Bartlett & Co.
REGISTERED INVESTMENT ADVISORS 36 East Fourth Street
Cincinnati, Ohio 45202-3896
513/621-4612
800/800-4612
Fax 513/621-6462
NOVEMBER 1, 1996
DEAR SHAREHOLDER:
In January 1996, Bartlett & Co. became a wholly-owned subsidiary of Legg
Mason, Inc., an investment firm headquartered in Baltimore, Maryland. We are
pleased to report the merger of our operations has proceeded very smoothly.
Because our affiliation with Legg Mason, Inc. has increased the numbers and
types of products we can offer, we have evaluated the services and products we
provide our clients and fund shareholders. Our evaluation helped us determine
that we should consider the reorganization of several of the Bartlett mutual
funds into two existing Legg Mason mutual funds and enclosed is a proxy
statement asking you to vote on the following reorganization proposals:
(Bullet) The reorganization of Bartlett Cash Reserves Fund into Legg Mason
Cash Reserve Trust.
(Bullet) The reorganization of both Bartlett Short Term Bond Fund and
Bartlett Fixed Income Fund into Legg Mason U.S. Government
Intermediate-Term Portfolio.
In each case, the objectives of the funds to be reorganized are similar. We
believe these reorganizations to be in your best interest, as shareholders,
because the Legg Mason funds generally have better historical performance
records (although historical performance is not indicative or predictive of
future performance) and because of the added diversification and economies of
scale larger funds can provide. We encourage you to read the proxy statement
which provides additional detail on the reasons for the reorganizations. IF YOU
ARE A BARTLETT CASH RESERVES FUND SHAREHOLDER, PLEASE PARTICULARLY REVIEW
PROPOSAL 1. IF YOU ARE A SHAREHOLDER OF EITHER BARTLETT SHORT TERM BOND FUND OR
BARTLETT FIXED INCOME FUND, PLEASE PARTICULARLY REVIEW PROPOSAL 2.
After reviewing each matter carefully, the Boards of Trustees of the
Bartlett Funds unanimously recommend that you vote FOR each proposal applicable
to you.
YOUR VOTE IS IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. PLEASE
TAKE A FEW MINUTES TO REVIEW THIS MATERIAL, CAST YOUR VOTE ON THE ENCLOSED PROXY
CARD AND RETURN THE PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE. YOUR
PROMPT RESPONSE IS NEEDED TO AVOID COSTLY FOLLOW-UP MAILINGS.
As the date of the meetings approaches, if we have not already heard from
you, you may receive a telephone call from Shareholder Communications
Corporation, a professional proxy solicitation firm, reminding you to exercise
your right to vote.
Thank you very much for your assistance.
Sincerely,
/s/ Dale H. Rabiner /s/ James B. (Rich) Reynolds
Dale H. Rabiner, CFA James B. Reynolds, CFA
CHAIRMAN CHAIRMAN
Bartlett Capital Trust Bartlett Management Trust
[/TABLE]
<PAGE>
BARTLETT CASH RESERVES FUND
BARTLETT FIXED INCOME FUND
BARTLETT SHORT TERM BOND FUND
36 East Fourth Street
Cincinnati, Ohio 45202
JOINT NOTICE OF
SPECIAL MEETINGS OF SHAREHOLDERS
TO BE HELD ON
DECEMBER 13, 1996
Special Meetings of Shareholders of Bartlett Cash Reserves Fund ("Cash
Fund"), a series of Bartlett Management Trust ("Management Trust"), Bartlett
Fixed Income Fund ("Fixed Income"), a series of Bartlett Capital Trust ("Capital
Trust"), and Bartlett Short Term Bond Fund ("Short Term"), also a series of
Capital Trust, will be held on December 13, 1996, at 36 East Fourth Street,
Cincinnati, Ohio 45202, at 10:00 a.m., to act on the following matters, all as
described in the accompanying Prospectus/Proxy Statement:
1. Approval or disapproval of an Agreement and Plan of Reorganization and
Termination under which Legg Mason Cash Reserve Trust ("Cash Reserve") would
acquire the assets of Cash Fund in exchange solely for shares of beneficial
interest in Cash Reserve and the assumption by Cash Reserve of Cash Fund's
liabilities, followed by the distribution of those shares to the shareholders of
Cash Fund and the termination of Cash Fund;
2(a). Approval or disapproval of an Agreement and Plan of Reorganization
and Termination under which Legg Mason U.S. Government Intermediate-Term
Portfolio ("Intermediate-Term"), a series of Legg Mason Income Trust, Inc.,
would acquire the assets of Fixed Income in exchange solely for shares of common
stock of Intermediate-Term and the assumption by Intermediate-Term of Fixed
Income's liabilities, followed by the distribution of those shares to the
shareholders of Fixed Income and the termination of Fixed Income;
2(b). Approval or disapproval of an Agreement and Plan of Reorganization
and Termination under which Intermediate-Term would acquire the assets of Short
Term in exchange solely for shares of common stock of Intermediate-Term and the
assumption by Intermediate-Term of Short Term's liabilities, followed by the
distribution of those shares to the shareholders of Short Term and the
termination of Short Term; and
3. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Shareholders of record of Cash Fund, Fixed Income and Short Term as of
October 21, 1996, are entitled to notice of and to vote at the meeting or any
adjournment thereof.
By Order of the Boards of Trustees.
Cincinnati, Ohio
November 1, 1996
/s/ Kathi D. Bair
Kathi D. Bair
SECRETARY
YOUR VOTE IS IMPORTANT
TO ENSURE A QUORUM, PLEASE COMPLETE AND RETURN THE PROXY FOR THE APPLICABLE
FUND IN THE ENCLOSED ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN THE
UNITED STATES. IF YOU ATTEND THE MEETING, YOUR PROXY WILL BE RETURNED TO YOU
UPON REQUEST TO THE SECRETARY OF THE MEETING.
<PAGE>
LEGG MASON CASH RESERVE TRUST
LEGG MASON U.S. GOVERNMENT INTERMEDIATE-TERM PORTFOLIO
(A SERIES OF LEGG MASON INCOME TRUST, INC.)
Legg Mason Wood Walker, Inc.
111 South Calvert Street
Baltimore, MD 21203-1476
(Toll Free) 1-800-822-5544
BARTLETT CASH RESERVES FUND
(A SERIES OF BARTLETT MANAGEMENT TRUST)
BARTLETT FIXED INCOME FUND
BARTLETT SHORT TERM BOND FUND
(EACH A SERIES OF BARTLETT CAPITAL TRUST)
Bartlett & Co.
36 East Fourth Street
Cincinnati, Ohio 45202
(Toll Free) 1-800-822-5544
PROSPECTUS/PROXY STATEMENT
November 1, 1996
This Prospectus/Proxy Statement ("Proxy Statement") is being furnished to
shareholders of Bartlett Cash Reserves Fund ("Cash Fund"), a series of Bartlett
Management Trust ("Management Trust"), Bartlett Fixed Income Fund ("Fixed
Income"), a series of Bartlett Capital Trust ("Capital Trust"), and Bartlett
Short Term Bond Fund ("Short Term"), also a series of Capital Trust (each an
"Acquired Fund" and collectively, the "Acquired Funds"), in connection with the
solicitation of proxies by Management Trust's and Capital Trust's boards of
trustees for use at a combined special meeting of shareholders of the Acquired
Funds to be held on December 13, 1996, at 10:00 a.m., and at any adjournment
thereof ("Meeting").
As more fully described in this Proxy Statement, the primary purpose of the
Meeting is to vote on three proposed reorganizations (each a "Reorganization"
and collectively, the "Reorganizations"). Under one Reorganization, Legg Mason
Cash Reserve Trust ("Cash Reserve") would acquire the assets of Cash Fund in
exchange solely for shares of beneficial interest in Cash Reserve and the
assumption by Cash Reserve of Cash Fund's liabilities. Those Cash Reserve shares
then would be distributed to the shareholders of Cash Fund, so that each
shareholder of Cash Fund would receive a number of full and fractional shares of
Cash Reserve having an aggregate net asset value that, on the effective date of
the Reorganization, is equal to the aggregate net asset value of the
shareholder's shares in Cash Fund. Following the distribution, Cash Fund and
Management Trust will be terminated.
Under the other Reorganizations, Legg Mason U.S. Government
Intermediate-Term Portfolio ("Intermediate-Term"), a series of Legg Mason Income
Trust, Inc. ("Income Trust"), would acquire the assets of Fixed Income and Short
Term, respectively, in exchange solely for shares of common stock of
Intermediate-Term and the assumption by Intermediate-Term of Fixed Income's and
Short Term's respective liabilities (Cash Reserve and Intermediate-Term are each
sometimes referred to as "Acquiring Fund" and collectively, as the "Acquiring
Funds"). Those Intermediate-Term shares then would be distributed to the
shareholders of Fixed Income and Short Term, respectively, so that each
shareholder of Fixed Income and Short Term would receive a number of full and
fractional shares of Intermediate-Term having an aggregate net asset value that,
on the effective date of the Reorganizations, is equal to the aggregate net
asset value of the shareholder's shares in Fixed Income or Short Term. Following
these distributions, Fixed Income and Short Term will be terminated.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
1
<PAGE>
Cash Reserve is a diversified money market fund with an investment
objective to achieve stability of principal and current income consistent with
stability of principal. Cash Reserve seeks to achieve its investment objective
by investing in a portfolio of high-quality money market instruments maturing in
397 days or less. Both Cash Reserve and Cash Fund are money market funds that
seek to maintain a stable $1.00 price per share.
AN INVESTMENT IN EITHER CASH RESERVE OR CASH FUND IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT. WHILE EACH FUND SEEKS TO MAINTAIN A STABLE
NET ASSET VALUE OF $1.00 PER SHARE, THERE CAN BE NO ASSURANCE THAT IT WILL BE
ABLE TO DO SO.
Intermediate-Term is a diversified bond fund with an investment objective
of high current income consistent with prudent investment risk and liquidity
needs. Under normal circumstances, Intermediate-Term invests at least 75% of its
total assets in obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities or instruments secured by such securities,
including repurchase agreements.
Bartlett & Co., the investment adviser of each Acquired Fund, is a
wholly-owned subsidiary of Legg Mason, Inc. Western Asset Management Company and
Legg Mason Fund Adviser, Inc., the investment adviser and manager, respectively,
of each Acquiring Fund, are also wholly-owned subsidiaries of Legg Mason, Inc.
This Proxy Statement, which should be retained for future reference, sets
forth concisely the information about the Reorganizations and the Acquiring
Funds that a shareholder should know before voting. This Proxy Statement is
accompanied by the Prospectus of Cash Reserve, dated April 1, 1996, the
Prospectus of Intermediate-Term, dated May 1, 1996, and the Annual Report of
Intermediate-Term for the fiscal year ended December 31, 1995, all of which are
incorporated by this reference into this Proxy Statement. A Statement of
Additional Information dated November 1, 1996, relating to the Reorganizations
and including historical financial statements, has been filed with the
Securities and Exchange Commission ("SEC") and is incorporated herein by this
reference. A Prospectus and Statement of Additional Information for each
Acquired Fund, dated August 1, 1996 (as supplemented August 16, 1996), a
Statement of Additional Information of Cash Reserve, dated April 1, 1996, and a
Statement of Additional Information of Intermediate-Term, dated May 1, 1996,
have been filed with the SEC and also are incorporated herein by this reference.
Copies of these documents, as well as each Acquired Fund's Annual Report to
Shareholders for the fiscal year ended March 31, 1996, may be obtained without
charge and further inquiries may be made by contacting your Bartlett & Co.
investment representative or by calling toll-free 1-800-822-5544.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
VOTING INFORMATION............................................................................................. 4
PROPOSAL 1: APPROVAL OF THE REORGANIZATION OF BARTLETT CASH RESERVES FUND
INTO LEGG MASON CASH RESERVE TRUST............................................................. 5
-- SYNOPSIS...................................................................................... 5
-- COMPARISON OF PRINCIPAL RISK FACTORS.......................................................... 10
-- THE PROPOSED TRANSACTION...................................................................... 11
PROPOSAL 2: APPROVAL OF THE REORGANIZATIONS OF BARTLETT FIXED INCOME FUND
AND BARTLETT SHORT TERM BOND FUND INTO LEGG MASON U.S.
GOVERNMENT INTERMEDIATE-TERM PORTFOLIO......................................................... 13
-- SYNOPSIS...................................................................................... 13
-- COMPARISON OF PRINCIPAL RISK FACTORS.......................................................... 20
-- THE PROPOSED TRANSACTIONS..................................................................... 21
GENERAL INFORMATION............................................................................................ 24
ADDITIONAL INFORMATION ABOUT LEGG MASON CASH RESERVE TRUST..................................................... 26
ADDITIONAL INFORMATION ABOUT LEGG MASON U.S. GOVERNMENT INTERMEDIATE-TERM
PORTFOLIO.................................................................................................... 27
MISCELLANEOUS.................................................................................................. 28
APPENDIX A -- AGREEMENTS AND PLANS OF REORGANIZATION AND TERMINATION........................................... A-1
APPENDIX B -- BENEFICIAL OWNERSHIP OF SHARES OF BARTLETT SHORT TERM
BOND FUND.................................................................................................... B-1
</TABLE>
3
<PAGE>
BARTLETT CASH RESERVES FUND
(A SERIES OF BARTLETT MANAGEMENT TRUST)
BARTLETT FIXED INCOME FUND
BARTLETT SHORT TERM BOND FUND
(EACH A SERIES OF BARTLETT CAPITAL TRUST)
PROSPECTUS/PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON
DECEMBER 13, 1996
VOTING INFORMATION
This Prospectus/Proxy Statement ("Proxy Statement") is being furnished to
shareholders of Bartlett Cash Reserves Fund ("Cash Fund"), a series of Bartlett
Management Trust ("Management Trust"), Bartlett Fixed Income Fund ("Fixed
Income"), a series of Bartlett Capital Trust ("Capital Trust"), and Bartlett
Short Term Bond Fund ("Short Term"), also a series of Capital Trust (each an
"Acquired Fund" and collectively, the "Acquired Funds") in connection with the
solicitation of proxies by Management Trust's and Capital Trust's boards of
trustees for use at a combined special meeting of shareholders to be held on
December 13, 1996, and at any adjournment thereof ("Meeting"). This Proxy
Statement will first be mailed to shareholders on or about November 1, 1996.
A majority of shares of an Acquired Fund outstanding on October 21, 1996,
represented in person or by proxy, must be present for the transaction of
business by that Acquired Fund at the Meeting. If, with respect to any Acquired
Fund, a quorum is not present at the Meeting or a quorum is present but
sufficient votes to approve the proposal are not received, the persons named as
proxies may propose one or more adjournments of the Meeting with respect to that
Acquired Fund to permit further solicitation of proxies. Any such adjournment
will require the affirmative vote of a majority of those shares of the Acquired
Fund represented at the Meeting in person or by proxy. The persons named as
proxies will vote those proxies that they are entitled to vote FOR the proposal
in favor of such an adjournment and will vote those proxies required to be voted
AGAINST the proposal against such adjournment. A shareholder vote may be taken
on the proposals in this Proxy Statement for which a quorum is present prior to
any such adjournment if sufficient votes have been received and it is otherwise
appropriate.
Broker non-votes are shares held in street name for which the broker
indicates that instructions have not been received from the beneficial owners or
other persons entitled to vote and for which the broker does not have
discretionary voting authority. Abstentions and broker non-votes will be counted
as shares present for purposes of determining whether a quorum is present but
will not be voted for or against the adjournment or proposal. Accordingly,
abstentions and broker non-votes effectively will be a vote against adjournment
or against the proposal where the required vote is a percentage of the shares
present or outstanding. Abstentions and broker non-votes will not be counted,
however, as votes cast for purposes of determining whether sufficient votes have
been received to approve the proposal.
The individuals named as proxies on the enclosed proxy card will vote in
accordance with your direction as indicated thereon if your proxy card is
received properly executed by you or by your duly appointed agent or
attorney-in-fact. If you sign, date and return the proxy card, but give no
voting instructions, your shares will be voted in favor of approval of the
Agreement and Plan of Reorganization and Termination, dated as of September 20,
1996 (each a "Reorganization Plan"), that involves your Acquired Fund. A copy of
each Reorganization Plan is attached to this Proxy Statement at Appendix A.
Under one Reorganization Plan, Legg Mason Cash Reserve Trust ("Cash Reserve")
would acquire the assets of Cash Fund in exchange solely for shares of
beneficial interest in Cash Reserve and the assumption by Cash Reserve of Cash
Fund's liabilities; those Cash Reserve shares then would be distributed pro rata
to Cash Fund's shareholders. See Proposal 1. Under the other Reorganization
Plans, Legg Mason U.S. Government Intermediate-Term Portfolio
("Intermediate-Term"), a series of Legg Mason Income Trust, Inc. ("Income
Trust"), would acquire the assets of Fixed Income and Short Term, respectively,
in exchange solely for shares of common stock in Intermediate-Term and the
assumption by Intermediate-Term of Fixed Income's and Short Term's respective
liabilities; those Intermediate-Term shares then would be distributed pro rata
to Fixed Income and Short Term shareholders, respectively. See Proposal 2.
(These transactions are
4
<PAGE>
referred to herein each as a "Reorganization" and collectively, as the
"Reorganizations.") After completion of the Reorganizations, each Acquired Fund
will be terminated.
In addition, if you sign, date and return the proxy card, but give no
voting instructions, the duly appointed proxies may vote your shares, in their
discretion, upon such other matters as may come before the Meeting. The proxy
card may be revoked by giving another proxy or by letter or telegram revoking
the initial proxy. To be effective, such revocation must be received by
Management Trust and Capital Trust, as applicable, prior to the Meeting and must
indicate your name and account number. In addition, if you attend the Meeting in
person, you may, if you wish, vote by ballot at the Meeting, thereby canceling
any proxy previously given.
As of the record date, October 21, 1996 ("Record Date"), Cash Fund had
46,228,438 shares, Fixed Income had 6,962,004 shares, and Short Term had
1,352,471 shares of beneficial interest outstanding. The solicitation of
proxies, the cost of which will be borne by Legg Mason Fund Adviser, Inc. ("Fund
Adviser") and Western Asset Management Company ("Western"), will be made
primarily by mail but also may include telephone or oral communications by
Shareholder Communications Corporation, professional proxy solicitors, who will
not receive any compensation therefor from the Funds. Except as set forth in
Appendix B, management does not know of any single shareholder or "group" (as
that term is used in Section 13(d) of the Securities Exchange Act of 1934) who
owned beneficially 5% or more of the shares of any Fund as of the Record Date.
Trustees/directors and officers of Cash Reserve and Income Trust own in the
aggregate less than 1% of the shares of their respective funds.
For voting purposes, the shareholders of each Acquired Fund will vote only
on the Reorganization Plan applicable to that fund. Approval of a Reorganization
Plan and consummation of the transactions contemplated thereby for one Acquired
Fund do not depend on the approval of the other Reorganization Plan by the other
Acquired Fund's shareholders and consummation of the transactions contemplated
thereby.
With respect to each transaction, approval of a Reorganization Plan
requires the affirmative vote of a majority of the outstanding shares of the
applicable Acquired Fund, which is defined for this purpose, as the lesser of
(1) more than 50% of the outstanding shares of the applicable fund or (2) 67% or
more of the shares present at a shareholders' meeting if more than 50% of the
outstanding shares are represented at the meeting in person or by proxy. Each
outstanding full share of each Acquired Fund is entitled to one vote, and each
outstanding fractional share thereof is entitled to a proportionate fractional
share of one vote. If a Reorganization Plan is not approved by the requisite
vote of shareholders of the applicable Acquired Fund, the persons named as
proxies may propose one or more adjournments of the Meeting to permit further
solicitation of proxies. Although the shareholders of the Acquired Funds may
exchange or redeem out of a Fund, they do not have the appraisal rights that may
be accorded to shareholders of corporations that propose similar types of
reorganizations under the laws of some states.
PROPOSAL 1: REORGANIZATION OF BARTLETT CASH RESERVES FUND INTO LEGG MASON CASH
RESERVE TRUST
SYNOPSIS
The following is a summary of certain information contained elsewhere in
this Proxy Statement, the Prospectuses of Cash Fund and Cash Reserve, which are
incorporated herein by reference, and the applicable Reorganization Plan.
Shareholders should read this Proxy Statement and the Prospectus of Cash Reserve
carefully. As discussed more fully below, Management Trust's board of trustees
believes that the Reorganization will benefit Cash Fund's shareholders. Cash
Fund and Cash Reserve have substantially similar investment objectives, although
their investment policies may differ in some respects. It is anticipated that
following the Reorganization, the former shareholders of Cash Fund will benefit
from a fund providing historically comparable performance (although past
performance is not indicative or predictive of future performance), with the
added diversity and liquidity only a substantially larger fund can provide. In
addition, it is anticipated that, following the Reorganization, the former
shareholders of Cash Fund will, as shareholders of Cash Reserve, be subject to
total operating expenses as a percentage of net assets comparable to those
experienced by Cash Fund.
THE PROPOSED REORGANIZATION
The board of trustees of Management Trust has considered and approved the
Reorganization Plan with respect to Cash Fund at a meeting held on August 12,
1996. The Reorganization Plan provides for the acquisition
5
<PAGE>
of the assets of Cash Fund by Cash Reserve, in exchange solely for shares of
beneficial interest of Cash Reserve and the assumption by Cash Reserve of the
liabilities of Cash Fund. Cash Fund will then distribute those shares to its
shareholders, so that each Cash Fund shareholder will receive the number of full
and fractional shares that equals in value such shareholder's holdings in Cash
Fund as of the Closing Date (defined below). Cash Fund and Management Trust then
will be terminated as soon as practicable thereafter.
The exchange of Cash Fund's assets for Cash Reserve shares and Cash
Reserve's assumption of its liabilities will occur as of 4:00 p.m., on December
20, 1996 or such later date as the conditions to the closing are satisfied
("Closing Date").
For the reasons set forth below under "The Proposed Transaction -- Reasons
for the Reorganization," the board of trustees of Management Trust, including
its trustees who are not "interested persons," as that term is defined in the
Investment Company Act of 1940 ("1940 Act") ("Independent Trustees"), has
determined that the Reorganization is in the best interests of Cash Fund, that
the terms of the Reorganization are fair and reasonable and that the interests
of Cash Fund's shareholders will not be diluted as a result of the
Reorganization. Accordingly, the board of trustees of Management Trust
recommends approval of the transaction. In addition, Cash Reserve's board of
trustees, including its Independent Trustees, has determined that the
Reorganization is in the best interests of Cash Reserve, that the terms of the
Reorganization are fair and reasonable and that the interests of Cash Reserve's
shareholders will not be diluted as a result of the Reorganization.
COMPARATIVE FEE TABLE
Certain fees and expenses that Cash Fund's shareholders pay, directly or
indirectly, are different from those incurred by Cash Reserve shareholders.
Bartlett & Co. ("Bartlett"), the investment adviser of Cash Fund, is currently
paid by Cash Fund a management fee at the annual rate of 0.78% of that Fund's
average daily net assets up to and including $500 million and 0.75% of such
assets in excess of $500 million. Unlike Cash Reserve, the management fee paid
by Cash Fund includes transfer agency, pricing, custodial, auditing and legal
services, and general administrative and other operating expenses. Bartlett pays
all of the expenses for Cash Fund except brokerage, taxes, interest and
extraordinary expenses. Based on Cash Fund's average net assets of $81,590,332
for the year ended March 31, 1996, Cash Fund paid a management fee and total
expense ratio equal to 0.78% of its average daily net assets. Based on Cash
Reserve's average net assets of $1,227,159,121 for the year ended August 31,
1996, Cash Reserve paid total operating expenses at the annual rate of 0.70%.
Fund Adviser, the manager of Cash Reserve, is paid by that Fund a management
fee, computed daily and paid monthly, at an annual rate of 0.50% of average
daily net assets for the first $500 million, 0.475% of the next $500 million,
0.45% of the next $500 million, 0.425% of the next $500 million and 0.40% of
assets in excess of $2 billion. With respect to Cash Reserve, Fund Adviser (not
Cash Reserve) pays Western a fee for its investment advisory services ("advisory
fee") at an annual rate of 30% of the fee received by Fund Adviser for
management services. Following the Reorganization, Fund Adviser will continue to
pay Western an advisory fee at the same annual rate. For the fiscal year ended
August 31, 1996, Cash Reserve paid a management fee at the effective annual rate
of 0.48% of average daily net assets. Following the Reorganization, the
management fee and total expense ratio for the combined fund is expected to be
0.48% and 0.78%, respectively, of average daily net assets.
Cash Reserve is authorized to pay a 12b-1 fee at the annual rate of up to
0.15% of its average daily net assets for distribution and shareholder services
provided by Legg Mason Wood Walker, Inc. ("Legg Mason"), Cash Reserve's
distributor. Legg Mason has not yet requested such payments; however,
independent of the proposed reorganization, it is anticipated that beginning in
January 1997, Legg Mason will likely request payment of a 12b-1 fee at the
annual rate of 0.10% of Cash Reserve's average daily net assets. Legg Mason has
agreed that it will not request an increase in this 0.10% 12b-1 fee during the
first two years. Cash Fund pays no 12b-1 fee. Nonetheless, for at least the
first year following the Reorganization, the total operating expenses for the
combined fund are not expected to exceed Cash Fund's current 0.78% management
fee. The following tables show (1) transaction expenses currently incurred by
shareholders of each Fund and transaction expenses that each shareholder will
incur after giving effect to the Reorganization, and (2) the current fees and
expenses incurred for the fiscal year ended August 31, 1996 by Cash Reserve and
for the fiscal year ended March 31, 1996 by Cash Fund, and pro forma fees for
Cash Reserve after giving effect to the Reorganization (assuming imposition of
an annual 0.10% 12b-1 fee).
6
<PAGE>
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
CASH CASH COMBINED
RESERVE FUND FUND
<S> <C> <C> <C>
Sales charge on purchases of shares None None None
Sales charge on reinvested dividends None None None
Redemption fee or deferred sales charge None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
</TABLE>
<TABLE>
<CAPTION>
CASH CASH COMBINED FUND
RESERVE FUND (PRO FORMA)
<S> <C> <C> <C>
Management fees 0.48% 0.78% 0.48%
12b-1 fees 0.00% 0.00% 0.10%
Other expenses 0.22% 0.00% 0.20%
Total operating expenses 0.70% 0.78% 0.78%
</TABLE>
EXAMPLE
The following table illustrates the expenses on a $1,000 investment under
the fees and the expenses stated above, assuming a 5% annual return and
redemption at the end of each time period.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Cash Reserve...................................................................... $7 $22 $39 $ 87
Cash Fund......................................................................... $8 $25 $43 $ 97
Combined Fund..................................................................... $8 $25 $43 $ 97
</TABLE>
This Example assumes that all dividends and other distributions are
reinvested and that the percentage amounts listed under Annual Fund Operating
Expenses remain the same in the years shown. The above tables and the assumption
in this Example of a 5% annual return are required by regulations of the SEC
applicable to all mutual funds. THE ASSUMED 5% ANNUAL RETURN IS NOT A PREDICTION
OF, AND DOES NOT REPRESENT, EITHER FUND'S PROJECTED OR ACTUAL PERFORMANCE. THIS
EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES,
AND EACH FUND'S ACTUAL OR PRO FORMA EXPENSES MAY BE MORE OR LESS THAN THOSE
SHOWN. The actual expenses of Cash Reserve and the Combined Fund will depend
upon, among other things, the level of their average net assets and the extent
to which they incur variable expenses, such as transfer agency costs.
FORMS OF ORGANIZATION
Cash Reserve and Management Trust are both open-end management investment
companies organized as business trusts under the laws of the Commonwealth of
Massachusetts and the State of Ohio, respectively. Cash Reserve's Declaration of
Trust authorizes the issuance of an unlimited number of shares of beneficial
interest, no par value per share. Management Trust's Declaration of Trust also
authorizes the issuance of an unlimited number of shares of beneficial interest,
no par value per share. Cash Reserve commenced operations on November 2, 1979.
Cash Fund commenced operations on February 16, 1988. Neither Fund is required to
(and neither does) hold annual shareholder meetings.
Under certain circumstances, shareholders may be held personally liable
under Massachusetts law for obligations of Cash Reserve. To protect its
shareholders, Cash Reserve's Declaration of Trust, filed with the Commonwealth
of Massachusetts, expressly disclaims the liability of its shareholders for acts
or obligations of Cash Reserve. The Declaration requires notice of this
disclaimer to be given in each agreement, obligation or instrument Cash Reserve
or its trustees enter into or sign. In the unlikely event a shareholder, based
on the mere fact of being a shareholder, is held personally liable for Cash
Reserve's obligations, Cash Reserve is required to use its property to protect
or compensate the shareholder. On request, Cash Reserve will defend any claim
made, and pay any judgment, against such a shareholder for any act or obligation
of Cash Reserve. Therefore, financial loss resulting from liability as a
shareholder will occur only if Cash Reserve itself cannot meet its obligations
to indemnify shareholders and pay judgments against them.
7
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objective and policies of each Fund are set forth below.
There can be no assurance that either Fund will achieve its investment
objective. An investment in either Fund is neither insured nor guaranteed by the
U.S. Government. While each Fund seeks to maintain a stable net asset value of
$1.00 per share, there can be no assurance that it will be able to do so.
CASH RESERVE
The investment objective of Cash Reserve is to achieve stability of
principal and current income consistent with stability of principal. The Fund
seeks to achieve its objective by investing in a portfolio of high quality money
market instruments maturing in 397 days or less, including certain instruments
of domestic and foreign banks and savings and loan institutions; commercial
paper rated A-1 by Standard & Poor's ("S&P"), Prime-1 by Moody's Investors
Service, Inc. ("Moody's") or F-1 by Fitch Investors Service ("Fitch");
marketable obligations issued or guaranteed by the U.S. government, its agencies
or instrumentalities; repurchase agreements; corporate bonds with a remaining
maturity of 397 days or less, rated AAA or AA by S&P or Aaa or Aa by Moody's and
comparable unrated bonds; and U.S. dollar-denominated securities of foreign
issuers.
Cash Reserve may purchase only money market instruments determined by its
adviser to present minimal credit risks and that are (1) rated in one of the two
highest rating categories by at least two nationally recognized statistical
rating organizations ("NRSROs") (or one, if only one NRSRO has rated the
security) or, (2) if unrated, determined to be of comparable quality by the
adviser pursuant to procedures adopted by Cash Reserve's board of trustees
("Eligible Securities"). The Fund may invest no more than 5% of its total assets
in securities that are Eligible Securities but have not been rated in the
highest short-term ratings category by at least two NRSROs (or by one NRSRO if
only one NRSRO has assigned the obligation a short-term rating) or, if the
obligations are unrated, determined by its adviser to be of comparable quality
("Second Tier Securities").
Cash Reserve will not invest more than 5% of the value of its total assets
in money market instruments of unseasoned issuers, including their predecessors,
that have been in operation for less than three years, or in securities of any
one issuer, except cash and cash items, repurchase agreements, and U.S.
government obligations. The Fund will also not purchase market money instruments
if, as a result, more than 25% of its total assets would be invested in any one
industry (although investing in bank instruments, U.S. government obligations or
instruments secured by these instruments, such as repurchase agreements, are not
considered investments in any one industry).
Cash Reserve may purchase variable and floating rate securities with
remaining maturities in excess of 13 months, but with effective maturities
calculated in accordance with Rule 2a-7 of the 1940 Act, as amended. Under the
Rule, the Fund may also hold securities with maturities greater than 397 days as
collateral for repurchase agreements and other collateralized transactions of
short duration.
CASH FUND
The investment objective of Cash Fund is to produce the highest level of
current income consistent with stability of principal and liquidity. In seeking
to achieve its objective, the Fund invests in a broad range of short-term money
market securities, including U.S. government obligations; corporate debt
securities (including commercial paper); municipal obligations; mortgage-related
securities; financial services industry obligations; repurchase agreements; U.S.
dollar-denominated securities of foreign issuers; and shares of money market
funds.
Cash Fund invests only in U.S. dollar-denominated securities that present
minimal credit risks and that are rated in one of the two highest rating
categories for debt obligations by at least two NRSROs (or one rating
organization if the instrument was rated by only one such organization) or, if
unrated, are of comparable quality. In addition, Cash Fund will not invest more
than 5% of its total assets in: (1) securities of any one issuer (other than
cash or U.S. government obligations), except that the Fund may invest more than
5% of its total assets in securities of an issuer in the highest rating category
for up to three business days or (2) securities rated in the second highest
rating category.
Under normal conditions, Cash Fund invests at least 25% of its total assets
in the financial services industry. Financial service industry obligations
include fixed income securities issued by domestic and foreign banks, domestic
savings and loan associations, consumer and industrial finance companies,
securities brokerage companies, real estate-related companies, leasing
companies, and a variety of firms in all segments of the insurance field
8
<PAGE>
such as multiline, property and casualty, and life insurance. Such obligations
include certificates of deposit, bankers' acceptances and other debt
obligations.
Cash Fund may purchase floating and variable rate demand notes with stated
maturities in excess of 397 days but will not invest more than 10% of the value
of its net assets in floating or variable rate demand obligations as to which
the Fund cannot exercise the demand feature on not more than seven days' notice
if there is no secondary market available for these obligations and in other
securities that are not readily marketable.
OTHER POLICIES
Both Funds maintain a dollar-weighted average portfolio of 90 days or less
and purchase only instruments having remaining maturities of 397 days or less
(except for Cash Fund's U.S. government obligations, which will have remaining
maturities of 762 days or less). Neither Fund may invest more than 1% of its
total assets or $1 million (whichever is greater) in the Second Tier Securities
of a single issuer; in accordance with internal operating policies, both Funds
currently invest only in securities rated in the highest short-term ratings
category by at least two NRSROs, or one, if only one NRSRO has rated the
security, or if unrated, determined by the respective advisers to be of
comparable quality ("First Tier Securities"). Both Funds may engage in
repurchase and reverse repurchase agreements; however, neither Fund will invest
more than 10% of its net assets in securities that are illiquid, including
repurchase agreements with maturities in excess of seven days.
OPERATIONS OF CASH RESERVE FOLLOWING THE REORGANIZATION
As noted above, there are differences in the investment policies of the two
Funds. It is not expected, however, that Cash Reserve will revise its investment
policies following the Reorganization to reflect those of Cash Fund. Based on
its review of the investment portfolios of each Fund, Fund Adviser believes that
most, if not all, of the assets held by Cash Fund will be consistent with the
investment policies of Cash Reserve and thus can be transferred to and held by
Cash Reserve. If the Reorganization is approved, Cash Fund will sell, prior to
the effective time of the Reorganization, any assets that are inconsistent with
Cash Reserve's investment policies. The proceeds of any such sales will be held
in temporary investments or reinvested in assets that qualify to be held by Cash
Reserve. The possible need for Cash Fund to dispose of assets prior to the
effective time of the Reorganization could result in selling securities at a
disadvantageous time and could result in Cash Fund's realizing losses that would
not otherwise have been realized. After the Reorganization, the trustees and
officers of Cash Reserve and its investment adviser, manager, distributor and
other outside agents will continue to serve Cash Reserve in their current
capacities.
PURCHASES AND REDEMPTIONS
Shares of Cash Reserve may be purchased through a brokerage account with
Legg Mason or with an affiliate that has a dealer agreement with Legg Mason. The
minimum initial investment in Cash Reserve for each account, including
investments made by exchange from other Legg Mason funds, is $1,000, and the
minimum investment for each purchase of additional shares is $500, with certain
exceptions set forth in Cash Reserve's prospectus. The minimum initial
investment in Cash Fund is $5,000 ($250 for IRAs or other tax sheltered
retirement plans). Additional purchases may be made in amounts of $100 or more.
Because the Funds incur certain fixed costs in maintaining shareholder
accounts, Cash Reserve and Cash Fund may elect to close any account with a
current value due to redemptions of less than $500 or $5,000 ($250 for tax
sheltered retirement plans), respectively. In both cases, shareholders will be
allowed 60 days (Cash Reserve) or 30 days (Cash Fund) in which to make
additional investments in order to avoid having their accounts closed. For a
discussion of Cash Reserve's redemption procedures, see "How You Can Redeem Your
Trust Shares" in the Cash Reserve prospectus.
If the Reorganization is approved, Cash Fund shares will cease to be
offered on December 19, 1996, so that shares of Cash Fund will no longer be
available for purchase or exchange starting on December 20, 1996 (the next
business day). Redemptions of Cash Fund's shares may be effected through the
Closing Date. If the Meeting is adjourned and the Reorganization is approved on
a later date, Cash Fund shares will no longer be available for purchase or
exchange on the business day following the date on which the Reorganization is
approved and all contingencies have been met.
9
<PAGE>
EXCHANGES
The exchange policies of the Funds are substantially identical. Shares of
Cash Reserve are exchangeable for shares of any other Legg Mason mutual fund,
and shares of Cash Fund may be exchanged for shares of any other Bartlett mutual
fund. Neither Fund charges an exchange fee. However, exchanges into any Legg
Mason fund with an initial sales charge will be made at net asset value plus the
applicable sales charge. See "Shareholder Services -- Exchange Privilege" in the
Cash Reserve prospectus for further information on exchanges.
DIVIDENDS AND OTHER DISTRIBUTIONS
Each Fund declares as dividends all of its net investment income each
Business Day and pays dividends in cash or additional Fund shares each month.
Since Cash Reserve's policy, under normal circumstances, is to hold portfolio
securities to maturity and to value portfolio securities at amortized cost, it
does not expect to realize any capital gain or loss. However, if Cash Reserve
does realize any net short-term capital gains it will distribute them at least
once every 12 months. Distributions by Cash Fund of net short-term gains, if
any, are distributed at least once a year.
On or before the Closing Date, Cash Fund will declare as a dividend
substantially all of its net tax-exempt interest income, taxable net investment
income and net short-term capital gain, if any, and distribute that amount plus
any previously declared but unpaid dividends, in order to continue to maintain
its tax status as a regulated investment company. Cash Fund will pay these
distributions only in cash.
CALCULATION OF NET ASSET VALUE
Net asset value per share of each Fund is determined twice daily, as of
12:00 noon, Eastern time, and the close of business of the New York Stock
Exchange (normally 4:00 p.m., Eastern time). Cash Reserve calculates net asset
value per share by subtracting its liabilities from its total assets and
dividing the result by the number of shares outstanding and attempts to maintain
a stable net asset value by using the amortized cost method of valuation. Cash
Fund computes net asset value per share by dividing the sum of the value of the
securities held by it plus any cash or other assets minus all liabilities
(including estimated accrued expenses) by the total number of shares outstanding
at such time, rounded to the nearest cent, known as the penny-rounding method of
pricing. While each Fund attempts to maintain a net asset value of $1.00, there
is no guarantee that they will be able to do so.
FEDERAL INCOME TAX CONSEQUENCES OF THE REORGANIZATION
Cash Reserve has received an opinion of Kirkpatrick & Lockhart LLP, its
counsel, and Cash Fund will receive an opinion of Brown, Cummins & Brown Co.,
L.P.A., its counsel, each to the effect that the Reorganization will constitute
a tax-free reorganization within the meaning of Section 368(a)(1)(C) of the
Internal Revenue Code of 1986, as amended ("Code"). Accordingly, no gain or loss
will be recognized to either Fund or its shareholders as a result of the
Reorganization. See "General Information -- Federal Income Tax Considerations
Applicable to Each Transaction."
COMPARISON OF PRINCIPAL RISK FACTORS
Because Cash Reserve's investment objective is substantially similar to
that of Cash Fund, the investment risks of the two Funds are generally similar.
These risks are those typically associated with investing in money market funds.
Certain differences are identified below. See the Prospectus of Cash Reserve,
which accompanies this Proxy Statement, for a more detailed discussion of the
investment risks of Cash Reserve.
There can be no assurance that either Fund will achieve its investment
objective. In periods of declining interest rates, the market value of the fixed
income securities in which the Funds invest generally will rise, and in periods
of rising interest rates the opposite generally will be true. Also, when
interest rates are falling, net cash inflows from the continuous sale of a
Fund's shares are likely to be invested in portfolio instruments producing lower
yields than the balance of that Fund's portfolio, thereby reducing its yield. In
periods of rising interest rates, the opposite can be true.
Each Fund may purchase variable and floating rate securities with remaining
maturities in excess of 13 months. The yield on these securities is adjusted in
relation to changes in specific rates, such as the prime rate, and different
securities may have different adjustment rates. The Funds' investments in these
securities must
10
<PAGE>
comply with conditions established by the SEC under which they may be considered
to have remaining maturities of 13 months or less. Certain of these obligations
carry a demand feature that gives a Fund the right to tender them back to the
issuer or a remarketing agent and receive the principal amount of the obligation
prior to maturity. The demand feature often is backed by letters of credit or
other credit support arrangements provided by banks or other financial
institutions, the credit standing of which affects the credit quality of the
obligation. The ability of a party to fulfill its obligations under a letter of
credit or guarantee might be affected by possible financial difficulties of its
borrowers, adverse interest rate or economic conditions, regulatory limitations
or other factors.
Cash Reserve and Cash Fund each is authorized to invest up to 10% of its
assets in repurchase agreements maturing in more than seven days. Repurchase
agreements carry certain risks not associated with direct investments in
securities, including possible decline in the market value of the underlying
securities and delays and costs to the Fund if the other party to the repurchase
agreement becomes insolvent.
Both Funds may purchase securities on a "when-issued" or "delayed-delivery"
basis, that is, for delivery beyond the normal settlement date at a stated price
and yield. A Fund generally would not pay for such securities or start earning
interest on them until they are received. However, when a Fund purchases
securities on a when-issued basis, it immediately assumes the risks of
ownership, including the risk of price fluctuation. In these transactions, the
Funds rely on the seller to complete the transaction. Failure by the seller to
do so may result in a missed opportunity to acquire a desired money market
instrument.
Cash Fund's investment concentration of up to 25% of its assets in the
financial services industry obligations carries certain risks. The financial
services industry is subject to extensive governmental regulations which may
limit both the amounts and types of loans which may be made and interest rates
which may be charged. In addition, the profitability of the industry is largely
dependent upon the availability and cost of funds for lending purposes, general
economic conditions and exposure to credit losses arising from possible
financial difficulties of borrowers. Those financial services companies which
are engaged in insurance underwriting may be exposed to adverse competitive
conditions which may result in underwriting losses. If a Fund's portfolio
contains obligations issued by foreign branches of U.S. banks or those issued by
foreign banks, it may be subject to additional investment risks.
In addition, certain of Cash Fund's investments and techniques present
additional risks, in particular, investments in loan participation interests;
investments in mortgage-related securities, including collateralized mortgage
obligations ("CMOs"); investments in asset-backed and receivable-backed
securities, including Certificates for Automobile Receivables(SM) ("CARs(SM)");
the use of dollar roll transactions; and the use of short sales and short sales
against the box. See pages 28 through 42 of Cash Fund's Prospectus for further
discussion on these additional risks.
Both Funds may invest only in high quality securities. As a matter of
operating policy, both Funds purchase only First Tier Securities.
THE PROPOSED TRANSACTION
REORGANIZATION PLAN
The terms and conditions under which the proposed transaction may be
consummated are set forth in the applicable Reorganization Plan. Significant
provisions of the Reorganization Plan are summarized below; however, this
summary is qualified in its entirety by reference to the Reorganization Plan, a
copy of which is attached as Appendix A to this Proxy Statement.
The Reorganization Plan contemplates (a) the acquisition by Cash Reserve on
the Closing Date of the assets of Cash Fund in exchange solely for Cash Reserve
shares and the assumption by Cash Reserve of Cash Fund's liabilities, and (b)
the distribution of such shares to the shareholders of Cash Fund, so that each
Cash Fund shareholder will receive a number of full and fractional shares of
Cash Reserve equal in value to the shareholder's holdings in Cash Fund.
Accordingly, immediately after the Reorganization, each former shareholder
of Cash Fund will own shares of Cash Reserve that will be equal in value to that
shareholder's shares of Cash Fund immediately prior to the Reorganization.
Moreover, because shares of Cash Reserve will be issued at net asset value in
exchange for the
11
<PAGE>
net assets of Cash Fund, the aggregate net asset value of Cash Reserve shares so
issued will equal the aggregate net asset value of Cash Fund shares. The net
asset value per share of Cash Reserve will be unchanged by the transaction.
Thus, the Reorganization will not result in a dilution of any shareholder
interest.
The assets of Cash Fund to be acquired by Cash Reserve include all cash,
cash equivalents, securities, receivables and other property owned by Cash Fund.
Cash Reserve will assume from Cash Fund all debts, liabilities, obligations and
duties of Cash Fund of whatever kind or nature; provided, however, that Cash
Fund will use its best efforts, to the extent practicable, to discharge all of
its known debts, liabilities, obligations and duties prior to the Closing Date.
Cash Reserve also will deliver its shares to Cash Fund, which then will be
constructively distributed to Cash Fund's shareholders.
The value of Cash Fund's assets to be acquired, and the amount of its
liabilities to be assumed, by Cash Reserve and the net asset value of a share of
Cash Reserve will be determined as of 4:00 p.m. on the Closing Date. The
amortized cost method of valuation will be used to value each Fund's securities.
If the difference between the respective net asset values of a share of Cash
Reserve and Cash Fund equals or exceeds $.0025 on the Closing Date, either Fund
may postpone the Closing Date until such difference is less than $.0025.
On, or as soon as practicable after, the Closing Date, Cash Fund will
distribute pro rata to its shareholders of record the shares of Cash Reserve it
received and Cash Fund and Management Trust both will be terminated as soon as
practicable thereafter. Such distribution will be accomplished by opening
accounts on the books of Cash Reserve in the names of Cash Fund shareholders and
by transferring thereto the shares previously credited to the account of Cash
Fund on those books. Fractional shares in Cash Reserve will be rounded to the
third decimal place.
Any transfer taxes payable upon issuance of shares of Cash Reserve in a
name other than that of the registered holder of the shares on the books of Cash
Fund shall be paid by the person to whom such shares are to be issued as a
condition of such transfer. Any reporting responsibility of Cash Fund will
continue to be its responsibility up to and including the Closing Date and such
later date on which it is terminated.
The cost of the Reorganization, including professional fees and the cost of
soliciting proxies for the Meeting, consisting principally of printing and
mailing expenses, together with the cost of any supplementary solicitation, will
be borne by Fund Adviser and Western.
The consummation of the Reorganization is subject to a number of conditions
set forth in the Reorganization Plan, some of which may be waived by each Fund.
In addition, the Reorganization Plan may be amended in any mutually agreeable
manner, except that no amendment may be made subsequent to the Meeting that has
a material adverse effect on the shareholders' interests.
REASONS FOR THE REORGANIZATION
Cash Fund's board of trustees, including a majority of its Independent
Trustees, has determined that the Reorganization is in the best interests of
Cash Fund, that the terms of the Reorganization are fair and reasonable and that
the interests of Cash Fund's shareholders will not be diluted as a result of the
Reorganization. Cash Reserve's board of trustees, including a majority of its
Independent Trustees, has determined that the Reorganization is in the best
interests of Cash Reserve, that the terms of the Reorganization are fair and
reasonable and that the interests of Cash Reserve's shareholders will not be
diluted as a result of the Reorganization.
In considering the Reorganization, the boards of trustees made an extensive
inquiry into a number of factors, including the following:
(1) the compatibility of the investment objectives, policies and
restrictions of the Funds;
(2) the comparative performance, as well as the effect of the
Reorganization on expected investment performance, of the Funds;
(3) the effect of the Reorganization on the expense ratio of Cash Reserve
relative to each Fund's current expense ratio;
(4) the costs to be incurred by each Fund as a result of the
Reorganization;
(5) the tax consequences of the Reorganization;
12
<PAGE>
(6) possible alternatives to the Reorganization, including continuing to
operate on a stand-alone basis or liquidation; and
(7) the potential benefits of the Reorganization to other persons,
especially Western, Fund Adviser, Bartlett and Legg Mason.
The Reorganization was recommended to the Cash Reserve trustees by Fund
Adviser at a meeting of that board held on August 5, 1996, and to the Cash Fund
trustees by Fund Adviser and Bartlett at a meeting of Cash Fund's board held on
August 12, 1996. In recommending the Reorganization, Fund Adviser and Bartlett
advised the boards of trustees that the expense ratio applicable to Cash Reserve
after the Reorganization would be comparable to that currently in effect for
Cash Fund. Further, the trustees of Cash Fund were advised by Fund Adviser and
Bartlett that the historical returns of the two Funds were approximately the
same (although past performance is not indicative or predictive of future
performance) and that no costs of the Reorganization would be borne by Cash Fund
or its shareholders.
The Cash Fund trustees were further advised by Fund Adviser and Bartlett
that the Funds have substantially similar investment objectives and generally
similar investment policies, with the material differences noted. Fund Adviser
and Bartlett also indicated their belief that there is no compelling reason to
maintain and market two substantially similar funds that invest in money market
instruments. The trustees noted that shareholders of Cash Fund would become
shareholders of a fund historically providing approximately the same return
(although past performance is not indicative or predictive of future
performance) with the added diversification and liquidity that only a
substantially larger fund, such as Cash Reserve, can provide. In approving the
Reorganization, the trustees also noted that Cash Reserve's overall objective to
achieve stability of principal and current income consistent with stability of
principal remains an appropriate one to offer to investors as part of an overall
investment strategy.
THE BOARD OF TRUSTEES RECOMMENDS THAT THE
SHAREHOLDERS OF CASH FUND VOTE "FOR" THE REORGANIZATION
PROPOSAL 2: REORGANIZATIONS OF BARTLETT FIXED INCOME FUND AND BARTLETT SHORT
TERM BOND FUND INTO LEGG MASON U.S. GOVERNMENT INTERMEDIATE-TERM
PORTFOLIO
SYNOPSIS
The following is a summary of certain information contained elsewhere in
this Proxy Statement, the Prospectuses of Fixed Income, Short Term and
Intermediate-Term (which are incorporated by reference), and the applicable
Reorganization Plans. Shareholders should read this Proxy Statement and the
Prospectus of Intermediate-Term carefully. As discussed more fully below, the
board of trustees of Capital Trust believes that the Reorganizations will
benefit Fixed Income's and Short Term's shareholders, respectively.
Intermediate-Term has an investment objective generally similar to the
investment objectives of Fixed Income and Short Term, respectively, although
Intermediate-Term's investment strategy and policies differ from those of Fixed
Income and Short Term in some material respects. It is anticipated that,
following the Reorganizations, the former shareholders of Fixed Income and Short
Term will, as shareholders of Intermediate-Term, benefit from a fund providing
historically better total returns (although past performance is not indicative
or predictive of future performance) with the added diversification and
liquidity a substantially larger fund can provide. In addition, it is
anticipated that following the Reorganizations, the former shareholders of Fixed
Income will, as shareholders of Intermediate-Term, be subject to total operating
expenses as a percentage of net assets comparable to those experienced by Fixed
Income, taking into account voluntary fee waivers and expense reimbursements,
and that following the Reorganizations, the former shareholders of Short Term
will, as shareholders of Intermediate-Term, be subject to higher total operating
expenses as a percentage of net assets than those experienced by Short Term,
taking into account voluntary fee waivers and expense reimbursements.
THE PROPOSED REORGANIZATIONS
The board of trustees of Capital Trust considered and approved the
Reorganization Plans with respect to Fixed Income and Short Term, as applicable,
at a meeting held on August 12, 1996. Each Reorganization Plan
13
<PAGE>
provides for the acquisition of the assets of the applicable Acquired Fund by
Intermediate-Term in exchange solely for shares of common stock of
Intermediate-Term and the assumption by Intermediate-Term of the liabilities of
that Acquired Fund. Fixed Income and Short Term will then distribute those
shares to their shareholders so that each Fixed Income or Short Term shareholder
will receive the number of full and fractional shares that equals in value such
shareholder's holdings in Fixed Income or Short Term as of the Closing Date.
Fixed Income and Short Term then will be terminated as soon as practicable
thereafter.
The exchange of Fixed Income's and Short Term's assets for
Intermediate-Term shares and Intermediate-Term's assumption of Fixed Income's
and Short Term's liabilities will occur as of 4:00 p.m. on the Closing Date.
Intermediate-Term offers two classes of shares, Primary Shares and
Navigator Shares. Primary Shares currently are offered to all investors except
certain institutions. Navigator Shares are currently offered for sale only to
institutional clients of the Fairfield Group, Inc. for investment of their own
monies and monies for which they act in a fiduciary capacity, to clients of Legg
Mason Trust Company for which Trust Company exercises discretionary investment
management responsibility, to qualified retirement plans managed on a
discretionary basis and having net assets of at least $200 million, and to The
Legg Mason Profit Sharing Plan and Trust. Only Primary Shares will be offered in
connection with the Reorganizations.
For the reasons set forth below under "The Proposed Transaction -- Reasons
for the Reorganization," the board of trustees of Capital Trust, including its
Independent Trustees, has determined that the applicable Reorganization is in
the best interests of each of Fixed Income and Short Term, that the terms of the
Reorganizations are fair and reasonable and that the interests of each of Fixed
Income's and Short Term's shareholders will not be diluted as a result of the
Reorganizations. Accordingly, the board of trustees of Capital Trust recommends
approval of the transactions. In addition, the board of directors of Income
Trust, including its directors who are not "interested persons," as that term is
defined in the 1940 Act ("Independent Directors"), has determined that the
Reorganizations are in the best interests of Intermediate-Term, that the terms
of the Reorganizations are fair and reasonable and that the interests of
Intermediate-Term's shareholders will not be diluted as a result of the
Reorganizations.
COMPARATIVE FEE TABLES
Certain fees and expenses that Fixed Income's and Short Term's shareholders
pay, directly or indirectly, are different from those incurred by
Intermediate-Term shareholders. Bartlett is the investment adviser for each of
Fixed Income and Short Term. For the year ended March 31, 1996, Bartlett was
paid by Fixed Income a management fee at the annual rate of 1.00% of that Fund's
average daily net assets, and by Short Term a management fee at the annual rate
of 0.85% of that Fund's average daily net assets. Unlike Intermediate-Term, the
management fees paid by Fixed Income and Short Term include transfer agency,
pricing, custodial, auditing and legal services, and general administrative and
other operating expenses. Bartlett pays all of the expenses for Fixed Income and
Short Term except brokerage, taxes, interest and extraordinary expenses. Fixed
Income and Short Term pay no 12b-1 fees. Intermediate-Term is authorized to pay
a 12b-1 fee at the annual rate of up to 0.50% of its average daily net assets.
After reimbursements, Intermediate-Term's total operating expenses for the
twelve months ended June 30, 1996 were 0.96% of average daily net assets. Fund
Adviser has agreed, since May 1, 1996, to reimburse fees and/or assume other
expenses to the extent that Intermediate-Term's expenses during any month exceed
an annual rate of 1.00% of the Fund's average daily net assets for such month.
However, prior to May 1, 1996, Fund Adviser had agreed to reimburse fees and/or
assume other expenses to the extent that Intermediate-Term's expenses during any
month exceeded an annual rate of 0.95% of the Fund's average daily net assets
for such month. As indicated in the following tables, following the
Reorganization of either or both of the Funds, the total expense ratio for the
combined fund is expected to be 1.00% of average daily net assets, taking into
account voluntary fee waivers and/or expense reimbursements.
Fund Adviser, the manager of Intermediate-Term, is paid by that Fund an
annual management fee, computed daily and paid monthly, at an annual rate of
0.55% of average daily net assets. Following the Reorganizations, the management
fee for the combined fund is expected to be 0.55% of average daily net assets.
With respect to Intermediate-Term, Fund Adviser (not Intermediate-Term) pays
Western an advisory fee at an annual rate of 40-100% of the fee received by Fund
Adviser for management services, or up to 0.22% of the Fund's average daily net
assets. Following the Reorganizations, Fund Adviser will continue to pay Western
an advisory fee at the same annual rate.
14
<PAGE>
Fund Adviser has agreed until December 31, 1997, or when Intermediate-Term
reaches net assets of $400 million, whichever occurs first, to continue to
reimburse fees and/or assume other expenses to the extent that
Intermediate-Term's expenses exceed during any month an annual rate of 1.00% of
the Fund's average daily net assets for such month. If Intermediate-Term's
assets total $400 million before December 31, 1997, Fund Adviser has agreed not
to increase this "cap" by more than 10 basis points. As of October 25, 1996,
Intermediate-Term had assets of $222,342,191, Fixed Income had assets of
$68,721,791 and Short Term had assets of $13,327,642. Intermediate-Term's
management does not anticipate that, even if the Reorganizations are approved,
its assets will total $400 million before December 31, 1997, although there can
be no assurance that this will be the case.
REORGANIZATION OF FIXED INCOME INTO INTERMEDIATE-TERM
The following tables show (1) transaction expenses currently incurred by
shareholders of Intermediate-Term and Fixed Income and transaction expenses that
each such shareholder will incur after giving effect to the Reorganization, and
(2) the fees and expenses incurred for the twelve months ended June 30, 1996
(unaudited) by Intermediate-Term, restated to reflect current fees, and for the
fiscal year ended March 31, 1996 by Fixed Income, and pro forma fees for
Intermediate-Term after giving effect to the Reorganization.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
INTERMEDIATE- FIXED COMBINED
TERM INCOME FUND
<S> <C> <C> <C>
Sales charge on purchases of shares None None None
Sales charge on reinvested dividends None None None
Redemption fee or deferred sales charge None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
</TABLE>
<TABLE>
<CAPTION>
INTERMEDIATE- FIXED COMBINED FUND
TERM INCOME (PRO FORMA)
<S> <C> <C> <C>
Management fees (after fee waivers) 0.28% 1.00% 0.31%
12b-1 fees (after fee waivers) 0.50% 0.00% 0.50%
Other expenses (after expense reimbursement) 0.22% 0.00% 0.19%
Total operating expenses (after fee waivers and/or expense reimbursement) 1.00%(1) 1.00% 1.00%(2)
</TABLE>
(1) For the fiscal year ended December 31, 1995 and the twelve month period
ended June 30, 1996, the ratios of total operating expenses as a percentage
of average net assets were 0.93% and 0.96%, respectively, for
Intermediate-Term. For those periods, total operating expenses would have
been 1.24% and 1.27%, respectively, if Fund Adviser had not agreed to waive
fees and/or reimburse expenses. Intermediate-Term's fees and expenses for
the twelve months ended June 30, 1996 set forth in the table have been
restated to reflect the change, effective May 1, 1996, in Fund Adviser's fee
waiver and/or expense reimbursement arrangement with that Fund.
(2) Total operating expenses for the Combined Fund would be 1.24% if Fund
Adviser had not agreed to waive fees and/or reimburse expenses.
EXAMPLE
The following table illustrates the expenses on a $1,000 investment under
the fees and the expenses stated above, assuming a 5% annual return and
redemption at the end of each time period.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Intermediate-Term................................................................. $ 10 $32 $55 $122
Fixed Income...................................................................... $ 10 $32 $55 $122
Combined Fund..................................................................... $ 10 $32 $55 $122
</TABLE>
This Example assumes that all dividends and other distributions are
reinvested and that the percentage amounts listed under Annual Fund Operating
Expenses remain the same in the years shown. The above tables and the assumption
in this Example of a 5% annual return are required by regulations of the
Securities and Exchange Commission ("SEC") applicable to all mutual funds. THE
ASSUMED 5% ANNUAL RETURN IS NOT A PREDICTION OF, AND DOES NOT REPRESENT, EITHER
FUND'S PROJECTED OR ACTUAL PERFORMANCE. THIS EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES, AND EACH FUND'S ACTUAL EXPENSES MAY
BE MORE OR LESS THAN THOSE SHOWN. The actual expenses of Intermediate-Term and
the Combined Fund will depend upon, among other things, the level of their
average net assets and the extent to which they incur variable expenses, such as
transfer agency costs.
15
<PAGE>
REORGANIZATION OF SHORT TERM INTO INTERMEDIATE-TERM
The following tables show (1) transaction expenses currently incurred by
shareholders of Intermediate-Term and Short Term and transaction expenses that
each such shareholder will incur after giving effect to the Reorganization, and
(2) the fees and expenses incurred for the twelve months ended June 30, 1996
(unaudited) by Intermediate-Term, restated to reflect current fees, and for the
fiscal year ended March 31, 1996 by Short Term, and pro forma fees for
Intermediate-Term after giving effect to the Reorganization.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
INTERMEDIATE- SHORT COMBINED
TERM TERM FUND
<S> <C> <C> <C>
Sales charge on purchases of shares None None None
Sales charge on reinvested dividends None None None
Redemption fee or deferred sales charge None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
</TABLE>
<TABLE>
<CAPTION>
INTERMEDIATE- SHORT COMBINED FUND
TERM TERM (PRO FORMA)
<S> <C> <C> <C>
Management fees (after fee waivers) 0.28% 0.85% 0.29%
12b-1 fees (after fee waivers) 0.50% 0.00% 0.50%
Other expenses (after expense reimbursement) 0.22% 0.00% 0.21%
Total operating expenses (after fee waivers and/or expense reimbursement) 1.00%(1) 0.85% 1.00%(2)
</TABLE>
(1) For the fiscal year ended December 31, 1995 and the twelve month period
ended June 30, 1996, the ratios of total operating expenses as a percentage
of average net assets were 0.93% and 0.96%, respectively, for
Intermediate-Term. For those periods, total operating expenses would have
been 1.24% and 1.27%, respectively, if Fund Adviser had not agreed to waive
fees and/or reimburse expenses. Intermediate-Term's fees and expenses for
the twelve months ended June 30, 1996 set forth in the table have been
restated to reflect the change, effective May 1, 1996, in Fund Adviser's fee
waiver and/or expense reimbursement arrangement with that Fund.
(2) Total operating expenses for the Combined Fund would be 1.26% if Fund
Adviser had not agreed to waive fees and/or reimburse expenses.
EXAMPLE
The following table illustrates the expenses on a $1,000 investment under
the fees and the expenses stated above, assuming a 5% annual return and
redemption at the end of each time period.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Intermediate-Term................................................................. $ 10 $32 $55 $122
Short Term........................................................................ $ 9 $27 $47 $106
Combined Fund..................................................................... $ 10 $32 $55 $122
</TABLE>
This Example assumes that all dividends and all other distributions are
reinvested and that the percentage amounts listed under Annual Fund Operating
Expenses remain the same in the years shown. The above tables and the assumption
in this Example of a 5% annual return are required by regulations of the SEC
applicable to all mutual funds. THE ASSUMED 5% ANNUAL RETURN IS NOT A PREDICTION
OF, AND DOES NOT REPRESENT, EITHER FUND'S PROJECTED OR ACTUAL PERFORMANCE. THIS
EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES,
AND EACH FUND'S ACTUAL OR PRO FORMA EXPENSES MAY BE MORE OR LESS THAN THOSE
SHOWN. The actual expenses of Intermediate-Term and the Combined Fund will
depend upon, among other things, the level of their average net assets and the
extent to which they incur variable expenses, such as transfer agency costs.
REORGANIZATION OF FIXED INCOME AND SHORT TERM INTO INTERMEDIATE-TERM
The following tables show (1) transaction expenses currently incurred by
shareholders of IntermediateTerm, Fixed Income and Short Term and transaction
expenses that each such shareholder will incur after giving effect to the
Reorganizations, and (2) the fees and expenses incurred for the twelve months
ended June 30, 1996 (unaudited) by Intermediate-Term, restated to reflect
current fees, and for the fiscal year ended March 31, 1996 by
16
<PAGE>
Fixed Income and Short Term, and pro forma fees for Intermediate-Term after
giving effect to the Reorganizations.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
INTERMEDIATE- FIXED SHORT COMBINED
TERM INCOME TERM FUND
<S> <C> <C> <C> <C>
Sales charge on purchases of shares None None None None
Sales charge on reinvested dividends None None None None
Redemption fee or deferred sales charge None None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
</TABLE>
<TABLE>
<CAPTION>
INTERMEDIATE- FIXED SHORT COMBINED FUND
TERM INCOME TERM (PRO FORMA)
<S> <C> <C> <C> <C>
Management fees (after fee waivers) 0.28% 1.00% 0.85% 0.32%
12b-1 fees (after fee waivers) 0.50% 0.00% 0.00% 0.50%
Other expenses (after expense reimbursement) 0.22% 0.00% 0.00% 0.18%
Total operating expenses (after fee waivers and/or expense reimbursements 1.00%(1) 1.00% 0.85% 1.00%(2)
</TABLE>
(1) For the fiscal year ended December 31, 1995 and the twelve month period
ended June 30, 1996, the ratios of total operating expenses as a percentage
of average net assets were 0.93% and 0.96%, respectively, for
Intermediate-Term. For those periods, total operating expenses would have
been 1.24% and 1.27%, respectively, if Fund Adviser had not agreed to waive
fees and/or reimburse expenses. Intermediate-Term's fees and expenses for
the twelve months ended June 30, 1996 set forth in the table have been
restated to reflect the change, effective May 1, 1996, in Fund Adviser's fee
waiver and/or expense reimbursement arrangement with that Fund.
(2) Total operating expenses for the Combined Fund would be 1.23% if Fund
Adviser had not agreed to waive fees and/or reimburse expenses.
EXAMPLE
The following table illustrates the expenses on a $1,000 investment under
the fees and the expenses stated above, assuming a 5% annual return and
redemption at the end of each time period.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Intermediate-Term................................................................. $ 10 $32 $55 $122
Fixed Income...................................................................... $ 10 $32 $55 $122
Short Term........................................................................ $ 9 $27 $47 $106
Combined Fund..................................................................... $ 10 $32 $55 $122
</TABLE>
This Example assumes that all dividends and other distributions are
reinvested and that the percentage amounts listed under Annual Fund Operating
Expenses remain the same in the years shown. The above tables and the assumption
in this Example of a 5% annual return are required by regulations of the
Securities and Exchange Commission SEC applicable to all mutual funds. THE
ASSUMED 5% ANNUAL RETURN IS NOT A PREDICTION OF, AND DOES NOT REPRESENT, EITHER
FUND'S PROJECTED OR ACTUAL PERFORMANCE. THIS EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES, AND EACH FUND'S ACTUAL OR PRO FORMA
EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN. The actual expenses of
Intermediate-Term and the Combined Fund will depend upon, among other things,
the level of their average net assets and the extent to which they incur
variable expenses, such as transfer agency costs.
FORMS OF ORGANIZATION
Income Trust, of which Intermediate-Term is a series, is an open-end
management investment company organized as a corporation under the laws of the
State of Maryland. Capital Trust, of which Fixed Income and Short Term are
series, is an open-end management investment company organized as a business
trust under the laws of the Commonwealth of Massachusetts. Income Trust has
authorized one billion shares of common stock, par value $0.001 per share. There
are currently three additional series of the corporation. Capital Trust's
Declaration of Trust authorizes the issuance of an unlimited number of shares of
beneficial interest, no par value per share. Intermediate-Term commenced
operations on August 7, 1987. Fixed Income commenced operations on
17
<PAGE>
April 22, 1986 and Short Term commenced operations on February 4, 1994. None of
the Funds is required to (and none does) hold annual shareholder meetings.
Under Massachusetts law, under certain circumstances, shareholders of a
Massachusetts business trust could be deemed to have the same type of personal
liability for the obligations of Capital Trust as does a partner of a
partnership. However, numerous investment companies registered under the 1940
Act have been formed as Massachusetts business trusts and Capital Trust is not
aware of an instance where such result has occurred. In addition, Capital
Trust's Agreement disclaims shareholder liability for its acts or obligations
and requires that notice of such disclaimer be given in each agreement,
obligation or instrument entered into or executed by Capital Trust or its
trustees. The Trust Agreement also provides for the indemnification out of
Capital Trust property for all losses and expenses of any shareholder held
personally liable for the obligations of Capital Trust. Moreover, it provides
that Capital Trust will, upon request, assume the defense of any claim made
against any shareholder for any act or obligation of Capital Trust and satisfy
any judgment thereon. As a result, and particularly because Capital Trust's
assets are readily marketable and ordinarily substantially exceed liabilities,
the Board of Trustees of Capital Trust believes that the risk of shareholder
liability is slight and limited to circumstances in which Capital Trust itself
would be unable to meet its obligations.
INVESTMENT OBJECTIVES AND POLICIES
The investment objective and policies of each Fund are set forth below.
There can be no assurance that any of the Funds will achieve its investment
objective, and each Fund's net asset value will fluctuate based upon changes in
the value of its portfolio securities.
INTERMEDIATE-TERM
The investment objective of Intermediate-Term is high current income
consistent with prudent investment risk and liquidity needs. Under normal
circumstances, Intermediate-Term invests at least 75% of its total assets in
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or instruments secured by such securities, including
repurchase agreements. The Fund expects to maintain an average dollar-weighted
maturity of between three and ten years. Investments in mortgage-related
securities issued by governmental or government-related entities are included in
the 75% limitation. The balance of the Fund, up to 25% of its total assets,
normally is invested in cash, commercial paper and investment grade debt
securities rated within one of the four highest grades assigned by S&P or
Moody's, comparably rated by another NRSRO, or unrated securities judged by Fund
Adviser to be of comparable quality.
FIXED INCOME
Fixed Income's investment objective is to seek to provide a high level of
current income by investing primarily in high quality intermediate-term bonds,
although it also may invest in short-term and long-term bonds; capital
appreciation is a secondary consideration. Historically, the Fund's
dollar-weighted average effective portfolio maturity has ranged between four and
eight years. Under normal circumstances, at least 65% of the total assets of
Fixed Income will be invested in U.S. Government securities or high quality
fixed income securities rated AA or higher by S&P, Moody's, Duff & Phelps
("D&P"), or Fitch. The Fund's portfolio securities will include U.S. Government
obligations, securities of foreign governments, domestic or foreign corporate
debt securities, municipal obligations, mortgage-related obligations, preferred
stock and repurchase agreements. The Fund generally will invest the remainder of
its assets, up to 35% of its portfolio, in debt securities rated at the time of
purchase as investment grade. The Fund may invest in fixed income securities
which are unrated if they are judged by Bartlett to be of investment grade or
higher quality. Fixed Income reserves the right to invest no more than 5% of its
net assets in debt securities rated at the time of purchase as below investment
grade.
SHORT TERM
Short Term's investment objective is to seek to provide a high level of
current income while maintaining a high degree of principal stability by
investing primarily in high quality short-term bonds. Under normal
circumstances, at least 65% of the total assets of the Fund will be invested in
a portfolio of high quality securities rated AA or higher by S&P, Moody's, D&P
or Fitch. These securities will include U.S. Government securities (including
bonds, notes and bills issued by the U.S. Treasury and securities issued by
agencies of the U.S. Government), securities of foreign governments, domestic or
foreign high-grade corporate debt securities (including bonds, notes, and
debentures), mortgage-related securities, financial service industry
obligations, municipal obligations,
18
<PAGE>
repurchase agreements and other asset-backed securities. Eligible securities
will include unrated securities judged by Bartlett to be comparable to
securities rated AA or higher. Under normal circumstances, at least 65% of the
total assets of the Fund will be invested in bonds with a maturity of one year
or more at issuance. Normally, Short Term maintains a dollar-weighted average
effective portfolio maturity from one to three years. The Fund will not invest
in any debt security rated at the time of purchase lower than investment grade.
OPERATIONS OF INTERMEDIATE-TERM FOLLOWING THE REORGANIZATIONS
As noted above, there are some material differences in the investment
policies of the Funds. It is not expected, however, that Intermediate-Term will
revise its investment policies following the Reorganizations to reflect those of
Fixed Income or Short Term. Fund Adviser believes that most, if not all, of the
assets held by Fixed Income and Short Term will be consistent with the
investment policies of Intermediate-Term and thus could be transferred to and
held by Intermediate-Term. If the Reorganizations are approved, Fixed Income and
Short Term will sell any assets that are inconsistent with Intermediate-Term's
investment policies prior to the effective time of the Reorganizations. The
proceeds of any such sales will be held in temporary investments or reinvested
in assets that qualify to be held by Fixed Income or Short-Term. The possible
need for Fixed Income or Short Term to dispose of assets prior to the effective
time of the Reorganizations could result in selling securities at a
disadvantageous time and could result in Fixed Income or Short Term realizing
losses that would not otherwise have been realized. Following the
Reorganizations, the directors and officers of Income Trust and
Intermediate-Term's investment adviser, manager, distributor and other outside
agents will continue to serve Intermediate-Term in their current capacities.
Following the Reorganizations, Bartlett investment executives may continue to
receive compensation in connection with their ongoing distribution efforts with
respect to Intermediate-Term shares formerly held by Fixed Income or Short Term
shareholders.
PURCHASES AND REDEMPTIONS
Primary Shares of Intermediate-Term may be purchased through a brokerage
account with Legg Mason or with an affiliate that has a dealer agreement with
Legg Mason. The minimum initial investment in Primary Shares for an account,
including investments made by exchange from other Legg Mason funds, is $1,000
and the minimum investment for each purchase of additional shares is $500, with
certain exceptions set forth in Intermediate-Term's prospectus. The minimum
initial investment in Fixed Income and Short Term is $5,000 ($250 for IRAs and
other tax sheltered retirement plans). Additional purchases made be made in
amounts of $100 or more.
Shares of Intermediate-Term may be redeemed by giving your Legg Mason or
affiliated investment executive an order for redemption or by sending a written
request to Intermediate-Term, c/o Legg Mason Funds Processing, P.O. Box 1476,
Baltimore, Maryland 21203-1476. Shares of Fixed Income or Short Term may be
redeemed by written request, sent to Bartlett Mutual Funds, c/o Legg Mason Funds
Processing, P.O. Box 1476, Baltimore, Maryland, 21203-1476, or by telephone.
Each Fund will redeem your shares without charge at the next share price
calculated after receipt of a properly completed redemption request.
Shareholders of Short Term currently have checkwriting privileges in connection
with their accounts; Intermediate-Term shareholders do not have this privilege.
Because the Funds incur certain fixed costs in maintaining shareholder accounts,
they may elect to close any account with a current value due to redemptions of
less than $500 (Intermediate-Term) or $5,000 ($250 for tax sheltered retirement
plans) (Fixed Income and Short Term). In either case, shareholders will be
allowed 60 days (Intermediate-Term) or 30 days (Fixed Income and Short Term) in
which to make additional investments in order to avoid having their accounts
closed. For a discussion of Intermediate-Term's redemption procedures, see "How
You Can Redeem Your Primary Shares" in the Intermediate-Term prospectus.
If a Reorganization is approved as to either Fixed Income or Short Term,
shares of the applicable Fund will cease to be offered on December 19, 1996, so
that their shares will no longer be available for purchase or exchange starting
on December 20, 1996 (the next business day). Redemptions of Fixed Income's and
Short Term's shares may be effected through the Closing Date. If the Meeting is
adjourned and a Reorganization is approved on a later date, the applicable
shares will no longer be available for purchase or exchange on the business day
following the date on which each respective Reorganization is approved and all
contingencies have been met.
EXCHANGES
The exchange policies of the Funds are substantially identical. Shares of
Intermediate-Term are exchangeable for shares of any other Legg Mason mutual
fund, and shares of Fixed Income and Short Term may be exchanged
19
<PAGE>
for shares of any other Bartlett mutual fund. After the Reorganizations, the
current exchange policies of Intermediate-Term will continue. There is no
exchange fee for exchanges among the Legg Mason funds; however, exchanges into
Legg Mason funds with an initial sales charge will be made subject to the
applicable sales charge.
DIVIDENDS AND OTHER DISTRIBUTIONS
Each Fund declares dividends out of its investment company taxable income,
which consists of net investment income and net short-term capital gain.
Dividends from net investment income are declared daily and paid monthly. For
Intermediate-Term, dividends from net short-term capital gain and distributions
of substantially all net capital gain are declared and paid after the end of the
taxable year in which the gain is realized. Fixed Income and Short Term each
distributes net long-term and net short-term capital gains, if any, at least
once a year.
On or before the Closing Date, Fixed Income and Short Term will declare as
a distribution substantially all of its net investment income and net capital
gain in order to continue to maintain its tax status as a regulated investment
company. On or before the Closing Date, Intermediate-Term also may declare and
distribute as a dividend substantially all of any previously undistributed net
investment income.
FEDERAL INCOME TAX CONSEQUENCES OF THE REORGANIZATIONS
Intermediate-Term has received an opinion of Kirkpatrick & Lockhart LLP,
its counsel, and Fixed Income and Short Term will each receive an opinion of
Brown, Cummins & Brown Co., L.P.A., their counsel, each to the effect that the
Reorganizations will constitute a tax-free reorganization within the meaning of
Section 368(a)(1)(C) of the Internal Revenue Code of 1986, as amended ("Code").
Accordingly, no gain or loss will be recognized to any Fund or its shareholders
as a result of the Reorganizations. See "General Information -- Federal Income
Tax Considerations Applicable to Each Transaction."
COMPARISON OF PRINCIPAL RISK FACTORS
Because Intermediate-Term's investment objective and policies are similar
to those of Fixed Income and Short Term, the investment risks of the Funds are
similar. These risks are those typically associated with investing in bond
funds. Certain differences are identified below. See the Prospectus of
Intermediate-Term, which accompanies this Proxy Statement, for a more detailed
discussion of the investment risks of that Fund. There can be no assurance that
the Funds will achieve their investment objectives.
Debt securities. Each Fund may invest in obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities, and high quality debt
securities. In periods of declining interest rates, the market value of these
securities generally will rise, and in periods of rising interest rates the
opposite generally will be true. Also, when interest rates are falling, net cash
inflows from the continuous sale of a Fund's shares are likely to be invested in
portfolio instruments producing lower yields than the balance of that Fund's
portfolio, thereby reducing its yield. In periods of rising interest rates, the
opposite can be true. In the case of obligations not backed by the full faith
and credit of the United States, a Fund must look principally to the agency or
instrumentality issuing or guaranteeing the obligation for ultimate repayment
and may not be able to assert a claim against the United States itself in the
event the agency or instrumentality does not meet its commitment.
Short Term focuses on short-term fixed income investments, normally
maintaining a dollar-weighted average portfolio maturity from one to three
years. Fixed Income and Intermediate-Term normally invest in fixed income
securities with intermediate-term maturities. Shorter-term fixed income
investments tend to offer more price stability in response to changes in
interest rates than do intermediate-term investments.
Each Fund is also permitted to invest in debt securities that are rated
investment grade. Securities rated BBB by S&P or Baa by Moody's are investment
grade, but Moody's considers securities rated Baa to have speculative
characteristics. Changes in economic conditions or other circumstances are more
likely to lead to a weakened capacity for such securities to make principal and
interest payments than is the case for higher-rated securities. Fixed Income may
invest up to 5% of its net assets in debt securities rated below investment
grade. These securities are deemed to be predominantly speculative with respect
to the issuer's capacity to pay interest and repay principal and may involve
major risk exposure to adverse conditions. Such securities are commonly referred
to as "junk bonds."
20
<PAGE>
Foreign securities. Each Fund may invest in foreign debt securities.
Investing in foreign securities involves special risks, which include possible
adverse political and economic developments abroad, differing regulatory systems
and differing characteristics of foreign economies and markets, as well as the
fact that there is often less information publicly available about foreign
issuers.
Unlike Intermediate-Term, Fixed Income and Short Term may invest in foreign
securities denominated in currencies other than the U.S. dollar. Changes in
foreign currency exchange rates thus may affect Short Term's and Fixed Income's
net asset values, the value of dividends and interest earned, gains and losses
realized on the sale of securities and net investment income and capital gains,
if any, to be distributed to shareholders by these Funds. If the value of a
foreign currency rises against the U.S. dollar, the value of Fund assets
denominated in that currency will increase; correspondingly, if the value of a
foreign currency declines against the U.S. dollar, the value of Fund assets
denominated in that currency will decrease. The exchange rates between the U.S.
dollar and other currencies are determined by supply and demand in the currency
exchange markets, international balances of payments, speculation and other
economic and political conditions. In addition, some foreign currency values may
be volatile and there is the possibility of governmental controls on currency
exchange or governmental intervention in currency markets.
Hedging Strategies. Each Fund may use options and futures contracts. There
can be no assurance, however, that any strategy utilizing these instruments will
succeed. If Bartlett or Western incorrectly forecasts interest rates, market
values or other economic factors utilizing a strategy for a Fund, the Fund might
have been in a better position had the Fund not hedged at all. The use of these
instruments involve certain special risks, including (1) the fact that skills
needed to use hedging instruments are different from those needed to select the
Funds' securities, (2) possible imperfect correlation, or even no correlation,
between price movements of hedging instruments and price movements of the
investments being hedged, (3) the fact that, while hedging strategies can reduce
the risk of loss, they can also reduce the opportunity for gain, or even result
in losses, by offsetting favorable price movements in hedged investments, and
(4) the possible inability of a Fund to purchase or sell a portfolio security at
a time that otherwise would be favorable for it to do so, or a possible need for
a Fund to sell a portfolio security at a disadvantageous time, due to the need
for the Fund to maintain "cover" or to segregate securities in connection with
hedging transactions and the possible inability of a Fund to close out or to
liquidate its hedged position.
In addition, certain of the Funds' investments and techniques present
additional risks, in particular, investments in mortgage-related securities,
including CMOs; investments in asset-backed securities; the purchase of
securities on a when-issued basis; the use of dollar roll transactions; and the
use of certain hedging techniques. See pages 28 through 42 of the Acquired
Funds' prospectus and pages 12 through 21 of Intermediate-Term's prospectus for
a further discussion of risks.
THE PROPOSED TRANSACTIONS
REORGANIZATION PLANS
The terms and conditions under which the proposed transactions may be
consummated are set forth in the applicable Reorganization Plans. Approval of a
Reorganization Plan and consummation of the transactions contemplated thereby
for one Acquired Fund is not contingent upon approval of any other
Reorganization Plan by any other Acquired Fund's shareholders. Significant
provisions of the Reorganization Plans are summarized below; however, this
summary is qualified in its entirety by reference to the Reorganization Plans,
copies of which are attached as Appendix A to this Proxy Statement.
The Reorganization Plans contemplate (a) the acquisition by
Intermediate-Term on the Closing Date of the assets of Fixed Income and Short
Term in exchange solely for Intermediate-Term shares and the assumption by
Intermediate-Term of Fixed Income's and Short Term's liabilities, and (b) the
distribution of such shares to the shareholders of Fixed Income and Short Term,
respectively.
The assets of Fixed Income and Short Term to be acquired by
Intermediate-Term include all cash, cash equivalents, securities, receivables
and other property owned by Fixed Income and Short Term. Intermediate-Term will
assume from Fixed Income and Short Term all debts, liabilities, obligations and
duties of Fixed Income and Short Term of whatever kind or nature; provided,
however, that Fixed Income and Short Term will use their best efforts, to the
extent practicable, to discharge all of their known debts, liabilities,
obligations and duties prior
21
<PAGE>
to the Closing Date. Intermediate-Term also will deliver its shares to Fixed
Income and Short Term, which then will be constructively distributed to Fixed
Income's and Short Term's shareholders.
The value of Fixed Income's and Short Term's assets to be acquired, and the
amount of Fixed Income's and Short Term's liabilities to be assumed by
Intermediate-Term, and the net asset value of a share of Intermediate-Term will
be determined as of 4:00 p.m. on the Closing Date. Where market quotations are
readily available, portfolio securities will be valued based upon such market
quotations, provided such quotations adequately reflect, in Bartlett's judgment
(with respect to Fixed Income and Short Term) and in Western's judgment (with
respect to Intermediate-Term), the fair value of the security. Where such market
quotations are not readily available, such securities will be valued based upon
appraisals received from a pricing service using a computerized matrix system or
based upon appraisals derived from information concerning the security or
similar securities received from recognized dealers in those securities. The
amortized cost method of valuation generally will be used to value debt
instruments with 60 days or less remaining to maturity, unless Capital Trust's
board of trustees (with respect to Fixed Income and Short Term) or Income
Trust's board of directors (with respect to Intermediate-Term) determines that
this does not represent fair value. All other assets and liabilities will be
valued at fair value as determined in good faith by or under the direction of
each Fund's respective board.
On, or as soon as practicable after, the Closing Date, Fixed Income and
Short Term will distribute pro rata to their shareholders of record the shares
of Intermediate-Term they received, so that each Fixed Income and Short Term
shareholder will receive a number of full and fractional shares of
Intermediate-Term equal in value to the shareholder's holdings in Fixed Income
or Short Term; Fixed Income and Short Term will be terminated as soon as
practicable thereafter. Each such distribution will be accomplished by opening
accounts on the books of Intermediate-Term in the names of Fixed Income and
Short Term shareholders and by transferring thereto the shares previously
credited to the account of Fixed Income and Short Term on those books.
Fractional shares in Intermediate-Term will be rounded to the third decimal
place.
Accordingly, immediately after the Reorganizations, each former shareholder
of Fixed Income and Short Term respectively will own shares of Intermediate-Term
that will be equal in value to that shareholder's shares of Fixed Income or
Short Term immediately prior to the Reorganizations. Moreover, because shares of
Intermediate-Term will be issued at net asset value in exchange for the net
assets of Fixed Income and Short Term, the aggregate net asset value of
Intermediate-Term shares so issued will equal the aggregate net asset value of
Fixed Income and Short Term shares. The net asset value per share of
Intermediate-Term will be unchanged by the transaction. Thus, the
Reorganizations will not result in a dilution of any shareholder's interest.
Any transfer taxes payable upon issuance of shares of Intermediate-Term in
a name other than that of the registered holder of the shares on the books of
Fixed Income or Short Term shall be paid by the person to whom such shares are
to be issued as a condition of such transfer. Any reporting responsibility of
Fixed Income or Short Term will continue to be its responsibility up to and
including the Closing Date and such later date on which it is terminated.
The cost of the Reorganizations, including professional fees and the cost
of soliciting proxies for the Meeting, consisting principally of printing and
mailing expenses, together with the cost of any supplementary solicitation, will
be borne by Fund Adviser and Western.
The consummation of the Reorganizations are subject to a number of
conditions set forth in the Reorganization Plans, some of which may be waived by
each Fund. In addition, the Reorganization Plans may be amended in any mutually
agreeable manner, except that no amendment may be made subsequent to the Meeting
that has a material adverse effect on the shareholders' interests.
REASONS FOR THE REORGANIZATIONS
The board of trustees of Capital Trust, including a majority of its
Independent Trustees, has determined that the Reorganizations are in the best
interests of each of Fixed Income and Short Term, that the terms of the
Reorganizations are fair and reasonable and that the interests of Fixed Income's
and Short Term's respective shareholders will not be diluted as a result of the
Reorganizations. The board of directors of Income Trust, including a majority of
its Independent Directors, has determined that the Reorganizations are in the
best interest of Intermediate-Term, that the terms of the Reorganizations are
fair and reasonable and that the interests of Intermediate-Term's shareholders
will not be diluted as a result of the Reorganizations.
22
<PAGE>
In considering the Reorganizations, the boards made an extensive inquiry
into a number of factors, including the following:
(1) the compatibility of the investment objectives, policies and
restrictions of the Funds;
(2) the comparative performance, as well as the effect of the
Reorganizations on expected investment performance, of the Funds;
(3) the effect of the Reorganizations on the expense ratio of
Intermediate-Term relative to each Fund's current expense ratio;
(4) the costs to be incurred by each Fund as a result of the
Reorganizations;
(5) the tax consequences of the Reorganizations;
(6) possible alternatives to the Reorganizations, including continuing to
operate on a stand-alone basis or liquidation; and
(7) the potential benefits of the Reorganizations to other persons,
especially Western, Fund Adviser, Bartlett and Legg Mason.
The Reorganizations were recommended by Fund Adviser and Bartlett to the
Income Trust and Capital Trust board of directors/trustees at meetings held on
August 5, 1996 and August 12, 1996, respectively. In recommending the
Reorganizations, Fund Adviser and Bartlett advised the boards that the
investment policies of Intermediate-Term, Fixed Income and Short Term were
generally similar, although they differ in certain material respects. Among
other things, Short Term focuses on short term debt instruments, normally
maintaining a dollar-weighted average effective portfolio maturity of from one
to three years. Intermediate-Term, in contrast, expects to maintain an average
dollar-weighted maturity of between three and ten years.
In addition, the Capital Trust board of trustees was advised that
Intermediate-Term's expense ratio after the Reorganizations, assuming voluntary
fee waivers and expense reimbursements, would be comparable to the current
expense ratio of Fixed Income. The board was also advised that Short Term
shareholders would pay higher total operating expenses (as a percentage of net
assets) than shareholders of Intermediate-Term. Those shareholders for Short
Term's most recent fiscal year paid total operating expenses of 0.85% while
Intermediate-Term shareholders, for its most recent fiscal year, paid total
operating expenses of 0.93%. In considering the higher expense ratio, Fund
Adviser and Bartlett noted that a very small fund is uneconomic to operate. At
its current asset size, Short Term is subsidized by Bartlett. With no apparent
prospects for growth in assets, Bartlett would have considered liquidating Short
Term if the opportunity to merge with Intermediate-Term had not arisen, or would
have considered asking Short Term shareholders to approve a significantly higher
advisory fee. Although it is anticipated that expenses to Short Term's
shareholders will increase from 0.85% to 1.00% if the Reorganization is
approved, the trustees noted that the shareholders would participate in a fund
whose viability is clear and whose past performance is good (although past
performance is not indicative or predictive of future performance). The trustees
also noted that the costs of the Reorganization would not be borne by the Funds
or their shareholders.
As indicated above, Fund Adviser has agreed until December 31, 1997, or
when Intermediate-Term reaches net assets of $400 million, whichever occurs
first, to continue to reimburse fees and/or assume other expenses to the extent
that Intermediate-Term's expenses exceed during any month an annual rate of
1.00% of the Fund's average daily net assets for such month. This ensures that
Intermediate-Term's expenses in the year following the proposed reorganizations
will remain consistent with current expense levels if net assets remain below
$400 million. If Intermediate-Term assets reach $400 million before December 31,
1997, Fund Adviser will not increase the cap by more than 10 basis points prior
to that date.
In considering the reorganizations, the trustees of Capital Trust also
discussed the comparative performance of the funds and noted that
Intermediate-Term generally outperformed each of the other funds. The boards
were further advised by Fund Adviser and Bartlett that there is no compelling
reason to maintain and market three similar funds that invest in fixed income
securities. The Capital Trust trustees noted that shareholders of Fixed Income
and Short Term would become shareholders, on a tax-free basis, of a fund which
has provided historically better total returns (although past performance is not
indicative or predictive of future performance) with the added diversification
and liquidity a substantially larger fund, such as Intermediate-Term, can
provide. In
23
<PAGE>
approving the Reorganizations, the trustees noted that Intermediate-Term's
overall objective of high current income consistent with prudent investment risk
and liquidity needs remains an appropriate one to offer to investors as part of
an overall investment strategy.
THE BOARD OF TRUSTEES RECOMMENDS THAT THE SHAREHOLDERS
OF FIXED INCOME AND SHORT TERM VOTE "FOR" THE REORGANIZATIONS
GENERAL INFORMATION
DESCRIPTION OF SECURITIES TO BE ISSUED IN EACH TRANSACTION
Cash Reserve and Income Trust are registered with the SEC as open-end
management investment companies. Cash Reserve's trustees are authorized to issue
an unlimited number of shares of beneficial interest (no par value). Income
Trust has authorized 1,000,000,000 (one billion) shares of common stock, par
value $.0001 per share. Shares of each Fund entitle their holders to one vote
per full share and fractional votes for fractional shares held.
Cash Reserve and Income Trust do not hold annual meetings of shareholders.
There normally will be no meetings of shareholders for the purpose of electing
trustees or directors unless fewer than a majority of the trustees or directors
holding office have been elected by shareholders, at which time the trustees or
directors then in office will call a shareholders' meeting for the election of
trustees or directors. The trustees or directors are required to call a meeting
of shareholders for the purpose of voting upon the question of removal of any
trustee or director when requested in writing to do so by the shareholders of
record holding at least 10% of Cash Reserve's or Intermediate-Term's outstanding
shares.
FEDERAL INCOME TAX CONSIDERATIONS APPLICABLE TO EACH TRANSACTION
The exchange of an Acquired Fund's assets for shares of an Acquiring Fund
and Acquiring Fund's assumption of that Acquired Fund's liabilities is intended
to qualify for federal income tax purposes as a tax-free reorganization under
Section 368(a)(1)(C) of the Code. With respect to each Reorganization, the
Acquiring Fund has received an opinion of Kirkpatrick & Lockhart LLP, its
counsel, and the Acquired Fund will receive an opinion of Brown, Cummins & Brown
Co., L.P.A., its counsel, each substantially to the effect that --
(i) Acquiring Fund's acquisition of the Acquired Fund's assets in exchange
solely for Acquired Fund shares and Acquiring Fund's assumption of the
Acquired Fund's liabilities, followed by the Acquired Fund's distribution
of those shares to its shareholders constructively in exchange for their
Acquired Fund shares, will constitute a "reorganization" within the meaning
of Section 368(a)(1)(C) of the Code, and each Fund will be "a party to a
reorganization" within the meaning of Section 368(b) of the Code;
(ii) No gain or loss will be recognized to the Acquired Fund on the
transfer to Acquiring Fund of its assets in exchange solely for Acquiring
Fund shares and Acquiring Fund's assumption of the Acquired Fund's
liabilities or on the subsequent distribution of those shares to the
Acquired Fund's shareholders in constructive exchange for their Acquired
Fund shares;
(iii) No gain or loss will be recognized to the Acquiring Fund on its
receipt of the assets in exchange solely for Acquiring Fund shares and its
assumption of the Acquired Fund's liabilities;
(iv) Acquiring Fund's basis for the transferred assets will be the same as
the basis thereof in the Acquired Fund's hands immediately prior to the
Reorganization, and Acquiring Fund's holding period for those assets will
include the Acquired Fund's holding period therefor;
(v) An Acquired Fund shareholder will recognize no gain or loss on the
constructive exchange of all its Acquired Fund shares solely for Acquiring
Fund shares pursuant to the Reorganization; and
(vi) An Acquired Fund shareholder's basis for the Acquiring Fund shares to
be received by it in the Reorganization will be the same as the basis for
its Acquired Fund shares to be constructively surrendered in exchange for
those Acquiring Fund shares, and its holding period for those Acquiring
Fund shares will
24
<PAGE>
include its holding period for those Acquired Fund shares, provided they
are held as capital assets by the shareholder on the Closing Date.
Each such opinion may state that no opinion is expressed as to the effect of the
Reorganizations on the Funds or any shareholder (regarding the recognition of
gain or loss and/or the determination of the basis or holding period) with
respect to any asset (including certain options and futures) as to which any
unrealized gain or loss is required to be recognized for federal income tax
purposes at the end of a taxable year (or on the termination or transfer
thereof) under a mark-to-market system of accounting.
Utilization by Acquiring Fund after the Reorganizations of
pre-Reorganization capital losses realized by an Acquired Fund could be subject
to limitation in future years under the Code.
Shareholders of an Acquired Fund should consult their tax advisers
regarding the effect, if any, of the proposed Reorganizations in light of their
individual circumstances. Because the foregoing discussion only relates to the
federal income tax consequences of the Reorganizations, those shareholders also
should consult their tax advisers as to state and local tax consequences, if
any, of the Reorganizations.
CAPITALIZATION
The following tables show the capitalization of each Fund as of June 30,
1996 (unaudited) and on a pro forma combined basis (unaudited) as of that date
giving effect to the Reorganizations, and assuming that the Acquired Funds
indicated participate in the Reorganizations:
REORGANIZATION OF CASH FUND INTO CASH RESERVE:
<TABLE>
<CAPTION>
COMBINED FUND
CASH RESERVE CASH FUND (PRO FORMA)
<S> <C> <C> <C>
Net Assets................................................................ $ 1,223,681,688 $ 51,429,381 $ 1,275,111,069
Net Asset Value Per Share................................................. $1.00 $1.00 $1.00
Shares Outstanding........................................................ 1,223,984,016 51,525,059 1,275,509,075
</TABLE>
REORGANIZATION OF FIXED INCOME INTO INTERMEDIATE-TERM:
<TABLE>
<CAPTION>
INTERMEDIATE- COMBINED FUND
TERM FIXED INCOME (PRO FORMA)
<S> <C> <C> <C>
Net Assets................................................................... $ 226,535,966 $ 75,159,656 $ 301,695,622
Net Asset Value Per Share.................................................... $10.17 $9.79 $10.17
Shares Outstanding........................................................... 22,271,887 7,674,688 29,662,217
</TABLE>
REORGANIZATION OF SHORT TERM INTO INTERMEDIATE-TERM:
<TABLE>
<CAPTION>
INTERMEDIATE- COMBINED FUND
TERM SHORT TERM (PRO FORMA)
<S> <C> <C> <C>
Net Assets................................................................... $ 226,535,966 $ 14,134,867 $ 240,670,833
Net Asset Value Per Share.................................................... $10.17 $9.69 $10.17
Shares Outstanding........................................................... 22,271,887 1,458,169 23,661,750
</TABLE>
REORGANIZATION OF FIXED INCOME AND SHORT TERM INTO INTERMEDIATE-TERM:
<TABLE>
<CAPTION>
INTERMEDIATE- FIXED SHORT COMBINED FUND
TERM INCOME TERM (PRO FORMA)
<S> <C> <C> <C> <C>
Net Assets.................................................... $ 226,535,966 $ 75,159,656 $ 14,134,867 $ 315,830,489
Net Asset Value Per Share..................................... $10.17 $9.79 $9.69 $10.17
Shares Outstanding............................................ 22,271,887 7,674,688 1,458,169 31,052,000
</TABLE>
25
<PAGE>
ADDITIONAL INFORMATION ABOUT LEGG MASON CASH RESERVE TRUST
The financial information in the table below, insofar as it relates to each
of the periods presented in the ten-year period ended August 31, 1996, has been
audited by Ernst & Young LLP, independent auditors. The Trust's financial
statements for the year ended August 31, 1996 and the report of Ernst & Young
LLP thereon are included in the Trust's annual report and are incorporated by
reference in the Statement of Additional Information. The annual report is
available to shareholders without charge by calling your Legg Mason or
affiliated investment executive or Legg Mason's Funds Marketing Department at
800-822-5544.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED AUGUST 31,
1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
Net investment income .05 .05 .03 .03 .04 .06
Net realized gain (loss) on investments Nil Nil (Nil) -- Nil --
Total from investment operations .05 .05 .03 .03 .04 .06
Dividends paid from:
Net investment income (.05) (.05) (.03) (.03) (.04) (.06)
Realized gain on investments -- -- -- -- (Nil) --
Net asset value, end of year $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
Total return 4.92% 5.08% 3.08% 2.85% 4.37% 6.41%
RATIOS/SUPPLEMENTAL DATA:
RATIOS TO AVERAGE NET ASSETS:
Expenses .70% .71% .72% .76% .75% .74%
Net investment income 4.81% 5.03% 3.05% 2.82% 4.11% 6.26%
Net assets, end of year (in thousands) $1,224,481 $1,153,130 $786,321 $754,996 $733,789 $860,954
<CAPTION>
1990 1989 1988* 1987
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $1.00 $1.00 $1.00 $1.00
Net investment income .08 .08 .06 .06
Net realized gain (loss) on investments -- -- -- --
Total from investment operations .08 .08 .06 .06
Dividends paid from:
Net investment income (.08) (.08) (.06) (.06)
Realized gain on investments -- -- -- --
Net asset value, end of year $1.00 $1.00 $1.00 $1.00
Total return 8.03% 8.56% 6.56% 5.69%
RATIOS/SUPPLEMENTAL DATA:
RATIOS TO AVERAGE NET ASSETS:
Expenses .74% .88% .84% .83%
Net investment income 7.73% 8.30% 6.45% 5.50%
Net assets, end of year (in thousands) $923,249 $723,662 $436,759 $321,109
</TABLE>
* On July 18, 1988, the responsibility for the Trust's management was
transferred from LM Research Limited Partnership to Legg Mason Fund Adviser,
Inc. and Western Asset Management Company.
26
<PAGE>
ADDITIONAL INFORMATION ABOUT LEGG MASON U.S. GOVERNMENT INTERMEDIATE-TERM
PORTFOLIO
Intermediate-Term offers two classes of shares, Primary Shares and Navigator
Shares. Only Primary Shares are involved in the Reorganizations. The information
for Primary Shares set forth below reflects the 12b-1 fees paid by that Class.
The following financial highlights table for the years 1987 through 1995 has
been derived from Intermediate-Term's financial statements which have been
audited by Coopers & Lybrand, L.L.P., independent accountants. Information in
the table for the six-month period ending June 30, 1996 has not been audited.
Intermediate-Term's financial statements for the year ended December 31, 1995
and the report of Coopers & Lybrand L.L.P. thereon are included in its Annual
Report to Shareholders and are incorporated by reference in the Statement of
Additional Information. The annual report accompanies this Proxy Statement.
<TABLE>
<CAPTION>
FOR SIX
MONTHS ENDED
JUNE 30, 1996 YEARS ENDED DECEMBER 31,
(UNAUDITED) 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $10.47 $9.72 $10.43 $10.70 $10.77
Net investment income 0.30(B) 0.57(B) 0.51(B) 0.53(B) 0.60(B)
Net realized and unrealized gain (loss) on investments,
options and futures (0.30) 0.75 (0.71) 0.17 0.05
Total from investment operations -- 1.32 (0.20) 0.70 0.65
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income (0.30) (0.57) (0.51) (0.53) (0.60)
Net realized gain -- -- -- (0.39) (0.12)
In excess of net realized gain on investments -- -- -- (0.05) --
Total distributions (0.30) (0.57) (0.51) (0.97) (0.72)
Net asset value, end of period $10.17 $10.47 $9.72 $10.43 $10.70
Total return(B,E) (0.01)%(C) 13.9% (1.9)% 6.6% 6.3%
RATIOS/SUPPLEMENTAL DATA:
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.97%(B,D,E) 0.9%(B,E) 0.9%(B,E) 0.9%(B,E) 0.9%(B,E)
Net investment income 5.8%(B,D,E) 5.6%(B,E) 5.1%(B,E) 4.8%(B,E) 5.5%(B,E)
Portfolio turnover rate 356.1%(D) 289.9% 315.7% 490.2% 512.6%
Net assets, end of period (in thousands) $ 222,858 $231,886 $231,255 $299,529 $307,320
<CAPTION>
1991 1990 1989 1988 1987(A)
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $10.29 $10.20 $9.79 $9.92 $10.00
Net investment income 0.72(B) 0.78(B) 0.80(B) 0.74(B) 0.30(B)
Net realized and unrealized gain (loss) on investments,
options and futures 0.70 0.09 0.41 (0.12) (0.08)
Total from investment operations 1.42 0.87 1.21 0.62 0.22
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income (0.72) (0.78) (0.80) (0.74) (0.30)
Net realized gain (0.22) -- -- (0.01) --
In excess of net realized gain on investments -- -- -- -- --
Total distributions (0.94) (0.78) (0.80) (0.75) (0.30)
Net asset value, end of period $10.77 $10.29 $10.20 $9.79 $9.92
Total return(B,E) 14.4% 9.1% 12.8% 6.4% 2.2%
RATIOS/SUPPLEMENTAL DATA:
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.8%(B,E) 0.6%(B,E) 0.8%(B,E) 1.0%(B,E) 1.0%(B,D,E)
Net investment income 6.7%(B,E) 7.7%(B,E) 7.9%(B,E) 7.4%(B,E) 7.4%(B,D,E)
Portfolio turnover rate 642.8% 67.0% 57.3% 132.5% 66.3%
Net assets, end of period (in thousands) $211,627 $74,423 $43,051 $27,087 $16,617
</TABLE>
(A) For the period August 7, 1987 (commencement of operations) to December 31,
1987.
(B) Net of fees waived and reimbursements made by the Manager for expenses in
excess of voluntary limitations as follows: 1.0% until September 10, 1989;
0.5% until March 31, 1990; 0.6% until December 31, 1990; 0.75% until April
30, 1991; 0.8% until December 31, 1991; 0.85% until August 31, 1992; 0.9%
until April 30, 1995; 0.95% until April 30, 1996; and 1.00% until December
31, 1997.
(C) Not annualized for periods of less than a full
year.
(D) Annualized.
(E) Includes distribution fee of 0.5%
27
<PAGE>
MISCELLANEOUS
AVAILABLE INFORMATION
Each Trust is subject to the informational requirements of the Securities
Exchange Act of 1934 and the 1940 Act and in accordance therewith files reports,
proxy material and other information with the SEC. Such reports, proxy material
and other information can be inspected and copied at the Public Reference
Facilities maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549, the Midwest Regional Office of the SEC, CitiCorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60611, and the Northeast Regional Office
of the SEC, Seven World Trade Center, Suite 1300, New York, New York 10048.
Copies of such material can also be obtained from the Public Reference Branch,
Office of Consumer Affairs and Information Services, Securities and Exchange
Commission, Washington, D.C. 20459 at prescribed rates.
LEGAL MATTERS
Certain legal matters in connection with the issuance of Cash Reserve and
Intermediate-Term shares as part of the Reorganizations will be passed upon by
Kirkpatrick & Lockhart LLP, counsel to Cash Reserve and Intermediate-Term.
EXPERTS
The audited financial statements of Cash Reserve, Cash Fund, Fixed Income,
Short Term and Intermediate-Term, incorporated herein by reference and
incorporated by reference or included in their respective Statements of
Additional Information, have been audited by Ernst & Young LLP (with respect to
Cash Reserve), Arthur Andersen LLP (with respect to the Acquired Funds) and
Coopers & Lybrand L.L.P. (with respect to Intermediate-Term), independent
auditors, whose reports thereon are included in the Funds' Annual Reports to
Shareholders for the fiscal years ended August 31, 1996 (with respect to Cash
Reserve), March 31, 1996 (with respect to the Acquired Funds) and December 31,
1995 (with respect to Intermediate-Term), respectively. The financial statements
audited by Ernst & Young LLP, Arthur Andersen LLP and Coopers & Lybrand L.L.P.
have been incorporated herein by reference in reliance on their reports given on
their authority as experts in auditing and accounting.
28
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION
THIS AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION ("Agreement") is
made as of September 20, 1996, between Legg Mason Cash Reserve Trust, a
Massachusetts business trust ("Acquiring Fund"), and Bartlett Management Trust
("Bartlett Trust"), an Ohio business trust, on behalf of Bartlett Cash Reserves
Fund, a segregated portfolio of assets ("series") thereof ("Target"). (Acquiring
Fund and Target are sometimes referred to herein individually as a "Fund" and
collectively as the "Funds," and the Acquiring Fund and Bartlett Trust are
sometimes referred to herein collectively as the "Investment Companies").
This Agreement is intended to be, and is adopted as, a plan of a
reorganization described in Section 368(a)(1)(C) of the Internal Revenue Code of
1986, as amended ("Code"). The reorganization will involve the transfer to
Acquiring Fund of Target's assets solely in exchange for voting shares of
beneficial interest in Acquiring Fund ("Acquiring Fund Shares") and the
assumption by Acquiring Fund of Target's liabilities, followed by the
constructive distribution of the Acquiring Fund Shares to the holders of shares
of beneficial interest in Target ("Target Shares") in exchange therefor, all
upon the terms and conditions set forth herein. The foregoing transactions are
referred to herein as the "Reorganization." All agreements, representations,
actions, and obligations described herein made or to be taken or undertaken by
Target are made and shall be taken or undertaken by Bartlett Trust on behalf of
Target.
In consideration of the mutual promises herein, the parties covenant and
agree as follows:
1. PLAN OF REORGANIZATION AND TERMINATION OF TARGET
1.1. Target agrees to assign, sell, convey, transfer, and deliver all of
its assets described in paragraph 1.2 ("Assets") to Acquiring Fund. Acquiring
Fund agrees in exchange therefor --
(a) to issue and deliver to Target the number of full and fractional
Acquiring Fund Shares determined by dividing the net value of Target
(computed as set forth in paragraph 2.1) by the net asset value (computed
as set forth in paragraph 2.2) ("NAV") of an Acquiring Fund Share; and
(b) to assume all of Target's liabilities described in paragraph 1.3
("Liabilities").
Such transactions shall take place at the Closing (as defined in paragraph 3.1).
1.2. The Assets shall include, without limitation, all cash, cash
equivalents, securities, receivables (including interest and dividends
receivable), claims and rights of action, rights to register shares under
applicable securities laws, books and records, deferred and prepaid expenses
shown as assets on Target's books, and other property owned by Target at the
Effective Time (as defined in paragraph 3.1).
1.3. The Liabilities shall include (except as otherwise provided herein)
all of Target's liabilities, debts, obligations, and duties of whatever kind or
nature, whether absolute, accrued, contingent, or otherwise, whether or not
arising in the ordinary course of business, whether or not determinable at the
Effective Time, and whether or not specifically referred to in this Agreement.
Notwithstanding the foregoing, Target agrees to use its best efforts to
discharge all of its known Liabilities prior to the Effective Time.
1.4. Before the Effective Time, Target shall declare and pay to its
shareholders a dividend in an amount large enough so that it will have
distributed substantially all (and in any event not less than 90%) of its
investment company taxable income (computed without regard to any deduction for
dividends paid) and net interest income excludable from gross income under
Section 103(a) of the Code for the current taxable year through the Effective
Time.
1.5. At the Effective Time (or as soon thereafter as is reasonably
practicable), Target shall constructively distribute the Acquiring Fund Shares
received by it pursuant to paragraph 1.1 to Target's shareholders of record,
determined as of the Effective Time (collectively "Shareholders" and
individually a "Shareholder"), in exchange for their Target Shares. Such
distribution shall be accomplished by the Funds' transfer agent ("Transfer
Agent") opening accounts on Acquiring Fund's share transfer books in the
Shareholders' names and transferring such Acquiring Fund Shares thereto. Each
Shareholder's account shall be credited with the respective pro rata number
A-1
<PAGE>
of full and fractional (rounded to the third decimal place) Acquiring Fund
Shares due that Shareholder. All outstanding Target Shares, including any
represented by certificates, shall simultaneously be canceled on Target's share
transfer records. Acquiring Fund will not issue certificates representing the
Acquiring Fund Shares issued in connection with the Reorganization.
1.6. As soon as reasonably practicable after distribution of the Acquiring
Fund Shares pursuant to paragraph 1.5, Target shall be terminated as a series of
Bartlett Trust and any further actions shall be taken in connection therewith as
required by applicable law.
1.7. Any reporting responsibility of Target to a public authority is and
shall remain its responsibility up to and including the date on which it is
terminated.
1.8. Any transfer taxes payable upon issuance of Acquiring Fund Shares in a
name other than that of the registered holder on Target's books of the Target
Shares constructively exchanged therefor shall be paid by the person to whom
such Acquiring Fund Shares are to be issued, as a condition of such transfer.
2. VALUATION
2.1. For purposes of paragraph 1.1(a), Target's net value shall be (a) the
value of the Assets computed as of 4:00 p.m. on the date of the Closing
("Valuation Time"), using the amortized cost method of valuation less (b) the
amount of the Liabilities as of the Valuation Time.
2.2. For purposes of paragraph 1.1(a), the NAV of an Acquiring Fund Share
shall be computed as of the Valuation Time, using the valuation procedures set
forth in Acquiring Fund's then-current prospectus and statement of additional
information.
2.3. All computations pursuant to paragraphs 2.1 and 2.2 shall be made by
or under the direction of Legg Mason Fund Adviser, Inc.
2.4. If the difference between the NAVs per share of the Funds equals or
exceeds $.0025 at the Valuation Time, or such earlier or later day and time as
the parties may agree and set forth in writing signed by their duly authorized
officers, as computed by using the amortized cost method of valuing the Funds'
assets in accordance with the policies and procedures established by the Funds
(or as otherwise determined by the Funds' boards of trustees), either Fund may
postpone the Valuation Time until such time as such per share NAV difference is
less than $.0025.
3. CLOSING AND EFFECTIVE TIME
3.1. The Reorganization, together with related acts necessary to consummate
the same ("Closing"), shall occur at the Acquiring Fund's principal office on
December 20, 1996, or at such other place and/or on such other date as the
parties may agree. All acts taking place at the Closing shall be deemed to take
place simultaneously as of 4:00 p.m. on the date thereof or at such other time
as the parties may agree ("Effective Time"). If, immediately before the
Valuation Time, (a) the New York Stock Exchange, Inc. ("NYSE") is closed to
trading or trading thereon is restricted or (b) trading or the reporting of
trading on the NYSE or elsewhere is disrupted, so that accurate appraisal of the
net value of Target and the NAV per Acquiring Fund Share is impracticable, the
Effective Time shall be postponed until the first business day after the day
when such trading shall have been fully resumed and such reporting shall have
been restored.
3.2. Bartlett Trust shall deliver to Acquiring Fund at the Closing a
schedule of the Assets as of the Effective Time, which shall set forth for all
portfolio securities included therein their adjusted tax basis and holding
period by lot. Target's custodian shall deliver at the Closing a certificate of
an authorized officer stating that (a) the Assets held by the custodian will be
transferred to Acquiring Fund at the Effective Time and (b) all necessary taxes
in conjunction with the delivery of the Assets, including all applicable federal
and state stock transfer stamps, if any, have been paid or provision for payment
has been made.
3.3. Bartlett Trust shall deliver to Acquiring Fund at the Closing a list
of the names and addresses of the Shareholders and the number of outstanding
Target Shares owned by each Shareholder, all as of the Effective Time, certified
by the Secretary or Assistant Secretary of Target. The Transfer Agent shall
deliver at the Closing a certificate as to the opening on Acquiring Fund's share
transfer books of accounts in the Shareholders' names. Acquiring Fund shall
issue and deliver a confirmation to Bartlett Trust evidencing the Acquiring Fund
Shares to
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be credited to Target at the Effective Time or provide evidence satisfactory to
Bartlett Trust that such Acquiring Fund Shares have been credited to Target's
account on Acquiring Fund's books. At the Closing, each party shall deliver to
the other such bills of sale, checks, assignments, stock certificates, receipts,
or other documents as the other party or its counsel may reasonably request.
3.4. Each Investment Company shall deliver to the other at the Closing a
certificate executed in its name by its President or a Vice President in form
and substance satisfactory to the recipient and dated the Effective Time, to the
effect that the representations and warranties it made in this Agreement are
true and correct at the Effective Time except as they may be affected by the
transactions contemplated by this Agreement.
4. REPRESENTATIONS AND WARRANTIES
4.1. Target represents and warrants as follows:
4.1.1. Bartlett Trust is an unincorporated voluntary association with
transferable shares organized as a business trust under a written
instrument ("Business Trust"); it is duly organized, validly existing, and
in good standing under the laws of the State of Ohio; and a copy of its
Declaration of Trust is on file with the Ohio Secretary of State;
4.1.2. Bartlett Trust is duly registered as an open-end management
investment company under the Investment Company Act of 1940 ("1940 Act"),
and such registration will be in full force and effect at the Effective
Time;
4.1.3. Target is a duly established and designated series of Bartlett
Trust;
4.1.4. At the Closing, Target will have good and marketable title to
the Assets and full right, power, and authority to sell, assign, transfer,
and deliver the Assets free of any liens or other encumbrances; and upon
delivery and payment for the Assets, Acquiring Fund will acquire good and
marketable title thereto;
4.1.5. Target's current prospectus and statement of additional
information conform in all material respects to the applicable requirements
of the Securities Act of 1933 ("1933 Act") and the 1940 Act and the rules
and regulations thereunder and do not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
4.1.6. Target is not in violation of, and the execution and delivery
of this Agreement and consummation of the transactions contemplated hereby
will not conflict with or violate, Ohio law or any provision of Bartlett
Trust's Declaration of Trust or By-Laws or of any agreement, instrument,
lease, or other undertaking to which Target is a party or by which it is
bound or result in the acceleration of any obligation, or the imposition of
any penalty, under any agreement, judgment, or decree to which Target is a
party or by which it is bound, except as previously disclosed in writing to
and accepted by Acquiring Fund;
4.1.7. Except as disclosed in writing to and accepted by Acquiring
Fund, all material contracts and other commitments of or applicable to
Target (other than this Agreement and investment contracts) will be
terminated, or provision for discharge of any liabilities of Target
thereunder will be made, at or prior to the Effective Time, without either
Fund's incurring any liability or penalty with respect thereto and without
diminishing or releasing any rights Target may have had with respect to
actions taken or omitted to be taken by any other party thereto prior to
the Closing;
4.1.8. Except as otherwise disclosed in writing to and accepted by
Acquiring Fund, no litigation, administrative proceeding, or investigation
of or before any court or governmental body is presently pending or (to
Target's knowledge) threatened against Bartlett Trust with respect to
Target or any of its properties or assets that, if adversely determined,
would materially and adversely affect Target's financial condition or the
conduct of its business; Target knows of no facts that might form the basis
for the institution of any such litigation, proceeding, or investigation
and is not a party to or subject to the provisions of any order, decree, or
judgment of any court or governmental body that materially or adversely
affects its business or its ability to consummate the transactions
contemplated hereby;
4.1.9. The execution, delivery, and performance of this Agreement have
been duly authorized as of the date hereof by all necessary action on the
part of Bartlett Trust's board of trustees, which has made the
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determinations required by Rule 17a-8(a) under the 1940 Act; and, subject
to approval by Target's shareholders and receipt of any necessary exemptive
relief or no-action assurances requested from the Securities and Exchange
Commission ("SEC") or its staff with respect to Sections 17(a) and 17(d) of
the 1940 Act, this Agreement will constitute a valid and legally binding
obligation of Target, enforceable in accordance with its terms, except as
the same may be limited by bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium, and similar laws relating to or affecting
creditors' rights and by general principles of equity;
4.1.10. At the Effective Time, the performance of this Agreement shall
have been duly authorized by all necessary action by Target's shareholders;
4.1.11. No governmental consents, approvals, authorizations, or
filings are required under the 1933 Act, the Securities Exchange Act of
1934 ("1934 Act"), or the 1940 Act for the execution or performance of this
Agreement by Bartlett Trust, except for (a) the filing with the SEC of a
registration statement by Acquiring Fund on Form N-14 relating to the
Acquiring Fund Shares issuable hereunder, and any supplement or amendment
thereto ("Registration Statement"), including therein a prospectus/proxy
statement ("Proxy Statement"), (b) receipt of the exemptive relief
referenced in subparagraph 4.1.9, and (c) such consents, approvals,
authorizations, and filings as have been made or received or as may be
required subsequent to the Effective Time;
4.1.12. On the effective date of the Registration Statement, at the
time of the shareholders' meeting referred to in paragraph 5.2, and at the
Effective Time, the Proxy Statement will (a) comply in all material
respects with the applicable provisions of the 1933 Act, the 1934 Act, and
the 1940 Act and the regulations thereunder and (b) not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which such statements were made, not misleading;
provided that the foregoing shall not apply to statements in or omissions
from the Proxy Statement made in reliance on and in conformity with
information furnished by Acquiring Fund for use therein;
4.1.13. The Liabilities were incurred by Target in the ordinary course
of its business;
4.1.14. Target is a "fund" as defined in Section 851(h)(2) of the
Code; it qualified for treatment as a regulated investment company under
Subchapter M of the Code ("RIC") for each past taxable year since it
commenced operations and will continue to meet all the requirements for
such qualification for its current taxable year; and it has no earnings and
profits accumulated in any taxable year in which the provisions of
Subchapter M did not apply to it. The Assets shall be invested at all times
through the Effective Time in a manner that ensures compliance with the
foregoing;
4.1.15. Target is not under the jurisdiction of a court in a
proceeding under Title 11 of the United States Code or similar case within
the meaning of Section 368(a)(3)(A) of the Code;
4.1.16. Not more than 25% of the value of Target's total assets
(excluding cash, cash items, and U.S. government securities) is invested in
the stock and securities of any one issuer, and not more than 50% of the
value of such assets is invested in the stock and securities of five or
fewer issuers; and
4.1.17. Target will be terminated as soon as reasonably practicable
after the Reorganization, but in all events within six months after the
Effective Time.
4.2. Acquiring Fund represents and warrants as follows:
4.2.1. Acquiring Fund is a Business Trust; it is duly organized,
validly existing, and in good standing under the laws of the Commonwealth
of Massachusetts, and a copy of its Declaration of Trust is on file with
the Secretary of the Commonwealth of Massachusetts;
4.2.2. Acquiring Fund is duly registered as an open-end management
investment company under the 1940 Act, and such registration will be in
full force and effect at the Effective Time;
4.2.3. No consideration other than Acquiring Fund Shares (and
Acquiring Fund's assumption of the Liabilities) will be issued in exchange
for the Assets in the Reorganization;
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4.2.4. The Acquiring Fund Shares to be issued and delivered to Target
hereunder will, at the Effective Time, have been duly authorized and, when
issued and delivered as provided herein, will be duly and validly issued
and outstanding shares of Acquiring Fund, fully paid and non-assessable.
Except as contemplated by this Agreement, Acquiring Fund does not have
outstanding any options, warrants, or other rights to subscribe for or
purchase any of its shares, nor is there outstanding any security
convertible into any of its shares;
4.2.5. Acquiring Fund's current prospectus and statement of additional
information conform in all material respects to the applicable requirements
of the 1933 Act and the 1940 Act and the rules and regulations thereunder
and do not include any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading;
4.2.6. Acquiring Fund is not in violation of, and the execution and
delivery of this Agreement and consummation of the transactions
contemplated hereby will not conflict with or violate, Massachusetts law or
any provision of Acquiring Fund's Declaration of Trust or By-Laws or of any
provision of any agreement, instrument, lease, or other undertaking to
which Acquiring Fund is a party or by which it is bound or result in the
acceleration of any obligation, or the imposition of any penalty, under any
agreement, judgment, or decree to which Acquiring Fund is a party or by
which it is bound, except as previously disclosed in writing to and
accepted by Bartlett Trust;
4.2.7. Except as otherwise disclosed in writing to and accepted by
Bartlett Trust, no litigation, administrative proceeding, or investigation
of or before any court or governmental body is presently pending or (to
Acquiring Fund's knowledge) threatened against Acquiring Fund or any of its
properties or assets that, if adversely determined, would materially and
adversely affect Acquiring Fund's financial condition or the conduct of its
business; Acquiring Fund knows of no facts that might form the basis for
the institution of any such litigation, proceeding, or investigation and is
not a party to or subject to the provisions of any order, decree, or
judgment of any court or governmental body that materially or adversely
affects its business or its ability to consummate the transactions
contemplated hereby;
4.2.8. The execution, delivery, and performance of this Agreement have
been duly authorized as of the date hereof by all necessary action on the
part of Acquiring Fund's board of trustees, which has made the
determinations required by Rule 17a-8(a) under the 1940 Act; and, subject
to receipt of any necessary exemptive relief or no-action assurances
requested from the SEC or its staff with respect to Sections 17(a) and
17(d) of the 1940 Act, this Agreement will constitute a valid and legally
binding obligation of Acquiring Fund, enforceable in accordance with its
terms, except as the same may be limited by bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium, and similar laws relating
to or affecting creditors' rights and by general principles of equity;
4.2.9. No governmental consents, approvals, authorizations, or filings
are required under the 1933 Act, the 1934 Act, or the 1940 Act for the
execution or performance of this Agreement by Acquiring Fund, except for
(a) the filing with the SEC of the Registration Statement, (b) receipt of
the exemptive relief referenced in subparagraph 4.2.8, and (c) such
consents, approvals, authorizations, and filings as have been made or
received or as may be required subsequent to the Effective Time;
4.2.10. On the effective date of the Registration Statement, at the
time of the shareholders' meeting referred to in paragraph 5.2, and at the
Effective Time, the Proxy Statement will (a) comply in all material
respects with the applicable provisions of the 1933 Act, the 1934 Act, and
the 1940 Act and the regulations thereunder and (b) not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which such statements were made, not misleading;
provided that the foregoing shall not apply to statements in or omissions
from the Proxy Statement made in reliance on and in conformity with
information furnished by Bartlett Trust for use therein;
4.2.11. Acquiring Fund qualified for treatment as a RIC for each past
taxable year since it commenced operations and will continue to meet all
the requirements for such qualification for its current taxable year;
Acquiring Fund intends to continue to meet all such requirements for the
next taxable year; and it has no
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earnings and profits accumulated in any taxable year in which the
provisions of Subchapter M of the Code did not apply to it;
4.2.12. Acquiring Fund has no plan or intention to issue additional
Acquiring Fund Shares following the Reorganization except for shares issued
in the ordinary course of its business as an open-end investment company;
nor does Acquiring Fund have any plan or intention to redeem or otherwise
reacquire any Acquiring Fund Shares issued to the Shareholders pursuant to
the Reorganization, other than through redemptions arising in the ordinary
course of that business;
4.2.13. Acquiring Fund (a) will actively continue Target's business in
substantially the same manner that Target conducted that business
immediately before the Reorganization, (b) has no plan or intention to sell
or otherwise dispose of any of the Assets, except for dispositions made in
the ordinary course of that business and dispositions necessary to maintain
its status as a RIC, and (c) expects to retain substantially all the Assets
in the same form as it receives them in the Reorganization, unless and
until subsequent investment circumstances suggest the desirability of
change or it becomes necessary to make dispositions thereof to maintain
such status;
4.2.14. There is no plan or intention for Acquiring Fund to be
dissolved or merged into another corporation or business trust or any
"fund" thereof (within the meaning of Section 851(h)(2) of the Code)
following the Reorganization;
4.2.15. Immediately after the Reorganization, (a) not more than 25% of
the value of Acquiring Fund's total assets (excluding cash, cash items, and
U.S. government securities) will be invested in the stock and securities of
any one issuer and (b) not more than 50% of the value of such assets will
be invested in the stock and securities of five or fewer issuers; and
4.2.16. Acquiring Fund does not own, directly or indirectly, nor at
the Effective Time will it own, directly or indirectly, nor has it owned,
directly or indirectly, at any time during the past five years, any shares
of Target.
4.3. Each Fund represents and warrants as follows:
4.3.1. The fair market value of the Acquiring Fund Shares, when
received by the Shareholders, will be approximately equal to the fair
market value of their Target Shares constructively surrendered in exchange
therefor;
4.3.2. Its management (a) is unaware of any plan or intention of
Shareholders to redeem or otherwise dispose of any portion of the Acquiring
Fund Shares to be received by them in the Reorganization and (b) does not
anticipate dispositions of those Acquiring Fund Shares at the time of or
soon after the Reorganization to exceed the usual rate and frequency of
dispositions of shares of Target as an open-end investment company.
Consequently, its management expects that the percentage of Shareholder
interests, if any, that will be disposed of as a result of or at the time
of the Reorganization will be de minimis. Nor does its management
anticipate that there will be extraordinary redemptions of Acquiring Fund
Shares immediately following the Reorganization;
4.3.3. The Shareholders will pay their own expenses, if any, incurred in
connection with the Reorganization;
4.3.4. Immediately following consummation of the Reorganization,
Acquiring Fund will hold substantially the same assets and be subject to
substantially the same liabilities that Target held or was subject to
immediately prior thereto;
4.3.5. The fair market value on a going concern basis of the Assets
will equal or exceed the Liabilities to be assumed by Acquiring Fund and
those to which the Assets are subject;
4.3.6. There is no intercompany indebtedness between the Funds that
was issued or acquired, or will be settled, at a discount;
4.3.7. Pursuant to the Reorganization, Target will transfer to
Acquiring Fund, and Acquiring Fund will acquire, at least 90% of the fair
market value of the net assets, and at least 70% of the fair market value
of the gross assets, held by Target immediately before the Reorganization.
For the purposes of this representation,
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any amounts used by Target to pay redemptions and distributions made by it
immediately before the Reorganization (except for (a) distributions made to
conform to its policy of distributing all or substantially all of its
income and gains to avoid the obligation to pay federal income tax and/or
the excise tax under Section 4982 of the Code and (b) redemptions not made
as part of the Reorganization) will be included as assets thereof held
immediately before the Reorganization;
4.3.8. None of the compensation received by any Shareholder who is an
employee of Target will be separate consideration for, or allocable to, any
of the Target Shares held by such Shareholder-employee; none of the
Acquiring Fund Shares received by any such Shareholder-employee will be
separate consideration for, or allocable to, any employment agreement; and
the consideration paid to any such Shareholder-employee will be for
services actually rendered and will be commensurate with amounts paid to
third parties bargaining at arm's-length for similar services; and
4.3.9. Immediately after the Reorganization, the Shareholders will not
own shares constituting "control" of Acquiring Fund within the meaning of
Section 304(c) of the Code.
5. COVENANTS
5.1. Each Fund covenants to operate its respective business in the ordinary
course between the date hereof and the Closing, it being understood that (a)
such ordinary course will include declaring and paying customary dividends and
other distributions and such changes in operations as are contemplated by each
Fund's normal business activities and (b) each Fund will retain exclusive
control of the composition of its portfolio until the Closing; provided that
Target shall not dispose of more than an insignificant portion of its historic
business assets during such period without Acquiring Fund's prior consent.
5.2. Target covenants to call a shareholders' meeting to consider and act
upon this Agreement and to take all other action necessary to obtain approval of
the transactions contemplated hereby.
5.3. Target covenants that the Acquiring Fund Shares to be delivered
hereunder are not being acquired for the purpose of making any distribution
thereof, other than in accordance with the terms hereof.
5.4. Target covenants that it will assist Acquiring Fund in obtaining such
information as Acquiring Fund reasonably requests concerning the beneficial
ownership of Target Shares.
5.5. Target covenants that Target's books and records (including all books
and records required to be maintained under the 1940 Act and the rules and
regulations thereunder) will be turned over to Acquiring Fund at the Closing.
5.6. Each Fund covenants to cooperate in preparing the Proxy Statement in
compliance with applicable federal securities laws.
5.7. Each Fund covenants that it will, from time to time, as and when
requested by the other Fund, execute and deliver or cause to be executed and
delivered all such assignments and other instruments, and will take or cause to
be taken such further action, as the other Fund may deem necessary or desirable
in order to vest in, and confirm to, (a) Acquiring Fund, title to and possession
of all the Assets, and (b) Target, title to and possession of the Acquiring Fund
Shares to be delivered hereunder, and otherwise to carry out the intent and
purpose hereof.
5.8. Acquiring Fund covenants to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act, and such
state securities laws it may deem appropriate in order to continue its
operations after the Effective Time.
5.9. Subject to this Agreement, each Fund covenants to take or cause to be
taken all actions, and to do or cause to be done all things, reasonably
necessary, proper, or advisable to consummate and effectuate the transactions
contemplated hereby.
6. CONDITIONS PRECEDENT
Each Fund's obligations hereunder shall be subject to (a) performance by
the other Fund of all the obligations to be performed hereunder at or before the
Effective Time, (b) all representations and warranties of the other Fund
contained herein being true and correct in all material respects as of the date
hereof and, except as they may
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be affected by the transactions contemplated hereby, as of the Effective Time,
with the same force and effect as if made at and as of the Effective Time, and
(c) the following further conditions that, at or before the Effective Time:
6.1. This Agreement and the transactions contemplated hereby shall have
been duly adopted and approved by Bartlett Trust's board of trustees and shall
have been approved by Target's shareholders in accordance with applicable law.
6.2. All necessary filings shall have been made with the SEC and state
securities authorities, and no order or directive shall have been received that
any other or further action is required to permit the parties to carry out the
transactions contemplated hereby. The Registration Statement shall have become
effective under the 1933 Act, no stop orders suspending the effectiveness
thereof shall have been issued, and the SEC shall not have issued an unfavorable
report with respect to the Reorganization under Section 25(b) of the 1940 Act
nor instituted any proceedings seeking to enjoin consummation of the
transactions contemplated hereby under Section 25(c) of the 1940 Act. All
consents, orders, and permits of federal, state, and local regulatory
authorities (including the SEC and state securities authorities) deemed
necessary by either Fund to permit consummation, in all material respects, of
the transactions contemplated hereby shall have been obtained, except where
failure to obtain same would not involve a risk of a material adverse effect on
the assets or properties of either Fund, provided that either Fund may for
itself waive any of such conditions.
6.3. At the Effective Time, no action, suit, or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or to obtain damages or other relief in connection with,
the transactions contemplated hereby.
6.4. Bartlett Trust shall have received an opinion of Kirkpatrick &
Lockhart LLP, counsel to Acquiring Fund, substantially to the effect that:
6.4.1. Acquiring Fund is a Business Trust duly organized and validly
existing under the laws of the Commonwealth of Massachusetts with power
under its Declaration of Trust to own all of its properties and assets and,
to the knowledge of such counsel, to carry on its business as presently
conducted;
6.4.2. This Agreement (a) has been duly authorized, executed, and
delivered by Acquiring Fund and (b) assuming due authorization, execution,
and delivery of this Agreement by Bartlett Trust on behalf of Target, is a
valid and legally binding obligation of Acquiring Fund, enforceable in
accordance with its terms, except as the same may be limited by bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium, and similar
laws relating to or affecting creditors' rights and by general principles
of equity;
6.4.3. The Acquiring Fund Shares to be issued and distributed to the
Shareholders under this Agreement, assuming their due delivery as
contemplated by this Agreement, will be duly authorized and validly issued
and outstanding and fully paid and non-assessable, and no shareholder of
Acquiring Fund has any preemptive right to subscribe for or purchase such
shares;
6.4.4. The execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, materially
violate Acquiring Fund's Declaration of Trust or By-Laws or any provision
of any agreement (known to such counsel, without any independent inquiry or
investigation) to which Acquiring Fund is a party or by which it is bound
or (to the knowledge of such counsel, without any independent inquiry or
investigation) result in the acceleration of any obligation, or the
imposition of any penalty, under any agreement, judgment, or decree to
which Acquiring Fund is a party or by which it is bound, except as set
forth in such opinion or as previously disclosed in writing to and accepted
by Bartlett Trust;
6.4.5. To the knowledge of such counsel (without any independent
inquiry or investigation), no consent, approval, authorization, or order of
any court or governmental authority is required for the consummation by
Acquiring Fund of the transactions contemplated herein, except such as have
been obtained under the 1933 Act, the 1934 Act, and the 1940 Act and such
as may be required under state securities laws;
6.4.6. Acquiring Fund is registered with the SEC as an investment
company, and to the knowledge of such counsel no order has been issued or
proceeding instituted to suspend such registration; and
6.4.7. To the knowledge of such counsel (without any independent
inquiry or investigation), (a) no litigation, administrative proceeding, or
investigation of or before any court or governmental body is pending
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or threatened as to Acquiring Fund or any of its properties or assets and
(b) Acquiring Fund is not a party to or subject to the provisions of any
order, decree, or judgment of any court or governmental body that
materially and adversely affects Acquiring Fund's business, except as set
forth in such opinion or as otherwise disclosed in writing to and accepted
by Bartlett Trust.
In rendering such opinion, such counsel may (i) rely, as to matters governed by
the laws of the Commonwealth of Massachusetts, on an opinion of competent
Massachusetts counsel, (ii) make assumptions regarding the authenticity,
genuineness, and/or conformity of documents and copies thereof without
independent verification thereof, (iii) limit such opinion to applicable federal
and state law, and (iv) define the word "knowledge" and related terms to mean
the knowledge of attorneys then with such firm who have devoted substantive
attention to matters directly related to this Agreement and the Reorganization.
6.5. Acquiring Fund shall have received an opinion of Brown, Cummins &
Brown, counsel to Bartlett Trust, substantially to the effect that:
6.5.1. Target is a duly established series of Bartlett Trust, a
Business Trust duly organized and validly existing under the laws of the
State of Ohio with power under its Declaration of Trust to own all of its
properties and assets and, to the knowledge of such counsel, to carry on
its business as presently conducted;
6.5.2. This Agreement (a) has been duly authorized, executed, and
delivered by Bartlett Trust on behalf of Target and (b) assuming due
authorization, execution, and delivery of this Agreement by Acquiring Fund,
is a valid and legally binding obligation of Bartlett Trust with respect to
Target, enforceable in accordance with its terms, except as the same may be
limited by bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium, and similar laws relating to or affecting creditors' rights and
by general principles of equity;
6.5.3. The execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, materially
violate Bartlett Trust's Declaration of Trust or By-Laws or any provision
of any agreement (known to such counsel, without any independent inquiry or
investigation) to which Bartlett Trust (with respect to Target) is a party
or by which it is bound or (to the knowledge of such counsel, without any
independent inquiry or investigation) result in the acceleration of any
obligation, or the imposition of any penalty, under any agreement,
judgment, or decree to which Bartlett Trust (with respect to Target) is a
party or by which it is bound, except as set forth in such opinion or as
previously disclosed in writing to and accepted by Acquiring Fund;
6.5.4. To the knowledge of such counsel (without any independent
inquiry or investigation), no consent, approval, authorization, or order of
any court or governmental authority is required for the consummation by
Bartlett Trust on behalf of Target of the transactions contemplated herein,
except such as have been obtained under the 1933 Act, the 1934 Act, and the
1940 Act and such as may be required under state securities laws;
6.5.5. Bartlett Trust is registered with the SEC as an investment
company, and to the knowledge of such counsel no order has been issued or
proceeding instituted to suspend such registration; and
6.5.6. To the knowledge of such counsel (without any independent
inquiry or investigation), (a) no litigation, administrative proceeding, or
investigation of or before any court or governmental body is pending or
threatened as to Bartlett Trust (with respect to Target) or any of its
properties or assets attributable or allocable to Target and (b) Bartlett
Trust (with respect to Target) is not a party to or subject to the
provisions of any order, decree, or judgment of any court or governmental
body that materially and adversely affects its business, except as set
forth in such opinion or as otherwise disclosed in writing to and accepted
by Acquiring Fund.
In rendering such opinion, such counsel may (i) make assumptions regarding the
authenticity, genuineness, and/or conformity of documents and copies thereof
without independent verification thereof, (ii) limit such opinion to applicable
federal and state law, and (iii) define the word "knowledge" and related terms
to mean the knowledge of attorneys then with such firm who have devoted
substantive attention to matters directly related to this Agreement and the
Reorganization.
6.6. Acquiring Fund shall have received an opinion of Kirkpatrick &
Lockhart LLP, its counsel, addressed to and in form and substance satisfactory
to it, and Bartlett Trust shall have received an opinion of Brown, Cummins
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& Brown, its counsel, addressed to and in form and substance satisfactory to it,
each as to the federal income tax consequences mentioned below (each a "Tax
Opinion"). In rendering its Tax Opinion, each such counsel may rely as to
factual matters, exclusively and without independent verification, on the
representations made in this Agreement (or in separate letters addressed to such
counsel) and the certificates delivered pursuant to paragraph 3.4. Each Tax
Opinion shall be substantially to the effect that, based on the facts and
assumptions stated therein, for federal income tax purposes:
6.6.1. Acquiring Fund's acquisition of the Assets in exchange solely
for Acquiring Fund Shares and Acquiring Fund's assumption of the
Liabilities, followed by Target's distribution of those shares to the
Shareholders constructively in exchange for the Shareholders' Target
Shares, will constitute a reorganization within the meaning of Section
368(a)(1)(C) of the Code, and each Fund will be "a party to a
reorganization" within the meaning of Section 368(b) of the Code;
6.6.2. No gain or loss will be recognized to Target on the transfer to
Acquiring Fund of the Assets in exchange solely for Acquiring Fund Shares
and Acquiring Fund's assumption of the Liabilities or on the subsequent
distribution of those shares to the Shareholders in constructive exchange
for their Target Shares;
6.6.3. No gain or loss will be recognized to Acquiring Fund on its
receipt of the Assets in exchange solely for Acquiring Fund Shares and its
assumption of the Liabilities;
6.6.4. Acquiring Fund's basis for the Assets will be the same as the
basis thereof in Target's hands immediately before the Reorganization, and
Acquiring Fund's holding period for the Assets will include Target's
holding period therefor;
6.6.5. A Shareholder will recognize no gain or loss on the
constructive exchange of all its Target Shares solely for Acquiring Fund
Shares pursuant to the Reorganization; and
6.6.6. A Shareholder's basis for the Acquiring Fund Shares to be
received by it in the Reorganization will be the same as the basis for its
Target Shares to be constructively surrendered in exchange for those
Acquiring Fund Shares, and its holding period for those Acquiring Fund
Shares will include its holding period for those Target Shares, provided
they are held as capital assets by the Shareholder at the Effective Time.
Notwithstanding subparagraphs 6.6.2 and 6.6.4, each Tax Opinion may state that
no opinion is expressed as to the effect of the Reorganization on the Funds or
any Shareholder with respect to any asset as to which any unrealized gain or
loss is required to be recognized for federal income tax purposes at the end of
a taxable year (or on the termination or transfer thereof) under a
mark-to-market system of accounting.
At any time before the Closing, (a) Acquiring Fund may waive any of the
foregoing conditions if, in the judgment of its board of trustees, such waiver
will not have a material adverse effect on its shareholders' interests, and (b)
Target may waive any of the foregoing conditions if, in the judgment of Bartlett
Trust's board of trustees, such waiver will not have a material adverse effect
on the Shareholders' interests.
7. BROKERAGE FEES AND EXPENSES
7.1. Each Investment Company represents and warrants to the other that
there are no brokers or finders entitled to receive any payments in connection
with the transactions provided for herein.
7.2. Except as otherwise provided herein, all expenses incurred in
connection with the transactions contemplated by this Agreement (whether or not
they are consummated) will be borne by entities other than the Funds.
8. ENTIRE AGREEMENT; SURVIVAL
Neither party has made any representation, warranty, or covenant not set
forth herein, and this Agreement constitutes the entire agreement between the
parties. The representations, warranties, and covenants contained herein or in
any document delivered pursuant hereto or in connection herewith shall survive
the Closing.
9. TERMINATION OF AGREEMENT
This Agreement may be terminated at any time at or prior to the Effective
Time, whether before or after approval by Target's shareholders:
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9.1. By either Fund (a) in the event of the other Fund's material breach of
any representation, warranty, or covenant contained herein to be performed at or
prior to the Effective Time, (b) if a condition to its obligations has not been
met and it reasonably appears that such condition will not or cannot be met, or
(c) if the Closing has not occurred on or before June 30, 1997; or
9.2. By the parties' mutual agreement.
In the event of termination under paragraphs 9.1.(c) or 9.2, there shall be no
liability for damages on the part of either Fund, or the trustees or officers of
either Investment Company, to the other Fund.
10. AMENDMENT
This Agreement may be amended, modified, or supplemented at any time,
notwithstanding approval thereof by Target's shareholders, in such manner as may
be mutually agreed upon in writing by the parties; provided that following such
approval no such amendment shall have a material adverse effect on the
Shareholders' interests.
11. MISCELLANEOUS
11.1. This Agreement shall be governed by and construed in accordance with
the internal laws of the State of Ohio; provided that, in the case of any
conflict between such laws and the federal securities laws, the latter shall
govern.
11.2. Nothing expressed or implied herein is intended or shall be construed
to confer upon or give any person, firm, trust, or corporation other than the
parties and their respective successors and assigns any rights or remedies under
or by reason of this Agreement.
11.3. The parties acknowledge that each Investment Company is a Business
Trust. Notice is hereby given that this instrument is executed on behalf of each
Investment Company's trustees solely in their capacity as trustees, and not
individually, and that each Investment Company's obligations under this
instrument are not binding on or enforceable against any of its trustees,
officers, or shareholders, but are only binding on and enforceable against the
assets and property of the respective Funds. Each Fund agrees that, in asserting
any rights or claims under this Agreement, it shall look only to the other
Fund's assets and property in settlement of such rights or claims and not to
such trustees or shareholders.
IN WITNESS WHEREOF, each party has caused this Agreement to be executed by
its duly authorized officer.
ATTEST: LEGG MASON CASH RESERVE TRUST
By: /s/ Kathi D. Bair /s/ Marie K. Karpinski
Secretary Vice President
ATTEST: BARTLETT MANAGEMENT TRUST, on behalf
of BARTLETT CASH RESERVES FUND
By: /s/ Thomas A. Steele /s/ Donna M. Prieshoff
Assistant Secretary Vice President
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AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION
THIS AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION ("Agreement") is
made as of September 20, 1996, between The Legg Mason Income Trust, Inc., a
Maryland corporation (the "Corporation"), on behalf of Legg Mason U.S.
Government Intermediate-Term Portfolio, a segregated portfolio of assets
("series") thereof ("Acquiring Fund"), and Bartlett Capital Trust, a
Massachusetts business trust (the "Trust"), on behalf of its Bartlett Fixed
Income Fund series ("Target"). (Acquiring Fund and Target are sometimes referred
to herein individually as a "Fund" and collectively as the "Funds," and the
Corporation and the Trust are sometimes referred to herein collectively as the
"Investment Companies.")
This Agreement is intended to be, and is adopted as, a plan of a
reorganization described in Section 368(a)(1)(C) of the Internal Revenue Code of
1986, as amended ("Code"). The reorganization will involve the transfer to
Acquiring Fund of Target's assets in exchange solely for voting shares of common
stock in Acquiring Fund ("Acquiring Fund Shares") and the assumption by
Acquiring Fund of Target's liabilities, followed by the constructive
distribution of the Acquiring Fund Shares to the holders of shares of beneficial
interest in Target ("Target Shares") in exchange therefor, all upon the terms
and conditions set forth herein. The foregoing transactions are referred to
herein as the "Reorganization." All agreements, representations, actions, and
obligations described herein made or to be taken or undertaken by either Fund
are made and shall be taken or undertaken by the Corporation on behalf of
Acquiring Fund and by the Trust on behalf of Target.
Acquiring Fund's shares are divided into two classes, designated Primary
Shares and Navigator Shares ("Acquiring Fund Primary Shares" and "Acquiring Fund
Navigator Shares," respectively). These classes differ with respect to the
distribution fees ("12b-1 fees") payable by the Primary Share class pursuant to
a plan adopted under Rule 12b-1 promulgated under the Investment Company Act of
1940 ("1940 Act"). Navigator Shares pay no 12b-1 distribution fees and may also
pay lower transfer agency fees than those paid by Primary Shares. Only Acquiring
Fund Primary Shares are involved in the Reorganization.
In consideration of the mutual promises herein, the parties covenant and
agree as follows:
1. PLAN OF REORGANIZATION AND TERMINATION OF TARGET
1.1. Target agrees to assign, sell, convey, transfer, and deliver all of
its assets described in paragraph 1.2 ("Assets") to Acquiring Fund. Acquiring
Fund agrees in exchange therefor --
(a) to issue and deliver to Target the number of full and fractional
Acquiring Fund Primary Shares determined by dividing the net value of
Target (computed as set forth in paragraph 2.1) by the net asset value
(computed as set forth in paragraph 2.2) ("NAV") of an Acquiring Fund
Primary Share; and
(b) to assume all of Target's liabilities described in paragraph 1.3
("Liabilities").
Such transactions shall take place at the Closing (as defined in paragraph 3.1).
1.2. The Assets shall include, without limitation, all cash, cash
equivalents, securities, receivables (including interest and dividends
receivable), claims and rights of action, rights to register shares under
applicable securities laws, books and records, deferred and prepaid expenses
shown as assets on Target's books, and other property owned by Target at the
Effective Time (as defined in paragraph 3.1).
1.3. The Liabilities shall include (except as otherwise provided herein)
all of Target's liabilities, debts, obligations, and duties of whatever kind or
nature, whether absolute, accrued, contingent, or otherwise, whether or not
arising in the ordinary course of business, whether or not determinable at the
Effective Time, and whether or not specifically referred to in this Agreement.
Notwithstanding the foregoing, Target agrees to use its best efforts to
discharge all of its known Liabilities prior to the Effective Time.
1.4. Before the Effective Time, Target shall declare and pay to its
shareholders a dividend and/or other distribution in an amount large enough so
that it will have distributed substantially all (and in any event not less than
90%) of its investment company taxable income (computed without regard to any
deduction for dividends paid) and realized net capital gain, if any, for the
current taxable year through the Effective Time.
1.5. At the Effective Time (or as soon thereafter as is reasonably
practicable), Target shall constructively distribute the Acquiring Fund Shares
received by it pursuant to paragraph 1.1 to Target's shareholders of record,
determined as of the Effective Time (collectively "Shareholders" and
individually a "Shareholder"), in exchange
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for their Target Shares. Such distribution shall be accomplished by the Funds'
transfer agent ("Transfer Agent") opening accounts on Acquiring Fund's share
transfer books in the Shareholders' names and transferring such Acquiring Fund
Shares thereto. Each Shareholder's account shall be credited with the respective
pro rata number of full and fractional (rounded to the third decimal place)
Acquiring Fund Primary Shares due that Shareholder. All outstanding Target
Shares, including any represented by certificates, shall simultaneously be
canceled on Target's share transfer records. Acquiring Fund will not issue
certificates representing the Acquiring Fund Primary Shares issued in connection
with the Reorganization.
1.6. As soon as reasonably practicable after distribution of the Acquiring
Fund Primary Shares pursuant to paragraph 1.5, Target shall be terminated as a
series of the Trust and any further actions shall be taken in connection
therewith as required by applicable law.
1.7. Any reporting responsibility of Target to a public authority is and
shall remain its responsibility up to and including the date on which it is
terminated.
1.8. Any transfer taxes payable upon issuance of Acquiring Fund Primary
Shares in a name other than that of the registered holder on Target's books of
the Target Shares constructively exchanged therefor shall be paid by the person
to whom such Acquiring Fund Primary Shares are to be issued, as a condition of
such transfer.
2. VALUATION
2.1. For purposes of paragraph 1.1(a), Target's net value shall be (a) the
value of the Assets computed as of 4:00 p.m. on the date of the Closing
("Valuation Time"), using the valuation procedures set forth in Target's then-
current prospectus and statement of additional information less (b) the amount
of the Liabilities as of the Valuation Time.
2.2. For purposes of paragraph 1.1(a), the NAV of an Acquiring Fund Primary
Share shall be computed as of the Valuation Time, using the valuation procedures
set forth in Acquiring Fund's then-current prospectus and statement of
additional information.
2.3. All computations pursuant to paragraphs 2.1 and 2.2 shall be made by
or under the direction of Legg Mason Fund Adviser, Inc.
3. CLOSING AND EFFECTIVE TIME
3.1. The Reorganization, together with related acts necessary to consummate
the same ("Closing"), shall occur at the Funds' principal office on December 20,
1996, or at such other place and/or on such other date as the parties may agree.
All acts taking place at the Closing shall be deemed to take place
simultaneously as of 4:00 p.m. on the date thereof or at such other time as the
parties may agree ("Effective Time"). If, immediately before the Valuation Time,
(a) the New York Stock Exchange, Inc. ("NYSE") is closed to trading or trading
thereon is restricted or (b) trading or the reporting of trading on the NYSE or
elsewhere is disrupted, so that accurate appraisal of the net value of Target
and the NAV per Acquiring Fund Share is impracticable, the Effective Time shall
be postponed until the first business day after the day when such trading shall
have been fully resumed and such reporting shall have been restored.
3.2. The Trust shall deliver to the Corporation at the Closing a schedule
of the Assets as of the Effective Time, which shall set forth for all portfolio
securities included therein their adjusted tax basis and holding period by lot.
Target's custodian shall deliver at the Closing a certificate of an authorized
officer stating that (a) the Assets held by the custodian will be transferred to
Acquiring Fund at the Effective Time and (b) all necessary taxes in conjunction
with the delivery of the Assets, including all applicable federal and state
stock transfer stamps, if any, have been paid or provision for payment has been
made.
3.3. The Trust shall deliver to the Corporation at the Closing a list of
the names and addresses of the Shareholders and the number of outstanding Target
Shares owned by each Shareholder, all as of the Effective Time, certified by the
Secretary or Assistant Secretary of Target. The Transfer Agent shall deliver at
the Closing a certificate as to the opening on Acquiring Fund's share transfer
books of accounts in the Shareholders' names. The Corporation shall issue and
deliver a confirmation to the Trust evidencing the Acquiring Fund Primary Shares
to be credited to Target at the Effective Time or provide evidence satisfactory
to the Trust that such Acquiring Fund Primary Shares have been credited to
Target's account on Acquiring Fund's books. At the Closing, each party
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shall deliver to the other such bills of sale, checks, assignments, stock
certificates, receipts, or other documents as the other party or its counsel may
reasonably request.
3.4. Each Investment Company shall deliver to the other at the Closing a
certificate executed in its name by its President or a Vice President in form
and substance satisfactory to the recipient and dated the Effective Time, to the
effect that the representations and warranties it made in this Agreement are
true and correct at the Effective Time except as they may be affected by the
transactions contemplated by this Agreement.
4. REPRESENTATIONS AND WARRANTIES
4.1. Target represents and warrants as follows:
4.1.1. The Trust is an unincorporated voluntary association with
transferable shares organized as a business trust under a written
instrument ("Business Trust"); it is duly organized, validly existing, and
in good standing under the laws of the Commonwealth of Massachusetts; and a
copy of its Agreement and Declaration of Trust is on file with the
Secretary of the Commonwealth of Massachusetts;
4.1.2. The Trust is duly registered as an open-end management
investment company under the 1940 Act, and such registration will be in
full force and effect at the Effective Time;
4.1.3. Target is a duly established and designated series of the
Trust;
4.1.4. At the Closing, Target will have good and marketable title to
the Assets and full right, power, and authority to sell, assign, transfer,
and deliver the Assets free of any liens or other encumbrances; and upon
delivery and payment for the Assets, Acquiring Fund will acquire good and
marketable title thereto;
4.1.5. Target's current prospectus and statement of additional
information conform in all material respects to the applicable requirements
of the Securities Act of 1933 ("1933 Act") and the 1940 Act and the rules
and regulations thereunder and do not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
4.1.6. Target is not in violation of, and the execution and delivery
of this Agreement and consummation of the transactions contemplated hereby
will not conflict with or violate, Massachusetts law or any provision of
the Trust's Declaration of Trust or By-Laws or of any agreement,
instrument, lease, or other undertaking to which Target is a party or by
which it is bound or result in the acceleration of any obligation, or the
imposition of any penalty, under any agreement, judgment, or decree to
which Target is a party or by which it is bound, except as previously
disclosed in writing to and accepted by the Corporation;
4.1.7. Except as disclosed in writing to and accepted by the
Corporation, all material contracts and other commitments of or applicable
to Target (other than this Agreement and investment contracts, including
options, futures and forward contracts) will be terminated, or provision
for discharge of any liabilities of Target thereunder will be made, at or
prior to the Effective Time, without either Fund's incurring any liability
or penalty with respect thereto and without diminishing or releasing any
rights Target may have had with respect to actions taken or omitted to be
taken by any other party thereto prior to the Closing;
4.1.8. Except as otherwise disclosed in writing to and accepted by the
Corporation, no litigation, administrative proceeding, or investigation of
or before any court or governmental body is presently pending or (to
Target's knowledge) threatened against the Trust with respect to Target or
any of its properties or assets that, if adversely determined, would
materially and adversely affect Target's financial condition or the conduct
of its business; Target knows of no facts that might form the basis for the
institution of any such litigation, proceeding, or investigation and is not
a party to or subject to the provisions of any order, decree, or judgment
of any court or governmental body that materially or adversely affects its
business or its ability to consummate the transactions contemplated hereby;
4.1.9. The execution, delivery, and performance of this Agreement have
been duly authorized as of the date hereof by all necessary action on the
part of the Trust's board of trustees, which has made the determinations
required by Rule 17a-8(a) under the 1940 Act; and, subject to approval by
Target's shareholders and receipt of any necessary exemptive relief or
no-action assurances requested from the Securities and Exchange Commission
("SEC") or its staff with respect to Sections 17(a) and 17(d) of the 1940
Act, this Agreement will
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constitute a valid and legally binding obligation of Target, enforceable in
accordance with its terms, except as the same may be limited by bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium, and similar
laws relating to or affecting creditors' rights and by general principles
of equity;
4.1.10. At the Effective Time, the performance of this Agreement shall
be deemed to have been duly authorized by all necessary action by Target's
shareholders;
4.1.11. No governmental consents, approvals, authorizations, or
filings are required under the 1933 Act, the Securities Exchange Act of
1934 ("1934 Act"), or the 1940 Act for the execution or performance of this
Agreement by the Trust, except for (a) the filing with the SEC of a
registration statement by the Corporation on Form N-14 relating to the
Acquiring Fund Primary Shares issuable hereunder, and any supplement or
amendment thereto ("Registration Statement"), including therein a
prospectus/proxy statement ("Proxy Statement"), (b) receipt of the
exemptive relief referenced in subparagraph 4.1.9, and (c) such consents,
approvals, authorizations, and filings as have been made or received or as
may be required subsequent to the Effective Time;
4.1.12. On the effective date of the Registration Statement, at the
time of the shareholders' meeting referred to in paragraph 5.2, and at the
Effective Time, the Proxy Statement will (a) comply in all material
respects with the applicable provisions of the 1933 Act, the 1934 Act, and
the 1940 Act and the regulations thereunder and (b) not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which such statements were made, not misleading;
provided that the foregoing shall not apply to statements in or omissions
from the Proxy Statement made in reliance on and in conformity with
information furnished by the Corporation for use therein;
4.1.13. The Liabilities were incurred by Target in the ordinary course
of its business;
4.1.14. Target is a "fund" as defined in Section 851(h)(2) of the
Code; it qualified for treatment as a regulated investment company ("RIC")
under Subchapter M of the Code for each past taxable year since it
commenced operations and will continue to meet all the requirements for
such qualification for its current taxable year; and it has no earnings and
profits accumulated in any taxable year in which the provisions of
Subchapter M did not apply to it. The Assets shall be invested at all times
through the Effective Time in a manner that ensures compliance with the
foregoing;
4.1.15. Target is not under the jurisdiction of a court in a
proceeding under Title 11 of the United States Code or similar case within
the meaning of Section 368(a)(3)(A) of the Code;
4.1.16. Not more than 25% of the value of Target's total assets
(excluding cash, cash items, and U.S. government securities) is invested in
the stock and securities of any one issuer, and not more than 50% of the
value of such assets is invested in the stock and securities of five or
fewer issuers; and
4.1.17. Target will be terminated as soon as reasonably practicable
after the Reorganization, but in all events within six months after the
Effective Time.
4.2. Acquiring Fund represents and warrants as follows:
4.2.1. The Corporation is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Maryland, and
a copy of its Articles of Incorporation is on file with the Department of
Assessments and Taxation of Maryland;
4.2.2. The Corporation is duly registered as an open-end management
investment company under the 1940 Act, and such registration will be in
full force and effect at the Effective Time;
4.2.3. Acquiring Fund is a duly established and designated series of
the Corporation;
4.2.4. No consideration other than Acquiring Fund Primary Shares (and
Acquiring Fund's assumption of the Liabilities) will be issued in exchange
for the Assets in the Reorganization;
4.2.5. The Acquiring Fund Primary Shares to be issued and delivered to
Target hereunder will, at the Effective Time, have been duly authorized
and, when issued and delivered as provided herein, will be duly and validly
issued and outstanding shares of Acquiring Fund, fully paid and
non-assessable. Except as contemplated by this Agreement, Acquiring Fund
does not have outstanding any options, warrants, or other
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rights to subscribe for or purchase any of its shares, nor is there
outstanding any security convertible into any of its shares;
4.2.6. Acquiring Fund's current prospectus and statement of additional
information conform in all material respects to the applicable requirements
of the 1933 Act and the 1940 Act and the rules and regulations thereunder
and do not include any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading;
4.2.7. Acquiring Fund is not in violation of, and the execution and
delivery of this Agreement and consummation of the transactions
contemplated hereby will not conflict with or violate, Maryland law or any
provision of the Corporation's Articles of Incorporation or By-Laws or of
any provision of any agreement, instrument, lease, or other undertaking to
which Acquiring Fund is a party or by which it is bound or result in the
acceleration of any obligation, or the imposition of any penalty, under any
agreement, judgment, or decree to which Acquiring Fund is a party or by
which it is bound, except as previously disclosed in writing to and
accepted by the Trust;
4.2.8. Except as otherwise disclosed in writing to and accepted by the
Trust, no litigation, administrative proceeding, or investigation of or
before any court or governmental body is presently pending or (to Acquiring
Fund's knowledge) threatened against the Corporation with respect to
Acquiring Fund or any of its properties or assets that, if adversely
determined, would materially and adversely affect Acquiring Fund's
financial condition or the conduct of its business; Acquiring Fund knows of
no facts that might form the basis for the institution of any such
litigation, proceeding, or investigation and is not a party to or subject
to the provisions of any order, decree, or judgment of any court or
governmental body that materially or adversely affects its business or its
ability to consummate the transactions contemplated hereby;
4.2.9. The execution, delivery, and performance of this Agreement have
been duly authorized as of the date hereof by all necessary action on the
part of the Corporation's board of directors, which has made the
determinations required by Rule 17a-8(a) under the 1940 Act; and, subject
to receipt of any necessary exemptive relief or no-action assurances
requested from the SEC or its staff with respect to Sections 17(a) and
17(d) of the 1940 Act, this Agreement will constitute a valid and legally
binding obligation of Acquiring Fund, enforceable in accordance with its
terms, except as the same may be limited by bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium, and similar laws relating
to or affecting creditors' rights and by general principles of equity;
4.2.10. No governmental consents, approvals, authorizations, or
filings are required under the 1933 Act, the 1934 Act, or the 1940 Act for
the execution or performance of this Agreement by the Corporation, except
for (a) the filing with the SEC of the Registration Statement, (b) receipt
of the exemptive relief referenced in subparagraph 4.2.9, and (c) such
consents, approvals, authorizations, and filings as have been made or
received or as may be required subsequent to the Effective Time;
4.2.11. On the effective date of the Registration Statement, at the
time of the shareholders' meeting referred to in paragraph 5.2, and at the
Effective Time, the Proxy Statement will (a) comply in all material
respects with the applicable provisions of the 1933 Act, the 1934 Act, and
the 1940 Act and the regulations thereunder and (b) not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which such statements were made, not misleading;
provided that the foregoing shall not apply to statements in or omissions
from the Proxy Statement made in reliance on and in conformity with
information furnished by the Trust for use therein;
4.2.12. Acquiring Fund is a "fund" as defined in Section 851(h)(2) of
the Code; it qualified for treatment as a RIC under Subchapter M of the
Code for each past taxable year since it commenced operations and will
continue to meet all the requirements for such qualification for its
current taxable year; Acquiring Fund intends to continue to meet all such
requirements for the next taxable year; and it has no earnings and profits
accumulated in any taxable year in which the provisions of Subchapter M of
the Code did not apply to it;
4.2.13. Acquiring Fund has no plan or intention to issue additional
Acquiring Fund Primary Shares following the Reorganization except for
shares issued in the ordinary course of its business as a series of an
open-end investment company; nor does Acquiring Fund have any plan or
intention to redeem or otherwise
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reacquire any Acquiring Fund Primary Shares issued to the Shareholders
pursuant to the Reorganization, other than through redemptions arising in
the ordinary course of that business;
4.2.14. Acquiring Fund (a) will actively continue Target's business in
substantially the same manner that Target conducted that business
immediately before the Reorganization, (b) has no plan or intention to sell
or otherwise dispose of any of the Assets, except for dispositions made in
the ordinary course of that business and dispositions necessary to maintain
its status as a RIC under Subchapter M of the Code, and (c) expects to
retain substantially all the Assets in the same form as it receives them in
the Reorganization, unless and until subsequent investment circumstances
suggest the desirability of change or it becomes necessary to make
dispositions thereof to maintain such status;
4.2.15. There is no plan or intention for Acquiring Fund to be
dissolved or merged into another corporation or business trust or any
"fund" thereof (within the meaning of Section 851(h)(2) of the Code)
following the Reorganization;
4.2.16. Immediately after the Reorganization, (a) not more than 25% of
the value of Acquiring Fund's total assets (excluding cash, cash items, and
U.S. government securities) will be invested in the stock and securities of
any one issuer and (b) not more than 50% of the value of such assets will
be invested in the stock and securities of five or fewer issuers; and
4.2.17. Acquiring Fund does not own, directly or indirectly, nor at
the Effective Time will it own, directly or indirectly, nor has it owned,
directly or indirectly, at any time during the past five years, any shares
of Target.
4.3. Each Fund represents and warrants as follows:
4.3.1. The fair market value of the Acquiring Fund Primary Shares,
when received by the Shareholders, will be approximately equal to the fair
market value of their Target Shares constructively surrendered in exchange
therefor;
4.3.2. Its management (a) is unaware of any plan or intention of
Shareholders to redeem or otherwise dispose of any portion of the Acquiring
Fund Primary Shares to be received by them in the Reorganization and (b)
does not anticipate dispositions of those Acquiring Fund Primary Shares at
the time of or soon after the Reorganization to exceed the usual rate and
frequency of dispositions of shares of Target as a series of an open-end
investment company. Consequently, its management expects that the
percentage of Shareholder interests, if any, that will be disposed of as a
result of or at the time of the Reorganization will be de minimis. Nor does
its management anticipate that there will be extraordinary redemptions of
Acquiring Fund Primary Shares immediately following the Reorganization;
4.3.3. The Shareholders will pay their own expenses, if any, incurred in
connection with the Reorganization;
4.3.4. Immediately following consummation of the Reorganization,
Acquiring Fund will hold substantially the same assets and be subject to
substantially the same liabilities that Target held or was subject to
immediately prior thereto;
4.3.5. The fair market value on a going concern basis of the Assets
will equal or exceed the Liabilities to be assumed by Acquiring Fund and
those to which the Assets are subject;
4.3.6. There is no intercompany indebtedness between the Funds that
was issued or acquired, or will be settled, at a discount;
4.3.7. Pursuant to the Reorganization, Target will transfer to
Acquiring Fund, and Acquiring Fund will acquire, at least 90% of the fair
market value of the net assets, and at least 70% of the fair market value
of the gross assets, held by Target immediately before the Reorganization.
For the purposes of this representation, any amounts used by Target to pay
redemptions and distributions made by it immediately before the
Reorganization (except for (a) distributions made to conform to its policy
of distributing all or substantially all of its income and gains to avoid
the obligation to pay federal income tax and/or the excise tax under
Section 4982 of the Code and (b) redemptions not made as part of the
Reorganization) will be included as assets thereof held immediately before
the Reorganization;
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4.3.8. None of the compensation received by any Shareholder who is an
employee of Target will be separate consideration for, or allocable to, any
of the Target Shares held by such Shareholder-employee; none of the
Acquiring Fund Primary Shares received by any such Shareholder-employee
will be separate consideration for, or allocable to, any employment
agreement; and the consideration paid to any such Shareholder-employee will
be for services actually rendered and will be commensurate with amounts
paid to third parties bargaining at arm's-length for similar services; and
4.3.9. Immediately after the Reorganization, the Shareholders will not
own shares constituting "control" of Acquiring Fund within the meaning of
Section 304(c) of the Code.
5. COVENANTS
5.1. Each Fund covenants to operate its respective business in the ordinary
course between the date hereof and the Closing, it being understood that (a)
such ordinary course will include declaring and paying customary dividends and
other distributions and such changes in operations as are contemplated by each
Fund's normal business activities and (b) each Fund will retain exclusive
control of the composition of its portfolio until the Closing; provided that
Target shall not dispose of more than an insignificant portion of its historic
business assets during such period without Acquiring Fund's prior consent.
5.2. Target covenants to call a shareholders' meeting to consider and act
upon this Agreement and to take all other action necessary to obtain approval of
the transactions contemplated hereby.
5.3. Target covenants that the Acquiring Fund Primary Shares to be
delivered hereunder are not being acquired for the purpose of making any
distribution thereof, other than in accordance with the terms hereof.
5.4. Target covenants that it will assist the Corporation in obtaining such
information as the Corporation reasonably requests concerning the beneficial
ownership of Target Shares.
5.5. Target covenants that Target's books and records (including all books
and records required to be maintained under the 1940 Act and the rules and
regulations thereunder) will be turned over to the Corporation at the Closing.
5.6. Each Fund covenants to cooperate in preparing the Proxy Statement in
compliance with applicable federal securities laws.
5.7. Each Fund covenants that it will, from time to time, as and when
requested by the other Fund, execute and deliver or cause to be executed and
delivered all such assignments and other instruments, and will take or cause to
be taken such further action, as the other Fund may deem necessary or desirable
in order to vest in, and confirm to, (a) Acquiring Fund, title to and possession
of all the Assets, and (b) Target, title to and possession of the Acquiring Fund
Primary Shares to be delivered hereunder, and otherwise to carry out the intent
and purpose hereof.
5.8. The Corporation covenants to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act, and such
state securities laws it may deem appropriate in order to continue its
operations after the Effective Time.
5.9. Subject to this Agreement, each Fund covenants to take or cause to be
taken all actions, and to do or cause to be done all things reasonably
necessary, proper, or advisable to consummate and effectuate the transactions
contemplated hereby.
6. CONDITIONS PRECEDENT
Each Fund's obligations hereunder shall be subject to (a) performance by
the other Fund of all the obligations to be performed hereunder at or before the
Effective Time, (b) all representations and warranties of the other Fund
contained herein being true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated
hereby, as of the Effective Time, with the same force and effect as if made at
and as of the Effective Time, and (c) the following further conditions that, at
or before the Effective Time:
6.1. This Agreement and the transactions contemplated hereby shall have
been duly adopted and approved by the Trust's board of trustees and shall have
been approved by Target's shareholders in accordance with applicable law.
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6.2. All necessary filings shall have been made with the SEC and state
securities authorities, and no order or directive shall have been received that
any other or further action is required to permit the parties to carry out the
transactions contemplated hereby. The Registration Statement shall have become
effective under the 1933 Act, no stop orders suspending the effectiveness
thereof shall have been issued, and the SEC shall not have issued an unfavorable
report with respect to the Reorganization under Section 25(b) of the 1940 Act
nor instituted any proceedings seeking to enjoin consummation of the
transactions contemplated hereby under Section 25(c) of the 1940 Act. All
consents, orders, and permits of federal, state, and local regulatory
authorities (including the SEC and state securities authorities) deemed
necessary by either Fund to permit consummation, in all material respects, of
the transactions contemplated hereby shall have been obtained, except where
failure to obtain same would not involve a risk of a material adverse effect on
the assets or properties of either Fund, provided that either Fund may for
itself waive any of such conditions.
6.3. At the Effective Time, no action, suit, or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or to obtain damages or other relief in connection with,
the transactions contemplated hereby.
6.4. The Trust shall have received an opinion of Kirkpatrick & Lockhart
LLP, counsel to the Corporation, substantially to the effect that:
6.4.1. Acquiring Fund is a duly established series of the Corporation,
a corporation duly organized and validly existing under the laws of the
State of Maryland with power under its Articles of Incorporation to own all
of its properties and assets and, to the knowledge of such counsel, to
carry on its business as presently conducted;
6.4.2. This Agreement (a) has been duly authorized, executed, and
delivered by the Corporation on behalf of Acquiring Fund and (b) assuming
due authorization, execution, and delivery of this Agreement by the Trust
on behalf of Target, is a valid and legally binding obligation of the
Corporation with respect to Acquiring Fund, enforceable in accordance with
its terms, except as the same may be limited by bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium, and similar laws relating
to or affecting creditors' rights and by general principles of equity;
6.4.3. The Acquiring Fund Primary Shares to be issued and distributed
to the Shareholders under this Agreement, assuming their due delivery as
contemplated by this Agreement, will be duly authorized and validly issued
and outstanding and fully paid and non-assessable, and no shareholder of
Acquiring Fund has any preemptive right to subscribe for or purchase such
shares;
6.4.4. The execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, materially
violate the Corporation's Articles of Incorporation or By-Laws or any
provision of any agreement (known to such counsel, without any independent
inquiry or investigation) to which the Corporation (with respect to
Acquiring Fund) is a party or by which it is bound or (to the knowledge of
such counsel, without any independent inquiry or investigation) result in
the acceleration of any obligation, or the imposition of any penalty, under
any agreement, judgment, or decree to which the Corporation (with respect
to Acquiring Fund) is a party or by which it is bound, except as set forth
in such opinion or as previously disclosed in writing to and accepted by
the Trust;
6.4.5. To the knowledge of such counsel (without any independent
inquiry or investigation), no consent, approval, authorization, or order of
any court or governmental authority is required for the consummation by the
Corporation on behalf of Acquiring Fund of the transactions contemplated
herein, except such as have been obtained under the 1933 Act, the 1934 Act,
and the 1940 Act and such as may be required under state securities laws;
6.4.6. The Corporation is registered with the SEC as an investment
company, and to the knowledge of such counsel no order has been issued or
proceeding instituted to suspend such registration; and
6.4.7. To the knowledge of such counsel (without any independent
inquiry or investigation), (a) no litigation, administrative proceeding, or
investigation of or before any court or governmental body is pending or
threatened as to the Corporation (with respect to Acquiring Fund) or any of
its properties or assets attributable or allocable to Acquiring Fund and
(b) the Corporation (with respect to Acquiring Fund) is not a party to or
subject to the provisions of any order, decree, or judgment of any court or
governmental body that
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materially and adversely affects Acquiring Fund's business, except as set
forth in such opinion or as otherwise disclosed in writing to and accepted
by the Trust.
In rendering such opinion, such counsel may (i) rely, as to matters governed by
the laws of the State of Maryland, on an opinion of competent Maryland counsel,
(ii) make assumptions regarding the authenticity, genuineness, and/or conformity
of documents and copies thereof without independent verification thereof, (iii)
limit such opinion to applicable federal and state law, and (iv) define the word
"knowledge" and related terms to mean the knowledge of attorneys then with such
firm who have devoted substantive attention to matters directly related to this
Agreement and the Reorganization.
6.5. The Corporation shall have received an opinion of Brown, Cummins &
Brown, counsel to the Trust, substantially to the effect that:
6.5.1. Target is a duly established series of the Trust, a Business
Trust duly organized and validly existing under the laws of the
Commonwealth of Massachusetts with power under its Declaration of Trust to
own all of its properties and assets and, to the knowledge of such counsel,
to carry on its business as presently conducted;
6.5.2. This Agreement (a) has been duly authorized, executed, and
delivered by the Trust on behalf of Target and (b) assuming due
authorization, execution, and delivery of this Agreement by the Corporation
on behalf of Acquiring Fund, is a valid and legally binding obligation of
the Trust with respect to Target, enforceable in accordance with its terms,
except as the same may be limited by bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium, and similar laws relating to or
affecting creditors' rights and by general principles of equity;
6.5.3. The execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, materially
violate the Trust's Agreement and Declaration of Trust or By-Laws or any
provision of any agreement (known to such counsel, without any independent
inquiry or investigation) to which the Trust (with respect to Target) is a
party or by which it is bound or (to the knowledge of such counsel, without
any independent inquiry or investigation) result in the acceleration of any
obligation, or the imposition of any penalty, under any agreement,
judgment, or decree to which the Trust (with respect to Target) is a party
or by which it is bound, except as set forth in such opinion or as
previously disclosed in writing to and accepted by the Corporation;
6.5.4. To the knowledge of such counsel (without any independent
inquiry or investigation), no consent, approval, authorization, or order of
any court or governmental authority is required for the consummation by the
Trust on behalf of Target of the transactions contemplated herein, except
such as have been obtained under the 1933 Act, the 1934 Act, and the 1940
Act and such as may be required under state securities laws;
6.5.5. The Trust is registered with the SEC as an investment company,
and to the knowledge of such counsel no order has been issued or proceeding
instituted to suspend such registration; and
6.5.6. To the knowledge of such counsel (without any independent
inquiry or investigation), (a) no litigation, administrative proceeding, or
investigation of or before any court or governmental body is pending or
threatened as to the Trust (with respect to Target) or any of its
properties or assets attributable or allocable to Target and (b) the Trust
(with respect to Target) is not a party to or subject to the provisions of
any order, decree, or judgment of any court or governmental body that
materially and adversely affects its business, except as set forth in such
opinion or as otherwise disclosed in writing to and accepted by the
Corporation.
In rendering such opinion, such counsel may (i) rely, as to matters governed by
the laws of the Commonwealth of Massachusetts, on an opinion of competent
Massachusetts counsel, (ii) make assumptions regarding the authenticity,
genuineness, and/or conformity of documents and copies thereof without
independent verification thereof, (iii) limit such opinion to applicable federal
and state law, and (iv) define the word "knowledge" and related terms to mean
the knowledge of attorneys then with such firm who have devoted substantive
attention to matters directly related to this Agreement and the Reorganization.
6.6. The Corporation shall have received an opinion of Kirkpatrick &
Lockhart LLP, its counsel, addressed to and in form and substance satisfactory
to it, and the Trust shall have received an opinion of Brown, Cummins & Brown,
its counsel, addressed to and in form and substance satisfactory to it, each as
to the federal income tax consequences mentioned below (each a "Tax Opinion").
In rendering its Tax Opinion, each such counsel may rely
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as to factual matters, exclusively and without independent verification, on the
representations made in this Agreement (or in separate letters addressed to such
counsel) and the certificates delivered pursuant to paragraph 3.4. Each Tax
Opinion shall be substantially to the effect that, based on the facts and
assumptions stated therein, for federal income tax purposes:
6.6.1. Acquiring Fund's acquisition of the Assets in exchange solely
for Acquiring Fund Primary Shares and Acquiring Fund's assumption of the
Liabilities, followed by Target's distribution of those shares to the
Shareholders constructively in exchange for the Shareholders' Target
Shares, will constitute a reorganization within the meaning of Section
368(a)(1)(C) of the Code, and each Fund will be "a party to a
reorganization" within the meaning of Section 368(b) of the Code;
6.6.2. No gain or loss will be recognized to Target on the transfer to
Acquiring Fund of the Assets in exchange solely for Acquiring Fund Primary
Shares and Acquiring Fund's assumption of the Liabilities or on the
subsequent distribution of those shares to the Shareholders in constructive
exchange for their Target Shares;
6.6.3. No gain or loss will be recognized to Acquiring Fund on its
receipt of the Assets in exchange solely for Acquiring Fund Primary Shares
and its assumption of the Liabilities;
6.6.4. Acquiring Fund's basis for the Assets will be the same as the
basis thereof in Target's hands immediately before the Reorganization, and
Acquiring Fund's holding period for the Assets will include Target's
holding period therefor;
6.6.5. A Shareholder will recognize no gain or loss on the
constructive exchange of all its Target Shares solely for Acquiring Fund
Primary Shares pursuant to the Reorganization; and
6.6.6. A Shareholder's basis for the Acquiring Fund Primary Shares to
be received by it in the Reorganization will be the same as the basis for
its Target Shares to be constructively surrendered in exchange for those
Acquiring Fund Primary Shares, and its holding period for those Acquiring
Fund Primary Shares will include its holding period for those Target
Shares, provided they are held as capital assets by the Shareholder at the
Effective Time.
Notwithstanding paragraphs 6.6.2 and 6.6.4, each Tax Opinion may state that no
opinion is expressed as to the effect of the Reorganization on the Funds or any
Shareholder with respect to any asset (including certain options, futures, and
forward contracts included in the Assets) as to which any unrealized gain or
loss is required to be recognized for federal income tax purposes at the end of
a taxable year (or on the termination or transfer thereof) under a
mark-to-market system of accounting.
At any time before the Closing, (a) Acquiring Fund may waive any of the
foregoing conditions if, in the judgment of the Corporation's board of
directors, such waiver will not have a material adverse effect on its
shareholders' interests, and (b) Target may waive any of the foregoing
conditions if, in the judgment of the Trust's board of trustees, such waiver
will not have a material adverse effect on the Shareholders' interests.
7. BROKERAGE FEES AND EXPENSES
7.1. Each Investment Company represents and warrants to the other that
there are no brokers or finders entitled to receive any payments in connection
with the transactions provided for herein.
7.2. Except as otherwise provided herein, all expenses incurred in
connection with the transactions contemplated by this Agreement (whether or not
they are consummated) will be borne by entities other than the Funds.
8. ENTIRE AGREEMENT; SURVIVAL
Neither party has made any representation, warranty, or covenant not set
forth herein, and this Agreement constitutes the entire agreement between the
parties. The representations, warranties, and covenants contained herein or in
any document delivered pursuant hereto or in connection herewith shall survive
the Closing.
9. TERMINATION OF AGREEMENT
This Agreement may be terminated at any time at or prior to the Effective
Time, whether before or after approval by Target's shareholders:
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9.1. By either Fund (a) in the event of the other Fund's material breach of
any representation, warranty, or covenant contained herein to be performed at or
prior to the Effective Time, (b) if a condition to its obligations has not been
met and it reasonably appears that such condition will not or cannot be met, or
(c) if the Closing has not occurred on or before June 30, 1997 ; or
9.2. By the parties' mutual agreement.
In the event of termination under paragraphs 9.1.(c) or 9.2, there shall be no
liability for damages on the part of either Fund, or the directors, trustees or
officers of either Investment Company, to the other Fund.
10. AMENDMENT
This Agreement may be amended, modified, or supplemented at any time,
notwithstanding approval thereof by Target's shareholders, in such manner as may
be mutually agreed upon in writing by the parties; provided that following such
approval no such amendment shall have a material adverse effect on the
Shareholders' interests.
11. MISCELLANEOUS
11.1. This Agreement shall be governed by and construed in accordance with
the internal laws of the State of Maryland; provided that, in the case of any
conflict between such laws and the federal securities laws, the latter shall
govern.
11.2. Nothing expressed or implied herein is intended or shall be construed
to confer upon or give any person, firm, trust, or corporation other than the
parties and their respective successors and assigns any rights or remedies under
or by reason of this Agreement.
11.3. The parties acknowledge that the Trust is a Business Trust. Notice is
hereby given that this instrument is executed on behalf of the Trust's trustees
solely in their capacity as trustees, and not individually, and that the Trust's
obligations under this instrument are not binding on or enforceable against any
of its trustees, officers, or shareholders, but are only binding on and
enforceable against the Target's assets and property. Acquiring Fund agrees
that, in asserting any rights or claims under this Agreement, it shall look only
to the Target's assets and property in settlement of such rights or claims and
not to such trustees or shareholders.
IN WITNESS WHEREOF, each party has caused this Agreement to be executed by
its duly authorized officer.
ATTEST: THE LEGG MASON INCOME TRUST, INC., on
behalf of its series, LEGG MASON
U.S. GOVERNMENT INTERMEDIATE-
TERM PORTFOLIO
By: /s/ Stefanie Wong /s/ Marie K. Karpinski
Secretary Vice President
ATTEST: BARTLETT CAPITAL TRUST, on behalf
of its series, BARTLETT FIXED
INCOME FUND
By: /s/ Thomas A. Steele /s/ Donna M. Prieshoff
Assistant Secretary Vice President
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<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION
THIS AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION ("Agreement") is
made as of September 20, 1996, between The Legg Mason Income Trust, Inc., a
Maryland corporation (the "Corporation"), on behalf of Legg Mason U.S.
Government Intermediate-Term Portfolio, a segregated portfolio of assets
("series") thereof ("Acquiring Fund"), and Bartlett Capital Trust, a
Massachusetts business trust (the "Trust"), on behalf of its Bartlett Short Term
Bond Fund series ("Target"). (Acquiring Fund and Target are sometimes referred
to herein individually as a "Fund" and collectively as the "Funds," and the
Corporation and the Trust are sometimes referred to herein collectively as the
"Investment Companies.")
This Agreement is intended to be, and is adopted as, a plan of a
reorganization described in Section 368(a)(1)(C) of the Internal Revenue Code of
1986, as amended ("Code"). The reorganization will involve the transfer to
Acquiring Fund of Target's assets in exchange solely for voting shares of common
stock in Acquiring Fund ("Acquiring Fund Shares") and the assumption by
Acquiring Fund of Target's liabilities, followed by the constructive
distribution of the Acquiring Fund Shares to the holders of shares of beneficial
interest in Target ("Target Shares") in exchange therefor, all upon the terms
and conditions set forth herein. The foregoing transactions are referred to
herein as the "Reorganization." All agreements, representations, actions, and
obligations described herein made or to be taken or undertaken by either Fund
are made and shall be taken or undertaken by the Corporation on behalf of
Acquiring Fund and by the Trust on behalf of Target.
Acquiring Fund's shares are divided into two classes, designated Primary
Shares and Navigator Shares ("Acquiring Fund Primary Shares" and "Acquiring Fund
Navigator Shares," respectively). These classes differ with respect to the
distribution fees ("12b-1 fees") payable by the Primary Share class pursuant to
a plan adopted under Rule 12b-1 promulgated under the Investment Company Act of
1940 ("1940 Act"). Navigator Shares pay no 12b-1 distribution fees and may also
pay lower transfer agency fees than those paid by Primary Shares. Only Acquiring
Fund Primary Shares are involved in the Reorganization.
In consideration of the mutual promises herein, the parties covenant and
agree as follows:
1. PLAN OF REORGANIZATION AND TERMINATION OF TARGET
1.1. Target agrees to assign, sell, convey, transfer, and deliver all of
its assets described in paragraph 1.2 ("Assets") to Acquiring Fund. Acquiring
Fund agrees in exchange therefor --
(a) to issue and deliver to Target the number of full and fractional
Acquiring Fund Primary Shares determined by dividing the net value of
Target (computed as set forth in paragraph 2.1) by the net asset value
(computed as set forth in paragraph 2.2) ("NAV") of an Acquiring Fund
Primary Share; and
(b) to assume all of Target's liabilities described in paragraph 1.3
("Liabilities").
Such transactions shall take place at the Closing (as defined in paragraph 3.1).
1.2. The Assets shall include, without limitation, all cash, cash
equivalents, securities, receivables (including interest and dividends
receivable), claims and rights of action, rights to register shares under
applicable securities laws, books and records, deferred and prepaid expenses
shown as assets on Target's books, and other property owned by Target at the
Effective Time (as defined in paragraph 3.1).
1.3. The Liabilities shall include (except as otherwise provided herein)
all of Target's liabilities, debts, obligations, and duties of whatever kind or
nature, whether absolute, accrued, contingent, or otherwise, whether or not
arising in the ordinary course of business, whether or not determinable at the
Effective Time, and whether or not specifically referred to in this Agreement.
Notwithstanding the foregoing, Target agrees to use its best efforts to
discharge all of its known Liabilities prior to the Effective Time.
1.4. Before the Effective Time, Target shall declare and pay to its
shareholders a dividend and/or other distribution in an amount large enough so
that it will have distributed substantially all (and in any event not less than
90%) of its investment company taxable income (computed without regard to any
deduction for dividends paid) and realized net capital gain, if any, for the
current taxable year through the Effective Time.
1.5. At the Effective Time (or as soon thereafter as is reasonably
practicable), Target shall constructively distribute the Acquiring Fund Shares
received by it pursuant to paragraph 1.1 to Target's shareholders of record,
determined as of the Effective Time (collectively "Shareholders" and
individually a "Shareholder"), in exchange
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for their Target Shares. Such distribution shall be accomplished by the Funds'
transfer agent ("Transfer Agent") opening accounts on Acquiring Fund's share
transfer books in the Shareholders' names and transferring such Acquiring Fund
Shares thereto. Each Shareholder's account shall be credited with the respective
pro rata number of full and fractional (rounded to the third decimal place)
Acquiring Fund Primary Shares due that Shareholder. All outstanding Target
Shares, including any represented by certificates, shall simultaneously be
canceled on Target's share transfer records. Acquiring Fund will not issue
certificates representing the Acquiring Fund Primary Shares issued in connection
with the Reorganization.
1.6. As soon as reasonably practicable after distribution of the Acquiring
Fund Primary Shares pursuant to paragraph 1.5, Target shall be terminated as a
series of the Trust and any further actions shall be taken in connection
therewith as required by applicable law.
1.7. Any reporting responsibility of Target to a public authority is and
shall remain its responsibility up to and including the date on which it is
terminated.
1.8. Any transfer taxes payable upon issuance of Acquiring Fund Primary
Shares in a name other than that of the registered holder on Target's books of
the Target Shares constructively exchanged therefor shall be paid by the person
to whom such Acquiring Fund Primary Shares are to be issued, as a condition of
such transfer.
2. VALUATION
2.1. For purposes of paragraph 1.1(a), Target's net value shall be (a) the
value of the Assets computed as of 4:00 p.m. on the date of the Closing
("Valuation Time"), using the valuation procedures set forth in Target's then-
current prospectus and statement of additional information less (b) the amount
of the Liabilities as of the Valuation Time.
2.2. For purposes of paragraph 1.1(a), the NAV of an Acquiring Fund Primary
Share shall be computed as of the Valuation Time, using the valuation procedures
set forth in Acquiring Fund's then-current prospectus and statement of
additional information.
2.3. All computations pursuant to paragraphs 2.1 and 2.2 shall be made by
or under the direction of Legg Mason Fund Adviser, Inc.
3. CLOSING AND EFFECTIVE TIME
3.1. The Reorganization, together with related acts necessary to consummate
the same ("Closing"), shall occur at the Funds' principal office on December 20,
1996, or at such other place and/or on such other date as the parties may agree.
All acts taking place at the Closing shall be deemed to take place
simultaneously as of 4:00 p.m. on the date thereof or at such other time as the
parties may agree ("Effective Time"). If, immediately before the Valuation Time,
(a) the New York Stock Exchange, Inc. ("NYSE") is closed to trading or trading
thereon is restricted or (b) trading or the reporting of trading on the NYSE or
elsewhere is disrupted, so that accurate appraisal of the net value of Target
and the NAV per Acquiring Fund Share is impracticable, the Effective Time shall
be postponed until the first business day after the day when such trading shall
have been fully resumed and such reporting shall have been restored.
3.2. The Trust shall deliver to the Corporation at the Closing a schedule
of the Assets as of the Effective Time, which shall set forth for all portfolio
securities included therein their adjusted tax basis and holding period by lot.
Target's custodian shall deliver at the Closing a certificate of an authorized
officer stating that (a) the Assets held by the custodian will be transferred to
Acquiring Fund at the Effective Time and (b) all necessary taxes in conjunction
with the delivery of the Assets, including all applicable federal and state
stock transfer stamps, if any, have been paid or provision for payment has been
made.
3.3. The Trust shall deliver to the Corporation at the Closing a list of
the names and addresses of the Shareholders and the number of outstanding Target
Shares owned by each Shareholder, all as of the Effective Time, certified by the
Secretary or Assistant Secretary of Target. The Transfer Agent shall deliver at
the Closing a certificate as to the opening on Acquiring Fund's share transfer
books of accounts in the Shareholders' names. The Corporation shall issue and
deliver a confirmation to the Trust evidencing the Acquiring Fund Primary Shares
to be credited to Target at the Effective Time or provide evidence satisfactory
to the Trust that such Acquiring Fund Primary Shares have been credited to
Target's account on Acquiring Fund's books. At the Closing, each party
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shall deliver to the other such bills of sale, checks, assignments, stock
certificates, receipts, or other documents as the other party or its counsel may
reasonably request.
3.4. Each Investment Company shall deliver to the other at the Closing a
certificate executed in its name by its President or a Vice President in form
and substance satisfactory to the recipient and dated the Effective Time, to the
effect that the representations and warranties it made in this Agreement are
true and correct at the Effective Time except as they may be affected by the
transactions contemplated by this Agreement.
4. REPRESENTATIONS AND WARRANTIES
4.1. Target represents and warrants as follows:
4.1.1. The Trust is an unincorporated voluntary association with
transferable shares organized as a business trust under a written
instrument ("Business Trust"); it is duly organized, validly existing, and
in good standing under the laws of the Commonwealth of Massachusetts; and a
copy of its Agreement and Declaration of Trust is on file with the
Secretary of the Commonwealth of Massachusetts;
4.1.2. The Trust is duly registered as an open-end management
investment company under the 1940 Act, and such registration will be in
full force and effect at the Effective Time;
4.1.3. Target is a duly established and designated series of the
Trust;
4.1.4. At the Closing, Target will have good and marketable title to
the Assets and full right, power, and authority to sell, assign, transfer,
and deliver the Assets free of any liens or other encumbrances; and upon
delivery and payment for the Assets, Acquiring Fund will acquire good and
marketable title thereto;
4.1.5. Target's current prospectus and statement of additional
information conform in all material respects to the applicable requirements
of the Securities Act of 1933 ("1933 Act") and the 1940 Act and the rules
and regulations thereunder and do not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
4.1.6. Target is not in violation of, and the execution and delivery
of this Agreement and consummation of the transactions contemplated hereby
will not conflict with or violate, Massachusetts law or any provision of
the Trust's Declaration of Trust or By-Laws or of any agreement,
instrument, lease, or other undertaking to which Target is a party or by
which it is bound or result in the acceleration of any obligation, or the
imposition of any penalty, under any agreement, judgment, or decree to
which Target is a party or by which it is bound, except as previously
disclosed in writing to and accepted by the Corporation;
4.1.7. Except as disclosed in writing to and accepted by the
Corporation, all material contracts and other commitments of or applicable
to Target (other than this Agreement and investment contracts, including
options, futures and forward contracts) will be terminated, or provision
for discharge of any liabilities of Target thereunder will be made, at or
prior to the Effective Time, without either Fund's incurring any liability
or penalty with respect thereto and without diminishing or releasing any
rights Target may have had with respect to actions taken or omitted to be
taken by any other party thereto prior to the Closing;
4.1.8. Except as otherwise disclosed in writing to and accepted by the
Corporation, no litigation, administrative proceeding, or investigation of
or before any court or governmental body is presently pending or (to
Target's knowledge) threatened against the Trust with respect to Target or
any of its properties or assets that, if adversely determined, would
materially and adversely affect Target's financial condition or the conduct
of its business; Target knows of no facts that might form the basis for the
institution of any such litigation, proceeding, or investigation and is not
a party to or subject to the provisions of any order, decree, or judgment
of any court or governmental body that materially or adversely affects its
business or its ability to consummate the transactions contemplated hereby;
4.1.9. The execution, delivery, and performance of this Agreement have
been duly authorized as of the date hereof by all necessary action on the
part of the Trust's board of trustees, which has made the determinations
required by Rule 17a-8(a) under the 1940 Act; and, subject to approval by
Target's shareholders and receipt of any necessary exemptive relief or
no-action assurances requested from the Securities and Exchange Commission
("SEC") or its staff with respect to Sections 17(a) and 17(d) of the 1940
Act, this Agreement will
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constitute a valid and legally binding obligation of Target, enforceable in
accordance with its terms, except as the same may be limited by bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium, and similar
laws relating to or affecting creditors' rights and by general principles
of equity;
4.1.10. At the Effective Time, the performance of this Agreement shall
have been duly authorized by all necessary action by Target's shareholders;
4.1.11. No governmental consents, approvals, authorizations, or
filings are required under the 1933 Act, the Securities Exchange Act of
1934 ("1934 Act"), or the 1940 Act for the execution or performance of this
Agreement by the Trust, except for (a) the filing with the SEC of a
registration statement by the Corporation on Form N-14 relating to the
Acquiring Fund Primary Shares issuable hereunder, and any supplement or
amendment thereto ("Registration Statement"), including therein a
prospectus/proxy statement ("Proxy Statement"), (b) receipt of the
exemptive relief referenced in subparagraph 4.1.9, and (c) such consents,
approvals, authorizations, and filings as have been made or received or as
may be required subsequent to the Effective Time;
4.1.12. On the effective date of the Registration Statement, at the
time of the shareholders' meeting referred to in paragraph 5.2, and at the
Effective Time, the Proxy Statement will (a) comply in all material
respects with the applicable provisions of the 1933 Act, the 1934 Act, and
the 1940 Act and the regulations thereunder and (b) not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which such statements were made, not misleading;
provided that the foregoing shall not apply to statements in or omissions
from the Proxy Statement made in reliance on and in conformity with
information furnished by the Corporation for use therein;
4.1.13. The Liabilities were incurred by Target in the ordinary course
of its business;
4.1.14. Target is a "fund" as defined in Section 851(h)(2) of the
Code; it qualified for treatment as a regulated investment company ("RIC")
under Subchapter M of the Code for each past taxable year since it
commenced operations and will continue to meet all the requirements for
such qualification for its current taxable year; and it has no earnings and
profits accumulated in any taxable year in which the provisions of
Subchapter M did not apply to it. The Assets shall be invested at all times
through the Effective Time in a manner that ensures compliance with the
foregoing;
4.1.15. Target is not under the jurisdiction of a court in a
proceeding under Title 11 of the United States Code or similar case within
the meaning of Section 368(a)(3)(A) of the Code;
4.1.16. Not more than 25% of the value of Target's total assets
(excluding cash, cash items, and U.S. government securities) is invested in
the stock and securities of any one issuer, and not more than 50% of the
value of such assets is invested in the stock and securities of five or
fewer issuers; and
4.1.17. Target will be terminated as soon as reasonably practicable
after the Reorganization, but in all events within six months after the
Effective Time.
4.2. Acquiring Fund represents and warrants as follows:
4.2.1. The Corporation is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Maryland, and
a copy of its Articles of Incorporation is on file with the Department of
Assessments and Taxation of Maryland;
4.2.2. The Corporation is duly registered as an open-end management
investment company under the 1940 Act, and such registration will be in
full force and effect at the Effective Time;
4.2.3. Acquiring Fund is a duly established and designated series of
the Corporation;
4.2.4. No consideration other than Acquiring Fund Primary Shares (and
Acquiring Fund's assumption of the Liabilities) will be issued in exchange
for the Assets in the Reorganization;
4.2.5. The Acquiring Fund Primary Shares to be issued and delivered to
Target hereunder will, at the Effective Time, have been duly authorized
and, when issued and delivered as provided herein, will be duly and validly
issued and outstanding shares of Acquiring Fund, fully paid and
non-assessable. Except as contemplated by this Agreement, Acquiring Fund
does not have outstanding any options, warrants, or other
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rights to subscribe for or purchase any of its shares, nor is there
outstanding any security convertible into any of its shares;
4.2.6. Acquiring Fund's current prospectus and statement of additional
information conform in all material respects to the applicable requirements
of the 1933 Act and the 1940 Act and the rules and regulations thereunder
and do not include any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading;
4.2.7. Acquiring Fund is not in violation of, and the execution and
delivery of this Agreement and consummation of the transactions
contemplated hereby will not conflict with or violate, Maryland law or any
provision of the Corporation's Articles of Incorporation or By-Laws or of
any provision of any agreement, instrument, lease, or other undertaking to
which Acquiring Fund is a party or by which it is bound or result in the
acceleration of any obligation, or the imposition of any penalty, under any
agreement, judgment, or decree to which Acquiring Fund is a party or by
which it is bound, except as previously disclosed in writing to and
accepted by the Trust;
4.2.8. Except as otherwise disclosed in writing to and accepted by the
Trust, no litigation, administrative proceeding, or investigation of or
before any court or governmental body is presently pending or (to Acquiring
Fund's knowledge) threatened against the Corporation with respect to
Acquiring Fund or any of its properties or assets that, if adversely
determined, would materially and adversely affect Acquiring Fund's
financial condition or the conduct of its business; Acquiring Fund knows of
no facts that might form the basis for the institution of any such
litigation, proceeding, or investigation and is not a party to or subject
to the provisions of any order, decree, or judgment of any court or
governmental body that materially or adversely affects its business or its
ability to consummate the transactions contemplated hereby;
4.2.9. The execution, delivery, and performance of this Agreement have
been duly authorized as of the date hereof by all necessary action on the
part of the Corporation's board of directors, which has made the
determinations required by Rule 17a-8(a) under the 1940 Act; and, subject
to receipt of any necessary exemptive relief or no-action assurances
requested from the SEC or its staff with respect to Sections 17(a) and
17(d) of the 1940 Act, this Agreement will constitute a valid and legally
binding obligation of Acquiring Fund, enforceable in accordance with its
terms, except as the same may be limited by bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium, and similar laws relating
to or affecting creditors' rights and by general principles of equity;
4.2.10. No governmental consents, approvals, authorizations, or
filings are required under the 1933 Act, the 1934 Act, or the 1940 Act for
the execution or performance of this Agreement by the Corporation, except
for (a) the filing with the SEC of the Registration Statement, (b) receipt
of the exemptive relief referenced in subparagraph 4.2.9, and (c) such
consents, approvals, authorizations, and filings as have been made or
received or as may be required subsequent to the Effective Time;
4.2.11. On the effective date of the Registration Statement, at the
time of the shareholders' meeting referred to in paragraph 5.2, and at the
Effective Time, the Proxy Statement will (a) comply in all material
respects with the applicable provisions of the 1933 Act, the 1934 Act, and
the 1940 Act and the regulations thereunder and (b) not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which such statements were made, not misleading;
provided that the foregoing shall not apply to statements in or omissions
from the Proxy Statement made in reliance on and in conformity with
information furnished by the Trust for use therein;
4.2.12. Acquiring Fund is a "fund" as defined in Section 851(h)(2) of
the Code; it qualified for treatment as a RIC under Subchapter M of the
Code for each past taxable year since it commenced operations and will
continue to meet all the requirements for such qualification for its
current taxable year; Acquiring Fund intends to continue to meet all such
requirements for the next taxable year; and it has no earnings and profits
accumulated in any taxable year in which the provisions of Subchapter M of
the Code did not apply to it;
4.2.13. Acquiring Fund has no plan or intention to issue additional
Acquiring Fund Primary Shares following the Reorganization except for
shares issued in the ordinary course of its business as a series of an
open-end investment company; nor does Acquiring Fund have any plan or
intention to redeem or otherwise
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reacquire any Acquiring Fund Primary Shares issued to the Shareholders
pursuant to the Reorganization, other than through redemptions arising in
the ordinary course of that business;
4.2.14. Acquiring Fund (a) will actively continue Target's business in
substantially the same manner that Target conducted that business
immediately before the Reorganization, (b) has no plan or intention to sell
or otherwise dispose of any of the Assets, except for dispositions made in
the ordinary course of that business and dispositions necessary to maintain
its status as a RIC under Subchapter M of the Code, and (c) expects to
retain substantially all the Assets in the same form as it receives them in
the Reorganization, unless and until subsequent investment circumstances
suggest the desirability of change or it becomes necessary to make
dispositions thereof to maintain such status;
4.2.15. There is no plan or intention for Acquiring Fund to be
dissolved or merged into another corporation or business trust or any
"fund" thereof (within the meaning of Section 851(h)(2) of the Code)
following the Reorganization;
4.2.16. Immediately after the Reorganization, (a) not more than 25% of
the value of Acquiring Fund's total assets (excluding cash, cash items, and
U.S. government securities) will be invested in the stock and securities of
any one issuer and (b) not more than 50% of the value of such assets will
be invested in the stock and securities of five or fewer issuers; and
4.2.17. Acquiring Fund does not own, directly or indirectly, nor at
the Effective Time will it own, directly or indirectly, nor has it owned,
directly or indirectly, at any time during the past five years, any shares
of Target.
4.3. Each Fund represents and warrants as follows:
4.3.1. The fair market value of the Acquiring Fund Primary Shares,
when received by the Shareholders, will be approximately equal to the fair
market value of their Target Shares constructively surrendered in exchange
therefor;
4.3.2. Its management (a) is unaware of any plan or intention of
Shareholders to redeem or otherwise dispose of any portion of the Acquiring
Fund Primary Shares to be received by them in the Reorganization and (b)
does not anticipate dispositions of those Acquiring Fund Primary Shares at
the time of or soon after the Reorganization to exceed the usual rate and
frequency of dispositions of shares of Target as a series of an open-end
investment company. Consequently, its management expects that the
percentage of Shareholder interests, if any, that will be disposed of as a
result of or at the time of the Reorganization will be de minimis. Nor does
its management anticipate that there will be extraordinary redemptions of
Acquiring Fund Primary Shares immediately following the Reorganization;
4.3.3. The Shareholders will pay their own expenses, if any, incurred in
connection with the Reorganization;
4.3.4. Immediately following consummation of the Reorganization,
Acquiring Fund will hold substantially the same assets and be subject to
substantially the same liabilities that Target held or was subject to
immediately prior thereto;
4.3.5. The fair market value on a going concern basis of the Assets
will equal or exceed the Liabilities to be assumed by Acquiring Fund and
those to which the Assets are subject;
4.3.6. There is no intercompany indebtedness between the Funds that
was issued or acquired, or will be settled, at a discount;
4.3.7. Pursuant to the Reorganization, Target will transfer to
Acquiring Fund, and Acquiring Fund will acquire, at least 90% of the fair
market value of the net assets, and at least 70% of the fair market value
of the gross assets, held by Target immediately before the Reorganization.
For the purposes of this representation, any amounts used by Target to pay
redemptions and distributions made by it immediately before the
Reorganization (except for (a) distributions made to conform to its policy
of distributing all or substantially all of its income and gains to avoid
the obligation to pay federal income tax and/or the excise tax under
Section 4982 of the Code and (b) redemptions not made as part of the
Reorganization) will be included as assets thereof held immediately before
the Reorganization;
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4.3.8. None of the compensation received by any Shareholder who is an
employee of Target will be separate consideration for, or allocable to, any
of the Target Shares held by such Shareholder-employee; none of the
Acquiring Fund Primary Shares received by any such Shareholder-employee
will be separate consideration for, or allocable to, any employment
agreement; and the consideration paid to any such Shareholder-employee will
be for services actually rendered and will be commensurate with amounts
paid to third parties bargaining at arm's-length for similar services; and
4.3.9. Immediately after the Reorganization, the Shareholders will not
own shares constituting "control" of Acquiring Fund within the meaning of
Section 304(c) of the Code.
5. COVENANTS
5.1. Each Fund covenants to operate its respective business in the ordinary
course between the date hereof and the Closing, it being understood that (a)
such ordinary course will include declaring and paying customary dividends and
other distributions and such changes in operations as are contemplated by each
Fund's normal business activities and (b) each Fund will retain exclusive
control of the composition of its portfolio until the Closing; provided that
Target shall not dispose of more than an insignificant portion of its historic
business assets during such period without Acquiring Fund's prior consent.
5.2. Target covenants to call a shareholders' meeting to consider and act
upon this Agreement and to take all other action necessary to obtain approval of
the transactions contemplated hereby.
5.3. Target covenants that the Acquiring Fund Primary Shares to be
delivered hereunder are not being acquired for the purpose of making any
distribution thereof, other than in accordance with the terms hereof.
5.4. Target covenants that it will assist the Corporation in obtaining such
information as the Corporation reasonably requests concerning the beneficial
ownership of Target Shares.
5.5. Target covenants that Target's books and records (including all books
and records required to be maintained under the 1940 Act and the rules and
regulations thereunder) will be turned over to the Corporation at the Closing.
5.6. Each Fund covenants to cooperate in preparing the Proxy Statement in
compliance with applicable federal securities laws.
5.7. Each Fund covenants that it will, from time to time, as and when
requested by the other Fund, execute and deliver or cause to be executed and
delivered all such assignments and other instruments, and will take or cause to
be taken such further action, as the other Fund may deem necessary or desirable
in order to vest in, and confirm to, (a) Acquiring Fund, title to and possession
of all the Assets, and (b) Target, title to and possession of the Acquiring Fund
Primary Shares to be delivered hereunder, and otherwise to carry out the intent
and purpose hereof.
5.8. The Corporation covenants to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act, and such
state securities laws it may deem appropriate in order to continue its
operations after the Effective Time.
5.9. Subject to this Agreement, each Fund covenants to take or cause to be
taken all actions, and to do or cause to be done all things reasonably
necessary, proper, or advisable to consummate and effectuate the transactions
contemplated hereby.
6. CONDITIONS PRECEDENT
Each Fund's obligations hereunder shall be subject to (a) performance by
the other Fund of all the obligations to be performed hereunder at or before the
Effective Time, (b) all representations and warranties of the other Fund
contained herein being true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated
hereby, as of the Effective Time, with the same force and effect as if made at
and as of the Effective Time, and (c) the following further conditions that, at
or before the Effective Time:
6.1. This Agreement and the transactions contemplated hereby shall have
been duly adopted and approved by the Trust's board of trustees and shall have
been approved by Target's shareholders in accordance with applicable law.
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6.2. All necessary filings shall have been made with the SEC and state
securities authorities, and no order or directive shall have been received that
any other or further action is required to permit the parties to carry out the
transactions contemplated hereby. The Registration Statement shall have become
effective under the 1933 Act, no stop orders suspending the effectiveness
thereof shall have been issued, and the SEC shall not have issued an unfavorable
report with respect to the Reorganization under Section 25(b) of the 1940 Act
nor instituted any proceedings seeking to enjoin consummation of the
transactions contemplated hereby under Section 25(c) of the 1940 Act. All
consents, orders, and permits of federal, state, and local regulatory
authorities (including the SEC and state securities authorities) deemed
necessary by either Fund to permit consummation, in all material respects, of
the transactions contemplated hereby shall have been obtained, except where
failure to obtain same would not involve a risk of a material adverse effect on
the assets or properties of either Fund, provided that either Fund may for
itself waive any of such conditions.
6.3. At the Effective Time, no action, suit, or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or to obtain damages or other relief in connection with,
the transactions contemplated hereby.
6.4. The Trust shall have received an opinion of Kirkpatrick & Lockhart
LLP, counsel to the Corporation, substantially to the effect that:
6.4.1. Acquiring Fund is a duly established series of the Corporation,
a corporation duly organized and validly existing under the laws of the
State of Maryland with power under its Articles of Incorporation to own all
of its properties and assets and, to the knowledge of such counsel, to
carry on its business as presently conducted;
6.4.2. This Agreement (a) has been duly authorized, executed, and
delivered by the Corporation on behalf of Acquiring Fund and (b) assuming
due authorization, execution, and delivery of this Agreement by the Trust
on behalf of Target, is a valid and legally binding obligation of the
Corporation with respect to Acquiring Fund, enforceable in accordance with
its terms, except as the same may be limited by bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium, and similar laws relating
to or affecting creditors' rights and by general principles of equity;
6.4.3. The Acquiring Fund Primary Shares to be issued and distributed
to the Shareholders under this Agreement, assuming their due delivery as
contemplated by this Agreement, will be duly authorized and validly issued
and outstanding and fully paid and non-assessable, and no shareholder of
Acquiring Fund has any preemptive right to subscribe for or purchase such
shares;
6.4.4. The execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, materially
violate the Corporation's Articles of Incorporation or By-Laws or any
provision of any agreement (known to such counsel, without any independent
inquiry or investigation) to which the Corporation (with respect to
Acquiring Fund) is a party or by which it is bound or (to the knowledge of
such counsel, without any independent inquiry or investigation) result in
the acceleration of any obligation, or the imposition of any penalty, under
any agreement, judgment, or decree to which the Corporation (with respect
to Acquiring Fund) is a party or by which it is bound, except as set forth
in such opinion or as previously disclosed in writing to and accepted by
the Trust;
6.4.5. To the knowledge of such counsel (without any independent
inquiry or investigation), no consent, approval, authorization, or order of
any court or governmental authority is required for the consummation by the
Corporation on behalf of Acquiring Fund of the transactions contemplated
herein, except such as have been obtained under the 1933 Act, the 1934 Act,
and the 1940 Act and such as may be required under state securities laws;
6.4.6. The Corporation is registered with the SEC as an investment
company, and to the knowledge of such counsel no order has been issued or
proceeding instituted to suspend such registration; and
6.4.7. To the knowledge of such counsel (without any independent
inquiry or investigation), (a) no litigation, administrative proceeding, or
investigation of or before any court or governmental body is pending or
threatened as to the Corporation (with respect to Acquiring Fund) or any of
its properties or assets attributable or allocable to Acquiring Fund and
(b) the Corporation (with respect to Acquiring Fund) is not a party to or
subject to the provisions of any order, decree, or judgment of any court or
governmental body that
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materially and adversely affects Acquiring Fund's business, except as set
forth in such opinion or as otherwise disclosed in writing to and accepted
by the Trust.
In rendering such opinion, such counsel may (i) rely, as to matters governed by
the laws of the State of Maryland, on an opinion of competent Maryland counsel,
(ii) make assumptions regarding the authenticity, genuineness, and/or conformity
of documents and copies thereof without independent verification thereof, (iii)
limit such opinion to applicable federal and state law, and (iv) define the word
"knowledge" and related terms to mean the knowledge of attorneys then with such
firm who have devoted substantive attention to matters directly related to this
Agreement and the Reorganization.
6.5. The Corporation shall have received an opinion of Brown, Cummins &
Brown, counsel to the Trust, substantially to the effect that:
6.5.1. Target is a duly established series of the Trust, a Business
Trust duly organized and validly existing under the laws of the
Commonwealth of Massachusetts with power under its Declaration of Trust to
own all of its properties and assets and, to the knowledge of such counsel,
to carry on its business as presently conducted;
6.5.2. This Agreement (a) has been duly authorized, executed, and
delivered by the Trust on behalf of Target and (b) assuming due
authorization, execution, and delivery of this Agreement by the Corporation
on behalf of Acquiring Fund, is a valid and legally binding obligation of
the Trust with respect to Target, enforceable in accordance with its terms,
except as the same may be limited by bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium, and similar laws relating to or
affecting creditors' rights and by general principles of equity;
6.5.3. The execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, materially
violate the Trust's Agreement and Declaration of Trust or By-Laws or any
provision of any agreement (known to such counsel, without any independent
inquiry or investigation) to which the Trust (with respect to Target) is a
party or by which it is bound or (to the knowledge of such counsel, without
any independent inquiry or investigation) result in the acceleration of any
obligation, or the imposition of any penalty, under any agreement,
judgment, or decree to which the Trust (with respect to Target) is a party
or by which it is bound, except as set forth in such opinion or as
previously disclosed in writing to and accepted by the Corporation;
6.5.4. To the knowledge of such counsel (without any independent
inquiry or investigation), no consent, approval, authorization, or order of
any court or governmental authority is required for the consummation by the
Trust on behalf of Target of the transactions contemplated herein, except
such as have been obtained under the 1933 Act, the 1934 Act, and the 1940
Act and such as may be required under state securities laws;
6.5.5. The Trust is registered with the SEC as an investment company,
and to the knowledge of such counsel no order has been issued or proceeding
instituted to suspend such registration; and
6.5.6. To the knowledge of such counsel (without any independent
inquiry or investigation), (a) no litigation, administrative proceeding, or
investigation of or before any court or governmental body is pending or
threatened as to the Trust (with respect to Target) or any of its
properties or assets attributable or allocable to Target and (b) the Trust
(with respect to Target) is not a party to or subject to the provisions of
any order, decree, or judgment of any court or governmental body that
materially and adversely affects its business, except as set forth in such
opinion or as otherwise disclosed in writing to and accepted by the
Corporation.
In rendering such opinion, such counsel may (i) rely, as to matters governed by
the laws of the Commonwealth of Massachusetts, on an opinion of competent
Massachusetts counsel, (ii) make assumptions regarding the authenticity,
genuineness, and/or conformity of documents and copies thereof without
independent verification thereof, (iii) limit such opinion to applicable federal
and state law, and (iv) define the word "knowledge" and related terms to mean
the knowledge of attorneys then with such firm who have devoted substantive
attention to matters directly related to this Agreement and the Reorganization.
6.6. The Corporation shall have received an opinion of Kirkpatrick &
Lockhart LLP, its counsel, addressed to and in form and substance satisfactory
to it, and the Trust shall have received an opinion of Brown, Cummins & Brown,
its counsel, addressed to and in form and substance satisfactory to it, each as
to the federal income tax consequences mentioned below (each a "Tax Opinion").
In rendering its Tax Opinion, each such counsel may rely
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as to factual matters, exclusively and without independent verification, on the
representations made in this Agreement (or in separate letters addressed to such
counsel) and the certificates delivered pursuant to paragraph 3.4. Each Tax
Opinion shall be substantially to the effect that, based on the facts and
assumptions stated therein, for federal income tax purposes:
6.6.1. Acquiring Fund's acquisition of the Assets in exchange solely
for Acquiring Fund Primary Shares and Acquiring Fund's assumption of the
Liabilities, followed by Target's distribution of those shares to the
Shareholders constructively in exchange for the Shareholders' Target
Shares, will constitute a reorganization within the meaning of Section
368(a)(1)(C) of the Code, and each Fund will be "a party to a
reorganization" within the meaning of Section 368(b) of the Code;
6.6.2. No gain or loss will be recognized to Target on the transfer to
Acquiring Fund of the Assets in exchange solely for Acquiring Fund Primary
Shares and Acquiring Fund's assumption of the Liabilities or on the
subsequent distribution of those shares to the Shareholders in constructive
exchange for their Target Shares;
6.6.3. No gain or loss will be recognized to Acquiring Fund on its
receipt of the Assets in exchange solely for Acquiring Fund Primary Shares
and its assumption of the Liabilities;
6.6.4. Acquiring Fund's basis for the Assets will be the same as the
basis thereof in Target's hands immediately before the Reorganization, and
Acquiring Fund's holding period for the Assets will include Target's
holding period therefor;
6.6.5. A Shareholder will recognize no gain or loss on the
constructive exchange of all its Target Shares solely for Acquiring Fund
Primary Shares pursuant to the Reorganization; and
6.6.6. A Shareholder's basis for the Acquiring Fund Primary Shares to
be received by it in the Reorganization will be the same as the basis for
its Target Shares to be constructively surrendered in exchange for those
Acquiring Fund Primary Shares, and its holding period for those Acquiring
Fund Primary Shares will include its holding period for those Target
Shares, provided they are held as capital assets by the Shareholder at the
Effective Time.
Notwithstanding paragraphs 6.6.2 and 6.6.4, each Tax Opinion may state that no
opinion is expressed as to the effect of the Reorgan ization on the Funds or any
Shareholder with respect to any asset (including certain options, futures, and
forward contracts included in the Assets) as to which any unrealized gain or
loss is required to be recognized for federal income tax purposes at the end of
a taxable year (or on the termination or transfer thereof) under a
mark-to-market system of accounting.
At any time before the Closing, (a) Acquiring Fund may waive any of the
foregoing conditions if, in the judgment of the Corporation's board of
directors, such waiver will not have a material adverse effect on its
shareholders' interests, and (b) Target may waive any of the foregoing
conditions if, in the judgment of the Trust's board of trustees, such waiver
will not have a material adverse effect on the Shareholders' interests.
7. BROKERAGE FEES AND EXPENSES
7.1. Each Investment Company represents and warrants to the other that
there are no brokers or finders entitled to receive any payments in connection
with the transactions provided for herein.
7.2. Except as otherwise provided herein, all expenses incurred in
connection with the transactions contemplated by this Agreement (whether or not
they are consummated) will be borne by entities other than the Funds.
8. ENTIRE AGREEMENT; SURVIVAL
Neither party has made any representation, warranty, or covenant not set
forth herein, and this Agreement constitutes the entire agreement between the
parties. The representations, warranties, and covenants contained herein or in
any document delivered pursuant hereto or in connection herewith shall survive
the Closing.
9. TERMINATION OF AGREEMENT
This Agreement may be terminated at any time at or prior to the Effective
Time, whether before or after approval by Target's shareholders:
A-32
<PAGE>
9.1. By either Fund (a) in the event of the other Fund's material breach of
any representation, warranty, or covenant contained herein to be performed at or
prior to the Effective Time, (b) if a condition to its obligations has not been
met and it reasonably appears that such condition will not or cannot be met, or
(c) if the Closing has not occurred on or before June 30, 1997; or
9.2. By the parties' mutual agreement.
In the event of termination under paragraphs 9.1.(c) or 9.2, there shall be no
liability for damages on the part of either Fund, or the directors, trustees or
officers of either Investment Company, to the other Fund.
10. AMENDMENT
This Agreement may be amended, modified, or supplemented at any time,
notwithstanding approval thereof by Target's shareholders, in such manner as may
be mutually agreed upon in writing by the parties; provided that following such
approval no such amendment shall have a material adverse effect on the
Shareholders' interests.
11. MISCELLANEOUS
11.1. This Agreement shall be governed by and construed in accordance with
the internal laws of the State of Maryland; provided that, in the case of any
conflict between such laws and the federal securities laws, the latter shall
govern.
11.2. Nothing expressed or implied herein is intended or shall be construed
to confer upon or give any person, firm, trust, or corporation other than the
parties and their respective successors and assigns any rights or remedies under
or by reason of this Agreement.
11.3. The parties acknowledge that the Trust is a Business Trust. Notice is
hereby given that this instrument is executed on behalf of the Trust's trustees
solely in their capacity as trustees, and not individually, and that the Trust's
obligations under this instrument are not binding on or enforceable against any
of its trustees, officers, or shareholders, but are only binding on and
enforceable against the Target's assets and property. Acquiring Fund agrees
that, in asserting any rights or claims under this Agreement, it shall look only
to the Target's assets and property in settlement of such rights or claims and
not to such trustees or shareholders.
IN WITNESS WHEREOF, each party has caused this Agreement to be executed by
its duly authorized officer.
ATTEST: THE LEGG MASON INCOME TRUST, INC., on
behalf of its series, LEGG MASON
U.S. GOVERNMENT INTERMEDIATE-
TERM PORTFOLIO
By: /s/ Stefanie Wong /s/ Marie K. Karpinski
Secretary Vice President
ATTEST: BARTLETT CAPITAL TRUST, on behalf
of its series, BARTLETT SHORT
TERM BOND FUND
By: /s/ Thomas A. Steele /s/ Donna M. Prieshoff
Assistant Secretary Vice President
A-33
<PAGE>
APPENDIX B
BENEFICIAL OWNERSHIP OF SHARES OF BARTLETT SHORT TERM BOND FUND
<TABLE>
<CAPTION>
NUMBER
(AND PERCENTAGE) OF SHARES
NAME ADDRESS BENEFICIALLY OWNED
<S> <C> <C>
Buckeye State Mutual Insurance Co. c/o Legg Mason, Inc. 83,218.505
111 South Calvert Street 6.15%
Baltimore, MD 21202
Orlando Hawaiian Motel Co. c/o Legg Mason, Inc. 93,962.011
111 South Calvert Street 6.95%
Baltimore, MD 21202
Miami 1993 Project Fund c/o Legg Mason, Inc. 212,826.914
111 South Calvert Street 15.74%
Baltimore, MD 21202
</TABLE>
B-1
<PAGE>
LEGG MASON CASH RESERVE TRUST
LEGG MASON U.S. GOVERNMENT INTERMEDIATE-TERM PORTFOLIO
(a series of Legg Mason Income Trust, Inc.)
Legg Mason Wood Walker, Inc.
111 South Calvert Street
Baltimore, MD 21203-1476
(Toll Free) 1-800-822-5544
BARTLETT CASH RESERVES FUND
(a series of Bartlett Management Trust)
BARTLETT FIXED INCOME FUND
BARTLETT SHORT TERM BOND FUND
(each a series of Bartlett Capital Trust)
Bartlett & Co.
36 East Fourth Street
Cincinnati, Ohio 45202
(Toll Free) 1-800-822-5544
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information relates specifically to the
proposed reorganizations whereby (i) Legg Mason Cash Reserve Trust ("Cash
Reserve") would acquire the assets of Bartlett Cash Reserves Fund ("Cash Fund"),
a series of Bartlett Management Trust, in exchange solely for shares of
beneficial interest in Cash Reserve and the assumption by Cash Reserve of Cash
Fund's liabilities, and (ii) Legg Mason U.S. Government Intermediate-Term
Portfolio ("Intermediate-Term"), a series of Legg Mason Income Trust, Inc.
("Income Trust"), would acquire the assets of Bartlett Fixed Income Fund ("Fixed
Income"), a series of Bartlett Capital Trust ("Capital Trust"), and Bartlett
Short Term Bond Fund ("Short Term"), also a series of Capital Trust, in exchange
solely for shares of common stock of Intermediate-Term and the assumption by
Intermediate-Term of Fixed Income's and Short Term's respective liabilities
("Cash Fund," "Fixed Income" and "Short Term" shall be collectively referred to
herein as the "Acquired Funds.") This Statement of Additional Information
consists of this two page statement and the following described documents, each
of which is incorporated by reference herein:
(1) The Statement of Additional Information of Cash Reserve, dated
April 1, 1996, previously filed on EDGAR, Accession Number
0000950169-96-000074;
(2) The Statement of Additional Information of Intermediate-Term,
dated May 1, 1996, previously filed on EDGAR, Accession Number
0000916641-96-000344;
(3) The Statement of Additional Information of the Acquired Funds,
dated August 1, 1996, as supplemented August 16, 1996,
previously filed on EDGAR, Accession Numbers
0000950169-96-001395 and 0000950169-96-001396, respectively;
(4) The Annual Report to Shareholders of Cash Reserve for the
fiscal year ended August 31, 1996, filed on EDGAR, Accession
Number 0000950169-96-000381;
(5) The Annual Report to Shareholders of Intermediate-Term for the
fiscal year ended December 31, 1995, previously filed on
EDGAR, Accession Number 0000950169-96-000011;
(6) The Annual Report to Shareholders of the Acquired Funds for
the fiscal year ended March 31, 1996, previously filed on
EDGAR, Accession Numbers 0000950169-96-000156 and
<PAGE>
0000950169-96-000155;
(7) The Semi-Annual Report to Shareholders of Intermediate-Term
for the six-months ended June 30, 1996, previously filed on
EDGAR, Accession Number 0000916641-96-000739; and
(8) Pro forma financial statements reflecting Intermediate-Term
and Fixed Income combined for the twelve-month period as of
June 30, 1996.
This Statement of Additional Information is not a prospectus and should
be read only in conjunction with the Prospectus/Proxy Statement dated November
1, 1996 relating to the above-referenced matter. A copy of the Prospectus/Proxy
Statement may be obtained without charge and further inquiries may be made by
contacting your Bartlett & Co. investment representative or by calling toll free
1-800-822-5544. This Statement of Additional Information is dated November 1,
1996.
