified employee plan (as
defined in Code section 408(k)), no contribution will be accepted by the
Custodian to an Individual IRA if the total of such contributions exceeds the
lesser of $2,000 or 100% of the Participant's Compensation for the applicable
Tax Year (subject to the limits on deductions described in Article III hereof).
The contribution must be received by the due date of the Participant's tax
return for the applicable Tax Year without regard to extensions received for the
filing of such tax return.
(b) Marital IRA. A Marital IRA may be opened for a Non-Working Spouse
who will be less than age 70 1/2 by the end of the calendar year. Except in the
case of a Rollover Contribution, no contribution will be accepted to a Marital
IRA unless it is in cash. Except in the case of a Rollover Contribution or a
contribution to a simplified employee plan, no contribution will be accepted by
the Custodian to a Marital IRA if the total of such contributions exceeds the
lesser of (i) $2,000 or (ii) the total combined Compensation of the Non-Working
Spouse and of the Non-Working Spouse's spouse for the Tax Year minus the amount
allowed as a deduction under Code section 219(a) to the Non-Working Spouse's
spouse for the Tax Year. The contribution must be received by the due date of
the Participant's tax return for the applicable Tax Year without regard to
extensions received for filing of such tax return.
(c) Rollover IRA. A Rollover IRA may be opened for an eligible
individual who received a Rollover Distribution and then rolled-over that amount
as a Rollover Contribution to a Rollover IRA within 60 days of receipt thereof.
The Participant must have been a member of his or her prior employer's qualified
retirement plan, tax shelter annuity or qualified annuity plan or another
individual retirement account and received a qualifying Rollover Distribution.
If property other than cash is distributed from the Participant's former
qualified plan, then the property may, but shall not be required to, be accepted
by the Custodian. The Custodian may, in its discretion, limit acceptance of
Rollover Contributions which are other than cash to only those assets traded by
Legg Mason Wood Walker, Inc. The Custodian also may, in its sole discretion,
accept into a Rollover IRA a Transfer or Rollover Contribution directly from the
former custodian or trustee or from the Participant. By accepting either a
Transfer or a Rollover Contribution, the Custodian does not accept any
responsibility for the tax results of the Transfer or Rollover Contribution. If
accepted, the Custodian, if requested by the Participant, shall hold the
Rollover Contribution in a separate Custodial Account that consists only of
Rollover Contributions and/or assets attributable to a Transfer and the earnings
thereon. An individual may also open a Rollover IRA by rolling over part or all
of the assets withdrawn from another IRA as provided under Code section
408(d)(3).
(d) No SIMPLE IRA Contributions Accepted. No individual and no
employer of an individual shall contribute amounts to a Custodial Account
maintained under this Plan if the contribution is made pursuant to the terms of
a SIMPLE plan of the individual's employer or former employer. In addition,
amounts maintained by an individual in a SIMPLE IRA may not be transferred as a
Transfer or Rollover Contribution to a Rollover IRA or any other Custodial
Account maintained under this Plan if the amount is Transferred or rolled over
from a SIMPLE IRA maintained by or for the individual if such Transfer or
Rollover Contribution occurs prior to the expiration of the 2-year period
beginning on the date the individual first participated in the SIMPLE IRA that
makes the distribution sought to be rolled over or maintains the assets sought
to be Transferred. The Custodian shall have no liability with respect to
contributions, Rollover Contributions or Transfers made in violation of this
Section 4.01(d), compliance herewith being the sole and exclusive responsibility
of the individual.
4.02 NON-FORFEITABILITY; EXCLUSIVE BENEFIT. All contributions made to any
Custodial Account established hereunder and all investments of those assets as
well as all earnings thereon shall immediately become and at all times remain
non-forfeitable. Each Custodial Account maintained hereunder has been
established and shall be maintained for the exclusive benefit of the Participant
for whom it has been established and maintained or his or her Beneficiary.
4.03 EXCESS CONTRIBUTIONS. At the written direction of the Participant, and
on a form acceptable to the Custodian, the Custodian shall refund to the
Participant any Excess Contribution (or, if less, the total value of the
Participant's Custodial Account as of the date of the refund); provided,
however, that the Custodian shall have no obligation to verify or inquire in any
way into the correctness of a contribution or Rollover Contribution or to
determine if the limitations of Code section 219 have been exceeded.
4.04 PARTICIPANT'S RESPONSIBILITY. The Participant shall be responsible for
the continued qualification of his or her IRA under the Code. The Participant
also shall be solely responsible for properly establishing his or her IRA prior
to the date his or her first contribution is made.
4.05 SEPARATE RECORDS. The Participant who makes contributions to an IRA
and its Custodial Account must establish and maintain records reflecting the
amount of contributions (including Rollover Contributions or Transfers) made
thereto.
4.06 DIRECT TRANSFERS OF ASSETS. The Custodian, in its discretion, may
accept a Transfer of assets, on behalf of any Participant from a trustee or
custodian of a trust or Custodial Account of an Individual Retirement Account or
of a retirement plan for self-employed individuals or of a qualified retirement
plan, tax sheltered annuity or qualified annuity plan and deposit that Transfer
to a separate Rollover IRA. The Custodian, by accepting a Transfer of assets,
does not accept any responsibility for the tax results of the Transfer. The
individual who directs or consents to the Transfer shall remain solely
responsible for the tax results of any Transfer.
4.07 NONTRANSFERABILITY OF IRA. Except as required by law, this IRA and the
interest of a Participant in his or her Custodial Account shall not be
transferred or assigned by voluntary or involuntary act of the Participant, nor
shall it be subject to alienation, assignment, garnishment, attachment,
receivership, execution, or levy of any kind. Notwithstanding the preceding, in
the event of a property settlement between a Participant and his or her former
spouse pursuant to which the transfer of the interest thereunder, or of a
portion thereof, is incorporated in a divorce decree or in a written instrument
incident to such divorce, the interest so decreed to be the property of such
former spouse shall be re-registered in a separate Custodial Account then
established hereunder for the benefit of such former spouse. In the event of
such a transfer incident to a divorce, such former spouse shall be deemed to be
a "Participant" under this Plan.
ARTICLE V
INVESTMENT OF CONTRIBUTIONS
5.01 ESTABLISHMENT OF CUSTODIAL ACCOUNTS. The Custodian shall establish a
Custodial Account to hold investments permitted herein for the benefit of each
Participant to which the Participant's contributions (including Rollover
Contributions and Transfers) and the earnings thereon shall be credited.
5.02 INVESTMENT OF CUSTODIAL ACCOUNTS.
(a) Contributions to IRAs established hereunder (including Rollover
Contributions and Transfers) shall be allocated to the Participant's Custodial
Account as of the Valuation Date next following receipt of such contributions by
the Custodian.
(b) Dividends, net long-term or short-term capital gains and realized
earnings with respect to investments held by a Custodial Account shall be
allocated to the Participant's Custodial Account as of the Valuation Date next
following their declaration (or realization, if later). Gains realized in cash
and other cash distributions in respect of Custodial Account investments shall
be held uninvested (and shall be credited with interest to the extent required
by Article XIV) pending the Participant's investment instruction with respect to
such assets as provided in Section 5.03. The Custodian shall not be required to
make special elections with respect to whether a Custodial Account shall receive
distributions in respect of an investment in the form of cash or additional
shares of the investment, but the Custodian shall be permitted to make such
special elections at the request of a Participant or Beneficiary on a form
acceptable to the Custodian.
5.03 DIRECTION OF INVESTMENTS.
(a) Each Participant shall direct the Custodian with respect to the
investment of all of his or her contributions and earnings thereon. In the
absence of specific Participant direction, the Custodian shall have no
investment responsibility. The Custodian retains the discretion to refuse to
accept an investment direction for any reason. The Custodian may condition its
acceptance or continued holding of an investment to be held in or already held
by the Custodial Account upon the receipt of an agreement from the Participant
or Beneficiary containing such terms, conditions and representations and
warranties as the Custodian shall determine. The Custodian's decision to permit
the acceptance or continued holding of any investment in the Custodial Account
shall constitute neither approval of the investment merits of the investment nor
a judgement as to the prudence or advisability of the investment. The Custodian
reserves the absolute right to revoke its decision to permit the holding in the
Custodial Account of any investment at any time and for any reason (or to
condition the continued holding of an investment upon the receipt of an
agreement from the Participant or Beneficiary containing such terms, conditions
and representations and warranties as the Custodian shall determine), and the
Custodian shall have no liability for any loss, damage or expense suffered or
incurred by the Participant or Beneficiary by reason of the revocation of the
Custodian's decision (or imposition of such condition). If the Custodian
notifies the Participant or Beneficiary that it revokes its decision or that it
desires to condition its prior acceptance as aforesaid, then, within 30 days
after such notice is given to the Participant or Beneficiary, the Participant or
Beneficiary shall instruct the Custodian as to the liquidation, distribution,
transfer, or other disposition of the investment to which the revocation of the
Custodian's decision or conditioning applies or as to the acceptance of
conditions, as applicable. If the Participant or Beneficiary fails to provide
the Custodian with instructions or fails to satisfy the condition(s) required by
the Custodian within such 30-day period, the Participant or Beneficiary shall be
deemed to have elected to receive an in-kind distribution of such investment or,
if the Custodian is imposing a condition to its continued holding of any
investment and the condition solely is the payment of an additional
administration fee to the Custodian, the Custodian shall assess the fee in
accordance with Section 12.01 against the Participant or Beneficiary.
(b) Each Participant shall also direct the Custodian with respect to
the handling of funds either awaiting investment or held pending distribution
through Legg Mason Wood Walker, Inc. In the absence of direction from the
Participant or the Participant's legal representative, the Custodian shall
credit interest to those funds to the extent provided in Article XIV.
(c) The Custodian may follow any written instructions from the
Participant, without liability and without any duty to ascertain whether the
instructions are proper under the Code, ERISA or under any other plan.
5.04 INVESTMENT IN LIFE INSURANCE. No portion of the Participant's
Custodial Account or the earnings thereon shall be invested in life insurance
contracts or, except as provided in Section 6.01(b), annuity contracts.
5.05 INVESTMENT IN COLLECTIBLES. No portion of a Participant's Custodial
Account may be invested in any work of art, any rug or antique, any metal or
gem, any stamp or coin (except for certain coins and bullion described in Code
section 408(m) as in effect at the time of the investment and continued
investment), any alcoholic beverage, or any other tangible personal property
designated as a collectible by the Secretary of the Treasury pursuant to Code
section 408(m). If there is an investment in collectibles within the meaning of
Code section 408(m) that are not excepted coins or bullion under Code section
408(m)(3), the amount so invested shall be treated as a distribution to the
Participant. However, gold and silver coins issued by the United States
government and coins issued under the laws of any State shall not be treated as
collectibles.
ARTICLE VI
DISTRIBUTION OF BENEFITS
6.01 COMMENCEMENT AND FORM OF BENEFITS. Within a reasonable time after
receipt of a written direction to commence distribution of a Custodial Account,
payments may be distributed in the form directed, provided that such form is
acceptable to the Custodian. Further, notwithstanding any other Plan provision
to the contrary, the distribution of an individual's interest in a Custodial
Account shall be made in accordance with the minimum distribution requirements
of section 408(a)(6) or section 408(b)(3) of the Code, as applicable, and the
regulations thereunder, including the incidental death benefit provisions of
section 1.401(a)(9)-2 of the proposed Treasury regulations. An individual may
satisfy the minimum distribution requirements under sections 408(a)(6) and
408(b)(3) of the Code by receiving a distribution from one individual retirement
account that is equal to the amount required to satisfy the minimum
distributions requirements for two or more individual retirement accounts. For
this purpose, the owner of two of more individual retirement accounts may use
the "alternative method," described in I.R.S. Notice 88-33, 1988-1 C.B. 524, to
satisfy the minimum distribution requirements under Code sections 408(a)(6) and
408(b)(3).
(a) (1) The amount required to be distributed to or on behalf of a
Participant for each calendar year, beginning with distributions for the first
Distribution Calendar Year, must be at least equal to the amount determined by
dividing the Participant's Benefit by the Applicable Life Expectancy.
(2) Notwithstanding anything in this Article to the contrary, for
calendar years beginning before January 1, 1989, if the Designated Beneficiary
is not the Participant's spouse, the method of distribution selected must assure
that at least 50% of the present value of the amount available for distribution
will be paid within the life expectancy of the Participant.
(3) Notwithstanding anything in this Article to the contrary, for
calendar years beginning after December 31, 1988, the amount to be distributed
each year, beginning with distributions for the first Distribution Calendar Year
shall not be less than the amount obtained by dividing the Participant's Benefit
by the lesser of (i) the Applicable Life Expectancy or (ii) if the Participant's
spouse is not the Designated Beneficiary, the applicable divisor determined from
the table set forth in Q&A-4 or Q&A-5, as applicable, of proposed Treasury
regulation section 1.401(a)(9)-2. Distributions after the death of the
Participant shall be distributed using the Applicable Life Expectancy, as
applied in Section 6.03(a)(2)(ii), as the relevant divisor without regard to
proposed Treasury regulation section 1.401(a)(9)-2.
(4) The Minimum Required Distribution for the Participant's first
Distribution Calendar Year must be made on or before the Participant's Required
Beginning Date. The Minimum Required Distribution for other Distribution
Calendar Years must be made on or before December 31 of that Distribution
Calendar Year.
(b) If the Participant or Beneficiary chooses an annuity form of
distribution, the Participant or Beneficiary shall direct the Custodian to
purchase a commercially available annuity specified by the Participant or
Beneficiary and the Custodian shall follow such direction and send the annuity
payments therefrom to the Participant or his or her Beneficiary, as applicable.
The purchase of the appropriate type of annuity may be made from any insurance
company acceptable to the Custodian which, in the regular course of its
business, provides annuities in accordance with generally accepted insurance
practices existing at the time of such purchase. The annuity contract must meet
the requirements of section 408(b) of the Code and the distributions thereunder
must be made in accordance with the requirements of Code section 408(a)(6) and
the Treasury regulations proposed thereunder. The Custodian shall not be liable
to the Participant, Beneficiary or the Participant's spouse for any damage
caused by the choice of a commercially available annuity or for any action taken
or not taken by the insurance company that issues the annuity.
(c) Notwithstanding anything in this Section 6.01 to the contrary, the
Participant is responsible for advising the Custodian, on forms acceptable to
the Custodian, of the amount and timing of all distributions from the
Participant's Custodial Account necessary for complying with the minimum
distribution requirements under Code section 408(a)(6).
6.02 DISABILITY. If the Participant becomes subject to a Disability,
benefits under the Plan shall be distributed to the Participant commencing on
the first day of the month following notice in writing to the Custodian, from
the Participant or his legal representative, advising the Custodian that the
Participant has incurred a Disability and desires a distribution. The Custodian
is entitled to rely on such notice and shall have no duty to ascertain the fact
of Disability.
6.03 DEATH.
(a) If a Participant dies before his or her entire Custodial Account
is distributed to him, the following distribution rules shall apply:
(1) If the Participant dies after distribution of his or her
Custodial Account has begun, the remaining portion of the Participant's
Custodial Account shall continue to be distributed at least as rapidly as under
the method of distribution being used prior to the Participant's death.
(2) If the Participant dies before distribution of his or her
Custodial Account begins, the Participant's entire Custodial Account balance
shall be subject to the following provisions as elected by the Participant prior
to his or her death or, if the Participant had not made an election prior to his
or her death, by the Participant's Designated Beneficiary:
(i) The Participant's entire Custodial Account balance shall
be paid on or before December 31 of the calendar year containing the fifth
anniversary of the Participant's death.
(ii) Notwithstanding (i), above, if the Participant's
Designated Beneficiary so elects on or before December 31 of the calendar year
immediately following the calendar year of the Participant's death, the
Designated Beneficiary may receive the entire interest in substantially equal
installments over the Applicable Life Expectancy or over a period certain not
greater than the Applicable Life Expectancy of the Designated Beneficiary
commencing on or before December 31 of the calendar year immediately following
the calendar year in which the Participant died. The Designated Beneficiary may
elect at any time to receive a form of payment permitted hereunder which is more
rapid than the form originally elected by the Designated Beneficiary pursuant to
the previous sentence.
(iii) Notwithstanding (i) and (ii), above, if the Designated
Beneficiary is the Participant's surviving spouse, the date distributions are
required to begin shall not be earlier than the later of (i) December 31 of the
calendar year immediately following the calendar year in which the Participant
died or (ii) December 31 of the calendar year in which the Participant would
have attained age 70 1/2. The surviving spouse may elect at any time to receive
a form of payment permitted hereunder which is more rapid that the form
originally elected by the surviving spouse pursuant to the previous sentence.
The surviving spouse may elect to treat the Participant's Custodial Account as
the spouse's own IRA. This election to treat the Participant's Custodial Account
as the surviving spouse's own IRA shall be deemed to have been made if the
surviving spouse makes a contribution to the Custodial Account, makes a Rollover
Contribution or Transfer to or from the Custodial Account or files a written
election with the Custodian, in a form acceptable to the Custodian, following
the Participant's death, to treat the Custodial Account as the surviving
spouse's own IRA.
(iv) Elections of method of distribution under this
paragraph (2) must be made no later than the earlier of (i) December 31 of the
calendar year in which the distributions would be required to begin under this
Section, or (ii) December 31 of the calendar year which contains the fifth
anniversary of the date of the Participant's death. If the Participant has no
Designated Beneficiary, or if the Designated Beneficiary does not elect a method
of distribution, distribution of the Participant's entire interest must be
completed by December 31 of the calendar year containing the fifth anniversary
of the Participant's death.
(3) Any amount paid to a child of the Participant will be treated
as if it had been paid to the surviving spouse if the amount becomes payable to
the surviving spouse when the child reaches the age of majority.
(4) For purposes of this Section, distributions are considered to
have begun if the distributions are made on account of the individual reaching
his or her Required Beginning Date. If the individual received distributions
prior to his or her Required Beginning Date and the individual dies before his
or her Required Beginning Date, distributions will be considered not to have
begun for purposes of this Section.
(b) No distribution shall be made to any Beneficiary unless the
Custodian receives written notice of the Participant's death in a form
acceptable to the Custodian. Notwithstanding anything in this Section to the
contrary, the Participant is responsible for advising the Custodian, on forms
acceptable to the Custodian, of the amount and timing of all distributions from
his or her Custodial account and for complying with the minimum distribution
requirements necessary to avoid the imposition of interest and penalties on
either the Participant or the Custodian and the taxability of the Custodial
Account.
6.04 NOTIFICATION OF DISTRIBUTION, TRANSFER OR WITHDRAWAL. Each
Participant who desires a distribution, rollover, transfer or withdrawal from
his or her Custodial Account shall send a signed declaration of his or her
intentions as to the amount to be distributed, rolled over, transferred or
withdrawn on a form acceptable to the Custodian and, if applicable, the annuity
contract which the Participant or Beneficiary desires to be purchased for
purposes of making distributions. The Custodian shall be fully justified and not
liable for any damage resulting from a delay in distribution, rollover or
transfer caused by the Participant's failure to send the signed declaration in a
complete and timely manner and the Custodian shall be permitted to withhold the
making of any distributions unless and until it determines that the signed
declaration is complete.
ARTICLE VII
AMENDMENT OF THE PLAN AND
SUBSTITUTION OF CUSTODIAN
7.01 AMENDMENT. This Plan and Custodial Agreement may be amended from time
to time, and retroactively, if necessary, in order to comply with the Code or
ERISA. The Custodian may amend any or all provisions of this Plan at any time
without obtaining the approval or consent of the Participant, the Participant's
spouse or the Participant's Beneficiary, as the case may be, provided that no
amendment shall authorize or permit any part of a Participant's Custodial
Account to be used for or diverted to purposes other than for his or her
exclusive benefit, except as required by the Code or ERISA. Each Participant,
and each Beneficiary of each deceased participant with respect to whom the
Custodian has received formal notice of death, shall be furnished a copy of any
amendment to the Plan.
7.02 AMENDMENT BY THE PARTICIPANT. In the event the Participant,
Beneficiary or spouse, as applicable, amends this Plan, the amended Plan shall
no longer be considered as approved by the Internal Revenue Service as a
prototype plan and the Custodian shall not be bound by any such amendment unless
it consents in writing.
7.03 SUBSTITUTION OF CUSTODIAN. The Custodian may substitute another person
or entity in its place as successor Custodian or trustee hereunder upon at least
30 days' prior written notice to the Participant or Beneficiary, as applicable,
which successor Custodian or trustee may be or may not be an affiliate of the
Custodian, provided that such successor Custodian or trustee qualifies to hold
IRA assets under Code section 408(h). The Participant shall substitute another
custodian in place of the Custodian upon notification by the Commissioner of the
Internal Revenue Service or his or her delegate that such substitution is
required because the Custodian has failed to comply with the requirements of
Treasury regulation section 1.401-12(n) or is not keeping such records, making
such returns, or rendering such statements as are required by law.
ARTICLE VIII
TERMINATION OF AND TRANSFER FROM THE PLAN
8.01 TERMINATION. Any Participant may terminate this Plan at any time by
advising the Custodian in writing, in a form acceptable to the Custodian, of the
termination. Upon a request to terminate, the Custodian shall continue to hold
the assets and then shall transfer them in accordance with the instructions of
the Participant and the relevant provisions of this Plan. The Custodian may
follow any instructions from the Participant, without liability and without any
duty to ascertain whether the instructions are proper under the Code or ERISA or
under any other plan or IRA. In the absence of complete instruction from the
Participant, the Custodian shall hold the assets in the Participant's Custodial
Account as invested at the time the Custodian receives the incomplete
instruction or, if the assets are cash, shall credit interest to such cash to
the extent provided in Article XIV until complete instructions are received.
8.02 PAYMENT OF FEES. Prior to the transfer of any or all amounts in any
Participant's Custodial Account to another plan or to the Participant or
Beneficiary, as considered appropriate, the Custodian is authorized to reserve
such sums of money as it may deem advisable for payment of all of its fees,
compensation, costs and expenses, or for any other liabilities, all of which
shall constitute a charge against the assets of the Participant's Custodial
Account or IRA, with any balance remaining after the payment of all such items
to be paid to the successor custodian or trustee; provided, however, that, if
the Participant terminates this Custodial Account in writing within 7 days
following the date of the Participant's execution of the Adoption Agreement, the
Custodian shall return to the Participant the full amount of the payment made on
or after the date of such execution. Custodial Account assets may be retained
and disposed of to accomplish the purposes of this Section (in accordance with
the provisions of Section 12.01) without liability to the Custodian.
8.03 ACCOUNTING PROCEDURES. In the event of any transfer described in this
Article, the Custodian's accounting procedures set forth in Articles XI and XII
hereof shall apply.
ARTICLE IX
RESIGNATION OR REMOVAL OF CUSTODIAN
9.01 RESIGNATION OR REMOVAL. The Custodian may resign at any time upon 30
days' prior notice in writing to the Participant or Beneficiary, as applicable,
and may be removed by the Participant or Beneficiary at any time upon 30 days'
prior written notice in a form acceptable to the Custodian. Upon such
resignation or removal, the Participant or Beneficiary, as the case may be,
shall appoint a qualified successor trustee or custodian. Upon receipt by the
Custodian of written acceptance of such appointment by the successor trustee or
custodian, the Custodian shall transfer and pay over to the successor the assets
of the Custodial Account and all its records. The Custodian is authorized,
however, to reserve such sums of money as it may deem advisable for payment of
its fees, compensation, costs or expenses, or for payment of any other
liabilities constituting a charge against the assets of the Custodial Account or
against the Custodian. Any portion of the reserve remaining after payment of all
such items shall be paid to the successor trustee or custodian. Any securities
retained for these reasons shall be disposed of pursuant to the provisions of
Article XII hereof.
9.02 REQUIREMENT OF SUCCESSOR CUSTODIAN. The Participant shall not
remove the Custodian until a qualified successor trustee or custodian shall have
been appointed by the Participant. In the event the Custodian resigns and the
Participant fails to appoint a qualified successor, the Custodian may apply to
any court of competent jurisdiction for appointment of a successor and the costs
of such a proceeding shall be treated as an expense under Article XII hereof.
9.03 ACCOUNTING PROCEDURES. In the event of any resignation or removal
described in this Article, the accounting procedures set forth in Articles XI
and XII shall apply.
9.04 CUSTODIAN'S LIABILITY. The Custodian shall not be liable for the acts
or omissions of its successor(s).
ARTICLE X
RESPONSIBILITIES, DUTIES AND
OBLIGATIONS OF THE CUSTODIAN
10.01 AUTHORITY OF THE CUSTODIAN. The Custodian shall have the following
authority in the administration of each Custodial Account under this Plan:
(a) Pursuant to the Participant's directions, to invest and reinvest
the income, gain, earnings or assets of a Custodial Account in any investment
media then available without any need to diversify, without regard to whether
such investment is authorized by the laws of any jurisdiction for trust
investments, without previous application to or subsequent ratification by any
court, tribunal or commission, and without regard to the character of any
investments by any statute, rule of court or custom governing the investment of
trust funds. In this connection, the Custodian is specifically authorized to
invest contributions in separate accounts for each Participant.
(b) Pursuant to the Participant's directions and subject to Section
5.03, to consent to or to participate in dissolutions, reorganizations,
consolidations, mergers, sales, leases, mortgages, transfers or other changes
affecting securities held by the Custodian. In the absence of such directions,
the Custodian shall take no such action.
(c) To hold any securities or other property in the name of the
Custodian without qualification or description or in the name of any nominee.
(d) To make, execute and deliver as Custodian any and all contracts,
waivers, releases or other instruments in writing necessary or proper for the
exercise of any of the Custodian's powers hereunder. The Custodian shall not be
liable for any losses which may result from its failure to take action, as
described in this Section, in the absence of directions from the Participant.
(e) The Custodian shall vote any shares held in a Custodial Account in
accordance with the instructions of the Participant. In the absence of any such
instructions, the Custodian shall not vote any such shares.
(f) Pursuant to the Participant's instructions, to exercise or sell
options, conversion privileges, or rights to subscribe for additional securities
and to make payments therefor. In the absence of such directions, the Custodian
shall take no action with respect to the exercise or sale of options, conversion
privileges or rights to subscribe to additional securities.
(g) Pursuant to the Participant's directions and subject to Section
5.03, to subscribe for additional securities and to make payments therefor. In
the absence of such directions, the Custodian shall take no such action.
10.02 SCOPE OF CUSTODIAN'S DUTIES.
(a) The Custodian shall be under no duty whatsoever except such duties
as are specifically set forth in this Plan. The Custodian shall not make any
investments or dispose of any investments held for any Participant except upon
the direction of the Participant or otherwise as expressly provided under this
Plan. The Custodian shall have no discretion to direct investment of custodial
funds or any other aspects of the business administration of the Custodial
Account held for any Participant except as expressly provided under this Plan or
except as provided by separate written agreement between the Custodian and the
Participant. The Custodian shall be under no duty to question any direction of
the Participant, to review any securities or other property held in the
Participant's Custodial Account, or to make suggestions to the Participant with
respect to the investment, retention or disposition of any assets held in or for
the Participant's Custodial Account.
(b) Although the Custodian may provide the Participant with investment
information, it is not intended that any information given will serve as a
primary basis for investment decision except as provided by separate written
agreement between the Custodian and the Participant, and the Custodian shall
have no liability for providing such information. Each Participant is expected
to use independent judgment in making investment decisions.
(c) The Custodian shall not under any circumstances be responsible for
the timing, purpose or propriety of any contribution or distribution made
hereunder. The Code imposes a tax upon a Participant if an Excess Contribution
is made to the Participant's Custodial Account, if any early distribution under
section 408(f) of the Code is made from a Participant's Custodial Account prior
to his or her attainment of age 59 1/2 (except in the case of death, disability,
or other limited exceptions), if distribution to a Participant is not made or
commenced by the Required Beginning Date, if distributions are made in a timely
fashion but are insufficient in amount, or if distributions from all retirement
accounts held by the Participant exceed certain minimum amounts. The Custodian
shall not incur any liability or responsibility for any such tax or penalty,
which shall be the sole responsibility of the Participant, nor shall the
Custodian have any responsibility to notify the Participant of the Participant's
incurrence of any such tax or penalty.
10.03 NO LIABILITY TO CUSTODIAN FOR FAILURE TO ACT. The Custodian shall be
under no liability for any loss of any kind which may result by reason of any
action taken by it in accordance with directions of the Participant or by reason
of any failure to act because of the absence of any such directions or by reason
of action expressly permitted to be taken hereunder in the absence of
Participant direction.
10.04 INDEMNIFICATION OF CUSTODIAN. The Participant, Beneficiary and the
Participant's spouse, as the case may be, agree to indemnify and hold the
Custodian harmless from any liability which may arise in the performance of the
Custodian's duties under this Plan except liability arising from the gross
negligence or willful misconduct of the Custodian.
ARTICLE XI
RECORDS AND REPORT
11.01 REPORTS OF CUSTODIAN. The Custodian shall keep separate and accurate
records of all contributions, receipts, investments, distributions,
disbursements and all other transactions of the Plan or Custodial Accounts held
for Participants of the Plan. The Custodian shall file such written reports with
the Participant as are required (which may consist of copies of regularly issued
Legg Mason Wood Walker, Inc. account statements and shall include calendar year
reporting concerning the status of the Custodial Account as required by Treasury
regulations section 1.408-5) reflecting all transactions affecting the Custodial
Account for the period in question. Unless the Participant files a written
statement of exceptions or objections to the report with the Custodian within 60
days after the mailing of the report, the Participant shall be deemed to have
approved such report and the Custodian shall be released from all liability,
responsibility and accountability for its acts (or failure to act) in regard to
that Custodial Account to anyone (including any spouse or Beneficiary) with
respect to all matters set forth in the report. No person, including a
Participant, Beneficiary or spouse, may require any further accounting.
11.02 PARTICIPANT'S EXAMINATION OF RECORDS. No Participant may examine the
records of any other Participant without the written consent of the Participant
whose records are being examined.
11.03 APPLICATION TO COURT OF COMPETENT JURISDICTION. The Custodian
shall have the right at any time to apply to a court of competent jurisdiction
for judicial settlement of its accounts or for determination of any questions of
construction which may arise or for any instructions. The only necessary party
defendant to any such action shall be the Participant, but the Custodian may, if
it so elects, bring in as a party defendant any other person or persons. The
cost, including attorneys' fees, or any such accounting shall be charged to the
applicable Custodial Accounts of the Plan as an administration expense under
Article XII.
ARTICLE XII
CUSTODIAN'S FEES AND OTHER
ADMINISTRATIVE EXPENSES
12.01 FEES. The Custodian may charge a fee for its services according to
its standard schedule of fees as in effect from time to time. All administrative
expenses of the Plan including any income, excise or other taxes of any kind
that may be levied or assessed upon the assets of any Custodial Account, or any
transfer or similar tax incurred in connection with the investment and
reinvestment of the assets of a Custodial Account and all other expenses
incurred by the Custodian, including fees for legal services rendered to the
Custodian and the Custodian's compensation, shall all be paid by the Participant
and may be assessed as necessary against the assets held in a Custodial Account,
as deemed appropriate by the Custodian.
The Custodian may establish charges that it may impose as a condition
of holding investments or as a condition of continuing to hold already accepted
investments in the Participant's Custodial Account in cases where extraordinary
carrying costs or other expenses associated with such holding by the Custodian
justify the additional charge, as determined by the Custodian in its discretion.
Any such charges shall be assessed and determined in the sole and absolute
discretion of the Custodian; provided, however, that such charge shall be
assessed only after advance written notice of such assessment has been delivered
by the Custodian to the Participant or Beneficiary, such written notice to be
mailed at least 30 days (or such longer period as the Custodian, in its
discretion, shall determine and state in the notice) prior to the date on which
such charge will be assessed in the absence of instruction from the Participant
or Beneficiary.
If any request for payment by the Custodian under this Section is not
honored by the Participant or Beneficiary within 30 days following the mailing
of the request by the Custodian (or following such longer notice period as is
established by the Custodian as provided above), or if the Participant or
Beneficiary elects to have fees, charges, expenses and taxes deducted from the
Participant's Custodial Account or from any trading, brokerage or similar
account maintained with the Custodian or an affiliate of the Custodian in the
name of the Participant or Beneficiary, as applicable (collectively with any and
all of such accounts of the Participant or Beneficiary, as applicable, the
"Other Account"), the Custodian shall deduct such fees, administrative charges,
expenses, and/or the taxes from the Participant's Custodial Account or Other
Account, in the following order:
(a) any uninvested cash and then any shares of a money market fund or
money market-type fund in the Custodial Account;
(b) any uninvested cash and then any shares of a money market fund or
money market-type fund in the Other Account;
(c) any securities or other assets in the Custodial Account;
(d) any securities or other assets in the Other Account.
If the Custodian must liquidate securities or other assets under (c) or
(d), above, it shall liquidate equity investments before fixed income
obligations, selling the last investment purchased, with any additional
liquidations being done in reverse order of the date of purchase.
ARTICLE XIII
MISCELLANEOUS
13.01 PARTICIPANT LOOKS TO CUSTODIAL ACCOUNT'S ASSETS. It is a
condition of this Plan that each Participant herein agrees to look solely to the
assets of his or her Custodial Account for the payment of any benefits to which
he or she is entitled.
13.02 ANTI-ALIENATION. The benefits payable hereunder shall not be subject
to alienation, assignment, garnishment, attachment, execution or levy of any
kind and any attempt to cause such benefits to be so subjected shall not be
recognized except to the extent required by law and except as permitted in
Section 4.07.
13.03 NO COMMINGLING OF ASSETS. The assets of a Participant's Custodial
Account shall not be commingled with other property except in a common trust
fund or common investment fund.
13.04 MASCULINE/FEMININE; SINGULAR/PLURAL. Masculine pronouns shall be
deemed to include feminine pronouns and the singular shall be deemed to include
the plural and vice versa.
13.05 CONFLICT WITH THE CODE AND ERISA. The Plan shall be construed,
whenever possible, to be in conformity with the requirements of the Code and
ERISA, as and if applicable. To the extent not in conflict with the preceding
sentence, the Plan shall be construed, administered and governed in all respects
under and by the laws of the State of Maryland (without regard to the conflict
of laws provisions thereof).
ARTICLE XIV
INTEREST ON CASH BALANCES
14.01 INTEREST ON CASH BALANCES. The following conditions shall apply to
interest earnings with respect to cash balances in a Participant's Custodial
Account:
(a) Interest will be paid only on cash balances of $10 or more.
(b) Interest will be paid for each day during the month in which the
cash balance equals or exceeds the minimum $10 requirement.
(c) The rate of interest will be established on the first business day
of each month; provided, however, that the Custodian retains the right to change
the rate at any time to any rate permitted by law.
<PAGE>
LEGG MASON WOOD WALKER, INC.
CUSTODIAL AGREEMENT FOR SIMPLE IRA PLANS
ARTICLE I
ESTABLISHMENT OF THE LEGG MASON WOOD WALKER, INC.
CUSTODIAL AGREEMENT FOR SIMPLE PLANS
1.01 ESTABLISHMENT OF CUSTODIAL ACCOUNT. By execution of the Legg Mason
Retirement Account Adoption Agreement in accordance with a SIMPLE IRA Plan of
the Participant's Employer, the Participant hereby establishes this Legg Mason
Wood Walker, Inc. Custodial Agreement for SIMPLE IRA Plans and intends to have
contributions under the Employer's SIMPLE IRA Plan made to the Participant's
Custodial Account in accordance with Section 408(p) of the Internal Revenue
Code. The contributions to be made to the Custodial Account and earnings thereon
will be maintained for the exclusive benefit of the Participant and his or her
Beneficiary. This Agreement shall not be used other than in connection with a
SIMPLE IRA Plan maintained by the Participant's Employer or former Employer,
which Plan satisfies the applicable requirements of Internal Revenue Code
section 408(p).
ARTICLE II
DEFINITIONS
The following terms when used in this Agreement with an initial capital
letter shall have the following meaning, unless the context otherwise requires:
2.01 ADOPTION AGREEMENT means the Legg Mason Retirement Account Adoption
Agreement by which this Agreement is adopted by the Participant and the
Custodial Account to be maintained hereunder is established.
2.02 AGREEMENT means, collectively, this Legg Mason Wood Walker, Inc.
Custodial Agreement for SIMPLE IRA Plans and the Adoption Agreement.
2.03 APPLICABLE LIFE EXPECTANCY means the life expectancy (or joint and
last survivor expectancy) calculated using the attained age of the Participant
(or Designated Beneficiary) as of the Participant's (or Designated
Beneficiary's) birthday in the applicable calendar year reduced by one for each
calendar year which has elapsed since the date life expectancy was first
calculated for purposes of making a Minimum Required Distribution from a
Participant's Custodial Account. If life expectancy is being recalculated, the
Applicable Life Expectancy shall be the life expectancy as so recalculated. The
applicable calendar year shall be the first Distribution Calendar Year, and if
life expectancy is being recalculated, such succeeding calendar year. Life
expectancy and joint and last survivor expectancy are computed by use of the
expected return multiples in Tables V and VI of section 1.72-9 of the Treasury
regulations.
Unless otherwise elected by the Participant (or the Participant's
spouse, in the case of distributions described in Section 6.03) by the time
distributions are required to begin under Code section 408(a)(6), life
expectancies shall be recalculated annually. Any such election (or deemed
election in the case of a failure to elect) shall be irrevocable as to the
Participant (or spouse) and shall apply to all subsequent years after the
election (or deemed election). A Participant shall not be entitled to elect to
have his or her joint and last survivor expectancy recalculated unless the
Participant's Designated Beneficiary is his or her spouse.
2.04 BENEFICIARY means the person, persons, trust or any other entity
designated by any Participant as his or her beneficiary in the Adoption
Agreement or other form acceptable to the Custodian. If no Beneficiary shall
have been validly selected at the death of the Participant, or if all of the
Participant's chosen Beneficiaries have predeceased the Participant or disclaim
their interest(s) in the Participant's IRA in accordance with applicable law,
the Participant's spouse (or, in the case of a Participant who is not married on
the date of death, the Participant's estate) shall be deemed to be his or her
Beneficiary for all purposes hereunder.
2.05 CODE means the Internal Revenue Code of 1986, as amended, and any
regulations thereunder.
2.06 CUSTODIAL ACCOUNT means the account established under this Agreement
for any Participant's contributions and the earnings thereon.
2.07 CUSTODIAN means Legg Mason Wood Walker, Inc. and any successor which
becomes a successor custodian in accordance with this Agreement.
2.08 DESIGNATED BENEFICIARY means the "designated beneficiary" of the
Participant as described in proposed Treasury regulations section 1.401(a)(9)
and 1.408-8.
2.09 DISABILITY means the inability to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment
which can be expected to result in death or to be of long continued or
indefinite duration.
2.10 DISTRIBUTION CALENDAR YEAR means a calendar year for which a Minimum
Required Distribution is required under Code section 408(a)(6). For
distributions beginning before the Participant's death, the first Distribution
Calendar Year is the calendar year in which the Participant attains age 70 1/2.
For distributions beginning after the Participant's death, the first
Distribution Calendar Year is the calendar year in which distributions are
required to begin pursuant to Article VI hereof.
2.11 EFFECTIVE DATE means the date as of which this Agreement and the
Adoption Agreement are made effective; provided, however, that such date shall
not be prior to the first day of the calendar year for which this Agreement is
adopted.
2.12 EMPLOYER means the Participant's Employer or former Employer, as
applicable, that maintains the SIMPLE IRA Plan under which contributions are
made to the Custodial Account maintained hereunder.
2.13 ERISA means the Employee Retirement Income Security Act of 1974 and
any regulations thereunder, as that statute and those regulations shall be
amended and in effect from time to time.
2.14 MINIMUM REQUIRED DISTRIBUTION. A distribution required to be made from
a Participant's Custodial Account under Code section 408(a)(6).
2.15 PARTICIPANT means the individual who is employed or was employed by
the Employer and who establishes with the Custodian this Agreement by executing
the Adoption Agreement.
2.16 PARTICIPANT'S BENEFIT means the Participant's Custodial Account
balance as of the last Valuation Date in the calendar year immediately preceding
the Distribution Calendar Year (the "valuation calendar year") increased by the
amount of any contributions allocated to the Custodial Account balance as of
dates in the "valuation calendar year" after the Valuation Date and decreased by
distributions made in the "valuation calendar year" after the Valuation Date. If
any portion of the minimum distribution for the first Distribution Calendar Year
is made in the second Distribution Calendar Year on or before the Required
Beginning Date, that amount must be treated as having been made for purposes of
this Section in the first Distribution Calendar Year.
2.17 REQUIRED BEGINNING DATE means the first day of April following the
calendar year in which the Participant attains age 70 1/2.
2.18 ROLLOVER CONTRIBUTION means that portion of the amount distributed
from a SIMPLE IRA to the Participant and then transferred to his or her
Custodial Account (by Transfer or by delivery by the Participant to the
Custodian of distributed funds following his or her receipt of a distribution)
and which satisfies the tax-free rollover conditions of the Code.
2.19 TAX YEAR means the tax year of the Participant.
2.20 TRANSFER means a direct transfer on behalf of a Participant from a
trustee or custodian of a SIMPLE IRA of the Participant of some or all of the
assets of such SIMPLE IRA to the Custodian.
2.21 VALUATION DATE means any business day on which the New York Stock
Exchange is open; provided, however, that the Custodian may postpone or
establish a special Valuation Date whenever, in its discretion, it considers
such postponement or establishment necessary.
ARTICLE III
CONTRIBUTIONS
3.01 CONTRIBUTIONS. This Custodial Account shall accept only cash
contributions made on behalf of the Participant pursuant to the terms of a
SIMPLE IRA Plan describe in Code section 408(p). Rollover Contributions or a
Transfer from another SIMPLE IRA of the Participant also will be accepted. No
other contributions, Rollover Contributions or Transfers will be accepted.
ARTICLE IV
SIMPLE IRA PLAN RULES
4.01 SIMPLE IRA PLAN. The SIMPLE IRA Plan pursuant to which this Custodial
Account is funded shall be governed exclusively by the SIMPLE IRA Plan document
maintained by the Participant's Employer. The Custodian shall have no
responsibility whatsoever for the qualification of any such Plan with the
requirements imposed on such Plan under applicable law, including such
requirements as may be imposed under Code section 408(p) as a condition of
qualifying as a SIMPLE IRA Plan and including ERISA.
4.02 SUMMARY DESCRIPTION. If contributions made on behalf of the
Participant pursuant to the SIMPLE IRA Plan maintained by the Participant's
Employer are received directly by the Custodian from the Employer, the Custodian
shall provide the Employer with the Summary Description required by Code section
408(l)(2) as required by law.
4.03 PARTICIPANT'S RESPONSIBILITY. The Participant shall be responsible for
the continued qualification of his or her Custodial Account as an IRA under the
Code. The Participant also shall be solely responsible for properly establishing
his or her Custodial Account as an IRA prior to the date any contribution first
is made.
4.04 SEPARATE RECORDS. The Employer and Participant who makes contributions
to the Custodial Account maintained hereunder must establish and maintain
records reflecting the amount of contributions (including Rollover Contributions
or Transfers) made thereto.
4.05 DIRECT TRANSFERS OR ROLLOVERS OF ASSETS. The Custodian, in its
discretion, may accept a Transfer of assets or a Rollover from other SIMPLE IRAs
of the Participant. The Custodian, by accepting a Transfer of assets or a
Rollover, does not accept any responsibility for the tax results of the Transfer
or Rollover. The Participant who directs or consents to the Transfer or Rollover
shall remain solely responsible for the tax results of any such Transfer or
Rollover.
4.06 NONTRANSFERABILITY OF IRA. Except as required by law, the Custodial
Account and the interest of a Participant in his or her Custodial Account shall
not be transferred or assigned by voluntary or involuntary act of the
Participant, nor shall it be subject to alienation, assignment, garnishment,
attachment, receivership, execution, or levy of any kind. Notwithstanding the
preceding, in the event of a property settlement between a Participant and his
or her former spouse pursuant to which the transfer of the interest thereunder,
or of a portion thereof, is incorporated in a divorce decree or in a written
instrument incident to such divorce, the interest so decreed to be the property
of such former spouse shall be re-registered in a separate Custodial Account
then established hereunder for the benefit of such former spouse. In the event
of such a transfer incident to a divorce, such former spouse shall be deemed to
be a "Participant" under this Agreement.
4.07 TRANSFERS OR ROLLOVERS FROM CUSTODIAL ACCOUNT. Prior to the
expiration of the 2-year period beginning on the date the Participant first
participated in any SIMPLE IRA Plan maintained by the Participant's Employer,
any Rollover or Transfer by the Participant of funds from this Custodial Account
must be made to another SIMPLE IRA of the Participant. Any distribution of funds
to the Participant during this 2-year period may be subject to a 25% additional
tax under the Code if the Participant does not Rollover of Transfer the amount
distributed into a SIMPLE IRA. After the expiration of this 2-year period, the
Participant may Rollover or Transfer funds to any IRA of the Participant that is
qualified under Section 4.08(a) or (b) of the Code or to a SIMPLE IRA. The
Custodian shall have no responsibility for the Participant's liability for the
25% tax if made applicable under the foregoing rules.
4.08 NON-FORFEITABILITY; EXCLUSIVE BENEFIT. All contributions made to any
Custodial Account established hereunder and all investments of those assets as
well as all earnings thereon shall immediately become and at all times remain
non-forfeitable. Each Custodial Account maintained hereunder has been
established and shall be maintained for the exclusive benefit of the Participant
for whom it has been established and maintained or his or her Beneficiary.
ARTICLE V
INVESTMENT OF CONTRIBUTIONS
5.01 ESTABLISHMENT OF CUSTODIAL ACCOUNT. The Custodian shall establish a
Custodial Account to hold investments permitted herein for the benefit of each
Participant to which the Participant's contributions (including Rollover
Contributions and Transfers) and the earnings thereon shall be credited.
5.02 INVESTMENT OF CUSTODIAL ACCOUNT.
(a) Contributions to the Custodial Account established hereunder
(including Rollover Contributions and Transfers) shall be allocated to the
Participant's Custodial Account as of the Valuation Date next following receipt
of such contributions by the Custodian.
(b) Dividends, net long-term or short-term capital gains and realized
earnings with respect to investments held by a Custodial Account shall be
allocated to the Participant's Custodial Account as of the Valuation Date next
following their declaration (or realization, if later). Gains realized in cash
and other cash distributions in respect of Custodial Account investments shall
be held uninvested (and shall be credited with interest to the extent required
by Article XIV) pending the Participant's investment instruction with respect to
such assets as provided in Section 5.03. The Custodian shall not be required to
make special elections with respect to whether a Custodial Account shall receive
distributions in respect of an investment in the form of cash or additional
shares of the investment, but the Custodian shall be permitted to make such
special elections at the request of a Participant or Beneficiary on a form
acceptable to the Custodian.
5.03 DIRECTION OF INVESTMENTS.
(a) Each Participant shall direct the Custodian with respect to the
investment of all of his or her contributions and earnings thereon. In the
absence of specific Participant direction, the Custodian shall have no
investment responsibility. The Custodian retains the discretion to refuse to
accept an investment direction for any reason. The Custodian may condition its
acceptance or continued holding of an investment to be held in or already held
by the Custodial Account upon the receipt of an agreement from the Participant
or Beneficiary containing such terms, conditions and representations and
warranties as the Custodian shall determine. The Custodian's decision to permit
the acceptance or continued holding of any investment in the Custodial Account
shall constitute neither approval of the investment merits of the investment nor
a judgement as to the prudence or advisability of the investment. The Custodian
reserves the absolute right to revoke its decision to permit the holding in the
Custodial Account of any investment at any time and for any reason (or to
condition the continued holding of an investment upon the receipt of an
agreement from the Participant or Beneficiary containing such terms, conditions
and representations and warranties as the Custodian shall determine), and the
Custodian shall have no liability for any loss, damage or expense suffered or
incurred by the Participant or Beneficiary by reason of the revocation of the
Custodian's decision (or imposition of such condition). If the Custodian
notifies the Participant or Beneficiary that it revokes its decision or that it
desires to condition its prior acceptance as aforesaid, then, within 30 days
after such notice is given to the Participant or Beneficiary, the Participant or
Beneficiary shall instruct the Custodian as to the liquidation, distribution,
transfer, or other disposition of the investment to which the revocation of the
Custodian's decision or conditioning applies or as to the acceptance of
conditions, as applicable. If the Participant or Beneficiary fails to provide
the Custodian with instructions or fails to satisfy the condition(s) required by
the Custodian within such 30-day period, the Participant or Beneficiary shall be
deemed to have elected to receive an in-kind distribution of such investment or,
if the Custodian is imposing a condition to its continued holding of any
investment and the condition solely is the payment of an additional
administration fee to the Custodian, the Custodian shall assess the fee in
accordance with Section 12.01 against the Participant or Beneficiary.
(b) Each Participant shall also direct the Custodian with respect to
the handling of funds either awaiting investment or held pending distribution
through Legg Mason Wood Walker, Inc. In the absence of direction from the
Participant or the Participant's legal representative, the Custodian shall
credit interest to those funds to the extent provided in Article XIV.
(c) The Custodian may follow any written instructions from the
Participant, without liability and without any duty to ascertain whether the
instructions are proper under the Code, ERISA or under any other plan.
5.04 INVESTMENT IN LIFE INSURANCE. No portion of the Participant's
Custodial Account or the earnings thereon shall be invested in life insurance
contracts or, except as provided in Section 6.01(b), annuity contracts.
5.05 INVESTMENT IN COLLECTIBLES. No portion of a Participant's Custodial
Account may be invested in any work of art, any rug or antique, any metal or
gem, any stamp or coin (except for certain coins and bullion described in Code
section 408(m) as in effect at the time of the investment and continued
investment), any alcoholic beverage, or any other tangible personal property
designated as a collectible by the Secretary of the Treasury pursuant to Code
section 408(m). If there is an investment in collectibles within the meaning of
Code section 408(m) that are not excepted coins or bullion under Code section
408(m)(3), the amount so invested shall be treated as a distribution to the
Participant. However, gold and silver coins issued by the United States
government and coins issued under the laws of any State shall not be treated as
collectibles.
ARTICLE VI
DISTRIBUTION OF BENEFITS
6.01 COMMENCEMENT AND FORM OF BENEFITS. Within a reasonable time after
receipt of a written direction to commence distribution of a Custodial Account,
payments may be distributed in the form directed, provided that such form is
acceptable to the Custodian. Further, notwithstanding any other provision of
this Agreement to the contrary, the distribution of an individual's interest in
a Custodial Account shall be made in accordance with the minimum distribution
requirements of section 408(a)(6) or section 408(b)(3) of the Code, as
applicable, and the regulations thereunder, including the incidental death
benefit provisions of section 1.401(a)(9)-2 of the proposed Treasury
regulations. An individual may satisfy the minimum distribution requirements
under sections 408(a)(6) and 408(b)(3) of the Code by receiving a distribution
from one individual retirement account that is equal to the amount required to
satisfy the minimum distributions requirements for two or more individual
retirement accounts. For this purpose, the owner of two of more individual
retirement accounts may use the "alternative method," described in I.R.S. Notice
88-33, 1988-1 C.B. 524, to satisfy the minimum distribution requirements under
Code sections 408(a)(6) and 408(b)(3).
(a) (1) The amount required to be distributed to or on behalf of a
Participant for each calendar year, beginning with distributions for the first
Distribution Calendar Year, must be at least equal to the amount determined by
dividing the Participant's Benefit by the Applicable Life Expectancy.
(2) Notwithstanding anything in this Article to the contrary, the
amount to be distributed each year, beginning with distributions for the first
Distribution Calendar Year shall not be less than the amount obtained by
dividing the Participant's Benefit by the lesser of (i) the Applicable Life
Expectancy or (ii) if the Participant's spouse is not the Designated
Beneficiary, the applicable divisor determined from the table set forth in Q&A-4
or Q&A-5, as applicable, of proposed Treasury regulation section 1.401(a)(9)-2.
Distributions after the death of the Participant shall be distributed using the
Applicable Life Expectancy, as applied in Section 6.03(a)(2)(ii), as the
relevant divisor without regard to proposed Treasury regulation section
1.401(a)(9)-2.
(3) The Minimum Required Distribution for the Participant's first
Distribution Calendar Year must be made on or before the Participant's Required
Beginning Date. The Minimum Required Distribution for other Distribution
Calendar Years must be made on or before December 31 of that Distribution
Calendar Year.
(b) If the Participant or Beneficiary chooses an annuity form of
distribution, the Participant or Beneficiary shall direct the Custodian to
purchase a commercially available annuity specified by the Participant or
Beneficiary and the Custodian shall follow such direction and send the annuity
payments therefrom to the Participant or his or her Beneficiary, as applicable.
The purchase of the appropriate type of annuity may be made from any insurance
company acceptable to the Custodian which, in the regular course of its
business, provides annuities in accordance with generally accepted insurance
practices existing at the time of such purchase. The annuity contract must meet
the requirements of section 408(b) of the Code and the distributions thereunder
must be made in accordance with the requirements of Code section 408(a)(6) and
the Treasury regulations proposed thereunder. The Custodian shall not be liable
to the Participant, Beneficiary or the Participant's spouse for any damage
caused by the choice of a commercially available annuity or for any action taken
or not taken by the insurance company that issues the annuity.
(c) Notwithstanding anything in this Section 6.01 to the contrary, the
Participant is responsible for advising the Custodian, on forms acceptable to
the Custodian, of the amount and timing of all distributions from the
Participant's Custodial Account necessary for complying with the minimum
distribution requirements under Code section 408(a)(6).
6.02 DISABILITY. If the Participant becomes subject to a Disability,
benefits under the Agreement shall be distributed to the Participant commencing
on the first day of the month following notice in writing to the Custodian, from
the Participant or his legal representative, advising the Custodian that the
Participant has incurred a Disability and desires a distribution. The Custodian
is entitled to rely on such notice and shall have no duty to ascertain the fact
of Disability.
6.03 DEATH.
(a) If a Participant dies before his or her entire Custodial Account
is distributed to him, the following distribution rules shall apply:
(1) If the Participant dies after distribution of his or her
Custodial Account has begun, the remaining portion of the Participant's
Custodial Account shall continue to be distributed at least as rapidly as under
the method of distribution being used prior to the Participant's death.
(2) If the Participant dies before distribution of his or her
Custodial Account begins, the Participant's entire Custodial Account balance
shall be subject to the following provisions as elected by the Participant prior
to his or her death or, if the Participant had not made an election prior to his
or her death, by the Participant's Designated Beneficiary:
(i) The Participant's entire Custodial Account balance shall
be paid on or before December 31 of the calendar year containing the fifth
anniversary of the Participant's death.
(ii) Notwithstanding (i), above, if the Participant's
Designated Beneficiary so elects on or before December 31 of the calendar year
immediately following the calendar year of the Participant's death, the
Designated Beneficiary may receive the entire interest in substantially equal
installments over the Applicable Life Expectancy or over a period certain not
greater than the Applicable Life Expectancy of the Designated Beneficiary
commencing on or before December 31 of the calendar year immediately following
the calendar year in which the Participant died. The Designated Beneficiary may
elect at any time to receive a form of payment permitted hereunder which is more
rapid than the form originally elected by the Designated Beneficiary pursuant to
the previous sentence.
(iii) Notwithstanding (i) and (ii), above, if the Designated
Beneficiary is the Participant's surviving spouse, the date distributions are
required to begin shall not be earlier than the later of (i) December 31 of the
calendar year immediately following the calendar year in which the Participant
died or (ii) December 31 of the calendar year in which the Participant would
have attained age 70 1/2. The surviving spouse may elect at any time to receive
a form of payment permitted hereunder which is more rapid that the form
originally elected by the surviving spouse pursuant to the previous sentence.
The surviving spouse may elect to treat the Participant's Custodial Account as
the spouse's own IRA. This election to treat the Participant's Custodial Account
as the surviving spouse's own IRA shall be deemed to have been made if the
surviving spouse makes a contribution to the Custodial Account, makes a Rollover
Contribution or Transfer to or from the Custodial Account or files a written
election with the Custodian, in a form acceptable to the Custodian, following
the Participant's death, to treat the Custodial Account as the surviving
spouse's own IRA.
(iv) Elections of method of distribution under this
paragraph (2) must be made no later than the earlier of (i) December 31 of the
calendar year in which the distributions would be required to begin under this
Section, or (ii) December 31 of the calendar year which contains the fifth
anniversary of the date of the Participant's death. If the Participant has no
Designated Beneficiary, or if the Designated Beneficiary does not elect a method
of distribution, distribution of the Participant's entire interest must be
completed by December 31 of the calendar year containing the fifth anniversary
of the Participant's death.
(3) Any amount paid to a child of the Participant will be treated
as if it had been paid to the surviving spouse if the amount becomes payable to
the surviving spouse when the child reaches the age of majority.
(4) For purposes of this Section, distributions are considered to
have begun if the distributions are made on account of the individual reaching
his or her Required Beginning Date. If the individual received distributions
prior to his or her Required Beginning Date and the individual dies before his
or her Required Beginning Date, distributions will be considered not to have
begun for purposes of this Section.
(b) No distribution shall be made to any Beneficiary unless the
Custodian receives written notice of the Participant's death in a form
acceptable to the Custodian. Notwithstanding anything in this Section to the
contrary, the Participant is responsible for advising the Custodian, on forms
acceptable to the Custodian, of the amount and timing of all distributions from
his or her Custodial account and for complying with the minimum distribution
requirements necessary to avoid the imposition of interest and penalties on
either the Participant or the Custodian and the taxability of the Custodial
Account.
6.04 NOTIFICATION OF DISTRIBUTION, TRANSFER OR WITHDRAWAL. Each
Participant who desires a distribution, rollover, transfer or withdrawal from
his or her Custodial Account shall send a signed declaration of his or her
intentions as to the amount to be distributed, rolled over, transferred or
withdrawn on a form acceptable to the Custodian and, if applicable, the annuity
contract which the Participant or Beneficiary desires to be purchased for
purposes of making distributions. The Custodian shall be fully justified and not
liable for any damage resulting from a delay in distribution, rollover or
transfer caused by the Participant's failure to send the signed declaration in a
complete and timely manner and the Custodian shall be permitted to withhold the
making of any distributions unless and until it determines that the signed
declaration is complete.
ARTICLE VII
AMENDMENT OF THE AGREEMENT AND
SUBSTITUTION OF CUSTODIAN
7.01 AMENDMENT. This Agreement may be amended from time to time, and
retroactively, if necessary, in order to comply with the Code or ERISA. The
Custodian may amend any or all provisions of this Agreement at any time without
obtaining the approval or consent of the Participant, the Participant's spouse
or the Participant's Beneficiary, as the case may be, provided that no amendment
shall authorize or permit any part of a Participant's Custodial Account to be
used for or diverted to purposes other than for his or her exclusive benefit,
except as required by the Code or ERISA. Each Participant, and each Beneficiary
of each deceased participant with respect to whom the Custodian has received
formal notice of death, shall be furnished a copy of any amendment to the
Agreement.
7.02 AMENDMENT BY THE PARTICIPANT. In the event the Participant,
Beneficiary or spouse, as applicable, amends this Agreement, the amended
Agreement shall no longer be considered as approved by the Internal Revenue
Service as a prototype plan and the Custodian shall not be bound by any such
amendment unless it consents in writing.
7.03 SUBSTITUTION OF CUSTODIAN. The Custodian may substitute another person
or entity in its place as successor Custodian or trustee hereunder upon at least
30 days' prior written notice to the Participant or Beneficiary, as applicable,
which successor Custodian or trustee may be or may not be an affiliate of the
Custodian, provided that such successor Custodian or trustee qualifies to hold
IRA assets under Code section 408(h). The Participant shall substitute another
custodian in place of the Custodian upon notification by the Commissioner of the
Internal Revenue Service or his or her delegate that such substitution is
required because the Custodian has failed to comply with the requirements of
Treasury regulation section 1.401-12(n) or is not keeping such records, making
such returns, or rendering such statements as are required by law.
ARTICLE VIII
TERMINATION OF AND TRANSFER FROM THE CUSTODIAL ACCOUNT
8.01 TERMINATION. Any Participant may terminate this Agreement at any time
by advising the Custodian in writing, in a form acceptable to the Custodian, of
the termination. Upon a request to terminate, the Custodian shall continue to
hold the assets and then shall transfer them in accordance with the instructions
of the Participant and the relevant provisions of this Agreement. The Custodian
may follow any instructions from the Participant, without liability and without
any duty to ascertain whether the instructions are proper under the Code or
ERISA or under any other plan or IRA. In the absence of complete instruction
from the Participant, the Custodian shall hold the assets in the Participant's
Custodial Account as invested at the time the Custodian receives the incomplete
instruction or, if the assets are cash, shall credit interest to such cash to
the extent provided in Article XIV until complete instructions are received.
8.02 PAYMENT OF FEES. Prior to the transfer of any or all amounts in any
Participant's Custodial Account to another plan or to the Participant or
Beneficiary, as considered appropriate, the Custodian is authorized to reserve
such sums of money as it may deem advisable for payment of all of its fees,
compensation, costs and expenses, or for any other liabilities, all of which
shall constitute a charge against the assets of the Participant's Custodial
Account, with any balance remaining after the payment of all such items to be
paid to the successor custodian or trustee; provided, however, that, if the
Participant terminates this Custodial Account in writing within 7 days following
the date of the Participant's execution of the Adoption Agreement, the Custodian
shall return to the Participant the full amount of the payment made on or after
the date of such execution. Custodial Account assets may be retained and
disposed of to accomplish the purposes of this Section (in accordance with the
provisions of Section 12.01) without liability to the Custodian.
8.03 ACCOUNTING PROCEDURES. In the event of any transfer described in this
Article, the Custodian's accounting procedures set forth in Articles XI and XII
hereof shall apply.
ARTICLE IX
RESIGNATION OR REMOVAL OF CUSTODIAN
9.01 RESIGNATION OR REMOVAL. The Custodian may resign at any time upon 30
days' prior notice in writing to the Participant or Beneficiary, as applicable,
and may be removed by the Participant or Beneficiary at any time upon 30 days'
prior written notice in a form acceptable to the Custodian. Upon such
resignation or removal, the Participant or Beneficiary, as the case may be,
shall appoint a qualified successor trustee or custodian. Upon receipt by the
Custodian of written acceptance of such appointment by the successor trustee or
custodian, the Custodian shall transfer and pay over to the successor the assets
of the Custodial Account and all its records. The Custodian is authorized,
however, to reserve such sums of money as it may deem advisable for payment of
its fees, compensation, costs or expenses, or for payment of any other
liabilities constituting a charge against the assets of the Custodial Account or
against the Custodian. Any portion of the reserve remaining after payment of all
such items shall be paid to the successor trustee or custodian. Any securities
retained for these reasons shall be disposed of pursuant to the provisions of
Article XII hereof.
9.02 REQUIREMENT OF SUCCESSOR CUSTODIAN. The Participant shall not
remove the Custodian until a qualified successor trustee or custodian shall have
been appointed by the Participant. In the event the Custodian resigns and the
Participant fails to appoint a qualified successor, the Custodian may, in its
discretion, apply to any court of competent jurisdiction for appointment of a
successor (and, in such event, the costs of such a proceeding shall be treated
as an expense under Article XII hereof) or make a distribution to the
Participant.
9.03 ACCOUNTING PROCEDURES. In the event of any resignation or removal
described in this Article, the accounting procedures set forth in Articles XI
and XII shall apply.
9.04 CUSTODIAN'S LIABILITY. The Custodian shall not be liable for the acts
or omissions of its successor(s).
ARTICLE X
RESPONSIBILITIES, DUTIES AND
OBLIGATIONS OF THE CUSTODIAN
10.01 AUTHORITY OF THE CUSTODIAN. The Custodian shall have the following
authority in the administration of the Custodial Account established under this
Agreement:
(a) Pursuant to the Participant's directions, to invest and reinvest
the income, gain, earnings or assets of a Custodial Account in any investment
media then available without any need to diversify, without regard to whether
such investment is authorized by the laws of any jurisdiction for trust
investments, without previous application to or subsequent ratification by any
court, tribunal or commission, and without regard to the character of any
investments by any statute, rule of court or custom governing the investment of
trust funds. In this connection, the Custodian is specifically authorized to
invest contributions in separate accounts for each Participant.
(b) Pursuant to the Participant's directions and subject to Section
5.03, to consent to or to participate in dissolutions, reorganizations,
consolidations, mergers, sales, leases, mortgages, transfers or other changes
affecting securities held by the Custodian. In the absence of such directions,
the Custodian shall take no such action.
(c) To hold any securities or other property in the name of the
Custodian without qualification or description or in the name of any nominee.
(d) To make, execute and deliver as Custodian any and all contracts,
waivers, releases or other instruments in writing necessary or proper for the
exercise of any of the Custodian's powers hereunder. The Custodian shall not be
liable for any losses which may result from its failure to take action, as
described in this Section, in the absence of directions from the Participant.
(e) The Custodian shall vote any shares held in a Custodial Account in
accordance with the instructions of the Participant. In the absence of any such
instructions, the Custodian shall not vote any such shares.
(f) Pursuant to the Participant's instructions, to exercise or sell
options, conversion privileges, or rights to subscribe for additional securities
and to make payments therefor. In the absence of such directions, the Custodian
shall take no action with respect to the exercise or sale of options, conversion
privileges or rights to subscribe to additional securities.
(g) Pursuant to the Participant's directions and subject to Section
5.03, to subscribe for additional securities and to make payments therefor. In
the absence of such directions, the Custodian shall take no such action.
10.02 SCOPE OF CUSTODIAN'S DUTIES.
(a) The Custodian shall be under no duty whatsoever except such duties
as are specifically set forth in this Agreement. The Custodian shall not make
any investments or dispose of any investments held for any Participant except
upon the direction of the Participant or otherwise as expressly provided under
this Agreement. The Custodian shall have no discretion to direct investment of
custodial funds or any other aspects of the business administration of the
Custodial Account held for any Participant except as expressly provided under
this Agreement or except as provided by separate written agreement between the
Custodian and the Participant. The Custodian shall be under no duty to question
any direction of the Participant, to review any securities or other property
held in the Participant's Custodial Account, or to make suggestions to the
Participant with respect to the investment, retention or disposition of any
assets held in or for the Participant's Custodial Account.
(b) Although the Custodian may provide the Participant with investment
information, it is not intended that any information given will serve as a
primary basis for investment decision except as provided by separate written
agreement between the Custodian and the Participant, and the Custodian shall
have no liability for providing such information. Each Participant is expected
to use independent judgment in making investment decisions.
(c) The Custodian shall not under any circumstances be responsible for
the timing, purpose or propriety of any contribution or distribution made
hereunder. The Code imposes a tax upon a Participant if an Excess Contribution
is made to the Participant's Custodial Account, if any early distribution under
section 408(f) of the Code is made from a Participant's Custodial Account prior
to his or her attainment of age 59 1/2 (except in the case of death, disability,
or other limited exceptions), if distribution to a Participant is not made or
commenced by the Required Beginning Date, if distributions are made in a timely
fashion but are insufficient in amount, if distributions are made and not rolled
over or transferred as described in Section 4.07 or if distributions from all
retirement accounts held by the Participant exceed certain minimum amounts. The
Custodian shall not incur any liability or responsibility for any such tax or
penalty, which shall be the sole responsibility of the Participant, nor shall
the Custodian have any responsibility to notify the Participant of the
Participant's incurrence of any such tax or penalty.
10.03 NO LIABILITY TO CUSTODIAN FOR FAILURE TO ACT. The Custodian shall be
under no liability for any loss of any kind which may result by reason of any
action taken by it in accordance with directions of the Participant or by reason
of any failure to act because of the absence of any such directions or by reason
of action expressly permitted to be taken hereunder in the absence of
Participant direction.
10.04 INDEMNIFICATION OF CUSTODIAN. The Participant, Beneficiary and the
Participant's spouse, as the case may be, agree to indemnify and hold the
Custodian harmless from any liability which may arise in the performance of the
Custodian's duties under this Agreement except liability arising from the gross
negligence or willful misconduct of the Custodian.
ARTICLE XI
RECORDS AND REPORT
11.01 REPORTS OF CUSTODIAN. The Custodian shall keep separate and accurate
records of all contributions, receipts, investments, distributions,
disbursements and all other transactions of the Custodial Account held for the
Participant under this Agreement. The Custodian shall file such written reports
with the Participant as are required (which may consist of copies of regularly
issued Legg Mason Wood Walker, Inc. account statements and shall include
calendar year reporting concerning the status of the Custodial Account as
required by Treasury regulations section 1.408-5) reflecting all transactions
affecting the Custodial Account for the period in question. Unless the
Participant files a written statement of exceptions or objections to the report
with the Custodian within 60 days after the mailing of the report, the
Participant shall be deemed to have approved such report and the Custodian shall
be released from all liability, responsibility and accountability for its acts
(or failure to act) in regard to that Custodial Account to anyone (including any
spouse or Beneficiary) with respect to all matters set forth in the report. No
person, including a Participant, Beneficiary or spouse, may require any further
accounting.
11.02 PARTICIPANT'S EXAMINATION OF RECORDS. No Participant may examine the
records of any other Participant without the written consent of the Participant
whose records are being examined.
11.03 APPLICATION TO COURT OF COMPETENT JURISDICTION. The Custodian
shall have the right at any time to apply to a court of competent jurisdiction
for judicial settlement of its accounts or for determination of any questions of
construction which may arise or for any instructions. The only necessary party
defendant to any such action shall be the Participant, but the Custodian may, if
it so elects, bring in as a party defendant any other person or persons. The
cost, including attorneys' fees, or any such accounting shall be charged to the
applicable Custodial Account as an administration expense under Article XII.
ARTICLE XII
CUSTODIAN'S FEES AND OTHER
ADMINISTRATIVE EXPENSES
12.01 FEES. The Custodian may charge a fee for its services according to
its standard schedule of fees as in effect from time to time. All administrative
expenses of the Custodial Account including any income, excise or other taxes of
any kind that may be levied or assessed upon the assets of the Custodial
Account, or any transfer or similar tax incurred in connection with the
investment and reinvestment of the assets of a Custodial Account and all other
expenses incurred by the Custodian, including fees for legal services rendered
to the Custodian and the Custodian's compensation, shall all be paid by the
Participant and may be assessed as necessary against the assets held in the
Custodial Account, as deemed appropriate by the Custodian.
The Custodian may establish charges that it may impose as a condition
of holding investments or as a condition of continuing to hold already accepted
investments in the Participant's Custodial Account in cases where extraordinary
carrying costs or other expenses associated with such holding by the Custodian
justify the additional charge, as determined by the Custodian in its discretion.
Any such charges shall be assessed and determined in the sole and absolute
discretion of the Custodian; provided, however, that such charge shall be
assessed only after advance written notice of such assessment has been delivered
by the Custodian to the Participant or Beneficiary, such written notice to be
mailed at least 30 days (or such longer period as the Custodian, in its
discretion, shall determine and state in the notice) prior to the date on which
such charge will be assessed in the absence of instruction from the Participant
or Beneficiary.
If any request for payment by the Custodian under this Section is not
honored by the Participant or Beneficiary within 30 days following the mailing
of the request by the Custodian (or following such longer notice period as is
established by the Custodian as provided above), or if the Participant or
Beneficiary elects to have fees, charges, expenses and taxes deducted from the
Participant's Custodial Account or from any trading, brokerage or similar
account maintained with the Custodian or an affiliate of the Custodian in the
name of the Participant or Beneficiary, as applicable (collectively with any and
all of such accounts of the Participant or Beneficiary, as applicable, the
"Other Account"), the Custodian shall deduct such fees, administrative charges,
expenses, and/or the taxes from the Participant's Custodial Account or Other
Account, in the following order:
(a) any uninvested cash and then any shares of a money market fund or
money market-type fund in the Custodial Account;
(b) any uninvested cash and then any shares of a money market fund or
money market-type fund in the Other Account;
(c) any securities or other assets in the Custodial Account;
(d) any securities or other assets in the Other Account.
If the Custodian must liquidate securities or other assets under (c) or
(d), above, it shall liquidate equity investments before fixed income
obligations, selling the last investment purchased, with any additional
liquidations being done in reverse order of the date of purchase.
ARTICLE XIII
MISCELLANEOUS
13.01 PARTICIPANT LOOKS TO CUSTODIAL ACCOUNT'S ASSETS. It is a
condition of this Agreement that the Participant herein agrees to look solely to
the assets of his or her Custodial Account for the payment of any benefits to
which he or she is entitled.
13.02 ANTI-ALIENATION. The benefits payable hereunder shall not be subject
to alienation, assignment, garnishment, attachment, execution or levy of any
kind and any attempt to cause such benefits to be so subjected shall not be
recognized except to the extent required by law and except as permitted in
Section 4.06.
13.03 NO COMMINGLING OF ASSETS. The assets of a Participant's Custodial
Account shall not be commingled with other property except in a common trust
fund or common investment fund.
13.04 MASCULINE/FEMININE; SINGULAR/PLURAL. Masculine pronouns shall be
deemed to include feminine pronouns and the singular shall be deemed to include
the plural and vice versa.
13.05 CONFLICT WITH THE CODE AND ERISA. The Agreement shall be construed,
whenever possible, to be in conformity with the requirements of the Code and
ERISA, as and if applicable. To the extent not in conflict with the preceding
sentence, the Agreement shall be construed, administered and governed in all
respects under and by the laws of the State of Maryland (without regard to the
conflict of laws provisions thereof).
ARTICLE XIV
INTEREST ON CASH BALANCES
14.01 INTEREST ON CASH BALANCES. The following conditions shall apply to
interest earnings with respect to cash balances in a Participant's Custodial
Account:
(a) Interest will be paid only on cash balances of $10 or more.
(b) Interest will be paid for each day during the month in which the
cash balance equals or exceeds the minimum $10 requirement.
(c) The rate of interest will be established on the first business day
of each month; provided, however, that the Custodian retains the right to change
the rate at any time to any rate permitted by law.
LEGG MASON
Adoption Agreement For
Legg Mason Wood Walker, Inc.
Simplified Employee Pension Plan
The undersigned Employer adopts the Legg Mason Wood Walker, Inc. Prototype
Simplified Employee Pension Plan on behalf of those Employees who shall qualify
as Participants hereunder, to be known as the
A1________________________________________________________________________
Employer Information
B1 Name of Employer: a. __________________________________________________
b. __________________________________________________
B2 Address: a. __________________________________________________
b. ________________ c. ________________ d. _______
City State Zip
e. __________________________________________________
Telephone
B3 Employer Identification Number: a. ________ - _______________________
B4 Type of Entity:
a. [ ] S Corporation
b. [ ] Professional Service Corporation
c. [ ] Corporation
d. [ ] Sole Proprietorship
e. [ ] Partnership
f. [ ] Other _________________________________________________________
g. [ ] Member of controlled group? If yes, one of above must also be
checked.
h. [ ] Member of an affiliated service group? If yes, one of
above must also be checked.
Note: If answer to g. or h. is yes, employees of all affiliated
service and/or controlled groups must be included in this Plan.
________________________________________________________________________________
Financial Advisor F.A. # Branch Account Number
Copyright 1992 Legg Mason Wood Walker, Inc. 1 o SEP
<PAGE>
LEGG MASON
Plan Information
C1 Plan Year:
a. [ ] The Calendar Year.
b. [ ] The Employer's Fiscal Year which begins on __________________
and ends on _______________ . (This option is subject to such
terms and conditions as the Secretary of the Treasury may
prescribe.)
Note: If you already maintain a SEP and desire to change to a year
other than a Calendar Year, an Employee who has any service during
the short year must be given credit for that service in determining
whether he or she has performed service in three of the last five
years. Such an Employee must also receive a contribution for the
short year if he or she would have been entitled to a contribution
for the Calendar Year in which the short year begins if there had
been no change.
C2 Effective Date of Plan (or if this is an amendment, the effective date
of the amendment):
___________________________________
month/day/year
Eligibility
D1 Conditions of Eligibility (If no age or service is required, leave
blank)
Any Employee who has performed service in at least _________________
(may not exceed 3) of the immediately 5 preceding Plan Years for the
Employer and who has reached his ___________________ (may not exceed
21st) birthday.
Note: The Employer shall not make a contribution on behalf of a
Participant for any Plan Year in which such Participant received less
than $400.00 in compensation as indexed for 1995 (within the meaning
of Code Section 414(q)(7) and as adjusted at the same time and manner
as under Code Section 415(d)).
D2 PLAN SHALL RECOGNIZE SERVICE WITH A PREDECESSOR EMPLOYER
a. [ ] No.
b. [ ] Yes: Service with
shall be recognized for the purpose of this Plan.
Note: If the predecessor employer maintained a qualified plan, b.
must be marked.
D3 FORMULA FOR DETERMINING AND ALLOCATING EMPLOYER'S CONTRIBUTION --
Non-Elective Contributions
a. [ ] Discretionary non-integrated contribution formula. The Employer
may make a discretionary contribution each Plan Year which
contribution shall be allocated to each Participant in the same
proportion that each Participant's Compensation bears to the
Compensation of all Participants for such year.
2 o SEP
<PAGE>
LEGG MASON
b. Discretionary integrated contribution formula. The Employer may
make a discretionary contribution each Plan Year which contribution
shall be allocated to each Participant in the following manner:
Step One: The contribution will be allocated in the ratio that each
Participant's Compensation bears to the total Compensation for all
Participants, but not in excess of 3% of each Participant's
Compensation;
Step Two: Any contribution remaining after the allocation in Step One
will be allocated in the ratio that each Participant's Compensation
for the Plan Year in excess of the integration level bears to the
excess Compensation of all Participants, but not in excess of 3%;
Step Three: Any contribution remaining after the allocation in Step
Two will be allocated in the ratio that the sum of each Participant's
total Compensation and Compensation in excess of the integration level
bears to the sum of all Participants' total Compensation and
Compensation in excess of the integration level, but not in excess of
the maximum disparity rate.
Step Four: Any remaining contribution will be allocated in the ratio
that each Participant's Compensation for the Plan Year bears to the
total Compensation for all Participants.
The integration level is equal to:
1. [ ] Taxable Wage Base.
2. [ ] _____% of the Taxable Wage Base (not to exceed 100%).
The maximum disparity rate is equal to the lesser of:
(a) 2.7%.
(b) l.3% if the percentage or dollar amount entered at 2 above is
more than 20% but less than 80% of the Taxable Wage Base.
(c) 2.4% if the percentage or dollar amount entered at 2 above is
more than 80% but less than 100% of the Taxable Wage Base.
Note: In no event can the amount allocated to any Participant exceed
the lesser of (1) 15% of such Participant's Compensation or (2) the
greater of $30,000 or one-quarter of the dollar limitation in effect
under Code Section 415(b)(1)(A).
D4 COMPENSATION
a. Compensation for purposes of determining and allocating the
Employer's contribution shall be wages and all other payments which
are required to be reported in the box on Form W-2 entitled "Wages,
Tips and Other Compensation."
b. In addition, Compensation:
1. [ ] Shall
2. [ ] Shall not
include compensation which is not currently includible in the
Participant's gross income by reason of the application of Code
Sections 125 (salary reductions to a cafeteria plan), 402(a)(8)
(salary reductions to a SEP), 402(h)(1)(B) (salary reductions to a
401(k) plan) or 403(b) (salary reductions to a TSA).
3 o SEP
<PAGE>
LEGG MASON
D5 LIMITATIONS ON ALLOCATIONS
If a Participant in this Plan is or ever has been a Participant in a
defined benefit plan maintained by the Employer and this Plan is Top
Heavy, but not Super Top Heavy:
a. [ ] N/A, Employer does not maintain and never has maintained a
defined benefit plan.
b. [ ] The minimum allocation under this Plan shall be 5% of each
Participant's Compensation.
c. [ ] The minimum allocation under this Plan shall be 71/2% of each
Participant's Compensation. (This allows the 415(e) fraction
to be based on 125 instead of 100).
Note: An Employer who has ever maintained a defined benefit plan
which is now terminated may not participate in this prototype SEP
plan. If subsequent to adopting this Plan, any defined benefit plan
of the Employer terminates, the Employer will no longer participate
in this prototype plan and will be considered to have an individually
designed plan.
4 o SEP
<PAGE>
LEGG MASON
The Employer hereby states that:
1. Prior to the date an Eligible Employee becomes a Participant in
this Simplified Employee Pension, a Legg Mason IRA Adoption Agreement
shall have been executed by the Eligible Employee and be in effect
and a Legg Mason IRA Adoption Agreement shall be executed by any
Eligible Employee prior to becoming eligible to participate in this
Simplified Employee Pension. All Employer contributions to this
Simplified Employee Pension shall be made only to IRAs maintained
pursuant to such Agreements.
2. All Eligible Employees of any affiliated service groups or
controlled groups, as defined in Code Section 414, shall participate
in this Simplified Employee Pension; and
3. Withdrawals and/or distributions of Employer contributions to this
Simplified Employee Pension from any Participant's IRA shall be
governed solely by the terms of the applicable IRA document.
To obtain more information concerning the rules governing this
SEP, please contact your Legg Mason Financial Advisor.
The Employer hereby causes this Agreement to be executed on this, the
__________ day of ____________________, 19__.
EMPLOYER: ___________________________________________________________
(enter name)
BY: _________________________________________________________________
ACCEPTED BY LEGG MASON WOOD WALKER, INC.
BY: _________________________________________________________________
Print Name: ____________________________________________________
Print Title: ___________________________________________________
Date: __________________________________________________________
Note: Legg Mason Wood Walker, Inc. shall not be bound by the terms of
this Agreement unless a duly authorized representative of Legg Mason
Wood Walker, Inc. executes this Agreement on the space provided
above. A person shall have Legg Mason Wood Walker, Inc.'s consent to
the adoption of the Simplified Employee Pension and shall be entitled
to rely upon the opinion letter issued by the Internal Revenue
Service approving as acceptable the form of the Simplified Employee
Pension only if Legg Mason Wood Walker, Inc. executes this Agreement
and only if, and as long as, the representations of the Employer made
in this Adoption Agreement are, and continue to be, true and correct.
5 o SEP
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LEGG MASON
Adoption Agreement For
Legg Mason Wood Walker, Inc.
Salary Reduction Simplified Employee Pension Plan
The undersigned Employer adopts the Legg Mason Wood Walker, Inc. Prototype
Simplified Employee Pension Plan on behalf of those Employees who shall qualify
as Participants hereunder, to be known as the
A1 _______________________________________________________________________
Employer Information
B1 Name of Employer: a. __________________________________________________
b. __________________________________________________
B2 Address: a. __________________________________________________
b. __________________ c. _____________ d. _______
City State Zip
e. __________________________________________________
Telephone
B3 Employer Identification Number: a. ______ - _________________________
B4 Type of Entity:
a. [ ] S Corporation
b. [ ] Professional Service Corporation
c. [ ] Corporation
d. [ ] Sole Proprietorship
e. [ ] Partnership
f. [ ] Other _________________________________________________________
g. [ ] Member of controlled group? If yes, one of above must also be
checked.
h. [ ] Member of an affiliated service group? If yes, one of above
must also be checked.
Note: If answer to g. or h. is yes, employees of all affiliated
service and/or controlled groups must be included in this Plan.
____________________________ ______________ _____________ ___________________
Financial Advisor F.A. # Branch Account Number
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LEGG MASON
Plan Information
C1 Plan Year:
a. [ ] The Calendar Year.
b. [ ] The Employer's Fiscal Year which begins on ____________________
and ends on _______________. (This option is subject to such terms
and conditions as the Secretary of the Treasury may prescribe.)
Note: If you already maintain a SEP and desire to change to a year
other than a Calendar Year, an Employee who has any service during
the short year must be given credit for that service in determining
whether he or she has performed service in three of the last five
years. Such an Employee must also receive a contribution for the
short year if he or she would have been entitled to a contribution
for the Calendar Year in which the short year begins if there had
been no change.
C2 Date of Plan Amendment (New Salary Reduction Simplified Employee
Pension Plans may not be established after 12/31/96.)
___________________________________
month/day/year
Eligibility
D1 Conditions of Eligibility (If no age or service is required, leave
blank)
Any Employee who has performed service in at least __________________
(may not exceed 3) of the immediately 5 preceding Plan Years for the
Employer and who has reached his ___________________ (may not exceed 21st)
birthday.
Note: The Employer shall not make a contribution on behalf of a
Participant for any Plan Year in which such Participant received less
than $400.00 in compensation as indexed for 1995 (within the meaning of
Code Section 414(q)(7) and as adjusted at the same time and manner as
under Code Section 415(d)).
D2 PLAN SHALL RECOGNIZE SERVICE WITH A PREDECESSOR EMPLOYER
a. [ ] No.
b. [ ] Yes: Service with _______________________ shall be recognized
for the purpose of this Plan.
Note: If the predecessor employer maintained a qualified plan, b.
must be marked.
D3 FORMULA FOR DETERMINING AND ALLOCATING EMPLOYER'S CONTRIBUTION --
Non-Elective Contributions
a. [ ] N/A. This Plan allows only elective deferrals (other than any
top-heavy minimums).
b. [ ] Discretionary non-integrated contribution formula. The Employer
may make a discretionary contribution each Plan Year which
contribution shall be allocated to each Participant in the same
proportion that each Participant's Compensation bears to the
Compensation of all Participants for such year.
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LEGG MASON
c. [ ] Discretionary integrated contribution formula. The Employer may
make a discretionary contribution each Plan Year which contribution
shall be allocated to each Participant in the following manner:
Step One: The contribution will be allocated in the ratio that each
Participant's Compensation bears to the total Compensation for all
Participants, but not in excess of 3% of each Participant's
Compensation;
Step Two: Any contribution remaining after the allocation in Step One
will be allocated in the ratio that each Participant's Compensation
for the Plan Year in excess of the integration level bears to the
excess Compensation of all Participants, but not in excess of 3%;
Step Three: Any contribution remaining after the allocation in Step
Two will be allocated in the ratio that the sum of each Participant's
total Compensation and Compensation in excess of the integration level
bears to the sum of all Participants' total Compensation and
Compensation in excess of the integration level, but not in excess of
the maximum disparity rate.
Step Four: Any remaining contribution will be allocated in the ratio
that each Participant's Compensation for the Plan Year bears to the
total Compensation for all Participants.
The integration level is equal to:
1. [ ] Taxable Wage Base.
2. [ ] ____% of the Taxable Wage Base (not to exceed 100%).
The maximum disparity rate is equal to the lesser of:
(a) 2.7%.
(b) l.3% if the percentage or dollar amount entered at 2 above is
more than 20% but less than 80% of the Taxable Wage Base.
(c) 2.4% if the percentage or dollar amount entered at 2 above is
more than 80% but less than 100% of the Taxable Wage Base.
Note: In no event can the amount allocated to any Participant exceed
the lesser of (1) 15% of such Participant's Compensation or (2) the
greater of $30,000 or one-quarter of the dollar limitation in effect
under Code Section 415(b)(1)(A).
D4 COMPENSATION
a. Compensation for purposes of determining and allocating the
Employer's contribution shall be wages and all other payments which
are required to be reported in the box on Form W-2 entitled "Wages,
Tips and Other Compensation."
b. In addition, Compensation:
1. [ ] Shall
2. [ ] Shall not
include compensation which is not currently includible in the
Participant's gross income by reason of the application of Code
Sections 125 (salary reductions to a cafeteria plan), 402(a)(8)
(salary reductions to a SEP), 402(h)(1)(B) (salary reductions to a
401(k) plan) or 403(b) (salary reductions to a TSA).
3 o SAR
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LEGG MASON
D5 SALARY REDUCTION ARRANGEMENT -- ELECTIVE DEFERRALS
Each Participant may elect to have his or her Compensation (as
determined before applying the salary reduction) reduced by:
1. [ ] Up to ______ %.
2. [ ] Up to the maximum percentage allowable not to exceed the
limits of Code Sections 402, 404 and 415.
AND, a Participant may make a special election to defer all or a
portion of any cash bonuses that would otherwise be paid during the
Plan Year.
3. [ ] Yes.
4. [ ] No.
D6 TOP-HEAVY PROVISIONS
Pursuant to the provisions of Section 4.6, this plan:
a. [ ] Shall be deemed to be top-heavy.
b. [ ] Shall not be deemed to be top-heavy.
AND, any top-heavy minimum contributions shall be made:
c. [ ] Pursuant to this Plan.
d. [ ] Pursuant to the following other plan maintained by the
Employer: ___________________________________________________
NOTE: If elective deferrals are permitted and this Plan becomes
top-heavy or is deemed to be top-heavy, the Employer will be required
to contribute an amount equal to the 3% of the Compensation of each
Non-Key Employee who is a Participant, or if less, the highest
percentage contributed by the Employer to any Key Employee. For
purposes of this requirement, elective contributions are taken into
account in determining the amount contributed on behalf of a Key
Employee but are not taken into account in determining the amount
contributed on behalf of a Non-Key Employee.
D7 LIMITATIONS ON ALLOCATIONS
If a Participant in this Plan is or ever has been a Participant in a
defined benefit plan maintained by the Employer and this Plan is Top
Heavy, but not Super Top Heavy:
a. [ ] N/A, Employer does not maintain and never has maintained a
defined benefit plan.
b. [ ] The minimum allocation under this Plan shall be 5% of each
Participant's Compensation.
c. [ ] The minimum allocation under this Plan shall be 71/2% of each
Participant's Compensation. (This allows the 415(e) fraction
to be based on 125 instead of 100).
Note: An Employer who has ever maintained a defined benefit plan
which is now terminated may not participate in this prototype SEP
plan. If subsequent to adopting this Plan, any defined benefit plan
of the Employer terminates, the Employer will no longer participate
in this prototype plan and will be considered to have an individually
designed plan.
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LEGG MASON
The Employer hereby states that:
1. Prior to the date an Eligible Employee becomes a Participant in
this Simplified Employee Pension, a Legg Mason IRA Adoption Agreement
shall have been executed by the Eligible Employee and be in effect
and a Legg Mason IRA Adoption Agreement shall be executed by any
Eligible Employee prior to becoming eligible to participate in this
Simplified Employee Pension. All Employer contributions to this
Simplified Employee Pension shall be made only to IRAs maintained
pursuant to such Agreements.
2. All Eligible Employees of any affiliated service groups or
controlled groups, as defined in Code Section 414, shall participate
in this Simplified Employee Pension; and
3. Withdrawals and/or distributions of Employer contributions to this
Simplified Employee Pension from any Participant's IRA shall be
governed solely by the terms of the applicable IRA document.
To obtain more information concerning the rules governing this
SEP, please contact your Legg Mason Financial Advisor.
The Employer hereby causes this Agreement to be executed on this, the
_______ day of ________________, 19__.
EMPLOYER: ___________________________________________________________
(enter name)
BY: _________________________________________________________________
ACCEPTED BY LEGG MASON WOOD WALKER, INC.
BY: _________________________________________________________________
Print Name: ____________________________________________________
Print Title: ___________________________________________________
Date: __________________________________________________________
Note: Legg Mason Wood Walker, Inc. shall not be bound by the terms of
this Agreement unless a duly authorized representative of Legg Mason
Wood Walker, Inc. executes this Agreement on the space provided
above. A person shall have Legg Mason Wood Walker, Inc.'s consent to
the adoption of the Simplified Employee Pension and shall be entitled
to rely upon the opinion letter issued by the Internal Revenue
Service approving as acceptable the form of the Simplified Employee
Pension only if Legg Mason Wood Walker, Inc. executes this Agreement
and only if, and as long as, the representations of the Employer made
in this Adoption Agreement are, and continue to be, true and correct.
5 o SAR
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6
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Legg Mason Wood Walker, Inc.
Simplified Employee Pension Plan
Disclosure Statement
Your Employer has established a Simplified Employee Pension Plan for the
benefit of all of its Eligible Employees. The information provided explains what
a Simplified Employee Pension Plan is, how contributions are made, and how to
treat your Employer's contributions for tax purposes.
Please read the questions and answers carefully. For more specific
information, also see the Plan and Adoption Agreement.
Questions and Answers
(Section references are to the Internal Revenue Code, unless otherwise
noted.)
1. Q. What is a Simplified Employee Pension or SEP?
A. A SEP is a retirement income arrangement under which your Employer may
contribute an amount each year up to the smaller of $30,000 or 15% of your
Compensation into your own Individual Retirement Account/Annuity (IRA).
Your Employer will provide you with a copy of the Plan and Adoption
Agreement containing the participation requirements and a description of the
basis upon which Employer contributions may be made to your IRA.
All amounts contributed to your IRA by your Employer belong to you, even after
you separate from service with that Employer.
2. Q. Must my Employer contribute to my IRA under the SEP?
A. Whether or not your Employer makes a contribution to the SEP depends on
the formula chosen in the Adoption Agreement. If a contribution is made under
the SEP, it must be allocated to all the Eligible Employees according to the SEP
agreement. However, regardless of which formula is used, all Compensation in
excess of $150,000 (applicable for 1995) as adjusted each year by the IRS, must
be disregarded for the purposes of the SEP.
3. Q. How much may my Employer contribute to my SEP-IRA in any year?
A. The contribution (if any) made on your behalf by your Employer for any
Plan Year is limited to the smaller of $30,000 or 15% of your Compensation for
that Plan Year. The Compensation used to determine this limit does not include
any amount which is contributed by your Employer to your IRA under the SEP.
4. Q. How do I treat my Employer's SEP contributions for my taxes?
A. The amount your Employer contributes is excludable from your gross
income (subject to certain limitations such as the limitation mentioned in 3
above) and is not includible as taxable wages on your Form W-2.
5. Q. May I also contribute to my IRA if I am a Participant in a SEP?
A. Yes. You may still contribute the lesser of $2,000 or 100% of your
Compensation to an IRA. However, the amount which is deductible is subject to
various limitations. Also see Question 11.
6. Q. Are there any restrictions on the IRA I select to deposit my SEP
contributions in?
A. Yes. Contributions must be made to either a Model IRA which is executed
on an IRS form or a master or prototype IRA for which the IRS has issued a
favorable opinion letter.
7. Q. What if I don't want a SEP-IRA?
A. You are required to participate in the SEP-IRA as a condition of
employment once you have satisfied the plan's eligibility requirements.
8. Q. Can I move funds from my SEP-IRA to another tax-sheltered IRA?
A. Yes. It is permissible for you to withdraw, or receive, funds from your
SEP-IRA, and no more
Copyright 1992 Legg Mason Wood Walker, Inc.
7
<PAGE>
than 60 days later, place such funds in another IRA, or SEP-IRA. This is called
a "roll-over" and may not be done without penalty more frequently than at
one-year intervals. However, there are no restrictions on the number of times
you may make "transfers" if you arrange to have such funds transferred between
the Trustees, so that you never have possession.
9. Q. What happens if I withdraw my Employer's contribution from my IRA?
A. If you don't want to leave the Employer's contribution in your IRA, you
may withdraw it at any time, but any amount withdrawn is includible in your
income. Also, if withdrawals occur before attainment of age 59 1/2, and not on
account of death or disability, you may be subject to a penalty tax.
10. Q. May I participate in a SEP even though I'm covered by another plan?
A. Yes. In most cases you can participate in a SEP (other than a model SEP
established by the use of Form 5305-SEP) even though you participate in another
qualified plan of the same Employer. If you do participate in a SEP and another
plan, the limit in Question 3 above may be reduced in accordance with the
Internal Revenue Code. Also, if you work for several employers you may be
covered by a SEP of one employer and a different SEP or pension or
profit-sharing plan of another employer. Also, see Questions 11 and 12.
11. Q. What happens if too much is contributed to my SEP-IRA in one year?
A. Any contribution that is more than the yearly limitations may be
withdrawn without penalty by the due date (plus extensions) for filing your tax
return (normally April 15th), but is includible in your gross income. Excess
contributions left in your SEP-IRA after that time may have adverse tax
consequences.
12. Q. Do I need to file any additional forms with IRS because I participate in
a SEP?
A. No.
13. Q. Is my Employer required to provide me with information about SEP-IRA's
and the SEP Agreement?
A. Yes. Your Employer must provide you with a copy of the executed SEP Plan
and Adoption Agreement, these Questions and Answers, and provide a statement
each year showing any contribution to your IRA.
14. Q. Is the financial institution where I establish my IRA also required to
provide me with information?
A. Yes. It must provide you with a disclosure statement which contains the
following items of information in plain non-technical language:
(1) The statutory requirements which relate to your IRA;
(2) The tax consequences which follow the exercise of various options and what
those options are;
(3) Participation eligibility rules, and rules on the deductibility and
nondeductibility of retirement savings;
(4) The circumstances and procedures under which you may revoke your IRA,
including the name, address, and telephone number of the person designated to
receive notice of revocation (this explanation must be prominently displayed at
the beginning of the disclosure statement);
(5) Explanations of when penalties may be assessed against you because of
specified prohibited or penalized activities concerning your IRA; and
(6) Financial disclosure information which:
(a) Either projects value growth rates of your IRA under various contribution
and retirement schedules, or describes the method of computing and allocating
annual earnings and charges which may be assessed;
(b) Describes whether, and for what period, the growth projections for the plan
are guaranteed, or a statement of the earnings rate and terms on which the
projection is based;
(c) States the sales commission to be charged in each year expressed as a
percentage of $1,000; and
8
<PAGE>
(d) States the proportional amount of any nondeductible life insurance which may
be a feature of your IRS.
In addition to this disclosure statement, the financial institution is
required to provide you with a financial statement each year. It may be
necessary to retain and refer to statements for more than one year in order to
evaluate the investment performance of the IRA and for information on how to
report IRA distributions for tax purposes.
See Publication 590, Individual Retirement Arrangements (IRA's), available
at most IRS offices, for a more complete explanation of the disclosure
requirements.
9
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Legg Mason Wood Walker, Inc.
Simplified Employee Pension Plan
Addendum to Disclosure Statement
Notice To Employees
The following information is provided in addition to the Disclosure
Statement. This addendum describes a SEP which permits you to defer a portion of
your compensation to your own IRA. If the plan your employer sponsors does not
permit elective deferrals, then this addendum does not apply. For more specific
information, refer to the SEP agreement itself and the accompanying "Notice to
Adopting Employer."
I. Simplified Employee Pension -- Defined
A SEP is a retirement income arrangement. In this "elective" SEP, you may
choose to defer compensation to your own Individual Retirement Account or
Annuity ("IRA"). You may base these "elective deferrals" either on a salary
reduction arrangement or on bonuses that, at your election, may be contributed
to an IRA or received in cash. This type of elective SEP is available only to an
employer with 25 or fewer eligible employees.
Your employer must provide you with a copy of the SEP agreement containing
eligibility requirements and a description of the basis upon which contributions
may be made.
All amounts contributed to your IRA belong to you, even after you quit
working for your employer.
II. Elective Deferrals -- May Be Disallowed
You are not required to make elective deferrals to this SEP-IRA. However,
if more than half of your employer's eligible employees choose not to make
elective deferrals in a particular year, then no employee may participate in
your employer's elective SEP for that year. If you make elective deferrals
during a year in which this happens, then your deferrals for that year will be
"disallowed," and the deferrals will be considered ordinary IRA contributions
(which may be excess IRA contributions) rather than SEP-IRA contributions.
"Disallowed deferrals" and allocable income may be withdrawn, without
penalty, until April 15 following the calendar year in which you are notified of
the "disallowed deferrals." Amounts left in the IRA after that date will be
subject to the same penalties discussed in Section VII below applicable to
excess SEP contributions.
III. Elective Deferrals -- Annual Limitation
The maximum amount that you may defer to this SEP for any calendar year is
limited to the lesser of fifteen percent of compensation (determined without
including the SEP-IRA contribution) or a dollar limit under section 402(g) of
the Internal Revenue Code that originally was $7,000 (and is in 1995 $9,240).
The fifteen percent limit may be reduced if your employer also maintains a
SEP to which non-elective contributions are made for a plan year, or any
qualified plan to which contributions are made for such plan year. In that case,
total contributions on your behalf to all such SEPs and qualified plans may not
exceed the lesser of $30,000 or fifteen percent of your compensation. If these
limits are exceeded, the amount you may elect to contribute to this SEP for the
year will be correspondingly reduced.
The dollar limit under Section 402(g) of the Code is an overall limit on
the maximum amount that you may defer in each calendar year to all elective SEPs
and cash or deferred arrangements under section 401(k) of the Code, regardless
of how many employers you may have worked for during the year.
The section 402(g) limit is indexed according to the cost of living. In
addition, the section 402(g)
10
<PAGE>
limit may be increased to $9,500 if you make salary reduction contributions
under a section 403(b) tax-sheltered annuity arrangement.
If you are a highly compensated employee, there may be a further limit on
the amount that you may contribute to a SEP-IRA for a particular year. This
limit is calculated by your employer and is known as the "deferral percentage
limitation." This deferral percentage limitation is based on a mathematical
formula that limits the percentage of pay that highly compensated employees may
elect to defer to a SEP-IRA. As discussed below, your employer will notify each
highly compensated employee who has exceeded the deferral percentage limitation.
IV. Elective Deferrals -- Tax Treatment
The amount that you may elect to contribute to your SEP-IRA is excludable
from gross income, subject to the limitations discussed above, and is not
includible as taxable wages on Form W-2. However, these amounts are subject to
FICA taxes.
V. Additional Top-Heavy Contributions
If you are not a "key employee," your employer must make an additional
contribution to your SEP-IRA for a year in which the SEP is considered
"top-heavy." (Your employer will be able to tell you whether you are a key
employee.) This additional contribution will not exceed three percent of your
compensation. It may be less if your employer has already made a contribution to
your account, and for certain other reasons.
VI. Elective Deferrals -- Excess Amounts Contributed
There are three different situations in which impermissible excess amounts
arise under the SEP-IRA.
The first way is when "excess elective deferrals" (i.e., amounts in excess
of the section 402(g) limit) are made. You are responsible for calculating
whether you have exceeded the Section 402(g) limit in the calendar year. For
1995, the Section 402(g) limit for contributions made to an elective SEP is
$9,240.
The second way is when "excess SEP contributions" (i.e., amounts in excess
of the deferral percentage limitation referred to above) are made by highly
compensated employees. The employer is responsible for determining whether such
an employee has made excess contributions.
The third way is when more than half of an employer's eligible employees
choose not to make elective deferrals for a plan year. In that case, any
elective deferrals made by any employees for that year are considered
"disallowed deferrals," as discussed above. Your employer is also responsible
for determining whether deferrals must be disallowed on this basis.
Excess elective deferrals are calculated on the basis of the calendar year.
Excess SEP contributions and disallowed deferrals, however, are calculated on
the basis of the SEP plan year, which may or may not be a calendar year.
VII. Excess Elective Deferrals -- How To Avoid Adverse Tax Consequences
Excess elective deferrals are includible in your gross income in the
calendar year of deferral. Income on the excess elective deferrals is includible
in the year of withdrawal from the IRA. You should withdraw excess elective
deferrals under this SEP, and any allocable income, from you SEP-IRA by April 15
following the year to which the deferrals relate. These amounts may not be
transferred or rolled over tax-free to another SEP-IRA.
11
<PAGE>
If you fail to withdraw excess elective deferrals, and any allocable
income, by April 15, the excess elective deferrals will be subject to the IRA
contribution limitations of sections 219 and 408 of the Code and thus may be
considered an excess contribution to your IRA. Such excess deferrals may be
subject to a six percent excise tax for each year they remain in the SEP-IRA.
Income on excess elective deferrals is includible in your gross income in
the year you withdraw it from your IRA and must be withdrawn by April 15
following the calendar year to which the deferrals relate. Income withdrawn from
the IRA after that date may be subject to a ten percent tax on early
distributions if you are not 59 1/2.
If you have both excess elective deferrals and excess SEP contributions (as
described below), the amount of excess elective deferrals that you withdraw by
April 15 will reduce any excess SEP contributions that must be withdrawn for the
corresponding plan year.
VIII. Excess SEP Contributions -- How To Avoid Adverse Tax Consequences
If you are a "highly compensated employee," your employer is responsible
for notifying you if you have made any excess SEP contributions for a particular
plan year. This notification should tell you the amount of the excess SEP
contributions, the calendar year in which you must include these contributions
in income, and that the contributions may be subject to penalties if you do not
withdraw them from your IRA within the applicable time period.
Your employer should notify you of the excess SEP contributions within
2 1/2 months of the end of the plan year. Generally you must include the excess
SEP contributions in income for the calendar year in which the original
deferrals were made. This may require you to file an amended individual income
tax return. However, an excess SEP contribution of less than $100 (not including
earnings) is includible in the calendar year of notification. Income on these
excess contributions is includible in your gross income when you withdraw it
from your IRA.
You are responsible for withdrawing these excess SEP contributions (and
earnings) from your IRA. You may withdraw these amounts, without penalty, until
April 15 following the calendar year in which you were notified by your employer
of the excess SEP contributions.
If you fail to withdraw the excess SEP contributions by April 15 following
the calendar year of notification, the excess SEP contributions will be subject
to the IRA contribution limitations of sections 219 and 408 of the Code and thus
may be considered an excess contribution to your IRA. Thus, such excess SEP
contributions may be subject to a six percent excise tax for each year they
remain in your IRA.
If you do not withdraw the income on these excess SEP contributions by
April 15 following the calendar year of notification by your employer, the
income may be subject to a ten percent tax on early distributions if you are not
59 1/2 when you with-draw it.
IX. Income Allocable To Excess Amounts
The rules for determining and allocating income to excess elective
deferrals, excess SEP contributions, and disallowed referrals are the same as
those governing regular IRA contributions. The trustee or custodian of your
SEP-IRA will inform you of the income allocable to excess amounts.
X. Availability Of IRA Contribution Deduction To SEP Participants
In addition to any SEP amounts, you may contribute the lesser of $2,000 or
100% of compensation to an IRA. However, the amount that you may deduct is
subject to various limitations. See Publication 590, "Individual Retirement
Arrangements," for more specific information.
12
<PAGE>
XI. SEP-IRA Amounts -- Rollover Or Transfer To Another IRA
You may not withdraw or transfer from your SEP-IRA any SEP contributions
(or income on these contributions) attributable to elective deferrals made
during the plan year until 2 1/2 months after the end of the plan year or, if
sooner, when your employer notifies you that the deferral percentage limitation
test (described above) has been completed for that year. In general, any
transfer or distribution made before this time will be includible in your gross
income and may also be subject to a ten percent penalty tax for early
withdrawal. You may, however, remove excess elective deferrals from your SEP-IRA
before this time, but you may not rollover or transfer these amounts to another
IRA.
After the restriction described in the preceding paragraph no longer
applies, and with respect to contributions for a previous plan year, you may
withdraw, or receive, funds from your SEP-IRA, and no more than 60 days later,
place such funds in another IRA or SEP-IRA. This is called a "rollover" and may
not be done without penalty more frequently than at one-year intervals. However,
there are no restrictions on the number of times that you may make "transfers"
if you arrange to have such funds transferred between the trustees so that you
never have possession of the funds.
You may not, however, roll over or transfer excess elective deferrals,
excess SEP contributions, or disallowed deferrals from your SEP-IRA to another
IRA. These excess amounts may be reduced only by a distribution to you.
XII. Filing Requirements
You do not need to file any additional forms with the IRS because of
participation in the SEP.
XIII. Employer To Provide Information On SEP-IRAs And The SEP Agreement
Your employer must provide you with a copy of the executed SEP agreement,
this Notice to Employees, the form you should use to defer amounts to the SEP,
the notice of excess SEP contributions or disallowed deferrals (if applicable)
and a statement for each taxable year showing any contribution to your SEP-IRA.
Your employer must also notify you, if you are a highly compensated employee,
when the deferral percentage limitation test has been completed for a plan year.
XIV. Financial Institution Where IRA Is Established To Provide Information
The financial institution must provide you with a disclosure statement that
contains the following items of information in plain non-technical language:
1. The statutory requirements that relate to the IRA;
2. The tax consequences that follow the exercise of various options and what
those options are;
3. Participation eligibility rules, and rules on the deductibility and
nondeductibility of requirement savings;
4. The circumstances and procedures under which you may revoke the IRA,
including the name, address, and telephone number of the person designated to
receive notice of revocation (this explanation must be prominently displayed at
the beginning of the disclosure statement);
5. Explanations of when penalties may be assessed against you because of
specified prohibited or penalized activities concerning the IRA; and
6. Financial disclosure information which:
a) Either projects value growth rates of the IRA under various contribution and
retirement schedules, or describes the method of computing and allocating annual
earnings and charges which may be assessed;
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b) Describes whether, and for what period, the growth projections for the plan
are guaranteed, or a statement of earnings rate and terms on which these
projections are based; and
c) States the sales commission to be charged in each year expressed as a
percentage of $1,000.
See Publication 590, "Individual Retirement Arrangements," which is
available at most IRS offices, for a more complete explanation of the disclosure
requirements.
In addition to the disclosure statement, the financial institution is
required to provide you with a financial statement each year. It may be
necessary to retain and refer to statements for more than one year in order to
evaluate the investment performance of your IRA and in order that you will know
how to report IRA distributions for tax purposes.
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Notice To Adopting Employer
A simplified employee pension plan ("SEP") is a plan that provides you with
a simplified way to enhance your employee's retirement income. Under an elective
SEP, employees may choose whether to make elective deferrals to the SEP or to
receive amounts in cash. If elective deferrals are made, you contribute the
amounts deferred by employees directly into an individual retirement arrangement
(IRA) set up by or on behalf of the employee with a bank, insurance company, or
other qualified financial institution. The IRA must be one for which the
Internal Revenue Service has issued a favorable opinion letter or a model IRA
published by the Service as Form 5305 -- Individual Retirement Trust Account or
Form 5305-A -- Individual Retirement Custodial Account.
The information provided below is intended to assist you in understanding
and administering the elective deferral provisions of your SEP.
I. Employers Who May Not Use This SEP
This elective SEP may not be used if you are an employer who:
A. Has any leased employees as defined in Code Section 414(n)(2);
B. Maintains or has maintained a defined benefit plan, even if now terminated;
C. Had more than 25 employees eligible to participate in the SEP at any time
during the prior plan year. (If you are a member of one of the groups described
in section VIII. B. below, you may use this SEP, provided that in the prior plan
year there never were more than 25 employees eligible to participate in this
SEP, in total, of all the members of such groups, trades, or businesses. In
addition, all eligible employees of all the members of such groups, trades, or
businesses must be eligible to make elective deferrals to this SEP.) If you are
a new employer who had no employees during the prior plan year, you will meet
the 25 eligible employee limitation if you had 25 or fewer employees throughout
the first 30 days that you were in existence.
D. Is a state or local government or a tax-exempt organization.
II. Making The Agreement
This SEP agreement is considered made when:
A. You have completed all blanks on the form; and
B. You have given all eligible employees copies of this SEP agreement and the
"Notice to Adopting Employer." (Any individual who, in the future, becomes
eligible to participate in this SEP must be given the "Notice to Employees" upon
becoming an eligible employee.)
III. Effective Date
This SEP agreement is effective upon adoption. No elective deferrals may be
made by an employee on the basis of compensation that the employee received or
had a right to receive before adoption of this agreement and execution by the
employee of the deferral election.
IV. Deductibility Of Contributions
You may deduct, subject to the otherwise applicable limits, those
contributions made to a SEP. Contributions to the SEP are deductible for your
taxable year with or within which the plan year of the SEP ends. Contributions
made for a particular taxable year and contributed by the due date of your
income tax return, including extensions, are deemed made in that taxable year.
15
<PAGE>
V. Elective Deferrals
You may permit your employees to make elective deferrals through salary
reduction or on the basis of bonuses that, at the employees option, may be
contributed to the SEP or received by the employee in cash during the year.
You are responsible for telling your employees how they may make, change,
or terminate elective deferrals based on either salary reduction or cash
bonuses. You must also provide a form on which they may make their deferrals.
This requirement may be satisfied by use of the "Model SEP Deferral Form"
provided for this purpose at the end of these instructions. You may instead use
a form that sets forth, in a manner calculated to be understood by the average
plan participant, the information contained in the Model SEP Deferral Form.
Remember that no deferral election may be made with respect to compensation
already received.
VI. SEP Requirements
A. Elective deferrals and non-elective employer contributions may not be based
on more than $150,000 (applicable for 1995) of compensation, as adjusted in
accordance with Section 408(k)(8) of the Code for cost of living changes.
Compensation is the employee's total compensation from the employer (determined
without including the SEP-IRA contributions) and includes:
1. Amounts received for personal services actually performed (see Section
1.219-1(c) of the Income Tax Regulations), and
2. Earned income defined under Section 401(c)(2).
B. The maximum limit on the amount of compensation an employee may elect to
defer under a SEP for a year is the lesser of 15% of the employee's compensation
or the limitation under section 402(g) of the Code, as explained below.
Note: The deferral limit is 15 percent of compensation (less elective deferrals
and any other employer SEP-IRA contributions). Compute this amount using the
following formula: Compensation (before sub-tracting elective deferrals and any
other employer SEP-IRA contributions) x 13.0435%.
C. If you make nonelective contributions to this SEP for a plan year, or
maintain any other SEP or qualified plan to which contributions are made for
such plan year, then contributions to all such SEPs and qualified plans
generally may not exceed the lesser of $30,000 or 15% of compensation for any
employee. If these limits are exceeded on behalf of any employee for a
particular plan year, that employee's elective deferrals for that year must be
reduced to the extent of the excess.
VII. Excess Elective Deferrals -- 402(g) Limit
Section 402(g) of the Code limits the maximum amount of compensation an
employee may elect to defer under a SEP (and certain other arrangements) during
the calendar year. This limit, which originally was $7,000, is indexed according
to the cost of living. (The Section 402(g) limit for 1995 is $9,240.) In
addition, the limit may be increased if the employee makes elective deferrals to
a salary reduction arrangement under section 403(b) of the Code. Amounts
deferred for a year in excess of this limit are considered "excess elective
deferrals" and are subject to the consequences described below.
The Section 402(g) limit applies to the total elective deferrals the
employee makes for the calendar year, from all employers, under the following
arrangements:
A. Elective SEPs under Section 408(k)(6) of the Code;
B. Cash or deferred arrangements under Section 401(k) of the Code; and
C. Salary reduction arrangements under Section 403(b) of the Code.
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<PAGE>
Thus, an employee may have excess elective deferrals even if the amount
deferred under this SEP alone does not exceed the section 402(g) limit.
If an employee who elects to defer compensation under this SEP and any
other SEP or arrangement has made excess elective deferrals for a calendar year,
he or she must withdraw those excess elective deferrals by April 15 following
the calendar year to which the deferrals relate. Those excess deferrals not
withdrawn by April 15 will be subject to the IRA contribution limitations of
sections 219 and 408 of the Code and thus may be considered an excess
contribution to the employee's IRA. Such excess elective deferrals therefore
may be subject to the six percent tax on excess contributions under Section
4973.
Income on excess elective deferrals is includible in gross income in the
year withdrawn from the IRA and must be withdrawn by April 15 following the
calendar year to which the deferrals relate. Income withdrawn from the IRA after
that date may be subject to the ten percent tax on early distributions under
Section 72(t) of the Code if the recipient is not 59 1/2.
VIII. Excess SEP Contributions -- Deferral Percentage Limitation
The amount each of your highly compensated employees may contribute to this
elective deferral SEP is also restricted by the "deferral percentage
limitation." This is a limitation based on the amount of money deferred, on
average, by your non-highly compensated employees. Deferrals made by a highly
compensated employee that exceed this deferral percentage limitation for a plan
year are considered "excess SEP contributions" and must be removed from the
employee's SEP-IRA, as discussed in more detail below.
The deferral percentage limitation for your highly compensated employees is
computed by first averaging the "deferral percentages" (as defined below) for
each eligible non-highly compensated employee for the plan year and then
multiplying this result by 1.25. The deferral percentage for a plan year of any
highly compensated employee eligible to participate in this SEP may not be more
than the resulting product, the "deferral percentage limitation."
Only elective deferrals are included in this computation. Non-elective SEP
contributions may not be included. The determination of the deferral percentage
for any employee is to be made in accordance with section 408(k)(6) of the Code
and should satisfy such other requirements as may be provided by the Secretary
of the Treasury.
For purposes of making this computation, the calculation of the number and
identity of highly compensated employees, and their deferral percentages, is
made on the basis of the entire "affiliated employer."
In addition, for purposes of determining the deferral percentage of a
highly of employee, the elective deferrals and compensation of the employee will
also include the elective deferrals and compensation of "family member." This
special rule applies, however, only if the highly compensated employee is 5%
owner or is one of a group of the ten most highly compensated employees. The
elective deferrals and compensation of family members used in this special rule
do not count in computing the deferral percentages of individuals who do not
fall into this group.
The following definitions apply for purposes of the deferral percentage
computation:
A. "Deferral percentage" shall mean the ratio (expressed as a percentage) of an
employee's elective deferrals for a year to the employee's compensation for that
year. The deferral percentage of an employee who is eligible to make an elective
deferral, but who does not make a deferral during the year, is zero.
B. "Affiliated employer" shall mean any corporation that is a member of a
controlled group of corporations (as described in Code Section 414(b)) that
includes the employer; any trade or business (whether or not incorporated) that
is under common control (as defined in Section 414(c)) with the employer; any
organization (whether or not incorporated) which is a member of an affiliated
service group (as defined in Section 414(m)) that includes the employer; and any
other entity required to be aggregated with the employer pursuant to regulations
under Section 414(o).
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<PAGE>
C. "Family member" shall mean an individual who is related to a highly
compensated employee as a spouse, or as a lineal ascendant (such as a parent or
grandparent) or descendant (such as a child or grandchild) or spouse of either
of those, in accordance with Section 414(q) of the Code and the regulations
thereunder.
D. "Highly compensated individual" shall mean an individual described in section
414(q) of the Code who, during the current or preceding year:
1. Was as 5% owner as defined in Section 416(i)(1)(B)(i) of the Code;
2. Received compensation in excess of $50,000, as indexed according to the cost
of living in accordance with Section 414(q)(1) ($66,000 for 1995), and was in
the top-paid group (the top 20% of employees, by compensation);
3. Received compensation in excess of $75,000, as indexed according to the cost
of living in accordance with Section 414(y)(1) ($100,000 for 1995); or
4. Was an officer and received compensation in excess of 50% of the dollar limit
under Code Section 415 for defined benefit plans. This threshold limit is
$60,000 for 1995. No more than three employees need to be taken into account
under this rule. In addition, if there are no officers that have compensation in
excess of the limit above, then the highest paid officer will be deemed to be a
highly compensated employee.
IX. Excess SEP Contributions -- Tax Consequences And Notification Of Employees
You are responsible for notifying each affected employee, if any, within
2 1/2 months following the end of the plan year, of the amount of excess SEP
contributions to that employee's SEP-IRA. Such excess SEP contributions are
includible in the employee's gross income in the calendar year as of the
earliest date that any elective deferrals by the employee during the plan year
would have been received by the employee had he or she originally elected to
receive the amounts in cash. However, if the excess SEP contributions (not
including allocable income) total less than $100, then the excess contributions
are includible in the employee's gross income in the calendar year of
notification. Income allocable to the excess SEP contributions is includible in
gross income in the year of withdrawal from the IRA.
If you fail to notify any of your affected employees within 2 1/2 months
following the end of the plan year of an excess SEP contribution, you must pay a
tax equal to 10% of the excess SEP contribution. If you fail to notify your
employees by the end of the plan year following the plan year in which the
excess SEP contributions arose, the SEP no longer will be considered to meet the
requirements of Code Section 408(k)(6). If the SEP no longer meets the
requirements of Section 408(k)(6), then any contribution to an employee's IRA
will be subject to the IRA contribution limitations of Sections 219 and 408 and
thus may be considered an excess contribution to the employee's IRA.
Your notification to each affected employee of the excess SEP contributions
must specifically state in a manner calculated to be understood by the average
employee:
A. The amount of the excess SEP contributions attributable to that employee's
elective deferrals;
B. The calendar year in which the excess SEP contributions are includible in
gross income; and
C. That the employee must withdraw the excess SEP contributions (and allocable
income) from the SEP-IRA by April 15 following the calendar year of notification
by the employer. Those excess contributions not withdrawn by April 15 following
the year of notification will be subject to the IRA contribution limitations of
Sections 219 and 408 of the Code for the preceding calendar year and thus may be
considered an excess contribution to the employee's IRA. Such excess
contributions may be subject to the six percent tax on excess contributions
under Section 4973. If income allocable to an excess SEP contribution is not
withdrawn by April 15 during the calendar year of notification by the employer,
the income may be subject to the ten percent tax on early distributions under
Section 72(t) when withdrawn.
For information on reporting excess SEP contributions, see Notice 87-77.
1987-2 C.B. 385, and Notice 88-33. 1988-1 C.B. 513, as modified by Notice 89-32.
1989-1 C.B. 671.
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<PAGE>
X. Failure To Satisfy The 50% Test
If you discover, as of the end of any plan year, that more than half of
your eligible employees have chosen not to make elective deferrals for that
year, then all elective deferrals made by your employees for that plan year
shall be considered "disallowed deferrals," i.e., IRA contributions that are not
SEP-IRA contributions.
You must notify each affected employee, within 2 1/2 months following the
end of the plan year to which the disallowed deferrals relate, that his or her
deferrals are no longer considered SEP-IRA contributions. Such disallowed
deferrals are includible in the employee's gross income in the calendar year as
of the earliest date that any elective deferrals by the employee during the plan
year would have been received by the employee had he or she originally elected
to receive the amounts in cash. Income allocable to the disallowed deferrals is
includible in the employee's gross income in the year of withdrawal from the
IRA.
Your notification to each affected employee of the disallowed deferrals
must specifically state in a manner calculated to be understood by the average
employee:
A. The amount of the disallowed deferrals;
B. The calendar year in which the disallowed deferrals are includible in gross
income; and
C. That the employee must withdraw the disallowed deferrals (and allocable
income) from the SEP-IRA by April 15 following the calendar year of notification
by the employer. Those disallowed deferrals not withdrawn by April 15 following
the year of notification will be subject to the IRA contribution limitations of
Sections 219 and 408 of the Code and thus may be considered an excess
contribution to the employee's IRA. These disallowed deferrals thus may be
subject to the six percent tax on excess contributions under Section 4973. If
income allocable to a disallowed deferral is not withdrawn by April 15 following
the calendar year of notification by the employer, the income may be subject to
the ten percent tax on early distributions under Section 72(t) when withdrawn.
Disallowed deferrals should be reported in the same manner as are excess
SEP contributions.
XI. Restrictions On Withdrawals
Your employees may generally not withdraw or transfer from their SEP-IRAs
any SEP contributions (or income on these contributions) attributable to
elective deferrals made during a particular plan year until 2 1/2 months after
the end of that plan year unless you notify your employees that you have
completed the deferral percentage limitation test earlier. In general, any
transfer or distribution made before expiration of the applicable 2 1/2 month
period (or notification, if sooner) will be includible in the employee's gross
income and may also be subject to a ten percent penalty tax for early
withdrawal.
XII. Top-Heavy Requirements
For purposes of determining whether a plan is top-heavy under section 416
of the Code, elective deferrals are considered employer contributions. Elective
deferrals may not be used, however, to satisfy the minimum contribution
requirement under Section 416. Thus, in any year in which a "key employee" makes
an elective deferral, and this SEP is either top-heavy or deemed top-heavy for
purposes of Section 416, you are required to make the minimum top-heavy
contribution to either the SEP-IRA or another SEP, or any other qualified plan,
of each non-key employee eligible to participate in the SEP.
A "key employee" under section 416(i)(1) of the code is any employee or
former employee (and the beneficiaries of these employees) who, at any time
during the "determination period," was:
A. An officer of the employer (if the employee's compensation exceeds 50% of the
limit under Section 415(b)(1)(A));
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<PAGE>
B. An owner of one of the ten largest interests in the employer (if the
employee's compensation exceeds 100% of the limit under Section 415(c)(1)(A));
C. A 5% owner of the employer, as defined in Section 416(i)(1)(B)(i) of the
Code; or
D. A 1% owner of the employer (if the employee has compensation in excess of
$150,000).
The "determination period" is the current plan year and the four preceding
years.
You must satisfy the minimum contribution requirement of Section 416 by
making the required contributions through this or another SEP or a qualified
plan.
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LEGG MASON
SEP Deferral Form
I. Salary Reduction Referral
Subject to the requirements of the Elective SEP of ______________________,
Name of Employer
I authorize the following amount or percentage of my compensation to be
withheld from each of my paychecks and contributed to my SEP-IRA:
a) _________ percent of my salary (not in excess of _____________);
Percentage
b) _________ dollar amount (not in excess of ____________________).
Specified Dollar Amount
This salary reduction authorization shall remain in effect until I give a
written modification or termination of its terms to my employer.
II. Cash Bonus Deferral
Subject to the requirements of the Elective SEP of _______________________,
Name of Employer
I authorize the following amount to be contributed to my SEP-IRA rather than
being paid to me in cash:
(a) _________ dollar amount (not in excess of ____________________).
Specified Dollar Amount
III. Amount Of Deferral
I understand that the total amount I defer in any calendar year to this SEP
may not exceed the lesser of:
(a) 15% of my compensation (determined without including any SEP-IRA
contributions) or
(b) $9,240 (as adjusted for the cost of living).
IV. Commencement Of Deferral
The deferral election specified in either I. or II. above shall not become
effective before:
(a) _________ (Specify a date no earlier than the first day of the
first pay period beginning after this authorization.)
V. Distributions From SEP-IRAs
I understand that I should not withdraw or transfer any amounts from my
SEP-IRA that are attributable to elective deferrals and income on elective
deferrals for a particular plan year (except for excess elective deferrals)
until 21/2 months after the end of the plan year or, if sooner, when my employer
notifies me that the deferral percentage limitation test for that plan year has
been completed. Any such amounts that I withdraw or transfer before this time
will be includible in income for purposes of Code Sections 72(t) and 408(d)(1).
___________________________ _______________________________
Date Signature
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22
<PAGE>
LEGG MASON
Legg Mason Wood Walker, Inc.
Simplified Employer Pension Plan
Announcement to Employees
I am pleased to announce that (name of employer) __________________________
________________________________________________________________________________
has adopted the Legg Mason Wood Walker, Inc. Simplified Employee Pension (SEP)
Plan effective ____________________________________.
Some of the eligibility and contribution details of the Plan are as
follows:
Eligible Employees: _____________________________________________________
Age: _____________________________________________________
Service: _____________________________________________________
Contribution Formula: _____________________________________________________
_____________________________________________________
_____________________________________________________
Please note that the information above and that which is contained in the
attached SEP Plan Disclosure Information do not include all Plan provisions.
Please see ____________ and or/review the Plan and Adoption Agreement if you
have any questions.
______________________ ____________________________
Employer's Signature Date
This page may be duplicated.
23
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24
<PAGE>
LEGG MASON
Legg Mason Wood Walker, Inc.
SEP/SARSEP Salary Reduction
Contribution Worksheet (for SARSEPS only)
This worksheet is provided for use by employers in record keeping and
as a general guide to determining compliance with maximum deferral rules.
Employers are advised to seek the assistance of a competent tax
professional before concluding whether the SAR-SEP has satisfied applicable
discrimination rules for a particular year.
STEP I. Determine the total number of highly compensated employees
List all employees who during the current year and/or last year met one
or more of these qualifcations. (Do not list any person more than once.)
1. Owns 5% or greater share of the business (Note: Shares owned by certain
relatives count toward this percentage.)
2. Earns more than $100,000*
3. Earns more than 66,000* and is in the top 20% of employees as ranked by
salary+
4. Is an officer of the business and earns more than $60,000* -- or is the
highest ranking officer if no one earns more than $60,000 (Maximum:
Three employees or 10% of employees, whichever is greater.)
Total highly compensated employees
* These amounts -- current for 1995 -- are adjusted annually for inflation.
+ Excluding employees who have worked for the employer for less than six months,
who work less than an average of 17 1/2 hours a week, who normally work less
than six months a year, who are under age 21, who are covered by collective
bargaining agreements, and who are nonresident aliens with no U.S. income.
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LEGG MASON
STEP II. Determine the average deferral percentage
Total eligible employees
-- Total highly compensated employees
= Total nonhighly compensated employees
List the salary deferral percentages elected by each eligible nonhighly
compensated employee, including 0% when applicable.
_____% + _____% + _____% + _____% = subtotal _____%
_____% + _____% + _____% + _____% = subtotal _____%
_____% + _____% + _____% + _____% = subtotal _____%
_____% + _____% + _____% + _____% = subtotal _____%
_____% + _____% + _____% + _____% = subtotal _____%
Total nonhighly compensated employee salary deferral percentage ___________%
Divide the total nonhighly compensated employee salary deferral percentage
by the total nonhighly compensated employees.
_________% /___________ = ____________% (average deferral percentage)
STEP III. Determine the maximum allowable contribution by a highly compensated
employee
Multiply the average deferral percentage by 1.25.
___________________% x 1.25 = ___________________% Maximum allowable
contribution by a highly compensated employee
Reminder: The total of contributions made by an employee and the employer
cannot exceed the lesser of 15% of the employee's compensation or $30,000.
For purposes of determining the maximum allowable contribution by a
highly compensated individual, deferrals and compensation of the employee
include deferrals and compensation of certain family members. This rule
applies, however, only if the highly compensated employee is a 5% owner or
among the 10 highest paid employees.
Deferrals of family members do not count when determining the average
deferral percentage of nonhighly compensated employees.
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<PAGE>
LEGG MASON
Legg Mason Wood Walker, Inc.
Simplified Employee Pension Plan
Notification to Employees of Excess SEP Contributions
(Each participant who is a highly compensated employee and has made elective
deferrals under the SEP-IRA which are in excess of the Internal Revenue Code's
non-discriminatory deferral percentage limitation (and therefore exceed the
limitation under section 408(k)(6)(A)(iii) of the Internal Revenue Code) and
each participant (whether or not a highly compensated employee) who has made any
elective deferrals to the SEP-IRA in a year in which the SEP-IRA failed to
satisfy the 50% elective deferral participation requirement (and therefore has
exceeded the limitation under section 408(k)(6)(A)(ii) of the Internal Revenue
Code) should receive this Notice within 21/2 months after the Plan year-end in
which such deferrals were made.)
To: ____________________________________________________________________________
(Name of Participant)
It has come to our attention that the elective deferrals you made to the
SEP-IRA for the taxable year ended December 31, 19___ (the "Deferral Year")
exceed the maximum permissible limitation under section [408(k)(6)(A)(ii)]
[408(k)(6)(A)(iii)] of the Internal Revenue Code. You made excess SEP
contributions of $___________________ for the Deferral Year. This Notice is
given to you during 19___ (the "Notice Year").
These excess SEP contributions must be included in your taxable gross
income for the Deferral Year, unless the indicated amount of excess SEP
contributions is less than $100 and the limitation exceeded was the
non-discriminatory deferral percentage limitation under section
408(k)(6)(A)(iii) of the Internal Revenue Code (as noted in the preceding
paragraph). If the indicated amount of excess SEP contributions is less than
$100 and the limitation exceeded was the non-discriminatory deferral percentage
limitation under section 408(k)(6)(A)(iii) of the Internal Revenue Code, such
contributions are included in your taxable gross income for the Notice Year.
The indicated amount of excess SEP contributions must be withdrawn from
your IRA by the April 15 following the Notice Year in order to avoid significant
tax penalties. Income attributable to the indicated amount of excess SEP
contributions (the "Income") also must be withdrawn from your IRA by this date
in order to avoid significant tax penalties which may be applicable. Such Income
must be included in your taxable gross income in the year in which you withdraw
such Income.
Excess SEP contributions which are not withdrawn by the April 15 following
the Notice Year will be subject to the IRA contribution limitations of sections
219 and 408 of the Internal Revenue Code for the Deferral Year and thus may be
considered an excess contribution to your IRA for that year. This determination
ordinarily would cause such contributions to be subject to 6% penalty tax for
the applicable year(s). Also, if the Income is not withdrawn by the April 15
following the Notice Year, the Income may be subject to a 10% additional tax on
early distributions under section 72(t) of the Internal Revenue Code when it is
withdrawn.
________________________________________ ________________________
Employer Signature Date
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28
<PAGE>
LEGG MASON
Legg Mason Wood Walker, Inc.
Simplified Employee Pension Plan Contribution Transmittal
This contribution is for A. The calendar year beginning in 199__.
B. The Employer's fiscal year beginning on
_____________________ and ending on
Month Year
_____________________.
Month Year
Employer Name ____________________________________
Employer Address _________________________________
Telephone (______)_______________________________
<TABLE>
<CAPTION>
Amount of Amount of
Employee Name Account Number Employee Contribution Employer Contribution
- -------------------------------- ---------------------------- ----------------------------- -------------------------
<S> <C>
1. ______________________________________________________________ $____________________________ $________________________
2. ______________________________________________________________ $____________________________ $________________________
3. ______________________________________________________________ $____________________________ $________________________
4. ______________________________________________________________ $____________________________ $________________________
5. ______________________________________________________________ $____________________________ $________________________
6. ______________________________________________________________ $____________________________ $________________________
7. ______________________________________________________________ $____________________________ $________________________
8. ______________________________________________________________ $____________________________ $________________________
9. ______________________________________________________________ $____________________________ $________________________
10. ______________________________________________________________ $____________________________ $________________________
11. ______________________________________________________________ $____________________________ $________________________
12. ______________________________________________________________ $____________________________ $________________________
13. ______________________________________________________________ $____________________________ $________________________
14. ______________________________________________________________ $____________________________ $________________________
15. ______________________________________________________________ $____________________________ $________________________
16. ______________________________________________________________ $____________________________ $________________________
17. ______________________________________________________________ $____________________________ $________________________
18. ______________________________________________________________ $____________________________ $________________________
19. ______________________________________________________________ $____________________________ $________________________
20. ______________________________________________________________ $____________________________ $________________________
21. ______________________________________________________________ $____________________________ $________________________
22. ______________________________________________________________ $____________________________ $________________________
23. ______________________________________________________________ $____________________________ $________________________
24. ______________________________________________________________ $____________________________ $________________________
25. ______________________________________________________________ $____________________________ $________________________
$____________________________ $________________________
Total of Employee Total of Employer
Contributions Contributions
Please remit this completed Transmittal Form with a check for the total contributions to: $_________________________
Legg Mason Investment Executive Total of All Contributions
</TABLE>
29
<PAGE>
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30
<PAGE>
LEGG MASON
LEGG MASON WOOD WALKER, INC.
Simplified Employee Pension Plan
[LEGG MASON LOGO]
<PAGE>
Article I
Definitions
As used in this Agreement, the following words and phrases shall have the
meanings set forth herein unless a different meaning is clearly required by the
context:
1.1 "Act" means the Employee Retirement Income Security Act of 1974, as it
may be amended from time to time.
1.2 "Adoption Agreement" means the separate agreement executed by the
Employer which sets forth the elective provisions of this Plan as specified by
the Employer.
1.3 "Affiliated Employer" means the Employer and any corporation which is a
member of a controlled group of corporations (as defined in Code Section 414(b))
which includes the Employer; any trade or business (whether or not incorporated)
which is under common control (as defined in Code Section 414(c)) with the
Employer; any organization (whether or not incorporated) which is a member of an
affiliated service group (as defined in Code Section 414(m)) which includes the
Employer; and any other entity required to be aggregated with the Employer
pursuant to Regulations under Code Section 414(o).
1.4 "Code" means the Internal Revenue Code of 1986, as amended or replaced
from time to time.
1.5 "Compensation" means all of a Participant's wages as defined in Code
Section 3401(a) and all other payments of compensation to an Employee by the
Employer (in the course of the Employer's trade or business) for which the
Employer is required to furnish the Employee a written statement under Code
Sections 6041(d), 6051(a)(3) and 6052. Compensation must be determined without
regard to any rules under Code Section 3401(a) that limit the remuneration
included in wages based on the nature or location of the employment or the
services performed (such as the exception for agricultural labor in Code Section
3401(a)(2)).
Compensation for any Self-Employed Individual shall be equal to his or her
Earned Income.
Compensation shall include only that Compensation which is actually paid to
the Participant during the Plan Year.
If elected in the Adoption Agreement, Compensation shall also include any
amount which is contributed by the Employer pursuant to a salary reduction
agreement and which is not includible in the gross income of the Employee under
Code Sections 125 (cafeteria plans), 402(a)(8) (401(K) plans), 402(h) (salary
reduction SEP's) or 403(b).
For any Plan Year, Compensation in excess of $200,000 shall be disregarded.
This limitation shall be adjusted by the Secretary at the same time and in the
same manner as under Code Section 415(d), except the dollar increase in effect
on January 1st of any calendar year is effective for years beginning in such
calendar year and the first adjustment to the $200,000 limitation is effected on
January 1, 1990. If a plan determines Compensation on a period of time that
contains fewer than 12 calendar months, then the annual Compensation limit is an
amount equal to the annual Compensation limit for the calendar year in which the
Compensation period begins multiplied by the ratio obtained by dividing the
number of full months in the period by 12.
In addition to other applicable limitations set forth in the plan, and
notwithstanding any other provision of the plan to the contrary, for plan years
beginning on or after January 1, 1994, the annual compensation of each employee
taken into account under the plan shall not exceed the OBRA '93 annual
compensation limit. The OBRA '93 annual compensation limit is $150,000, as
adjusted by the Commissioner for increases in the cost of living in accordance
with Section 401(a)(17)(B) of the Internal Revenue Code. The cost-of-living
adjustment in effect for a calendar year applies to any period, not exceeding 12
months, over which compensation is determined (determination period) beginning
in such calendar year. If a determination period consists of fewer than 12
months, the OBRA '93 annual compensation limit will be multiplied by a fraction,
the numerator of which is the number of months in the determination period, and
the denominator of which is 12.
For plan years beginning on or after January 1, 1994, any reference in this
plan to the limitation under Section 401(a)(17) of the Code shall mean the OBRA
'93 annual compensation limit set forth in this provision.
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1.6 "Earned Income" means with respect to a Self-Employed Individual, the
net earnings from self-employment in the trade or business with respect to which
the Plan is established, for which the personal services of the individual are a
material income-producing factor. Net earnings will be determined without regard
to items not included in gross income and the deductions allocable to such
items. Net earnings are reduced by contributions by the Employer to a qualified
Plan to the extent deductible under Code Section 404.
1.7 "Eligible Employee" means any Employee of the Employer except for the
following:
(a) Employees who are nonresident aliens (within the meaning of Code Section
7701(b)(1)(B)) who receive no earned income (as defined in Code Section
911(d)(2)) from the Employer which constitutes income from sources within the
United States (within the meaning of Code Section 861(a)(3)).
(b) Employees whose employment is governed by a collective bargaining agreement
between the Employer and "employee representatives" under which retirement
benefits were the subject of good faith bargaining provided less than two
percent of the Employees of the Employer who are covered pursuant to that
agreement are professionals as defined in Regulation Section 1.410(b)-9(g). For
this purpose, the term "employee representatives" does not include any
organization more than half of whose members are Employees who are owners,
officers or executives of the Employer.
1.8 "Employee" means any person who is employed by the Employer, but
excludes any person who is employed as an independent contractor. In addition,
the term "Employee" shall include leased employees within the meaning of Code
Section 414(n)(2) unless such leased employees are covered by a plan described
in Code Section 414(n)(5) and such leased employees, with respect to services
performed after December 31, 1986, do not constitute more than 20% of the
recipient's non-highly compensated work force.
All Employees of all entities which are an Affiliated Employer shall be
treated as employed by a single Employer.
1.9 "Employer" means the entity as specified in the Adoption Agreement, any
Affiliated Employer, any successor which shall maintain this Plan and any
predecessor which has maintained this Plan.
1.10 "Highly Compensated Employee" means an Employee described in Code
Section 414(q) and the Regulations thereunder, and generally means an Employee
who performed services for the Employer during the "determination year" and is
in one or more of the following groups:
(a) Employees who at any time during the "determination year" or "look-back
year" were "five percent owners." "Five percent owner" means any person who owns
(or is considered as owning within the meaning of Code Section 318) more than
five percent of the outstanding stock of the Employer or stock possessing more
than five percent of the total combined voting power of all stock of the
Employer, or, in the case of an unincorporated business, any person who owns
more than five percent of the capital or profits interest in the Employer. In
determining percentage ownership hereunder, employers that would otherwise be
aggregated under Code Sections 414(b), (c), (m) and (o) shall be treated as
separate employers.
(b) Employees who received Compensation during the "look-back year" from the
Employer in excess of $75,000.
(c) Employees who received Compensation during the "look-back year" from the
Employer in excess of $50,000 and were in the top paid group of Employees
(within the meaning of Code Section 414(q)) for the Plan Year.
(d) Employees who during the "look-back year" were officers of the Employer (as
that term is defined within the meaning of the Regulations under Code Section
416) and received Compensation during the "look-back year" from the Employer
greater than 50 percent of the limit in effect under Code Section 415(b)(2)(A)
for any such Plan Year. The number of officers shall be limited to the lesser of
(i) 50 employees; or (ii) the greater of 3 employees or 10 percent of all
employees. If the Employer does not have at least one officer whose annual
Compensation is in excess of 50 percent of the Code Section
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415(b)(1)(A) limit, then the highest paid officer of the Employer will be
treated as a Highly Compensated Employee.
(e) Employees who are in the group consisting of the 100 Employees paid the
greatest Compensation during the "determination year" and are also described in
(b), (c) or (d) above when these paragraphs are modified to substitute
"determination year" for "look-back year."
The "look-back year" shall be the calendar year ending with or within the
Plan Year for which testing is being performed, and the "determination year" (if
applicable) shall be the period of time, if any, which extends beyond the
"look-back year" and ends on the last day of the Plan Year for which testing is
being performed (the "lag period"). If the "lag period" is less than twelve
months long, the dollar threshold amounts specified in (b), (c) and (d) above
shall be prorated based upon the number of months in the "lag period."
For purposes of this Section the determination of Compensation shall be
based only on Compensation which is actually paid and shall be made by including
amounts that would otherwise be excluded from a Participant's gross income by
reason of the application of Code Sections 125, 402(a)(8), 402(h)(1)(B) and, in
the case of Employer contributions made pursuant to a salary reduction
agreement, by including amounts that would otherwise be excluded from a
Participant's gross income by reason of the application of Code Section 403(b).
Additionally, the dollar threshold amounts specified in (b) and (c) above shall
be adjusted at such time and in such manner as is provided in Regulations. In
the case of such an adjustment, the dollar limits which shall be applied are
those for the calendar year in which the "determination year" or "look-back
year" begins.
1.11 "Participant" means any Eligible Employee who has satisfied the
requirements of D1 of the Adoption Agreement. All Eligible Employees who have
met the eligibility requirements shall be required to participate in this
Simplified Employee Pension Plan as a condition of employment.
1.12 "Participant's IRA" means the Individual Retirement Account or Annuity
(IRA) established by or for each Participant with respect to his or her total
interest in the Plan resulting from the Employer's contributions. The Employer
shall establish a Participant's IRA on behalf of any Eligible Employee not
having established one previously and shall communicate to that Employee the
name and address of the institution in which the IRA has been established. The
Participant may make withdrawals from his Participant's IRA at any time, subject
to the rules governing premature and other distributions from an IRA. The
Participant shall always be 100% vested in his Participant's IRA.
1.13 "Plan" means this instrument, and the Adoption Agreement as adopted by
the Employer.
1.14 "Plan Year" means the Plan's accounting year of twelve (12)
consecutive months as specified in C1 of the Adoption Agreement.
1.15 "Regulation" means the Income Tax Regulations as promulgated by the
Secretary of the Treasury or his delegate, and as amended from time to time.
1.16 "Self-Employed Individual" means an individual who has Earned Income
for the taxable year from the trade or business for which the Plan is
established, and, also, an individual who would have had Earned Income but for
the fact that the trade or business had no net profits for the taxable year. A
Self-Employed Individual shall be treated as an Employee.
1.17 "Service" means any work performed by an Employee for the Employer, or
Affiliated Employer, for any period of time, however short.
1.18 "Taxable Wage Base" means, with respect to any year, the contribution
and benefit base in effect under Section 230 of the Social Security Act
at the beginning of the Plan Year.
1.19 "Trustee" means the trustee or custodian of the Participant's IRA.
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Article II
Eligibility
2.1 Conditions Of Eligibility
Any Eligible Employee shall be eligible to participate hereunder on the
date he has satisfied the requirements specified in the Adoption Agreement. The
Employer shall give each prospective Eligible Employee written notice of his
eligibility to participate in the Plan in sufficient time to enable such
prospective Eligible Employee to establish his Participant's IRA prior to the
close of the Plan Year in which he first becomes an Eligible Employee. In the
event a Participant fails to establish an IRA, the Employer shall establish one
for such Participant.
2.2 Effective Date Of Participation
An Eligible Employee who has become eligible to be a Participant shall
become a Participant effective as of the first day of the Plan Year in which he
met the requirements.
2.3 Determination Of Eligibility
The Employer shall determine the eligibility of each Employee for
participation in the Plan. Such determination shall be conclusive and binding
upon all persons, as long as the same is made in accordance with this Plan and
the Act.
2.4 Omission Of Eligible Employee
If, in any Plan Year, any Employee who should be included as a Participant
in the Plan is erroneously omitted and discovery of such omission is not made
until after a contribution by the Employer for the year has been made and
allocated, the appropriate Employer shall make a subsequent contribution with
respect to the omitted Employee in the amount which the said Employer would have
contributed with respect to him had he not been omitted. Such contribution shall
be made regardless of whether or not it is deductible in whole or in part in any
taxable year under applicable provisions of the Code by such Employer.
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Article III
Contribution And Allocation
3.1 Formula For Determining Employer's Contribution
(a) If selected at D3 of the Adoption Agreement, the Employer may elect to
contribute each Plan Year such amount as shall be determined by the Employer. In
addition, if selected at D5 of the Adoption Agreement, the Employer shall
contribute the total amount of compensation that a Participant has elected to
defer to the Plan.
(b) Notwithstanding the above, the Employer's contribution for any year shall
not exceed the maximum amount allowable as a deduction to the Employer under the
provisions of Code Section 404. All contributions by the Employer shall be made
in cash or in such property as is acceptable to the Trustee of the Participant's
IRA.
3.2 Time Of Payment Of Employer's Contribution
The Employer shall pay to the Participant's IRA its contribution for each
Plan Year within the time prescribed by law for the filing of the Employer's
federal income tax return for the Fiscal Year (including any extensions).
Contributions to the Plan are deductible by the Employer for the taxable year
with or within which the Plan Year ends.
3.3 Allocation Of Contribution
The Employer's contribution shall be allocated to each Participant's IRA in
accordance with the provisions of D3 of the Adoption Agreement. However, a
Participant who receives less than $300 (as adjusted by the Secretary of the
Treasury in the same manner as under Code Section 415(d)) of Compensation
(within the meaning of Code Section 414(q)(7)) in any Plan Year, shall not
receive an allocation for such Plan Year.
3.4 Maximum Allocations
(a) The maximum amount of Employer contributions which may be allocated to a
Participant's IRA in any Plan Year shall be the lesser of (1) 15% of such
Participant's Compensation or (2) the greater of $30,000 or one-quarter of the
dollar limitation in effect under Code Section 415(b)(1)(A). However, if the
discretionary integrated contribution formula is selected (option D3c of the
Adoption Agreement), the amount in (2) above shall be reduced in the case of any
Highly Compensated Employee by the amount taken into account with respect to
such Employee under the permitted disparity rules of Code Section 401(l)(2).
(b) For purposes of the 15% limitation above and regardless of any selections
made in the Adoption Agreement, Compensation shall not include any amount
contributed by the Employer pursuant to a salary reduction agreement which is
not includible in the gross income of an Employee under Code Sections 125
(cafeteria plans), 402(a)(8) (401(k) plans), 402(h) (salary reduction SEPs) or
403(b).
(c) Notwithstanding anything in the Plan to the contrary, if the Employer
maintains, or at any time maintained, a qualified defined benefit plan covering
any Participant in this Plan, the sum of the Participant's "Defined Benefit Plan
Fraction" and "Defined Contribution Plan Fraction" will not exceed 1.0 in any
limitation year. The Annual Additions which may be credited to the Participant's
IRA under this Plan for any Limitation Year will be limited in accordance with
the Limitation on Allocations Section of the Adoption Agreement. For purposes of
this Section, the "Limitation Year" shall be the Plan Year and the terms
"Defined Benefit Plan Fraction," "Defined Contribution Plan Fraction," and
"Annual Additions" shall have the meanings set forth in Code Section 415 and the
regulations thereunder. However, for any Plan Year in which this Plan is a Top
Heavy Plan, but not a Super Top Heavy Plan within the meaning of Code Section
416, the terms "Defined Benefit Plan Fraction" and "Defined Contribution Plan
Fraction" shall be applied by substituting 125 for 100 in the denominator of the
fractions when the extra minimum allocation of 7 1/2% is being made pursuant to
the Adoption Agreement.
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Article IV
Salary Reduction Provisions
4.1 Purpose
(a) The provisions of this Article IV shall apply if Participant salary
reductions are permitted pursuant to D5 of the Adoption Agreement. By permitting
such deferrals, it is the intention of the Employer that this Plan satisfy the
requirements of Code Section 408(k)(6).
(b) The Employer agrees to permit elective deferrals to be made in each Plan
Year to the Participant's IRA established by or on behalf of each of the
Employer's Employees who are eligible to participate in this Plan.
4.2 Participation Requirements
(a) Elective deferrals shall be permitted for a Plan Year only if:
(1) Not less than 50% of the Employees that are eligible to make elective
deferrals elect, or have an election in effect, to have elective deferrals made
to this Plan;
(2) The Employer had no more than 25 Employees eligible to participate in this
Plan at any time during the prior Plan Year (or would have been eligible to
participate in the Plan were it maintained in the preceding Plan Year);
(3) The Employer does not and never has maintained a defined benefit plan;
(4) The Employer is not a state or local government or a tax-exempt
organization; and
(5) The Employer does not have any leased employees as defined in Code Section
414(n)(2).
(b) In the event that the 50% requirement of Section 4.2(a)(1) is not satisfied
as of the end of any Plan Year, then all elective deferrals made by Employees
for that Plan Year shall be considered "disallowed deferrals," i.e., IRA
contributions. The Employer shall notify each affected Employee, within 2 1/2
months following the end of the Plan Year to which the disallowed deferrals
relate, that the deferrals are no longer considered SEP-IRA contributions. Such
notification shall state:
(1) The amount of the disallowed deferrals;
(2) That the disallowed deferrals are includible in the Employee's gross income
for the calendar year or years in which the amounts deferred would have been
received by the Employee in cash had he or she not made an election to defer and
that the income allocable to such disallowed deferrals is includible in the year
withdrawn from the IRA; and
(3) That the Employee must withdraw the disallowed deferrals (and allocable
income) from the SEP-IRA by April 15 following the calendar year of notification
by the Employer. Those disallowed deferrals not withdrawn by April 15 following
the year of notification will be subject to the IRA contribution limitations of
Code Sections 219 and 408 and thus may be con-sidered an excess contribution to
the Employee's IRA. Disallowed deferrals may be subject to the six percent tax
on excess contributions under Code Section 4973. If income allocable to a
disallowed deferral is not withdrawn by April 15 following the year of
notification by the Employer, the income may be subject to the ten percent tax
on early distributions under Code Section 72(t) when withdrawn.
(c) Disallowed deferrals are reported in the same manner as are excess SEP
contributions.
4.3 Elective Deferrals
(a) The Employer shall contribute and allocate to each Participant's IRA an
amount equal to the amount of the Participant's elective deferrals. Elective
deferrals will be paid by the Employer to the Participant's IRA Trustee, or
insurance company (in case of a retirement annuity contract).
(b) Each Participant may elect to defer a portion of his or her Compensation in
accordance with the Adoption Agreement and pursuant to a written salary
reduction agreement.
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(c) If selected in the Adoption Agreement, a Participant may base elective
deferrals on cash bonuses during the year that, at the Participant's election,
may be contributed to the Plan or received by the Participant in cash.
(d) No deferral election may be based on Compensation an Employee received, or
had a right to receive, before adoption of this Plan or the execution by the
Employee of the deferral election.
(e) Under no circumstances may an Employee's elective deferrals in any calendar
year exceed the lesser of fifteen percent of his or her Compensation (determined
without including the SEP-IRA contributions), or the limitation under Code
Section 402(g) based on all of the plans of the Employer. This 15% limit is
computed using the following formula: Compensation (before subtracting employer
SEP-IRA contributions) x 13.0435%.
(f) If an Employer makes Non-Elective Contributions to this SEP, any other SEP,
or any qualified plan, then a Participant's elective deferrals may be limited to
the extent necessary to satisfy the maximum contribution limitations under Code
Section 415(c)(1)(A). In addition to the dollar limitation of Code Section
415(c)(1)(A), which is $30,000 in 1992, contributions to this SEP, when
aggregated with contributions to all other SEPs and qualified plans of the
Employer, generally may not exceed 15% of any Employee's Compensation. If these
limits are exceeded on behalf of an Employee for a particular Plan Year, that
Employee's elective deferrals for that year must be reduced to the extent of the
excess.
4.4 Excess SEP Contributions
(a) Elective deferrals by a Highly Compensated Employee must satisfy the
"deferral percentage limitation" under Code Section 408(k)(6). The "deferral
percentage limitation" is the maximum amount of elective deferrals, expressed as
a percentage of Compensation, that can be contributed on behalf of any Highly
Compensated Employee for a particular Plan Year and it equals the product of i)
the average of the amounts of elective deferrals (expressed as a percentage of
each such Employee's Compensation) made on behalf of all the Non-Highly
Compensated Employees for the same Plan Year, and ii) 1.25. In calculating this
average, the percentage for an eligible Non-Highly Compensated Employee who
chooses not to have elective deferrals made on his or her behalf for a Plan Year
is zero. Amounts in excess of the deferral percentage limitation will be deemed
excess SEP contributions on behalf of the affected Highly Compensated Employee.
(b) The determination of the deferral percentage for any Employee is to be made
in accordance with Code Section 408(k)(6) and should satisfy such other
requirements as may be provided by the Secretary of the Treasury.
(c) In addition, for purposes of determining the deferral percentage of a Highly
Compensated Employee, the elective deferrals and Compensation of the Employee
will also include the elective deferrals and Compensation of any "family
member." This special rule applies, however, only if the Highly Compensated
Employee is a 5% owner or is one of the ten most highly-paid Employees. The
elective deferrals and Compensation of family members used in this special rule
do not count in computing the average of the deferral percentages of Non-Highly
Compensated Employees.
(d) For purposes of this Section, "family member" means an individual who is
related to a Highly Compensated Employee as a spouse, or as a lineal ascendant
(such as a parent or grandparent) or descendant (such as a child or grandchild),
or spouse of either of those, in accordance with Code Section 414(q) and the
regulations thereunder.
(e) Excess SEP contributions are includible in the Employee's gross income on
the earliest dates any elective deferrals made on behalf of the Employee during
the Plan Year would have been received by the Employee had he or she originally
elected to receive the amounts in cash. However, if the excess SEP contributions
(not including allocable income) total less than $100, then the excess
contributions are includible in the Employee's gross income in the year of
notification. Income allocable to the excess SEP contributions is includible in
the year of withdrawal from the Participant's IRA.
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(f) If the Employer fails to notify any of the affected Highly Compensated
Employees within 2 1/2 months following the end of the Plan Year of an excess
SEP contribution, the Employer must pay a tax equal to 10% of the excess SEP
contribution. If the Employer fails to notify Employees by the end of the Plan
Year following the Plan Year in which the excess SEP contributions arose, the
SEP no longer will be considered to meet the requirements of Code Section
408(k)(6). If the SEP no longer meets the requirements of Code Section
408(k)(6), then any contribution to an Employee's IRA will be subject to the IRA
contribution limitations of Code Sections 219 and 408 and thus may be considered
an excess contribution to the Employee's IRA.
(g) The notification to each affected Highly Compensated Employee of the excess
SEP contributions must specifically state in a manner calculated to be
understood by the average employee:
(i) The amount of the excess SEP contributions attributable to that Employee's
elective deferrals;
(ii) The calendar year in which the excess SEP contributions are includible in
gross income; and
(iii) That the Employee must withdraw the excess SEP contributions (and
allocable income) from the IRA by April 15 following the year of notification by
the Employer. Those excess contributions not withdrawn by April 15 following the
year of notification will be subject to the IRA contribution limitations of Code
Sections 219 and 408 for the preceding calendar year and thus may be considered
an excess contribution to the Employee's IRA. Such excess contributions may be
subject to the six percent tax on excess contributions under Code Section 4973.
If income allocable to an excess SEP contribution is not withdrawn by April 15
following the year of notification by the Employer, the income may be subject to
the ten percent tax on early distributions under Code Section 72(t) when
withdrawn.
4.5 Distributions From This Plan
The Employer shall notify each Employee who makes an elective deferral to
this Plan that, until the earlier of the date the notification to Participants
is made pursuant to Sections 4.2(b) and 4.4(b) or 2 1/2 months after the end of
a particular Plan Year, any transfer or distribution from that Participant's IRA
of contributions (or income on these contributions) attributable to elective
deferrals made during that Plan Year will be includible in income for purposes
of Code Sections 72(t) and 408(d)(1).
4.6 Top-Heavy Requirements
(a) If the Employer elects in the Adoption Agreement that this Plan is deemed to
be a top-heavy plan, then, unless another plan of the employer is designated in
the Adoption Agreement to satisfy the top-heavy requirements of Code Section
416, the Employer shall make a minimum contribution each year to the IRA of each
Employee eligible to participate in this Plan (other than a key employee as
defined in Code Section 416(i)), which, in combination with other non-elective
contributions, if any, is equal to the lesser of three percent of each
Employee's Compensation or a percentage of such Compensation equal to the
percentage of Compensation at which elective and non-elective contributions are
made under this Plan for the Plan Year for the key employee for whom such
percentage is the highest for the Plan Year.
(b) For purposes of satisfying the minimum contribution requirements under Code
Section 416, all Elective and Non-Elective Contributions under this Plan shall
be taken into account in determining the percentage of Compensation contributed
on behalf of a key employee, but elective deferrals shall not be taken into
account in determining the percentage of Compensation contributed on behalf of
an Employee who is not a key employee.
(c) If the Employer elects in the Adoption Agreement that this Plan is not
deemed to be a top-heavy plan, then the provisions of 4.6(a) and (b) above shall
only apply when the Plan is actually a top-heavy plan as defined in 4.6(d)
below. Furthermore, the minimum allocation provided in 4.6(a) shall not apply to
any Participant who was not employed by the Employer on the last day of the Plan
Year.
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(d) For purposes of 4.6(c) above, the following definitions shall apply for
determining whether this Plan is a top-heavy plan.
(1) "Top-heavy plan" means this Plan if any of the following conditions exists:
(i) If the "top-heavy ratio" for this Plan exceeds 60 percent and this Plan is
not part of any "required aggregation group" or "permissive aggregation group"
of plans;
(ii) If this Plan is a part of a "required aggregation group" of plans but not
part of a "permissive aggregation group" and the "top-heavy ratio" for the group
of plans exceeds 60 percent; or
(iii) If this Plan is a part of a "required aggregation group" and part of a
"permissive aggregation group" of plans and the "top-heavy ratio" for the
permissive aggregation group exceeds 60 percent.
(2) "Top-heavy ratio" means:
(i) If the Employer maintains one or more defined contribution plans (including
any Simplified Employee Pension Plan) and the Employer has not maintained any
defined benefit plan which during the 5-year period ending on the "determination
date(s)" has or has had accrued benefits, the "top-heavy ratio" for this Plan
alone or for the "required aggregation group" or "permissive aggregation group"
as appropriate is a fraction, the numerator of which is the sum of the account
balances of all key employees as of the "determination date(s)," and the
denominator of which is the sum of all account balances (including any part of
any account balance distributed in the 5-year period ending on the
"determination date(s)"), both computed in accordance with Code Section 416 and
the regulations thereunder. Both the numerator and denominator of the "top-heavy
ratio" are increased to reflect any contribution not actually made as of the
"determination date," but which is required to be taken into account on that
date under Code Section 416 and the regulations thereunder.
(ii) For purposes of (i) above, the value of account balances will be determined
as of the most recent "valuation date" that falls within or ends with the
12-month period ending on the "determination date." The account balances of a
participant (1) who is not a key employee but who was a key employee in a prior
year, or (2) who has not been credited with at least one hour of service with
any Employer maintaining the Plan at any time during the 5-year period ending on
the "determination date" will be disregarded. The calculation of the "top-heavy
ratio" and the extent to which distributions, rollovers, and transfers are taken
into account will be made in accordance with Code Section 416 and the
regulations thereunder. When aggregating plans, the value of account balances
will be calculated with reference to the "determination dates" that fall within
the same calendar year.
(iii) Notwithstanding the foregoing, the Employer may elect to apply (i) and
(ii) above by taking into account aggregate Employer contributions in lieu of
the aggregate account balances of Employees.
(3) "Permissive aggregation group" means the "required aggregation group" of
plans plus any other plan or plans of the Employer which, when considered as a
group with the required aggregation group, would continue to satisfy the
requirements of Code Sections 401(a)(4) and 410.
(4) "Required Aggregation Group" means (a) each qualified plan of the Employer
in which at least one key employee participates or participated at any time
during the determination period (regardless of whether the plan has terminated),
and (b) any other qualified plan of the Employer which enables a plan described
in (a) to meet the requirements of Code Sections 401(a)(4) or 410.
(5) "Determination date" means for any Plan Year subsequent to the first Plan
Year, the last day of the preceding Plan Year. For the first Plan Year of the
Plan, the "Determination date" is the last day of that year.
(6) "Valuation date" means the last day of the Plan Year as of which account
balances are valued for purposes of calculating the "top-heavy ratio."
40
<PAGE>
Article V
Amendment and Termination
5.1 Amendment
The Employer expressly delegates authority to LEGG MASON WOOD WALKER, INC.,
the Plan sponsor, the right to amend this Plan by submitting a copy of the
amendment to each Employer who has adopted this Plan after first having received
a ruling or favorable determination from the Internal Revenue Service that the
Plan as amended qualifies under Code Section 408(k) and the Act. The Plan
sponsor will inform the Employer of any amendments made to this Plan or if the
Plan sponsor no longer sponsors this prototype.
5.2 Termination
The Employer shall have the right at any time to terminate the Plan.
41
<PAGE>
Article VI
Miscellaneous
6.1 Employer Adoptions
(a) Any organization may become the Employer hereunder by executing the Adoption
Agreement.
(b) The affiliation of the Employer and the participation of its Participants
shall be separate and apart from that of any other employer and its participants
hereunder.
6.2 Participant's Rights
This Plan shall not be deemed to constitute a contract between the Employer
and any Participant or to be a consideration or an inducement for the employment
of any Participant or Employee. Nothing contained in this Plan shall be deemed
to give any Participant or Employee the right to be retained in the service of
the Employer or to interfere with the right of the Employer to discharge any
Participant or Employee at any time regardless of the effect which such
discharge shall have upon him as a Participant of this Plan.
6.3 Construction Of Agreement
This Plan shall be construed and enforced according to the Act and the laws
of the State of Maryland, other than its laws respecting choice of law, to the
extent not pre-empted by the Act.
6.4 Gender And Number
Wherever any words are used herein in the masculine, feminine or neuter
gender, they shall be construed as though they were also used in another gender
in all cases where they would so apply, and whenever any words are used in the
singular or plural form, they shall be construed as though they were also used
in the other form in all cases where they would also apply.
6.5 Uniformity
All provisions of this Plan shall be interpreted and applied in a uniform,
nondiscriminatory manner.
6.6 Use Of Plan
This Plan may only be used in conjunction with a Prototype Individual
Retirement Account or an Individual Retirement Annuity that has received a
favorable opinion letter from the Internal Revenue Service or an IRS Model IRA.
In addition, an Employer who has ever maintained a defined benefit plan
which is now terminated may not participate in this Plan. If, subsequent to
adopting this Plan, any defined benefit plan of the Employer terminates, the
Employer will no longer participate in this prototype Plan and will be
considered to have an individually designed plan.
42
<PAGE>
6.7 Distributions From This Plan
Distributions of amounts derived from Employer contributions made to a
Participant's IRA pursuant to this Plan shall be governed solely by the Code and
Regulations thereto pertaining to distributions from an IRA and stated in the
documents establishing said Participant's IRA. The Employer may not in any way
restrict the Participant's withdrawal rights or condition any contributions on
the Participant's forbearance of his right to make withdrawals.
6.8 Restrictions On Integration
Employer contributions to this Plan may not be integrated with Social
Security if the Employer maintains in addition to this Plan, one or more
qualified plans integrated with Social Security.
43
<PAGE>
<TABLE>
<S> <C>
07
Internal Revenue Service Department of the Treasury
Prototype SEP with Salary Reduction Feature 002
FFN: 50436980700-002 Case: 9380093 EIN: 52-0902557 Washington, DC 20224
Letter Serial No: D411188a
Person to Contact: Ms. Arrington
(right arrow) LEGG MASON WOOD WALKER INC
Telephone Number: (202) 566-6814
111 SOUTH CALVERT STREET
Refer Reply to: E:EP:Q:0
BALTIMORE, MD 21202
Date: 02/22/93
</TABLE>
Dear Applicant:
In our opinion, the form of your Simplified Employee Pension (SEP) arrangement
is acceptable under section 408(k) of the Internal Revenue Code. This SEP
arrangement is approved for use only in conjunction with an Individual
Retirement Arrangement (IRA) which meets the requirements of Code section 408
and has received a favorable opinion letter, or a model IRA (Forms 5305 and
5305-A).
Employers who adopt this approved plan will be considered to have a retirement
savings program that satisfies the requirements of Code section 408 provided
that it is used in conjunction with an approved IRA. Please provide a copy
of this letter to each adopting employer.
Code section 408(l) and related regulations require that employers who adopt
this SEP arrangement furnish employees in writing certain information about
this SEP arrangement and annual reports of savings program transactions.
Your program may have to be amended to include or revise provisions in order
to comply with future changes in the law or regulations.
If you have any questions concerning IRS processing of this case, call us at
the above telephone number. Please refer to the Letter Serial Number and File
Folder Number shown in the heading of this letter. Please provide those
adopting this plan with your phone number, and advise them to contact your
office if they have any questions about the operation of this plan.
You should keep this letter as a permanent record. Please notify us if you
terminate the form of this plan.
Sincerely yours,
/s/ John Swieca
-------------------------
John Swieca
Chief, Employee Plans
Qualifications Branch
<PAGE>
Employer Guidelines
The following steps must be taken by an adopting Employer prior to
this SEP-IRA becoming effective:
Step One: Each employee who will be eligible to participate in the
SEP-IRA must complete and execute a Legg Mason IRA Adoption Agreement
and such Adoption Agreement must be accepted by Legg Mason, as
Custodian.
Step Two: The Employer should read the Notice to Adopting Employer
(enclosed).
Step Three: The Employer must complete and execute the Adoption
Agreement for Legg Mason Wood Walker, Inc. Simplified Employee
Pension Plan and such Adoption Agreement must be accepted by Legg
Mason.
Step Four: The Employer should distribute to eligible employees the
Legg Mason Wood Walker, Inc. Simplified Employee Pension Plan
Disclosure Statement.
The following steps should be taken by a sponsoring employer each
year with respect to the SEP-IRA: (Step Two and Step Three only apply
when salary reduction features are selected.)
Step One: Determine and make any required contributions for the year
and notify participating employees of the amount of such
contributions.
Step Two: Ascertain compliance (i) with the fifty percent
participation requirement with respect to any elective deferral
feature of the SEP-IRA and (ii) with the average deferral percentage
test applicable to any such feature (see Worksheet enclosed). If the
SEP-IRA does not satisfy both of these tests, notify affected
participants within 2 1/2 months of the end of applicable plan year
(see sample Notice enclosed).
Step Three: If SEP-IRA satisfies the average deferral percentage test
for the plan year, if applicable, notify participating highly
compensated employees of this fact within 2 1/2 months after the end
of the plan year.
Legg Mason, Inc., provides securities brokerage, investment advisory,
corporate and public finance, and mortgage banking services to
individuals, institutions, corporations, and municipalities. We serve
our brokerage clients through over 90 offices.
As investment advisors, we manage more than $23 billion in assets for
private accounts and mutual funds. Our mortgage banking subsidiaries
have direct and master servicing responsibility for $12 billion of
commercial mortgages.
Exhibit 14c
Adoption Agreement For
Legg Mason Wood Walker, Inc.
Savings Incentive Match Plan for Employees ("Simple Plan")
The undersigned Employer adopts the Legg Mason Wood Walker, Inc. Savings
Incentive Match Plan for Employees ("Simple Plan") on behalf of those Employees
who shall qualify as Participants hereunder, to be known as the
A1 _______________________________________________________________________
Employer Information
B1 Name of Employer: a. ______________________________________________
b. ______________________________________________
B2 Address: a. ______________________________________________
b. ________________ c. ____________ d. _______
City State Zip
e. (_____) ______________________________________
Telephone
f. ______________________________________________
FAX/e-mail
B3 Employer Tax Identification Number: a. _______ - ____________________
B4 Type of Entity: (To be eligible to adopt the Simple Plan, the entity
must be an Eligible Employer as described in Section 1.11 the Plan
document.):
a. [ ] S Corporation
b. [ ] Professional Service Corporation
c. [ ] Corporation
d. [ ] Sole Proprietorship
e. [ ] Partnership
f. [ ] Limited Liability Company
g. [ ] Tax-Exempt Entity (under Internal Revenue Code ss. ___________)
h. [ ] Governmental Entity
i. [ ] Other _________________________________________________________
B5 Controlled Group or Affiliated Service Group (check all that apply).
The Employer is a:
a. [ ] Member of a controlled group?
b. [ ] Member of affiliated service group?
B6 Employer's Tax Year _______________________ (enter first and last day
of year).
1
Copyright 1992 Legg Mason Wood Walker, Inc.
<PAGE>
LEGG MASON
Effective Date
C1 Initial Adoption
The Effective Date of this Plan is ____________, ____________.
Note: The effective date usually is the January 1 coincident with or
next following the day on which this Adoption Agreement is signed.
However, the effective date may be any date during the calendar year
which is on or after the day on which this Adoption Agreement is
signed.
C2 Amendment and Restatement Adoption
The Effective Date of this Amendment and Restatement of this Plan is
January 1, __________. (This date can be the January 1 of the current
year or of any later year.) The initial effective date of this Plan
was __________, __________.
Eligibility
D1 Service and Compensation Conditions of Eligibility (leave blank if all
Employees, except those excluded under D2, are eligible to participate
and no service and compensation is required)
To be eligible to participate for the calendar year, an Employee must
reasonably be expected to receive at least $____________ (enter a $
amount not in excess of $5,000) in compensation for the calendar year,
and the Employee must have received at least $____________ (enter a $
amount not in excess of $5,000) in compensation during any ____________
(enter 0, 1 or 2) calendar year(s) preceding the calendar year.
D2 Exclusions from Eligibility
All employees of the Employer shall be eligible to participate in the
Plan, except the following classes of employees:
a. [ ] Employees covered under a collective bargaining agreement which
does not provide for participation in the Plan and for which retirement
benefits were the subject of good faith bargaining.
b. [ ] Employees who are nonresident aliens (as defined in Code Section
7701(b)(1)(B)) who receive no U.S. source (as defined in Code
Section 861(a)(3)) earned income (as defined in Code Section
911(d)(2)).
c. [ ] Leased Employees who are not required to be treated as Employees
of the Employer because of participation in a "safe-harbor" plan
described in Code ss.414(n)(5).
2
<PAGE>
LEGG MASON
Salary Reduction Elections
E1 An eligible Employee may elect to reduce his or her Compensation by a
percentage for each pay period. The total amount of salary reduction
for any calendar year may not exceed $6,000 (as indexed by
cost-of-living adjustments in increments of $500). For any Plan year,
an eligible Employee may make or modify a salary reduction election
during the 60-day period immediately preceding the first day of the
Plan year. In addition, the Employee may make salary reduction
contributions to the Plan, during any other period elected below by the
Employer and permitted under applicable law. No salary reduction
election may apply to Compensation that an Employee has received, or
has an immediate right to receive, before making the salary reduction
election.
(OPTIONAL) In addition to the 60-day period preceding each Plan year,
an eligible Employee may make salary reduction elections or modify
prior salary reduction elections to be effective:
[ ] July 1 of each calendar year.
[ ] April 1, July 1 or October 1 of each calendar year.
[ ] The first day of any month during each calendar year.
[ ] On any day during the calendar year.
An eligible Employee may terminate his or her salary reduction election
at any time during the calendar year, but may resume salary reduction
contributions only on the dates specified above.
Contributions
Salary Reduction Contributions. For any Employee who elects salary
reduction contributions, the Employer shall contribute the amount of
the salary reduction contribution to the Employee's Simple IRA.
Employer Contributions. Each calendar year, the Employer will
contribute a Matching Contribution or a Nonelective Contribution to the
Simple IRA of each eligible Employee. (OPTIONAL-leave blank if all
Employees, except those excluded under D2, are eligible to participate
and no minimum level of Compensation is required) For any calendar year
for which the Employer makes a Nonelective Contribution, the Employer
will contribute the Nonelective Contribution to the Simple IRA of any
eligible Employee who receives at least $____________ (enter a $ amount
not in excess of $5,000) in compensation for the calendar year.
Preferred Financial Institution
Legg Mason Wood Walker, Inc. is the preferred financial institution for
receiving contributions made pursuant to the Plan and for depositing
the contributions to the Simple IRA of each eligible Employee upon
receipt of the contributions from the Employer.
However, Legg Mason Wood Walker, Inc. is not designated as the only
financial institution for receiving contributions made pursuant to the
Plan and for depositing the contributions to the Simple IRA of each
eligible Employee upon receipt of the contributions from the Employer.
Therefore, upon the request of any Participant, Legg Mason Wood Walker,
Inc. will transfer the Participant's balance in the Participant's
Simple IRA established with Legg Mason Wood Walker, Inc. under this
Plan to another IRA, but subject to any applicable cost or penalty.
3
<PAGE>
LEGG MASON
By signing this adoption agreement, the employer:
1. Certifies it has consulted with legal counsel regarding the
effects of this plan on all parties;
2. Certifies that, prior to the date an eligible employee becomes
a participant in this plan, a Legg Mason (or other financial
institution) IRA adoption agreement shall have been executed
by the eligible employee and be in effect and that all
contributions to this plan shall be made only to IRAs
maintained pursuant to such agreements.
IN WITNESS WHEREOF, the Employer (and adopting Affiliated
Employers, if any) hereby cause this Plan to be executed this
__________ day of ____________________, 19_____.
<TABLE>
<S> <C>
______________________________________________________ By:____________________________________________________________
Type or Print Affiliated Employer's Name Type or Print Name and Title of Signing Officer:
_______________________________________________________________
______________________________________________________ By:____________________________________________________________
Type or Print Affiliated Employer's Name Type or Print Name and Title of Signing Officer:
_______________________________________________________________
______________________________________________________ By:____________________________________________________________
Type or Print Affiliated Employer's Name Type or Print Name and Title of Signing Officer:
_______________________________________________________________
</TABLE>
Legg Mason Wood Walker, Inc. shall not be bound by the terms of this
Agreement unless a duly authorized representative of Legg Mason Wood
Walker, Inc. executes this Agreement on the space provided below. A
person shall have Legg Mason Wood Walker, Inc.'s consent to the
adoption of the Plan and shall be entitled to rely upon the opinion
letter issued by the Internal Revenue Service approving as acceptable
the form of the Plan only if Legg Mason Wood Walker, Inc. executes this
Agreement and only if, and as long as, the representations of the
Employer made in this Adoption Agreement are, and continue to be, true
and correct.
Legg Mason Wood Walker, Inc.'s Acceptance:
By: ___________________________________________________
Print Name: _______________________________________
Print Title: ______________________________________
Date: _____________________________________________
4
<PAGE>
Legg Mason Wood Walker, Inc.
Savings Incentive Match Plan for Employees
Disclosure Statement
Your Employer has adopted the Legg Mason Wood Walker, Inc. Savings
Incentive Match Plan for Employees ("Simple Plan") for the benefit of its
eligible employees. The information provided below explains what a Simple Plan
is, how contributions are made, and how to treat your Employer's contributions
for tax purposes.
Please read the questions and answers carefully. For more specific
information, also see the Plan and Adoption Agreement.
Questions and Answers
(Section references are to the Internal Revenue Code, unless otherwise
noted.)
1. Q. What is a Simple Plan?
A. A Simple Plan is a retirement income arrangement under which you may
make Salary Reduction Contributions, and your Employer may contribute a Matching
Contribution or a Nonmatching Contribution into your own Individual Retirement
Account/Annuity (IRA). Prior to November 2 of each year, your Employer will tell
you, in writing, whether a Matching Contribution or a Nonmatching Contribution
will be made by the Employer for the next year.
Your Salary Reduction Contributions must equal a percentage of your
Compensation and are limited to no more than $6,000 (subject to indexing each
year) per year.
The Matching Contribution will equal the amount of your Salary Reduction
Contributions for the year, but is limited to no more than 3% of your
Compensation. Prior to November 2 of each year, the Employer may elect to limit
the Matching Contribution to less than 3% of Compensation (but no less than 1%
of Compensation), and will tell you, in writing, the Matching Contribution limit
for the next year.
The Nonmatching Contribution will equal 2% of Compensation of all Employees
eligible to participate in the Plan for the year who receive at least $5,000 (or
such lesser amount elected by the Employer in the Adoption Agreement) of
Compensation from the Employer during the year.
All amounts contributed by the Employer to your IRA belong to you, even
after you separate from employment with the Employer.
2. Q. What is included in my Compensation for the year?
A. Compensation under the Plan means all of your wages paid by the Employer
during the year, which are subject to federal income tax withholding, and
certain Salary Reduction Contributions (for example, Salary Reduction
Contributions to this Plan). Compensation for any Self-Employed Individual means
Earned Income. Compensation is limited each year to an indexed dollar limit,
which is one hundred sixty thousand dollars ($160,000.00) for 1997.
3. Q. How do I treat contributions to the Plan for federal tax purposes?
A. The amount your Employer contributes to the Plan is not subject to tax
and is not reported as taxable wages on your Form W-2 until it is distributed to
you from the Plan. The amount of your Salary Reduction Contributions is not
subject to tax and is not reported as taxable wages on your Form W-2 until it is
distributed to you from the Plan. However, the amount of your Salary Reduction
Contributions is subject to FICA taxes in the year it is contributed to the
Plan.
4. Q. May I also contribute to my IRA if I am a participant in a Simple Plan?
A. Yes. You may still contribute the lesser of $2,000 of 100% of your
Compensation to an IRA. However, the amount of the contribution which is
deductible is subject to certain limitations.
5
<PAGE>
5. Q. Am I required to participate in the Simple Plan?
A. Once you have met the eligibility requirements for the Plan, you
automatically will become a participant in the Plan. However, you are not
required to make Salary Reduction Contributions to the Plan. If you do not make
Salary Reduction Contributions to the Plan, you will only receive an Employer
contribution in those years, if any, that the Employer elects to make a
Nonmatching Contribution to the Plan.
6. Q. Can I move amounts from the IRA which receives the Simple Plan
contributions ("Simple Plan IRA") to another IRA?
A. Yes. If a distribution from the Simple Plan is made during the 2 year
period beginning on the date you first participated in the Salary Reduction
Contribution feature of the Plan, the distribution can be rolled over only to
another Simple Plan IRA. Any other distribution from the Simple Plan can be
rolled over to another Simple Plan IRA or into any other IRA.
7. Q. Can I withdraw the amounts contributed to the Simple Plan IRA?
A. Yes. You may withdraw amounts from the IRA to which the Simple Plan
contributions are made. However, any early distribution (for example, a
distribution before you attain age 59 1/2) from a Simple Plan IRA is subject to
a 10% early distribution excise tax. In addition, if a distribution is made from
a Simple Plan IRA before the second anniversary of the date you first
participated in the Simple Plan, a 25% excise tax is imposed on any early
distribution instead of the 10% early distribution excise tax.
8. Q. May I participate in the Simple Plan if I participate in another plan?
A. Your Employer cannot maintain any other qualified plan at the same time
as the Employer maintains a Simple Plan. However, you may participate in a
qualified plan of another employer at the same time as you participate in your
Employer's Simple Plan. Your Salary Reduction Contributions to the Simple Plan
will be affected by any Salary Reduction Contributions you make to any other
Simple Plan or to any other qualified plan.
9. Q. Do I need to file any additional forms with the IRS because I
participate in a Simple Plan?
A. No.
10. Q. Is my Employer required to provide me with information about Simple Plan
IRA's and the Simple Plan?
A. Yes. Each year, your Employer must provide you with a copy of the Simple
Plan and Adoption Agreement, an Employee Notification, and a Salary Reduction
Agreement. These documents must be provided before November 2 of each year.
11. Q. Is the financial institution where I establish my IRA also required to
provide me with information?
A. Yes. The financial institution must provide you with a disclosure
statement which contains the following items of information in plain
nontechnical language:
(1) The statutory requirements that relate to your IRA;
(2) The tax consequences that follow the exercise of various options and what
those options are;
(3) Participation eligibility rules, and rules on the deductibility and
nondeductibility or retirement savings;
6
<PAGE>
(4) The circumstances and procedures under which you may revoke your IRA,
including the name, address, and telephone number of the person designated to
receive notice of revocation (this explanation must be prominently displayed at
the beginning of the disclosure statement);
(5) Explanations of when penalties may be assessed against you because of
specified prohibited or penalized activities concerning you IRA; and
(6) Financial disclosure information which:
(a) Either projects value growth rates of your IRA under various contribution
and retirement schedules, or describes the method of computing and allocating
annual earnings and charges which may be assessed;
(b) Describes whether, and for what period, the growth projections for the plan
are guaranteed, or a statement of the earnings rate and terms on which the
projection is based; and
(c) States the sales commission to be charged in each year expressed as a
percentage of $1,000.
See Publication 590, "Individual Retirement Arrangements", which is
available at most IRS offices, for a more complete explanation of the disclosure
requirements.
In addition to the disclosure statement, the financial institution is
required to provide you with a financial statement each year. It may be
necessary to retain and refer to statements for more than one year in order to
evaluate the investment performance of your IRA and in order that you will know
how to report IRA distributions for tax purposes.
7
<PAGE>
Notice To Adopting Employer
On August 20, 1996, the President signed The Small Business Job Protection
Act of 1996 (the "Act"). In addition to increasing the minimum wage, the Act
changes several provisions of the Internal Revenue Code which affect retirement
plans sponsored by Employers. One of the most significant changes is the
addition of a new type of retirement arrangement which can be adopted by
Employers--called the "SIMPLE" plan--which replaces the currently permitted
salary reduction SEP retirement arrangement.
The following questions and answers describe the new SIMPLE alternative.
This Guide is intended to highlight, in a useful and understandable way, some of
the alternatives available and issues that should be considered under the new
SIMPLE rules. It is not, and should not be used as, legal or tax advice. The
best alternative for the Employer will depend on individual circumstances. The
Employer should consult with a knowledgeable tax advisor before selecting the
alternative that best meets the Employer's goals.
What is a SIMPLE?
SIMPLE is the acronym for Savings Incentive Match Plan for Employees. A
SIMPLE can be either a part of a 401(k) plan or an IRA for each eligible
employee. There are some differences between a SIMPLE IRA and a SIMPLE 401(k).
The following describes the rules applicable to a SIMPLE IRA.
Who Can Adopt a Simple Plan?
A Simple Plan can be adopted by an Employer with no more than 100 employees
who received compensation from the Employer of at least $5,000 (or such lesser
amount elected by the Employer) during the preceding year. If the Employer meets
the "no more than 100 employees" requirement for at least one year, and then
fails to meet this requirement, the Employer can continue to maintain the Simple
Plan for up to two additional years. The Employer cannot maintain any other
retirement plan, other than a frozen plan, during any year that the Employer
maintains a Simple Plan.
Since 1986, many tax-exempt Employers have been unable to offer a pre-tax
salary reduction feature to employees. Because tax-exempt Employers can adopt a
Simple Plan, for the first time since 1986, these tax-exempt Employers will be
able to implement an employee pre-tax salary reduction feature by adopting a
Simple Plan. Any Employer meeting the requirements described in the preceding
paragraph, including tax-exempt and governmental Employers, can adopt the Simple
Plan.
Who Can Contribute to a Simple Plan?
The only contributions permitted to a Simple Plan are employee salary
reduction contributions--called "elective Employer contributions" under the
Simple Plan rules--and Employer matching or Employer nonmatching contributions.
What Are the Simple Plan Contribution Requirements?
An Employer contribution is required every year under a Simple Plan.
Employee contributions must be expressed as a percentage of compensation and
cannot exceed $6,000 (subject to cost of living adjustments in $500 increments)
in any calendar year. The Employer contribution must be either a matching
contribution equal to 100% of the first 3% of compensation contributed by the
employee, or a nonmatching contribution equal to 2% of compensation of all
employees eligible to participate in the plan who receive at least $5,000 (or
such lesser amount elected by the Employer) of compensation from the Employer
during the year. If the Employer elects to make the 2% nonmatching contribution
for
8
<PAGE>
any year, the Employer must notify participants of this decision within a
reasonable period of time before the November 1 prior to the year.
Under a special rule, the Employer can elect to reduce the 3% matching
contribution to a lesser percentage (but not less than 1%) matching contribution
for a year as long as the reduced matching contribution is not made in more than
2 years out of the 5 year period ending with the year. For purposes of this
rule, the Employer is treated as having made the 3% matching contribution in any
year prior to the year the plan is adopted. If the Employer elects to make the
reduced matching contribution for any year, the Employer must notify
participants of this decision within a reasonable period of time before the
November 1 prior to the year.
Can a Simple Plan Have a Vesting Schedule for Employer Contributions?
No. All contributions to a Simple Plan must be 100% vested when
contributed.
Are There Any Nondiscrimination Rules Applicable to a Simple Plan?
No. If the Employer meets the Simple Plan contribution requirements, the
plan does not need to meet any nondiscrimination requirements for the year.
Are the Top-Heavy Rules Applicable to a Simple Plan?
No. A Simple Plan is exempt from the top-heavy rules which require minimum
contributions and vesting when the "key employee" participants in a qualified
plan hold in their accounts more than 60% of the assets of the plan.
Are There Any Participation Requirements Applicable to a Simple Plan?
Yes. All employees who received at least $5,000 (or such lesser amount
elected by the Employer) in compensation from the Employer during any 2
preceding calendar years, and who reasonable are expected to receive at least
$5,000 (or such lesser amount elected by the Employer) in compensation from the
Employer during the current year must be eligible to participate in the plan.
However, the Employer may exclude from participation in the plan union employees
(who have bargained with respect to retirement benefits), and nonresident aliens
who receive no U.S. source income.
Are There Any Requirements on the Timing of Salary Reduction Contribution
Elections?
A Simple Plan IRA must, at a minimum, permit eligible employees to (1)
make, or modify, salary reduction contribution elections during the 60 day
period before the start of any calendar year, and (2) terminate a salary
reduction agreement at any time during the year. The Employer is permitted to
permit additional changes to salary reduction contributions during the year, but
is not required to do so.
When Must Contributions to a Simple Plan be Made By the Employer?
Salary reduction contributions must be contributed to employees' IRA
accounts no later than 30 days after the end of the month to which the
contributions relate. Employer contributions must be made no later than the date
for filing the Employer's tax return for the year, including extensions.
9
<PAGE>
LEGG
MASON
Does the Early Distribution Excise Tax Apply to Simple Plan Distributions?
Yes. An early distribution (e.g., a distribution before the individual has
attained age 59 1/2) from a Simple Plan is subject to the 10% excise tax on
early distributions. In addition, if a distribution is made from a Simple Plan
IRA before the second anniversary of the date the individual first participated
in the plan, a 25% excise tax is imposed on the distribution. This tax is in
place of, and not in addition to, the 10% early distribution excise tax.
What Are the Annual Reporting Requirements for a Simple Plan?
The Employer's only reporting requirement is to notify eligible employees
of their right to make salary reduction elections immediately before November 1
each year. This notice must include the notice provided by the trustee to the
Employer each year. The trustee must provide to the Employer each year a
description containing (1) the name and address of the Employer and the trustee,
(2) the requirements for eligibility for participation, (3) the benefits
provided with respect to the arrangement, (4) the time and method of making
elections with respect to the Simple Plan, and (5) the procedures for, and
effects of, withdrawals (including rollovers) from the Simple Plan. In addition,
the trustee must file the previously required IRA annual report with the
Secretary of the Treasury and send each Simple Plan participant, by January 30,
a statement with respect to the account balance as of the close of, and any
account activity during, the calendar year.
Are There Different Fiduciary Responsibilities Imposed on a Simple Plan?
The Employer (and any other plan fiduciary) will not be subject to
fiduciary liability resulting from the employee (or beneficiary) exercising
control over the assets in the Simple Plan. For this purpose, an employee (or
beneficiary) is treated as exercising control over the assets in the Simple Plan
upon the earlier of (1) an affirmative election with respect to the initial
investment of any contributions, (2) a rollover contribution (including a
trustee-to-trustee transfer) to another Simple Plan or IRA, or (3) one year
after the Simple Plan is established.
What Are the Rollover Rules for a Simple Plan?
If a distribution from a Simple Plan IRA is made during the 2 year period
beginning on the date the individual first participated in the salary reduction
feature of the Employer's Simple Plan IRA, the distribution can be rolled over
only to another Simple Plan IRA. Any other distribution from a Simple Plan IRA
can be rolled over to another Simple Plan IRA or into any other IRA. A Simple
Plan IRA can accept rollover contributions from another Simple Plan IRA.
When Can An Employer Adopt a Simple Plan?
Under the Act, an Employer can adopt a Simple Plan on or after January 1,
1997. The Act also prohibits the adoption of a new salary reduction SEP on or
after January 1, 1997. Salary reduction SEP's adopted before January 1, 1997 and
SEP's without salary reduction features adopted before, on or after January 1,
1997 still are permitted.
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LEGG MASON
Salary Reduction Agreement
I. Salary Reduction Election
Subject to the requirements of the Simple plan of _____________________,
(name of employer)
I authorize _____% or $_____ (which equals _____% of my current rate of pay) to
be withheld from my pay for each pay period and contributed to my IRA as a
salary reduction contribution.
II. Maximum Salary Reduction
I understand that the total amount of my salary reduction contributions in
any calendar year cannot exceed $6,000.*
III. Date Salary Reduction Begins
I understand that my salary reduction contributions will start as soon as
permitted under the Plan and as soon as administratively feasible or, if later,
__________ (Fill in the date you want the salary reduction contributions to
begin. The date must be after you sign this agreement.)
IV. Negative Election (Check This Election If You Do Not Wish To Make Salary
Reduction Contributions
[ ] I understand that I am permitted to elect salary reduction contributions
to the Simple plan, but I hereby elect not to make any salary reduction
contributions to the Simple plan.
V. Duration of Election
This salary reduction agreement replaces any earlier agreement and will
remain in effect as long as I remain an eligible employee under the Simple Plan
or until I provide my employer with a request to end my salary reduction
contributions or provide a new salary reduction agreement as permitted under the
Simple Plan.
Signature of employee ________________________________________________________
Date: ________________________________________________________________________
*This amount will be adjusted to reflect any annual cost-of-living increases
announced by the IRS.
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BLANK PAGE
12
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LEGG MASON
Notification to Eligible Employees
I. Opportunity to Participate in the Simple Plan
You are eligible to make salary reduction contributions to the Simple Plan.
This notice and the attached documents provide you with information that you
should consider before you decide whether to start, continue, or change your
salary reduction agreement.
II. Employer Contribution Election
For the _____ calendar year, the employer elects to contribute to your
Simple IRA (employer must select either (1), (2), or (3):
[ ] (1) A matching contribution equal to your salary reduction
contributions up to a limit of 3% of your compensation for the year;
[ ] (2) A matching contribution equal to your salary reduction
contributions up to a limit of _____% (employer must insert a number
from 1 to 3 and is subject to certain restrictions) of your
compensation for the year; or
[ ] (3) A nonelective contribution equal to 2% of your compensation
(limited to $160,000)* for the year if you are an employee who makes at
least $______ (employer must insert an amount that is $5,000 or less)
in compensation for the year.
III. Administrative Procedures
If you decide to start or change your salary reduction agreement, you must
complete the salary reduction agreement and return it to _____________________
________________ (employer should designate a place or individual) by __________
(employer should insert a date that is not less than 60 days after notice is
given.)
* This amount will be adjusted to reflect any annual cost-of-living
adjustments announced by the IRS.
<PAGE>
BLANK PAGE
14
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LEGG MASON
Legg Mason Wood Walker, Inc.
Simplified Employee Pension Plan Contribution Transmittal
This contribution is for A. The calendar year beginning in 199__.
B. The Employer's fiscal year beginning on
________________________ and ending on
Month Year
________________________.
Month Year
Employer Name ________________________________________
Employer Address _____________________________________
Telephone (______)___________________________________
<TABLE>
<CAPTION>
Amount of Amount of
Employee Name Account Number Employee Contribution Employer Contribution
<S> <C>
1. ______________________________________________________________ $____________________________ $________________________
2. ______________________________________________________________ $____________________________ $________________________
3. ______________________________________________________________ $____________________________ $________________________
4. ______________________________________________________________ $____________________________ $________________________
5. ______________________________________________________________ $____________________________ $________________________
6. ______________________________________________________________ $____________________________ $________________________
7. ______________________________________________________________ $____________________________ $________________________
8. ______________________________________________________________ $____________________________ $________________________
9. ______________________________________________________________ $____________________________ $________________________
10. ______________________________________________________________ $____________________________ $________________________
11. ______________________________________________________________ $____________________________ $________________________
12. ______________________________________________________________ $____________________________ $________________________
13. ______________________________________________________________ $____________________________ $________________________
14. ______________________________________________________________ $____________________________ $________________________
15. ______________________________________________________________ $____________________________ $________________________
16. ______________________________________________________________ $____________________________ $________________________
17. ______________________________________________________________ $____________________________ $________________________
18. ______________________________________________________________ $____________________________ $________________________
19. ______________________________________________________________ $____________________________ $________________________
20. ______________________________________________________________ $____________________________ $________________________
21. ______________________________________________________________ $____________________________ $________________________
22. ______________________________________________________________ $____________________________ $________________________
23. ______________________________________________________________ $____________________________ $________________________
24. ______________________________________________________________ $____________________________ $________________________
25. ______________________________________________________________ $____________________________ $________________________
$____________________________ $________________________
Total of Employee Total of Employer
Contributions Contributions
Please remit this completed Transmittal Form with a check for the total contributions to: $_________________________
Legg Mason Investment Executive Total of All Contributions
</TABLE>
15
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BLANK PAGE
16
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LEGG MASON
Legg Mason Wood Walker, Inc.
Savings Incentive Match Plan
[LEGG MASON LOGO]
<PAGE>
Savings Incentive Match Plan for Employees
Basic Plan Document
This Plan is intended to meet the requirements for a Savings Incentive
Match Plan for Employees ("Simple Plan") under Code Section 408(p), as amended
from time to time, and, to the extent applicable, the requirements under the
Act, as amended from time to time. This Simple Plan must be used with Simple
IRAs.
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Article I
Definitions
1.1 ACT means the Employee Retirement Income Security Act of 1974, as it
may be amended from time to time.
1.2 ADOPTION AGREEMENT means the separate agreement executed by the
Employer which sets forth the elective provisions of the Plan as specified by
the Employer.
1.3 AFFILIATED EMPLOYER means the Employer and any corporation which is a
member of a controlled group of corporations (as defined in Code Section 414(b))
which includes the Employer; any trade or business (whether or not incorporated)
which is under common control (as defined in Code Section 414(c)) with the
Employer; any organization (whether or not incorporated) which is a member of an
affiliated service group (as defined in Code Section 414(m)) which includes the
Employer; and any other entity required to be aggregated with the Employer
pursuant to Regulations under Code Section 414(o).
1.4 CODE means the Internal Revenue Code of 1986, as it may be amended from
time to time.
1.5 COMPENSATION means all of a Participant's wages from the Employer,
which are subject to federal income tax withholding, and certain elective
deferrals (e.g., salary reduction contributions to this Plan, and to any Code
Section 457 plan) as described in paragraphs (3) and (8) of Section 6051(a) of
the Code.
Compensation for any Self-Employed Individual means his or her Earned
Income.
Compensation shall include only that Compensation which actually is paid to
the Participant during the Plan Year.
For purposes of the Employer Nonelective Contribution, the Compensation of
any Participant taken into account under the Plan for any year may not exceed
the dollar limit under Code Section 401(a)(17). This dollar limitation shall be
adjusted automatically at the same time and in the same manner as any
cost-of-living adjustment made by the Secretary of the Treasury under Code
Section 415(d) (as modified by Code Section 401(a)(17)). The Code Section
401(a)(17) dollar limit is one hundred sixty thousand dollars ($160,000.00) for
1997.
1.6 EARNED INCOME means, with respect to a Self-Employed Individual, the
net earnings from self-employment in the trade or business with respect to which
the Plan is established for which the personal services of the individual are a
material income-producing factor, determined under Code Section 1402(a) prior to
subtracting any contributions made pursuant to this Plan on behalf of the
individual.
1.7 EFFECTIVE DATE means the date the Plan becomes effective as indicated
in the Adoption Agreement.
1.8 ELECTION PERIOD means the period during which a Participant may make a
salary reduction contribution election under the Plan. The Election Period shall
be the period or periods specified in the Adoption Agreement and shall include
(i) the sixty (60) day period immediately before the beginning of any Plan Year
and the sixty (60) day period immediately before the first day such Participant
is eligible to participate or any shorter period as may be allowed under rules
or procedures promulgated by the Internal Revenue Service, and (ii) any other
periods designated by the Employer.
1.9 ELIGIBLE EMPLOYEE means any Employee of the Employer, except those
Employees excluded from participation in the Plan as specified in the Adoption
Agreement.
1.10 ELIGIBLE EMPLOYER means an Employer who, for the Plan Year, has no
more than one hundred (100) Employees who received at least five thousand
dollars ($5,000) of Compensation from the Employer for the preceding Plan Year,
and who maintains no other qualified plan (as defined in Code Section
219(g)(5)(A) or (B)) with respect to which contributions were made, or benefits
were accrued, for service in any Plan Year in the period beginning with the Plan
Year this Plan became effective and ending with the Plan Year for which the
determination is being made. In addition, an Eligible Employer who establishes
and maintains a Simple Plan for one or more Plan Years and who fails to be an
Eligible Employer for any subsequent Plan Year, because the Employer fails to
have no more than one hundred (100) Employees who received at least five
thousand dollars ($5,000) from the Employer for the preceding Plan Year, shall
be
19
<PAGE>
treated Eligible Employer. If such failure is due to any acquisition,
disposition, or similar transaction involving an Eligible Employer, the
preceding sentence shall apply only in accordance with rules similar to the
rules of Code Section 410(b)(6)(C)(i).
1.11 EMPLOYEE means any person who is employed by the Employer and any
Self-Employed Individual who performs services with respect to the trade or
business of the Employer, including any person employed by any Affiliated
Employer. In addition, Employee shall include leased employees (as defined in
Code Section 414(n)), unless such leased employees are not required to be
treated as Employees because of participation in a "safe-harbor" plan (as
defined in Code Section 414(n)(5)) and because such leased employees do not
constitute more than twenty percent (20%) of the Employer's nonhighly
compensated workforce (as defined in Code Section 414(n)(5)).
1.12 EMPLOYER means the entity as specified in the Adoption Agreement, any
Affiliated Employer, any successor which shall maintain this Plan and any
predecessor which has maintained this Plan.
1.13 EMPLOYER CONTRIBUTION means the amount contributed by the Employer to
this Plan, and any amounts which are treated as made by the Employer on behalf
of leased employees pursuant to Code Section 414(n)(1).
1.14 EMPLOYER MATCHING CONTRIBUTION means an Employer Contribution made
pursuant to this Plan on behalf of a Participant on account of a Salary
Reduction Contribution made by such Participant, as described in Section 3.2B of
the Plan.
1.15 EMPLOYER NONELECTIVE CONTRIBUTION means an Employer Contribution made
pursuant to this Plan as described in Section 3.2C of the Plan.
1.16 PARTICIPANT means any Eligible Employee who has met the eligibility
requirements specified in the Adoption Agreement and the Plan.
1.17 PLAN means this plan document and the Adoption Agreement as adopted by
the Employer.
1.18 PRIOR PLAN means a Simple plan which was amended or replaced by
adoption of this Plan.
1.19 PLAN SPONSOR means Legg Mason Wood Walker, Inc. and any successor
which sponsors this Plan.
1.20 PLAN YEAR means the calendar year, or, for the first Plan Year, any
shorter period which begins on the Effective Date and ends on the following
December 31.
1.21 SALARY REDUCTION AGREEMENT means an agreement, on a form provided by
the Employer, pursuant to which an Eligible Employee may elect to have his or
her Compensation reduced and contributed to the Participant's Simple IRA.
1.22 SALARY REDUCTION CONTRIBUTIONS means contributions made by the
Employer to the Plan on behalf of an Eligible Employee pursuant to Section 3.1
of the Plan.
1.23 SELF-EMPLOYED INDIVIDUAL means an individual who has Earned Income for
the taxable year from the trade or business for which the Plan is established,
and, also, an individual who would have had Earned Income but for the fact that
the trade or business had no net profits for the taxable year.
1.24 SIMPLE IRA means the Individual Retirement Account or Annuity (IRA)
established for each Participant in the Plan, which satisfies the requirements
of Code Section 408(a) or 408(b) of the Code, and to which Plan contributions
are made and to which the only contributions allowed are contributions under a
Simple plan. The Employer shall establish a Simple IRA on behalf of any Eligible
Employee not having established one previously and shall communicate to the
Eligible Employee the name and address of the institution at which the IRA has
been established. The Participant may make withdrawals from his or her Simple
IRA at any time, subject to the rules governing premature and other
distributions from a Simple IRA. The Participant at all times shall be one
hundred percent (100%) vested in all contributions to the Simple IRA.
1.25 TRUSTEE means the trustee or custodian for the Participant's Simple
IRA.
20
<PAGE>
Article II
Eligibility and Participation
2.1 Eligibility Requirements
Each Eligible Employee of the Employer who fulfills the eligibility
requirements specified in the Adoption Agreement shall become a Participant on
the first day of the Plan Year in which he or she met such requirements. Each
Participant must establish a Simple IRA to which Contributions under this Plan
will be made.
2.2 Participation
A. Notification of Eligibility.
Each Plan Year, the Employer shall notify each Eligible Employee of his or
her eligibility to make Salary Reduction Contributions to the Plan and to
receive Employer Contributions under the Plan. This notification shall occur no
later than the November 2 preceding the Plan Year.
B. Establishment of a Simple IRA.
If a Participant fails to establish a Simple IRA for whatever reason, the
Employer may execute any necessary documents to establish a Simple IRA on behalf
of the Participant.
2.3 Participation Requirements
A. Enrollment Requirements.
Each Eligible Employee who wishes to enroll as a Participant must complete,
sign and deliver to the Employer a Salary Reduction Agreement during the
Election Period. In addition, the Employer in a uniform and nondiscriminatory
manner may provide additional opportunities for an Eligible Employee to enroll
as Participant in accordance with procedures established by the Employer.
B. Modification of Salary Reduction Agreements.
A Participant may modify his or her Salary Reduction Agreement to increase
or decrease the amount of his or her Compensation deferrals into his or her
Simple IRA under the Plan. A Participant who wishes to make such a modification
shall complete, sign and file a new Salary Reduction Agreement with the Employer
during the Election Period. In addition, if the Employer in a uniform and
nondiscriminatory manner permits, a Participant may modify his or her Salary
Reduction Agreement more frequently in accordance with procedures established by
the Employer.
C. Cessation of Salary Reduction Contributions.
A Participant may cease his or her Salary Reduction Contributions at any
time during the Plan Year by revoking his or her Salary Reduction Election, in
writing, provided to the Employer. A Participant's Salary Reduction
Contributions shall cease upon his or her termination of employment, or upon
termination of the Plan, if earlier.
D. Recommencement of Salary Reduction Contributions.
A Participant who has ceased his or her Salary Reduction Contributions
during the Plan Year, may not recommence his or her Salary Reduction
Contributions until the first day of the first Plan Year following the effective
date of his or her cessation of Salary Reduction Contributions, unless the
Employer, in a uniform and nondiscriminatory manner, permits such recommencement
at an earlier date.
2.4 Determinations Under This Section
The Employer shall determine each Employee's eligibility under the Plan.
This determination shall be conclusive and binding upon all persons except as
otherwise provided herein or by law.
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Article III
Contributions and Allocation
3.1 Salary Reduction Contributions
At the election of an Eligible Employee, the Employer shall contribute
Salary Reduction Contributions to the Simple IRA of such Eligible Employee.
Salary Reduction Contributions for an Eligible Employee shall be contributed to
the Participant's Simple IRA by the Employer no later than the thirtieth (30th)
day following the last day of the month with respect to which the contributions
are made. Thus, for example, amounts that an Eligible Employee elects to defer
with respect to the month of March of a Plan Year must be contributed by the
Employer to the Eligible Employee's Simple IRA not later than the following
April 30th.
3.2 Employer Contributions
A. Required Contributions.
Each Plan Year, the Employer shall make either the Matching Contribution
described in Section 3.2B or the Nonelective Contribution described in Section
3.2C to the Simple IRAs of Participants. Such contributions for any Plan Year
shall be made not later than the due date for filing the Employer's tax return,
including extensions, for the taxable year that includes the last day of the
calendar year for which the contributions are made.
B. Matching Contributions.
The Employer may satisfy the requirements set forth in Section 3.2A by
making a Matching Contribution to the Simple IRA of each Eligible Employee for
the Plan Year in an amount equal to the amount of the Eligible Employee's Salary
Reduction Contribution, not in excess of three percent (3%) of the Eligible
Employee's Compensation for the Plan Year (the "Matching Contribution
percentage"). Instead of the three percent (3%) Matching Contribution percentage
referred to in the previous sentence, the Employer may elect to apply a lower
Matching Contribution percentage (not less than one percent (1%)) for any Plan
Year for all Eligible Employees if the Employer notifies the Eligible Employees
within a reasonable period of time before the Election Period for such Plan Year
that the Employer will be making the lower rate of Matching Contribution. The
Employer may not elect a lower Matching Contribution percentage for any Plan
Year if that election would result in the Matching Contribution percentage being
lower than three percent (3%) in more than two (2) of the Plan Years in the five
(5) year period ending with such Plan Year. The Employer shall be treated as if
the Matching Contribution percentage was equal to three percent (3)% of
Compensation for any year prior to the year the Plan (or any Prior Plan) first
is effective.
C. Nonelective Contribution.
The Employer may satisfy the requirement set forth in Section 3.2A by
making a Nonelective Contribution of two percent (2%) of Compensation to the
Simple IRA of each Participant who has at least five thousand dollars ($5,000)
of Compensation (or such lesser amount of Compensation as may be specified in
the Adoption Agreement) from the Employer for the Plan Year provided the
Employer notifies the Employees eligible to participate in the Plan within a
reasonable period of time before the Election Period for such Plan Year that the
Employer will be making a Nonelective Contribution.
3.3 No Other Contributions
The Employer shall make no contributions to the Simple IRAs of Participants
other than Salary Reduction Contributions made pursuant to Section 3.1 and those
contributions required under Section 3.2. Nothing herein shall prevent an
Employee from rolling over or transferring funds from another Simple IRA to a
Simple IRA maintained under this Plan.
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3.4 Vesting and Withdrawal Rights
All Employer Contributions made under the Plan on behalf of Employees shall
be fully vested and nonforfeitable at all times. Each Employee shall have an
unrestricted right to withdraw at any time all or a portion of Contributions
made on his or her behalf to his or her Simple IRA. However, withdrawals are
subject to the taxation and penalty provisions of the Code which are applicable
to distributions from SIMPLE-IRAs.
An amount withdrawn from the Simple-IRA generally is includible in gross
income. However, a Simple-IRA balance may be rolled over or transferred on a
tax-free basis to another Simple IRA. In addition, an individual may roll over
or transfer his or her Plan balance to any IRA on a tax-free basis after a two
(2) year period has expired since the individual first participated in the Plan.
Any rollover or transfer must comply with the requirements under Section 408 of
the Code.
If an individual withdraws an amount from the Plan during the two (2) year
period beginning when the individual first participated in the Plan and the
amount is subject to the additional tax on early distribution under Section
72(t) of the Code, this additional tax is increased from ten percent (10%) to
twenty five percent (25%).
3.5 Simplified Employer Reports
The Employer shall furnish reports, relating to account activity under the
Plan, in the time and manner and containing the information prescribed by the
Secretary of the Treasury. The Employer shall furnish information to the
trustee, custodian or issuer of Simple IRAs of Participants as such trustee,
custodian or issuer may reasonably request to enable it to fulfill its reporting
and other responsibilities in connection with this Plan or the Simple IRAs of
Participants.
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Article IV
Amendment or Termination of Plan
4.1 Amendment by Employer
The Employer reserves the right to amend the elections made or not made on
the Adoption Agreement by executing a new Adoption Agreement and delivering a
copy of the same to the Plan Sponsor. The Employer shall not have the right to
amend any nonelective provision of the Adoption Agreement nor the right to amend
provisions of this plan document. If the Employer adopts an amendment to the
Adoption Agreement or plan document in violation of the preceding sentence, the
Plan will be deemed to be an individually designed plan and the Employer no
longer may participate in this Plan.
4.2 Amendment by Plan Sponsor
By adopting this Plan, the Employer delegates to the Plan Sponsor the power
to amend or replace the Adoption Agreement or the Plan to conform them to the
provisions of any law, regulations or administrative rulings pertaining to
Simple plans and to make such other changes to the Plan, which, in the judgment
of the Plan Sponsor, are necessary or appropriate. The Employer shall be deemed
to have consented to all such amendments; provided however, that no changes may
be made without the consent of the Employer if the effect would be to
substantially change the costs or benefits under the Plan. The Plan Sponsor
shall not have the obligation to exercise or not to exercise the power delegated
hereunder. The Plan Sponsor shall notify the Employer should it discontinue
sponsorship of the Plan.
4.3 Limitations on Power to Amend
No amendments by either the Employer or the Plan Sponsor shall reduce or
otherwise adversely affect any benefits of a Participant acquired prior to such
amendment unless it is required to maintain compliance with any law, regulation
or administrative ruling pertaining to Simple plans.
4.4 Termination
While the Employer expects to continue the Plan indefinitely, the Employer
shall not be under any obligation or liability to continue contributions or to
maintain the Plan for any given length of time. The Employer may terminate the
Plan at any time by appropriate action of its managing body. This Plan shall
terminate on the adjudication of the Employer as bankrupt or the liquidation or
dissolution of the Employer.
4.5 Notice of Amendment, Termination
Any amendment or termination shall be communicated by the Employer to all
appropriate parties as required by law. Amendments made by the Plan Sponsor
shall be furnished to the Employer and communicated by the Employer to all
appropriate parties as required by law. Any filings required by the Internal
Revenue Service or any other regulatory body relating to the amendment or
termination of the Plan shall be made by the Employer.
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4.6 Continuance of Plan by Successor Employer
A successor of the Employer may continue the Plan and be substituted in
place of the Employer. The successor and the Employer (or if deceased, the
executor of the estate of a deceased Self-Employed Individual who was the
Employer) must execute a written instrument authorizing such substitution and
the successor must complete and sign a new Adoption Agreement.
4.7 Sending of Notices by U.S. Mail
Any notice required under this Plan may be provided by U.S. mail. If
mailed, a notice will be considered effective at the time it is mailed to the
last known address of the intended recipient which is on file with the provider
of the notice.
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Article V
Miscellaneous
5.1 No Right to Employment
Nothing contained in the Plan shall be construed as a contract of
employment between the Employer and the Employee, nor shall anything contained
in the Plan give any Employee any rights of continued employment with the
Employer or limit the right of the Employer to discharge any Employee with or
without cause. Participation in this Plan shall not give any person the right to
be retained in the employ of the Employer, or any right or interest in this Plan
other than as herein provided.
5.2 Headings
The headings and sub-headings in this instrument are inserted for
convenience of reference only and are not to be considered in construing the
provisions hereof.
5.3 Counterparts
This Plan may be executed in any number of counterparts, each of which
shall be deemed an original, and said counterparts shall constitute but one and
the same instrument, which may be sufficiently evidenced by any one counterpart.
5.4 Governing Law
This Plan shall be construed, administered and governed in all respects
under and by the laws of the State of Maryland, except to the extent Maryland
law shall have been preempted by ERISA.
5.5 Rules and Regulations
By becoming a Participant, every Participant shall thereby be deemed to
have agreed to abide by the rules and regulations established in accordance with
this Plan, and to sign all papers necessary for the compliance therewith.
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<TABLE>
<S> <C>
07
Internal Revenue Service Department of the Treasury
Prototype SEP with Salary Reduction Feature 002
FFN: 50436980700-002 Case: 9380093 EIN: 52-0902557 Washington, DC 20224
Letter Serial No: D411188a
Person to Contact: Ms. Arrington
(right arrow) LEGG MASON WOOD WALKER INC
Telephone Number: (202) 566-6814
111 SOUTH CALVERT STREET
Refer Reply to: E:EP:Q:0
BALTIMORE, MD 21202
Date: 02/22/93
</TABLE>
Dear Applicant:
In our opinion, the form of your Simplified Employee Pension (SEP) arrangement
is acceptable under section 408(k) of the Internal Revenue Code. This SEP
arrangement is approved for use only in conjunction with an Individual
Retirement Arrangement (IRA) which meets the requirements of Code section 408
and has received a favorable opinion letter, or a model IRA (Forms 5305 and
5305-A).
Employers who adopt this approved plan will be considered to have a retirement
savings program that satisfies the requirements of Code section 408 provided
that it is used in conjunction with an approved IRA. Please provide a copy
of this letter to each adopting employer.
Code section 408(l) and related regulations require that employers who adopt
this SEP arrangement furnish employees in writing certain information about
this SEP arrangement and annual reports of savings program transactions.
Your program may have to be amended to include or revise provisions in order
to comply with future changes in the law or regulations.
If you have any questions concerning IRS processing of this case, call us at
the above telephone number. Please refer to the Letter Serial Number and File
Folder Number shown in the heading of this letter. Please provide those
adopting this plan with your phone number, and advise them to contact your
office if they have any questions about the operation of this plan.
You should keep this letter as a permanent record. Please notify us if you
terminate the form of this plan.
Sincerely yours,
/s/ John Swieca
-------------------------
John Swieca
Chief, Employee Plans
Qualifications Branch
<PAGE>
Employer Guidelines
The following steps must be taken by an adopting Employer prior to
this Simple Plan becoming effective:
Step One: Each employee who will be eligible to participate in the
Simple Plan must complete and execute a Legg Mason IRA Adoption
Agreement and such Adoption Agreement must be accepted by Legg Mason,
as Custodian.
Step Two: The Employer must complete and execute the Adoption
Agreement for Legg Mason Wood Walker, Inc. Savings Incentive Match
Plan for Employees ("Simple Plan") and such Adoption Agreement must
be accepted by Legg Mason.
Step Three: The Employer should distribute to eligible employees the
Legg Mason Wood Walker, Inc. Savings Incentive Match Plan for
Employees and Adoption Agreement, and Employee Notification and
Salary Reduction Agreement.
The following steps should be taken by a sponsoring employer each
year with respect to the Simple Plan:
Step One: Notify employees before November 1 of the Employer
contribution for the next year using the Notification to Eligible
Employees. Include with this Notice, a copy of the Simple Plan, the
Adoption Agreement and a Salary Reduction Agreement.
Step Two: Make the salary reduction contributions for each month, no
later than the 30th day after the end of the month.
Step Three: Determine and make the required employer contributions
for the year and notify participating employees of the amount of such
contributions.
Legg Mason, Inc., provides securities brokerage, investment advisory,
corporate and public finance, and mortgage banking services to
individuals, institutions, corporations, and municipalities. We serve
our brokerage clients through over 90 offices.
As investment advisors, we manage more than $23 billion in assets for
private accounts and mutual funds. Our mortgage banking subsidiaries
have direct and master servicing responsibility for $12 billion of
commercial mortgages.
Legg Mason, Inc., provides securities brokerage, investment advisory,
corporate and public finance, and mortgage banking services to
individuals, institutions, corporations, and municipalities. We serve
our brokerage clients through over 90 offices.
As investment advisors, we manage more than $23 billion in assets for
private accounts and mutual funds. Our mortgage banking subsidiaries
have direct and master servicing responsibility for $12 billion of
commercial mortgages.
Exhibit 16
Cash Reserve Trust Yield Calculations:
1. 7 day yield at 8/31/97 annualized:
[7 days dividends ended 8/31/97 / 7 x 365]
__________________________________________
$1.00 (NAV)
(.000925018 / 7 x 365) = 4.82%
______________________
1.00
2. Effective yield:
365
___
[base period return + 1] 7 - 1 =
365
___
(.000925018 + 1) 7 - 1 = 4.93%
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000276300
<NAME> LEGG MASON CASH RESERVE TRUST
<MULTIPLIER> 1000
<S> <C>
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<PERIOD-START> SEP-01-1996
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<INVESTMENTS-AT-VALUE> 1,312,182
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<NUMBER-OF-SHARES-SOLD> 4,784
<NUMBER-OF-SHARES-REDEEMED> (4,724)
<SHARES-REINVESTED> 58
<NET-CHANGE-IN-ASSETS> 118,158
<ACCUMULATED-NII-PRIOR> 0
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<EXPENSE-RATIO> 0.75
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</TABLE>
