As filed with the Securities and Exchange Commission on April 30, 1997.
1933 Act File No. 2-78562
1940 Act File No. 811-3526
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
-------------------------
FORM N-lA
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No: [ ]
------
Post-Effective Amendment No: 20 [X]
----
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No: 18
LEGG MASON TAX EXEMPT TRUST, INC.
(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. BACIAGALUPO ARTHUR C. DELIBERT, ESQ.
111 South Calvert 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:
[ ] immediately upon filing pursuant to Rule 485(b)
[X] on May 1, 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.
Registrant has filed a declaration pursuant to Rule 24f-2 under the Investment
Company Act of 1940 and filed the notice required by such Rule for its most
recent fiscal year on February 27, 1997.
<PAGE>
Legg Mason Tax-Exempt Trust, Inc.
Contents of Registration Statement
This registration statement consists of the following papers and documents.
Cover Sheet
Table of Contents
Cross Reference Sheet
Part A - Prospectus
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
<PAGE>
Legg Mason Tax Exempt Trust, Inc.
Form N-1A Cross Reference Sheet
Part A Item No. Prospectus Caption
- --------------- ------------------
1 Cover Page
2 Prospectus Highlights;
Fund Expenses
3 Financial Highlights;
Performance Information
4 The Fund's Investment Objective
and Policies;
Description of the Corporation and Its Shares
5 Fund Expenses;
Dividends;
The Fund's Management and Investment Adviser;
The Fund's Distributor;
The Fund's Custodian and Transfer Agent
6 Prospectus Highlights;
Dividends;
Shareholder Services;
Tax Treatment of Dividends;
How Your Shareholder Account Is Maintained;
Description of the Corporation and Its Shares
7 How You Can Invest In the Fund;
How Your Shareholder Account Is Maintained;
How Net Asset Value Is Determined;
The Fund's Distributor
8 How You Can Redeem Your Fund Shares
9 Not Applicable
<PAGE>
Legg Mason Tax Exempt Trust, Inc.
Form N-1A Cross Reference Sheet
Statement of Additional
Part B Item No. Information Caption
- --------------- -----------------------
10 Cover Page
11 Table of Contents
12 Not Applicable
13 Additional Information About Investment
Objectives, Limitations and Policies;
Portfolio Transactions and Brokerage
14 The Corporation's Directors and Officers
15 The Corporation's Directors and Officers
16 The Corporation's Independent Accountants;
The Corporation's Custodian and Transfer and
Dividend - Disbursing Agent;
The Fund's Investment Adviser;
The Fund's Distributor
17 Portfolio Transactions and Brokerage
18 Not Applicable
19 Valuation of Shares;
Additional Purchase and Redemption
Information
20 Additional Tax Information
21 Portfolio Transactions and Brokerage;
The Fund's Distributor
22 How the Fund's Yield is Calculated
23 Financial Statements
<PAGE>
TABLE OF CONTENTS
Prospectus Highlights 2
Expenses 3 PROSPECTUS
Financial Highlights 4 MAY 1, 1997
Performance Information 5
Investment Objectives and
Policies 6
How You Can Invest in the Fund 8
How Your Shareholder Account is LEGG MASON
Maintained 10 TAX
How You Can Redeem Your Fund Shares 10 EXEMPT
How Net Asset Value is Determined 11 TRUST, INC.
Dividends 11
Tax Treatment of Dividends 12
Shareholder Services 12
The Fund's Management and Investment
Adviser 13
The Fund's Distributor 13
The Fund's Custodian and Transfer Agent 14
Description of the Corporation and Its
Shares 14
PUTTING YOUR FUTURE FIRST
ADDRESSES
DISTRIBUTOR:
Legg Mason Wood Walker, Inc.
111 South Calvert 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 ACCOUNTANTS:
Coopers & Lybrand L.L.P.
217 East Redwood Street, Baltimore, Maryland 21202
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 FUND OR ITS DISTRIBUTOR. THE PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY THE FUND OR BY THE PRINCIPAL UNDERWRITER IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
[Recycled Logo] PRINTED ON RECYCLED PAPER
LMF-015
<PAGE>
THE LEGG MASON TAX EXEMPT TRUST, INC.
PROSPECTUS
Legg Mason Tax Exempt Trust, Inc. ("Corporation") is a money market
fund seeking to produce high current income exempt from federal income
tax, to preserve capital, and to maintain liquidity.
The Corporation offers a single portfolio ("Fund"), which normally
invests primarily in short-term, high-quality municipal obligations, the
interest on which is exempt from federal income tax and is not a tax
preference item for purposes of the federal alternative minimum tax
("TPI"). Shares in the Fund are issued and redeemed at net asset value,
without an initial sales charge or redemption fee. AN INVESTMENT IN THE
FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. ALTHOUGH
THE FUND ATTEMPTS TO MAINTAIN A CONSTANT NET ASSET VALUE OF $1.00 PER
SHARE, THERE CAN BE NO ASSURANCE THAT THE FUND WILL ALWAYS BE ABLE TO DO
SO.
This Prospectus sets forth concisely the information about the Fund
that a prospective investor should know before investing. It should be
retained for future reference. A Statement of Additional Information about
the Fund dated May 1, 1997 has been filed with the Securities and Exchange
Commission ("SEC") and, as amended or supplemented from time to time, is
incorporated herein by reference. The Statement of Additional Information
is available without charge upon request from Legg Mason Wood Walker,
Incorporated ("Legg Mason"), the Fund's distributor (address and telephone
number listed at right).
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY,
ANY BANK OR OTHER DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE
FDIC, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT
INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Dated: May 1, 1997
Legg Mason Wood Walker, Inc.
111 South Calvert Street
P.O. Box 1476
Baltimore, MD 21203-1476
410 (Bullet) 539 (Bullet) 0000
800 (Bullet) 822 (Bullet) 5544
<PAGE>
PROSPECTUS HIGHLIGHTS
THE LEGG MASON TAX EXEMPT TRUST, INC.
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 Fund is a no-load, open-end, diversified management investment
company. You may purchase or redeem shares of the Fund through a brokerage
account with Legg Mason or certain of its affiliates. See "How You Can
Invest in the Fund," page 8, and "How You Can Redeem Your Fund Shares,"
page 10.
FUND STARTED:
July 14, 1983
NET ASSETS:
Over $308 million as of March 31, 1997
INVESTMENT OBJECTIVES AND POLICIES:
The Fund's investment objectives are to produce high current income
exempt from federal income tax, to preserve capital, and to maintain
liquidity. The Fund normally attempts to meet these investment objectives
by investing its assets primarily in short-term, high-quality municipal
obligations, the interest on which is exempt from federal income tax and
is not a TPI. Of course, there can be no assurance that the Fund will
achieve its objectives. See "Investment Objectives and Policies," page 6.
DISTRIBUTOR:
Legg Mason Wood Walker, Incorporated
MANAGEMENT AND ADVISER:
Legg Mason Fund Adviser, Inc. serves as the Fund's manager and
investment adviser.
TRANSFER AND SHAREHOLDER SERVICING AGENT:
Boston Financial Data Services
CUSTODIAN:
State Street Bank and Trust Company
EXCHANGE PRIVILEGE:
All funds in the Legg Mason Family of Funds. See "Exchange Privilege,"
page 12.
YIELD:
Varies with current tax-exempt money market rates; quoted in the
financial section of most major newspapers.
DIVIDENDS:
Declared daily and paid monthly.
REINVESTMENT:
All dividends are automatically reinvested in Fund 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 Fund," page 8.
PUBLIC OFFERING PRICE PER SHARE:
Net asset value, which the Fund seeks to maintain at $1.00 per share.
CHECKWRITING:
Available to qualified shareholders upon request. Unlimited number of
checks. Minimum amount per check: $250.
2
<PAGE>
EXPENSES
The purpose of the following table is to assist an investor in understanding
the various costs and expenses that an investor in the Fund will bear directly
or indirectly. The expenses and fees set forth in the table are based on average
net assets and annual Fund operating expenses for the year ended December 31,
1996.
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management fees 0.50 %
12b-1 fees 0.10 %(A)
Other expenses 0.14 %
----
Total operating expenses 0.74 %
====
(A) Effective January 10, 1997, the Fund began compensating Legg Mason for
distribution costs and services at an annual rate equal to 0.10% of its
average daily net assets. 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. If the full amount of the fee were
paid, 12b-1 fees would be 0.20% and total operating expenses would be 0.84%.
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) full redemption at the end of each time period. The Fund charges
no redemption fees of any kind.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
___________________________________________
$8 $24 $41 $92
This example assumes that all dividends are reinvested and that the
percentage amounts listed under "Annual Fund 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 FUND'S PROJECTED OR ACTUAL PERFORMANCE. THE ABOVE TABLES SHOULD
NOT BE CONSIDERED REPRESENTATIONS OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN. The Fund's actual expenses will depend
upon, among other things, the level of average net assets, the levels of sales
and redemptions of shares, and the extent to which the Fund incurs variable
expenses, such as transfer agency costs.
3
<PAGE>
FINANCIAL HIGHLIGHTS
The financial information in the table below has been audited by
Coopers & Lybrand L.L.P., independent accountants. The Fund's financial
statements for the year ended December 31, 1996 and the report of Coopers &
Lybrand L.L.P. thereon are included in the Fund'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 DECEMBER 31,
------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989
------------------------------------------------------------------------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
year $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
-----------------------------------------------------------------------------------
Net investment income .0282 .0313 .0223 .0174 .0231 .0386 .0518 .0571
Dividends paid from net
investment income (.0282) (.0313) (.0223) (.0174) (.0231) (.0386) (.0518) (.0571)
-----------------------------------------------------------------------------------
Net asset value, end of year $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
===================================================================================
Total return 2.85% 3.17% 2.25% 1.75% 2.34% 3.93% 5.30% 5.86%
RATIO/SUPPLEMENTAL DATA:
Ratios to average net
assets:
Total expenses(A) .64% .66% -- -- -- -- -- --
Net expenses(B) .64% .65% .65% .69% .73% .69% .70% .72%
Net investment
income 2.82% 3.14% 2.23% 1.74% 2.33% 3.88% 5.18% 5.69%
Net assets, end of
year (in
thousands) $ 278,492 $ 224,656 $ 222,490 $ 237,611 $ 170,046 $ 176,752 $ 183,756 $ 159,815
<CAPTION>
1988 1987
--------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
year $1.00 $1.00
----------------
Net investment income .0464 .0392
Dividends paid from net
investment income (.0464) (.0392)
----------------
Net asset value, end of year $1.00 $1.00
================
Total return 4.74% 3.99%
RATIO/SUPPLEMENTAL DATA:
Ratios to average net
assets:
Total expenses(A) -- --
Net expenses(B) .69% .74%
Net investment
income 4.63% 3.97%
Net assets, end of
year (in
thousands) $ 95,364 $ 81,769
</TABLE>
(A) PURSUANT TO NEW SECURITIES AND EXCHANGE COMMISSION REGULATIONS, EFFECTIVE
DECEMBER 31, 1995, THIS RATIO REFLECTS TOTAL EXPENSES BEFORE COMPENSATING
BALANCE CREDITS. PREVIOUSLY, THE CREDITS WERE INCLUDED IN THE RATIO.
(B) THIS RATIO REFLECTS TOTAL EXPENSES INCLUDING COMPENSATING BALANCE CREDITS.
4
<PAGE>
PERFORMANCE INFORMATION
From time to time, the Fund may quote its yield, including its compound
effective yield, in advertisements or in reports or other communications to
shareholders. The Fund's "yield" refers to the income generated by an investment
in the Fund 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 shareholder reinvests income earned by an investment. The
Fund's effective yield will be slightly higher than the Fund's yield because of
the compounding effect of this assumed reinvestment.
The Fund also may quote its tax-equivalent yield and tax-equivalent
effective yield. Tax-equivalent yield shows the taxable yield that would produce
the same after-tax income at a stated tax rate as the Fund's tax-exempt yield.
Tax-equivalent effective yield shows the taxable effective yield that would
produce the same after-tax income at a stated tax rate as the Fund's tax-exempt
effective yield.
Yield information may be useful in reviewing the Fund's performance and
providing a basis for comparison with other investment alternatives. However,
the Fund's yield may change in response to fluctuations in market interest rates
and Fund expenses. Past performance is not a guarantee of future performance.
The Fund's yield for the seven-day period ended December 31, 1996 was 3.15%.
The effective yield for the same period was 3.20%.
5
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The Fund is a diversified, open-end management investment company which
seeks to produce high current income exempt from federal income tax, to preserve
capital, and to maintain liquidity. Under normal conditions, the Fund invests
primarily in short-term, high-quality municipal securities, the interest on
which is exempt from federal income tax and is not a TPI. The Fund may also
invest, to a limited extent, in taxable short-term money market instruments. The
Fund attempts to maintain a constant net asset value of $1.00 per share. There
is, of course, no assurance that the Fund will always be able to maintain a net
asset value of $1.00 per share or that it will achieve its investment
objectives.
The Fund is not intended to be a balanced investment program and is not
designed for investors who are unable to benefit from tax-exempt income or for
investors seeking capital appreciation or maximum tax-exempt income irrespective
of fluctuations in principal. The Fund is not an appropriate investment for
"substantial users" of certain facilities financed by industrial development or
private activity bonds or persons related to such "substantial users." See
"Additional Tax Information" in the Statement of Additional Information.
Municipal Obligations
The Fund normally invests substantially all of its assets in a diversified
portfolio of obligations issued by or on behalf of the states, territories and
possessions of the United States and the District of Columbia and their
political subdivisions, agencies, instrumentalities or authorities, the interest
on which, in the opinion of counsel to the issuer, is exempt from federal income
tax and is not a TPI ("Municipal Obligations"). As a matter of fundamental
policy, except during defensive periods, the Fund will maintain at least 80% of
its assets invested in Municipal Obligations that have remaining maturities of
one year or less or that are variable or floating rate demand notes. The balance
of the Fund's assets normally is invested in Municipal Obligations that have
remaining maturities of 397 days or less or that are variable or floating rate
demand notes. For purposes of the above policy, the remaining maturities of
variable or floating rate demand notes are calculated under the applicable SEC
guidelines. The Fund maintains a dollar-weighted average maturity of 90 days or
less.
The Fund limits its investments to obligations which, pursuant to procedures
adopted by the Board of Directors, present minimal credit risk in the opinion of
the Adviser, and are rated in one of the two highest short-term ratings
categories by at least two nationally recognized statistical rating
organizations ("NRSROs"), or one NRSRO if only rated by one or, if unrated by
any NRSRO, are determined to be of comparable quality by the Adviser. Currently,
there are six NRSROs, including Moody's Investors Service, Inc. ("Moody's") and
Standard & Poor's ("S&P"). A discussion of the S&P and Moody's ratings is
contained in the Statement of Additional Information. The Fund does not intend
to invest more than 25% of its net assets in (1) Municipal Obligations whose
issuers are located in the same state, (2) Municipal Obligations which are
repayable out of revenue streams generated from economically related projects or
facilities, or (3) industrial development bonds or private activity bonds issued
by issuers in the same industries, provided that, for the purpose of this
restriction, there is no limitation with respect to investments in U.S. Treasury
bills or other obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities. The Fund considers the "issuer" of a Municipal
Obligation to be the entity responsible for payment. Thus, the District of
Columbia, each state, each political subdivision, agency, instrumentality and
authority thereof, and each multi-state agency of which a state is a member is a
separate "issuer" as that term is used in this Prospectus. In certain
circumstances, the non-government user of facilities financed by industrial
development bonds or private activity bonds is considered to be the issuer.
The yields on Municipal Obligations are dependent on a variety of factors,
including general money market conditions, general conditions of the Municipal
Obligations market, the financial condition of the issuer, the size of the
particular offering, the maturity of the obligation, the credit quality and
ratings of the issue and expectations regarding changes in income tax rates. The
ratings
6
<PAGE>
of NRSROs represent their opinion as to the quality of the Municipal Obligations
that they undertake to rate. The ratings are not guarantees as to quality and
may change after the Fund has acquired a security.
Municipal Obligations include debt obligations issued to obtain funds for
various public purposes, including constructing a wide range of public
facilities, refunding outstanding obligations, obtaining funds for general
operating expenses and making loans to other public institutions and facilities.
Industrial development bonds and private activity bonds are issued by or on
behalf of public authorities to finance various privately operated facilities,
including pollution control facilities.
"General obligation bonds" are secured by the issuer's pledge of its full
faith and credit, including its taxing power. "Revenue bonds" are payable only
from the revenues derived from a particular facility or class of facilities or
from the proceeds of a special excise tax or other specific revenue source, such
as the corporate user of the facility being financed. Industrial development
bonds and private activity bonds are usually revenue bonds and are not payable
from the unrestricted revenues of a municipality. The credit quality of
industrial development bonds and private activity bonds is usually directly
related to the credit standing of the corporate user of the facilities.
Municipal Obligations also include short-term tax anticipation notes, bond
anticipation notes, revenue anticipation notes and other forms of short-term
debt obligations. Such notes may be issued with a short-term maturity in
anticipation of the receipt of tax funds, the proceeds of bond placements or
other revenues.
The Fund's portfolio will be affected by general changes in market interest
rates resulting in increases or decreases in the value of the Municipal
Obligations held by the Fund. Investors should recognize that, in periods of
declining interest rates, the Fund's yield will tend to be somewhat higher than
prevailing market rates, and in periods of rising interest rates, the Fund's
yield will tend to be somewhat lower. Also, when interest rates are falling, the
inflow of net new money to the Fund from the continuous sale of its shares will
likely be invested in portfolio instruments producing lower yields than the
balance of its portfolio, thereby reducing the current yield of the Fund. In
periods of rising interest rates, the opposite can be expected to occur.
Current efforts to restructure the federal budget and the relationship
between the federal government and state and local governments may adversely
impact the financing of some issuers of municipal securities. Some states and
localities are experiencing substantial deficits and may find it difficult for
political or economic reasons to increase taxes. Some local jurisdictions have
invested heavily in derivative instruments and may now hold portfolios of
uncertain valuation. Efforts are also under way that may result in a
restructuring of the federal income tax system. These developments could reduce
the value of all municipal securities, or the securities of particular issuers.
When-Issued Securities
The Fund may enter into commitments to purchase Municipal Obligations on a
when-issued basis. When-issued securities are often the most efficiently priced
and have the best liquidity in the bond market. As with the purchase of any
security, when the Fund purchases securities on a when-issued basis, it assumes
the risks of ownership, including the risk of price fluctuation, at the time of
purchase, not at the time of receipt. However, the Fund does not pay for such
securities until they are delivered to the Fund, normally 7 to 45 days later. To
meet that payment obligation, the Fund will establish a segregated account with
its custodian and maintain cash or appropriate liquid securities, in an amount
at least equal in value to the payment that will be due. Failure by the issuer
to deliver a security purchased on a when-issued basis may result in a loss or
missed opportunity by the Fund to make an alternative investment. Commitments to
purchase when-issued securities will not exceed, in the aggregate, 25% of the
Fund's total assets.
Stand-By Commitments
The Fund may acquire "stand-by commitments" with respect to its investments
in Municipal Obligations. A stand-by commitment is a put (that is, the right to
sell the underlying security within a specified period of time at a specified
7
<PAGE>
exercise price that may be sold, transferred or assigned only with the
underlying security) that entitles the Fund to same-day settlement. Under a
stand-by commitment, a broker, dealer or bank agrees to purchase, at the Fund's
option, specified Municipal Obligations at amortized cost plus accrued interest.
The total amount paid for outstanding stand-by commitments held by the Fund will
not exceed 1/2 of 1% of the Fund's total asset value calculated immediately
after each stand-by commitment is acquired.
Variable Rate and Floating Rate Obligations
The Fund may invest in variable and floating rate Municipal Obligations and
notes. Variable rate obligations have an interest rate that is adjusted
periodically based upon market conditions.
The Fund may also invest in floating rate and variable rate demand notes.
Demand notes provide that the holder may demand payment of the note at its par
value plus accrued interest. These notes may be supported by an unconditional
bank letter of credit guaranteeing payment of the principal or both the
principal and accrued interest. The Fund, as permitted by the SEC, may rely on
the credit enhancement in purchasing demand notes. Because the Fund invests in
such securities backed by banks and other financial institutions, changes in the
credit quality of these institutions could cause losses to the Fund and affect
its share price. Floating rate demand notes have an interest rate related to a
known lending rate, such as the prime rate, and are automatically adjusted when
such known rate changes. The Fund may invest in variable rate and floating rate
notes carrying stated maturities in excess of 397 days at the date of purchase
by the Fund if such obligations carry demand features that comply with
conditions established by the SEC. In such cases, the Fund is entitled to
consider the note as having a maturity of 397 days or less, based on the date
the interest rate will be reset or when the principal can be recovered through
demand.
Temporary Investments
From time to time for liquidity purposes or pending the investment of the
proceeds of the sale of shares, the Fund may invest up to 20% of its net assets
in: obligations of the U.S. Government, its agencies and instrumentalities;
certificates of deposit and bankers' acceptances of U.S. domestic banks with
assets of one billion dollars or more; commercial paper or other corporate notes
of high grade quality; and any of such items subject to short-term repurchase
agreements. Interest earned from such taxable investments will be taxable to
investors as ordinary income when distributed to them. For temporary defensive
purposes, the Fund may invest up to 100% of its assets in U.S. government
securities and other taxable short-term instruments.
Investment Limitations
The Fund has adopted certain fundamental limitations that, like its
investment objectives and its policy of investing (except during defensive
periods) at least 80% of its assets in short-term Municipal Obligations, can be
changed only by the vote of Fund shareholders. These investment limitations are
set forth under "Investment Limitations" in the Statement of Additional
Information. Other Fund policies, unless described as fundamental, can be
changed by action of the Board of Directors.
HOW YOU CAN INVEST IN THE FUND
You may purchase shares of the Fund through a brokerage account with Legg
Mason or with an affiliate that has a dealer agreement with Legg Mason. Your
Legg Mason or affiliated financial advisor will be pleased to explain the
shareholder services available from the Fund and answer any questions you may
have.
The minimum initial investment in the Fund for each account, including
investments made by exchange from other Legg Mason funds, is $1,000, and the
minimum investment for each purchase of additional shares is $500, except as
noted below. Those investing through the Fund's Future First Systematic
Investment Plan, payroll deduction plans and plans involving automatic transfer
of funds from Legg Mason brokerage accounts, accounts with other financial
institutions and certain unit investment trusts are subject to lower minimum
initial and subsequent investments. The Fund 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.
8
<PAGE>
Clients of certain institutions that maintain omnibus accounts with the
Fund's transfer agent may obtain shares through those institutions. Such
institutions may receive payments from the Fund's distributor for account
servicing, and may receive payments from their clients for other services
performed. Investors can purchase Fund shares from Legg Mason without receiving
or paying for such other services.
Cash held in Legg Mason brokerage accounts of Fund shareholders may be
invested in the Fund during regularly scheduled "sweeps" of such accounts made
twice each month. (Brokerage accounts participating in the Premier Asset
Management Account described on page 12 are swept daily for free credit balances
of $100 or more and weekly for free credit balances of less than $100.)
There are four ways you can invest:
1. BY MAIL
Once you have opened an account with the Fund, you may purchase shares by
mail by sending a check for $500 or more (payable to "Legg Mason Tax Exempt
Trust, Inc.") to:
Legg Mason Tax Exempt Trust, Inc.
P.O. Box 1476
Baltimore, Maryland 21203-1476
[Insert your name and account number]
2. BY TELEPHONE OR WIRE TRANSFER OF FUNDS
Once you have opened an account with the Fund, you may also purchase shares
by telephone from available cash balances in your Legg Mason or affiliated
brokerage account or by wire transfer of funds from your bank directly to Legg
Mason. Please contact any Legg Mason or affiliated financial advisor 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 Fund through the Future First Systematic
Investment Plan. Under this plan, you may arrange for automatic monthly
investments in the Fund of $50 or more by authorizing Boston Financial Data
Services ("BFDS"), the Fund's transfer agent, to transfer funds each month from
your checking account. Please contact any Legg Mason or affiliated financial
advisor 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 Fund. In addition, it may be possible for dividends
from certain unit investment trusts to be invested automatically in Fund shares.
Persons interested in establishing such automatic investment programs should
contact the Fund through any Legg Mason or affiliated financial advisor.
Shares of the Fund 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 Fund invests must be paid for in immediately available money called
"federal funds." Therefore, payments received from you for the purchase of
shares in other than federal funds form will require conversion into federal
funds before your purchase order will be accepted. 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 by wire payments
representing federal funds will normally be completed on the same or the next
business day. If an order and payment in federal funds is received by your Legg
Mason or affiliated financial advisor 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 11.
The Fund reserves the right to reject any order for shares of the Fund or to
suspend the offering of shares for a period of time.
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<PAGE>
HOW YOUR SHAREHOLDER ACCOUNT IS MAINTAINED
When you initially purchase shares of the Fund, 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. Shares may not be held in or transferred to an account with any
brokerage firm other than Legg Mason or its affiliates. The Fund no longer
issues share certificates.
HOW YOU CAN REDEEM YOUR FUND SHARES
All redemptions will be made in cash at the net asset value per share next
determined after the receipt by the Fund 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:
1. REDEMPTION BY TELEPHONE
Telephone redemptions may be made by calling your Legg Mason or affiliated
financial advisor. 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 to your Legg Mason or affiliated brokerage account the same day.
Wire transfers of proceeds to you or your Legg Mason or affiliated brokerage
account will normally be transmitted the same day.
To make a telephone redemption, you should call your Legg Mason or
affiliated financial advisor and provide your name, the Fund's name, your Fund
account number and the number of shares or dollar amount you wish to redeem. In
the event that you are unable to reach your Legg Mason or affiliated financial
advisor by telephone, you may make a redemption request by mail. There is no fee
for telephone redemptions with the exception of wire redemptions made by
telephone, as described below.
You may request by telephone that your shares be redeemed and the proceeds
wired to your account at a commercial bank in the United States. In order to
initiate a wire redemption by telephone, you must inform your Legg Mason or
affiliated financial advisor 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 to notify your bank
immediately 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 or its affiliate from the redemption proceeds that are
wired to your bank.
The Fund will not be responsible for the authenticity of redemption
instructions received by telephone, provided it follows reasonable procedures to
identify the caller. The Fund may request identifying information from callers
or employ identification numbers. The Fund may be liable for losses due to
unauthorized or fraudulent instructions if it does not follow reasonable
procedures. Telephone redemption privileges are available automatically to all
shareholders unless certificates have been issued. Shareholders who do not wish
to have telephone redemption privileges should call their Legg Mason or
affiliated financial advisor for further instructions.
2. REDEMPTION BY CHECK
The Fund offers a free checkwriting service that permits you to write checks
to anyone in amounts of $250 or more. The checks will be paid at the time they
are received by BFDS by redeeming the appropriate number of shares in your
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account; the shares will earn dividends until the check clears BFDS for payment.
Please contact your Legg Mason or affiliated financial advisor 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 Tax Exempt Trust,
Inc., c/o Legg Mason Funds Processing, P.O. Box 1476, Baltimore, Maryland
21203-1476." Any stock certificates issued for the shares must be surrendered at
the same time. For your protection, certificates, if any, should be sent by
registered mail. On all requests for the redemption of shares valued at $10,000
or more, or when the proceeds of the redemption are to be paid to someone other
than you, your signature must have 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 a 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 Fund
shareholders who wish to purchase stocks, bonds or other securities at Legg
Mason. You may place an order to buy securities through your Legg Mason or
affiliated financial advisor and, in the absence of any indication that you wish
to make payment in another manner, Fund shares will be redeemed on the
settlement date for the amount due. Fund shares may also be redeemed by Legg
Mason to cover debit balances in your brokerage account. Contact your Legg Mason
or affiliated financial advisor for details.
Because of the relatively high cost of maintaining small accounts, the Fund
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 Fund elects to redeem the shares in your account, you will be
notified that your account is below $500 and will be allowed 60 days to make an
additional investment to avoid having your account closed.
To the extent permitted by law, the Fund reserves the right to take up to
seven days to make payment upon redemption if, in the judgment of the Adviser,
the Fund could be adversely affected by immediate payment. (The Statement of
Additional Information describes several circumstances in which the date of
redemption may be postponed or the right of redemption suspended.)
HOW NET ASSET VALUE IS DETERMINED
Net asset value per Fund share is determined twice daily, as of 12:00 noon,
Eastern time, and as of 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
Fund's liabilities from its total assets and dividing the result by the number
of shares outstanding. The Fund attempts to maintain a per share net asset value
of $1.00 by using the amortized cost method of valuation. The Fund cannot
guarantee that net asset value will always remain at $1.00 per share.
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are automatically
reinvested on payment dates in shares of the Fund unless cash payments are
requested by writing to a Legg Mason or affiliated financial advisor. Requests
for payments of dividends in cash must be received at least 10 days prior to a
payment date in order to be honored on that date.
In certain cases, you may reinvest your dividends in shares of another Legg
Mason fund. Please contact your Legg Mason or affiliated financial advisor for
additional information about this option.
Because the Fund'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 Fund does realize
any net
11
<PAGE>
short-term capital gains, it will distribute them at least once every 12 months.
TAX TREATMENT OF DIVIDENDS
The Fund intends to continue to qualify for treatment as a regulated
investment company under the Internal Revenue Code of 1986. If the Fund so
qualifies and, at the close of each quarter of its taxable year, at least 50% of
the value of its total assets consists of certain obligations the interest on
which is excludable from gross income for federal income tax purposes, the Fund
may pay "exempt-interest" dividends to its shareholders. Those dividends
constitute the portion of the aggregate dividends (other than distributions of
net short-term capital gains, if any, and any other taxable income), as
designated by the Fund, equal to the excess of the excludable interest over
certain amounts disallowed as deductions. Exempt-interest dividends are
excludable from a shareholder's gross income; however, the amount of such
dividends must be reported on the recipient's federal income tax return.
Interest on indebtedness incurred or maintained by a shareholder in order to
purchase or hold Fund shares is not deductible. Dividends derived from interest
on Municipal Obligations may not be exempt from taxation under state or local
law.
Shareholders receive information after the close of each calendar year
concerning the federal income tax status of all dividends.
The foregoing is only a summary of some of the important federal income tax
considerations generally affecting the Fund and its shareholders; see the
Statement of Additional Information for a further discussion. In addition to
those considerations, which are applicable to any investment in the Fund, there
may be other federal, state or local tax considerations applicable to a
particular investor. Prospective shareholders are urged to consult their tax
advisers with respect to the effects of this investment 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 Fund's portfolio and other information; the
annual report will contain financial statements audited by the Fund's
independent accountants.
Shareholder inquiries should be addressed to "Legg Mason Tax Exempt Trust,
Inc., 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 Fund account of a
minimum of $50 on a monthly basis if you are purchasing or already own shares
with a net asset value of $5,000 or more. Please contact your Legg Mason or
affiliated financial advisor for further information.
PREMIER ASSET MANAGEMENT ACCOUNT
Shareholders may participate in Legg Mason's Premier Asset Management
Account, which combines the Fund 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
Fund account and automatic redemption of Fund shares to offset debit balances in
the participant's brokerage account. Legg Mason charges an annual fee for the
Premier Asset Management Account, which is currently $85 for individuals and
$100 for corporations and businesses. For further information, contact your Legg
Mason or affiliated financial advisor.
EXCHANGE PRIVILEGE
As a Fund shareholder, you are entitled to exchange your shares of the Fund
for shares of any of the Legg Mason Funds, provided that such shares are
eligible for sale in your state of residence.
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Investments by exchange into the Legg Mason funds sold without an initial
sales charge are made at the per share net asset value next determined on the
same business day as redemption of the Fund shares you wish to exchange.
Investments by exchange into the Legg Mason funds sold with an initial sales
charge are made at the per share net asset value, plus the applicable sales
charge, determined on the same business day as redemption of the Fund shares you
wish to redeem; except that no sales charge will be imposed upon proceeds from
the redemption of Fund 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 Fund reserves
the right to terminate or limit the exchange privilege of any shareholder who
makes more than four exchanges from the Fund in one calendar year.
To obtain further information concerning the exchange privilege and
prospectuses of other Legg Mason funds, or to make an exchange, please contact
your Legg Mason or affiliated financial advisor. To effect an exchange by
telephone, please call your Legg Mason or affiliated financial advisor with the
information described in the section "How You Can Redeem Your Fund Shares --
Redemption by Telephone," page 10. The other factors relating to telephone
redemptions described in that section apply also to telephone exchanges. Please
read the prospectus for the other funds carefully before you invest by exchange.
The Fund reserves the right to modify or terminate the exchange privilege upon
60 days' notice to shareholders.
THE FUND'S MANAGEMENT AND INVESTMENT ADVISOR
BOARD OF DIRECTORS
The business and affairs of the Fund are managed under the direction of the
Corporation's Board of Directors.
ADVISER
Pursuant to an advisory agreement with the Fund, which was approved by the
Corporation's Board of Directors, Legg Mason Fund Adviser, Inc. ("Adviser"),
serves as the Fund's investment adviser and manager. The Adviser manages the
investment and other affairs of the Fund and directs the investments of the Fund
in accordance with its investment objectives, policies and limitations. The Fund
pays the Adviser, pursuant to the Advisory Agreement, a fee equal to an annual
rate of 0.50% of the Fund's average daily net assets.
The Adviser acts as investment adviser, manager or consultant to eighteen
investment company portfolios which had aggregate assets under management of
over $7.0 billion as of March 31, 1997. The Adviser's address is 111 South
Calvert Street, Baltimore, Maryland 21202.
Legg Mason receives a fee from BFDS for assisting it with its transfer agent
and shareholder servicing functions. For the year ended December 31, 1996, Legg
Mason received $42,000 for performing such services in connection with this
Fund.
THE FUND'S DISTRIBUTOR
Legg Mason acts as distributor of the Fund's shares pursuant to an
Underwriting Agreement with the Fund. Pursuant to the Fund's Distribution Plan,
the Fund may pay a distribution fee for distribution services not to exceed an
annual rate of 0.20% of the Fund's average daily net assets. Effective January
10, 1997, the Fund began compensating Legg Mason for distribution costs and
services at an annual rate equal to 0.10% of its average daily net assets.
Activities for which payments may be made include, but are not limited to,
compensation to persons, including Legg Mason financial advisors, who engage in
or support distribution of shares or who provide shareholder services, printing
of prospectuses and reports for persons other than existing shareholders,
advertising, preparation and distribution of sales literature, overhead and
telephone expenses.
The fees received by Legg Mason during any year may be more or less than its
costs of providing distribution and shareholder services for the Fund.
NASD rules limit the amount of annual distribution and service fees that may
be paid by
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<PAGE>
mutual funds, and impose a ceiling on the cumulative distribution fees paid. The
Fund's Distribution Plan complies with those rules.
Legg Mason is a wholly owned subsidiary of Legg Mason, Inc., which is also
the parent of the Adviser.
The Chairman, President and Treasurer of the Fund are employed by Legg
Mason.
THE FUND'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 Fund. Boston Financial Data
Services, P.O. Box 953, Boston, MA 02103 is transfer agent for Fund shares, and
dividend-disbursing agent for the Fund.
DESCRIPTION OF THE CORPORATION AND ITS SHARES
The Corporation is a diversified, open-end management investment company
which was incorporated in Maryland on July 26, 1982. The Corporation is
authorized to issue multiple series of capital stock, each with a par value of
$.001 per share, at the discretion of the Board of Directors. To date, the
directors have authorized the issuance of only one series: shares in the Fund.
Each share in the Fund is entitled to one vote for the election of directors and
any other matter submitted to a shareholder vote. Fractional shares have
fractional voting rights. Voting rights are not cumulative. All shares in the
Fund are fully paid and nonassessable and have no preemptive or conversion
rights.
Shareholder meetings will not be held except where the 1940 Act requires a
shareholder vote on certain matters (including the election of directors,
approval of an advisory contract, and approval of a material increase in the
fees payable under the plan of distribution pursuant to Rule 12b-1). The
Corporation will call a special meeting of the
shareholders at the request of 10% or more of the shares entitled to vote;
shareholders wishing to call such a meeting should submit a written request to
the Fund at 111 South Calvert Street, Baltimore, Maryland 21202, stating the
purpose of the proposed meeting and the matters to be acted upon.
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<PAGE>
Statement of
Additional Information
THE LEGG MASON TAX EXEMPT TRUST, INC.
MONEY MARKET PORTFOLIO
Legg Mason Tax Exempt Trust, Inc. ("Corporation") is a money market
fund seeking to produce high current income exempt from federal income tax, to
preserve capital, and to maintain liquidity.
The Corporation offers a single portfolio, the Money Market Portfolio
("Fund"). In attempting to achieve its objectives, the Fund's investment
adviser, Legg Mason Fund Adviser, Inc. ("Adviser"), normally invests primarily
in short-term, high-quality municipal obligations, the interest on which is
exempt from federal income tax and is not a tax preference item for purposes of
the federal alternative minimum tax ("TPI"). Shares in the Fund are issued and
redeemed at net asset value, without an initial sales charge or redemption fee.
The Fund attempts to maintain a stable net asset value of $1.00 per share,
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 Fund's Prospectus, dated May 1, 1997, which has
been filed with the Securities and Exchange Commission ("SEC"). A copy of the
Prospectus is available without charge from the Fund's distributor, Legg Mason
Wood Walker, Incorporated ("Legg Mason") (address and telephone numbers listed
below).
Dated: May 1, 1997
Legg Mason Wood Walker,
Incorporated
- --------------------------------------------------------------------------------
111 South Calvert Street
Baltimore, Maryland 21202
(410) 539-0000 (800) 822-5544
<PAGE>
Table of Contents
Page
----
Additional Information About Investment Objectives,
Limitations, and Policies 2
Investment Limitations 5
Additional Purchase and Redemption Information 7
How the Fund's Yield Is Calculated 11
Additional Tax Information 13
Valuation of Shares 14
The Corporation's Directors and Officers 16
The Fund's Investment Adviser 18
The Fund's Distributor 20
Portfolio Transactions and Brokerage 21
The Corporation's Custodian and Transfer and Dividend-
Disbursing Agent 21
The Corporation's Legal Counsel 21
The Corporation's Independent Accountants 21
Financial Statements 21
Appendix A: Ratings of Securities A-1
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 Fund or its distributor. The Prospectus and this
Statement of Additional Information do not constitute an offering by the Fund or
by the distributor in any jurisdiction in which such offering may not lawfully
be made.
<PAGE>
ADDITIONAL INFORMATION ABOUT INVESTMENT
OBJECTIVES, LIMITATIONS, AND POLICIES
The following information supplements the information concerning the
Fund's investment objectives, limitations and policies found in the Prospectus.
The Fund normally invests substantially all of its assets in a diversified
portfolio of obligations issued by or on behalf of the states, territories and
possessions of the United States and the District of Columbia and their
political subdivisions, agencies, instrumentalities or authorities, the interest
on which, in the opinion of counsel to the issuers, is exempt from federal
income tax and is not a TPI ("Municipal Obligations").
The Prospectus explains that the Fund, in selecting investments,
considers the ratings assigned to securities by nationally recognized
statistical rating organizations ("NRSROs"), such as Moody's Investors Service,
Inc. ("Moody's") and Standard & Poor's ("S&P"). The ratings of NRSROs represent
their opinions as to the quality of the Municipal Obligations which they
undertake to rate. It should be emphasized, however, that ratings are general
and are not absolute standards of quality. Consequently, Municipal Obligations
with the same maturity, interest rate and rating may have different market
prices. The Appendix to this Statement of Additional Information contains
information concerning the ratings of Moody's and S&P and their significance.
The Fund considers each rating to include any modifiers, e.g., "+" or "-".
Municipal Obligations include "general obligation bonds," which are
secured by the issuer's pledge of its full faith and credit, including its
taxing power, and "revenue bonds," which are payable only from the revenues
derived from a particular facility or class of facilities or from the proceeds
of a special excise tax or other specific revenue source, such as the corporate
user of the facility being financed. Industrial development bonds and private
activity bonds usually are revenue bonds and are not payable from the
unrestricted revenues of the issuer. The credit quality of industrial
development bonds and private activity bonds is usually directly related to the
credit standing of the corporate user of the facilities. Municipal Obligations
also include short-term tax anticipation notes, bond anticipation notes, revenue
anticipation notes and other forms of short-term debt obligations. Such notes
may be issued with a short-term maturity in anticipation of the receipt of tax
funds, the proceeds of bond placements or other revenues.
Opinions relating to the validity of Municipal Obligations, to the
exemption of interest thereon from federal income tax, and to that interest's
not being a TPI are rendered by bond counsel to the issuers at the time of
issuance. Neither the Fund nor the Adviser will independently review the basis
for such opinions.
An issuer's obligations under its Municipal Obligations are subject to
the provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors, such as the Federal Bankruptcy Act, and laws that may be
enacted by Congress or state legislatures extending the time for payment of
principal or interest, or both, or imposing other constraints upon enforcement
of such obligations. There is also the possibility that litigation or other
conditions may materially and adversely affect the power or ability of issuers
to meet their obligations for the payment of interest and principal on their
Municipal Obligations.
From time to time, Congress has considered proposals that would
restrict or eliminate the federal income tax exemption for interest on Municipal
Obligations. If Congress enacted such a proposal, the availability of Municipal
Obligations for investment by the Fund and the value of its assets could be
materially and adversely affected. In that event, the Fund would re-evaluate its
investment objectives and policies and consider changes in its structure or
possible dissolution.
When-Issued Securities
As stated in the Prospectus, the Fund may enter into commitments to
purchase new issues of municipal bonds on a when-issued basis. Delivery of and
payment for these securities normally take place
2
<PAGE>
7 to 45 days after the date of the commitment. Interest rates on when-issued
securities are normally fixed at the time of the commitment. Consequently,
increases in the market rate of interest between the commitment date and
settlement date may result in a market value for the security on the settlement
date that is less than its purchase price.
Commencing on the date of such commitment agreement, the Fund maintains
in a segregated account with the custodian, cash or appropriate liquid
securities equal in value to the purchase price for the when-issued securities
due on the settlement date. The Fund makes when-issued commitments only with the
intention of actually acquiring the securities subject to such a commitment, but
the Fund may sell these securities before the settlement date if market
conditions warrant. When payment is due for when-issued securities, the Fund
meets its obligations from then-available cash flow, from the sale of securities
or, although it would not normally expect to do so, from the sale of the
when-issued securities themselves (which may have a market value greater or less
than the Fund's payment obligation). As the Prospectus states, commitments to
purchase when-issued securities will not exceed 25% of the Fund's total assets.
Stand-By Commitments
When the Fund exercises a stand-by commitment that it has acquired from
a dealer with respect to its investments in Municipal Obligations, the dealer
normally pays the Fund an amount equal to (1) the Fund's acquisition cost of the
Municipal Obligations (excluding any accrued interest which the Fund paid on its
acquisition), less any amortized market premium or plus any amortized market or
original issue discount during the period the Fund owned the securities, plus
(2) all interest accrued on the securities since the last interest payment date
or the date the securities were purchased by the Fund, whichever is later. The
Fund's right to exercise stand-by commitments is unconditional and unqualified
and exercisable by the Fund at any time prior to the underlying securities'
maturity.
A stand-by commitment is not transferable by the Fund without the
underlying securities, although the Fund could sell the underlying Municipal
Obligations to a third party at any time. The Fund may pay for stand-by
commitments either separately in cash or by paying a higher price for portfolio
securities which are acquired subject to such a commitment (thus reducing the
yield to maturity otherwise available for the same securities). The total amount
paid in either manner for outstanding stand-by commitments held by the Fund will
not exceed 1/2 of 1% of the Fund's total asset value calculated immediately
after each stand-by commitment is acquired. The Fund intends to enter into
stand-by commitments only with those banks, brokers and dealers that in the
Adviser's opinion present minimal credit risks.
The Fund intends to acquire stand-by commitments solely to facilitate
liquidity and does not intend to exercise its rights thereunder for trading
purposes. The acquisition of a stand-by commitment would not ordinarily affect
the valuation or assumed maturity of the underlying Municipal Obligations, which
will continue to be valued in accordance with the amortized cost method.
Stand-by commitments acquired by the Fund will be valued at zero in determining
net asset value. Where the Fund paid directly or indirectly for a stand-by
commitment, its cost will be reflected as unrealized depreciation during the
period the commitment is held by the Fund. Stand-by commitments will not affect
the average weighted maturity of the assets of the Fund.
Variable Rate and Floating Rate Obligations
The Prospectus states that the Fund may invest in variable and floating
rate Municipal Obligations. A variable rate obligation differs from an
obligation with a fixed rate coupon, the value of which fluctuates in inverse
relation to interest rate changes. If interest rates decline, generally the
value of a fixed rate obligation increases and the obligation sells at a
premium. Should interest rates increase , generally the value of a fixed rate
obligation decreases and the obligation sells at a discount. The magnitude of
such capital fluctuations is also a function of the period of time remaining
until the obligation matures. Short-term fixed rate obligations
3
<PAGE>
are minimally affected by interest rate changes; the greater the remaining
period until maturity, the greater the fluctuation in value of a fixed rate
obligation is likely to be.
Variable rate obligation coupons are not fixed for the full term of the
obligation but are adjusted periodically based upon changes in prevailing
interest rates. As a result, the value of variable rate obligations is less
affected by changes in interest rates. The more frequently such obligations are
adjusted, the less such obligations are affected by interest rate changes during
the period between adjustments. The value of a variable rate obligation,
however, may fluctuate in response to market factors and changes in the
creditworthiness of the issuer.
By investing in variable rate obligations, the Fund hopes to take
advantage of the normal yield curve function that usually results in higher
yields on longer-term investments. This policy also means that should interest
rates decline, the yield of the Fund will decline, and the Fund and its
shareholders will forgo the opportunity for capital appreciation of its
portfolio investments and of their shares. Should interest rates increase,
however, the yield of the Fund will increase, and the Fund and its shareholders
will diminish the risk of capital depreciation of its portfolio investments and
of their shares. There is no limitation on the percentage of the Fund's assets
that may be invested in variable rate obligations. However, the Fund will limit
the value of its investments in any variable rate securities that are illiquid
and in all other illiquid securities to 10% or less of its net assets.
Floating rate obligations also are not fixed, but are adjusted as
specified benchmark interest rates change. In other respects, their
characteristics are similar to variable rate notes, as discussed previously.
As stated in the Prospectus, the Fund may also invest in floating rate
and variable rate demand notes. A demand feature entitles the Fund 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 397
days, and upon no more than 30 days' notice. The note may be supported by an
unconditional bank letter of credit guaranteeing payment of the principal or
both the principal and accrued interest. The Adviser, as permitted by the SEC,
may take into consideration the creditworthiness of the bank issuing the letter
in making the investment decision. A change in the credit quality of the bank
backing a variable rate or floating rate demand note could result in a loss to
the Fund and affect its share price.
The Board of Directors of the Corporation has approved investments by
the Fund in floating rate and variable rate demand notes. The SEC permits some
instruments to be deemed to have remaining maturities of 397 days or less,
notwithstanding that the date on which final payment is due may be in excess of
397 days.
Repurchase Agreements
A repurchase agreement is an agreement under which U.S. government
obligations or other high-quality debt securities are acquired by the Fund from
a securities dealer or bank subject to resale at a previously agreed-upon price
and date. The resale price reflects an agreed interest rate effective for the
period the securities are held and is unrelated to the interest rate provided by
the securities. In these transactions, the securities acquired by the Fund are
held by a custodian bank 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. Repurchase agreements are usually for periods
of one week or less but may be for longer periods. The Fund will not enter into
repurchase agreements of more than seven days duration if more than 10% of its
net assets would be invested in such agreements and other illiquid investments.
The Fund's income from repurchase agreements is taxable as interest income.
The Fund may suffer a loss to the extent that proceeds from the sale
upon a default of the obligation
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to repurchase are less than the repurchase price. In addition, if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization upon the collateral by the Fund could be delayed or limited.
However, the Fund has adopted standards for the parties with whom it will enter
into repurchase agreements that the Corporation's Board believes are reasonably
designed to assure that each party presents no serious risk of becoming involved
in bankruptcy proceedings within the time frame contemplated by the repurchase
agreement.
Trading Policies
In seeking increased income, the Fund may not always hold its
securities to maturity but may sell a security to buy another with a higher
yield because of short-term market movements. This may result in high portfolio
turnover. The Fund, however, does not anticipate incurring significant brokerage
expenses in connection with this trading, because the transactions ordinarily
are made directly with the issuer or a dealer on a net price basis.
INVESTMENT LIMITATIONS
The Fund has adopted certain fundamental policies that can be changed
only by the vote of a majority of the outstanding voting securities of the Fund.
Under the Investment Company Act of 1940 ("1940 Act"), a "vote of a majority of
the outstanding voting securities" of the Fund means the affirmative vote of the
lesser of (1) more than 50% of the outstanding shares of the Fund or (2) 67% or
more of the shares present at a shareholders' meeting if more than 50% of the
outstanding shares are represented at the meeting in person or by proxy. As a
matter of fundamental policy, the Fund may not:
1. Borrow money, except for temporary purposes in an aggregate amount
not to exceed 10% of the value of the total assets of the Fund; provided that
borrowings in excess of 5% of such value will be only from banks, and the Fund
will not purchase portfolio securities while its borrowings exceed 5% (interest
paid on borrowed money would reduce income to the Fund);
2. Underwrite the securities of other issuers, except insofar as the
Fund may be deemed an underwriter under the Securities Act of 1933, as amended,
in disposing of a portfolio security;
3. Purchase common stocks, preferred stocks, warrants, or other equity
securities;
4. Buy or hold any real estate other than municipal bonds secured by
real estate or interests therein;
5. Buy or hold any commodity or commodity futures contracts, or any
oil, gas or mineral exploration or development program;
6. Make loans, except loans of portfolio securities and except to the
extent the purchase of a portion of an issue of publicly distributed notes,
bonds or other evidences of indebtedness, the entry into repurchase agreements,
or deposits with banks and other financial institutions may be considered loans;
7. Mortgage or pledge any of the Fund's assets, except to the extent,
up to a maximum of 10% of the value of its total assets, necessary to secure
borrowings permitted by paragraph 1;
8. Buy securities on "margin" or make "short" sales of securities;
9. Write or purchase put or call options, except to the extent that
securities subject to stand-by
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commitments may be purchased as set forth under "Additional Information About
Investment Objectives, Limitations, and Policies," in this Statement of
Additional Information;
10. Buy securities which have legal or contractual restrictions on
resale, if the purchase causes more than 10% of the Fund's assets to be invested
in illiquid securities and repurchase agreements maturing in more than seven
days;
11. Buy securities issued by any other investment company, except in
connection with a merger, consolidation, acquisition or reorganization;
12. Invest more than 5% of its total assets in securities of issuers
which, including their predecessors, have been in operation for less than three
years;
13. Purchase securities of any one issuer, other than obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities,
if immediately after such purchase more than 5% of the Fund's total asset value
would be invested in such issuer, except that up to 25% of the Fund's total
asset value may be invested without regard to such 5% limitation;
14. Issue senior securities, except as permitted by the 1940 Act;
15. Purchase any security if, as a result of that purchase, 25% or more
of its total assets would be invested in securities having their principal
business activities in the same industry, except that this limitation does not
apply to securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities. State or local governments or subdivisions thereof are not
considered members of any industry for purposes of this limitation.
If a percentage restriction described above is complied with at the
time an investment is made, a later increase or decrease in percentage resulting
from a change in the value of portfolio securities or in the amount of net
assets of the Fund will not be considered a violation of any of those
restrictions. For purposes of fundamental policy #15, the Fund considers the
"issuer" of an obligation of any state or local government or subdivision
thereof to be the entity responsible for payment.
Although demand features and stand-by commitments are techniques that
are defined as "puts" under Rule 2a-7 of the 1940 Act, the Fund does not
consider them to be "puts" as that term is used in the Fund's investment
limitations. Demand features and stand-by commitments are features which enhance
an instrument's liquidity. The Fund's 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 Fund from using techniques which enhance the
liquidity of portfolio instruments.
Except as expressly stated otherwise, the policies and limitations
described in this Statement of Additional Information are not fundamental and
can be changed by vote of the Board of Directors.
The Corporation in the future may organize additional separate
investment portfolios, each of which will invest in particular types of
tax-exempt, interest-bearing securities and will have separate investment
objectives, policies and limitations.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The Prospectus explains that the minimum initial investment in the Fund
is $1,000 and subsequent investments must be at least $500. Purchases made
through the Future First Systematic Investment Plan, payroll deduction plans and
plans involving automatic payment of funds from financial institutions or
automatic
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investment of dividends from certain unit investment trusts are subject to a
minimum monthly investment of only $50.
Future First Systematic Investment Plan and Transfer of Funds from Financial
Institutions
When you purchase shares through the Future First Systematic Investment
Plan, Boston Financial Data Services ("BFDS"), the Fund's transfer agent, will
transfer funds each month to be used to buy shares of the Fund. Legg Mason, the
Fund's distributor, will send you a cumulative account statement quarterly. You
may terminate the Future First Systematic Investment Plan at any time without
charge or penalty. Forms to enroll in the Future First Systematic Investment
Plan are available from any Legg Mason or affiliated office.
You may also buy additional shares of the Fund 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 Fund to:
Legg Mason Wood Walker, Incorporated
Funds Processing
P.O. Box 1476
Baltimore, Maryland 21203-1476
If your check is not honored by the institution it is drawn on, you may
be subject to extra charges in order to cover collection costs. These charges
may be deducted from your shareholder account.
Systematic Withdrawal Plan
If you own shares with a net asset value of $5,000 or more, you may
also elect to make systematic withdrawals from your Fund account of a minimum of
$50 on a monthly basis. 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. 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 business of the New York Stock
Exchange ("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 as determined as of the close of regular trading 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, if
any, on all shares in your Fund account must automatically be reinvested in Fund
shares. You may terminate the Systematic Withdrawal Plan at any time without
charge or penalty. The Fund, 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 or capital gain distribution. To the extent periodic withdrawals exceed
reinvested dividends and distributions, if any, the amount of your original
investment will be correspondingly reduced.
The Fund will not knowingly accept purchase orders for additional
shares if you maintain a Systematic Withdrawal Plan, unless your purchase is
equal to at least one year's scheduled withdrawals. In addition, if you maintain
a Systematic Withdrawal Plan, you may not make periodic investments under the
Future First Systematic Investment Plan.
Conversion to Federal Funds
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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.
Legg Mason Premier Asset Management Account/VISA Account
Shareholders of the Fund who have cash or negotiable securities
(including Fund 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 Fund account and his or
her Brokerage Account. Premier provides shareholders with a convenient method to
invest in the Fund 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 into your designated money
market fund.
Premier is a comprehensive financial service which combines a
shareholder's Fund 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 Fund. If Fund shares have been exhausted, the debits will remain in the
margin account, reducing the cash available. The shareholder will receive one
consolidated monthly statement which details all Fund transactions, securities
activity, checkwriting activity and VISA Gold purchases and cash advances.
BancOne Columbus ("BancOne"), 757 Carolyn Avenue, Columbus, Ohio 43271,
is the Fund'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 BancOne's
right 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 Fund
account balance and subtracting (1) all shares purchased by other than federal
funds wired within 15 days; (2) all shares for which certificates have been
issued; and (3) any previously authorized VISA transaction.
PREFERRED CUSTOMER CARD SERVICES Unlike some other investment programs
which offer the VISA card privilege, Premier also includes travel/accident
insurance at no added cost when shareholders purchase travel tickets with their
Premier VISA Gold debit card. Coverage is provided through VISA and extends up
to $250,000.
If a VISA Gold debit card is lost or stolen, the shareholder should
report the loss immediately by contacting Legg Mason directly between the hours
of 8:30 a.m. and 5:00 p.m. eastern time, 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.
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<PAGE>
AUTOMATIC PURCHASES OF FUND SHARES For shareholders participating in
the Premier program who sell shares held in their Brokerage Account, any free
credit balances of $100 or more resulting from any such sale will automatically
be invested in shares of the Fund on the same business day the sale proceeds are
credited to the Brokerage Account. Free credit balances of less than $100 will
be invested in Fund 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 deposits of $100 or more will be invested automatically in
Fund shares on the next business day following the day the transaction is
credited to the Brokerage Account.
Fund 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 Fund.
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 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 to the number of
checks you may write against your Premier account.
Shareholders should be aware that the various features of the Premier
program are intended to provide easy access to assets in their accounts and that
the Premier Account is not a bank account. Additional information about the
Premier program is available by calling your Legg Mason or affiliated investment
executive or Legg Mason's Premier Client Services.
Other Information Regarding Redemption
The Fund 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 Fund's checkwriting service by sending a written
request to Legg Mason. State Street Bank and Trust Company ("State Street"), the
Fund's custodian, will supply you with checks which can be drawn on an account
of the Fund maintained with State Street. When honoring a check presented for
payment, the Fund will cause State Street to redeem exactly enough full and
fractional shares in 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 Fund account,
because when the check is written you will not know the exact 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 (a) for any
period during which the Exchange is closed (other than for customary weekend and
holiday closings), (b) when trading in markets the Fund normally utilizes is
restricted or an emergency, as defined by rules and regulations of the SEC,
exists, making disposal of the
9
<PAGE>
Fund's investments or determination of its net asset value not reasonably
practicable, or (c) for such other periods as the SEC, by order, may permit for
protection of the Fund'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.
The Fund further reserves the right, under certain conditions, to honor
any request or combination of requests for redemption from the same shareholder
in any 90-day period, totalling $250,000 or 1% of the net assets of the Fund,
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 Fund's net
asset value per share. If payment is made in securities, a shareholder should
expect to incur brokerage expenses in converting those securities into cash and
will be subject to fluctuation in the market price of those securities until
they are sold. The Fund 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.
Although the Fund may elect to redeem any shareholder account with a
current value of less than $500, the Fund will not redeem accounts that fall
below $500 solely as a result of a reduction in net asset value per share.
HOW THE FUND'S YIELD IS CALCULATED
The current annualized yield for the Fund is based upon a seven-day
period and is computed by determining the net change in the value of a
hypothetical account in the Fund. 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 realized gains and losses or unrealized
appreciation and depreciation. In addition, the Fund 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 Fund'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 Fund's current
yield will fluctuate and that shareholders' principal is not guaranteed or
insured should be considered in comparing the Fund's yield with yields on
fixed-yield investments, such as insured savings certificates. In comparing the
yield of the Fund 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 portfolios, the method used to compute the yield
and whether there are any special charges that may reduce the yield.
The Fund from time to time also may advertise its tax-equivalent yield
and tax-equivalent effective yield, based on a recently ended seven-day period.
These quotations are calculated by dividing that portion of the Fund's yield (or
effective yield, as the case may be) that is tax-exempt by 1 minus a stated
income tax rate and adding the product to that portion, if any, of the Fund's
yield that is not tax-exempt. Assuming a maximum tax rate of 39.6%, the Fund's
tax-equivalent yield and tax-equivalent effective yield for the seven-day period
ended December 31, 1996 were 5.22% and 5.30%, respectively.
Other Information
The Fund'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 Fund will fluctuate. In Performance Advertisements, the Fund may compare
its taxable or tax-free yield with data published by Lipper Analytical Services,
Inc. for money funds ("Lipper"), CDA Investment Technologies, Inc. ("CDA"),
IBC/Donoghue's Money Market Fund Report ("Donoghue"), Wiesenberger Investment
Companies Service ("Wiesenberger") or Investment Company Data Inc. ("ICD"),
10
<PAGE>
or with the performance of recognized stock and other indexes, including (but
not limited to) the Standard & Poor's 500 Composite Stock Price Index ("S&P
500"), the Dow Jones Industrial Average ("Dow Jones") and the Consumer Price
Index as published by the U.S. Department of Commerce. The Fund 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,
Wiesenberger or ICD. Performance Advertisements also may refer to discussions of
the Fund and comparative mutual fund data and ratings reported in independent
periodicals, including (but not limited to) THE WALL STREET JOURNAL, MONEY,
FORBES, BUSINESS WEEK, FINANCIAL WORLD, BARRON'S, THE NEW YORK TIMES and
FORTUNE.
The Fund may include discussions or illustrations of the effects of
compounding in Performance Advertisements. "Compounding" refers to the fact
that, if dividends or other distributions on an investment in the Fund are
reinvested in additional Fund shares, any future income or capital appreciation
of the Fund will increase the value, not only of the original Fund investment,
but also of the additional Fund shares received through reinvestment. As a
result, the value of the Fund investment will increase more quickly than if
dividends or other distributions were paid in cash.
The Fund 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 Fund's performance to CD performance, investors should keep in
mind that bank CDs are insured in whole or in 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. Fund shares are not insured or guaranteed
by the U.S. Government or any agency thereof and returns on such shares will
fluctuate. While the Fund seeks to maintain a stable net asset value of $1.00
per share, there can be no assurance that it will be able to do so.
Fund advertisements may reference the history of the distributor and
its affiliates, and the education and experience of the portfolio manager. The
Fund may also include in advertising biographical information on key investment
and managerial personnel. Advertisements may also describe techniques the
Adviser employs in selecting among the sectors of the fixed-income market and
adjusting average portfolio maturity. In particular, the advertisements may
focus on the technique of "value investing." With value investing, the Adviser
invests in those securities it believes to be undervalued in relation to the
long-term earning power or asset value of their issuers. Securities may be
undervalued because of many factors, including market decline, poor economic
conditions, tax-loss selling, or actual or anticipated unfavorable developments
affecting the issuer of the security.
In advertising, the Fund 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 Fund may use other recognized
sources as they become available.
The Fund 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 Fund 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.
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<PAGE>
The Fund 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 provided a full spectrum of financial
services. Legg Mason affiliates serve as investment advisors for private
accounts and mutual funds with assets of more than $43 billion as of March 31,
1997.
ADDITIONAL TAX INFORMATION
Federal Tax
In order to continue to qualify for treatment as a regulated investment
company ("RIC") under the Internal Revenue Code of 1986, as amended ("Code"),
the Fund must distribute annually to its shareholders at least 90% of the sum of
its net interest income excludable from gross income under section 103(a) of the
Code plus its investment company taxable income (generally, taxable net
investment income plus net short-term capital gain, if any) and must meet
several additional requirements. These requirements include the following: (1)
the Fund must derive at least 90% of its gross income each taxable year from
dividends, interest, payments with respect to securities loans, and gains from
the sale or other disposition of securities, or other income derived with
respect to its business of investing in securities; (2) the Fund must derive
less than 30% of its gross income each taxable year from the sale or other
disposition of securities held for less than three months; (3) at the close of
each quarter of the Fund'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 Fund's total
assets; and (4) at the close of each quarter of the Fund's taxable year, not
more than 25% of the value of its total assets may be invested in the securities
(other than U.S. government securities) of any one issuer.
If the Fund receives tax-exempt interest attributable to certain
"private activity bonds," a proportionate part of the exempt-interest dividends
paid by the Fund will be a TPI. Exempt-interest dividends received by a
corporate shareholder also may be indirectly subject to the alternative minimum
tax, without regard to whether the Fund's tax-exempt interest was attributable
to those bonds. Private activity bonds are issued by or on behalf of public
authorities to finance various privately operated facilities.
If the Fund invests in instruments that generate taxable income,
distributions of the interest earned thereon will be taxable to the Fund's
shareholders as ordinary income to the extent of the Fund's earnings and
profits. Moreover, if the Fund realizes capital gains as a result of market
transactions, any distributions of those gains will be taxable to its
shareholders.
If Fund shares are sold at a loss after being held for six months or
less, the loss will be disallowed to the extent of any exempt-interest dividends
received with respect to those shares.
Entities or persons who are "substantial users" (or persons related to
"substantial users") of facilities financed by industrial development bonds or
private activity bonds should consult their tax advisers before purchasing Fund
shares. For users of certain of these facilities, the interest on those bonds is
not exempt from federal income tax. For these purposes, a "substantial user"
generally includes a "non-exempt person" who regularly uses in trade or business
a part of a facility financed from the proceeds of industrial development bonds
or private activity bonds.
Up to 85% of social security and railroad retirement benefits may be
included in taxable income for recipients whose adjusted gross income (including
income from tax-exempt sources such as the Fund) plus 50% of their benefits
exceeds certain base amounts. Exempt-interest dividends from the Fund are still
tax-exempt to the extent described in the Prospectus; they are only included in
the calculation of whether a recipient's income exceeds certain established
amounts.
The Fund is required to withhold 31% of taxable dividends payable to
any individuals and certain other
12
<PAGE>
noncorporate shareholders who do not provide the Fund with a certified taxpayer
identification number or who otherwise are subject to backup withholding.
The Fund will be subject to a nondeductible 4% excise tax to the extent
it fails to distribute substantially all of its taxable ordinary income by the
end of the calendar year and capital gain net income for the one-year period
ending on October 31 of that year, plus certain other amounts.
State and Local Income Tax
The exemption of certain interest income for federal income tax
purposes does not necessarily result in exemption of such income under the
income or other tax laws of any state or local taxing authority. A shareholder
may be exempt from state and local taxes on distributions of interest income
derived from obligations of the state and/or localities of the state in which he
or she is a resident, but generally will be taxed on income derived from
obligations of other jurisdictions. Shareholders receive notification annually
of the portion of the Fund's tax-exempt income attributable to each state.
Shareholders should consult their tax advisers about the tax status in their own
states and localities of distributions from the Fund.
VALUATION OF SHARES
The Fund 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, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas.
Use of the Amortized Cost Method
The Board of Directors has determined that the interests of
shareholders are best served by using the amortized cost method for determining
the value of portfolio instruments. Under this method, portfolio instruments are
valued at acquisition cost, adjusted for amortization of premium or accumulation
of discount, rather than at current market value. The Board of Directors
periodically assesses the appropriateness of this method of valuation.
The Fund's use of the amortized cost method depends on its compliance
with Rule 2a-7 under the 1940 Act. Under that Rule, the Board of Directors must
establish procedures reasonably designed to stabilize the net asset value at
$1.00 per share, as computed for purposes of distribution and redemption, taking
into account current market conditions and the Fund's investment objective.
Monitoring Procedures
The Fund'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 Board of Directors will take any steps it considers
appropriate (such as shortening the dollar-weighted average portfolio maturity)
to minimize any material dilution or other unfair results arising from
differences between the two methods of determining net asset value.
Investment Restrictions
Rule 2a-7 requires the Fund to limit its investments to instruments
that, in the opinion of the Board of Directors or its delegate, present minimal
credit risk and are rated in one of the two highest short-term ratings
categories by a requisite number of nationally recognized statistical rating
organizations or, if unrated (as defined in the Rule), are determined to be of
comparable quality. The Rule requires the Fund 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
13
<PAGE>
a remaining maturity (as defined in the Rule) of more than 397 days can be
purchased by the Fund, except that the Fund may hold securities with maturities
greater than 397 days as collateral for repurchase agreements and other
collateralized transactions of short duration. However, the Rule permits the
Fund to treat certain floating and variable rate demand notes as having
maturities of 397 days or less, even if the notes specify a final repayment date
more than 397 days in the future.
Should the disposition of a portfolio security result in a
dollar-weighted average portfolio maturity of more than 90 days, the Fund will
invest its available cash to reduce the average maturity to 90 days or less as
soon as possible.
The Fund usually holds portfolio securities to maturity and realizes
par, unless the Adviser determines that sale or other disposition is appropriate
in light of the Fund'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 Fund, which is computed by dividing the annualized daily income on
the Fund'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 Fund 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.
THE CORPORATION'S DIRECTORS AND OFFICERS
The Corporation's officers are responsible for the operation of the
Corporation under the direction of the Board of Directors. The Corporation's
officers and directors and their principal occupations during the past five
years are set forth below. An asterisk (*) indicates those officers and/or
directors who are "interested persons" of the Corporation as defined in the 1940
Act, because of their relationship to Legg Mason or the Adviser. The address of
each officer and director is 111 South Calvert Street, Baltimore, Maryland
21202, unless otherwise indicated.
JOHN F. CURLEY, JR.*, [07/24/39] Chairman of the Board and
Director; 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; Officer and/or Director of various other affiliates of
Legg Mason, Inc.; President and Director of three Legg Mason funds;
Chairman of the Board and Director of three Legg Mason funds; President and/or
Chairman of the Board and Trustee of two Legg Mason funds.
EDMUND J. CASHMAN, JR.*, [08/31/36] President and Director; Senior
Executive Vice President and Director of Legg Mason, Inc.; Officer and/or
Director of various other affiliates of Legg Mason, Inc.; Director of Worldwide
Value Fund, Inc.; Vice Chairman and Director of one Legg Mason fund; President
and Trustee of one Legg Mason fund.
RICHARD G. GILMORE, [06/09/27] Director; 948 Kennett Way, West Chester,
Pennsylvania. Independent Consultant. Director of CSS Industries, Inc.
(diversified holding company engaged in manufacture and sale of decorative paper
products, business forms, and specialty metal packaging); Director of PECO
Energy Company (formerly Philadelphia Electric Company); Director of six Legg
Mason funds; Trustee of two Legg Mason funds. Formerly: Senior Vice President
and Chief Financial Officer of Philadelphia Electric Company (now PECO Energy
Company); Executive Vice President and Treasurer, Girard Bank, and Vice
President of its parent holding company, the Girard Company (bank holding
company) and Director of Finance, City of Philadelphia.
14
<PAGE>
CHARLES F. HAUGH, [12/27/25] Director; 14201 Laurel Park Drive, Laurel,
Maryland. Real Estate Developer and Investor; President and Director of Resource
Enterprises, Inc. (real estate brokerage); Chairman of Resource Realty LLC
(management of retail and office space); Partner in Greater Laurel Health Park
Ltd. Partnership (real estate investment and development); Director of six Legg
Mason funds; Trustee of two Legg Mason funds.
ARNOLD L. LEHMAN, [07/18/44] Director; The Baltimore Museum of Art, Art
Museum Drive, Baltimore, Maryland. Director of the Baltimore Museum of Art;
Director of six Legg Mason funds; Trustee of two Legg Mason funds.
JILL E. McGOVERN, [08/29/44] Director; 1500 Wilson Boulevard,
Arlington, Virginia. Chief Executive Officer of the Marrow Foundation;
Director of six Legg Mason funds; Trustee of two Legg Mason funds. Formerly:
Executive Director of the Baltimore International Festival (January 1991 - March
1993); Senior Assistant to the President of The Johns Hopkins University
(1986-1991).
T. A. RODGERS, [10/22/34] Director; 2901 Boston Street, Baltimore,
Maryland. Principal, T. A. Rodgers & Associates (management consulting);
Director of six Legg Mason funds; Trustee of two Legg Mason funds. Formerly:
Director and Vice President of Corporate Development, Polk Audio, Inc.
(manufacturer of audio components) (1991-1992).
The executive officers of the Corporation, other than those who also
serve as directors, are:
KATHI D. BAIR*, [12/15/64] Secretary and Assistant Treasurer;
Secretary and Assistant Treasurer/Secretary/Assistant Secretary of seven Legg
Mason funds; employee of Legg Mason.
MARIE K. KARPINSKI*, [01/01/49] Vice President and Treasurer;
Treasurer of Legg Mason Fund Adviser, Inc.; Vice President and Treasurer of
eight Legg Mason funds; Secretary/Treasurer of Worldwide Value Fund, Inc.; Vice
President of Legg Mason.
Officers and directors of the Corporation who are "interested persons"
of the Corporation, as defined in the 1940 Act, receive no salary or fees from
the Corporation. Directors who are not interested persons of the Corporation
receive an annual retainer and a per meeting fee based on the average net assets
of the Fund at December 31, as follows:
December 31 Annual Per Meeting
Avg. Net Assets Retainer Fee
--------------- -------- -----------
Up to $250 million $ 600 $150
$250 million - $1 billion $1,200 $300
Over $1 billion $2,000 $400
On April 1, 1997, the directors and officers of the Corporation beneficially
owned, in the aggregate, less than 1% of the Fund's outstanding shares.
The Commonwealth of Pennsylvania-Pennvest, Finance Building, Room 126,
Harrisburg, PA 17120, owned of record and beneficially 15.06% of the
Corporation's outstanding shares as of April 23, 1997.
The Nominating Committee of the Board of Directors is responsible for
the selection and nomination of disinterested directors. The Committee is
composed of Messrs. Haugh, Gilmore, Lehman, Rodgers and Dr. McGovern, each of
whom is a disinterested director as that term is defined in the 1940 Act.
The following table provides certain information relating to the
compensation of the Corporation's directors for the fiscal year ended December
31, 1996. None of the Legg Mason funds has any retirement plan for its
directors.
COMPENSATION TABLE
15
<PAGE>
<TABLE>
<CAPTION>
Total Compensation From
Aggregate Compensation From Corporation and Fund Complex
Name of Person and Position Corporation* Paid to Directors**
--------------------------- ----------------------------- ------------------------------
<S> <C>
John F. Curley, Jr. -
Chairman of the Board and Director None None
Edmund J. Cashman, Jr.
President and Director None None
Richard G. Gilmore -
Director $2,000 $25,100
Charles F. Haugh -
Director $2,000 $25,600
Arnold L. Lehman -
Director $2,000 $25,600
Jill E. McGovern -
Director $2,000 $25,600
T. A. Rodgers -
Director $2,000 $25,100
</TABLE>
* Represents fees paid to each director during the fiscal year ended
December 31, 1996.
** Represents aggregate compensation paid to each director during the
calendar year ended December 31, 1996.
There are nine open-end investment companies in the Legg Mason Complex (with a
total of seventeen funds).
THE FUND'S INVESTMENT ADVISER
The Adviser, located at 111 South Calvert Street, Baltimore, Maryland
21202, is a wholly owned subsidiary of Legg Mason, Inc., which also is the
parent of Legg Mason . The Adviser serves as the Fund's investment adviser and
manager under an Investment Advisory and Management Agreement ("Advisory
Agreement") dated July 1, 1983 that was most recently approved by the
Corporation's Board of Directors, including a majority of the directors who are
not "interested persons" of the Fund or the Adviser, on November 15, 1996. The
Advisory Agreement provides that, subject to overall direction by the Board of
Directors, the Adviser manages the investment and other affairs of the Fund. The
Adviser is responsible for managing the Fund consistent with the Fund's
investment objectives and policies described in the Prospectus and this
Statement of Additional Information. The Adviser also is obligated to (a)
furnish the Fund with office space and executive and other personnel necessary
for the operations of the Fund; (b) supervise all aspects of the Fund's
operations; (c) bear the expense of certain informational and purchase and
redemption services to Fund shareholders; (d) arrange, but not pay for, the
periodic updating of prospectuses, proxy material, tax returns and reports to
shareholders and state and federal regulatory agencies; and (e) report regularly
to the Corporation's officers and directors. The Adviser and its affiliates pay
all the compensation of directors and officers of the Corporation who are
employees of the Adviser. The Fund is obligated to pay all its other expenses
which are not assumed by the Adviser. These expenses include, among others,
interest expense, taxes, auditing and accounting fees, distribution fees, fees
and expenses of the independent directors of the Corporation, brokerage fees and
commissions, expenses of preparing prospectuses and of printing and distributing
prospectuses annually to existing shareholders, custodian charges, transfer
agency fees, legal expenses, insurance expenses, association membership dues,
governmental fees, expenses of registering and qualifying Fund shares for sale
under federal and state law, and the expense of reports to existing
shareholders, shareholders' meetings and proxy solicitations. The Fund is also
obligated to pay the expenses for maintenance of its financial books and
records, including computation of the Fund's daily net asset value
16
<PAGE>
per share and dividends. The Fund is also liable for such nonrecurring expenses
as may arise, including litigation to which the Fund may be a party. The
Corporation may have an obligation to indemnify its directors and officers with
respect to any litigation.
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 Fund in
connection with the performance of the Advisory Agreement, except that the
Adviser may be liable for 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 thereunder.
As explained in the Prospectus, the Adviser receives for its services a
fee, calculated daily and payable monthly, at an annual rate of 0.50% of the
average daily net assets of the Fund. For the years ended December 31, 1996,
1995 and 1994, the Fund paid the Adviser fees of $1,373,646, $1,178,059 and
$1,224,832, respectively.
The Advisory Agreement terminates automatically upon assignment and is
terminable at any time without penalty by vote of the Corporation's Board of
Directors, by vote of a majority of the Fund's outstanding voting securities, or
by the Adviser, on not less than 60 days' notice to the Fund and may be
terminated immediately upon the mutual written consent of the Adviser and the
Fund.
Under the Advisory Agreement, the Fund 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 Adviser.
To mitigate the possibility that the Fund will be affected by personal
trading of employees, the Corporation and the Adviser have adopted policies that
restrict securities trading in the personal accounts of portfolio managers and
others who normally come into advance possession of information on portfolio
transactions. These policies comply, in all material respects, with the
recommendations of the Investment Company Institute.
THE FUND'S DISTRIBUTOR
Legg Mason acts as distributor of the Fund's shares pursuant to an
Underwriting Agreement with the Corporation. The Underwriting Agreement
obligates Legg Mason to promote the sale of Fund shares and to pay certain
expenses in connection with its distribution efforts, including any compensation
to its financial advisors, the printing and distribution of prospectuses and
periodic reports used in connection with the offering to prospective investors
(after the prospectuses and reports have been prepared, set in type and mailed
to existing shareholders at the Fund's expense) and for supplementary sales
literature and advertising costs.
The Board of Directors of the Corporation has adopted a Distribution
and Shareholder Services Plan ("Plan") pursuant to Rule 12b-1 under the 1940
Act.
17
<PAGE>
The Plan provides that as compensation for Legg Mason's ongoing services to
investors in the Fund and its activities and expenses related to the sale and
distribution of shares, the Fund may pay Legg Mason a fee at an annual rate of
up to 0.20% of its average daily net assets. However, Legg Mason has agreed that
it will not request payment of more than 0.10% annually from the Fund during the
first two years following implementation of the Plan. Effective January 10,
1997, the Fund began compensating Legg Mason for distribution costs and services
at this 0.10% annual rate. The distribution fee is computed daily and paid
monthly. The fees received by Legg Mason during any year may be more or less
than its costs of providing distribution and shareholder services for the Fund.
As required by Rule 12b-1 under the 1940 Act, the Plan was most
recently approved by the Board of Directors, including a majority of the
directors who are not "interested persons" of the Fund and who have no direct or
indirect financial interest in the operation of the Plan or in the Underwriting
Agreement ("12b-1 directors"), on November 15, 1996. In accordance with the
requirements of Rule 12b-1, the directors considered various factors in
approving and continuing the Plan, including the amount of the distribution fee,
and determined that there is a reasonable likelihood that the Plan will benefit
the Fund and its shareholders. The directors noted that, to the extent the Plan
results in additional sales of Fund shares, the Plan may enable the Fund to
achieve economies of scale that could reduce expenses and to minimize the
prospects that the Fund will experience net redemptions and the accompanying
disruption of portfolio management.
The Plan continues in effect only so long as it is approved at least
annually by the vote of a majority of the Board of Directors, including a
majority of the 12b-1 directors, cast at a meeting called for the purpose of
voting on the Plan. The Plan may be terminated by vote of a majority of the
12b-1 directors or by a vote of a majority of the outstanding voting securities
of the Fund (as defined in the 1940 Act). Any change in the Plan that would
materially increase the distribution cost to the Fund requires shareholder
approval; otherwise, the Plan may be amended by the directors, including a
majority of the 12b-1 directors.
In accordance with Rule 12b-1, the Plan provides that Legg Mason will
give to the Corporation's Board of Directors, and the directors 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, so long as the
Plan is in effect, the selection and nomination of the disinterested directors
will be committed to the discretion of such disinterested directors.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Advisory Agreement authorizes the Adviser (subject to the overall
direction of the Corporation's Board of Directors) to select brokers and dealers
to execute purchases and sales of the Fund's portfolio securities. It directs
the Adviser to use its best efforts to obtain the best available price and most
favorable execution with respect to all transactions for the Fund. The Adviser
undertakes to execute each transaction at a price and commission that provides
the most favorable total cost or proceeds reasonably obtainable under the
circumstances. The Fund's portfolio securities are generally purchased without a
stated commission,
18
<PAGE>
either directly from the issuer or from dealers who specialize in municipal
bonds and money market instruments. Prices paid to a dealer generally include a
"spread," which is the difference between the price at which the dealer is
willing to purchase and sell the specific security at the time, and includes the
dealer's normal profit. To the extent that the execution and price offered by
more than one dealer are comparable, the Adviser may, at its discretion, effect
transactions in portfolio securities with dealers who provide the Fund with
research, advice or other services. Since the commencement of operations on July
14, 1983, the Fund has incurred no brokerage commissions.
Portfolio securities are not purchased from or sold to the Adviser or
Legg Mason or any "affiliated person" (as defined in the 1940 Act) thereof,
except in accordance with SEC rules or actions. The Corporation's Board of
Directors has adopted procedures in conformity with Rule 10f-3 under the 1940
Act whereby the Fund may purchase securities that are offered in underwritings
in which Legg Mason or other affiliated persons are participants, though no such
purchases have occurred since commencement of operations.
Investment decisions for the Fund 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 CORPORATION'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 Fund's assets. Boston Financial Data Services, P.O.
Box 953, Boston, MA 02103 serves as transfer and dividend-disbursing agent for
the Fund and administrator of various shareholder services.
THE CORPORATION'S LEGAL COUNSEL
Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue, N.W.,
Washington, D.C., 20036-1800, serves as counsel to the Corporation.
THE CORPORATION'S INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., 217 East Redwood Street, Baltimore, MD 21202,
is the Corporation's independent accountants.
FINANCIAL STATEMENTS
The Fund's Statement of Net Assets as of December 31, 1996; the
Statement of Operations for the year ended December 31, 1996; the Statement of
Changes in Net Assets for the years ended December 31, 1996 and 1995; the
Financial Highlights for the periods presented; the Notes to Financial
Statements; and the Report of Independent Accountants, each of which is included
in the Annual Report to Shareholders of the Fund dated December 31, 1996, are
hereby incorporated by reference in this Statement of Additional Information.
19
<PAGE>
APPENDIX A
RATINGS OF SECURITIES
1. Description of Moody's Investors Service, Inc. ("Moody's") Ratings
MUNICIPAL BONDS which are rated Aaa by Moody's are judged to be of the
best quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues. Bonds
rated Aa are judged to be of high quality by all standards. Together with the
Aaa group they comprise what are generally known as high-grade bonds. They are
rated lower than the best bonds because margins of protection may not be as
large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make long-term
risks appear somewhat larger than in Aaa securities.
MUNICIPAL NOTES Moody's ratings for state and municipal short-term
obligations are designated Moody's Investment Grade ("MIG") and for variable
rate demand obligations are designated Variable Moody's Investment Grade
("VMIG"). The rating MIG recognizes the differences between short-term credit
risk and long-term credit risk, while VMIG differentiates variable rate demand
obligations to reflect such characteristics as payment upon periodic demand
rather than fixed maturity dates and payment relying on external liquidity.
Notes bearing the designation MIG-1 or VMIG-1 are of the best quality, enjoying
strong protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing. Notes bearing the
designation MIG-2 or VMIG-2 are judged to be of high quality, with margins of
protection ample although not so large as in the preceding group.
COMMERCIAL PAPER The ratings Prime-1 and Prime-2 are the two highest
commercial paper ratings assigned by Moody's. Among the factors considered in
assigning ratings are the following: (1) leading market positions in
well-established industries; (2) high rates of return on funds employed; (3)
conservative capitalization structure with moderate reliance on debt and ample
asset protection; (4) broad margins in earnings coverage of fixed financial
charges and high internal cash generation; and (5) well-established access to a
range of financial markets and assured sources of alternate liquidity. Relative
strength or weakness of the above factors determines whether the issuer's
commercial paper is rated Prime-1, -2, or -3.
A-1
<PAGE>
2. Description of Standard & Poor's ("S&P") Ratings
MUNICIPAL BONDS rated AAA by S&P are the highest grade obligations.
This rating indicates an extremely strong capacity to pay interest and repay
principal. Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from AAA issues only in small degree.
MUNICIPAL NOTES Municipal notes with maturities of three years or less
are usually given note ratings (designated SP-1, -2, or -3) by S&P to
distinguish more clearly the credit quality of notes as compared to bonds. Notes
rated SP-1 have a very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety characteristics are given
the designation SP-1+.
COMMERCIAL PAPER The highest commerical paper rating assigned by S&P,
A-1, indicates that the degree of safety regarding timely payment is strong.
Those issues determined to possess extremely strong safety characteristics are
given the designation A-1+. Commerical paper rated A-2 has a satisfactory
capacity for timely payment. However, the relative degree of safety is not as
high for issues designated A-1.
A-2
<PAGE>
Legg Mason Tax Exempt Trust, Inc.
Part C. Other Information
Item 24. Financial Statements and Exhibits
(a) Financial Statements: The financial statements of the Fund for
the year ended December 31, 1996 and the report thereon of the
independent accountants are incorporated into the Statement of
Additional Information by reference to the Annual Report to
Shareholders for the same period.
The Fund's Financial Data Schedule appears as Exhibit 27.
(b) Exhibits
(1) (a) Charter -- filed herewith
(b) Charter Amendment -- filed herewith
(2) (a) Amended By-Laws -- filed herewith
(b) Amendment to By-Laws (effective May 10, 1991) -- filed
herewith
(3) Voting Trust Agreement - none
(4) Specimen Security -- none
(5) Investment Advisory and Management Agreement -- filed herewith
(6) (a) Underwriting Agreement -- filed herewith
(b) Underwriting Agreement -- filed herewith
(7) Bonus, profit sharing or pension plans - none
(8) Custodian Agreement -- filed herewith
(9) Transfer Agent and Service Agreement -- filed herewith
(10) Opinion and Consent of Counsel -- filed herewith
(11) Other opinions, appraisals, rulings and consents-Accountant's
consent -- filed herewith
(12) Financial statements omitted from prospectus -- none
(13) Agreement for providing initial capital -- filed herewith
(14) Prototype Retirement Plan -- none
(15) (a) Plan pursuant to Rule 12b-1 -- filed herewith
(b) Plan pursuant to Rule 12b-1 -- filed herewith
(16) Schedule for Computation of Performance Quotations -- filed herewith
(18) Plan pursuant to Rule 18f-3 - none
(27) Financial Data Schedule - filed herewith
Item 25. Persons Controlled By or Under Common Control with Registrant
None
Item 26. Number of Holders of Securities
Number of Record Shareholders
Title of Class as of April 18, 1997
- -------------- ------------------------
Shares of Common Stock,
par value $0.001 per share 6,874
Item 27. Indemnification
<PAGE>
Article Thirteenth of the Registrant's Articles of Incorporation provides:
"The Corporation shall indemnify its present and past directors, officers,
employees, and agents, and persons who are serving or have served at the request
of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or enterprise, to the maximum
extent permitted by applicable law, in such manner as may be provided in the
By-Laws; provided, that no director, officer, investment adviser or principal
underwriter of the Corporation shall be indemnified in violation of Section
17(i) of the 1940 Act. The Corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer or employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability."
Article X of the Registrant's By-laws provides: "The Corporation shall
indemnify its present and past directors, officers, employees, and agents, and
persons who are serving or have served at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or enterprise, to the maximum extent provided and allowed by Md.
Corp. and Assns. Code ss.2-418, as amended from time to time, or any other
applicable provision of law. Notwithstanding anything herein to the contrary, no
director, officer, investment adviser or principal underwriter of the
Corporation shall be indemnified in violation of Section 17(i) of the Investment
Company Act of 1940, as amended. The directors of the corporation may provide
such liability insurance to the persons named herein as is authorized by the
Corporation's Articles of Incorporation."
Pursuant to the Registrant's agreement with its principal underwriter, the
Registrant has agreed to indemnify the underwriter from and against any and all
claims, demands, liabilities and expenses (including the cost of investigating
or defending such claims, demands or liabilities and any counsel fees incurred
in connection therewith) which it or any controlling person may incur, under the
Investment Company Act of 1940, or under common law or otherwise, arising out of
or based upon any alleged untrue statement of a material fact contained in the
Registrant's registration statement or prospectus or arising out of or based
upon any alleged omission to state a material fact required to be stated in
either thereof or necessary to make the statements in either thereof not
misleading; provided, however, that the indemnity agreement, to the extent that
it might require indemnity of any person who is a controlling person and who is
also a director of the Registrant, may not inure to the benefit of such person
unless a court of competent jurisdiction shall determine, or its shall have been
determined by controlling precedent, that such result would not be against
public policy as expressed in the Investment Company Act of 1940; and further
provided that in no event shall anything contained in the indemnity agreement be
so construed as to protect the underwriter against any liability to the
Registrant or its security holders to which the underwriter would otherwise be
subject by reason of willful misfeasance, bad faith, or gross negligence, in the
performance of its duties, or by reason of its reckless disregard of any
obligations and duties under the underwriting agreement.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities 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 issue.
The Registrant intends to purchase on behalf of its directors and officers
insurance against any liability resulting from their service in these capacities
to the extent permissable under the Articles and By-laws.
<PAGE>
Item 28. Business and Connections of Manager and Investment Adviser
Legg Mason Fund Adviser, Inc. ("Fund Adviser"), the Registrant's
investment adviser, is a registered investment adviser incorporated on January
20, 1982. Fund Adviser is engaged primarily in the investment advisory business.
Fund Adviser also serves as investment adviser or manager for seventeen open-end
investment companies, and as investment consultant for a closed-end investment
company. Information as to the officers and directors of Fund Adviser is
included in its Form ADV filed on June 28, 1996 with the Securities and Exchange
Commission (registration number 801-16958) and is incorporated herein by
reference.
Item 29. Principal Underwriters
(a) Legg Mason Cash Reserve Trust
Legg Mason Special Investment Trust, Inc.
Legg Mason Value Trust, Inc.
Legg Mason Income Trust, Inc.
Legg Mason Total Return 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").
Position and Positions and
Name and Principal Offices with Offices with
Business Address* Underwriter - LMWW Registrant
- ------------------ ------------------ -------------
Raymond A. Mason Chairman of the None
Board
John F. Curley, Jr. Vice Chairman Chairman of the
of the Board Board and Director
James W. Brinkley President and None
Director
Edmund J. Cashman, Jr. Senior Executive President and
Vice President and Director
Director
Richard J. Himelfarb Senior Executive Vice None
President and
Director
Edward A. Taber III Senior Executive Vice None
President and
Director
Robert A. Frank Executive Vice None
President and
Director
<PAGE>
Robert G. Sabelhaus Executive Vice None
President and
Director
Charles A. Bacigalupo Senior Vice None
President,
Secretary and
Director
Thomas M. Daly, Jr. Senior Vice None
President and
Director
Jerome M. Dattel Senior Vice None
President and
Director
Robert G. Donovan Senior Vice None
President and
Director
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
William B. Jones, Jr. Senior Vice None
1747 Pennsylvania President and
Avenue, N.W. Director
Washington, D.C. 20006
Laura L. Lange Senior Vice None
President and
Director
Marvin H. McIntyre Senior Vice None
1747 Pennsylvania President and
Avenue, N.W. Director
Washington, D.C. 20006
Mark I. Preston Senior Vice None
President and
Director
F. Barry Bilson Senior Vice None
President and
Director
M. Walter D'Alessio, Jr. Director None
<PAGE>
1735 Market Street
Philadelphia, PA 19103
Harry M. Ford, Jr. 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
Horace M. Lowman, Jr. Senior Vice None
President and
Asst. Secretary
Seth J. Lehr Senior Vice None
1735 Market St. President
Philadelphia, PA 19103
Robert L. Meltzer Senior Vice None
One Battery Park Plaza President
New York, NY 10004
John A. Pliakas Senior Vice None
99 Summer Street President
Boston, MA 02101
Gail Reichard Senior Vice None
7 E. Redwood St. President
Baltimore, MD 21202
Timothy C. Scheve Senior Vice None
President and
Treasurer
Elisabeth N. Spector Senior Vice None
President
Joseph Sullivan Senior Vice None
President
Cheryl Allen Vice President None
221 West Sixth St.
Austin, TX 78701
William H. Bass, Jr. Vice President None
Nathan S. Betnun Vice President None
John C. Boblitz Vice President None
7 E. Redwood St.
Baltimore, MD 21202
Andrew J. Bowden Vice President None
D. Stuart Bowers Vice President None
<PAGE>
7 E. Redwood St.
Baltimore, MD 21202
Edwin J. Bradley, Jr. Vice President None
Scott R. Cousino Vice President None
John R. Gilner Vice President None
Terrence R. Duvernay Vice President None
1100 Poydras St.
New Orleans, LA 70163
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
Anne S. Morse Vice President None
1735 Market St.
Philadelphia, PA 19103
Hance V. Myers, III Vice President None
1100 Poydras St.
New Orleans, LA 70163
Jonathan M. Pearl Vice President None
1777 Reisterstown Rd.
Pikesville, MD 21208
Douglas F. Pollard Vice President None
Carl W. Riedy, Jr. 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
7 E. Redwood St.
Baltimore, MD 21202
Eugene B. Shephard Vice President None
1111 Bagby St.
Houston, TX 77002-2510
Lawrence D. Shubnell Vice President None
Alexsander M. Stewart Vice President None
One World Trade Center
New York, NY 10048
<PAGE>
F. James Tennies Vice President, None
Asst. Secretary &
Asst. General Counsel
Robert S. Trio Vice President None
1747 Pennsylvania Ave.
Washington, DC 20006
Lewis T. Yeager Vice President None
7 E. Redwood St.
Baltimore, MD 21202
Joseph F. Zunic Vice President None
* All addresses are 111 South Calvert Street, Baltimore, Maryland 21202, unless
otherwise indicated.
(c) The Registrant has no principal underwriter which is not
an affiliated person of the Registrant or an affiliated
person of such an affiliated person.
Item 30. Location of Accounts and Records
State Street Bank and Trust Company
P. O. Box 1713
Boston, Massachusetts 02105
Item 31. Management Services
None
Item 32. 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 Tax Exempt Trust,
Inc. certifies that it meets all the requirements for effectiveness in this
Post-Effective Amendment No. 20 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 28th day of
April, 1997.
LEGG MASON TAX EXEMPT TRUST, INC.
by: /s/John F. Curley, Jr.
_____________________________
John F. Curley, Jr.
Chairman of the Board and Director
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 20 to the Registrant's Registration Statement has
been signed below by the following persons in the capacities and on the dates
indicated:
Signature Title Date
- --------- ----- ----
/s/ John F. Curley, Jr. Chairman of the Board April 28, 1997
- -------------------------- and Director
John F. Curley, Jr.
/s/ Edmund J. Cashman, Jr. President and Director April 28, 1997
- --------------------------
Edmund J. Cashman, Jr.
/s/ Richard G. Gilmore* Director April 28, 1997
- --------------------------
Richard G. Gilmore*
/s/ Charles F. Haugh* Director April 28, 1997
- --------------------------
Charles F. Haugh*
/s/ Arnold L. Lehman* Director April 28, 1997
- --------------------------
Arnold L. Lehman*
/s/ Jill E. McGovern* Director April 28, 1997
- --------------------------
Jill E. McGovern*
/s/ T. A. Rodgers* Director April 28, 1997
- --------------------------
T.A. Rodgers*
/s/ Marie K. Karpinski Vice President April 28, 1997
- -------------------------- and Treasurer
Marie K. Karpinski
*Signatures affixed by Marie K. Karpinski pursuant to powers of attorney, dated
May 18, 1992, a copy of which is filed herewith.
<PAGE>
POWER OF ATTORNEY
I, the undersigned Director of Legg Mason Tax-Exempt trust, Inc. (the
"Fund") hereby severally consitute and appoint Marie K. Karpinski, Arthur J.
Brown and Dana L. Platt and each of them singly 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 and all Post-Effective
Amendments to the Fund's registration statement, any registration statements on
Form N-14, any supplements or other instruments in connection therewith, 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,
and all related requirements of the Securities and Exchange Commission. 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 18, 1992
- -------------------------
Richard G. Gilmore
/s/ Charles F. Haugh May 18, 1992
- -------------------------
Charles F. Haugh
/s/ Arnold L. Lehman May 18, 1992
- -------------------------
Arnold L. Lehman
/s/ Jill E. McGovern May 18, 1992
- -------------------------
Jill E. McGovern
/s/ T. A. Rodgers May 18, 1992
- -------------------------
T.A. Rodgers
Exhibit 1a
ARTICLES OF INCORPORATION OF
LEGG MASON MONEY TRUST, INC.
FIRST: The undersigned, DONALD W. SMITH, whose post office address is
1900 M Street, N.W., Washington, D.C. 20036, being at least eighteen years of
age, under and by virtue of the General Laws of the State of Maryland
authorizing the formation of corporations, is acting as sole incorporator with
the intention of forming a corporation.
SECOND: The name of the Corporation is LEGG MASON MONEY TRUST, INC.
(the "Corporation").
THIRD: The duration of the Corporation shall be perpetual.
FOURTH: The purposes for which the Corporation is formed are:
(a) To hold, invest and reinvest its funds, and in connection therewith
to hold part of all of its funds in cash, and to purchase, subscribe for or
otherwise acquire, hold for investment or otherwise, to trade and deal in,
write, sell, assign, negotiate, transfer, exchange, lend, pledge or otherwise
dispose of or turn to account or realize upon, securities (which term
"securities" shall, for the purposes of these Articles of Incorporation, without
limiting the generality thereof, be deemed to include any stocks, shares, bonds,
debentures, bills, notes, mortgages or other obligations or evidences of
indebtedness, and any options, certificates, receipts, warrants or other
instruments representing rights to receive, purchase or subscribe for the same,
or evidencing of representing any other rights or interests therein, or in any
property or assets; and any negotiable or non-negotiable instruments and money
market instruments, including bank certificates of deposit, finance paper,
commercial paper, bankers' acceptances and all kinds of repurchase or reverse
repurchase agreements) created or issued by any United States or foreign issuer
(which term "issuer" shall, for the purpose of these Articles of Incorporation,
without limiting the generality thereof, be deemed to include any persons,
firms, associations, partnerships, corporations, syndicates, combinations,
organizations, governments or subdivisions, agencies or instrumentalities of any
government); and to exercise, as owner or holder of any securities, all rights,
powers and privileges in respect thereof; and to do any and all acts and things
for the preservation, protection, improvement and enhancement in value of any
and all such securities.
(b) To acquire all or any part of the goodwill, rights, property, and
business of any person, firm, association or corporation heretofore or hereafter
engaged in any business similar to any business which the Corporation has the
power to conduct, and to hold, utilize, enjoy and in any manner dispose of the
whole or any part of the rights, property and business so acquired, and to
assume in connection therewith any liabilities of any such person, firm,
association or corporation.
(c) To apply for, obtain, purchase or otherwise acquire, any patents,
copyrights, licenses, trademarks, trade names and the like, which may be capable
of being used for any of the purposes of the Corporation; and to use, exercise,
develop, grant licenses in respect of, sell and otherwise turn to account, the
same.
(d) To issue and sell shares of its own capital stock and securities
convertible into such capital stock in such amounts and on such terms and
conditions, for such purposes and for such amount or kind of consideration
(including without limitation thereto, securities) now or hereafter permitted by
the laws of the State of Maryland, by the Investment Company Act of 1940 (the
"1940 Act") and by these Articles of Incorporation, as its Board of Directors
may determine.
<PAGE>
(e) To purchase or otherwise acquire, hold, dispose of, resell,
transfer, reissue or cancel (all without the vote or consent of the stockholders
of the Corporation) shares of its capital stock in any manner and to the extent
now or hereafter permitted by the laws of the State of Maryland, by the 1940 Act
and by these Articles of Incorporation.
(f) To conduct its business in all its branches at one or more offices
in Maryland and elsewhere in any part of the world, without restriction or limit
as to extent.
(g) To exercise and enjoy, in Maryland and in any other states,
territories, districts and United States dependencies and in foreign countries,
all of the powers, rights and privileges granted to, or conferred upon,
corporations by the General Laws of the State of Maryland now or hereafter in
force.
(h) In general to carry on any other business in connection with or
incidental to its corporate purposes, to do everything necessary, suitable or
proper for the accomplishment of such purposes or for the attainment of any
object or the furtherance of any power hereinbefore set forth, either alone or
in association with others, to do every other act or thing incidental or
appurtenant to or growing out of or connected with its business or purposes,
objects or powers, and, subject to the foregoing, to have and exercise all the
powers, rights and privileges conferred upon corporations by the laws of the
State of Maryland as in force from time to time.
The foregoing objects and purposes shall, except as otherwise expressly
provided, be in no way limited or restricted by reference to, or inference from,
the terms of any other clause of this or any other Article of these Articles of
Incorporation, and shall each be regarded as independent and construed as a
power as well as an object and a purpose, and the enumeration of specific
purposes, objects and powers shall not be construed to limit or restrict in any
manner the meaning of general terms or the general powers of the Corporation now
or hereafter conferred by the laws of Maryland, nor shall the expression of one
thing be deemed to exclude another though it be of like nature, not expressed;
provided however, that the Corporation shall not have power to carry on within
the State of Maryland any business whatsoever the carrying on of which would
preclude it from being classified as an ordinary business corporation under the
laws of said State; nor shall it carry on any business, or exercise any powers,
in any other state, territory, district or country except to the extent that the
same may lawfully be carried on or exercised under the laws thereof.
Incident to meeting the purposes specified above, the Corporation also
shall have the power:
(1) To acquire (by purchase, lease or otherwise) and to hold, use,
maintain, develop and dispose (by sale or otherwise) of any property, real or
personal, and any interest therein.
(2) To borrow money and, in this connection, issue notes or other
evidence of indebtedness.
(3) Subject to any applicable provisions of law, to buy, hold, sell,
and otherwise deal in and with foreign exchange.
FIFTH: The post office address of the principal office of the
Corporation in the State of Maryland is 7 East Redwood Street, Baltimore,
Maryland 21203. The name of the resident agent of the Corporation in the State
of Maryland is Charles A. Bacigalupo and the post office address of the resident
agent is 7 East Redwood Street, Baltimore, Maryland 21203. Said resident agent
is a citizen of the State of Maryland and actually resides therein.
SIXTH: The total number of shares of capital stock of all classes which
the Corporation shall have authority to issue is two billion (2,000,000,000)
shares, of the par value of one-tenth of one cent ($.001) (the "Shares"), and of
the aggregate par value of two million dollars ($2,000,000). The Shares
<PAGE>
may be issued by the Board of Directors in such class or classes each comprising
such number of Shares and having such preferences, rights, voting powers,
restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption as shall be fixed and determined from time to time by
resolution or resolutions providing for the issuance of such Shares adopted by
the Board of Directors, to whom authority so to fix and determine the same is
hereby expressly granted. In addition, the Board of Directors is hereby
expressly granted authority to increase or decrease the number of Shares of any
class, but the number of Shares of any class shall not be decreased by the Board
of Directors below the number of Shares thereof then outstanding.
The Board of Directors may classify or reclassify any unissued Shares
into one or more classes that may be established and designated from time to
time. The Corporation may hold as treasury Shares, reissue for such
consideration and on such terms as the Board of Directors may determine, or
cancel, at their discretion from time to time, any Shares of any class
reacquired by the Corporation. No holder of any of the Shares of any class shall
be entitled as of right to subscribe for, purchase, or otherwise acquire any
Shares of the Corporation which the Corporation proposes to issue or reissue.
All Shares of any class when properly issued in accordance with these Articles
of Incorporation shall be fully paid and nonassessable.
SEVENTH: Section 7.1. PROCEDURE FOR DESIGNATION The establishment and
designation of any class of Shares shall be effective upon (i) the authorization
of such class by vote of a majority of the Board of Directors, including the
establishment and designation of the preferences, rights voting powers,
restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption of such class, and (ii) the filing for record of any
articles supplementary required by Section 2-208 of the Maryland General
Corporation Law with the State Department of Assessments and Taxation of
Maryland. At any time when there are no Shares outstanding or subscribed for a
particular class previously established and designated by the Board of
Directors, the class may be liquidated by similar means.
Section 7.2. ESTABLISHMENT AND DESIGNATION OF CLASSES Without
limiting the authority of the Board of Directors set forth herein to establish
and designate any further classes, there is hereby established and designated a
class of stock to be known as: the Government Securities Portfolio Series. The
Shares of said class and any Shares of any further classes that may from time to
time be established and designated by the Board of Directors (unless provided
otherwise by the Board of Directors with respect to such further class at the
time of establishing and designating such further class) shall have the
following relative preferences, rights, voting powers, restrictions, limitations
as to dividends, qualifications, and terms and conditions of redemption:
(a) ASSETS BELONGING TO CLASSES All consideration received by the
Corporation for the issue or sale of Shares of a particular class, together with
all assets in which such consideration is invested or reinvested, all income,
earnings, profits, and proceeds thereof, including any proceeds derived from the
sale, exchange or liquidation of such assets, and any funds or payments derived
from any reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to that class for all purposes, subject only to the rights of
creditors, and shall be so recorded upon the books and accounts of the
Corporation. Such consideration, assets, income, earnings, profits, and proceeds
thereof, including any proceeds derived from any reinvestment of such proceeds,
in whatever from the same may be, together with any General Items allocated to
that class as provided in the following sentence, are herein referred to as
"assets belonging to" that class. In the event that there are any assets,
income, earnings, profits, and proceeds thereof, funds, or payments which are
not readily identifiable
<PAGE>
as belonging to any particular class (collectively "General Items"), such
General Items shall be allocated by or under the supervision of the Board of
Directors to and among any one or more of the classes established and designated
from time to time in such manner and on such basis as the Board of Directors, in
its sole discretion, deems fair and equitable, and any General Items so
allocated to a particular class shall belong to that class. Each such allocation
by the Board of Directors shall be conclusive and binding for all purposes.
(b) LIABILITIES BELONGING TO CLASS The assets belonging to each
particular class shall be charged with the liabilities of the Corporation in
respect of that class and all expenses, costs, charges and reserves attributable
to that class, and any general liabilities, expenses, costs, charges or reserves
of the Corporation which are not readily identifiable as belonging to any
particular class shall be allocated and charged by or under the supervision of
the Board of Directors to and among any one or more of the classes established
and designated from time to time in such manners and on such basis as the Board
of Directors, in its sole discretion, deems fair and equitable. The liabilities,
expenses, costs, charges and reserves allocated and so charged to a class herein
referred to as "liabilities belonging to" that class. Each allocation of
liabilities, expenses, costs, charges and reserves by the Board of Directors
shall be conclusive and binding for all purposes.
(c) INCOME BELONGING TO CLASS The Board of Directors shall have full
discretion, to the extent not inconsistent with the Maryland General Corporation
Law and the 1940 Act, to determine which items shall be treated as income and
which items as capital; and each such determination and allocation shall be
conclusive and binding. "Income belonging to" a class includes all income,
earnings and profits derived from assets belonging to that class, less any
expenses, costs, charges or reserves belonging to that class, for the relevant
time period.
(d) DIVIDENDS Dividends and distributions on Shares of a particular
class may be declared and paid with such frequency, in such form and in such
amount as the Board of Directors may from time to time determine. Dividends may
be declared daily or otherwise pursuant to a standing resolution or resolutions
adopted only once or with such frequency as the Board of Directors may
determine, after providing for actual and accrued liabilities belonging to that
class.
All dividends on Shares of a particular class shall be paid only out of
the income belonging to that class and capital gains distributions on Shares of
a particular class shall be paid only out of the capital gains belonging to that
class. All dividends and distributions on Shares of a particular class shall be
distributed pro rata to the holders of that class in proportion to the number of
Shares of that class held by such holders at the date and time of record
established for the payment of such dividends or distributions, except that in
connection with any dividend or distribution program or procedure the Board of
Directors may determine that no dividend or distribution shall be payable on
Shares as to which the Shareholder's purchase order and/or payment have not been
received by the time or times established by the Board of Directors under such
programs or procedure.
The Board of Directors shall have the power, in its sole discretion, to
distribute in any fiscal year as dividends, including dividends designated in
whole or in part as capital gains distributions, among sufficient, in the
opinion of the Board of Directors, to enable the Corporation to qualify as a
regulated investment company under the Internal Revenue Code of 1954, as
amended, or any successor or comparable statute thereto, and regulations
promulgated thereunder, and to avoid liability of the Corporation for Federal
income tax in respect of that year. However, nothing in the foregoing shall
limit the authority of the Board of Directors to make distributions greater than
or less than the amount necessary to qualify as a regulated investment company
and to avoid liability of the Corporation for such tax.
Dividends and distributions may be paid in cash, property or Shares, or
a combination thereof,
<PAGE>
as determined by the Board of Directors or pursuant to any program that the
Board of Directors may have in effect at the time. Any such dividend or
distribution paid in Shares will be paid at the current net asset value thereof
as defined in subsection 7.2(h).
(e) LIQUIDATION In the event of the liquidation of the Corporation or
of a particular class, the Shareholders of each class that has been established
and designated and is being liquidated shall be entitled to receive, as a class,
when and as declared by the Board of Directors, the excess of the assets
belonging to that class. The holders of Shares of any class shall not be
entitled thereby to any distribution upon liquidation of any other class. The
assets so distributable to the Shareholders of any particular class shall be
distributed among such Shareholders in proportion to the number of Shares of
that class held by them and recorded on the books of the Corporation. The
liquidation of any particular class in which there are Shares then outstanding
may be authorized by vote of a majority of the Board of Directors then in
office, subject to the approval of a majority of the outstanding securities of
that class, as defined in the 1940 Act.
(f) VOTING On each matter submitted to a vote of the Shareholders, each
holder of a Share shall be entitled to one vote for each Share standing in his
name on the books of the Corporation, irrespective of the class thereof, and all
Shares of all classes shall vote as a single class ("Single Class Voting");
provided, however, that (i) as to any matter with respect to which a separate
vote of any class is required by the 1940 Act or by the Maryland General
Corporation Law, such requirement as to a separate vote by that class shall
apply in lieu of Single Class Voting as described above; (ii) in the event that
the separate vote requirements referred to in (i) above apply with respect to
one or more classes, then, subject to (iii) below, the Shares of all other
classes shall vote as a single class; and (iii) as to any matter which does not
affect the interest of a particular class, only the holders of Shares of the one
or more affected classes shall be entitled to vote.
(g) REDEMPTION BY SHAREHOLDER Each holder of Shares of a particular
class shall have the right at such times as may be permitted by the Corporation
to require the Corporation to redeem all or any part of his Shares of that class
at a redemption price per share equal to the net asset value per Share of that
class as of such time as the Board of Directors shall have prescribed by
resolution. In the absence of such resolution, the redemption price per share
shall be the net asset value next determined (in accordance with subsection (h)
of this Section 7.2) after receipt by the Corporation of a request for
redemption in proper form less such charges as are determined by the Board of
Directors and described in the Corporation's registration statement under the
Securities Act of 1933. The Board of Directors may specify binding requirements
for the proper form or forms of requests for redemption. Payment of the
redemption price shall be in cash unless the Board of Directors determines,
which determination shall be conclusive, that conditions exist which make
payment wholly in cash unwise or undesirable. In the event of such a
determination, the Corporation may make payment wholly or partly in securities
or other assets belonging to the class of which the Shares being redeemed are
part at the value of such securities or assets used in such determination of net
asset value. Notwithstanding the foregoing, the Board of Directors may postpone
payment of the redemption price and may suspend the right of the holders of
Shares of any class to require the Corporation to redeem Shares of that class
during any period or at any time when and to the extent permissible under the
1940 Act.
(h) NET ASSET VALUE PER SHARE The net asset value per Share of any
class shall be the quotient obtained by dividing the value of the net assets of
that class (being the value of the assets belonging to that class less the
liabilities belonging to that class) by the total number of Shares of that class
outstanding. The Board of Directors shall have the power and duty to determine
from time to time the net asset value per Share of each class at such times and
by such methods as it shall determine
<PAGE>
subject to any restrictions or requirements under the 1940 Act and the rules,
regulations and interpretations thereof promulgated or issued by the Securities
and Exchange Commission or insofar as permitted by any order of the Securities
and Exchange Commission applicable to the Corporation. The Board of Directors
may delegate such power and duty to any one or more of the directors and
officers of the Corporation, to the Corporation's investment adviser, to the
custodian or depository of the Corporation's assets, or to another agent of the
Corporation.
The Board of Directors may determine to maintain the net asset value
per Share of any class at a designated constant dollar amount and in connection
therewith may adopt procedures not inconsistent with the 1940 Act for the
continuing declarations of income attributable to that class as dividends
payable in additional shares of that class at the designated constant dollar
amount and for the handling of any losses attributable to that class.
(i) EQUALITY All Shares of each particular class shall represent an
equal proportionate interest in the assets belonging to that class (subject to
the liabilities belonging to that class), and each Share of any particular class
shall be equal to each other Share of that class. The Board of Directors may
from time to time divide or combine the Shares of any particular class into a
greater or lesser number of Shares of that class without thereby changing the
proportionate beneficial interest in the assets belonging to that class or in
any way affecting the rights of Shares of any other class.
(j) CONVERSION OR EXCHANGE RIGHTS Subject to compliance with the
requirements of the 1940 Act, the Board of Directors shall have the authority to
provide that holders of Shares of any class shall have the right to convert or
exchange said Shares into Shares of one or more other classes of Shares in
accordance with such requirements and procedures as may be established by the
Board of Directors.
(k) REDEMPTION BY THE CORPORATION The Board of Directors may cause the
Corporation to redeem at current net asset value the Shares of any class from a
Shareholder whose Shares have an aggregate current net asset value of less than
five hundred dollars ($500). No such redemption shall be effected unless the
Corporation has given the Shareholder at least sixty (60) days' notice of its
intention to redeem the Shares and an opportunity to purchase a sufficient
number of additional Shares to bring the aggregate current net asset value of
his Shares to five hundred dollars ($500). Upon redemption of Shares pursuant to
this Section, the Corporation shall promptly cause payment of the full
redemption price to be made to the holder of Shares so redeemed.
EIGHTH: Section 8.1. ISSUANCE OF NEW STOCK The Board of Directors is
authorized to issue and sell or cause to be issued and sold from time to time
(without the necessity of offering the same or any part thereof to existing
shareholders) all or any portion or portions of the entire authorized but
unissued Shares of the Corporation, and all or any portion or portions of the
Shares of the Corporation from time to time in its treasury, for cash or for any
other lawful consideration or considerations and on or for any terms,
conditions, or prices consistent with the provisions of law and of the Articles
of Incorporation at the time in force; provided, however, that in no event shall
Shares of the Corporation having a par value be issued or sold for a
consideration or considerations less in amount or value than the par value of
the Shares so issued or sold, and provided further that in no event shall any
Shares of the Corporation be issued or sold, except as a stock dividend
distributed to shareholders, for a consideration (which shall be net to the
Corporation after underwriting discounts or commissions) less in amount or value
than the net asset value of the Shares so issued or sold determined as of such
time as the Board of Directors shall have by resolution prescribed. In the
absence of such a resolution, such net asset value shall be that next determined
after an unconditional order in proper form to purchase such Shares is accepted,
except that Shares may be sold to an
<PAGE>
underwriter at (a) the net asset value determined next after such orders are
received by a dealer with whom such underwriter has a sales agreement or (b) the
net asset value determined at a later time.
Section 8.2. FRACTIONAL SHARES The Corporation may issue and
sell fractions of Shares having pro rata all the rights of full Shares,
including, without limitation, the right to vote and to receive dividends, and
wherever the words "Share" or "Shares" are used in these Articles or in the
Bylaws they shall be deemed to include fractions of Shares, where the context
does not clearly indicate that only full Shares are intended.
NINTH: The number of directors constituting the Board of Directors
shall be three, which number may be changed in accordance with the Bylaws of the
Corporation but shall never be less than three. The names of the persons who
shall act as directors until the first annual meeting of the Corporation and
until their successors have been duly chosen and qualified are: Raymond A.
Mason, John F. Curley, Jr., and Edmund J. Cashman, Jr.
TENTH: Notwithstanding any provision of law requiring a greater
proportion than a majority of the votes of all classes (or of any class entitled
to vote thereon as a separate class) to take or authorize any action, in
accordance with the authority granted by Section 2-104(b)(5) of the Maryland
General Corporation Law, the Corporation is hereby authorized to take such
action upon the concurrence of a majority of the aggregate number of Shares
entitled to vote thereon (or a majority of the aggregate number of Shares of a
class entitled to vote thereon as a separate class). The right to cumulate votes
in the election of directors is expressly prohibited.
ELEVENTH: Except as may otherwise be provided in the Bylaws, the Board
of Directors of the Corporation is expressly authorized to make, alter, amend
and repeal Bylaws or to adopt new Bylaws of the Corporation, without any action
on the part of the Shareholders; but the Bylaws made by the Board of Directors
and the power so conferred may be altered or repealed by the Shareholders.
TWELFTH: Section 12.1. The Board of Directors may in its discretion
from time to time enter into an exclusive or non-exclusive distribution contract
or contracts providing for the sale of Shares whereby the Corporation may either
agree to sell Shares to the other party to the contract or appoint such other
party its sales agent for such shares (such other party being herein sometimes
called the "underwriter"), and in either case on such terms and conditions as
may be prescribed in the Bylaws, if any, and such further terms and conditions
as the Board of Directors may in its discretion determine not inconsistent with
the provisions of these Articles of Incorporation and such contract may also
provide for the repurchase of Shares of the Corporation by such other party as
agent of the Corporation. The Board of Directors may also in its discretion from
time to time enter into an investment advisory or management contract or
contracts whereby the other party to such contract shall undertake to furnish to
the Board of Directors such management, investment advisory, statistical and
research facilities and services and such other facilities and services, if any,
and all upon such terms and conditions as the Board of Directors may in its
discretion determine.
Section 12.2. Any contract of the character described in
Section 12.1 or for services as administrator, custodian, transfer agent or
disbursing agent or related services may be entered into with any corporation,
firm, trust or association, although any one or more of the directors or
officers of the Corporation may be an officer, director, trustee, shareholder
or member 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 be liable merely by reason of such relationship for any loss or
expense to the Corporation under or by reason of said contract or accountable
for any profit realized
<PAGE>
directly or indirectly therefrom, provided that the contract when entered into
was reasonable and fair and not inconsistent with the provisions of this Article
TWELFTH. The same person (including a firm, corporation, trust, or association)
may be the other party to contracts entered into pursuant to Section 12.1 above,
and any individual may be financially interested or otherwise affiliated with
persons who are parties to any or all of the contracts mentioned in this Section
12.2.
Section 12.3. Any contract entered into pursuant to Section
12.1 above shall be consistent with and subject to the requirements of
Section 15 of the Investment Company Act of 1940 (including any amendment
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.
THIRTEENTH: The Corporation shall indemnify its present and past
directors, officers, employees, and agents, and persons who are serving or have
served at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or enterprise,
to the maximum extent permitted by applicable law, in such manner as may be
provided in the Bylaws; provided, that no director, officer, investment adviser
or principal underwriter of the Corporation shall be indemnified in violation of
Section 17(i) of the 1940 Act. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him in any such capacity or arising out of his status as
such, whether or not the Corporation would have the power to indemnify him
against such liability.
FOURTEENTH: The Corporation reserves the right from time to time to
make any amendment of these Articles of Incorporation, now or hereafter
authorized by law, including any amendment which alters contract rights, as
expressly set forth in these Articles of Incorporation, of any outstanding
Share. Any amendment to these Articles of Incorporation may be adopted at either
an annual or special meeting of the shareholders upon receiving an affirmative
majority vote of all outstanding Shares and an affirmative majority of the
outstanding Shares of each class entitled to vote thereon separately as a class
in accordance with Section 7.2 (f) hereof.
IN WITNESS WHEREOF, the undersigned incorporator of LEGG MASON MONEY
TRUST, INC., has executed the foregoing Articles of Incorporation and hereby
acknowledges the same to be his act and further acknowledges that, to the best
of his knowledge, the matters and facts set forth therein are true in all
material respects under the penalties of perjury.
Dated the 26th day of July, 1982. /s/ Donald W. Smith
_____________________
Donald W. Smith
Exhibit 1b
ARTICLES OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
LEGG MASON MONEY TRUST, INC.
LEGG MASON MONEY TRUST, INC., a Maryland corporation, having its
principal office in Maryland in the city of Baltimore, Maryland (the
"Corporation") hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: The Corporation desires to amend its charter as currently in
effect.
SECOND: That Article SECOND shall be amended to read in its entirety as
follows:
SECOND: The name of the corporation is LEGG MASON TAX EXEMPT
TRUST, INC. (the "Corporation").
THIRD: That Article SEVENTH, Section 7.2, shall be amended by deleting
the first full sentence therein and substituting for it a sentence to read as
follows:
Without limiting the authority of the Board of Directors set
forth herein to establish and designate any further classes, there is
hereby established and designated a class of stock to be known as: the
Money Market Portfolio Series.
FOURTH: The foregoing amendments were approved by a majority of the
entire board of directors on February 10, 1983.
FIFTH: No stock entitled to be voted on the matter was outstanding or
subscribed for at the time of approval.
The foregoing Articles of Amendment to the Articles of Incorporation
will become effective and part of the charter when the Department of Assessments
and Taxation accepts them for record.
IN WITNESS WHEREOF, the Corporation has caused these presents to be
signed in its name and on behalf by its President and its corporate seal to be
hereunto affixed and attested to by its Secretary on this 10th day of February,
1983.
LEGG MASON MONEY TRUST, INC.
Attest: /s/ Charles A. Bacigalupo By: /s/ John F. Curley
________________________ ___________________________
Secretary John F. Curley, Jr.
<PAGE>
CERTIFICATE
THE UNDERSIGNED, President of Legg Mason Money Trust, Inc., who
executed on behalf of said corporation the foregoing Articles of Amendment, of
which this certificate is made a part, hereby acknowledges in the name and on
behalf of said corporation the foregoing Articles of Amendment to be the
corporate act of said corporation and further certifies that, to the best of his
knowledge, information and belief, the matters and facts set forth therein with
respect to the approval thereof are true in all material respects, under the
penalties of perjury.
/s/ John F. Curley
______________________________
John F. Curley, Jr., President
State of Maryland )
) ss:
City of Baltimore )
I HEREBY CERTIFY that on February 10, 1983, before me the subscriber, a
notary public of the State of Maryland in and for the City of Baltimore,
personally appeared John F. Curley, Jr., President of Legg Mason Money Trust,
Inc., a Maryland corporation, and in the name and on behalf of said corporation
acknowledged the foregoing Articles of Amendment to be the corporate act of said
corporation and further made oath in due form of law that the matters and facts
set forth in said Articles of Amendment with respect to the approval thereof are
true to the best of his knowledge, information and belief.
WITNESS my hand and notorial seal, the day and year last above written.
/s/ Thomas P. Forbes, Jr.
_________________________
Notary Public
MY COMMISSION EXPIRES JULY 1, 1985
Exhibit 2a
LEGG MASON TAX-EXEMPT TRUST, INC.
A Maryland Corporation
AMENDED BY-LAWS
February, 1983
<PAGE>
ARTICLE I
NAME OF CORPORATION, LOCATION OF OFFICES
AND SEAL
Section 1.01. Name: The name of the Corporation is Legg Mason
Tax-Exempt Trust, Inc.
Section 1.02. Principal Offices: The principal office of the
Corporation in the State of Maryland shall be located in the city of Baltimore.
The Corporation may establish and maintain such other offices and places of
business as the board of directors may, from time to time, determine.
Section 1.03. Seal: The corporate seal of the Corporation shall be
circular in form and shall bear the name of the Corporation, the year of its
incorporation, and the words "Corporate Seal, Maryland." The form of the seal
shall be subject to alteration by the board of directors and the seal may be
used by causing it or a facsimile to be impressed or affixed or printed or
otherwise reproduced. Any officer or director of the Corporation shall have
authority to affix the corporate seal of the Corporation to any document
requiring the same.
ARTICLE II
STOCKHOLDERS
Section 2.01. Annual Meetings: The annual stockholders' meeting for the
election of directors and the transaction of other proper business shall be held
between July 1 and July 31 on a date and at a time within that period set by the
board of directors.
Section 2.02. Special Meetings: Special meetings of the stockholders
may be called at any time by the chairman of the board, the president, or by any
vice president, or by a majority of the board of directors. Special meetings of
the stockholders shall be called by the secretary upon the written request of
the holders of shares entitled to vote not less than 25% of all the shares
entitled to be voted at such meeting, provided that (a) such request shall state
the purposes of such meeting and the matters proposed to be acted on, and (b)
the stockholders requesting such meeting shall have paid to the Corporation the
reasonable estimated cost of preparing and mailing the notice thereof, which the
secretary shall determine and specify to such stockholders. No special meeting
need be called upon the request of the holders of shares entitled to vote less
than a majority of all the shares entitled to be voted at such meeting to
consider any matter which is substantially the same as a matter voted upon at
any special meeting of the stockholders held during the preceding 12 months.
Section 2.03. Place of Meetings: All stockholders' meetings shall be
held at the principal office of the Corporation, except that the board of
directors may fix a different place of meeting, within the United States, which
shall be specified in each notice or waiver of notice
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of the meeting.
Section 2.04. Notice of Meetings: The secretary or an assistant
secretary shall cause notice of the place, date and hour, and, in the case of a
special meeting, the purpose or purposes for which the meeting is called, to be
mailed, not less than 10 nor more than 90 days before the date of the meeting,
to each stockholder entitled to vote at such meeting, at his address as it
appears on the records of the Corporation at the time of such mailing. Notice of
any stockholders' meeting need not be given to any stockholder who shall sign a
written waiver of such notice whether before or after the time of such meeting,
which waiver shall be filed with the record of such meeting, or to any
stockholder who shall attend such meeting in person or by proxy. Notice of
adjournment of a stockholders' meeting to another time or place need not be
given, if such time and place are announced at the meeting.
Section 2.05. Voting - In General: At every stockholders' meeting each
stockholder shall be entitled to one vote for each share and a proportionate
vote for each portion of a share of stock of the Corporation validly issued and
outstanding and held by such stockholder, except that no shares held by the
Corporation shall be entitled to a vote. Except as otherwise specifically
provided in the Articles of Incorporation or these By-Laws or as required by
provisions of the Investment Company Act of 1940, as amended from time to time,
all matters shall be decided by a vote of the majority of the votes validly
cast. The vote upon any question shall be by ballot whenever requested by any
person entitled to vote, but, unless such a request is made, voting may be
conducted in any way approved by the meeting.
Section 2.06. Stockholders Entitled to Vote: If, pursuant to Section
8.05 hereof, a record date has been fixed for the determination of stockholders
entitled to notice of or to vote at any stockholders' meeting, each stockholder
of the Corporation shall be entitled to vote, in person or by proxy, each share
of stock and portion of a share of stock standing in his name on the books of
the Corporation on such record date and outstanding at the time of the meeting.
If no record date has been fixed for the determination of stockholders, the
record date for the determination of stockholders entitled to notice of or to
vote at a meeting of stockholders shall be (a) at the close of business (i) on
the day ten days before the day on which notice of the meeting is mailed or (ii)
on the day 90 days before the meeting, whichever is the closer date to the
meeting; or, (b) if notice is waived by all stockholders, at the close of
business on the tenth day next preceding the day on which the meeting is held.
Section 2.07. Voting - Proxies: The right to vote by proxy shall exist
only if the instrument authorizing such proxy to act shall have been executed in
writing by the stockholder himself or by his attorney thereunto duly authorized
in writing. No proxy shall be voted after eleven months from its date unless it
provides for a longer period. Each proxy shall be in writing subscribed by the
stockholder or his duly authorized attorney and shall be dated, but need not be
sealed, witnessed or acknowledged. Proxies shall be delivered to the secretary
of the Corporation or person acting as secretary of the meeting before being
voted. A proxy with respect to stock held in the name of two or more persons
shall be valid if executed by one of them unless at or prior to exercise of such
proxy the Corporation receives a specific written notice to the contrary from
any one of them. A proxy purporting to be executed by or on behalf of a
stockholder shall be deemed valid unless challenged at or prior to its exercise.
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<PAGE>
Section 2.08. Quorum: The presence at any stockholders' meeting, in
person or by proxy, of stockholders entitled to cast a majority of the votes
thereat shall be necessary and sufficient to constitute a quorum for the
transaction of business.
Section 2.09. Absence of Quorum: In the absence of a quorum, the
holders of a majority of the shares entitled to vote at the meeting and present
thereat in person or by proxy, or, if no stockholder entitled to vote is present
thereat in person or by proxy, any officer present thereat entitled to preside
or act as secretary of such meeting, may adjourn the meeting sine die or from
time to time. Any business that might have been transacted at the meeting
originally called may be transacted at any such adjourned meeting at which a
quorum is present.
Section 2.10. Stock Ledger and List of Stockholders: It shall be the
duty of the secretary or assistant secretary of the Corporation to cause an
original or duplicate stock ledger to be maintained at the office of the
Corporation's transfer agent. Such stock ledger may be in written form or any
other form capable of being converted into written form within a reasonable time
for visual inspection. Any one or more persons, each of whom has been a
stockholder of record of the Corporation for more than six months next preceding
such request, who owns in the aggregate 5% or more of the outstanding capital
stock of the Corporation, may submit (unless the Corporation at the time of the
request maintains a duplicate stock ledger at its principal office in Maryland)
a written request to any officer of the Corporation or its resident agent in
Maryland for a list of the stockholders of the Corporation. Within 20 days after
such a request, there shall be prepared and filed at the Corporation's principal
office in Maryland a list containing the names and addresses of all stockholders
of the Corporation and the number of shares of each class held by each
stockholder, certified as correct by an officer of the Corporation, by its stock
transfer agent, or by its registrar.
Section 2.11. Action Without Meeting: Any action to be taken by
stockholders may be taken without a meeting if all stockholders entitled to vote
on the matter consent to the action in writing and the written consents are
filed with the records of the meetings of stockholders. Such consents shall be
treated for all purposes as a vote at a meeting.
ARTICLE III
BOARD OF DIRECTORS
Section 3.01. Number and Term of Office: The board of directors shall
consist of three directors, which number may be increased or decreased by a
resolution of a majority of the entire board of directors; provided that the
number of directors shall not be less than three nor more than fifteen; and
further provided that if there is no stock outstanding the number of directors
may be less than three but not less than one, and if there is stock outstanding
and so long as there are less than three stockholders, the number of directors
may be less than three but not less than the number of stockholders. Each
director (whenever selected) shall hold office until his successor is elected
and qualified or until his earlier death, resignation or removal.
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<PAGE>
Section 3.02. Qualification of Directors: Except for the initial board
of directors, at least a majority of the members of the board of directors shall
be persons who are not interested persons of the Corporation, as defined in the
Investment Company Act of 1940, as amended.
Section 3.03. Election of Directors: Initially the director or
directors of the Corporation shall be those persons named as such in the
Articles of Incorporation. Thereafter, except as otherwise provided in Section
3.04 and 3.05 hereof, the directors shall be elected annually at the annual
stockholders' meeting. In the event that directors are not elected at an annual
stockholders' meeting, then directors may be elected at a special stockholders'
meeting. Directors shall be elected by vote of the holders of a majority of the
shares present in person or by proxy and entitled to vote thereon.
Section 3.04. Removal of Directors: At any stockholders' meeting,
provided a quorum is present, any director may be removed (either with or
without cause) by the vote of the holders of a majority of the shares
represented at the meeting, and at the same meeting a duly qualified person may
be elected in his stead by a majority of the votes validly cast.
Section 3.05. Vacancies and Newly Created Directorships: If any
vacancies shall occur in the board of directors by reason of death, resignation,
removal or otherwise, or if the authorized number of directors shall be
increased, the directors then in office shall continue to act, and such
vacancies (if not previously filled by the stockholders) may be filled by a
majority of the directors then in office, although less than a quorum, except
that a newly created directorship may be filled only by a majority vote of the
entire board of directors, provided that in either case immediately after
filling such vacancy, at least two-thirds of the directors then holding office
shall have been elected to such office by the stockholders of the Corporation.
In the event that at any time, other than the time preceding the first
stockholders' meeting, less than a majority of the directors of the Corporation
holding office at that time were so elected by the stockholders, a meeting of
the stockholders shall be held promptly and in any event within 60 days for the
purpose of electing directors to fill any exiting vacancies in the board of
directors unless the Securities and Exchange Commission shall by order extend
such period.
Section 3.06. General Powers:
(a) The property, affairs and business of the Corporation shall be
managed by or under the direction of the board of directors, which may exercise
all the powers of the Corporation except those powers vested solely in the
stockholders of the Corporation by statute, by the Articles of Incorporation, or
by these By-Laws.
(b) All acts done by any meeting of the directors or by any person
acting as a director, so long as his successor shall not have been duly elected
or appointed, shall, notwithstanding that it be afterwards discovered that there
was some defect in the election of the directors or of such person acting as
aforesaid or that they or any of them were disqualified, be as valid as if the
directors or such other person, as the case may be, had been duly elected and
were or was qualified to be directors or a director of the Corporation.
Section 3.07. Power to Issue and Sell Stock: The board of directors
may from time to
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<PAGE>
time issue and sell or cause to be issued and sold any of the Corporation's
authorized shares to such person and for such consideration as the board of
directors shall deem advisable, subject to the provisions of Article SEVENTH of
the Articles of Incorporation.
Section 3.08. Power to Declare Dividends:
(a) The board of directors, from time to time as they may deem
advisable, may declare and pay dividends in stock, cash or other property of the
Corporation, out of any source available for dividends, to the stockholders
according to their respective rights and interests in accordance with the
provisions of the Articles of Incorporation.
(b) The board of directors shall cause to be accompanied by a written
statement any dividend payment wholly or partly from any source other than:
(i) the Corporation's accumulated undistributed net income (determined
in accordance with good accounting practice and the rules and
regulations of the Securities and Exchange Commission then in effect)
and not including profits or losses realized upon the sale of
securities or other properties; or
(ii) the Corporation's net income so determined for the current or
preceding fiscal year. Such statement shall adequately disclose the
source or sources of such payment and the basis of calculation, and
shall be in such form as the Securities and Exchange Commission may
prescribe.
Section 3.09. Annual and Regular Meetings: The annual meeting of the
board of directors for choosing officers and transacting other proper business
shall be held immediately after the annual stockholders' meeting at the place of
such meeting. The board of directors from time to time may provide by resolution
for the holding regular meetings and fix their time and place within or outside
the State of Maryland. Notice of such annual and regular meetings need not be
given, provided that notice of any change in the time or place of such meetings
shall be sent promptly to each director not present at the meeting at which such
change was made in the manner provided for notice of special meetings. Members
of the board of directors or any committee designated thereby may participate in
a meeting of such board or committee by means of a conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other at the same time; and participation by such
means shall constitute presence in person at a meeting.
Section 3.10. Special Meetings: Special meetings of the board of
directors shall be held whenever called by the chairman of the board, the
president (or, in the absence or disability of the president, by any vice
president), the treasurer, or two or more directors, at the time and place
within or outside the State of Maryland specified in the respective notices or
waivers of notice of such meetings.
Section 3.11. Notice: Notice of special meetings, stating the time
and place, shall be mailed to each director at his residence or regular place of
business at least five days before
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the day on which a special meeting is to be held or caused to be delivered to
him personally or to be transmitted to him by telegraph, cable or wireless at
least one day before the meeting.
Section 3.12. Waiver of Notice: No notice of any meeting need be given
to any director who attends such meeting in person or to any director who waives
notice of such meeting in writing (which waiver shall be filed with the records
of such meeting), whether before or after the time of the meeting.
Section 3.13. Quorum and Voting: At all meetings of the board of
directors the presence of one-half or more of the number of directors then in
office shall constitute a quorum for the transaction of business, provided that
there shall be present no less than two directors. In the absence of a quorum, a
majority of the directors present may adjourn the meeting, from time to time,
until a quorum shall be present. The action of a majority of the directors
present at a meeting at which a quorum is present shall be the action of the
board of directors unless the concurrence of a greater proportion is required
for such action by law, by the Articles of Incorporation or by these By-Laws.
Section 3.14. Compensation: Each director may receive such remuneration
for his services as shall be fixed from time to time by resolution of the board
of directors.
Section 3.15. Action Without a Meeting: Any action required or
permitted to be taken at any meeting of the board of directors may be taken
without a meeting if written consents thereto are signed by all members of the
board and such written consents are filed with the records of the meetings of
the board.
ARTICLE IV
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
Section 4.01. How Constituted: By resolution adopted by the board of
directors, the board may designate one or more committees, including an
executive committee, each consisting of at least two directors. Each member of a
committee shall be a director and shall hold office during the pleasure of the
board. The chairman of the board, if any, and the president shall be members of
the executive committee.
Section 4.02. Powers of the Executive Committee: Unless otherwise
provided by a resolution of the board of directors, when the board of directors
is not in session the executive committee shall have and may exercise all powers
of the board of directors in the management of the business and affairs of the
Corporation that may lawfully be exercised by an executive committee, except the
power to declare a dividend, to authorize the issuance of stock, to recommend to
stockholders any matter requiring stockholders' approval.
Section 4.03. Other Committees of the Board of Directors: To the extent
provided by resolution of the board, other committees shall have and may
exercise any of the powers that may lawfully be granted to the executive
committee.
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Section 4.04 Proceedings, Quorum and Manner of Acting: In the absence
of an appropriate resolution of the board of directors, each committee may adopt
such rules and regulations governing its proceedings, quorum and manner of
acting as it shall deem proper and desirable, provided that the quorum shall not
be less than two directors. In the absence of any member of any such committee,
the members thereof present at any meeting, whether or not they constitute a
quorum, may appoint a member of the board of directors to act in the place of
such absent member.
Section 4.05. Other Committees: The board of directors may appoint
other committees, each consisting of one or more persons, who need not be
directors. Each such committee shall have such powers and perform such duties as
may be assigned to it from time to time by the board of directors, but shall not
exercise any power which may lawfully be exercised only by the board of
directors or a committee thereof.
ARTICLE V
OFFICERS
Section 5.01. General: The officers of the Corporation shall be a
president, a secretary and a treasurer, and may include one or more vice
presidents, assistant secretaries or assistant treasurers, and such other
officers as may be appointed in accordance with the provisions of Section 5.11
hereof. The board of directors may elect, but shall not be required to elect, a
chairman of the board.
Section 5.02. Election, Term of Office and Qualifications: The officers
of the Corporation (except those appointed pursuant to Section 5.11 hereof)
shall be chosen by the board of directors at its first meeting or such
subsequent meetings as shall be held prior to its first annual meeting, and
thereafter annually at its annual meeting. If any officers are not chosen at any
annual meeting, such officers may be chosen at any subsequent regular or special
meeting of the board. Except as provided in Sections 5.03, 5.04 and 5.05 hereof,
each officer chosen by the board of directors shall hold office until the next
annual meeting of the board of directors and until his successor shall have been
chosen and qualified. Any person may hold one or more offices of the Corporation
except the offices of president and secretary. The chairman of the board and the
president shall be chosen from among the directors of the Corporation and may
hold such office only so long as they continue to be directors. No other officer
need be a director.
Section 5.03. Resignation: Any officer may resign his office at any
time by delivering a written resignation to the board of directors, the
president, the secretary, or any assistant secretary. Unless otherwise specified
therein, such resignation shall take effect upon delivery.
Section 5.04. Removal: Any officer may be removed from office whenever
in the board's judgement the best interest of the Corporation will be served
thereby, by the vote of a majority of the board of directors given at the
regular meeting or any special meeting called for such purpose. In addition, any
officer or agent appointed in accordance with the provisions of Section 5.11
hereof may be removed, either with or without cause, by any officer upon
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whom such power of removal shall have been conferred by the board of directors.
Section 5.05. Vacancies and Newly Created Offices: If any vacancy shall
occur in any office by reason of death, resignation, removal, disqualification
or other cause, or if any new office shall be created, such vacancies or newly
created offices may be filled by the board of directors at any regular or
special meeting or, in the case of any office created pursuant to Section 5.11
hereof, by any officer upon whom such power shall have been conferred by the
board of directors.
Section 5.06. Chairman of the Board: The chairman of the board, if
there be such an officer, shall be the senior officer of the Corporation, shall
preside at all stockholders' meetings and at all meetings of the board of
directors and may be ex officio a member of all committees of the board of
directors. He shall have such other powers and perform such other duties as may
be assigned to him from time to time by the board of directors.
Section 5.07. President: The president shall be the chief executive
officer of the Corporation and, in the absence of the chairman of the board or
if no chairman of the board has been chosen, he shall preside at all
stockholders' meetings and at all meetings of the board of directors and shall
in general exercise the powers and perform the duties of the chairman of the
board. Subject to the supervision of the board of directors, he shall have
general charge of the business, affairs and property of the Corporation and
general supervision over its officers, employees and agents. Except as the board
of directors may otherwise order, he may sign in the name and on behalf of the
Corporation all deeds, bonds, contracts or agreements. He shall exercise such
other powers and perform such other duties as from time to time may be assigned
to him by the board of directors.
Section 5.08. Vice President: The board of directors may from time to
time designate and elect one or more vice presidents who shall have such powers
and perform such duties as from time to time may be assigned to them by the
board of directors or the president. At the request or in the absence of
disability of the president, the vice president (or, if there are two or more
vice presidents, then the senior of the vice presidents present and able to act)
may perform all the duties of the president and, when so acting, shall have all
the powers of and be subject to all the restrictions upon the president.
Section 5.09. Treasurer and Assistant Treasurers: The treasurer shall
be the principal financial and accounting officer of the Corporation and shall
have general charge of the finances and books of account of the Corporation.
Except as otherwise provided by the board of directors, he shall have general
supervision of the funds and property of the Corporation and of the performance
by the custodian of its duties with respect thereto. He shall render to the
board of directors, whenever directed by the board, an account of the financial
condition of the Corporation and of all his transactions as treasurer; and as
soon as possible after the close of each financial year he shall make and submit
to the board of directors a like report for such financial year. He shall cause
to be prepared annually a full and correct statement of the affairs of the
Corporation, including a balance sheet and a financial statement of the
operations for the preceding fiscal year, which shall be submitted at the annual
meeting of stockholders and filed
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within 20 days thereafter at the principal office of the Corporation in the
state of Maryland. He shall perform all the acts incidental to the office of
treasurer, subject to the control of the board of directors.
Any assistant treasurer may perform such duties of the treasurer as the
treasurer or the board of directors may assign, and, in the absence of the
treasurer, may perform all the duties of the treasurer.
Section 5.10. Secretary and Assistant Secretaries: The secretary shall
attend to the giving and serving of all notices of the Corporation and shall act
as secretary at, and shall record all proceedings of the meetings of the
stockholders and directors in the books to be kept for that purpose. He shall
keep in safe custody the seal of the Corporation, and shall have charge of the
records of the Corporation, including the stock books and such other books and
papers as the board of directors may direct and such books, reports,
certificates and other documents required by law to be kept, all of which shall
at all reasonable times be open to inspection by any director. He shall perform
such other duties as appertain to his office or as may be required by the board
of directors.
Any assistant secretary may perform such duties of the secretary as the
secretary or the board of directors may assign, and, in the absence of the
secretary, may perform all the duties of the secretary.
Section 5.11. Subordinate Officers: The board of directors from time to
time may appoint such other officers or agents as it may deem advisable, each of
whom shall have such title, hold office for such period, have such authority and
perform such duties as the board of directors may determine. The board of
directors from time to time may delegate to one or more officers or agents the
power to appoint any such subordinate officers or agents and to prescribe their
respective rights, terms of office, authorities and duties.
Section 5.12. Remuneration: The salaries or other compensation of the
officers of the Corporation shall be fixed from time to time by resolution of
the board of directors, except that the board of directors may by resolution
delegate to any person or group of persons the power to fix the salaries or
other compensation of any subordinate officers or agents appointed in accordance
with the provisions of Section 5.11 hereof.
Section 5.13. Surety Bonds: The board of directors may require any
officer or agent of the Corporation to execute a bond (including, without
limitation, any bond required by the Investment Company act of 1940, as amended,
and the rules and regulations of the Securities and Exchange Commission) to the
Corporation in such sum and with such surety or sureties as the board of
directors may determine, conditioned upon the faithful performance of his duties
to the Corporation, including responsibility for negligence and for the
accounting of any of the Corporation's property, funds or securities that may
come into his hands.
ARTICLE VI
CUSTODY OF SECURITIES
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Section 6.01. Employment of a Custodian: The Corporation shall place
and at all times maintain in the custody of a custodian (including any
sub-custodian for the custodian) all funds, securities and similar investments
owned by the Corporation. The custodian (and any sub-custodian) shall be a bank
or similar financial institution having not less than $2,000,000 aggregate
capital, surplus and undivided profits and shall be appointed from time to time
by the board of directors, which shall fix its remuneration.
Section 6.02. Action Upon Termination of Custodian Agreement: Upon
termination of a custodian agreement or inability of the custodian to continue
to serve, the board of directors shall promptly appoint a successor custodian,
but in the event that no successor custodian can be found who has the required
qualifications and is willing to serve, the board of directors shall call as
promptly as possible a special meeting of the stockholders to determine whether
the corporation shall function without a custodian or shall be liquidated. If so
directed by vote of the holders of a majority of the outstanding shares of stock
of the Corporation, the custodian shall deliver and pay over all property of the
Corporation held by it as specified in such vote.
Section 6.03. Provisions of Custodian Contract: The following
provisions shall apply to the employment of a custodian and to any contract
entered into with the custodian so employed:
The board of directors shall cause to be delivered to the custodian all
securities owned by the Corporation or to which it may become entitled,
and shall order the same to be delivered by the custodian only in
completion of a sale, exchange, transfer, pledge, or other disposition
thereof, all as the board of directors may generally or from time to
time require or approve or to a successor custodian; and the board of
directors shall cause all funds owned by the Corporation or to which it
may become entitled to be paid to the custodian, and shall order the
same disbursed only for investment against delivery of the securities
acquired, or in payment of expenses, including management compensation,
and liabilities of the Corporation, including distributions to
shareholders, or to a successor custodian.
ARTICLE VII
EXECUTION OF INSTRUMENTS, VOTING OF SECURITIES
Section 7.01. General: Subject to the provisions of Sections 5.07, 6.02
and 8.03 hereof, all deeds, documents, transfers, contracts, agreements and
other instruments requiring execution by the Corporation shall be signed by the
president or a vice president and by the treasurer or secretary or an assistant
treasurer or an assistant secretary, or as the board of directors may otherwise,
from time to time, authorize. Any such authorization may be general or confined
to specific instances.
Section 7.02. Checks, Notes, Drafts, Etc.: So long as the Corporation
shall employ a custodian to keep custody of the cash and securities of the
Corporation, all checks and drafts for the payment of money by the Corporation
may be signed in the name of the Corporation by
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the custodian. Except as otherwise authorized by the board of directors, all
requisitions or orders for the assignment of securities standing in the name of
the custodian or its nominee, or for the execution of powers to transfer the
same, shall be signed in the name of the Corporation by the president or a vice
president and by the treasurer or an assistant treasurer. Promissory notes,
checks or drafts payable to the Corporation may be endorsed only to the order of
the custodian or its nominee and only by the treasurer or president or a vice
president or by such other person or persons as shall be authorized by the board
of directors.
Section 7.03. Voting of Securities: Unless otherwise ordered by the
board of directors, the president or any vice president shall have full power
and authority on behalf of the Corporation to attend and to act and to vote, or
in the name of the Corporation to execute proxies to vote, at any meeting of
stockholders of any company in which the Corporation may hold stock. At any such
meeting such officer shall possess and may exercise (in person or by proxy) any
and all rights, powers and privileges incident to the ownership of such stock.
The board of directors may by resolution from time to time confer like powers
upon any other person or persons.
ARTICLE VIII
CAPITAL STOCK
Section 8.01. Certificates of Stock:
(a) Certificates of stock of the Corporation shall be in the form
approved by the board of directors, signed in the name of the Corporation by the
president or any vice president and by the treasurer or any assistant treasurer
or the secretary or any assistant secretary, sealed with the seal of the
Corporation and certifying the number and kind of shares owned by him in the
Corporation. Such signatures and seal may be a facsimile and may be mechanically
reproduced thereon. The certificates containing such facsimiles shall be valid
for all intents and purposes.
(b) In case any officer who shall have signed any such certificate, or
whose facsimile signature has been placed thereon, shall cease to be such an
officer (because of death, resignation or otherwise) before such certificate is
issued, such certificate may be issued and delivered by the Corporation with the
same effect as if he were such officer at the date of issue.
(c) The number of each certificate issued, the name of the person
owning the shares represented thereby, the number of such shares and the date of
issuance shall be entered upon the stock books of the Corporation at the time of
issuance.
(d) Every certificate exchanged, surrendered for redemption or
otherwise returned to the Corporation shall be marked "Canceled" with the date
of cancellation.
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Section 8.02. Transfer of Capital Stock:
(a) Transfers of shares of the stock of the Corporation shall be made
on the books of the Corporation by the holder of record thereof (in person or by
his attorney thereunto duly authorized by a power of attorney duly executed in
writing and filed with the secretary of the Corporation) (i) if a certificate or
certificates have been issued, upon the surrender of the certificate or
certificates, properly endorsed or accompanied by proper instruments of
transfer, representing such shares, or (ii) as otherwise prescribed by the board
of directors.
(b) The Corporation shall be entitled to treat the holder of record of
any share of stock as the absolute owner thereof for all purposes, and
accordingly shall not be bound to recognize any legal, equitable or other claim
or interest in such share on the part of any other person, whether or not it
shall have express or other notice thereof, except as otherwise expressly
provided by the statutes of the State of Maryland.
Section 8.03. Transfer Agents and Registrars: The board of directors
may, from time to time, appoint or remove transfer agents or registrars of
transfers of shares of stock of the Corporation, and it may appoint the same
person as both transfer agent and registrar. Upon any such appointment being
made, all certificates representing shares of capital stock thereafter issued
shall be countersigned by one of such transfer agents or by one of such
registrars of transfers or by both and shall not be valid unless so
countersigned. If the same person shall be both transfer agent and registrar,
only one countersignature by such person shall be required.
Section 8.04. Transfer Regulations: Except as provided in the Articles
of Incorporation, the shares of stock of the Corporation may be freely
transferred, and the board of directors may, from time to time, adopt rules and
regulations with reference to the method of transfer of the shares of stock of
the Corporation.
Section 8.05. Fixing of Record Date: The board of directors may fix in
advance a date as a record date for the determination of the stockholders
entitled to notice of or to vote at any stockholders' meeting or any adjournment
thereof, or to express consent to corporate action in writing without a meeting,
or to receive payment of any dividend or other distribution or allotment of any
rights, or to exercise any rights in respect of any change, conversion or
exchange of stock, or for the purpose of any other lawful action; provided that
such record date shall be a date not more than 90 nor less than 10 days prior to
the date on which the particular action requiring such determination of
stockholders of record will be taken.
Section 8.06. Lost, Stolen or Destroyed Certificates: Before issuing a
new certificate for stock of the Corporation alleged to have been lost, stolen
or destroyed, the board of directors or any officer authorized by the board may,
in its discretion, require the owner of the lost, stolen or destroyed
certificate (or his legal representative) to give the Corporation a bond or
other indemnity, in such form and in such amount as the board or any such
officer may direct and with such surety or sureties as may be satisfactory to
the board or any such officer, sufficient to indemnify the Corporation against
any claim that may be made against it on account of the alleged loss, theft or
destruction of any such certificate or the issuance of such new certificate.
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ARTICLE IX
FISCAL YEAR, ACCOUNTANT
Section 9.01 Fiscal Year: The fiscal year of the Corporation shall,
unless otherwise ordered by the board of directors, be twelve calendar months
beginning on the 1st day of April in each year and ending on the 31st day of the
following March.
Section 9.02. Accountant:
(a) The Corporation shall employ an independent public accountant or
firm of independent public accountants as its accountant to examine the accounts
of the Corporation and to sign and certify financial statements filed by the
Corporation. The accountant's certificates and reports shall be addressed both
to the board of directors and to the stockholders.
(b) A majority of the members of the board of directors who are not
interested persons (as such term is defined in the Investment Company Act of
1940, as amended) of the Corporation shall select the accountant at any meeting
held within 30 days before or after the beginning of the fiscal year of the
Corporation or before the annual stockholders' meeting in that year. Such
selection shall be submitted for ratification or rejection at the next
succeeding annual stockholders' meeting. If such meeting shall reject such
selection, the accountant shall be selected by majority vote of the
Corporation's outstanding voting securities, either at the meeting at which the
rejection occurred or at a subsequent meeting of stockholders called for the
purpose.
(c) Any vacancy occurring between meetings, due to the death or
resignation of the accountant, may be filled by a majority of the members of the
board of directors who are not such interested persons.
ARTICLE X
INDEMNIFICATION AND INSURANCE
Section 10.01 Indemnification of Officers, Directors, Employees and
Agents: The Corporation shall indemnify its present and past directors,
officers, employees and agents, and any persons who are serving or have served
at the request of the corporation, partnership, joint venture, trust, or
enterprise, to the full extent provided and allowed by Section 2-418 of the
Annotated Corporations and Associations Code of Maryland concerning
corporations, as amended from time to time or any other applicable provisions of
laws. Notwithstanding anything herein to the contrary, no director, officer,
investment adviser or principal underwriter of the corporation shall be
indemnified in violation of Section 17(i) of the Investment Company Act of 1940,
as amended. The directors of the Corporation may provide such liability
insurance to the persons named herein as is authorized by the Corporations's
Articles of Incorporation.
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ARTICLE XI
AMENDMENTS
Section 11.01. General: Except as provided in Section 11.02 hereof, all
By-Laws of the Corporation, whether adopted by the board of directors or the
stockholders, shall be subject to amendment, alteration or repeal, and new
By-Laws may be made, by the affirmative vote of a majority of either:
(a) the holders of record of the outstanding shares of stock of the
Corporation entitled to vote, at any annual or special meeting, the notice or
waiver of notice of which shall have specified or summarized the proposed
amendment, alteration, repeal or new By-Law; or
(b) the directors, at any regular or special meeting the notice or
waiver of notice of which shall have specified or summarized the proposed
amendment, alteration, repeal or new By-Law.
Section 11.02. By Stockholders Only:
(a) No amendment of any section of these By-laws shall be made except
by the stockholders of the Corporation if the By-laws provide that such section
may not be amended, altered or repealed except by the stockholders.
(b) From and after the issue of any shares of the Capital Stock of the
Corporation, no amendment of this Article XI or Articles XII or XIII shall be
made except by the stockholders of the Corporation.
ARTICLE XII
MISCELLANEOUS
Section 12.01. Transactions in Shares by Affiliates:
(a) Except as hereinafter provided, no officer or director of the
Corporation and no partner, officer, director or shareholder of an investment
adviser (as that term is defined in the Investment Company Act of 1940) of the
Corporation or of the distributor of the Corporation, and no investment adviser
or distributor of the Corporation, shall take long or short positions in the
securities issued by the Corporation.
(b) The foregoing provision shall not prevent the distributor from
purchasing from the Corporation shares of the Corporation if such purchases are
limited (except for reasonable allowances for clerical errors, delays and errors
of transmission and cancellation of orders) to purchases for the purpose of
filling orders for such shares received by the distributor, and provided that
orders to purchase from the Corporation are entered with the Corporation or the
custodian promptly upon receipt by the distributor of purchase orders for such
shares, unless the distributor is otherwise instructed by its customer.
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(c) The foregoing provision shall not prevent the distributor from
purchasing shares of the Corporation as agent for the account of the
Corporation.
(d) The foregoing provision shall not prevent the purchase from the
Corporation or from the underwriter of shares issued by the Corporation by any
officer, or director of the Corporation or by any partner, officer, director or
stockholder of the investment adviser of the Corporation at the price available
to the public generally at the moment of such purchase or, to the extent that
any such person is a stockholder, at the price available to stockholders of the
Corporation generally at the moment of such purchase, or as described in the
current Prospectus of the Corporation.
Section 12.02. Loans to Affiliates: The Corporation shall not lend
assets of the Corporation to any officer or director of the Corporation, or to
any partner, officer, director or stockholder of, or person financially
interested in, the investment adviser of the Corporation, or the distributor of
the Corporation, or to the investment adviser of the Corporation or to the
distributor of the Corporation.
Section 12.03. Restrictions on Transfer of Shares: Except as provided
in the Articles of Incorporation, the Corporation shall not impose any
restrictions upon the transfer of the shares of the Corporation, but this
requirement shall not prevent the charging of customary transfer agent fees.
Section 12.04. Conflict of Interest Transactions: The Corporation shall
not permit any officer or director, or any officer or director of the investment
adviser or distributor of the Corporation to deal for or on behalf of the
Corporation with himself as principal or agent, or with any partnership,
association or corporation in which he has a financial interest; provided that
the foregoing provision shall not prevent (a) officers and directors of the
Corporation from buying, holding or selling shares in the Corporation, or from
being partners, officer or directors of or otherwise financially interested in
the investment adviser or distributor of the Corporation; (b) purchases or sales
of securities or other property by the Corporation from or to an affiliated
person or to the investment advisers or distributor of the Corporation if such
transaction is exempt from the applicable provisions of the Investment Company
Act of 1940; (c) purchases of investments for the portfolio of the Corporation
or sales of investments owned by the Corporation through a security dealer who
is, or one or more of whose partners, stockholders, officers or directors is, an
officer or director of the Corporation, if such transactions are handled in the
capacity of brokers only and commissions charged do not exceed customary
brokerage charges for such services; (d) employment of legal counsel, registrar,
transfer agent, dividend disbursing agent or custodian who is, or has a partner,
stockholder, officer or director who is, an officer or director of the
Corporation, if only customary fees are charged for services to the Corporation;
and (e) sharing statistical, research, legal and management expenses and office
hire and expenses with any other investment company in which an officer or
director of the Corporation is an officer or director or otherwise financially
interested.
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ARTICLE XIII
INVESTMENT POLICIES
Section 13.01. Investment Restrictions: The Corporation shall be
subject to the following restrictions and limitations:
(a) The Corporation shall not purchase securities of any one issuer if,
immediately after such purchase, more than 5% of the value of its assets would
be invested in the securities of such issuer. The foregoing limitation shall not
apply to investments in government securities as defined in the Investment
Company Act of 1940. The Corporation shall not acquire voting securities of any
issuer.
(b) The Corporation shall not purchase securities issued by any other
investment company.
(c) The Corporation shall not purchase securities of any issuer if such
purchase at the time thereof would cause more than five percent (5%) of the
total assets of the Corporation (taken at market value) to be invested in
securities of companies which have a record of less than three (3) years'
continuous operation including, however, in such three (3) years the operation
of any predecessor company or companies, partnership or individual enterprise if
the issuer whose securities are proposed as an investment for funds of the
Corporation has come into existence as a result of a merger, consolidation,
reorganization, or the purchase of substantially all the assets of such
predecessor company or companies, partnership or individual enterprise.
(d) Notwithstanding the foregoing paragraphs (a), (b) and (c), any
investment company, whether organized as a trust, association or corporation, or
a personal holding company, may be merged or consolidated with or acquired by
the Corporation, provided that if such merger, consolidation or acquisition
results in an investment in the securities of any issuer prohibited by said
paragraphs, the Corporation shall within sixty (60) days after the consummation
of such merger, consolidation or acquisition dispose of all of the securities of
such issuer so acquired or such portion thereof as shall bring the total
investment therein within the limitations imposed by said paragraphs above as of
the date of consummation.
(e) The Corporation shall not purchase or retain in its portfolio any
securities issued by an issuer any of whose officers or directors, trustees or
securities holders is an officer or director of the Corporation, or is a member,
officer, director or trustee of the investment adviser of the Corporation, if
after the purchase of the securities of such issuer by the Corporation one or
more of such persons owns beneficially more than one-half of one per cent (1/2%)
of the shares or securities, or both (all taken at market value), of such
issuer, and such persons owning more than one-half of one per cent (1/2%) of
such shares or securities together own beneficially more than five per cent (5%)
of such shares or securities, or both (all taken at market value).
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Section 13.02. Restrictions on Borrowing:
(a) The Corporation shall not borrow amounts in excess of ten percent
(10%) of the gross assets of the Corporation taken at cost determined in
accordance with good accounting practice, and no borrowing shall be undertaken
except as a temporary measure for extraordinary or emergency purposes.
(b) The Corporation shall not pledge, mortgage or hypothecate the
assets of the Corporation, except to the extent, up to a maximum of ten percent
(10%) of the gross assets of the Corporation taken at cost, to secure borrowings
permitted by subparagraph (a) hereof.
(c) The Corporation shall not:
(i) purchase any securities or evidences of interest therein
on "margin," that is to say in a transaction in which it has borrowed all or a
portion of the purchase price and pledged the purchased securities or evidences
of interest therein as collateral for the amount so borrowed,
(ii) sell or contract to sell any security which it does not
own unless by virtue of its ownership of other securities it has at the time of
sale a right to obtain securities equivalent in kind and amount to the
securities sold and provided that if such right is conditional the sale is made
upon the same conditions, and
(iii) purchase or sell any put or call options or any
combination thereof, provided, however, that nothing herein shall prevent the
purchase, ownership, holding or sale of warrants when the grantor of the
warrants is the issuer of the underlying securities or the purchase, ownership,
holding or sale of standby commitments relating to securities owned or held by
the Corporation at the same time.
END OF BY-LAWS
18
Exhibit 2b
AMENDMENT TO BY-LAWS
OF
LEGG MASON TAX EXEMPT TRUST, INC.
(effective May 10, 1991)
Section 10. Indemnification of Officers, Directors, Employees and
Agents:
(a) The Corporation shall indemnify its present and past directors,
officers, employees and agents, and any persons who are serving or have served
at the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, or enterprise ("Covered
Persons"), to the full extent provided and allowed by Section 2-418 of the
Annotated Corporations and Associations Code of Maryland concerning
corporations, as amended from time to time or any other applicable provisions of
laws. Notwithstanding anything herein to the contrary, no director, officer,
investment adviser or principal underwriter of the Corporation shall be
indemnified in violation of Sections 17(h) or (i) of the 1940 Act. The directors
of the Corporation may provide such liability insurance to the persons named
herein as is authorized by the Corporation's Articles of Incorporation.
(b) Expenses in connection with the preparation and presentation of a
defense to any claim, action, suit or proceeding may be paid by the Corporation
from time to time prior to final disposition thereof upon receipt of an
undertaking by or on behalf of such Covered Person that such amount will be paid
over by him to the Corporation if it is ultimately determined that he is not
entitled to indemnification under this Section 10; provided, however, that
either (a) such Covered Person shall have provided appropriate security for such
undertaking, (b) the Corporation is insured against losses arising out of any
such advance payments or (c) either a majority of the directors who are neither
Interested Persons of the Corporation, as defined in the 1940 Act, nor parties
to the matter, or independent legal counsel in a written opinion, shall have
determined, based upon a review of readily available facts (as opposed to a full
trial-type inquiry), that there is reason to believe that such Covered Person
will be found entitled to indemnification under this Section 10.
(c) For purposes of subsection (b) above, the words "claim," "action,"
"suit," or "proceeding" shall apply to all claims, actions, suits or proceedings
(civil, criminal, or other, including appeals), actual or threatened while in
office or thereafter.
Exhibit 5
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT, made this 1st day of
July, 1983, by and between Legg Mason Tax-Exempt Trust, Inc., a Maryland
corporation ("Fund"), and Legg Mason Fund Adviser, Inc., a Maryland corporation
(the "Adviser").
WHEREAS, the Fund is registered as an open-end, diversified management
investment company under the Investment Company Act of 1940 ("1940 Act") and has
registered its shares of common stock for sale to the public under the
Securities Act of 1933 and various state securities laws; and
WHEREAS, the Fund wishes to retain the Adviser to provide investment
advisory, management, and administrative services to the Fund; and
WHEREAS, the Adviser is willing to furnish such services on the terms
and conditions hereinafter set forth; and
WHEREAS, the Fund intends to establish one or more portfolios of
securities with distinct and separate investment goals and policies, interests
in each of which will be represented by a distinct class of shares of the Fund
("Portfolios"); and
WHEREAS, this Agreement has been approved by a vote of the shareholders
and of the Fund's Board of Directors and certain disinterested directors in
conformity with the 1940 Act and the rules and regulations thereunder:
<PAGE>
2
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed as follows:
1. The Fund shall at all times keep the Adviser fully informed with
regard to the securities owned by it, its funds available, or to become
available, for investment, and generally as to the condition of its affairs. It
shall furnish the Adviser with such other documents and information with regard
to its affairs as the Adviser may from time to time reasonably request.
2. (a) Subject to the direction and control of the Fund's Board of
Directors, the Adviser shall regularly provide the Fund with investment
research, advice, management and supervision and shall furnish a continuous
investment program for each of the Portfolios consistent with each Portfolio's
investment goals and policies. The Adviser shall determine from time to time
what securities will be purchased, retained or sold by each Portfolio, and shall
implement those decisions, including the selection of brokers and dealers to
execute securities purchases and sales, all subject to the provisions of the
Fund's Articles of Incorporation and Bylaws, 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
and each Portfolio. The Adviser 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 Directors of the Fund. The Adviser shall furnish to the Fund such
information with respect to the investments of the Fund and their manner of
execution as the Fund's Board of Directors may
<PAGE>
3
reasonably request and is responsible for the supervision, but not the expense,
of the maintenance of the Fund's financial books and records. The Adviser may
delegate some or all of the functions specified in this subparagraph to
Provident Institutional Management Corporation or another appropriate person.
(b) The Fund hereby authorizes any entity or person associated
with the Adviser which is a member of national securities exchange to effect any
transaction on the exchange for the account of the Fund which is permitted by
Section 11(a) of the Securities Exchange Act of 1934 and Rule 11a2-2(T)
thereunder, and the Fund hereby consents to the retention of compensation for
such transactions in accordance with Rule 11a2-2(T)(2)(iv).
3. (a) The Adviser, at its expense, shall supply the Board of Directors
and officers of the Fund with information and reports reasonably required by
them and reasonably available to the Adviser and shall furnish the Fund with
office facilities, including space, furniture and equipment and all personnel
reasonably necessary for the operation of the Fund. The Adviser may delegate
some or all of the functions specified above in this subparagraph to Provident
Institutional Management Corporation or another appropriate person. The Adviser
shall authorize and permit any of its directors, officers and employees, who may
be elected as directors or officers of the Fund, to serve in the capacities in
which they are elected.
(b) The Adviser, 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 Adviser shall also provide, at
its own expense, a system whereby
<PAGE>
4
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 Adviser may delegate some or
all of the functions specified in this subparagraph to Legg Mason Wood Walker,
Incorporated or another appropriate person. The Adviser shall have the right to
use any list of shareholders of the Fund or any other list of investors which it
obtains in connection with its provisions of services under this Agreement;
provided, however, that the Adviser shall not sell or knowingly provide such
list or lists to any unaffiliated person.
(c) Other than as herein specifically indicated, the Adviser shall not
be responsible for the Fund's expenses. Specifically, the Adviser will not be
responsible, except to the extent of the reasonable compensation of employees of
the Fund whose services may be used by the Adviser hereunder, for any of the
following expenses of the Fund, which expenses shall be borne by the Fund: legal
expenses; auditing and accounting expenses; interest, taxes, governmental fees
and membership dues; brokerage commissions or charges, if any; distribution
fees, if any; fees of custodians, transfer agents, registrars or other agents;
expenses of preparing share certificates; the expenses for maintenance of the
Fund's financial books and records, including computation of the Fund's daily
net asset value per share and dividends; expenses of registering and qualifying
Fund shares for the sale under applicable federal and state law; expenses of
preparing, setting in print, printing and distributing prospectuses, reports,
notices and dividends to Fund shareholders; cost of stationary; costs of
stockholders and other meetings of the Fund;
<PAGE>
5
traveling expenses of officers, directors and employees of the Fund, if any;
fees of the Fund's independent directors and salaries of any officers or
employees who are not affiliated with the Adviser; the organizational expenses
of the Fund; and the Fund's pro rata portion of premiums on any fidelity bond
and other insurance covering the Fund and its officers and directors.
4. No director, officer or employee of the Fund shall receive from the
Fund any salary or other compensation as such director, officer or employee
while he is at the same time a director, officer, or employee of the Adviser or
any affiliated company of the Adviser. This paragraph shall not apply to
directors, executive committee members, consultants and other persons who are
not regular members of the Adviser's or any affiliated company's staff.
5. As compensation for the services performed and the facilities
furnished and expenses assumed by the Adviser, including the services of any
consultants or agents retained by the Adviser, the Fund shall pay the Adviser,
as promptly as possible after the last day of each month, a fee, calculated
daily, of 0.5% annually of the Fund's average daily net assets, provided that
the Adviser's right to such fee will commence only upon the earlier of (i)
October 1, 1983 or (ii) the first day on which the total net assets of the Fund
equal $50 million or more. In the event that the Adviser's right to such fee
commences on a date other than the last day of the month, the fee for such month
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
<PAGE>
6
shall in all cases be computed as of such time as may be determined by the Board
of Directors 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 Directors and shall be binding on the parties. Each such payment shall be
accompanied by a report of the Fund prepared either by the Fund or by a firm of
independent accountants which shall show the amount properly payable to the
Adviser under this Agreement and the detailed computation thereof.
6. The Adviser shall reimburse the Fund for all expenses, excluding
brokerage, taxes, interest, extraordinary items, and distribution fees, if any,
incurred by the Fund until the earlier of (i) October 1, 1983 or (ii) the first
day on which the total net assets of the Fund equal $50 million or more.
Thereafter, the Adviser shall reimburse the Fund monthly for all such expenses
exceeding an annual rate of 1.5% of the Fund's average daily net assets.
7. The Adviser assumes no responsibility under this Agreement other
than to render the services called for hereunder, in good faith, and shall not
be responsible for any action of the Board of Directors of the Fund in following
or declining to follow any advice or recommendations of the Adviser and the
Adviser shall not be liable for any error or judgement or mistake of law or for
any loss suffered by the Fund in connection with matters to which this contract
relates; provided, that nothing in this Agreement shall protect the Adviser
against any liability to the Fund or its stockholders to which it would
otherwise be subject by reason of willful misfeasance, bad faith, or gross
negligence in the performance of its duties or by reason of its reckless
disregard of its obligations and duties hereunder.
<PAGE>
7
8. Nothing in this Agreement shall limit or restrict the right of any
director, officer, or employee of the Adviser who may also be a director,
officer, or employee of the Fund, to engage in any other business or to devote
his time and attention in part to the management or other aspects of any other
business, whether of a similar nature or a dissimilar nature, nor to limit or
restrict the right of the Adviser 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.
9. The Fund acknowledges that the Adviser 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 Provident
Institutional Management Corporation and Legg Mason Wood Walker, Incorporated,
for shareholder, administrative, advisory, record keeping and distribution
services provided by such persons in connection with the Fund's shares.
10. As used in this Agreement, the terms "assignment", "interested
person", and "majority of the outstanding voting securities" shall have the
meanings given to them by Section 2(a) of the 1940 Act, subject to such
exemptions as may be granted by the Securities and Exchange Commission by any
rule, regulation or order.
11. Subject to the provision of paragraph 12 and 13 below, this
Agreement will remain in effect for two years from the date of its execution and
from year to year thereafter, provided that (i) its continuance is specifically
approved annually in the manner required pursuant to Section 15(a) and (c) of
the 1940 Act and (ii) the Adviser does not notify the Fund in
<PAGE>
8
writing at least sixty (60) days prior to the expiration date in any year that
it does not wish continuance of the Agreement for an additional year.
12. This Agreement shall automatically terminate in the event of its
assignment and may be terminated at any without the payment of any penalty by
the Fund or by the Adviser on sixty (60) days' written notice to the other
party. The Fund may effect such termination by a vote of (i) a majority of the
Board of Directors of the Fund, (ii) a majority of the directors who are not
parties to this Agreement or "interested" persons, as defined by the 1940 Act,
of any such party ("Disinterested Directors"), or (iii) with respect to any
given Portfolio, by a majority of the outstanding voting securities of such
Portfolio.
13. This Agreement shall be submitted for approval to the Board of
Directors of the Fund annually and shall continue in effect only so long as
specifically approved annually (i) by a majority vote of the Fund's Board of
Directors or, with respect to any given Portfolio, by a majority of the
outstanding voting securities of such Portfolio, and (ii) by the vote of a
majority of the Disinterested Directors of the Fund, cast in person at a meeting
called for the purpose of voting on such approval.
14. In the event this Agreement is terminated by either party or upon
written notice from the Adviser 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 only so long as this Agreement is effective or until such notice is given.
<PAGE>
9
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers thereunto duly authorized.
Attest: LEGG MASON TAX-EXEMPT TRUST, INC.
By: /s/ Suzanne E. Peluso By: /s/ John F. Curley
_______________________ _____________________________
Attest: LEGG MASON FUND ADVISER, INC.
By: /s/ Suzanne E. Peluso By: /s/ Thomas M. Daly S.V.P.
_______________________ _____________________________
Exhibit 6a
UNDERWRITING AGREEMENT
This UNDERWRITING AGREEMENT, made this 1st day of July, 1983, by and
between Legg Mason Tax-Exempt Trust, Inc., a Maryland corporation (the "Fund")
and Legg Mason Wood Walker, Incorporated, a Maryland corporation (the
"Distributor").
WHEREAS, the Fund is registered as an open-end, diversified investment
company under the Investment Company Act of 1940 (the "1940 Act") and has
registered its shares of common stock (the "Shares") for sale to the public
under the Securities Act of 1933 (the "1933 Act") and various state securities
laws; and
WHEREAS, the Fund wishes to retain the Distributor as the principal
underwriter in connection with the offering and sale of the Shares as specified
in this Agreement; and
WHEREAS, this Agreement has been approved by the Fund's Board of
Directors and certain disinterested directors in conformity with the 1940 Act
and the rules and regulations thereunder; and
WHEREAS, the Distributor wishes to provide its customers and others
with the opportunity to purchase Shares and is willing to act as principal
underwriter 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 the Distributor as principal underwriter in
connection with the offering and sale of the Shares. The Distributor shall, as
exclusive agent for the Fund,
<PAGE>
subject to applicable federal and state law and the Articles of Incorporation
and By-Laws of the Fund and in accordance with the representations in the Fund's
Prospectus: (a) promote the Fund and (b) solicit orders for the purchase of the
Shares subject to such terms and conditions as the Fund may specify. The
Distributor shall comply with all applicable federal and state laws and offer
the Shares on an agency or "best efforts" basis under which the Fund shall issue
only such Shares as are actually sold. The Distributor shall have the right to
use any list of shareholders of the Fund or any other list of investors which it
obtains in connection with its provision of services under this Agreement;
provided, however, that the Distributor shall not sell or knowingly provide such
list or lists to any unaffiliated person.
2. The public offering price of the Shares shall be the net asset value
per share (as determined by the Fund). No sales load or commission may be
charged. The Fund shall furnish the Distributor with a statement of each
computation of net asset value and of the details entering into such
computation.
3. As compensation for the services performed and the expenses assumed
by the Distributor under this Agreement, including, but not limited to,
remuneration to employees on the basis of sales of Shares, the Distributor may
be paid such amounts, if any, as the Board of Directors of the Fund, in its sole
discretion determines, provided that in no event may such payments exceed an
annual rate of .20% of the Fund's average daily net assets calculated on a daily
basis. The Distributor acknowledges that the Fund is under no obligation to pay
any such amounts pursuant to this Agreement.
<PAGE>
4. As used in this Agreement, the term "Registration Statement" shall
mean the registration statement most recently filed by the Fund with the
Securities and Exchange Commission and effective under the 1933 Act, as such
Registration Statement is amended by any amendments thereto at the time in
effect, and the term "Prospectus" shall mean the form of prospectus filed by the
Fund as part of the Registration Statement.
5. The Distributor shall print and distribute to prospective investors
Prospectuses, and may print and distribute such other sales literature, reports,
forms and advertisements in connection with the sale of the Shares as comply
with the applicable provisions of federal and state law. In connection with such
sales and offers of sale, the Distributor shall give only such information and
make only such statements or representations as are contained in the Prospectus
or in information furnished in writing to the Distributor by the Fund, and the
Fund shall not be responsible in any way for any other information, statements
or representations given or made by the Distributor or its representatives or
agents.
6. The Fund agrees at its own expense to register the Shares with the
Securities and Exchange Commission, state and other regulatory bodies, and to
prepare and file from time to time such Prospectuses, amendments, reports and
other documents as may be necessary to maintain the Registration Statement. The
Fund shall bear all expenses related to preparing and typesetting such
Prospectuses, and other materials required by law and such other expenses,
including printing and mailing expenses, related to the Fund's communications
with persons who are shareholders of the Fund.
7. The Fund agrees to indemnify, defend and hold the Distributor, its
several officers and directors, and any person who controls the Distributor
within the meaning of Section 15 of
- 3 -
<PAGE>
the 1933 Act, free and harmless from and against any and all claims, demands,
liabilities and expenses (including the cost of investigating or defending such
claims, demands or liabilities and any counsel fees incurred in connection
therewith) which the Distributor, its officers or directors, or any such
controlling person may incur, under the 1933 Act or under common law or
otherwise, arising out of or based upon any alleged untrue statement of a
material fact contained in the Registration Statement or Prospectus or arising
out of or based upon any alleged omission to state a material fact required to
be stated in either thereof or necessary to make the statements in either
thereof not misleading, provided that in no event shall anything contained in
this Agreement be construed so as to protect the Distributor against any
liability to the Fund or its shareholders to which the Distributor would
otherwise be subject by reason of willful misfeasance, bad faith, or gross
negligence in the performance of its duties, or by reason of its reckless
disregard of its obligations and duties under this Agreement.
8. The Distributor agrees to indemnify, defend and hold the Fund, its
several officers and directors, and any person who controls the Fund within the
meaning of Section 15 of the 1933 Act, free and harmless from and against any
and all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which the Fund, its officers or
directors, or any such controlling person may incur, under the 1933 Act or under
common law or otherwise, arising out of or based upon any alleged untrue
statement of a material fact contained in information furnished in writing by
the Distributor to the Fund for use in the Registration Statement or Prospectus
or arising out of or based upon any alleged omission to state a material
- 4 -
<PAGE>
fact in connection with such information required to be stated in the
Registration Statement or Prospectus necessary to make such information not
misleading.
9. The Fund reserves the right at any time to withdraw all offerings of
the Shares by written notice to the Distributor at its principal office.
10. The Distributor is an independent contractor and shall be agent for
the Fund only in respect to the offer, sale and redemption of the Shares.
11. The services of the Distributor to the Fund under this Agreement
are not to be deemed exclusive, and the Distributor shall be free to render
similar services or other services to others so long as its services hereunder
are not impaired thereby.
12. The Distributor shall prepare and furnish such reports and
information as from time to time shall be reasonably requested by the Fund's
Board of Directors. In the event that the Distributor receives payments pursuant
to paragraph 3 of this Agreement, the Distributor shall provide to the Fund's
Board of Directors, at least quarterly, a written report concerning the purpose
and manner of expenditure of such amounts.
13. As used in this Agreement, the terms "assignment", "interested
person," and "majority of the outstanding voting securities" shall have the
meanings given to them by Section 2(a) of the 1940 Act, subject to such
exemptions as may be granted by the Securities and Exchange Commission by any
rule, regulation or order.
14. Subject to the provisions of paragraph 15 and 15 hereof, this
Agreement will remain in effect for one year from the date of its execution and
from year to year thereafter, provided that the Distributor does not notify the
Fund in writing at least sixty (60) days prior to
- 5 -
<PAGE>
the expiration date in any year that it does not wish continuance of the
Agreement for an additional year.
15. This Agreement shall automatically terminate in the event of its
assignment and may be terminated at any time without the payment of any penalty
by the Fund or by the Distributor on sixty (60) days' written notice to the
other party. The Fund may effect such termination by a vote of (i) a majority of
the Board of Directors of the Fund, (ii) a majority of the directors who are not
interested persons of the Fund and who have no direct or indirect financial
interest in this Agreement or the Fund's Distribution Plan ("Disinterested
Directors"); or (iii) a majority of the outstanding voting securities of the
Fund.
16. This Agreement shall be submitted for approval to the Board of
Directors of the Fund annually and shall continue in effect only so long as
specifically approved annually (i) by a majority vote of the Fund's Board of
Directors, and (ii) by the vote of a majority of the Disinterested Directors of
the Fund, cast in person at a meeting called for the purpose of voting on such
approval.
- 6 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers thereunto duly authorized.
Attest: LEGG MASON TAX-EXEMPT TRUST, INC.
By: /s/ Suzanne E. Peluso By: /s/ Edmund J. Cashman, Jr.
____________________________ ________________________________
Suzanne E. Peluso, Edmund J. Cashman, Jr.,
Secretary President
Attest: LEGG MASON WOOD WALKER, INCORPORATED
By: /s/ Charles A. Bacigalupo By: /s/ John F. Curley
____________________________ ________________________________
Charles A. Bacigalupo,
Secretary
- 7 -
Exhibit 6b
AMENDED
UNDERWRITING AGREEMENT
This UNDERWRITING AGREEMENT, made this 7th day of February, 1996, by
and between Legg Mason Tax-Exempt Trust, Inc., a Maryland corporation (the
"Corporation") and Legg Mason Wood Walker, Incorporated, a Maryland corporation
(the "Distributor").
WHEREAS, the Corporation is registered with the Securities and Exchange
Commission as an open-end investment company under the Investment Company Act of
1940, as amended (the "1940 Act") and has registered its shares of common stock
for sale to the public under the Securities Act of 1933 (the "1933 Act") and
various state securities laws; and
WHEREAS, the Corporation wishes to retain the Distributor as the
principal underwriter in connection with the offering and sale of the shares of
common stock of the Fund ("Shares") and to furnish certain other services to the
Corporation as specified in this Agreement; and
WHEREAS, this Agreement has been approved by separate votes of the
Corporation's Board of Directors and of certain disinterested directors in
conformity with Section 15 of, and paragraph (b) (2) of Rule 12b-1 under the
1940 Act; and
WHEREAS, the Distributor is willing to act as principal underwriter and
to furnish such services on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed as follows:
1. (a) The Corporation hereby appoints the Distributor as principal
underwriter in connection with the offering and sale of the Fund. The
Distributor, as exclusive agent for the Corporation, upon the commencement of
operations of the Fund and subject to applicable federal and state law and the
Articles of Incorporation and By-Laws of the Corporation shall: (i) promote the
Fund, (ii) solicit orders for the purchase of the Shares subject to such terms
and conditions as the Corporation may specify; and (iii) accept orders for the
purchase of the Shares on behalf of the Corporation (collectively, "Distribution
Services"). The Distributor shall comply with all applicable federal and state
laws and offer the Shares on an agency or "best efforts" basis under which the
Corporation or any other list of investors which it obtains in connection with
its provision of services under this Agreement; provided, however, that the
Distributor shall not sell or knowingly provide such list or lists to any
unaffiliated person without the consent of the Corporation's Board of Directors.
(b) The Distributor shall provide ongoing shareholder liaison
services, including responding to shareholder inquiries, providing shareholders
with information on their investments, and any other services now or hereafter
deemed to be appropriate subjects for the payments of "service fees" under
Article III, Section 26 of the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. (collectively, "Shareholder Services").
2. The Distributor may enter into dealer agreements with registered and
qualified securities dealers it may select for the performance of Distribution
and Shareholder Services,
<PAGE>
and may enter into agreements with qualified dealers and other qualified
entities to perform recordkeeping and sub-accounting services, the form of such
agreements to be as mutually agreed upon and approved by the Corporation and the
Distributor. In making such arrangements, the Distributor shall act only as
principal and not as agent for the Corporation. No such dealer or other entity
is authorized to act as agent for the Corporation in connection with the
offering or sale of Shares to the public or otherwise.
3. The public offering price of the Shares shall be the net asset value
per share (as determined by the Corporation) of the outstanding Shares plus any
applicable sales charge as described in the Registration Statement of the
Corporation. The Corporation shall furnish the Distributor with a statement of
each computation of public offering price and of the details entering into such
computation.
4. As compensation for providing Distribution Services under this
Agreement, the Distributor shall retain the sales charge, if any, on purchases
of Shares as set forth in the Registration Statement. The Distributor is
authorized to collect the gross proceeds derived from the sale of the Shares,
remit the net asset value thereof to the Corporation upon receipt of the
proceeds and retain the sales charge, if any. The Distributor shall receive from
the Fund a distribution fee and a service fee at the rates and under the terms
and conditions of the Plan of Distribution ("Plan") adopted by the Corporation
with respect to the Fund, as such Plan is in effect from time to time, and
subject to any further limitations on such fees as the Corporation's Board of
Directors may impose. The Distributor may reallow any or all of the sales
charge, distribution fee and service fee that it has received under this
Agreement to such dealers or sub-accountants as it may from time to time
determine; provided, however, that the Distributor may not reallow to any dealer
for Shareholder Services an amount in excess of 0.25% of the average annual net
asset value of the shares with respect to which said dealer provides Shareholder
Services.
5. As used in this Agreement, the term "Registration Statement" shall
mean the registration statement most recently filed by the Corporation with the
Securities and Exchange Commission and effective under the 1940 Act and 1933
Act, as such Registration Statement is amended by any amendments thereto at the
time in effect, and the terms "Prospectus" and "Statement of Additional
Information" shall mean, respectively, the form of prospectus and statement of
additional information filed by the Corporation as part of the Registration
Statement, or as they may be amended from time to time.
6. The Distributor shall print and distribute to prospective investors
Prospectuses, and shall print and distribute, upon request, to prospective
investors Statements of Additional Information, and may print and distribute
such other sales literature, reports, forms and advertisements in connection
with the sale of the Shares as comply with the applicable provisions of federal
and state law. In connection with such sales and offers of sale, the Distributor
and any dealer or sub-accountant shall give only such information and make only
such statements or representations as are contained in the Prospectus, Statement
of Additional Information, or in information furnished in writing to the
Distributor by the Corporation, and the Corporation shall not be responsible in
any way for any other information, statements or representations given or made
by the Distributor, any dealer or sub-accountant, or their representatives or
agents. Except as specifically provided in this Agreement, the Corporation shall
bear none of the expenses of the Distributor in connection with its offer and
sale of the Shares.
<PAGE>
7. The Corporation agrees at its own expense to register the Shares
with the Securities and Exchange Commission, state and other regulatory bodies,
and to prepare and file from time to time such Prospectuses, Statements of
Additional Information, amendments, reports and other documents as may be
necessary to maintain the Registration Statement. The Fund shall bear all
expenses related to preparing and typesetting such Prospectuses, Statements of
Additional Information, and other materials required by law and such other
expenses, including printing and mailing expenses, related to the Fund's
communications with persons who are shareholders of the Fund.
8. The Corporation agrees to indemnify, defend and hold the
Distributor, its several officers and directors, and any person who controls the
Distributor within the meaning of Section 15 of the 1933 Act, free and harmless
from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which the
Distributor, its officers or directors, or any such controlling person may
incur, under the 1933 Act or under common law or otherwise, arising out of or
based upon any alleged untrue statement of a material fact contained in the
Registration Statement or arising out of or based upon any alleged omission to
state a material fact required to be stated in either thereof or necessary to
make the Registration Statement not misleading, provided that in no event shall
anything contained in this Agreement be construed so as to protect the
Distributor against any liability to the Corporation or its shareholders to
which the Distributor would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance of its duties, or
by reason of its reckless disregard of its obligations and duties under this
Agreement, and further provided that the Corporation shall not indemnify the
Distributor for conduct set forth in paragraph 9.
9. The Distributor agrees to indemnify, defend and hold the
Corporation, its several officers and directors, and any person who controls the
Corporation within the meaning of Section 15 of the 1933 Act, free and harmless
from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which the
Corporation, its officers or directors, or any such controlling person may
incur, under the 1933 Act or under common law or otherwise, arising out of or
based upon any alleged untrue statement of a material fact contained in
information furnished in writing by the Distributor to the Corporation for use
in the Registration Statement or arising out of or based upon any alleged
omission to state a material fact in connection with such information required
to be stated in the Registration Statement or necessary to make such information
not misleading. As used in this paragraph, the term "employee" shall not include
a corporate entity under contract to provide services to the Corporation of the
Fund, or any employee of such a corporate entity, unless such persons otherwise
an employee of the Corporation.
10. The Corporation reserves the right at any time to withdraw all
offerings of the Shares by written notice to the Distributor at its principal
office.
11. The Corporation shall not issue certificates representing Shares
unless requested by a shareholder. If such request is transmitted through the
Distributor, the
- 3 -
<PAGE>
Corporation will cause certificates evidencing the Shares owned to be issued in
such names and denominations as the Distributor shall from time to time direct,
provided that no certificates shall be issued for fractional Shares.
12. The Distributor may at its sole discretion, directly or through
dealers, repurchase Shares offered for sale by the shareholders or dealers.
Repurchase of Shares by the Distributor shall be at the net asset value next
determined after a repurchase order has been received. The Distributor will
receive no commission or other remuneration for repurchasing Shares. At the end
of each business day, the Distributor shall notify by telex, or in writing, the
Corporation and State Street Bank and Trust Company, the Corporation's transfer
agent, of the orders for repurchase of Shares received by the Distributor since
the last such report, the amount to be paid for such Shares, and the identity of
the shareholders or dealers offering Shares for repurchase. Upon such notice,
the Corporation shall pay the Distributor such amounts as are required by the
Distributor for the repurchase of such Shares in cash or in the form of a credit
against moneys due the Corporation from the Distributor as proceeds from the
sale of Shares. The Corporation reserves the right to suspend such repurchase
right upon written notice to the Distributor. The Distributor further agrees to
act as agent for the Corporation to receive and transmit promptly to the
Corporation's transfer agent shareholder and dealer requests for redemption of
Shares.
13. The Distributor is an independent contractor and shall be agent for
the Corporation only in respect to the offer, sale and redemption of the Shares.
14. The services of the Distributor to the Corporation under this
Agreement are not to be deemed exclusive, and the Distributor shall be free to
render similar services or other services to others so long as its services
hereunder are not impaired thereby.
15. The Distributor shall prepare and furnish such reports and
information as from time to time shall be reasonably requested by the Fund's
Board of Directors. In the event that the Distributor receives payments pursuant
to paragraph 3 of this Agreement, the Distributor shall provide to the Fund's
Board of Directors, at least quarterly, a written report concerning the purpose
and manner of expenditure of such amounts.
16. As used in this Agreement, the terms "assignment", "interested
person", and "majority of the outstanding voting securities" shall have the
meanings given to them by Section 2(a) of the 1940 Act, subject to such
exemptions as may be granted by the Securities and Exchange Commission by any
rule, regulation or order.
17. This Agreement will become effective with respect to each Fund on
the date first written above and, unless sooner terminated as provided herein,
will continue in effect for one year from the above written date. Thereafter, if
not terminated, this Agreement shall continue in effect for successive annual
periods ending on the same dater of each year, provided that such continuance is
specifically approved at least annually (i) by the Corporation's Board of
Directors 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 Corporation's directors who
are not interested persons (as defined in the 1940 Act) of any party
- 4 -
<PAGE>
to this Agreement, by vote cast in person at a meeting called for the purpose of
voting on such approval.
18. This Agreement is terminable in its entirety without penalty by the
Corporation's Board of Directors, by vote of a majority of the outstanding
voting securities of the Fund (as defined in the 1940 Act), or by the
Distributor, on not less than 60 days' notice to the other party and will be
terminated upon the mutual written consent of the Distributor and the
Corporation. This Agreement will also automatically and immediately terminate in
the event of its assignment.
19. No provision of this Agreement may be changed, waived, discharged
or terminated orally, except by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought.
20. In the event this Agreement is terminated by either party or upon
written notice from the Distributor at any time, the Corporation hereby agrees
that it will eliminate from its corporate name any reference to the name of
"Legg Mason." The Corporation shall have the non-exclusive use of the name "Legg
Mason" in whole or in part only so long as this Agreement is effective or until
such notice is given.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers thereunto duly authorized.
Attest: LEGG MASON TAX-EXEMPT TRUST, INC.
By: /s/ Kathi D. Bair By: /s/ Marie K. Karpinski
----------------------- ------------------------------
Attest: LEGG MASON WOOD WALKER,
INCORPORATED
By: /s/ Ana Ramage By: /s/ John F. Curley, Jr.
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- 5 -
Exhibit 8
CUSTODIAN CONTRACT
Between
LEGG MASON TAX-EXEMPT TRUST, INC.
and
STATE STREET BANK AND TRUST COMPANY
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TABLE OF CONTENTS
Page
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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..............................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 Payments for Shares...................................5
2.6 Availability of Federal Funds.........................5
2.7 Collection of Income..................................5
2.8 Payment of Fund Monies................................5
2.9 Liability for Payment in Advance of
Receipt of Securities Purchased.......................6
2.10 Payments for Repurchases or Redemptions
of Shares of the Fund.................................7
2.11 Appointment of Agents.................................7
2.12 Deposit of Fund Assets in Securities System...........7
2.12A Fund Assets Held in the Custodian's Direct
Paper System..........................................8
2.12A Segregated Account....................................9
2.14 Ownership Certificates for Tax Purposes..............10
2.15 Proxies..............................................10
2.16 Communications Relating to Portfolio
Securities...........................................10
2.17 Proper Instructions..................................10
2.18 Actions Permitted Without Express Authority..........11
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2.19 Evidence of Authority................................11
3. Duties of Custodian With Respect to the Books of
Account and Calculation of Net Asset Value and
Net Income....................................................11
4. Records.......................................................12
5. Opinion of Fund's Independent Accountants.....................12
6. Reports to Fund by Independent Public Accountants.............12
7. Compensation of Custodian.....................................12
8. Responsibility of Custodian...................................13
9. Effective Period, Termination and Amendment...................13
10. Successor Custodian...........................................14
11. Interpretive and Additional Provisions........................15
12. Additional Funds..............................................15
13. Massachusetts Law to Apply....................................15
14. Prior Contracts...............................................15
15. Miscellaneous.................................................15
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CUSTODIAN CONTRACT
This Contract between Legg Mason Tax-Exempt Trust, Inc. , a corporation
organized and existing under the laws of Maryland , having its principal place
of business at 111 South Calvert Street, 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:
WHEREAS, the Fund is authorized to issue shares in separate series,
with each such series representing interests in a separate portfolio of
securities and other assets; and
WHEREAS, the Fund intends to initially offer shares in one series, the
Legg Mason Money Market Portfolio (such series together with all other series
subsequently established by the Fund and made subject to this Contract in
accordance with paragraph 12, being herein referred to as the "Portfolio(s)");
NOW THEREFORE, 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 the assets of
the Portfolios of the Fund pursuant to the provisions of the Articles of
Incorporation. The Fund on behalf of the Portfolio(s) agrees to deliver to the
Custodian all securities and cash of the Portfolios, and all payments of income,
payments of principal or capital distributions received by it with respect to
all securities owned by the Portfolio(s) from time to time, and the cash
consideration received by it for such new or treasury shares of capital stock of
the Fund representing interests in the Portfolios, ("Shares") as may be issued
or sold from time to time. The Custodian shall not be responsible for any
property of a Portfolio held or received by the Portfolio and not delivered to
the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Section
2.17), the Custodian shall on behalf of the applicable Portfolio(s) from time to
time employ one or more sub-custodians, but only in accordance with an
applicable vote by the Board of Directors of the Fund on behalf of the
applicable Portfolio(s), 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.
2. Duties of the Custodian with Respect to Property of the Fund Held By
the Custodian
2.1 Holding Securities. The Custodian shall hold and physically segregate
for the account of each Portfolio all non-cash property, including all
securities owned by such Portfolio, other than (a) securities which are
maintained pursuant to Section 2.12 in a clearing agency which acts as
a
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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 2.12A.
2.2 Delivery of Securities. The Custodian shall release and deliver
securities owned by a Portfolio 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 from the Fund on behalf of the
applicable Portfolio, 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 Portfolio
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
Portfolio;
3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section 2.12 hereof;
4) To the depository agent in connection with tender or other
similar offers for securities of the Portfolio;
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 Portfolio 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 2.11 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
Portfolio, 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;
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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 Portfolio, but only against receipt of adequate
collateral as agreed upon from time to time by the Custodian
and the Fund on behalf of the Portfolio, 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 Portfolio prior to the
receipt of such collateral;
11) For delivery as security in connection with any borrowings by
the Fund on behalf of the Portfolio requiring a pledge of
assets by the Fund on behalf of the Portfolio, but only
against receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, 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 Portfolio of the Fund;
13) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, 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 Portfolio of 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 currently effective prospectus and statement of
additional information of the Fund, related to the Portfolio
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("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 from the Fund on behalf
of the applicable Portfolio, a certified copy of a resolution
of the Board of Directors or of the Executive Committee signed
by an officer of the Fund and certified by the Secretary or an
Assistant Secretary, specifying the securities of the
Portfolio 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. Securities held by the Custodian (other
than bearer securities) shall be registered in the name of the
Portfolio or in the name of any nominee of the Fund on behalf of the
Portfolio or of any nominee of the Custodian which nominee shall be
assigned exclusively to the Portfolio, 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 Portfolio, or in the name or nominee name of any agent appointed
pursuant to Section 2.11 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 Portfolio 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 name of each Portfolio 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 Portfolio, other than cash maintained by the Portfolio in a bank
account established and used in accordance with Rule 17f-3 under the
Investment Company Act of 1940. Funds held by the Custodian for a
Portfolio 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 on behalf of each
applicable Portfolio be approved by vote of a majority of the Board of
Directors 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 Payments for Shares. The Custodian shall receive from the distributor
for the Shares or from the Transfer Agent of the Fund and deposit into
the account of the appropriate Portfolio such
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payments as are received for Shares of that Portfolio issued or sold
from time to time by the Fund. The Custodian will provide timely
notification to the Fund on behalf of each such Portfolio and the
Transfer Agent of any receipt by it of payments for Shares of such
Portfolio.
2.6 Availability of Federal Funds. Upon mutual agreement between the Fund
on behalf of each applicable Portfolio and the Custodian, the Custodian
shall, upon the receipt of Proper Instructions from the Fund on behalf
of a Portfolio, make federal funds available to such Portfolio 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
such Portfolio which are deposited into the Portfolio's account.
2.7 Collection of Income. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other payments
with respect to registered securities held hereunder to which each
Portfolio 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 bearer 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 such
Portfolio'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 each Portfolio on 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 Portfolio is
properly entitled.
2.8 Payment of Fund Monies. Upon receipt of Proper Instructions from the
Fund on behalf of the applicable Portfolio, which may be continuing
instructions when deemed appropriate by the parties, the Custodian
shall pay out monies of a Portfolio in the following cases only:
1) Upon the purchase of securities, options, futures contracts or
options on futures contracts for the account of the Portfolio
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 Portfolio 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 2.12 hereof; (c) in
the case of a purchase involving the Direct Paper System, in
accordance with the conditions set forth in Section 2.12A; (d)
in the case of repurchase agreements entered into between the
Fund on behalf of the Portfolio 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
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delivery of the receipt evidencing purchase by the Portfolio
of securities owned by the Custodian along with written
evidence of the agreement by the Custodian to repurchase such
securities from the Portfolio 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 from the Fund as defined in Section
2.17;
2) In connection with conversion, exchange or surrender of
securities owned by the Portfolio as set forth in Section 2.2
hereof;
3) For the redemption or repurchase of Shares issued by the
Portfolio as set forth in Section 2.10 hereof;
4) For the payment of any expense or liability incurred by the
Portfolio, including but not limited to the following payments
for the account of the Portfolio: 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 on Shares of the Portfolio
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 from the Fund on behalf of the
Portfolio, a certified copy of a resolution of the Board of
Directors 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.
2.9 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 securities for the account of
a Portfolio is made by the Custodian in advance of receipt of the
securities purchased in the absence of specific written instructions
from the Fund on behalf of such Portfolio 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.
2.10 Payments for Repurchases or Redemptions of Shares of the Fund. From
such funds as may be available for the purpose but subject to the
limitations of the Articles of Incorporation and any applicable votes
of the Board of Directors of the Fund pursuant thereto, the Custodian
shall,
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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 a
Portfolio, 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.
2.11 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.
2.12 Deposit of Fund Assets in Securities Systems. The Custodian may deposit
and/or maintain securities owned by a Portfolio 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 securities of the Portfolio 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 securities of the
Portfolio which are maintained in a Securities System shall
identify by book-entry those securities belonging to the
Portfolio;
3) The Custodian shall pay for securities purchased for the
account of the Portfolio 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 Portfolio. The Custodian shall transfer
securities sold for the account of the Portfolio 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
Portfolio. Copies of all advices from the Securities System of
transfers of securities for the account of the Portfolio shall
identify the Portfolio, be maintained for the Portfolio by the
Custodian and be provided to the Fund
<PAGE>
at its request. Upon request, the Custodian shall furnish the
Fund on behalf of the Portfolio confirmation of each transfer
to or from the account of the Portfolio in the form of a
written advice or notice and shall furnish to the Fund on
behalf of the Portfolio copies of daily transaction sheets
reflecting each day's transactions in the Securities System
for the account of the Portfolio.
4) The Custodian shall provide the Fund for the Portfolio with
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 from the Fund on behalf
of the Portfolio the initial or annual certificate, as the
case may be, required by Article 9 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for the benefit of the
Portfolio for any loss or damage to the Portfolio 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 Portfolio has not been made whole for any
such loss or damage.
2.12A Fund Assets Held in the Custodian's Direct Paper System. The Custodian
may deposit and/or maintain securities owned by a Portfolio 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
from the Fund on behalf of the Portfolio;
2) The Custodian may keep securities of the Portfolio 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
Portfolio which are maintained in the Direct Paper System
shall identify by book-entry those securities belonging to the
Portfolio;
4) The Custodian shall pay for securities purchased for the
account of the Portfolio upon the making of an entry on the
records of the Custodian to reflect such payment and
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transfer of securities to the account of the Portfolio. The
Custodian shall transfer securities sold for the account of
the Portfolio 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 Portfolio;
5) The Custodian shall furnish the Fund on behalf of the
Portfolio confirmation of each transfer to or from the account
of the Portfolio, 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 on behalf of the
Portfolio copies of daily transaction sheets reflecting each
day's transaction in the Securities System for the account of
the Portfolio;
6) The Custodian shall provide the Fund on behalf of the
Portfolio with any report on its system of internal accounting
control as the Fund may reasonably request from time to time.
2.13 Segregated Account. The Custodian shall upon receipt of Proper
Instructions from the Fund on behalf of each applicable Portfolio
establish and maintain a segregated account or accounts for and on
behalf of each such Portfolio, into which account or accounts may be
transferred cash and/or securities, including securities maintained in
an account by the Custodian pursuant to Section 2.12 hereof, (i) in
accordance with the provisions of any agreement among the Fund on
behalf of the Portfolio, 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
Portfolio, (ii) for purposes of segregating cash or government
securities in connection with options purchased, sold or written by the
Portfolio or commodity futures contracts or options thereon purchased
or sold by the Portfolio, (iii) for the purposes of compliance by the
Portfolio 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 from the Fund on
behalf of the applicable Portfolio, a certified copy of a resolution of
the Board of Directors 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.
2.14 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 securities of each Portfolio held by it and in
connection with transfers of securities.
2.15 Proxies. The Custodian shall, with respect to the securities held
hereunder, cause to be promptly
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executed by the registered holder of such securities, if the
securities are registered otherwise than in the name of the Portfolio
or a nominee of the Portfolio, all proxies, without indication of
the manner in which such proxies are to be voted, and shall promptly
deliver to the Portfolio such proxies, all proxy soliciting materials
and all notices relating to such securities.
2.16 Communications Relating to Portfolio Securities. Subject to the
provisions of Section 2.3, the Custodian shall transmit promptly to the
Fund for each Portfolio all written information (including, without
limitation, pendency of calls and maturities of securities and
expirations of rights in connection therewith and notices of exercise
of call and put options written by the Fund on behalf of the Portfolio
and the maturity of futures contracts purchased or sold by the
Portfolio) received by the Custodian from issuers of the securities
being held for the Portfolio. With respect to tender or exchange
offers, the Custodian shall transmit promptly to the Portfolio all
written information received by the Custodian from issuers of the
securities whose tender or exchange is sought and from the party (or
his agents) making the tender or exchange offer. If the Portfolio
desires to take action with respect to any tender offer, exchange offer
or any other similar transaction, the Portfolio shall notify the
Custodian at least three business days prior to the date on which the
Custodian is to take such action.
2.17 Proper Instructions. Proper Instructions as used throughout this
Article 2 means a writing signed or initialled by one or more person or
persons as the Board of Directors 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 Directors of the Fund accompanied by a
detailed description of procedures approved by the Board of Directors,
Proper Instructions may include communications effected directly
between electro-mechanical or electronic devices provided that the
Board of Directors and the Custodian are satisfied that such procedures
afford adequate safeguards for the Portfolios' 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 2.13.
2.18 Actions Permitted without Express Authority. The Custodian may in
its discretion, without express authority from the Fund on behalf of
each applicable Portfolio:
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 on behalf of the Portfolio;
2) surrender securities in temporary form for securities in
definitive form;
<PAGE>
3) endorse for collection, in the name of the Portfolio, 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 Portfolio except as otherwise directed by the Board of
Directors of the Fund.
2.19 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 Directors
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 Directors pursuant to the Articles of
Incorporation 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.
3. 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 Directors of the Fund to keep
the books of account of each Portfolio and/or compute the net asset value per
share of the outstanding shares of each Portfolio or, if directed in writing to
do so by the Fund on behalf of the Portfolio, 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 Portfolio as
described in the Fund's currently effective prospectus related to such Portfolio
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 each Portfolio shall be made at the time or times
described from time to time in the Fund's currently effective prospectus related
to such Portfolio.
4. Records
The Custodian shall with respect to each Portfolio 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 each Portfolio 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.
<PAGE>
5. Opinion of Fund's Independent Accountant
The Custodian shall take all reasonable action, as the Fund on behalf
of each applicable Portfolio 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.
6. Reports to Fund by Independent Public Accountants
The Custodian shall provide the Fund, on behalf of each of the
Portfolios 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 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.
7. 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 on behalf of each applicable Portfolio and the Custodian.
8. 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.
If the Fund on behalf of a Portfolio 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
<PAGE>
Custodian, result in the Custodian or its nominee assigned to the Fund or the
Portfolio being liable for the payment of money or incurring liability of some
other form, the Fund on behalf of the Portfolio, 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 for the benefit of a Portfolio 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 applicable Portfolio 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 Portfolio's assets to
the extent necessary to obtain reimbursement.
9. 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 with respect to a Portfolio act under
Section 2.12 hereof in the absence of receipt of an initial certificate of the
Secretary or an Assistant Secretary that the Board of Directors of the Fund has
approved the initial use of a particular Securities System by such Portfolio, as
required by Rule 17f-4 under the Investment Company Act of 1940, as amended and
that the Custodian shall not with respect to a Portfolio act under Section 2.12A
hereof in the absence of receipt of an initial certificate of the Secretary or
an Assistant Secretary that the Board of Directors has approved the initial use
of the Direct Paper System by such Portfolio; 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 Articles of
Incorporation, and further provided, that the Fund on behalf of one or more of
the Portfolios may at any time by action of its Board of Directors (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 on behalf of each applicable
Portfolio 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.
10. Successor Custodian
If a successor custodian for the Fund, of one or more of the Portfolios
shall be appointed by the Board of Directors 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 of each
applicable Portfolio then held by it hereunder and shall transfer to an account
of the successor custodian
<PAGE>
all of the securities of each such Portfolio 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
Directors 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 Directors 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 on behalf of each applicable Portfolio and all
instruments held by the Custodian relative thereto and all other property held
by it under this Contract on behalf of each applicable Portfolio and to transfer
to an account of such successor custodian all of the securities of each such
Portfolio 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 Directors 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.
11. Interpretive and Additional Provisions
In connection with the operation of this Contract, the Custodian and
the Fund on behalf of each of the Portfolios, 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 Articles of Incorporation
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.
12. Additional Funds
In the event that the Fund establishes one or more series of Shares in
addition to Legg Mason Market Portfolio with respect to which it desires to have
the Custodian render services as custodian under the terms hereof, it shall so
notify the Custodian in writing, and if the Custodian agrees in writing
<PAGE>
to provide such services, such series of Shares shall become a Portfolio
hereunder.
13. 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.
14. Prior Contracts
This Contract supersedes and terminates, as of the date hereof, all
prior contracts between the Fund on behalf of each of the Portfolios and the
Custodian relating to the custody of the Fund's assets.
15. Miscellaneous
15.1 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.
15.2 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 31st day of December, 1991.
ATTEST LEGG MASON TAX-EXEMPT TRUST, INC.
/s/ Kathi D. Glenn By /s/ Marie K. Karpinski
______________________________ ________________________________
ATTEST STATE STREET BANK AND TRUST COMPANY
/s/ A. Curley By /s/ Phyllis A. Schroder
______________________________ ________________________________
Executive Vice President
Exhibit 9
TRANSFER AGENCY AND SERVICE AGREEMENT
between
LEGG MASON TAX-EXEMPT TRUST, INC.
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
Page
----
Article 1 Terms of Appointment; Duties of the Bank.....................2
Article 2 Fees and Expenses............................................5
Article 3 Representations and Warranties of the Bank...................6
Article 4 Representations and Warranties of the Fund...................7
Article 5 Indemnification..............................................7
Article 6 Covenants of the Fund and the Bank..........................11
Article 7 Termination of Agreement....................................13
Article 8 Additional Funds............................................13
Article 9 Assignment..................................................14
Article 10 Amendment...................................................14
Article 11 Massachusetts Law to Apply..................................15
Article 12 Merger of Agreement.........................................15
Article 13 Miscellaneous...............................................15
Article 14 Counterparts................................................15
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the 31st day of December, 1991, by and between
LEGG MASON TAX-EXEMPT TRUST, INC., a Maryland corporation, having its principal
office and place of business at 111 South Calvert, 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 is authorized to issue shares in separate series,
with each such series representing interests in a separate Portfolio of
securities and other assets; and
WHEREAS, the Fund intends to initially offer Shares in one series, the
Legg Mason Money Market Portfolio (such series, together with all other series
subsequently established by the Fund and made subject to this Agreement in
accordance with Article 8, being herein referred to, as a Portfolio, and
collectively as the "Portfolios);
WHEREAS, the Fund, on behalf of the Portfolios desires to appoint the
Bank as its transfer agent, dividend disbursing agent 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 1 Terms of Appointment; Duties of the Bank
1.01 Subject to the terms and conditions set forth in this
Agreement, the Fund, on behalf of the Portfolios, hereby employs and appoints
the Bank to act as, and the Bank agrees to act as its transfer agent for the
authorized and issued shares of beneficial interest of the Fund representing
interests in each of the respective Portfolios ("Shares"), dividend disbursing
agent and agent in connection with any accumulation, open-account or similar
plans provided to the Shareholders of each of the respective Portfolios of the
Fund ("Shareholders") and set out in the currently effective Prospectuses and
Statement of Additional Information ("prospectuses") of the Fund on behalf of
the applicable Portfolio, including without limitation any periodic investment
plan or periodic withdrawal program.
1.02 The Bank agrees that it will perform the following
services:
(a) In accordance with the Prospectuses and 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 therefor to the
<PAGE>
Custodian of the Fund authorized pursuant to the
Articles of Incorporation 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 therefor 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 over in
the appropriate manner such monies as instructed
directly or indirectly 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 on behalf of the
applicable Portfolio; and
(viii) Issue replacement certificates for those certificates
alleged to have been lost, stolen or destroyed upon
receipt by the Bank of indemnification satisfactory
to the Bank and protecting the Bank and the Fund, and
the Bank at its option, may issue replacement
certificates in place of mutilated stock certificates
upon presentation thereof and without such indemnity;
(ix) Report abandoned property to the various states as
authorized by the Fund per policies and principles
agreed upon by the Fund and the Bank;
(x) Maintain records of account for and advise the Fund
and its Shareholders as to the foregoing; and
(xi) Record the issuance of Shares and maintain pursuant
to Rule 17Ad-10(e) under the Securities Exchange Act
of 1934 a record of the total number of Shares which
are authorized, based upon data provided to it by the
Fund, and issued and outstanding. 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
2
<PAGE>
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 not in lieu of the services set forth
in the above paragraph (a), the Bank shall: (i) perform the customary services
of a transfer agent, dividend disbursing agent 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 record date lists for special meetings and for mailings to
Shareholders; addressing and mailing proxies, receiving and tabulating proxies,
and doing all other things necessary in connection with proxy solicitation,
addressing and mailing Shareholder reports, prospectuses and other materials to
current Shareholders; withholding, and paying to the appropriate federal and
state authorities, taxes on U.S. resident and non-resident alien accounts;
preparing, filing and mailing to Shareholders U.S. Treasury Department Forms
1099 and other appropriate forms required with respect to dividends and
distributions by federal and state authorities for all registered Shareholders;
preparing and mailing purchase and sale 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, providing Shareholder account information and (ii)
provide a system which will enable the Fund to monitor the total number of
Shares sold of each portfolio in each State.
(c) In additions, 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 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 on behalf of each Portfolio 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.
Article 2 Fees and Expenses
2.01 For the performance by the Bank pursuant to this
Agreement, the Fund agrees on behalf of each of the Portfolios, 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 on behalf of the Portfolios, 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
<PAGE>
as part of its duties and obligations under this Agreement will be reimbursed by
the Fund on behalf of the applicable Portfolio.
2.03 The Fund agrees on behalf of each of the Portfolios to
pay all fees and reimbursable expenses within five days following the receipt of
the respective billing notice. Postage for receipt 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 corporation duly organized and existing and in
good standing under the laws of Maryland.
4.02 It is empowered under applicable laws and by its Articles
of Incorporation and By-Laws to enter into and perform this Agreement.
4
<PAGE>
4.03 All corporate proceedings required by said Articles of
Incorporation 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 investment company
registered under the Investment Company Act of 1940.
4.05 A registration statement under the Securities Act of 1933
and the Investment Company Act of 1940 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 being offered for sale.
Article 5 Indemnification
5.01 The Bank shall not be responsible for, and the Fund shall
on behalf of the applicable Portfolio, 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 such actions are taken
in good faith and without negligence or willful misconduct.
(b) The Fund's lack of good faith, negligence or willful
misconduct or which arise out of the breach of any representation or warranty of
the Fund hereunder.
(c) The reliance on or use by the Bank or its agents or
subcontractors on information, records and documents which (i) are received by
the Bank or its agents or subcontractors and furnished to it by or on behalf of
the Fund, and (ii) have been prepared and/or maintained by the Fund or any other
person or firm on behalf of the Fund.
(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, damages, and any and all reasonable cost,
charges, counsel fees, payments, expenses and liability arising out of or
attributed 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 authorized officer
of the Fund for instructions, and may consult with experienced securities
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 and
subcontractors shall not be liable and shall be indemnified by the Fund on
behalf
<PAGE>
of the applicable Portfolio for any action taken or omitted by it in good faith
in reliance upon such instructions or upon the opinion of such counsel that such
actions or omissions comply with the terms of this Agreement or with all
applicable laws. 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 by the Bank 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 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 this 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 make reasonable
provisions for emergency use of electronic data processing equipment to the
extent appropriate equipment is available, and the Bank shall further 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 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
party seeking indemnification 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
<PAGE>
6.01 The Fund shall, on behalf of the Portfolios promptly
furnish to the Bank the following:
(a) A certified copy of the resolution of the Board of
Directors of the Fund authorizing the appointment of the Bank and the execution
and delivery of this Agreement.
(b) A copy of the Articles of Incorporation and By-Laws of the
Fund and all amendments thereto.
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.
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 Coopany 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 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.
6.05 In case of any requests or demands for the inspection of
the Shareholder records of the Fund, the Bank will 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 i8 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 Portfolio to which such expenses relate. Additionally, the Bank
reserves the right to charge for any other reasonable expenses associated with
such termination. In the event that the Corporation designates a successor to
any of the Bank's obligations hereunder, the Bank shall, at the expense and
direction of each
<PAGE>
Fund, transfer to such successor a certified list of the Shareholders of such
Fund, a complete record of the account of each Shareholder, and all other
relevant books, records and other data established or maintained by the Bank
hereunder.
Article 8 Additional Funds
8.01 In the event that the Fund establishes one or more series
of Shares in addition to the Legg Mason Money Market Portfolio with respect to
which it desires to have the Bank render services as transfer agent under the
terms hereof, it shall so notify the Bank in writing, and if the Bank agrees in
writing to provide such services, such series of Shares shall become a Portfolio
hereunder.
Article 9 Assignment
9.01 Except as provided in Section 9.03 below, neither this
Agreement nor any rights or obligations hereunder may be assigned by the Bank
without the written consent of the other party.
9.02 This Agreement shall inure to the benefit of and be
binding upon the parties and their respective permitted successors and assigns.
9.03 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)(l) of the Securities Exchange Act of
1934 ("Section 17A(c)(l)"), (ii) a BFDS subsidiary duly registered as a transfer
agent pursuant to Section 17A(c)(l), (iii) a BFDS affiliate or (iv) Legg Mason,
for the performance of Shareholder and Record-Keeping Services described herein
; provided, however that the Bank shall be as fully responsible to the Fund for
the acts and omissions of any subcontractor a9 it is for its own acts and
omissions except for Legg Mason where the Fund shall indemnify and hold the Bank
harmless for the act and omissions of Legg Mason.
Article 10 Amendment
8
<PAGE>
10.01 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 Directors of the Fund.
Article 11 Massachusetts Law to Apply
11.01 This Agreement shall be construed and the provisions
thereof interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
Article 12 Merger of Agreement
12.01 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.
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 and 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 of 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 this
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.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in their names and on their behalf under their seals by
and through their duly authorized officers, as of the day and year first above
written.
LEGG MASON TAX-EXEMPT TRUST, INC.
/s/ Marie K. Karpinski
BY: ________________________________
ATTEST:
/s/ Kathi D. Glenn
BY:_______________________________
STATE STREET BANK AND TRUST COMPANY
/s/ Phyllis A. Schroder
BY:_________________________________
Vice President
ATTEST:
/s/ A. Curley
BY:__________________________
<PAGE>
STATE STREET BANK & TRUST COMPANY
FUND SERVICE RESPONSIBILITIES*
Service Performed Responsibility
----------------- --------------
Bank Fund
---- ----
1. Receives orders for the purchase X
of Shares.
2. Issue Shares and hold Shares in X
Shareholders accounts.
3. Receive redemption requests. X
4. Effect transactions 1-3 above X
directly with broker-dealers.
5. Pay over monies to redeeming X
Shareholders.
6. Effect transfers of Shares. X
7. Prepare and transmit dividends X
and distributions.
8. Issue Replacement Certificates. X
9. Reporting of abandoned property. X
10. Maintain records of account. X
11. Maintain and keep a current and X
accurate control book for each
issue of securities.
12. Mail proxies. X
<PAGE>
13. Mail Shareholder reports. X
14. Mail prospectuses to current X
Shareholders.
15. Withhold taxes on U.S. resident X
and non-resident alien accounts.
16. Prepare and file U.S. Treasury X
Department forms.
17. Prepare and mail account and X
confirmation statements for
Shareholders.
18. Provide Shareholder account X
information.
19. Blue sky reporting. X
* Such services are more fully described in Article 1.02 (a), (b) and (c) of the
Agreement.
BY:
/s/ Marie K. Karpinski
----------------------------------
ATTEST:
/s/ Kathi D. Glenn
- --------------------------------
STATE STREET BANK AND TRUST COMPANY
BY:
<PAGE>
/s/ Phyllis A. Schroder
-----------------------------------
Vice President
ATTEST:
/s/ A. Curley
- ----------------------------------
Exhibit 10
[Kirkpatrick, Lockhart, Hill, Christopher & Phillips] letterhead
July 1, 1983
Legg Mason Tax-Exempt Trust, Inc.
Seven East Redwood Street
Baltimore, Maryland 21202
Dear Sirs:
You have requested our opinion regarding certain matters in connection
with the issuance of shares by Legg Mason Tax-Exempt Trust, Inc. ("Fund"). We
have examined the Fund's Articles of Incorporation, all amendments thereto, and
other corporate documents relating to the authorization and issuance of the
capital stock of the Fund. Based upon this examination, we are of the opinion
that:
1. All legal requirements have been complied with in the
organization of the Fund and that it is now a validly existing
corporation under the laws of the State of Maryland;
2. The authorized capital stock of the Fund consists of
2,000,000,000 shares, of a par value of $.001 each;
3. The unlimited number of unissued shares which are currently
being registered under the Securities Act of 1933 may be
legally and validly issued from time to time in accordance
with the corporation's Articles of Incorporation and By-Laws,
as amended, and subject to compliance with the Securities Act
of 1933, the Investment Company Act of 1940, and applicable
state laws regulating the sale of securities; and
4. When so issued, the Fund's shares will be fully paid and
non-assessable.
We hereby consent to the filing of this opinion in connection the the
Amendment No. 2 to the Registration Statement on
<PAGE>
Legg Mason Tax-Exempt Trust, Inc.
July 1, 1983
Page Two
Form N-1 (File No. 2-78562) which you are about to file with the Securities and
Exchange Commission. We also consent to the reference to our firm under the
caption "The Fund's Legal Counsel" in the Prospectus filed as part of the
Registration Statement.
Very truly yours,
KIRKPATRICK, LOCKHART, HILL,
CHRISTOPHER & PHILLIPS
By /s/ Richard M. Phillips
_______________________________
Richard M. Phillips
Exhibit 11
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Legg Mason Tax Exempt Trust, Inc.:
We consent to the incorporation by reference in Post-Effective
Amendment No. 20 to the Registration Statement of Legg Mason Tax Exempt Trust,
Inc. (the "Corporation") on Form N-1A (File No. 2-78562) of our report dated
February 5, 1997 on our audit of the financial statements and financial
highlights of the Corporation, which report is included in the Annual Report to
Shareholders for the year ended December 31, 1996, which is incorporated by
reference in the Registration Statement. We also consent to the reference to our
Firm under the caption "Financial Highlights" in the Prospectus and "The
Corporation's Independent Accountants" in the Statement of Additional
Information.
/s/ COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
April 30, 1997
Exhibit 13
July 1, 1983
Legg Mason Tax-Exempt Trust, Inc.
Seven East Redwood Street
Baltimore, Maryland 21203
Gentlemen:
Please be advised that the 100,000 shares of Legg Mason Tax-Exempt
Trust, Inc. which we have today purchased from you were purchased as an
investment with no present intention of redeeming or selling such shares, and we
do not now have any intention of redeeming or selling such shares.
Very truly yours,
LEGG MASON WOOD WALKER, INC.
By /s/ H.M. Lowman, Jr.
_____________________________
Vice President
Exhibit 15a
DISTRIBUTION PLAN
OF
LEGG MASON TAX-EXEMPT TRUST, INC.
WHEREAS, Legg Mason Tax-Exempt Trust, Inc. (the "Fund") intends to
engage in business as an open-end management investment company and is
registered as such under the Investment Company Act of 1940, as amended (the
"1940 Act");and
WHEREAS, the Fund desires to adopt a Distribution Plan pursuant to Rule
12b-1 under the 1940 Act and the Board of Directors has determined that there is
a reasonable likelihood that adoption of this Distribution Plan will benefit the
Fund and its shareholders; and
WHEREAS, the Fund intends to enter an agreement whereby Legg Mason Wood
Walker, Incorporated ("Legg Mason") will serve as underwriter of the Fund's
shares:
NOW, THEREFORE, the Fund hereby adopts this Distribution Plan (the
"Plan") in accordance with Rule 12b-1 under the 1940 Act on the following terms
and conditions:
1. The Board of Directors of the Fund is hereby authorized at its sole
discretion, to pay to Legg Mason for distribution services a fee not to exceed
an annual rate of .20% of the Fund's average daily net assets. Such fee may be
calculated daily and paid monthly. 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 other than existing shareholders, advertising, preparation and
distribution of sales literature, and overhead, travel and telephone expenses.
2. This plan shall not take effect until it has been approved by a vote
of at least a majority of the outstanding voting securities, as defined in the
1940 Act, of the Fund.
3. This plan shall not take effect until it has been approved, together
with any related agreements, by votes of a majority of both (a) the Board of
Directors of the Fund and (b) those directors of the Company who are not
"interested persons" of the Fund, as defined in the 1940 Act, and who have no
direct or indirect financial interest in the operation of this Plan or any
agreements related to it ( the "Rule 12b-1 Directors"), cast in person at a
meeting or meetings called for the purpose of voting on this Plan and such
related agreements.
4. This Plan shall continue in effect for successive periods of one
year from its execution for so long as such continuance is specifically approved
at least annually in the manner provided for approval of this plan in paragraph
3 hereof.
<PAGE>
5. Any person authorized to direct the disposition of monies paid or
payable by the Fund pursuant to this Plan or any related agreement shall provide
to the Fund's Board of Directors and the Board shall review, at least quarterly,
a written report of the amounts so expended and the purposes for which such
expenditures were made.
6. This Plan may be terminated at any time by a vote of a majority of
the Rule 12b-1 Directors or by vote of a majority of the outstanding voting
securities, as defined in the 1940 Act, of the Fund.
7. This plan may not be amended to increase materially the amount of
distribution expenses authorized hereby unless such amendment is approved in the
manner provided for initial approval in paragraph 2 hereof, and no material
amendment to the Plan shall be made unless such amendment is approved in the
manner provided for initial approval in paragraph 3 hereof.
8. While this Plan is in effect, the selection and nomination of
directors who are not interested persons , as defined in the 1940 Act, of the
Fund shall be committed to the discretion of the directors who are themselves
not interested persons.
9. The Fund shall preserve copies of this Plan and any related
agreements and all reports made pursuant to paragraph 5 hereof for a period of
not less than six years from the date of execution of this Plan, or of the
agreements or of such reports, as the case may be, the first two years in an
easily accessible place.
IN WITNESS WHEREOF, the Fund has executed this Distribution Plan on the
day and the year set forth below:
Date: July 1, 1983 LEGG MASON TAX-EXEMPT TRUST, INC.
By: /s/ Edmund J. Cashman, Jr.
_____________________________________
Edmund J. Cashman, Jr., President
Attest:
By: /s/ Suzanne E. Peluso
_________________________________
Suzanne E. Peluso, Secretary
- 2 -
Exhibit 15b
AMENDED
DISTRIBUTION PLAN OF
LEGG MASON TAX EXEMPT TRUST, INC.
WHEREAS, Legg Mason Tax Exempt Trust, Inc. ("Corporation") is an
open-end management investment company registered under the Investment Company
Act of 1940, as amended ("1940 Act"), and has offered, and intends to continue
offering, for public sale shares of common stock;
WHEREAS, the Corporation has registered the offering of its shares of
common stock under a Registration Statement filed with the Securities and
Exchange Commission and that Registration Statement is in effect as of the date
hereof;
WHEREAS, the Corporation's Board of Directors has established one
Series of shares of common stock of the Corporation: Legg Mason Tax Exempt
Trust, Inc.;
WHEREAS, the Corporation's Distribution Plan was adopted by the Board
of Directors on July 1, 1983, and was approved by shareholders;
WHEREAS, the Corporation has employed Legg Mason Wood Walker,
Incorporated ("Legg Mason") as principal underwriter of the shares of the
Corporation;
NOW, THEREFORE, the Corporation hereby adopts this Amended Distribution
Plan ("Plan") in accordance with Rule 12b-1 under the 1940 Act on the following
terms and conditions:
1. A. The Corporation shall pay to Legg Mason, as compensation for Legg
Mason's services as principal underwriter of the Corporation's shares, a
distribution fee at the rate of 0.10% on an annualized basis of the average
daily net assets of the Corporation's shares, such fee to be calculated and
accrued daily and paid monthly or at such other intervals as the Board shall
determine.
B. The Corporation shall pay to Legg Mason, as compensation
for ongoing services provided to the Corporation's shareholders, a service fee
at the rate of 0.10% on an annualized basis of the average daily net assets of
the Corporation's shares, such fee to be calculated and accrued daily and paid
monthly or at such other intervals as the Board shall determine.
C. The Corporation may pay a distribution or service fee to
Legg Mason at a lesser rate than the fees specified in paragraphs 1.A. and 1.B.,
respectively, of this Plan, in either case as agreed upon by the Board and Legg
Mason and as approved in the manner specified in paragraph 4 of this Plan. The
distribution and service fees payable hereunder are payable without regard to
the aggregate amount that may be paid over the years, provided that, so long as
the limitations set forth in Article III, Section 26(d) of the Rules of Fair
Practice of the National Association of Securities Dealers, Inc. ("NASD") remain
in effect and apply to
<PAGE>
distributors or dealers in the Corporation's shares, the amounts paid hereunder
shall not exceed those limitations, including permissible interest.
2. As principal underwriter of the Corporation's shares, Legg Mason may
spend such amounts as it deems appropriate on any activities or expenses
primarily intended to result in the sale of the shares of the Series and/or the
servicing and maintenance of shareholder accounts, including, but not limited
to, compensation to employees of Legg Mason; compensation to Legg Mason, other
broker-dealers other entities that engage in or support the distribution of
shares or who service shareholder accounts or provide sub-accounting and
recordkeeping services; expenses of Legg Mason and such other broker-dealers and
other entities, including overhead and telephone and other communication
expenses; the printing of prospectuses, statements of additional information,
and reports for other than existing shareholders; and preparation and
distribution of sales literature and advertising materials.
3. This Plan shall not take effect with respect to any additional
Series until it has been approved by a vote of at least a majority of the
outstanding voting securities, as defined in the 1940 Act, of that Series.
4. This Amended Plan shall take effect on February 7, 1996 and shall
continue in effect for successive periods of one year from its execution for so
long as such continuance is specifically approved at least annually together
with any related agreements, by votes of a majority of both (a) the Board of
Directors of the Corporation and (b) those Directors who are not "interested
persons" of the Corporation, as defined in the 1940 Act, and who have no direct
or indirect financial interest in the operation of this Plan or any agreements
related to it (the "Rule 12b-1 Directors"), cast in person at a meeting or
meetings called for the purpose of voting on this Plan and such related
agreements; and only if the Directors who approve the Plan taking effect have
reached the conclusion required by Rule 12b-1(e) under the 1940 Act.
5. Any person authorized to direct the disposition of monies paid or
payable by any Series pursuant to this Plan or any related agreement shall
provide to the Corporation's Board of Directors and the Board shall review, at
least quarterly, a written report of the amounts so expended and the purposes
for which such expenditures were made. Legg Mason shall submit only information
regarding amounts expended for "distribution activities," as defined in this
paragraph 5, to the Board in support of the distribution fee payable hereunder
and shall submit only information regarding amounts expended for "service
activities," as defined in this paragraph 5, to the Board in support of the
service fee payable hereunder.
For purposes of this Plan, "distribution activities" shall
mean any activities in connection with Legg Mason's performance of its
obligations under the underwriting agreement, dated February 7, 1996, by and
between the Corporation and Legg Mason, that are not deemed "service
activities." As used herein, "distribution activities" also includes
subaccounting or recordkeeping services provided by an entity if the entity is
compensated, directly or indirectly, by the Fund or Legg Mason for such
services. Such entity may also be paid a service fee if it provides appropriate
services. Nothing in the foregoing is intended to or shall cause there to be any
implication that compensation for such services must be made only pursuant to a
plan of distribution under Rule 12b-1. "Service activities" shall mean
activities covered by the definition of "service fee" contained in amendments to
Article III, Section 26(d)
- 2 -
<PAGE>
of the NASD's Rules of Fair Practice that became effective July 7, 1993,
including the provision by Legg Mason of personal, continuing services to
investors in the Corporation's shares. Overhead and other expenses of Legg Mason
related to its "distribution activities" or "service activities," including
telephone and other communications expenses, may be included in the information
regarding amounts expended for such distribution or service activities,
respectively.
6. This Plan may be terminated with respect to any Series at any time
by vote of a majority of the Rule 12b-1 Directors or by vote of a majority of
the outstanding voting securities of that Series.
7. This Plan may not be amended to increase materially the amount of
distribution fees provided for in paragraph 1.A. hereof or the amount of service
fees provided for in paragraph 1.B. hereof unless such amendment is approved by
a vote of at least a majority of the outstanding securities, as defined in the
1940 Act, of the Corporation, and no material amendment to the Plan shall be
made unless such amendment is approved in the manner provided for continuing
approval in paragraph 4 hereof.
8. While this Plan is in effect, the selection and nomination of
directors who are not interested persons of the Corporation, as defined in the
1940 Act, shall be committed to the discretion of directors who are themselves
not interested persons.
9. The Corporation shall preserve copies of this Plan and any related
agreements for a period of not less than six years from the date of expiration
of the Plan or agreement, as the case may be, the first two years in an easily
accessible place; and shall preserve copies of each report made pursuant to
paragraph 5 hereof for a period of not less than six years from the date of such
report, the first two years in an easily accessible place.
IN WITNESS WHEREOF, the Corporation has executed this Distribution Plan
as of the day and year set forth below:
Date: Feb. 7, 1996 LEGG MASON TAX EXEMPT TRUST, INC.
______________________________
Attest:
By: /s/ Kathi D. Bair By: /s/ Marie K. Karpinski
________________________________ _____________________________
Agreed and assented to by
LEGG MASON WOOD WALKER, INCORPORATED
By: /s/ John F. Curley, Jr.
_________________________________
- 3 -
Exhibit 16
LEGG MASON TAX EXEMPT TRUST YIELD CALCULATIONS:
1. 7 day yield at 12/31/96 annualized:
[7 days dividends ended 12/31/96 / 7 x 366] =
-------------------------------------------
$1.00 (NAV)
(.000603076 / 7 x 366) = 3.15%
----------------------
1.00
2. Effective yield:
366
---
7
[base period return + 1] -1 =
366
---
7
(.000603076 + 1) - 1 = 3.20%
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000704560
<NAME> LEGG MASON TAX EXEMPT TRUST, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 278,061
<INVESTMENTS-AT-VALUE> 278,061
<RECEIVABLES> 17,086
<ASSETS-OTHER> 685
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 288,832
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 10,340
<TOTAL-LIABILITIES> 10,340
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 278,520
<SHARES-COMMON-PRIOR> 224,684
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 278,492
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 9,505
<OTHER-INCOME> 0
<EXPENSES-NET> 1,759
<NET-INVESTMENT-INCOME> 7,746
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (7,746)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,008,112
<NUMBER-OF-SHARES-REDEEMED> (961,841)
<SHARES-REINVESTED> 7,565
<NET-CHANGE-IN-ASSETS> 53,836
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,374
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,766
<AVERAGE-NET-ASSETS> 274,729
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .03
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.03)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .64
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
