As filed with the Securities and Exchange Commission on September 24, 1996
Registration No. 33-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. [ ]
LEGG MASON INCOME TRUST, INC.
(Exact Name of Registrant as Specified in Charter)
111 South Calvert Street
Baltimore, Maryland 21202
(Address of Principal Executive Offices)
(410) 539-0000
(Registrant's Area Code and Telephone Number)
CHARLES A. BACIGALUPO
111 South Calvert Street
Baltimore, Maryland 21202
(Name and Address of Agent for Service)
Copies to:
LINDA L. RITTENHOUSE, ESQ.
BRIAN F. MCNALLY, ESQ.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
Second Floor
Washington, D.C. 20036-1800
Telephone: (202) 778-9000
Approximate Date of Proposed Public Offering: as soon as practicable
after this Registration Statement becomes effective.
The Registrant has filed a declaration registering an indefinite number
of securities pursuant to Rule 24f-2 under the Investment Company Act of 1940,
as amended. Accordingly, no filing fee is payable herewith. The Registrant filed
on February 29, 1996, the notice required by Rule 24f-2 for its fiscal year
ended December 31, 1995.
It is proposed that this filing will become effective on October 24,
1996 pursuant to Rule 488.
<PAGE>
LEGG MASON INCOME TRUST, INC.
Form N-14 Cross Reference Sheet
<TABLE>
<CAPTION>
Part A Item No. Prospectus/Proxy
and Caption Statement Caption
<S> <C> <C>
1. Beginning of Registration Cover Page
Statement and Outside Front Cover
Page of Prospectus
2. Beginning and Outside Back Cover Table of Contents
Page of Prospectus
3. Synopsis Information and Risk Synopsis; Comparison of Principal
Factors Risk Factors
4. Information About the Transaction Synopsis; The Proposed
Transactions; General Information
5. Information About the Registrant Synopsis; Comparison of Principal
Risk Factors; See also, the
Prospectus of Legg Mason U.S.
Government Intermediate-Term
Portfolio, dated May 1, 1996,
previously filed on EDGAR,
Accession Number: 0000916641-96-
000344
6. Information About the Company Synopsis; Comparison of Principal
Being Acquired Risk Factors; See also, the
Prospectus of Bartlett Fixed
Income Fund and Bartlett Short
Term Bond Fund, dated August 1,
1996, previously filed on EDGAR,
Accession Number: 0000950133-96-
001396; Supplement dated August
16, 1996 to Prospectus of Bartlett
Fixed Income Fund and Bartlett
Short Term Bond Fund, previously
filed on EDGAR, Accession Number:
0000916641-96-000719
7. Voting Information Voting Information
8. Interest of Certain Persons and Not Applicable
Experts
9. Additional Information Required Not Applicable
for Reoffering by Persons Deemed
to be Underwriters
Part B Item No. Statement of Additional
and Caption Information Caption
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. Additional Information About the Statement of Additional
Registrant Information of Legg Mason U.S.
Government Intermediate-Term
Portfolio, dated May 1, 1996,
previously filed on EDGAR,
Accession Number: 0000916641-96-
000344
13. Additional Information About the Statement of Additional
Company Being Acquired Information of Bartlett Fixed
Income Fund and Bartlett Short
Term Bond Fund, dated August 1,
1996, previously filed on EDGAR,
Accession Number: 0000950133-96-
001396
14. Financial Statements Annual Report of Legg Mason U.S.
Government Intermediate-Term
Portfolio for Fiscal Year Ended
December 31, 1995, previously
filed on EDGAR, Accession Number:
0000950169-96-000011
Semi-Annual Report of Legg Mason
U.S. Government Intermediate-Term
Portfolio for the six months ended
June 30, 1996, previously filed on
EDGAR, Accession Number:
0000916641-96-000739
Annual Report of each of
Bartlett Fixed Income
Fund and Bartlett
Short Term Bond Fund for
Fiscal Year Ended March 31,
1996, previously filed on
EDGAR, Accession Number:
0000950169-96-000155
Pro Forma Financial Statements
for the Twelve Months Ended June
30, 1996
</TABLE>
Part C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE>
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.
Thank you very much for your assistance.
Sincerely,
- ------------------------------- --------------------------------
Dale H. Rabiner, CFA James B. Reynolds, CFA
Chairman Chairman
Bartlett Capital Trust Bartlett Management Trust
<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 6, 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 6, 1996, at 36 East Fourth Street,
Cincinnati, Ohio 45202, at 10:00 a.m., to act on the following matters, all as
described in 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 and Management Trust;
2. 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;
3. 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
4. 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
____________, 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
October __, 1996
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
October __, 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 6, 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 Reports of
Cash Reserve and Intermediate-Term for the fiscal years ended August 31, 1996
and December 31, 1995, respectively, all of which are incorporated by this
reference into this Proxy Statement. A Statement of Additional Information dated
October__, 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
Page
VOTING INFORMATION..........................................................
PROPOSAL 1: APPROVAL OF THE REORGANIZATION OF BARTLETT
CASH RESERVES FUND INTO LEGG MASON CASH
RESERVE TRUST..........................................
-- SYNOPSIS............................................
-- COMPARISON OF PRINCIPAL RISK FACTORS................
-- THE PROPOSED TRANSACTION............................
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............................
-- SYNOPSIS............................................
-- COMPARISON OF PRINCIPAL RISK FACTORS................
-- THE PROPOSED TRANSACTIONS...........................
ADDITIONAL INFORMATION ABOUT LEGG MASON CASH RESERVE TRUST..................
ADDITIONAL INFORMATION ABOUT LEGG MASON U.S. GOVERNMENT
INTERMEDIATE-TERM PORTFOLIO.................................................
GENERAL INFORMATION.........................................................
MISCELLANEOUS...............................................................
APPENDIX A - AGREEMENTS AND PLANS OF REORGANIZATION AND TERMINATION
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 6, 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 6, 1996, and at any adjournment thereof ("Meeting"). This Proxy
Statement will first be mailed to shareholders on or about October __, 1996.
A majority of shares of an Acquired Fund outstanding on October __,
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 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 the Reorganization Plan is attached to this Proxy Statement as 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. 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
(These transactions are 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, [__________], 1996 ("Record Date"), Cash Fund
had [___________] shares, Fixed Income had [________] shares, and Short Term had
[________] 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
representatives of Fund Adviser who will not receive any compensation therefor
from the Funds. 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 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 RESERVE 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.
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 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
13, 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.
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.
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
equal to 0.78% of its average daily net assets. Based on Cash Reserve's average
net assets of $_____________ for the year ended August 31, 1996, Cash Reserve
paid total operating expenses at the annual rate of ____%. 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 ____%
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, However, Legg Mason Wood Walker,
Inc. ("Legg Mason"), Cash Reserve's distributor, has not yet requested such
payments. 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).
Shareholder Transaction Expenses
Cash Cash Combined
Reserve Fund Fund
Sales charge on purchases of None None None
shares
Sales charge on reinvested None None None
dividends
Redemption fee or deferred None None None
sales charge
Annual Fund Operating Expenses
(as a percentage of average net assets)
Cash Cash Combined Fund
Reserve Fund (Pro Forma)
Management Fees 0.__% 0.78% 0.48%
12b-1 Fees 0.__% 0.00% 0.10%
Other Expenses 0.__% 0.00% 0.20%
Total Fund Operating Expenses 0.__% 0.78% 0.78%
Example of Effect on Fund Expenses
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.
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
Cash Reserve................ $ $ $ $
Cash Fund................... $8 $25 $43 $97
Combined Fund............... $8 $25 $43 $97
- ------------------------------
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.
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
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 _________, 1996, so that shares of Cash Fund will no longer be
available for purchase or exchange starting on _______, 1996 (the next business
day). 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. Redemptions of Cash Fund's shares and
exchanges of such shares for shares of any other Bartlett funds may be effected
through the Closing Date.
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 has received 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 "The Proposed Transaction -- Federal Income Tax
Considerations."
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 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 whenissued 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
financial service 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; loan participation interests; and the use
of short sales and short sales against the box. See pages ___ through ___ 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
form 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 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;
(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, 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 IntermediateTerm 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.
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 special meeting held on August 12, 1996. Each Reorganization Plan 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 IntermediateTerm'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. 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. It is anticipated 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.
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, IntermediateTerm's total operating expenses for the twelve
months ended June 30, 1996 were 0.97% 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.
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 .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.
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 June 30,
1996, Intermediate-Term had assets of $226,535,966, Fixed Income had
assets of $75,159,656 and Short Term had assets of $14,134,867.
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
Intermediate- Fixed Combined
Term Income Fund
Sales charge on purchases of None None None
shares
Sales charge on reinvested None None None
dividends
Redemption fee or deferred None None None
sales charge
Annual Fund Operating Expenses
(as a percentage of average net assets)
Intermediate- Fixed Combined Fund
Term Income (Pro Forma)
Management Fees 0.55% 1.00% 0.55%
12b-1 Fees 0.50% 0.00% 0.50%
Other Expenses 0.22% 0.00% 0.19%
Fee waiver (0.27)% ----- (0.24)%
Total Fund Operating 1.00%(1) 1.00% 1.00%(2)
Expenses
- ---------------------------------
(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 1.26%, 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 of Effect on Fund Expenses
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.
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
Intermediate-Term............ $10 $32 $55 $122
Fixed Income................. $10 $32 $55 $122
Combined Fund................ $10 $32 $55 $122
- ------------------------------
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.
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
Intermediate- Short Combined
Term Term Fund
Sales charge on purchases of None None None
shares
Sales charge on reinvested None None None
dividends
Redemption fee or deferred None None None
sales charge
Annual Fund Operating Expenses
(as a percentage of average net assets)
Intermediate- Short Combined Fund
Term Term (Pro Forma)
Management Fees 0.55% 0.85% 0.55%
12b-1 Fees 0.50% 0.00% 0.50%
Other Expenses 0.22% 0.00% 0.21%
Fee waiver (0.27)% _____ (0.26)%
Total Fund Operating Expenses 1.00%(1) 0.85% 1.00%(2)
- ---------------------------------
(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 1.26%, 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 of Effect on Fund Expenses
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.
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
Intermediate-Term........... $10 $32 $55 $122
Short Term.................. $ 9 $27 $47 $106
Combined Fund............... $10 $32 $55 $122
- ------------------------------
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 Fixed Income and
Short Term, and pro forma fees for Intermediate-Term after giving effect to the
Reorganizations.
Shareholder Transaction Expenses
Inter-
mediate Fixed Short Combined
Term Income Term Fund
Sales charge on purchases of None None None None
shares
Sales charge on reinvested None None None None
dividends
Redemption fee or deferred None None None None
sales charge
Annual Fund Operating Expenses
(as a percentage of average net assets)
Intermediate- Fixed Short Combined Fund
Term Income Term (Pro Forma)
Management Fees 0.55% 1.00% 0.85% 0.55%
12b-1 Fees 0.50% 0.00% 0.00% 0.50%
Other Expenses 0.22% 0.00% 0.00% 0.18%
Fee waiver (0.27)% 0.07% 0.70% (0.23)%
Total Fund Operating Expenses 1.00%(1) 1.00% 0.85% 1.00%(2)
- ---------------------------------
(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 1.26%, 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 of Effect on Fund Expenses
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.
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
Intermediate-Term.......... $10 $32 $55 $122
Fixed Income............... $10 $32 $55 $122
Short Term................. $ 9 $27 $47 $106
Combined Fund.............. $10 $32 $55 $122
- ------------------------------
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 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 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.
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, 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 _________, 1996,
so that their shares will no longer be available for purchase or exchange
starting on _______, 1996 (the next business day). 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. Redemptions of Fixed Income's and Short Term's shares and
exchanges of such shares for shares of any other Bartlett funds may be effected
through the Closing Date.
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 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 into 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 have each received 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 "The Proposed Transaction
- -- Federal Income Tax Considerations."
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."
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 ____ through ____ of the
Acquired Funds' prospectus and pages ____ through ____ 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 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 and Short Term' shareholders.
The value of Fixed Income's and Short Term's assets to be acquired, and
the amount of Fixed Income 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.
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 and 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.
<PAGE>
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) as 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, as indicated
in the table below.
<TABLE>
<CAPTION>
Total Return
----------------------------------------------------------------------------------------------------
6 months 1 year 2 years* 2/4/94*# 5 years* 7 years
ended June 30, 1996
------------------------ --------------- --------------- --------------- -------------- -----------
<S> <C>
Intermediate-Term -0.01% 4.64% 6.81% 4.57% 6.91% 7.42%
Fixed Income -1.33% 3.87% 6.04% 3.58% 6.51% 6.79%
Short Term 0.33% 4.57% 4.82% 4.13% n/a n/a
</TABLE>
* Average annual total return
# Inception of Short Term
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 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 has received 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 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 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) or 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:
Combined Fund
Cash Reserve Cash Fund (Pro Forma)
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
Reorganization of Fixed Income into Intermediate-Term:
Intermediate- Combined Fund
Term Fixed Income (Pro Forma)
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
Reorganization of Short Term into Intermediate-Term:
Intermediate- Combined Fund
Term Short Term (Pro Forma)
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
Reorganization of Fixed Income and Short Term into Intermediate-Term:
<TABLE>
<CAPTION>
Intermediate- Fixed Short Combined Fund
Term Income Term (Pro Forma)
<S> <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>
ADDITIONAL INFORMATION ABOUT LEGG MASON CASH RESERVE TRUST
[Financial Highlights for Cash Trust -- to be inserted]
ADDITIONAL INFORMATION ABOUT LEGG MASON U.S. GOVERNMENT INTERMEDIATE-TERM
PORTFOLIO
Financial Highlights
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 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 Six YEARS ENDED DECEMBER 31,
Months Ended
June 30, 1996
(Unaudited)
1995 1994 1993 1992 1991 1990
<S> <C>
Per Share Operating Performance:
Net asset value, beginning of
period $10.47 $9.72 $10.43 $10.70 $10.77 $10.29 $10.20
Net investment income 0.30(B) 0.57(B) 0.51(B) 0.53(B) 0.60(B) 0.72(B) 0.78(B)
Net realized and unrealized
gain (loss) on investments,
options and futures (0.30) 0.75 (0.71) 0.17 0.05 0.70 0.09
Total from investment
operations --- 1.32 (0.20) 0.70 0.65 1.42 0.87
Distribution to shareholders:
Net investment income (0.30) (0.57) (0.51) (0.53) (0.60) (0.72) (0.78)
Net realized gain --- --- --- (0.39) (0.12) (0.22) ---
In excess of net realized gain
on investments --- --- --- (0.05) --- --- ---
Total distributions (0.30) (0.57) (0.51) (0.97) (0.72) (0.94) (0.78)
Net asset value, end of period $10.17 $10.47 $9.72 $10.43 $10.70 $10.77 $10.29
Total return(B,E) (0.01)%(C) 13.9% (1.9)% 6.6% 6.3% 14.4% 9.1%
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) 0.8%(B,E) 0.6%(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) 6.7%(B,E) 7.7%(B,E)
Portfolio turnover rate 356.1%(D) 289.9% 315.7% 490.2% 512.6% 642.8% 67.0%
Net assets, end of period
(in thousands) $222,858 $231,886 $231,255 $299,529 $307,320 $211,627 $74,423
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1989 1988 1987(A)
<S> <C>
Per Share Operating Performance:
Net asset value, beginning of
period $9.79 $9.92 $10.00
Net investment income 0.80(B) 0.74(B) 0.30(B)
Net realized and unrealized
gain (loss) on investments,
options and futures 0.41 (0.12) (0.08)
Total from investment
operations 1.21 0.62 0.22
Distribution to shareholders:
Net investment income (0.80) (0.74) (0.30)
Net realized gain --- (0.01) ---
In excess of net realized gain
on investments --- --- ---
Total distributions (0.80) (0.75) (0.30)
Net asset value, end of period $10.20 $9.79 $9.92
Total return(B,E) 12.8% 6.4 2.2%
Ratios/Supplemental Data:
Ratios to average net assets:
Expenses 0.8%(B,E) 1.0%(B,E) 1.0%(B,D,E)
Net investment income 7.9%(B,E) 7.4%(B,E) 7.4%(B,D,E)
Portfolio turnover rate 57.3% 132.5% 66.3%
Net assets, end of period
(in thousands) $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, 1996.
(C) Not annualized for periods of less than a full year.
(D) Annualized.
(E) Includes distribution fee of 0.5%
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 IntermediateTerm, 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.
<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 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 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 Statements of Additional Information of the Acquired Funds,
dated August 1, 1996 previously filed on EDGAR, Accession Numbers
0000950169-96-001395 and 0000950169-96-001396, respectively;
(4) Annual Report to Shareholders of Cash Reserve for the fiscal year
ended August 31, 1996, filed on EDGAR, Accession Number
_______________-96-__________;
(5) The Annual Report to Shareholders of Intermediate-Term for the
<PAGE>
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 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 October ____,
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 October _____,
1996.
<PAGE>
Pro Forma Combined
Statement of Assets and Liabilities
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
U.S. Government Bartlett Pro Forma
Intermediate Fixed Income Combined
<S> <C>
Assets
Investments, at value ( Identified Cost - $241,192,954 $239,849,243 $74,674,074 $314,523,317
and $75,577,154, respectively)
Other Assets 5,587,495 722,808 6,310,303
------------ ----------- ------------
Total Assets 245,436,738 75,396,882 320,833,620
Total Liabilities 18,900,772 237,226 19,137,998
------------ ----------- ------------
Net Assets $226,535,966 $75,159,656 $301,695,622
============ =========== ============
Analysis of Net Assets
Accumulated paid in capital applicable to:
7,674,688 Shares Outstanding $78,462,072
21,910,198 Primary Shares Outstanding $233,121,468 $311,583,540
361,689 Navigator Shares Outstanding 3,547,630 3,547,630
Accumulated net realized loss on investments,
options and futures (8,820,112) (2,399,335) (11,219,447)
Unrealized depreciation of investments,
options and futures (1,313,020) (903,081) (2,216,101)
------------ ----------- ------------
Net assets $226,535,966 $75,159,656 $301,695,622
============ =========== ============
Net asset value per share:
Fixed Income Shares $9.79
-----
Primary Shares $10.17 $10.17
------ ------
Navigator Shares $10.17
------
</TABLE>
<PAGE>
Pro Forma Combined
Statement of Operations
For the Twelve Months Ended June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
U.S. Government Barlett Pro Forma
Intermediate Fixed Income Adjustments Combined
<S> <C>
Investment Income
Interest $15,301,340 $5,661,912 $20,963,252
Expenses
Advisory fee 1,263,673 $471,713 1,735,386
Management fee 857,640(1) (857,640)
Distribution and service fees 1,148,815 428,809 1,577,624
Transfer agent and shareholder servicing expense 183,116 19,230 202,346
Custodian fee 100,016 7,516 107,532
Legal and audit fees 88,813 88,813
Reports to shareholders 54,710 5,929 60,639
Registration fees 21,979 25,917 47,896
Directors fees 7,599 7,599
Other expenses 23,834 23,834
----------- ---------- ---------- -----------
2,892,555 857,640 101,474 3,851,669
Less fees waived (691,048) (5,373) (696,421)
----------- ---------- ---------- -----------
Total expenses, net of waivers 2,201,507 857,640 96,101 3,155,248
----------- ---------- ---------- -----------
Net Investment Income 13,099,834 4,804,271 (96,101) 17,808,004
Realized and Unrealized gain (loss) on investments
Realized gain on investments, options
and futures 3,069,534 840,514 3,910,048
Decrease in unrealized appreciation of investments,
options, and futures (5,822,861) (2,064,557) (7,887,418)
----------- ---------- ---------- ----------
Net Realized and Unrealized Loss on Investments (2,753,327) (1,224,042) (3,977,369)
----------- ---------- ---------- ----------
Change in Net Assets Resulting from Operations $10,346,507 $3,580,229 ($96,101) $13,830,635
=========== ========== ========== ===========
</TABLE>
Note to Pro Forma Combined Statement of Operations
(1) Bartlett & Co., the investment adviser of Fixed Income, is paid a
unitary fee of 1.00% of average annual net assets. Unlike
Intermediate-Term, the management fee includes transfer agency, pricing,
custodial, auditing and legal services, trustees fees, general and
administrative and other operating expenses. Bartlett & Co. pays all of
the expenses of Fixed Income except brokerage, taxes, interest and
extraordinary expenses.
<PAGE>
Pro Forma Combined
Capitalization and Ratios
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
U.S. Government Bartlett Pro Forma
Intermediate Fixed-Income Combined
<S> <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
Ratio of expenses to average net assets
Before Fee Waivers 1.26% 1.00% 1.22%
After Fee Waivers 0.96% 1.00% 1.00%
</TABLE>
<PAGE>
Legg Mason U.S. Government Intermediate-Term Portfolio combined with Bartlett
Fixed Income Fund
June 30, 1996
<TABLE>
<CAPTION>
Maturity U.S. Government Bartlett Pro-Forma
Coupon Date Par Intermediate Fixed-Income Combined Value
<S> <C>
U.S. Government and Agency Obligations - 50.3%
United States Treasury Notes 5.13% 02/28/98 $ 1,100,000 $1,083,841 $1,083,841
United States Treasury Notes - Strip 0.00 05/15/98 1,000,000 893,510 893,510
United States Treasury Notes 6.13 05/15/98 3,250,000 3,250,000 3,250,000
United States Treasury Notes 5.88 08/15/98 4,275,000 4,248,965 4,248,965
United States Treasury Notes - Strip 0.00 08/15/98 7,000,000 6,154,400 6,154,400
United States Treasury Notes 6.38 05/15/99 5,900,000 5,912,921 5,912,921
United States Treasury Notes 6.88 08/31/99 1,500,000 1,521,330 1,521,330
United States Treasury Notes 7.50 10/31/99 5,000,000 5,163,300 5,163,300
United States Treasury Notes 7.13 02/28/00 4,000,000 4,090,640 4,090,640
United States Treasury Notes 6.88 03/31/00 37,570,000 38,115,892 38,115,892
United States Treasury Notes 6.13 09/30/00 3,000,000 2,964,840 2,964,840
United States Treasury Notes 6.25 04/30/01 5,000,000 4,952,350 4,952,350
United States Treasury Notes 6.50 05/31/01 1,220,000 1,220,573 1,220,573
United States Treasury Notes - Strip 0.00 08/15/03 11,500,000 7,213,720 7,213,720
Private Export Funding Corporation 7.03 10/31/03 6,500,000 6,573,886 6,573,886
Guaranteed Export Trust 6.28 06/15/04 17,882,353 17,516,122 17,516,122
United States Treasury Notes 6.50 05/15/05 24,000,000 23,684,880 23,684,880
United States Treasury Bonds 10.75 08/15/05 7,350,000 9,331,046 9,331,046
United States Treasury Notes 6.88 05/15/06 2,800,000 2,831,052 2,831,052
Tennessee Valley Authority 6.24 07/15/45 5,000,000 4,923,150 4,923,150
------------------------------------------------
115,061,872 36,584,546 151,646,418
U.S. Government Agency Mortgage-backed Securities - 22.2%
Fixed Rate Securities - 21.8%
Federal Home Loan Mortgage 10.75 07/01/00 12,036 13,258 13,258
Federal Home Loan Mortgage 8.75 02/01/01 996,811 1,022,658 1,022,658
Federal Home Loan Mortgage 8.75 08/01/01 153,969 158,443 158,443
Federal Home Loan Mortgage 8.75 10/01/01 146,716 150,979 150,979
Government National Mortgage Association 9.00 06/15/06 716,156 739,875 739,875
Government National Mortgage Association 9.00 06/15/06 1,048,861 1,083,599 1,083,599
Government National Mortgage Association 9.00 06/15/06 687,737 710,514 710,514
Government National Mortgage Association 9.00 06/15/06 764,457 789,775 789,775
Government National Mortgage Association 9.00 07/15/06 733,015 757,293 757,293
Government National Mortgage Association 9.00 08/15/06 1,529,147 1,579,792 1,579,792
Federal Home Loan Mortgage - TBA 6.50 07/01/11 8,000,000 7,660,480 7,660,480
Federal National Mortgage Association 9.50 07/01/14 935,007 1,003,150 1,003,150
Federal Home Loan Mortgage 9.30 01/01/17 4,698,006 4,897,671 4,897,671
Federal Home Loan Mortgage 9.00 01/01/17 117,306 122,437 122,437
Government National Mortgage Association 7.50 03/15/17 31,625 31,515 31,515
Federal National Mortgage Association 9.50 06/25/18 1,644,924 1,743,093 1,743,093
Federal Home Loan Mortgage 9.00 05/01/20 473,160 496,965 496,965
Federal Home Loan Mortgage 9.00 09/01/20 1,980,768 2,080,420 2,080,420
Federal Home Loan Mortgage 9.00 01/01/21 1,652,158 1,735,278 1,735,278
Federal Home Loan Mortgage 8.50 06/01/21 1,598,396 1,657,329 1,657,329
</TABLE>
<PAGE>
Legg Mason U.S. Government Intermediate-Term Portfolio combined with Bartlett
Fixed Income Fund
June 30, 1996
<TABLE>
<CAPTION>
Maturity U.S. Government Bartlett Pro-Forma
Coupon Date Par Intermediate Fixed-Income Combined Value
<S> <C>
Federal National Mortgage Association 9.00% 11/01/21 $3,254,517 $3,420,269 $3,420,269
Government National Mortgage Association 7.50 12/15/22 207,974 $206,025 206,025
Government National Mortgage Association 7.50 01/15/23 41,964 41,544 41,544
Government National Mortgage Association 7.50 03/15/23 692,689 685,762 685,762
Government National Mortgage Association 7.50 03/15/23 80,833 80,025 80,025
Government National Mortgage Association 7.50 05/15/23 36,319 35,955 35,955
Government National Mortgage Association 7.50 05/15/23 34,430 34,107 34,107
Government National Mortgage Association 7.50 06/15/23 320,784 317,576 317,576
Government National Mortgage Association 7.50 06/15/23 102,894 101,865 101,865
Government National Mortgage Association 7.50 06/15/23 734,089 726,748 726,748
Government National Mortgage Association 7.50 06/15/23 95,214 94,322 94,322
Government National Mortgage Association 7.50 06/15/23 128,746 127,458 127,458
Government National Mortgage Association 7.50 06/15/23 364,798 361,150 361,150
Government National Mortgage Association 7.00 06/15/23 409,476 394,632 394,632
Government National Mortgage Association 7.00 08/15/23 407,832 393,048 393,048
Government National Mortgage Association 7.50 08/15/23 38,121 37,739 37,739
Government National Mortgage Association 7.00 08/15/23 102,850 99,122 99,122
Government National Mortgage Association 7.50 10/15/23 38,929 38,540 38,540
Government National Mortgage Association 7.00 12/15/23 290,440 279,911 279,911
Government National Mortgage Association 7.50 01/15/24 38,652 38,289 38,289
Government National Mortgage Association 7.00 01/15/24 38,915 37,467 37,467
Government National Mortgage Association 7.00 01/15/24 472,383 454,816 454,816
Government National Mortgage Association 7.50 02/15/24 1,724,433 1,707,189 1,707,189
Government National Mortgage Association 7.50 02/15/24 48,315 47,771 47,771
Government National Mortgage Association 7.00 03/15/24 508,136 489,239 489,239
Government National Mortgage Association 7.50 03/15/24 84,848 83,893 83,893
Government National Mortgage Association 7.50 03/15/24 825,868 816,577 816,577
Federal National Mortgage Association 6.50 04/01/24 32,963 30,934 30,934
Government National Mortgage Association 7.50 04/15/24 128,247 126,804 126,804
Government National Mortgage Association 7.50 04/15/24 925,897 915,480 915,480
Government National Mortgage Association 7.00 04/15/24 293,255 282,348 282,348
Government National Mortgage Association 7.00 05/15/24 388,379 373,935 373,935
Government National Mortgage Association 7.50 05/15/24 33,991 33,651 33,651
Government National Mortgage Association 7.50 05/15/24 668,111 660,595 660,595
Government National Mortgage Association 7.50 05/15/24 46,071 45,552 45,552
Government National Mortgage Association 7.50 05/15/24 740,924 733,515 733,515
Government National Mortgage Association 7.50 06/15/24 63,033 62,323 62,323
Government National Mortgage Association 8.00 06/15/24 520,758 525,966 525,966
Government National Mortgage Association 8.00 06/15/24 36,202 36,564 36,564
Government National Mortgage Association 8.00 07/15/24 3,586,056 3,621,917 3,621,917
Government National Mortgage Association 8.00 07/15/24 730,996 738,306 738,306
Government National Mortgage Association 7.50 07/15/24 817,165 807,972 807,972
Government National Mortgage Association 7.50 08/15/24 451,402 444,910 444,910
Government National Mortgage Association 7.50 08/15/24 774,020 765,312 765,312
Government National Mortgage Association 7.00 04/20/25 1,603,530 1,630,341 1,630,341
Government National Mortgage Association 6.00 05/20/25 2,878,973 2,923,510 2,923,510
</TABLE>
<PAGE>
Legg Mason U.S. Government Intermediate-Term Portfolio combined with Bartlett
Fixed Income Fund
June 30, 1996
<TABLE>
<CAPTION>
Maturity U.S. Government Bartlett Pro-Forma
Coupon Date Par Intermediate Fixed-Income Combined Value
<S> <C>
Government National Mortgage Association 7.00% 05/20/25 $2,494,500 $2,536,208 $2,536,208
Government National Mortgage Association 8.00 06/15/25 24,871 $ 25,089 25,089
Government National Mortgage Association 8.00 06/15/25 142,336 143,581 143,581
Government National Mortgage Association 8.00 07/15/25 864,825 872,392 872,392
Government National Mortgage Association 8.00 07/15/25 923,126 931,203 931,203
Government National Mortgage Association 7.50 08/15/25 1,185,282 1,168,237 1,168,237
Government National Mortgage Association 7.50 09/15/25 121,858 120,105 120,105
Government National Mortgage Association 7.00 11/15/25 601,881 577,054 577,054
Government National Mortgage Association 7.00 11/15/25 486,831 466,749 466,749
Government National Mortgage Association 7.00 11/15/25 85,206 81,691 81,691
Government National Mortgage Association 7.00 11/15/25 553,571 530,736 530,736
Government National Mortgage Association 7.00 11/15/25 323,308 309,971 309,971
Government National Mortgage Association 8.00 12/15/25 149,806 151,117 151,117
Government National Mortgage Association 8.00 02/15/26 689,874 695,910 695,910
Government National Mortgage Association 7.00 02/15/26 422,854 405,411 405,411
Government National Mortgage Association 7.00 02/15/26 488,041 467,909 467,909
Government National Mortgage Association 7.00 03/15/26 180,568 173,119 173,119
Government National Mortgage Association 7.00 03/15/26 1,454,579 1,394,578 1,394,578
Government National Mortgage Association 7.00 03/15/26 399,463 382,985 382,985
-------------------------------------------------
38,944,276 26,835,277 65,779,553
Stripped Security - 0.4%
Federal National Mortgage Association I/O 15.20 11/25/20 1,436,109 1,285,738 1,285,738
Variable-rate Security - 1.7%
Federal National Mortgage Association 7.62 05/25/22 5,137,709 5,119,249 5,119,249
Asset-backed Securities - 2.6%
Olympic Automobile Trust 7.88 07/15/01 2,820,975 2,866,596 2,866,596
AFC Home Equity Loan Trust 7.75 12/15/06 2,283,939 2,297,460 2,297,460
ContiMortgatge Home Equity Loan Trust 8.60 06/15/25 2,797,612 2,830,070 2,830,070
-------------------------------------------------
7,994,125 0 7,994,125
Corporate Bonds and Notes - 6.6%
Associates Corp North America 6.75 07/15/97 3,000,000 3,018,420 3,018,420
Ford Motor Credit 6.42 02/04/98 2,150,000 2,156,235 2,156,235
Ford Motor Credit 5.83 06/29/98 2,000,000 1,978,060 1,978,060
General Motors Acceptance Corp. 5.61 01/29/99 3,350,000 3,350,771 3,350,771
Philip MorrisCompanies Inc. 9.25 02/15/00 2,000,000 2,144,360 2,144,360
TCI Communications, Inc. 6.82 09/15/10 5,000,000 4,973,450 4,973,450
News America Holdings Inc. 8.45 08/01/34 2,300,000 2,441,036 2,441,036
-------------------------------------------------
11,715,081 8,347,251 20,062,332
</TABLE>
<PAGE>
Legg Mason U.S. Government Intermediate-Term Portfolio combined with Bartlett
Fixed Income Fund
June 30, 1996
<TABLE>
<CAPTION>
Maturity U.S. Government Bartlett Pro-Forma
Coupon Date Par Intermediate Fixed-Income Combined Value
<S> <C>
Mortgage-backed Securities - 6.2%
Fixed-rate Securities - 1.9%
FBC Mortgage Securities Trust 9.50% 08/01/16 $ 2,650,834 $ 2,673,181 $ 2,673,181
Resolution Trust Corporation 10.00 05/25/22 3,105,296 3,131,846 3,131,846
-------------------------------------------------
5,805,027 $ 0 5,805,027
Variable-rate Securities - 4.3%
Resolution Trust Corporation 7.60 05/25/19 2,118,518 2,023,185 2,023,185
Resolution Trust Corporation 8.76 03/25/21 6,000,000 6,113,676 6,113,676
Resolution Trust Corporation 11.09 01/25/25 1,693,749 1,744,628 1,744,628
Resolution Trust Corporation 8.00 09/25/29 3,072,396 3,084,130 3,084,130
-------------------------------------------------
12,965,619 0 12,965,619
Yankee Bonds - 1.1%
YPF Sociedad Anonima 7.50 10/26/02 3,240,095 3,213,114 3,213,114
Short-Term Securities - 13.5%
Asset-backed Securities - 0.1%
Chemical Grantor Trust 1989-B 8.90 12/15/96 357,514 358,855 358,855
U.S. Government and Agency Obligations - 0.3%
United States Treasury Bill 4.87 07/11/96 1,000,000 998,649 998,649
U.S. Government Agency Mortgage-backed
Securities - 8.4%
Federal Home Loan Mortgage 9.00 08/01/96 229,580 232,737 232,737
Federal National Mortgage Association 5.91 08/19/96 10,000,000 10,007,800 10,007,800
Federal Farm Credit Bank 5.60 06/03/97 15,000,000 14,966,102 14,966,102
Commerical Paper - 0.5%
Norwest Financial Inc 5.35 07/01/96 1,500,000 1,500,000 1,500,000
Repurchase Agreements - 4.2%
J P Morgan 5.47 07/01/96 11,181,000 11,181,000 11,181,000
State Street Bank 4.00 07/01/96 1,407,000 1,407,000 1,407,000
-------------------------------------------------
40,958,257 2,907,000 43,865,257
Total Investments - 104.3% 239,849,243 74,674,074 314,523,317
Other Assets Less Liabilities - (4.3%) (13,313,277) 485,582 (12,827,695)
Net Assets - 100.0% $226,535,966 $75,159,656 $301,695,622
=================================================
</TABLE>
Note to Pro Forma Combined Financial Statements
(Unaudited)
Basis of Presentation:
Subject to approval of the Agreement and Plan of Reorganization and Termination
by the shareholders of Bartlett Fixed Income Fund ("Fixed Income"), Legg Mason
U.S. Government Intermediate-Term Portfolio, a series of Legg Mason Income
Trust, Inc. ("Intermediate-Term") would acquire the assets of Fixed Income in
exchange solely for shares of beneficial interest in Intermediate-Term and the
assumption of Fixed Income's liabilities.
Shares of Intermediate-Term will be distributed to Fixed Income shareholders at
the net asset value per share of Intermediate-Term for the value acquired and
Fixed Income will be terminated as soon as practicable thereafter. Each
shareholder of Fixed Income will receive the number of full and fractional
shares of each Class of shares of Intermediate-Term equal in value to such
shareholder's holdings in Fixed Income as of the closing date of the merger.
On or before the closing date of the merger, Fixed Income will declare a
distribution of substantially all of its net investment income, net capital gain
and net short-term capital gain, if any. 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.
The pro forma combined financial statements reflect the financial position of
Intermediate-Term and Fixed Income at June 30, 1996 and the combined results of
operations of Intermediate-Term and Fixed Income for the twelve months ended
June 30, 1996. Certain expenses have been adjusted to reflect the expected
operations of the combined entity. Pro forma operating expenses include the
actual expenses of the Funds and the combined Fund, adjusted for certain items.
Intermediate-Term offers two classes of shares, Primary Shares and Navigator
Shares. Navigator Shares are currently offered for sale only to certain
institutional clients and to the Legg Mason Profit Sharing Plan and Trust. Only
Primary Shares will be offered in connection with the Reorganization, and the
combined results of operations of Intermediate-Term and Fixed Income for the
twelve months ended June 30, 1996 reflect only those items allocable to Primary
Shares.
If the Reorganization is approved, Fixed Income will sell any assets that are
inconsistent with Intermediate-Term's investment policies prior to the effective
time of the Reorganization. The proceeds of any such sales will be held in
temporary investments or reinvested in assets that qualify to be held by
Intermediate-Term. The possible need for Fixed Income 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 Fixed Income realizing losses that
would not otherwise have been realized. It is not anticipated that any
securities will need to be sold prior to the Reorganization.
The pro forma combined financial statements are presented for the information of
the reader and may not necessarily be representative of what the actual combined
financial statements would have been had the Reorganization occurred at June 30,
1995. The pro forma combined financial statements should be read in conjunction
with the historical financial statements of the constituent Funds incorporated
by reference into the statement of additional information.
<PAGE>
APPENDIX A
AGREEMENTS AND PLANS OF REORGANIZATION AND TERMINATION
[SEE EXHIBIT 4]
LEGG MASON INCOME TRUST, INC.
PART C
OTHER INFORMATION
Item 15. Indemnification
This item is incorporated by reference to Item 27 of Part C of
Pre-Effective Amendment No. 2 to the Registration Statement, SEC File No.
33-12092 filed June 15, 1987.
(b) Exhibits:
(1) (a) Articles of Incorporation 1/
(b) Articles Supplementary 2/
(c) Articles Supplementary 7/
(d) Articles Supplementary 8/
(e) Articles Supplementary 9/
(2) (a) Amended By-Laws 2/
(b) Amendment to By-Laws (effective May 10, 1991) 6/
(3) Voting trust agreement - none
(4) (a) Agreement and Plan of Reorganization and Termination with
respect to Bartlett Fixed Income Fund (filed herewith)
(b) Agreement and Plan of Reorganization with respect to
Bartlett Short Term Bond Fund (filed herewith)
(5) Instruments defining the rights of holders of the Registrant's
shares of common stock -- none
(6) (a) Management Agreement
(i) U.S. Government Intermediate-Term Portfolio 4/
(ii) Investment Grade Income Portfolio 4/
(iii) U.S. Government Money Market Portfolio 3/
(iv) High Yield Portfolio 9/
(b) Investment Advisory Agreement
(i) U.S. Government Intermediate-Term Portfolio 5/
(ii) Investment Grade Income Portfolio 5/
(iii) U.S. Government Money Market Portfolio 3/
(iv) High Yield Portfolio 9/
(7) Underwriting Agreement
(a) U.S. Government Intermediate-Term and Investment Grade Income
Portfolios -- (filed herewith)
(b) (i) U.S. Government Money Market Portfolio 3/
(ii) U.S. Government Money Market Portfolio --
(filed herewith)
(c) Dealer Contract with respect to Navigator Shares 10/
(d) High Yield Portfolio 9/
(8) Bonus, profit sharing or pension plans - none
(9) Custodian Agreement 4/
(10) Plan pursuant to Rule 12b-1
(a) (i) Investment Grade Income and U.S. Government
Intermediate-Term Portfolios 4/
(ii) Investment Grade Income and U.S. Government
Intermediate-Term Portfolios -- (filed herewith)
(b) (i) U.S. Government Money Market Portfolio 3/
(ii) U.S. Government Money Market Portfolio --
(filed herewith)
(c) (i) High Yield Portfolio 9/
(ii) High Yield Portfolio -- (filed herewith)
(11) Opinion and consent of Kirkpatrick & Lockhart LLP regarding the
legality of securities being registered (filed herewith)
(12) Opinion and consent of Kirkpatrick & Lockhart LLP regarding
certain tax matters (filed herewith)
(13) Transfer Agent Agreement 4/
(14) (a) Consent of Coopers & Lybrand L.L.P. (filed herewith)
(b) Consent of Arthur Andersen LLP (filed herewith)
(15) Financial statements omitted from Part B - none
(16) Copies of manually signed Powers of Attorney - (filed herewith as
part of signature page)
(17) Additional Exhibits
(a) Declaration of Rule 24f-2 (filed herewith)
(b) Proxy Card with respect to Bartlett Fixed Income Fund (filed
herewith)
(c) Proxy Card with respect to Bartlett Short Term Bond Fund
(filed herewith)
1/ Incorporated herein by reference to corresponding Exhibit of Pre-Effective
Amendment No. 1 to the Registration Statement, SEC File No. 33-12092, filed
April 28, 1987.
2/ Incorporated herein by reference to corresponding Exhibit of Post-Effective
Amendment No. 3 to the Registration Statement, SEC File No. 33-12092, filed
September 2, 1988.
3/ Incorporated herein by reference to corresponding Exhibit of Post-Effective
Amendment No. 4 to the Registration Statement, SEC File No. 33-12092, filed
November 1, 1988.
4/ Incorporated herein by reference to corresponding Exhibit of Post-Effective
Amendment No. 1 to the Registration Statement, SEC File No. 33-12092, filed
March 3, 1988.
5/ Incorporated herein by reference to corresponding Exhibit of Post-Effective
Amendment No. 2 to the Registration Statement, SEC File No. 33-12092, filed
April 28, 1988.
6/ Incorporated herein by reference to corresponding Exhibit of Post-Effective
Amendment No. 10 to the Registration Statement, SEC File No. 33-12092, filed
April 30, 1992.
7/ Incorporated herein by reference to corresponding Exhibit of Post-Effective
Amendment No. 11 to the Registration Statement, SEC File No. 33-12092, filed
April 16, 1993.
8/ Incorporated herein by reference to corresponding Exhibit of Post-Effective
Amendment No. 15 to the Registration Statement, SEC File No. 33-12092, filed
December 30, 1993.
9/ Incorporated herein by reference to corresponding Exhibit of Post-Effective
Amendment No. 20 to the Registration Statement, SEC File No. 33-12092, filed
September 20, 1994.
10/ Incorporated herein by reference to corresponding Exhibit of Post-Effective
Amendment No. 23 to the Registration Statement, SEC File No. 33-12092, filed
May 1, 1996.
Item 17. Undertakings
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of the
prospectus which is a part of this Registration Statement by any
person or party who is deemed to be an underwriter within the
meaning of Rule 145(c) of the Securities Act of 1933, the
reoffering prospectus will contain the information called for by
the applicable registration form for reoffering by persons who may
be deemed underwriters, in addition to the information called for
by the other items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is
filed under paragraph (1) above will be filed as a part of an
amendment to the Registration Statement and will not be used
until the amendment is effective, and that, in determining any
liability under the Securities Act of 1933, each post-effective
amendment shall be deemed to be a new Registration
Statement for the securities offered therein, and the offering of
the securities at that time shall be deemed to be the initial
bona fide offering of them.
2
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, as amended, this
Registration Statement has been signed on behalf of the Registrant, in the City
of Baltimore and the State of Maryland, on this 5th day of August, 1996.
LEGG MASON INCOME TRUST, INC.
By: /s/ John F. Curley, Jr.
John F. Curley, Jr.
Chairman of the Board and Director
Each of the undersigned directors and officers of Legg Mason Income
Trust, Inc. ("Trust") hereby severally constitutes and appoints Marie K.
Karpinski, Arthur J. Brown and Arthur C. Delibert, and each of them singly, our
true and lawful attorneys, with full power to them to sign for each of us, and
in each of our names and in the capacities indicated below, any and all
amendments to the Registration Statement of the Trust, and all instruments
necessary or desirable in connection therewith, filed with the Securities and
Exchange Commission, hereby ratifying and confirming our signatures as they may
be signed by said attorney to any and all amendments to said Registration
Statement.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/ John F. Curley Jr. Chairman of the Board August 5, 1996
- ----------------------------- and Director
John F. Curley, Jr.
/s/ Edmund J. Cashman, Jr. Vice Chairman of the Board August 5, 1996
- ----------------------------- and Director
Edmund J. Cashman, Jr.
/s/ Edward A. Taber President August 5, 1996
- -----------------------------
Edward A. Taber
/s/ Richard G. Gilmore Director August 5, 1996
- -----------------------------
Richard G. Gilmore
/s/ Charles F. Haugh Director August 5, 1996
- -----------------------------
Charles F. Haugh
Director August 5, 1996
- -----------------------------
Arnold L. Lehman
/s/ Jill E. McGovern Director August 5, 1996
- -----------------------------
Jill E. McGovern
/s/ T.A. Rodgers Director August 5, 1996
- -----------------------------
T.A. Rodgers
/s/ Marie K. Karpinski Vice President August 5, 1996
- ----------------------------- and Treasurer
Marie K. Karpinski
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 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 13, 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 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 associ ation
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 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 pro
visions 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 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 tax able 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 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;
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.
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 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 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:
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/ Stephanie 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
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 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 13, 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 shall deliver to the other such bills of sale, checks, assignments,
stock certificates, receipts, or other docu ments 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 recipi ent and dated the Effective Time, to
the effect that the represen tations and warranties it made in this Agreement
are true and cor rect 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 litiga
tion, 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 transac tions 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 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 pro
visions 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 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 tax able 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 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;
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.
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 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 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:
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/ Stephanie 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
Exhibit (7)(a)
AMENDED
UNDERWRITING AGREEMENT
This UNDERWRITING AGREEMENT, made this 7th day of February, 1996, by
and between Legg Mason Income Trust, Inc., a Maryland corporation
("Corporation") on behalf of the Legg Mason U.S. Government Intermediate-Term
Portfolio ("Fund"), and Legg Mason Wood Walker, Incorporated, a Maryland
corporation (the "Distributor").
WHEREAS, the Corporation is registered with the Securities and Exchange
Commission as an open-end investment company under the Investment Company Act of
1940, as amended (the "1940 Act"), and has registered shares of common stock of
the Fund for sale to the public under the Securities Act of 1933 (the "1933
Act") and various state securities laws; and
WHEREAS, the Corporation wishes to retain the Distributor as the
principal underwriter in connection with the offering and sale of the shares of
common stock of the Fund ("Shares") and to furnish certain other services to the
Corporation as specified in this Agreement; and
WHEREAS, this Agreement has been approved by separate votes of the
Corporation's Board of Directors and of certain disinterested directors in
conformity with Section 15 of, and paragraph (b)(2) of Rule 12b-1 under, the
1940 Act; and
WHEREAS, the Distributor is willing to act as principal underwriter and
to furnish such services on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed as follows:
1. (a) The Corporation hereby appoints the Distributor as principal
underwriter in connection with the offering and sale of shares of the Fund. The
Distributor, as exclusive agent for the Corporation, upon the commencement of
operations of the Fund and subject to applicable federal and state law and the
Articles of Incorporation and By-Laws of the Corporation, shall: (i) promote
the Fund; (ii) solicit orders for the purchase of the Shares subject to such
terms and conditions as the Corporation may specify; and (iii) accept orders for
the purchase of the Shares on behalf of the Corporation (collectively,
"Distribution Services"). The Distributor
<PAGE>
shall comply with all applicable federal and state laws and offer the Shares of
the Fund on an agency or "best efforts" basis under which the Corporation shall
issue only such Shares of the Fund as are actually sold. The Distributor shall
have the right to use any list of shareholders of the Corporation or the Fund or
any other list of investors which it obtains in connection with its provision of
services under this Agreement; provided, however, that the Distributor shall not
sell or knowingly provide such list or lists to any unaffiliated person without
the consent of the Corporation's Board of Directors.
(b) The Distributor shall provide ongoing shareholder liaison services,
including responding to shareholder inquiries, providing shareholders with
information on their investments, and any other services now or hereafter deemed
to be appropriate subjects for the payments of "service fees" under Article III,
Section 26 of the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. (collectively, "Shareholder Services").
2. The Distributor may enter into dealer agreements with registered and
qualified securities dealers it may select for the performance of Distribution
and Shareholder Services, and may enter into agreements with qualified dealers
and other qualified entities to perform recordkeeping and sub-accounting
services, the form of such agreements to be as mutually agreed upon and approved
by the Corporation and the Distributor. In making such arrangements, the
Distributor shall act only as principal and not as agent for the Corporation. No
such dealer or other entity is authorized to act as agent for the Corporation in
connection with the offering or sale of Shares to the public or otherwise.
3. The public offering price of the Shares of the Fund shall be the net
asset value per share (as determined by the Corporation) of the outstanding
Shares of the Fund plus any applicable sales charge as described in the
Registration Statement of the Corporation. The Corporation shall furnish the
Distributor with a statement of each computation of public offering price and of
the details entering into such computation.
4. As compensation for providing Distribution Services under this
Agreement, the Distributor shall retain the sales charge, if any, on purchases
of Shares as set forth in the Registration Statement. The Distributor is
authorized to collect the gross proceeds derived from the sale of the Shares,
remit the net asset value thereof to the Corporation upon receipt of the
proceeds and retain the sales charge, if any. The Distributor shall receive from
the Fund a distribution fee and a service fee at the rates and under the terms
and conditions
- 2 -
<PAGE>
of the Plan of Distribution ("Plan") adopted by the Corporation with respect to
the Fund, as such Plan is in effect from time to time, and subject to any
further limitations on such fees as the Corporation's Board of Directors may
impose. The Distributor may reallow any or all of the sales charge, distribution
fee and service fee that it has received under this Agreement to such dealers or
sub-accountants as it may from time to time determine; provided, however, that
the Distributor may not reallow to any dealer for Shareholder Services an amount
in excess of .25% of the average annual net asset value of the shares with
respect to which said dealer provides Shareholder Services.
5. As used in this Agreement, the term "Registration Statement" shall
mean the registration statement most recently filed by the Corporation with the
Securities and Exchange Commission and effective under the 1940 Act and 1933
Act, as such Registration Statement is amended by any amendments thereto at the
time in effect, and the terms "Prospectus" and "Statement of Additional
Information" shall mean, respectively, the form of prospectus and statement of
additional information with respect to the Fund filed by the Corporation as part
of the Registration Statement, or as they may be amended from time to time.
6. The Distributor shall print and distribute to prospective investors
Prospectuses, and shall print and distribute, upon request, to prospective
investors Statements of Additional Information, and may print and distribute
such other sales literature, reports, forms and advertisements in connection
with the sale of the Shares as comply with the applicable provisions of federal
and state law. In connection with such sales and offers of sale, the Distributor
and any dealer or sub-accountant shall give only such information and make only
such statements or representations as are contained in the Prospectus, Statement
of Additional Information, or in information furnished in writing to the
Distributor by the Corporation, and the Corporation shall not be responsible in
any way for any other information, statements or representations given or made
by the Distributor, any dealer or sub-accountant, or their representatives or
agents. Except as specifically provided in this Agreement, the Corporation shall
bear none of the expenses of the Distributor in connection with its offer and
sale of the Shares.
7. The Corporation agrees at its own expense to register the Shares
with the Securities and Exchange Commission, state and other regulatory bodies,
and to prepare and file from time to time such Prospectuses, Statements of
Additional Information, amendments, reports and other documents as may be
necessary to maintain the Registration Statement. The Fund shall bear all
expenses related to
- 3 -
<PAGE>
preparing and typesetting such Prospectuses, Statements of Additional
Information, and other materials required by law and such other expenses,
including printing and mailing expenses, related to such Fund's communications
with persons who are shareholders of the Fund.
8. The Corporation agrees to indemnify, defend and hold the
Distributor, its several officers and directors, and any person who controls the
Distributor within the meaning of Section 15 of the 1933 Act, free and harmless
from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which the
Distributor, its officers or directors, or any such controlling person may
incur, under the 1933 Act or under common law or otherwise, arising out of or
based upon any alleged untrue statement of a material fact contained in the
Registration Statement or arising out of or based upon any alleged omission to
state a material fact required to be stated or necessary to make the
Registration Statement not misleading, provided that in no event shall anything
contained in this Agreement be construed so as to protect the Distributor
against any liability to the Corporation or its shareholders to which the
Distributor would otherwise be subject by reason of willful misfeasance, bad
faith, or gross negligence in the performance of its duties, or by reason of its
reckless disregard of its obligations and duties under this Agreement, and
further provided that the Corporation shall not indemnify the Distributor for
conduct set forth in paragraph 9.
9. The Distributor agrees to indemnify, defend and hold the
Corporation, its several officers and directors, and any person who controls the
Corporation within the meaning of Section 15 of the 1933 Act, free and harmless
from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which the
Corporation, its officers or directors, or any such controlling person may
incur, under the 1933 Act or under common law or otherwise, on account of any
wrongful act of the Distributor or any of its employees or arising out of or
based upon any alleged untrue statement of a material fact contained in
information furnished in writing by the Distributor to the Corporation for use
in the Registration Statement or arising out of or based upon any alleged
omission to state a material fact in connection with such information required
to be stated in the Registration Statement or necessary to make such information
not misleading. As used in this paragraph, the term "employee" shall not include
a corporate entity under contract to provide services to the Corporation or the
Fund, or any employee of such a corporate entity, unless such person is
otherwise an employee of the Corporation.
- 4 -
<PAGE>
10. The Corporation reserves the right at any time to withdraw all
offerings of the Shares of the Fund by written notice to the Distributor at its
principal office.
11. The Corporation shall not issue certificates representing Shares
unless requested by a shareholder. If such request is transmitted through the
Distributor, the Corporation will cause certificates evidencing the Shares owned
to be issued in such names and denominations as the Distributor shall from time
to time direct, provided that no certificates shall be issued for fractional
Shares.
12. The Distributor may at its sole discretion, directly or through
dealers, repurchase Shares offered for sale by the shareholders or dealers.
Repurchase of Shares by the Distributor shall be at the net asset value next
determined after a repurchase order has been received. The Distributor will
receive no commission or other remuneration for repurchasing Shares. At the end
of each business day, the Distributor shall notify by telex or in writing, the
Corporation and State Street Bank and Trust Company, the Corporation's transfer
agent, of the orders for repurchase of Shares received by the Distributor since
the last such report, the amount to be paid for such Shares, and the identity of
the shareholders or dealers offering Shares for repurchase. Upon such notice,
the Corporation shall pay the Distributor such amounts as are required by the
Distributor for the repurchase of such Shares in cash or in the form of a credit
against moneys due the Corporation from the Distributor as proceeds from the
sale of Shares. The Corporation reserves the right to suspend such repurchase
right upon written notice to the Distributor. The Distributor further agrees to
act as agent for the Corporation to receive and transmit promptly to the
Corporation's transfer agent shareholder and dealer requests for redemption of
Shares.
13. The Distributor is an independent contractor and shall be agent for
the Corporation only in respect to the sale and redemption of the Shares.
14. The services of the Distributor to the Corporation under this
Agreement are not to be deemed exclusive, and the Distributor shall be free to
render similar services or other services to others so long as its services
hereunder are not impaired thereby.
15. The Distributor shall prepare reports for the Corporation's Board
of Directors on a quarterly basis showing such information concerning
expenditures related to this Agreement as from time to time shall be reasonably
requested by the Board of Directors.
- 5 -
<PAGE>
16. As used in this Agreement, the terms "assignment", "interested
person", and "majority of the outstanding voting securities" shall have the
meanings given to them by Section 2(a) of the 1940 Act, subject to such
exemptions as may be granted by the Securities and Exchange Commission by any
rule, regulation or order.
17. This Agreement will become effective with respect to the Fund on
the date first written above and, unless sooner terminated as provided herein,
will continue in effect for one year from the above written date. Thereafter, if
not terminated, this Agreement shall continue in effect with respect to the Fund
for successive annual periods ending on the same date of each year, provided
that such continuance is specifically approved at least annually (i) by the
Corporation's Board of Directors or (ii) by a vote of a majority of the
outstanding voting securities of the Fund (as defined in the 1940 Act), provided
that in either event the continuance is also approved by a majority of the
Corporation's Directors who are not interested persons (as defined in the 1940
Act) of any party to this Agreement, by vote cast in person at a meeting called
for the purpose of voting on such approval.
18. This Agreement is terminable with respect to the Fund or in its
entirety without penalty by the Corporation's Board of Directors, by vote of a
majority of the outstanding voting securities of the Fund (as defined in the
1940 Act), or by the Distributor, on not less than 60 days' notice to the other
party and will be terminated upon the mutual written consent of the Distributor
and the Corporation. This Agreement will also automatically and immediately
terminate in the event of its assignment.
19. No provision of this Agreement may be changed, waived, discharged
or terminated orally, except by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought.
20. In the event this Agreement is terminated by either party or upon
written notice from the Distributor at any time, the Corporation hereby agrees
that it will eliminate from its corporate name any reference to the name of
"Legg Mason." The Corporation shall have the non-exclusive use of the name "Legg
Mason" in whole or in part only so long as this Agreement is effective or until
such notice is given.
- 6 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto caused this Agreement to be
executed by their officers thereunto duly authorized.
Attest: LEGG MASON INCOME TRUST, INC.
By:/s/Kathi D. Bair By:/s/Marie K. Karpinski
Attest: LEGG MASON WOOD WALKER, INCORPORATED
By:/s/Ana Ramage By:/s/John F. Curley
- 7 -
Exhibit (7)(b)(ii)
UNDERWRITING AGREEMENT
This UNDERWRITING AGREEMENT, made this 7th day of February, 1996,
by and between Legg Mason Income Trust, Inc., a Maryland corporation
("Corporation") on behalf of the Legg Mason U.S. Government Money Market
Portfolio ("Fund"), and Legg Mason Wood Walker, Incorporated, a Maryland
corporation (the "Distributor").
WHEREAS, the Corporation is registered with the Securities and
Exchange Commission as an open-end investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"), and has registered shares
of common stock of the Fund for sale to the public under the Securities Act
of 1933 (the "1933 Act") and various state securities laws; and
WHEREAS, the Corporation wishes to retain the Distributor as the
principal underwriter in connection with the offering and sale of the
shares of common stock of the Fund ("Shares") and to furnish certain other
services to the Corporation as specified in this Agreement; and
WHEREAS, this Agreement has been approved by separate votes of the
Corporation's Board of Directors and of certain disinterested directors in
conformity with Section 15 of, and paragraph (b)(2) of Rule 12b-1 under,
the 1940 Act; and
WHEREAS, the Distributor is willing to act as principal
underwriter and to furnish such services on the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the promises and mutual
covenants herein contained, it is agreed as follows:
1. (a) The Corporation hereby appoints the Distributor as
principal underwriter in connection with the offering and sale of shares of
the Fund. The Distributor, as exclusive agent for the Corporation, upon the
commencement of operations of the Fund and subject to applicable federal
and state law and the Articles of Incorporation and By-Laws of the
Corporation, shall: (i) promote the Fund; (ii) solicit orders for the
purchase of the Shares subject to such terms and conditions as the
Corporation may specify; and (iii) accept orders for the purchase of the
Shares on behalf of the Corporation (collectively, "Distribution
Services"). The Distributor shall comply with all applicable federal and
state laws and offer the Shares of the Fund on an agency or "best efforts"
basis under which the Corporation shall issue only such Shares of the Fund
as are actually sold. The Distributor shall have the right to use any list
of shareholders of the Corporation or the Fund or any other list of
investors which it obtains in connection with its provision of services
under this Agreement; provided, however, that the Distributor shall not
sell or knowingly provide such list or lists to any unaffiliated person
without the consent of the Corporation's Board of Directors.
<PAGE>
(b) The Distributor shall provide ongoing shareholder liaison
services, including responding to shareholder inquiries, providing
shareholders with information on their investments, and any other services
now or hereafter deemed to be appropriate subjects for the payments of
"service fees" under Article III, Section 26 of the Rules of Fair Practice
of the National Association of Securities Dealers, Inc. (collectively,
"Shareholder Services").
2. The Distributor may enter into dealer agreements with
registered and qualified securities dealers it may select for the
performance of Distribution and Shareholder Services, and may enter into
agreements with qualified dealers and other qualified entities to perform
recordkeeping and sub-accounting services, the form of such agreements to
be as mutually agreed upon and approved by the Corporation and the
Distributor. In making such arrangements, the Distributor shall act only as
principal and not as agent for the Corporation. No such dealer or other
entity is authorized to act as agent for the Corporation in connection with
the offering or sale of Shares to the public or otherwise.
3. The public offering price of the Shares of the Fund shall be
the net asset value per share (as determined by the Corporation) of the
outstanding Shares of the Fund plus any applicable sales charge as
described in the Registration Statement of the Corporation. The Corporation
shall furnish the Distributor with a statement of each computation of
public offering price and of the details entering into such computation.
4. As compensation for providing Distribution Services under this
Agreement, the Distributor shall retain the sales charge, if any, on
purchases of Shares as set forth in the Registration Statement. The
Distributor is authorized to collect the gross proceeds derived from the
sale of the Shares, remit the net asset value thereof to the Corporation
upon receipt of the proceeds and retain the sales charge, if any. The
Distributor shall receive from the Fund a distribution fee and a service
fee at the rates and under the terms and conditions of the Plan of
Distribution ("Plan") adopted by the Corporation with respect to the Fund,
as such Plan is in effect from time to time, and subject to any further
limitations on such fees as the Corporation's Board of Directors may
impose. The Distributor may reallow any or all of the sales charge,
distribution fee and service fee that it has received under this Agreement
to such dealers or sub-accountants as it may from time to time determine;
provided, however, that the Distributor may not reallow to any dealer for
Shareholder Services an amount in excess of .25% of the average annual net
asset value of the shares with respect to which said dealer provides
Shareholder Services.
5. As used in this Agreement, the term "Registration Statement"
shall mean the registration statement most recently filed by the
Corporation with the Securities and Exchange Commission and effective under
the 1940 Act and 1933 Act, as such Registration Statement is amended by any
amendments thereto at the time in effect, and the terms "Prospectus" and
"Statement of Additional Information" shall mean,
- 2 -
<PAGE>
respectively, the form of prospectus and statement of additional
information with respect to the Fund filed by the Corporation as part of
the Registration Statement, or as they may be amended from time to time.
6. The Distributor shall print and distribute to prospective
investors Prospectuses, and shall print and distribute, upon request, to
prospective investors Statements of Additional Information, and may print
and distribute such other sales literature, reports, forms and
advertisements in connection with the sale of the Shares as comply with the
applicable provisions of federal and state law. In connection with such
sales and offers of sale, the Distributor and any dealer or sub- accountant
shall give only such information and make only such statements or
representations as are contained in the Prospectus, Statement of Additional
Information, or in information furnished in writing to the Distributor by
the Corporation, and the Corporation shall not be responsible in any way
for any other information, statements or representations given or made by
the Distributor, any dealer or sub- accountant, or their representatives or
agents. Except as specifically provided in this Agreement, the Corporation
shall bear none of the expenses of the Distributor in connection with its
offer and sale of the Shares.
7. The Corporation agrees at its own expense to register the
Shares with the Securities and Exchange Commission, state and other
regulatory bodies, and to prepare and file from time to time such
Prospectuses, Statements of Additional Information, amendments, reports and
other documents as may be necessary to maintain the Registration Statement.
The Fund shall bear all expenses related to preparing and typesetting such
Prospectuses, Statements of Additional Information, and other materials
required by law and such other expenses, including printing and mailing
expenses, related to such Fund's communications with persons who are
shareholders of the Fund.
8. The Corporation agrees to indemnify, defend and hold the
Distributor, its several officers and directors, and any person who
controls the Distributor within the meaning of Section 15 of the 1933 Act,
free and harmless from and against any and all claims, demands, liabilities
and expenses (including the cost of investigating or defending such claims,
demands or liabilities and any counsel fees incurred in connection
therewith) which the Distributor, its officers or directors, or any such
controlling person may incur, under the 1933 Act or under common law or
otherwise, arising out of or based upon any alleged untrue statement of a
material fact contained in the Registration Statement or arising out of or
based upon any alleged omission to state a material fact required to be
stated or necessary to make the Registration Statement not misleading,
provided that in no event shall anything contained in this Agreement be
construed so as to protect the Distributor against any liability to the
Corporation or its shareholders to which the Distributor would otherwise be
subject by reason of willful misfeasance, bad faith, or gross negligence in
the performance of its duties, or by reason of its reckless disregard of
its obligations and duties under this Agreement, and
- 3 -
<PAGE>
further provided that the Corporation shall not indemnify the Distributor
for conduct set forth in paragraph 9.
9. The Distributor agrees to indemnify, defend and hold the
Corporation, its several officers and directors, and any person who
controls the Corporation within the meaning of Section 15 of the 1933 Act,
free and harmless from and against any and all claims, demands, liabilities
and expenses (including the cost of investigating or defending such claims,
demands or liabilities and any counsel fees incurred in connection
therewith) which the Corporation, its officers or directors, or any such
controlling person may incur, under the 1933 Act or under common law or
otherwise, on account of any wrongful act of the Distributor or any of its
employees or arising out of or based upon any alleged untrue statement of a
material fact contained in information furnished in writing by the
Distributor to the Corporation for use in the Registration Statement or
arising out of or based upon any alleged omission to state a material fact
in connection with such information required to be stated in the
Registration Statement or necessary to make such information not
misleading. As used in this paragraph, the term "employee" shall not
include a corporate entity under contract to provide services to the
Corporation or the Fund, or any employee of such a corporate entity, unless
such person is otherwise an employee of the Corporation.
10. The Corporation reserves the right at any time to
withdraw all offerings of the Shares of the Fund by written notice to the
Distributor at its principal office.
11. The Corporation shall not issue certificates representing
Shares unless requested by a shareholder. If such request is transmitted
through the Distributor, the Corporation will cause certificates evidencing
the Shares owned to be issued in such names and denominations as the
Distributor shall from time to time direct, provided that no certificates
shall be issued for fractional Shares.
12. The Distributor may at its sole discretion, directly or
through dealers, repurchase Shares offered for sale by the shareholders or
dealers. Repurchase of Shares by the Distributor shall be at the net asset
value next determined after a repurchase order has been received. The
Distributor will receive no commission or other remuneration for
repurchasing Shares. At the end of each business day, the Distributor shall
notify by telex or in writing, the Corporation and State Street Bank and
Trust Company, the Corporation's transfer agent, of the orders for
repurchase of Shares received by the Distributor since the last such
report, the amount to be paid for such Shares, and the identity of the
shareholders or dealers offering Shares for repurchase. Upon such notice,
the Corporation shall pay the Distributor such amounts as are required by
the Distributor for the repurchase of such Shares in cash or in the form of
a credit against moneys due the Corporation from the Distributor as
proceeds from the sale of Shares. The Corporation reserves the right to
suspend such repurchase right upon written notice to the Distributor. The
Distributor further agrees to act as agent for the Corporation to receive
- 4 -
<PAGE>
and transmit promptly to the Corporation's transfer agent shareholder and
dealer requests for redemption of Shares.
13. The Distributor is an independent contractor and shall be
agent for the Corporation only in respect to the sale and redemption of
the Shares.
14. The services of the Distributor to the Corporation under this
Agreement are not to be deemed exclusive, and the Distributor shall be free
to render similar services or other services to others so long as its
services hereunder are not impaired thereby.
15. The Distributor shall prepare reports for the Corporation's
Board of Directors on a quarterly basis showing such information concerning
expenditures related to this Agreement as from time to time shall be
reasonably requested by the Board of Directors.
16. As used in this Agreement, the terms "assignment", "interested
person", and "majority of the outstanding voting securities" shall have the
meanings given to them by Section 2(a) of the 1940 Act, subject to such
exemptions as may be granted by the Securities and Exchange Commission by
any rule, regulation or order.
17. This Agreement will become effective with respect to the Fund
on the date first written above and, unless sooner terminated as provided
herein, will continue in effect for one year from the above written date.
Thereafter, if not terminated, this Agreement shall continue in effect with
respect to the Fund for successive annual periods ending on the same date
of each year, provided that such continuance is specifically approved at
least annually (i) by the Corporation's Board of Directors or (ii) by a
vote of a majority of the outstanding voting securities of the Fund (as
defined in the 1940 Act), provided that in either event the continuance is
also approved by a majority of the Corporation's Directors who are not
interested persons (as defined in the 1940 Act) of any party to this
Agreement, by vote cast in person at a meeting called for the purpose of
voting on such approval.
18. This Agreement is terminable with respect to the Fund or in
its entirety without penalty by the Corporation's Board of Directors, by
vote of a majority of the outstanding voting securities of the Fund (as
defined in the 1940 Act), or by the Distributor, on not less than 60 days'
notice to the other party and will be terminated upon the mutual written
consent of the Distributor and the Corporation. This Agreement will also
automatically and immediately terminate in the event of its assignment.
19. No provision of this Agreement may be changed, waived,
discharged or terminated orally, except by an instrument in writing signed
by the party against which enforcement of the change, waiver, discharge or
termination is sought.
20. In the event this Agreement is terminated by either party
or upon written notice from the Distributor at any time, the Corporation
- 5 -
<PAGE>
hereby agrees that it will eliminate from its corporate name any reference
to the name of "Legg Mason." The Corporation shall have the non-exclusive
use of the name "Legg Mason" in whole or in part only so long as this
Agreement is effective or until such notice is given.
IN WITNESS WHEREOF, the parties hereto caused this Agreement to be
executed by their officers thereunto duly authorized.
Attest: LEGG MASON INCOME TRUST, INC.
By: /s/ Kathi D. Bair By: /s/ Marie K. Karpinski
--------------------- ------------------------
Attest: LEGG MASON WOOD WALKER, INCORPORATED
By: /s/ Ana Ramage By: /s/ John F. Curley
--------------------- ------------------------
Exhibit 10(a)(ii)
AMENDED
DISTRIBUTION PLAN OF
LEGG MASON INCOME TRUST, INC.
WHEREAS, Legg Mason Income Trust, Inc. (the "Corporation") is an
open-end management investment company registered under the Investment Company
Act of 1940, as amended ("1940 Act"), and has offered, and intends to continue
offering, for public sale distinct series of shares of common stock ("Series"),
each corresponding to a distinct portfolio;
WHEREAS, the Corporation has registered the offering of its shares of
common stock under a Registration Statement filed with the Securities and
Exchange Commission and that Registration Statement is in effect as of the date
hereof;
WHEREAS, the Corporation's Board of Directors has established Series of
shares of common stock of the Corporation known as: Legg Mason Investment Grade
Income Portfolio and Legg Mason U.S. Government Intermediate-Term Portfolio
("Funds");
WHEREAS, the Corporation's Distribution Plan was adopted by the Board
of Directors on May 8, 1987 and was approved by shareholders on April 22, 1988;
WHEREAS, the Corporation has employed Legg Mason Wood Walker,
Incorporated ("Legg Mason") as principal underwriter of the shares of the
Corporation;
NOW, THEREFORE, the Corporation hereby adopts this Amended Distribution
Plan (the "Plan") in accordance with Rule 12b-1 under the 1940 Act on the
following terms and conditions:
1. A. Each of the Funds shall pay to Legg Mason, as compensation for
Legg Mason's services as principal underwriter of each Fund's shares, a
distribution fee at the rate of 0.25% on an annualized basis of the average
daily net assets of that Fund's shares, such fee to be calculated and accrued
daily and paid monthly or at such other intervals as the Board shall determine.
B. Each of the Funds shall pay to Legg Mason, as compensation for
ongoing services provided to each Fund's shareholders, a service fee at the rate
of 0.25% on an annualized
- 1 -
<PAGE>
basis of the average daily net assets of that Fund's shares, such fee to be
calculated and accrued daily and paid monthly or at such other intervals as the
Board shall determine.
C. The Corporation may pay a distribution or service fee to
Legg Mason at a lesser rate than the fees specified in paragraphs 1.A. and 1.B.,
respectively, of this Plan, in either case as agreed upon by the Board and Legg
Mason and as approved in the manner specified in paragraph 4 of this Plan. The
distribution and service fees payable hereunder are payable without regard to
the aggregate amount that may be paid over the years, provided that, so long as
the limitations set forth in Article III, Section 26(d) of the Rules of Fair
Practice of the National Association of Securities Dealers, Inc. ("NASD") remain
in effect and apply to distributors or dealers in the Corporation's shares, the
amounts paid hereunder shall not exceed those limitations, including permissible
interest.
2. As principal underwriter of the Corporation's shares, Legg Mason may
spend such amounts as it deems appropriate on any activities or expenses
primarily intended to result in the sale of the shares of the Series and/or the
servicing and maintenance of shareholder accounts, including, but not limited
to, compensation to employees of Legg Mason; compensation to Legg Mason, other
broker-dealers and other entities that engage in or support the distribution of
shares or who service shareholder accounts or provide sub-accounting and
recordkeeping services; expenses of Legg Mason and such other broker-dealers and
other entities, including overhead and telephone and other communication
expenses; the printing of prospectuses, statements of additional information,
and reports for other than existing shareholders; and preparation and
distribution of sales literature and advertising materials.
3. This Plan shall not take effect with respect to any additional
Series until it has been approved by a vote of at least a majority of the
outstanding voting securities, as defined in the 1940 Act, of that Series.
4. This Amended Plan shall take effect on February 7, 1996 and shall
continue in effect for successive periods of one year from its execution for so
long as such continuance is specifically approved at least annually together
with any related agreements, by votes of a majority of both (a) the Board of
Directors of the Corporation and (b) those Directors who are not "interested
persons" of the Corporation, as defined in the 1940 Act, and who have no direct
or indirect financial interest in the operation of this Plan or any agreements
related to it (the "Rule 12b-1 Directors"), cast in person at a meeting or
meetings called for the purpose of voting on this Plan and
- 2 -
<PAGE>
such related agreements; and only if the Directors who approve the Plan taking
effect have reached the conclusion required by Rule 12b- 1(e) under the 1940
Act.
5. Any person authorized to direct the disposition of monies paid or
payable by any Series pursuant to this Plan or any related agreement shall
provide to the Corporation's Board of Directors and the Board shall review, at
least quarterly, a written report of the amounts so expended and the purposes
for which such expenditures were made. Legg Mason shall submit only information
regarding amounts expended for "distribution activities," as defined in this
paragraph 5, to the Board in support of the distribution fee payable hereunder
and shall submit only information regarding amounts expended for "service
activities," as defined in this paragraph 5, to the Board in support of the
service fee payable hereunder.
For purposes of this Plan, "distribution activities" shall
mean any activities in connection with Legg Mason's performance of its
obligations under the underwriting agreement, dated February 7, 1996, by and
between the Corporation and Legg Mason, that are not deemed "service
activities." As used herein, "distribution activities" also includes
subaccounting or recordkeeping services provided by an entity if the entity is
compensated, directly or indirectly, by the Fund or Legg Mason for such
services. Such entity may also be paid a service fee if it provides appropriate
services. Nothing in the foregoing is intended to or shall cause there to be any
implication that compensation for such services must be made only pursuant to a
plan of distribution under Rule 12b-1. "Service activities" shall mean
activities covered by the definition of "service fee" contained in amendments to
Article III, Section 26(d) of the NASD's Rules of Fair Practice that became
effective July 7, 1993, including the provision by Legg Mason of personal,
continuing services to investors in the Corporation's shares. Overhead and other
expenses of Legg Mason related to its "distribution activities" or "service
activities," including telephone and other communications expenses, may be
included in the information regarding amounts expended for such distribution or
service activities, respectively.
6. This Plan may be terminated with respect to any Series at any time
by vote of a majority of the Rule 12b-1 Directors or by vote of a majority of
the outstanding voting securities of that Series.
7. This Plan may not be amended to increase materially the amount of
distribution fees provided for in paragraph 1.A. hereof or the amount of
service fees provided for in paragraph 1.B. hereof unless such amendment is
approved by a vote of at least a majority of the outstanding securities, as
defined in the 1940 Act, of the
- 3 -
<PAGE>
Corporation, and no material amendment to the Plan shall be made unless such
amendment is approved in the manner provided for continuing approval in
paragraph 4 hereof.
8. While this Plan is in effect, the selection and nomination of
directors who are not interested persons of the Corporation, as defined in the
1940 Act, shall be committed to the discretion of directors who are themselves
not interested persons.
9. The Corporation shall preserve copies of this Plan and any related
agreements for a period of not less than six years from the date of expiration
of the Plan or agreement, as the case may be, the first two years in an easily
accessible place; and shall preserve copies of each report made pursuant to
paragraph 5 hereof for a period of not less than six years from the date of such
report, the first two years in an easily accessible place.
IN WITNESS WHEREOF, the Corporation has executed this Distribution Plan
as of the day and year set forth below:
Date: February 7, 1996 LEGG MASON INCOME TRUST, INC.
----------------
Attest: By: /s/Marie K. Karpinski
By: /s/Kathi D. Bair
Agreed and assented to by
LEGG MASON WOOD WALKER, INCORPORATED
By:/s/John F. Curley
- 4 -
Exhibit 10(b)(ii)
AMENDED
DISTRIBUTION PLAN OF
LEGG MASON INCOME TRUST, INC.
WHEREAS, Legg Mason Income Trust, Inc. (the "Corporation") is an
open-end management investment company registered under the Investment
Company Act of 1940, as amended ("1940 Act"), and has offered, and intends
to continue offering, for public sale distinct series of shares of common
stock ("Series"), each corresponding to a distinct portfolio;
WHEREAS, the Corporation has registered the offering of its shares
of common stock under a Registration Statement filed with the Securities
and Exchange Commission and that Registration Statement is in effect as of
the date hereof;
WHEREAS, the Corporation's Board of Directors has established a
Series of shares of common stock of the Corporation known as: Legg Mason
U.S. Government Money Market Portfolio ("Fund");
WHEREAS, the Corporation's Distribution Plan was adopted by the
Board of Directors on November 1, 1988;
WHEREAS, the Corporation has employed Legg Mason Wood Walker,
Incorporated ("Legg Mason") as principal underwriter of the shares of the
Corporation;
NOW, THEREFORE, the Corporation hereby adopts this Amended
Distribution Plan (the "Plan") in accordance with Rule 12b-1 under the 1940
Act on the following terms and conditions:
1. A. The Fund shall pay to Legg Mason, as compensation for Legg
Mason's services as principal underwriter of the Fund's shares and, for
ongoing services provided to the Fund's shareholders, a distribution and
shareholder services fee at the rate of 0.20% on an annualized basis of the
average daily net assets of the Fund's shares, such fee to be calculated
and accrued daily and paid monthly or at such other intervals as the Board
shall determine.
B. The Corporation may pay a distribution or service fee
to Legg Mason at a lesser rate than the fee specified paragraph 1.A. of
this Plan, as agreed upon by the Board and Legg Mason and as approved in
the manner specified in paragraph 4 of this Plan. The distribution and
service fee payable hereunder are payable without regard to the aggregate
amount that may be paid over the years, provided that, so long as the
limitations set forth in Article III, Section 26(d) of the Rules of Fair
Practice of the National Association of Securities Dealers, Inc. ("NASD")
remain in effect and apply to distributors or dealers in the Corporation's
shares, the amounts paid hereunder shall not exceed those limitations,
including permissible interest.
<PAGE>
2. As principal underwriter of the Corporation's shares, Legg
Mason may spend such amounts as it deems appropriate on any activities or
expenses primarily intended to result in the sale of the shares of the
Series and/or the servicing and maintenance of shareholder accounts,
including, but not limited to, compensation to employees of Legg Mason;
compensation to Legg Mason, other broker-dealers and other entities that
engage in or support the distribution of shares or who service shareholder
accounts or provide sub-accounting and recordkeeping services; expenses of
Legg Mason and such other broker-dealers and other entities, including
overhead and telephone and other communication expenses; the printing of
prospectuses, statements of additional information, and reports for other
than existing shareholders; and preparation and distribution of sales
literature and advertising materials.
3. This Plan shall not take effect with respect to any additional
Series until it has been approved by a vote of at least a majority of the
outstanding voting securities, as defined in the 1940 Act, of that Series.
4. This Amended Plan shall take effect on February 7, 1996 and
shall continue in effect for successive periods of one year from its
execution for so long as such continuance is specifically approved at least
annually together with any related agreements, by votes of a majority of
both (a) the Board of Directors of the Corporation and (b) those Directors
who are not "interested persons" of the Corporation, as defined in the 1940
Act, and who have no direct or indirect financial interest in the operation
of this Plan or any agreements related to it (the "Rule 12b-1 Directors"),
cast in person at a meeting or meetings called for the purpose of voting on
this Plan and such related agreements; and only if the Directors who
approve the Plan taking effect have reached the conclusion required by Rule
12b-1(e) under the 1940 Act.
5. Any person authorized to direct the disposition of monies paid
or payable by any Series pursuant to this Plan or any related agreement
shall provide to the Corporation's Board of Directors and the Board shall
review, at least quarterly, a written report of the amounts so expended and
the purposes for which such expenditures were made. Legg Mason shall submit
only information regarding amounts expended for "distribution activities,"
as defined in this paragraph 5, to the Board in support of the distribution
fee payable hereunder and shall submit only information regarding amounts
expended for "service activities," as defined in this paragraph 5, to the
Board in support of the service fee payable hereunder.
For purposes of this Plan, "distribution activities" shall
mean any activities in connection with Legg Mason's performance of its
obligations under the underwriting agreement, dated February 7, 1996, by
and between the Corporation and Legg Mason, that are not deemed
"service activities." As used herein, "distribution activities" also
includes subaccounting or recordkeeping services provided by an entity if
the entity is compensated, directly or indirectly, by the Fund or Legg
Mason for such services. Such entity may also be paid a service fee if it
- 2 -
<PAGE>
provides appropriate services. Nothing in the foregoing is intended to or
shall cause there to be any implication that compensation for such services
must be made only pursuant to a plan of distribution under Rule 12b-1.
"Service activities" shall mean activities covered by the definition of
"service fee" contained in amendments to Article III, Section 26(d) of the
NASD's Rules of Fair Practice that are currently scheduled to become
effective July 7, 1993, including the provision by Legg Mason of personal,
continuing services to investors in the Corporation's shares. Overhead and
other expenses of Legg Mason related to its "distribution activities" or
"service activities," including telephone and other communications
expenses, may be included in the information regarding amounts expended for
such distribution or service activities, respectively.
6. This Plan may be terminated with respect to any Series at any
time by vote of a majority of the Rule 12b-1 Directors or by vote of a
majority of the outstanding voting securities of that Series.
7. This Plan may not be amended to increase materially the amount
of distribution fees provided for in paragraph 1.A. hereof or the amount of
service fees provided for in paragraph 1.B. hereof unless such amendment is
approved by a vote of at least a majority of the outstanding securities, as
defined in the 1940 Act, of the Corporation, and no material amendment to
the Plan shall be made unless such amendment is approved in the manner
provided for continuing approval in paragraph 4 hereof.
8. While this Plan is in effect, the selection and nomination of
directors who are not interested persons of the Corporation, as defined in
the 1940 Act, shall be committed to the discretion of directors who are
themselves not interested persons.
9. The Corporation shall preserve copies of this Plan and any
related agreements for a period of not less than six years from the date of
expiration of the Plan or agreement, as the case may be, the first two
years in an easily accessible place; and shall preserve copies of each
report made pursuant to paragraph 5 hereof for a period of not less than
six years from the date of such report, the first two years in an easily
accessible place.
IN WITNESS WHEREOF, the Corporation has executed this Distribution
Plan as of the day and year set forth below:
Date: LEGG MASON INCOME TRUST, INC.
Attest: By: /s/ Marie K. Karpinski
----------------------
By: /s/ Kathi D. Bair
------------------
- 3 -
<PAGE>
Agreed and assented to by
LEGG MASON WOOD WALKER, INCORPORATED
By: /s/ John F. Curley
-----------------------
Exhibit 10(c)(ii)
AMENDED
DISTRIBUTION PLAN OF
LEGG MASON INCOME TRUST, INC.
WHEREAS, Legg Mason Income Trust, Inc. (the "Corporation") is an
open-end management investment company registered under the Investment
Company Act of 1940, as amended ("1940 Act"), and has offered, and intends
to continue offering, for public sale distinct series of shares of common
stock ("Series"), each corresponding to a distinct portfolio;
WHEREAS, the Corporation has registered the offering of its shares
of common stock under a Registration Statement filed with the Securities
and Exchange Commission and that Registration Statement is in effect as of
the date hereof;
WHEREAS, the Corporation's Board of Directors has established a
Series of shares of common stock of the Corporation known as: Legg Mason
High Yield Portfolio ("Fund");
WHEREAS, the Corporation's Distribution Plan was adopted by the
Board of Directors on October 22, 1993;
WHEREAS, the Corporation has employed Legg Mason Wood Walker,
Incorporated ("Legg Mason") as principal underwriter of the shares of the
Corporation;
NOW, THEREFORE, the Corporation hereby adopts this Amended
Distribution Plan (the "Plan") in accordance with Rule 12b-1 under the 1940
Act on the following terms and conditions:
1. A. The Fund shall pay to Legg Mason, as compensation for Legg
Mason's services as principal underwriter of the Series' shares, a
distribution fee at the rate of 0.25% on an annualized basis of the average
daily net assets of the Fund's shares, such fee to be calculated and
accrued daily and paid monthly or at such other intervals as the Board
shall determine.
B. The Fund shall pay to Legg Mason, as compensation for
ongoing services provided to the Fund's shareholders, a service fee at the
rate of 0.25% on an annualized basis of the average daily net assets of the
Fund's shares, such fee to be calculated and accrued daily and paid monthly
or at such other intervals as the Board shall determine.
C. The Corporation may pay a distribution or service fee
to Legg Mason at a lesser rate than the fees specified in paragraphs 1.A.
and 1.B., respectively, of this Plan, in either case as agreed upon by the
Board and Legg Mason and as approved in the manner specified in paragraph 4
of this Plan. The distribution and service fees payable hereunder are
payable without regard to the aggregate amount that may be paid over the
years, provided that, so long as the limitations set forth in Article III,
Section 26(d) of the Rules of Fair Practice of the
<PAGE>
National Association of Securities Dealers, Inc. ("NASD") remain in effect
and apply to distributors or dealers in the Corporation's shares, the
amounts paid hereunder shall not exceed those limitations, including
permissible interest.
2. As principal underwriter of the Corporation's shares, Legg
Mason may spend such amounts as it deems appropriate on any activities or
expenses primarily intended to result in the sale of the shares of the
Series and/or the servicing and maintenance of shareholder accounts,
including, but not limited to, compensation to employees of Legg Mason;
compensation to Legg Mason, other broker-dealers and other entities that
engage in or support the distribution of shares or who service shareholder
accounts or provide sub-accounting and recordkeeping services; expenses of
Legg Mason and such other broker-dealers and other entities, including
overhead and telephone and other communication expenses; the printing of
prospectuses, statements of additional information, and reports for other
than existing shareholders; and preparation and distribution of sales
literature and advertising materials.
3. This Plan shall not take effect with respect to any additional
Series until it has been approved by a vote of at least a majority of the
outstanding voting securities, as defined in the 1940 Act, of that Series.
4. This Amended Plan shall take effect on February 7, 1996 and
shall continue in effect for successive periods of one year from its
execution for so long as such continuance is specifically approved at least
annually together with any related agreements, by votes of a majority of
both (a) the Board of Directors of the Corporation and (b) those Directors
who are not "interested persons" of the Corporation, as defined in the 1940
Act, and who have no direct or indirect financial interest in the operation
of this Plan or any agreements related to it (the "Rule 12b-1 Directors"),
cast in person at a meeting or meetings called for the purpose of voting on
this Plan and such related agreements; and only if the Directors who
approve the Plan taking effect have reached the conclusion required by Rule
12b-1(e) under the 1940 Act.
5. Any person authorized to direct the disposition of monies paid
or payable by any Series pursuant to this Plan or any related agreement
shall provide to the Corporation's Board of Directors and the Board shall
review, at least quarterly, a written report of the amounts so expended and
the purposes for which such expenditures were made. Legg Mason shall submit
only information regarding amounts expended for "distribution activities,"
as defined in this paragraph 5, to the Board in support of the distribution
fee payable hereunder and shall submit only information regarding amounts
expended for "service activities," as defined in this paragraph 5, to the
Board in support of the service fee payable hereunder.
For purposes of this Plan, "distribution activities" shall
mean any activities in connection with Legg Mason's performance of its
obligations under the underwriting agreement, dated February 7, 1996,
- 2 -
<PAGE>
by and between the Corporation and Legg Mason, that are not deemed "service
activities." As used herein, "distribution activities" also includes
subaccounting or recordkeeping services provided by an entity if the entity
is compensated, directly or indirectly, by the Fund or Legg Mason for such
services. Such entity may also be paid a service fee if it provides
appropriate services. Nothing in the foregoing is intended to or shall
cause there to be any implication that compensation for such services must
be made only pursuant to a plan of distribution under Rule 12b-1. "Service
activities" shall mean activities covered by the definition of "service
fee" contained in amendments to Article III, Section 26(d) of the NASD's
Rules of Fair Practice that are currently scheduled to become effective
July 7, 1993, including the provision by Legg Mason of personal, continuing
services to investors in the Corporation's shares. Overhead and other
expenses of Legg Mason related to its "distribution activities" or "service
activities," including telephone and other communications expenses, may be
included in the information regarding amounts expended for such
distribution or service activities, respectively.
6. This Plan may be terminated with respect to any Series at any
time by vote of a majority of the Rule 12b-1 Directors or by vote of a
majority of the outstanding voting securities of that Series.
7. This Plan may not be amended to increase materially the amount
of distribution fees provided for in paragraph 1.A. hereof or the amount of
service fees provided for in paragraph 1.B. hereof unless such amendment is
approved by a vote of at least a majority of the outstanding securities, as
defined in the 1940 Act, of the Corporation, and no material amendment to
the Plan shall be made unless such amendment is approved in the manner
provided for continuing approval in paragraph 4 hereof.
8. While this Plan is in effect, the selection and nomination of
directors who are not interested persons of the Corporation, as defined in
the 1940 Act, shall be committed to the discretion of directors who are
themselves not interested persons.
9. The Corporation shall preserve copies of this Plan and any
related agreements for a period of not less than six years from the date of
expiration of the Plan or agreement, as the case may be, the first two
years in an easily accessible place; and shall preserve copies of each
report made pursuant to paragraph 5 hereof for a period of not less than
six years from the date of such report, the first two years in an easily
accessible place.
IN WITNESS WHEREOF, the Corporation has executed this Distribution
Plan as of the day and year set forth below:
Date: February 7, 1996 LEGG MASON INCOME TRUST, INC.
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<PAGE>
Attest: By: /s/ Marie K. Karpinski
----------------------
By: /s/ Kathi D. Bair
-----------------
Agreed and assented to by
LEGG MASON WOOD WALKER, INCORPORATED
By: /s/ JOHN F. CURLEY
------------------
Exhibit 11
September 20, 1996
Legg Mason Income Trust, Inc.
111 South Calvert Street
Baltimore, Maryland 21202
Ladies and Gentlemen:
You have requested our opinion as to certain matters regarding the
issuance by Legg Mason Income Trust, Inc. ("Company"), a corporation organized
under the laws of the State of Maryland, of shares of common stock (the
"Shares") of Legg Mason U.S. Government Intermediate-Term Portfolio
("Intermediate- Term"), a series of the Company, pursuant to separate Agreements
and Plans of Reorganization and Termination (each a"Plan") between the Company,
on behalf of Intermediate-Term, and Bartlett Capital Trust ("Capital Trust"), on
behalf of Bartlett Fixed Income Fund and Bartlett Short Term Bond Fund (each a
"Bartlett Fund"). Each Bartlett Fund is a series of Capital Trust. Under the
respective Plans, Intermediate-Term would acquire the assets of each Bartlett
Fund in exchange for the Shares and the assumption by Intermediate-Term of that
Bartlett Fund's liabilities. In connection with each Plan, the Company is about
to file a Registration Statement on Form N-14 (the "N-14") for the purpose of
registering the Shares under the Securities Act of 1933, as amended ("1933
Act"), to be issued pursuant to each Plan.
We have examined originals or copies believed by us to be genuine of
the Company's Articles of Incorporation and By-Laws, minutes of meetings of the
Company's board of directors, the form of each Plan, and such other documents
relating to the authorization and issuance of the Shares as we have deemed
relevant. Based upon that examination, we are of the opinion that the Shares
being registered by the N-14 may be issued in accordance with each Plan and the
Company's Articles of Incorporation and By-Laws, subject to compliance with the
1933 Act, the Investment Company Act of 1940, as amended, and applicable state
laws regulating the distribution of securities, and when so issued, those Shares
will be legally issued, fully paid and non-assessable.
<PAGE>
We hereby consent to this opinion accompanying the Form N-14 that the
Company plans to file with the Securities and Exchange Commission and to the
reference to our firm under the caption "Miscellaneous -- Legal Matters" in the
Prospectus/Proxy
Statement filed as part of the Form N-14.
Sincerely yours,
KIRKPATRICK & LOCKHART LLP
By: /s/ Arthur C. Delibert
Arthur C. Delibert
--------------------------
KIRKPATRICK & LOCKHART LLP
--------------------------
ONE INTERNATIONAL PLACE
BOSTON, MASSACHUSETTS 02110-2637
TELEPHONE (617) 261-3100
FACSIMILE (617) 261-3175
JOEL D. ALMQUIST
(617) 261-3104
[email protected]
September 16, 1996
Legg Mason U.S. Government Intermediate-Term Portfolio
Legg Mason Income Trust, Inc.
111 South Calvert Street
Baltimore, Maryland 21202
Ladies and Gentlemen:
Legg Mason U.S. Government Intermediate-Term Portfolio ("Acquiring
Fund"), a series of Legg Mason Income Trust, Inc., a Maryland corporation ("Legg
Mason Corporation"), has requested our opinion as to certain federal income tax
consequences of the proposed acquisition of Bartlett Fixed Income Fund
("Target"), a series of Bartlett Capital Trust, a Massachusetts business trust
("Bartlett Trust"),1/ by Acquiring Fund, pursuant to an Agreement and Plan of
Reorganization and Termination between them dated as of September 20,
1996 ("Plan"), attached as an exhibit to the pro spectus/proxy statement
to be furnished in connection with the solicitation of proxies by Bartlett
Trust's Board of Trustees for use at a special meeting of Target shareholders
("Special Meeting") to be held on December 6, 1996 ("Proxy"), included in the
registration statement on Form N-14 to be filed with the Securities and
Exchange Commission ("SEC") on the date hereof ("Registration Statement").
Specifically, Acquiring Fund has requested our opinion:
- --------
1/ Target and Acquiring Fund are referred to herein individually either by such
names or as a "Fund" and collectively as the "Funds," and Bartlett Trust and
Legg Mason Corporation are sometimes referred to herein individually either by
such names or as an "Investment Company" and collectively as the "Investment
Companies."
(1) that the acquisition by Acquiring Fund of Target's assets
in exchange solely for voting shares of beneficial interest in
Acquiring Fund and the assumption by Acquiring Fund of Target's
liabilities, followed by the distribution of those shares by Target pro
rata to its shareholders of record as of the Effective Time (as
hereinafter defined) ("Shareholders") constructively in exchange for
their shares of beneficial interest in Target ("Target Shares") (such
transaction sometimes being referred to herein as the
"Reorganization"), will constitute a "reorganization" within the
meaning of section 368(a)(1)(C)2/ and that each Fund will be a "party
to a reorganization" within the meaning of section 368(b),
- --------
2/ All section references are to the Internal Revenue Code of 1986, as
amended ("Code"), and all "Treas. Reg. ss." references are to the
regulations under the Code ("Regulations").
(2) that Target, the Shareholders, and Acquiring Fund will
recognize no gain or loss upon the Reorganization, and
(3) regarding the basis and holding period after the
Reorganization of the transferred assets and the shares of Acquiring
Fund issued pursuant thereto.
In rendering this opinion, we have examined (1) Target's prospectus
dated August 1, 1996 and statement of additional information dated August 1,
1996 ("SAI"), and the currently effective prospectus and SAI of Acquiring Fund,
both dated May 1, 1996, (2) the Proxy, (3) the Plan, and (4) such other
documents as we have deemed necessary or appropriate for the purposes hereof. As
to various matters of fact material to this opinion, we have relied, exclusively
and without independent verification, on statements of responsible officers of
each Investment Company and the representations described below and made in the
Plan (as contemplated in paragraph 6.6 thereof) (collectively
"Representations").
FACTS
Legg Mason Corporation is a Maryland corporation. Acquiring Fund
commenced operations as a series thereof on August 7, 1987. Bartlett Trust is an
unincorporated voluntary association with transferable shares formed as a
business trust (commonly referred to as a "business trust") under the laws of
the Commonwealth of Massachusetts pursuant to a Declaration of Trust. Target
commenced operations as a series thereof on April 22, 1986. Each Investment
Company is registered with the SEC as an open-end management investment com pany
under the Investment Company Act of 1940 ("1940 Act"). Legg Mason Fund Adviser,
Inc. ("LM Fund Adviser"), a wholly owned subsidiary of Legg Mason, Inc. ("Legg
Mason"), serves as manager to Acquiring Fund; Western Asset Management Company,
another wholly owned subsidiary of Legg Mason, serves as investment adviser to
Acquiring Fund, and Legg Mason is the distributor of Acquiring Fund's shares.
Bartlett & Co. serves as manager and investment adviser to Target.
The Reorganization, together with all related acts necessary to
consummate the same ("Closing"), shall occur as of 4:00 p.m. on December 13,
1996 (or on such other date or at such other time as the parties may agree)
("Effective Time"). 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 tax able income (computed without regard to any
deduction for dividends paid) for the current taxable year through the Effective
Time.
The Funds' investment objectives, which are substantially identical,
and investment policies, which are generally similar, are described in the Proxy
and their respective prospectuses and SAIs. Although there are differences in
those policies, it is not expected that Acquiring Fund will revise its
investment policies following the Reorganization to reflect Target's. Because
Target is permitted to invest in securities having characteristics different
from those permitted for Acquiring Fund, certain of the securities currently
held by Target may need to be sold rather than transferred to Acquiring Fund. If
the Reorganization is approved, Target will sell prior to the Effective Time any
assets that are inconsistent with Acquiring Fund's investment policies, and the
proceeds thereof will be held in temporary investments or reinvested in assets
that qualify to be held by Acquiring Fund.
The Reorganization was recommended by LM Fund Adviser to Legg Mason
Corporation's board of directors at a meeting thereof held on August 5, 1996 and
by Bartlett & Co. to Bartlett Trust's board of trustees at a meeting thereof
held on August 12, 1996. In considering the Reorganization, each board of
directors or board of trustees (each a "board") made an extensive inquiry into a
number of factors (which are described in the Proxy, together with LM Fund
Adviser's and Bartlett & Co.'s advice and recommendations to the respective
boards and the purposes of the Reorganization). Pursuant thereto, each board
approved the Plan, subject to the approval of Target's stockholders. In doing
so, each board, including a majority of its members who are not "interested
persons" (as that term is defined in the 1940 Act) of either Investment Company,
determined that the Reorganization is in its Fund's best in terests, that the
terms of the Reorganization are fair and reasonable, and that its Fund's share
holders' interests will not be diluted as a result of the Reorganization.
The Plan, which specifies that it is intended to be, and is adopted as,
a plan of a reorganization described in section 368(a)(1)(C), provides in
relevant part for the following:
(1) The acquisition by Acquiring Fund of 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 (collectively "Assets") in
exchange solely for
(a) the number of full and fractional shares of
beneficial interest in Acquiring Fund ("Aquiring Fund Shares")
determined by dividing the net value of Target by the net
asset value ("NAV") of an Acquiring Fund Share, and
(b) Acquiring Fund's assumption of 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 the Plan
(collectively "Liabilities") (Target having agreed in the Plan
to use its best efforts to discharge all of its known
liabilities and obligations prior to the Effective Time),
(2) The constructive distribution of such Acquiring Fund
Shares to the Shareholders, and
(3) The subsequent termination of Target.
The distribution described in (2) will be accomplished by transferring
the Acquiring Fund Shares then credited to Target's account on Acquiring Fund's
share transfer records to open accounts on those records established in the
Shareholders' names, with each Shareholder's account being credited with the
respective pro rata number of full and fractional (rounded to three decimal
places) Acquiring Fund Shares due such Shareholder. All outstanding Target
Shares, including any represented by certificates, simultaneously will be
canceled on Target's share transfer records.
REPRESENTATIONS
The representations enumerated below have been made to us by
appropriate officers of each Investment Company.
Each of Acquiring Fund, and Bartlett Trust, on behalf of Target, has
represented and warranted to us as follows:
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;
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;
3. The Shareholders will pay their own expenses, if any,
incurred in connection with the Reorganization;
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;
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;
6. There is no intercompany indebtedness between the Funds
that was issued or acquired, or will be settled, at a discount;
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 and (b) redemptions not
made as part of the Reorganization) will be included as assets thereof
held immediately before the Reorganization;
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
9. Immediately after the Reorganization, the Shareholders will
not own shares constituting "control" of Acquiring Fund within the
meaning of section 304(c).
Bartlett Trust also has represented and warranted to us on behalf of
Target as follows:
1. The Liabilities were incurred by Target in the ordinary
course of its business;
2. 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 ("Subchapter M") 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;
3. 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);
4. 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 or securities of any one issuer, and not more
than 50% of the value of such assets is invested in the stock or
securities of five or fewer issuers; and
5. Target will be terminated as soon as reasonably practicable
after the Reorganization, but in all events within six months after the
Effective Time.
Acquiring Fund also has represented and warranted to us on behalf of
Acquiring Fund as follows:
1. Acquiring Fund qualified for treatment as a RIC under
Subchapter M 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 did not apply to it;
2. 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 a series of 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;
3. 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, 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. 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)) following the
Reorganization;
5. 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
or securities of any one issuer and (b) not more than 50% of the value
of such assets will be invested in the stock or securities of five or
fewer issuers; and
6. 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.
OPINION
Based solely on the facts set forth above, and conditioned on (1) the
Representations being true at the time of Closing and (2) the Reorganization
being consummated in accordance with the Plan, our opinion (as explained more
fully in the next section of this letter) is as follows:
1. Acquiring Fund's acquisition of the Assets solely in
exchange for the Acquiring Fund Shares and Acquiring Fund's assumption
of the Liabilities, followed by Target's distribution of those shares
pro rata to the Shareholders constructively in exchange for their
Target Shares, will constitute a reorganization within the meaning of
section 368(a)(1)(C), and each Fund will be "a party to a
reorganization" within the meaning of section 368(b);
2. No gain or loss will be recognized to Target on the
transfer of the Assets to Acquiring Fund solely in exchange for the
Acquiring Fund Shares and Acquiring Fund's assumption of the
Liabilities or upon the subsequent distribution of those shares to the
Shareholders in constructive exchange for their Target Shares (section
361);
3. No gain or loss will be recognized to Acquiring Fund on
its receipt of the Assets solely in exchange for the Acquiring Fund
Shares and its assumption of the Liabil ities (section 1032(a));
4. Acquiring Fund's basis for the Assets will be the same as
the basis thereof in Target's hands immediately before the
Reorganization (section 362(b)), and Acquiring Fund's holding period
for the Assets will include Target's holding period therefor (section
1223(2));
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 (section 354(a)); and
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 (section 358(a)), 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 on the Closing Date (section 1223(1)).
The foregoing opinion (1) is based on, and is conditioned on the
continued applicability of, the provisions of the Code and the Regulations,
judicial decisions, and rulings and other pronouncements of the Internal Revenue
Service ("Service") in existence on the date hereof and (2) is applicable only
to the extent each Fund is solvent. We express no opinion about the tax
treatment of the transactions described herein if either Fund is insolvent.
ANALYSIS
I. The Reorganization Will Be a Reorganization under Section 368(a)(1)(C),
and Each Fund Will Be a Party to a Reorganization.
A. Each Fund Is a Separate Corporation.
A reorganization under section 368(a)(1)(C) (a "C reorganization")
involves the acquisition by one corporation, in exchange solely for all or a
part of its voting stock, of substantially all of the properties of another
corporation. For the transaction to qualify under that section, therefore, both
entities involved therein must be corporations (or associations taxable as
corporations). Legg Mason Corporation is a corporation. Acquiring Fund is a
separate series of Legg Mason Corporation. Bartlett Trust is a business trust,
not a corporation, and Target is a separate series of PW Trust.
Treasury Regulation section 301.7701-4(b) provides that certain
arrangements known as trusts (because legal title is conveyed to trustees for
the benefit of beneficiaries) will not be classified as trusts for purposes of
the Code because they are not simply arrangements to protect or conserve the
property for the beneficiaries. These "business or commercial trusts" are
created simply as devices to carry on profit-making businesses that normally
would have been carried on through corporations or partnerships. Treasury
Regulation section 301.7701-4(c) further provides that an "`investment' trust
will not be classified as a trust if there is a power under the trust agreement
to vary the investment of the certificate holders." See Commissioner v. North
American Bond Trust, 122 F.2d 545 (2d Cir. 1941), cert. denied, 314 U.S. 701
(1942).
Based on these criteria, Bartlett Trust does not qualify as a trust for
federal income tax purposes. While Bartlett Trust is an "investment trust," it
does not have fixed pools of assets -- Target has been a managed portfolios of
securities, and its investment adviser has had the authority to buy and sell
securities for them. Bartlett Trust is not simply an arrangement to protect or
conserve property for the beneficiaries, but is designed to carry on a
profit-making business. In addition, the word "association" has long been held
to include "business trusts," such as Bartlett Trust. See Hecht v. Malley, 265
U.S. 144 (1924). Accordingly, we believe that Bartlett Trust will be treated as
corporation for federal income tax purposes.
Neither Legg Mason Corporation nor Bartlett Trust as such, however, is
participating in the Reorganization, but rather series of Legg Mason Corporation
and Bartlett Trust are participants. Ordinarily, a transaction involving a
segregated pool of assets (such as Acquiring Fund and Target) could not qualify
as a reorganization, because the pool would not be a corporation. Under section
851(h), however, Acquiring Fund and Target are each treated as a separate
corporation for all purposes of the Code save the definitional requirement of
section 851(a) (which is satisfied by both Legg Mason Corporation and Bartlett
Trust). Thus, we believe that Acquiring Fund and Target each will be a
separate corporation, and the shares of each will be treated as shares of
corporate stock, for purposes of section 368(a)(1)(C).
B. Satisfaction of Section 368(a)(2)(F).
Under section 368(a)(2)(F), if two or more parties to a transaction
described in section 368(a)(1) (other than subparagraph (E) thereof) are
"investment companies," the transaction will not be considered a reorganization
with respect to any such investment company or its shareholders unless, among
other things, the investment company is a RIC or --
(1) not more than 25% of the value of its total assets is invested
in the stock or securities of any one issuer and
(2) not more than 50% of the value of its total assets is invested
in the stock or securities of five or fewer issuers.
Each Fund will meet the requirements for qualification and treatment as a RIC
for its respective current taxable year, and the foregoing percentage tests will
be satisfied by each Fund. Accordingly, we believe that section 368(a)(2)(F)
will not cause the Reorganization to fail to qualify as a C reorganization with
respect to either Fund.
C. Transfer of "Substantially All" of the Properties.
For an acquisition to qualify as a C reorganization, the acquiring
corporation must acquire "substantially all of the properties" of the transferor
corporation solely in exchange for all or part of the acquiring corporation's
stock. For purposes of issuing private letter rulings, the Service considers the
transfer of at least 70% of the transferor's gross assets, and at least 90% of
its net assets, held immediately before the reorganization to satisfy the
"substantially all" requirement. Rev. Proc. 77-37, 1977-2 C.B. 568. The
Reorganization will involve such a transfer. Accordingly, we believe that the
Reorganization will involve the transfer to Acquiring Fund of substantially all
of Target's properties.
D. Qualifying Consideration.
For an acquisition to qualify as a C reorganization, the acquiring
corporation must acquire at least 80% (by fair market value) of the transferor's
property solely in exchange for voting stock. Section 368(a)(2)(B)(iii). The
assumption of liabilities by the acquiring corporation or its acquisition of
property subject to liabilities normally are disregarded (section 368(a)(1)(C)),
but the amount of any such liabilities will be treated as money paid for the
transferor's property if the acquiring corporation exchanges any money or
property (other than its voting stock) therefor. Section 368(a)(2)(B). Because
Acquiring Fund will exchange only the Acquiring Fund Shares, and no money or
other property, for the Assets, we believe that the Reorganization will satisfy
the solely-for-voting-stock requirement to qualify as a C reorganization.
E. Requirements of Continuity.
Treasury Regulation section 1.368-1(b) sets forth two prerequisites to
a valid reorganization: (1) a continuity of the business enterprise under the
modified corporate form ("continuity of business") and (2) a continuity of
interest therein on the part of those persons who, directly or indirectly, were
the owners of the enterprise prior to the reorganization ("continuity of
interest").
1. Continuity of Business.
The continuity of business enterprise test as set forth in Treas. Reg.
ss. 1.368-1(d)(2) requires that the acquiring corporation must either (i)
continue the acquired corporation's historic business ("business continuity") or
(ii) use a significant portion of the acquired corporation's historic business
assets in a business ("asset continuity").
While there is no authority that deals directly with the requirement of
continuity of business in the context of a transaction such as the
Reorganization, Rev. Rul. 87-76, 1987-2 C.B. 84, deals with a somewhat similar
situation. In that ruling, P was a RIC that invested exclusively in municipal
securities. P acquired the assets of T in exchange for P common stock in a
transaction that was intended to qualify as a C reorganization. Prior to the
exchange, T sold its entire portfolio of corporate securities and purchased a
portfolio of municipal bonds. The Service held that this transaction did not
qualify as a reorganization for the following reasons: (1) because T had sold
its historic assets prior to the exchange, there was no asset continuity; and
(2) the failure of P to engage in the business of investing in corporate
securities after the exchange caused the transaction to lack business continuity
as well.
The Funds' investment objectives and investment policies are generally
similar. Further more, Acquiring Fund will actively continue Target's business
in the same manner that Target conducted it immediately before the
Reorganization. Accordingly, there will be business continuity.
Acquiring Fund not only will continue Target's historic business, but
Acquiring Fund also (1) has no plan or intention to sell or otherwise dispose of
any of the Assets, except for dispositions made in the ordinary course of its
business and dispositions necessary to maintain its status as a RIC, and (2)
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. Accordingly, there will be asset continuity as
well.
For all the foregoing reasons, we believe that the Reorganization will
meet the continuity of business requirement.
2. Continuity of Interest.
For purposes of issuing private letter rulings, the Service considers
the continuity of interest requirement of Treas. Reg. ss. 1.368-1(b) satisfied
if ownership in an acquiring corporation on the part of a transferor
corporation's former shareholders is equal in value to at least 50% of the value
of all the formerly outstanding shares of the transferor corporation. Rev.
Proc. 77-37, supra; but see Rev. Rul. 56-345, 1956-2 C.B. 206 (continuity of
interest was held to exist in a reorganization of two RICs where immediately
after the reorganization 26% of the shares were redeemed in order to allow
investment in a third RIC); also see Reef Corp. v. Commissioner, 368 F.2d 125
(5th Cir. 1966), cert. denied, 386 U.S. 1018 (1967) (a redemption of 48% of a
transferor corporation's stock was not a sufficient shift in proprietary
interest to disqualify a transaction as a reorganization under section
368(a)(2)(F) ("F Reorganization"), even though only 52% of the transferor's
shareholders would hold all the transferee's stock); Aetna Casualty and Surety
Co. v. U.S., 568 F.2d 811, 822-23 (2d Cir. 1976) (redemption of a 38.39%
minority interest did not prevent a transaction from qualifying as an F
Reorganization); Rev. Rul. 61-156, 1961-2 C.B. 62 (a transaction qualified as an
F Reorganization even though the transferor's shareholders acquired only 45% of
the transferee's stock, while the remaining 55% of that stock was issued to new
shareholders in a public underwriting immediately after the transfer).
No minimum holding period for shares of an acquiring corporation is
imposed under the Code on the acquired corporation's shareholders. Rev. Rul.
66-23, 1966-1 C.B. 67, provides generally that "unrestricted rights of ownership
for a period of time sufficient to warrant the conclusion that such ownership is
definite and substantial" will suffice and that "ordinarily, the Service will
treat five years of unrestricted . . . ownership as a sufficient period" for
continuity of interest purposes.
A preconceived plan or arrangement by or among an acquired
corporation's shareholders to dispose of more than 50% of an acquiring
corporation's shares could be problematic. Shareholders with no such
preconceived plan or arrangement, however, are basically free to sell any part
of the shares received by them in the reorganization without fear of breaking
continuity of interest, because the subsequent sale will be treated as an
independent transaction from the reorganization.
Neither Fund (1) is aware of any plan or intention of Shareholders to
dispose of any portion of the Acquiring Fund Shares to be received by them in
the Reorganization or (2) anticipates dispositions thereof 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. Conse
quently, each Fund 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. Accordingly, we believe that the Reorganization will meet
the continuity of interest requirement of Treas.
Reg. ss. 1.368-1(b).
F. Distribution by Target.
Section 368(a)(2)(G)(i) provides that a transaction will not qualify as
a C reorganization unless the corporation whose properties are acquired
distributes the stock it receives and its other property in pursuance of the
plan of reorganization. Under the Plan -- which we believe constitutes a "plan
of reorganization" within the meaning of Treas. Reg. ss. 1.368-2(g) -- Target
will distribute all the Acquiring Fund Shares to its shareholders in
constructive exchange for their Target Shares; as soon as is reasonably
practicable thereafter, Target will be terminated. Accordingly, we believe that
the requirements of section 368(a)(2)(G)(i) will be satisfied.
G. Business Purpose.
All reorganizations must meet the judicially imposed requirements of
the "business purpose doctrine," which was established in Gregory v. Helvering,
293 U.S. 465 (1935), and is now set forth in Treas. Reg. ss.ss. 1.368-1(b),
- -1(c), and -2(g) (the last of which provides that, to qualify as a
reorganization, a transaction must be "undertaken for reasons germane to the
continuance of the business of a corporation a party to the reorganization").
Under that doctrine, a transaction must have a bona fide business purpose (and
not a purpose to avoid federal income tax) to constitute a valid reorganization.
The substantial business purposes of the Reorganization are outlined above.
Accordingly, we believe that the Reorganization is being undertaken for bona
fide business purposes (and not a purpose to avoid federal income tax) and
therefore meets the requirements of the business purpose doctrine.
For all the foregoing reasons, we believe that the Reorganization will
constitute a reorganization within the meaning of section 368(a)(1)(C).
H. Both Funds are Parties to the Reorganization.
Section 368(b)(2) and Treas. Reg. ss. 1.368-1(f) provide that if one
corporation transfers substantially all of its properties to a second
corporation in exchange for all or a part of the voting stock of the second
corporation, then both corporations are parties to a reorganization. Target is
transferring substantially all of its properties to Acquiring Fund in exchange
for Acquiring Fund Shares. Accordingly, we believe that each Fund will be "a
party to a reorganization."
II. No Gain or Loss Will Be Recognized to Target.
Under sections 361(a) and (c), no gain or loss will be recognized to a
corporation that is a party to a reorganization (1) on the exchange of property,
pursuant to the plan of reorganization, solely for stock or securities in
another corporate party to the reorganization or (2) on the distribution to its
shareholders, pursuant to that plan, of stock in such other corporation that was
received by the distributing corporation in the exchange. (Such a distribution
is required by section 368(a)(2)(G)(i) for a reorganization to qualify as a C
reorganization.) Section 361(c)(4) provides that specified provisions requiring
recognition of gain on certain distributions shall not apply to a distribution
described in (2) above.
Section 357(a) provides in pertinent part that, except as provided in
section 357(b), if a taxpayer receives property that would be permitted to be
received under section 361 without recognition of gain if it were the sole
consideration and, as part of the consideration, another party to the exchange
assumes a liability of the taxpayer or acquires from the taxpayer property
subject to a liability, then that assumption or acquisition shall not be treated
as money or other property and shall not prevent the exchange from being within
section 361. Section 357(b) applies where the principal purpose of the
assumption or acquisition was a tax avoidance purpose or not a bona fide
business purpose.
As noted above, the Reorganization will constitute a C reorganization,
each Fund will be a party to a reorganization, and the Plan constitutes a plan
of reorganization. Target will exchange the Assets solely for the Acquiring
Fund Shares and Acquiring Fund's assumption of the Liabilities and then will be
terminated pursuant to the Plan, distributing those shares to its shareholders
in constructive exchange for their Target Shares. As also noted above, we
believe that the Reorganization is being undertaken for bona fide business
purposes (and not a purpose to avoid federal income tax); we also do not believe
that the principal purpose of Acquiring Fund's assumption of the Liabilities is
avoidance of federal income tax on the proposed transaction. Accordingly, we
believe that no gain or loss will be recognized to Target on the
Reorganization.3/
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3/ Notwithstanding anything herein to the contrary, 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.
III. No Gain or Loss Will Be Recognized to Acquiring Fund.
Section 1032(a) provides that no gain or loss will be recognized to a
corporation on the receipt by it of money or other property in exchange for its
shares. Acquiring Fund will issue the Acquiring Fund Shares to Target in
exchange for the Assets, which consist of money and securities. Accordingly, we
believe that no gain or loss will be recognized to Acquiring Fund on the
Reorganization.
IV. Acquiring Fund's Basis for the Assets Will Be a Carryover Basis, and
Its Holding Period Will Include Target's Holding Period.
Section 362(b) provides that property acquired by a corporation in
connection with a reorganization will have the same basis in that corporation's
hands as the basis of the property in the transferor corporation's hands
immediately before the exchange, increased by any gain recognized to the
transferor on the transfer. As noted above, the Reorganization will constitute a
C reorganization and Target will recognize no gain on the Reorganization under
section 361(a). Accordingly, we believe that Acquiring Fund's basis for the
Assets will be the same as the basis thereof in Target's hands immediately
before the Reorganization.
Section 1223(2) provides that where property acquired in an exchange
has a carryover basis, the property will have a holding period in the hands of
the acquiror that includes the holding period of the property in the
transferor's hands. As stated above, Acquiring Fund's basis for the Assets
will be a carryover basis. Accordingly, we believe that Acquiring Fund's
holding period for the Assets will include Target's holding period therefor.
V. No Gain or Loss Will Be Recognized to a Shareholder.
Under section 354(a), no gain or loss is recognized to a shareholder
who exchanges shares for other shares pursuant to a plan of reorganization,
where the shares exchanged, as well as the shares received, are those of a
corporation that is a party to the reorganization. As stated above, the
Reorganization will constitute a C reorganization, the Plan constitutes a plan
of reorganization, and each Fund will be a party to a reorganization.
Accordingly, we believe that under section 354 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.
VI. A Shareholder's Basis for Acquiring Fund Shares Will Be a Substituted
Basis, and its Holding Period therefor Will Include its Holding Period
for its Target Shares.
Section 358(a)(1) provides, in part, that in the case of an exchange to
which section 354 applies, the basis of any shares received in the transaction
without the recognition of gain is the same as the basis of the property
transferred in exchange therefor, decreased by, among other things, the fair
market value of any other property and the amount of any money received in the
transaction and increased by the amount of any gain recognized on the exchange
by the shareholder.
As noted above, the Reorganization will constitute a C reorganization
and under section 354 no gain or loss will be recognized to a Shareholder on the
constructive exchange of its Target Shares for Acquiring Fund Shares in the
Reorganization. No property will be distributed to the Shareholders other than
the Acquiring Fund Shares, and no money will be distributed to them pursuant to
the Reorganization. Accordingly, we believe that 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.
Under section 1223(1), the holding period of property received in an
exchange includes the holding period of the property exchanged therefor if the
acquired property has, for the purpose of determining gain or loss, the same
basis in the holder's hands as the property exchanged therefor ("substituted
basis") and such property was a capital asset. As noted above, a Shareholder
will have a substituted basis for the Acquiring Fund Shares it receives in the
Reorganization; accordingly, provided that the Shareholder held its Target
Shares as capital assets on the Closing Date, we believe its holding period
for those Acquiring Fund Shares will include its holding period for those Target
Shares.
We hereby consent to this opinion accompanying the Registration
Statement and to the references to our firm under the captions "Approval of the
Reorganizations of Bartlett Fixed Income Fund and Bartlett Short Term Bond Fund
into Legg Mason U.S. Government Intermediate-Term Portfolio -- Synopsis --
Federal Income Tax Consequences of the Reorganizations" and "General
Information -- Federal Income Tax Considerations Applicable to Each Transaction"
in the Proxy.
Very truly yours,
KIRKPATRICK & LOCKHART LLP
/s/ Joel D. Almquist
Joel D. Almquist
--------------------------
KIRKPATRICK & LOCKHART LLP
--------------------------
ONE INTERNATIONAL PLACE
BOSTON, MASSACHUSETTS 02110-2637
TELEPHONE (617) 261-3100
FACSIMILE (617) 261-3175
JOEL D. ALMQUIST
(617) 261-3104
[email protected]
September 16, 1996
Legg Mason U.S. Government Intermediate-Term Portfolio
Legg Mason Income Trust, Inc.
111 South Calvert Street
Baltimore, Maryland 21202
Ladies and Gentlemen:
Legg Mason U.S. Government Intermediate-Term Portfolio ("Acquiring
Fund"), a series of Legg Mason Income Trust, Inc., a Maryland corporation ("Legg
Mason Corporation"), has requested our opinion as to certain federal income tax
consequences of the proposed acquisition of Bartlett Short Term Bond Fund
("Target"), a series of Bartlett Capital Trust, a Massachusetts business trust
("Bartlett Trust"),1/ by Acquiring Fund, pursuant to an Agreement and Plan of
Reorganization and Termination between them dated as of September 20,
1996 ("Plan"), attached as an exhibit to the pro spectus/proxy statement
to be furnished in connection with the solicitation of proxies by Bartlett
Trust's Board of Trustees for use at a special meeting of Target shareholders
("Special Meeting") to be held on December 6, 1996 ("Proxy"), included in the
registration statement on Form N-14 to be filed with the Securities and
Exchange Commission ("SEC") on the date hereof ("Registration Statement").
Specifically, Acquiring Fund has requested our opinion:
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1/ Target and Acquiring Fund are referred to herein individually either by such
names or as a "Fund" and collectively as the "Funds," and Bartlett Trust and
Legg Mason Corporation are sometimes referred to herein individually either by
such names or as an "Investment Company" and collectively as the "Investment
Companies."
(1) that the acquisition by Acquiring Fund of Target's assets
in exchange solely for voting shares of beneficial interest in
Acquiring Fund and the assumption by Acquiring Fund of Target's
liabilities, followed by the distribution of those shares by Target pro
rata to its shareholders of record as of the Effective Time (as
hereinafter defined) ("Shareholders") constructively in exchange for
their shares of beneficial interest in Target ("Target Shares") (such
transaction sometimes being referred to herein as the
"Reorganization"), will constitute a "reorganization" within the
meaning of section 368(a)(1)(C)2/ and that each Fund will be a "party
to a reorganization" within the meaning of section 368(b),
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2/ All section references are to the Internal Revenue Code of 1986, as
amended ("Code"), and all "Treas. Reg. ss." references are to the
regulations under the Code ("Regulations").
(2) that Target, the Shareholders, and Acquiring Fund will
recognize no gain or loss upon the Reorganization, and
(3) regarding the basis and holding period after the
Reorganization of the transferred assets and the shares of Acquiring
Fund issued pursuant thereto.
In rendering this opinion, we have examined (1) Target's prospectus
dated August 1, 1996 and statement of additional information dated August 1,
1996 ("SAI"), and the currently effective prospectus and SAI of Acquiring Fund,
both dated May 1, 1996, (2) the Proxy, (3) the Plan, and (4) such other
documents as we have deemed necessary or appropriate for the purposes hereof. As
to various matters of fact material to this opinion, we have relied, exclusively
and without independent verification, on statements of responsible officers of
each Investment Company and the representations described below and made in the
Plan (as contemplated in paragraph 6.6 thereof) (collectively
"Representations").
FACTS
Legg Mason Corporation is a Maryland corporation. Acquiring Fund
commenced opera tions as a series thereof on August 7, 1987. Bartlett Trust is
an unincorporated voluntary associ ation with transferable shares formed as a
business trust (commonly referred to as a "business trust") under the laws of
the Commonwealth of Massachusetts pursuant to a Declaration of Trust. Target
commenced operations as a series thereof on February 4, 1994. Each Investment
Company is registered with the SEC as an open-end management investment company
under the Investment Company Act of 1940 ("1940 Act"). Legg Mason Fund Adviser,
Inc. ("LM Fund Adviser"), a wholly owned subsidiary of Legg Mason, Inc. ("Legg
Mason"), serves as manager to Acquiring Fund; Western Asset Management Company,
another wholly owned subsidiary of Legg Mason, serves as investment adviser to
Acquiring Fund, and Legg Mason is the distributor of Acquiring Fund's shares.
Bartlett & Co. serves as manager and investment adviser to Target.
The Reorganization, together with all related acts necessary to
consummate the same ("Closing"), shall occur as of 4:00 p.m. on December 13,
1996 (or on such other date or at such other time as the parties may agree)
("Effective Time"). 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) for the current taxable year through the Effective Time.
The Funds' investment objectives, which are substantially identical,
and investment policies, which are generally similar, are described in the Proxy
and their respective prospectuses and SAIs. Although there are differences in
those policies, it is not expected that Acquiring Fund will revise its
investment policies following the Reorganization to reflect Target's. Because
Target is permitted to invest in securities having characteristics different
from those permitted for Acquiring Fund, certain of the securities currently
held by Target may need to be sold rather than transferred to Acquiring Fund. If
the Reorganization is approved, Target will sell prior to the Effective Time any
assets that are inconsistent with Acquiring Fund's investment policies, and the
proceeds thereof will be held in temporary investments or reinvested in assets
that qualify to be held by Acquiring Fund.
The Reorganization was recommended by LM Fund Adviser to Acquiring
Fund's board of trustees at a meeting thereof held on August 5, 1996 and by
Bartlett & Co. to Bartlett Trust's board of trustees at a meeting thereof held
on August 12, 1996. In considering the Reorganization, each board of trustees
made an extensive inquiry into a number of factors (which are described in the
Proxy, together with LM Fund Adviser's and Bartlett & Co.'s advice and
recommendations to the respective boards of trustees and the purposes of the
Reorganization). Pursuant thereto, each board of trustees approved the Plan,
subject to the approval of Target's stockholders. In doing so, each board of
trustees, including a majority of its members who are not "interested persons"
(as that term is defined in the 1940 Act) of either Investment Company,
determined that the Reorganization is in its Fund's best interests, that the
terms of the Reorganization are fair and reasonable, and that its Fund's
shareholders' interests will not be diluted as a result of the Reorganization.
The Plan, which specifies that it is intended to be, and is adopted as,
a plan of a reorganization described in section 368(a)(1)(C), provides in
relevant part for the following:
(1) The acquisition by Acquiring Fund of 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 (collectively "Assets") in
exchange solely for
(a) the number of full and fractional shares of
beneficial interest in Acquiring Fund ("Aquiring Fund Shares")
determined by dividing the net value of Target by the net
asset value ("NAV") of an Acquiring Fund Share, and
(b) Acquiring Fund's assumption of 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 the Plan
(collectively "Liabilities") (Target having agreed in the Plan
to use its best efforts to discharge all of its known
liabilities and obligations prior to the Effective Time),
(2) The constructive distribution of such Acquiring Fund
Shares to the Shareholders, and
(3) The subsequent termination of Target.
The distribution described in (2) will be accomplished by transferring
the Acquiring Fund Shares then credited to Target's account on Acquiring Fund's
share transfer records to open accounts on those records established in the
Shareholders' names, with each Shareholder's account being credited with the
respective pro rata number of full and fractional (rounded to three decimal
places) Acquiring Fund Shares due such Shareholder. All outstanding Target
Shares, including any represented by certificates, simultaneously will be
canceled on Target's share transfer records.
REPRESENTATIONS
The representations enumerated below have been made to us by
appropriate officers of each Investment Company.
Each of Acquiring Fund, and Bartlett Trust, on behalf of Target, has
represented and warranted to us as follows:
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;
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;
3. The Shareholders will pay their own expenses, if any,
incurred in connection with the Reorganization;
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;
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;
6. There is no intercompany indebtedness between the Funds
that was issued or acquired, or will be settled, at a discount;
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 and (b) redemptions not
made as part of the Reorganization) will be included as assets thereof
held immediately before the Reorganization;
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
9. Immediately after the Reorganization, the Shareholders will
not own shares constituting "control" of Acquiring Fund within the
meaning of section 304(c).
Bartlett Trust also has represented and warranted to us on behalf of
Target as follows:
1. The Liabilities were incurred by Target in the ordinary
course of its business;
2. 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 ("Subchapter M") 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;
3. 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);
4. 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 or securities of any one issuer, and not more
than 50% of the value of such assets is invested in the stock or
securities of five or fewer issuers; and
5. Target will be terminated as soon as reasonably practicable
after the Reorganization, but in all events within six months after the
Effective Time.
Acquiring Fund also has represented and warranted to us on behalf of
Acquiring Fund as follows:
1. Acquiring Fund qualified for treatment as a RIC under
Subchapter M 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 did not apply to it;
2. 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 a series of 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;
3. 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, 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. 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)) following the
Reorganization;
5. 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
or securities of any one issuer and (b) not more than 50% of the value
of such assets will be invested in the stock or securities of five or
fewer issuers; and
6. 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.
OPINION
Based solely on the facts set forth above, and conditioned on (1) the
Representations being true at the time of Closing and (2) the Reorganization
being consummated in accordance with the Plan, our opinion (as explained more
fully in the next section of this letter) is as follows:
1. Acquiring Fund's acquisition of the Assets solely in
exchange for the Acquiring Fund Shares and Acquiring Fund's assumption
of the Liabilities, followed by Target's distribution of those shares
pro rata to the Shareholders constructively in exchange for their
Target Shares, will constitute a reorganization within the meaning of
section 368(a)(1)(C), and each Fund will be "a party to a
reorganization" within the meaning of section 368(b);
2. No gain or loss will be recognized to Target on the
transfer of the Assets to Acquiring Fund solely in exchange for the
Acquiring Fund Shares and Acquiring Fund's assumption of the
Liabilities or upon the subsequent distribution of those shares to the
Shareholders in constructive exchange for their Target Shares (section
361);
3. No gain or loss will be recognized to Acquiring Fund on
its receipt of the Assets solely in exchange for the Acquiring Fund
Shares and its assumption of the Liabilities (section 1032(a));
4. Acquiring Fund's basis for the Assets will be the same as
the basis thereof in Target's hands immediately before the
Reorganization (section 362(b)), and Acquiring Fund's holding period
for the Assets will include Target's holding period therefor (section
1223(2));
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 (section 354(a)); and
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 (section 358(a)), 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 on the Closing Date (section 1223(1)).
The foregoing opinion (1) is based on, and is conditioned on the
continued applicability of, the provisions of the Code and the Regulations,
judicial decisions, and rulings and other pronouncements of the Internal Revenue
Service ("Service") in existence on the date hereof and (2) is applicable only
to the extent each Fund is solvent. We express no opinion about the tax
treatment of the transactions described herein if either Fund is insolvent.
ANALYSIS
I. The Reorganization Will Be a Reorganization under Section 368(a)(1)(C),
and Each Fund Will Be a Party to a Reorganization.
A. Each Fund Is a Separate Corporation.
A reorganization under section 368(a)(1)(C) (a "C reorganization")
involves the acquisition by one corporation, in exchange solely for all or a
part of its voting stock, of substantially all of the properties of another
corporation. For the transaction to qualify under that section, therefore, both
entities involved therein must be corporations (or associations taxable as
corporations). Legg Mason Corporation is a corporation. Acquiring Fund is a
separate series of Legg Mason Corporation. Bartlett Trust is a business trust,
not a corporation, and Target is a separate series of PW Trust.
Treasury Regulation section 301.7701-4(b) provides that certain
arrangements known as trusts (because legal title is conveyed to trustees for
the benefit of beneficiaries) will not be classified as trusts for purposes of
the Code because they are not simply arrangements to protect or conserve the
property for the beneficiaries. These "business or commercial trusts" are
created simply as devices to carry on profit-making businesses that normally
would have been carried on through corporations or partnerships. Treasury
Regulation section 301.7701-4(c) further provides that an "`investment' trust
will not be classified as a trust if there is a power under the trust agreement
to vary the investment of the certificate holders." See Commissioner v. North
American Bond Trust, 122 F.2d 545 (2d Cir. 1941), cert. denied, 314 U.S. 701
(1942).
Based on these criteria, Bartlett Trust does not qualify as a trust for
federal income tax purposes. While Bartlett Trust is an "investment trust," it
does not have fixed pools of assets -- Target has been a managed portfolios of
securities, and its investment adviser has had the authority to buy and sell
securities for them. Bartlett Trust is not simply an arrangement to protect or
conserve property for the beneficiaries, but is designed to carry on a
profit-making business. In addition, the word "association" has long been held
to include "business trusts," such as Bartlett Trust. See Hecht v. Malley, 265
U.S. 144 (1924). Accordingly, we believe that Bartlett Trust will be treated as
corporation for federal income tax purposes.
Neither Legg Mason Corporation nor Bartlett Trust as such, however, is
participating in the Reorganization, but rather series of Legg Mason Corporation
and Bartlett Trust are participants. Ordinarily, a transaction involving a
segregated pool of assets (such as Acquiring Fund and Target) could not qualify
as a reorganization, because the pool would not be a corporation. Under section
851(h), however, Acquiring Fund and Target are each treated as a separate
corporation for all purposes of the Code save the definitional requirement of
section 851(a) (which is satisfied by both Legg Mason Corporation and Bartlett
Trust). Thus, we believe that Acquiring Fund and Target each will be a
separate corporation, and the shares of each will be treated as shares of
corporate stock, for purposes of section 368(a)(1)(C).
B. Satisfaction of Section 368(a)(2)(F).
Under section 368(a)(2)(F), if two or more parties to a transaction
described in section 368(a)(1) (other than subparagraph (E) thereof) are
"investment companies," the transaction will not be considered a reorganization
with respect to any such investment company or its shareholders unless, among
other things, the investment company is a RIC or --
(1) not more than 25% of the value of its total assets is invested
in the stock or securities of any one issuer and
(2) not more than 50% of the value of its total assets is invested
in the stock or securities of five or fewer issuers.
Each Fund will meet the requirements for qualification and treatment as a RIC
for its respective current taxable year, and the foregoing percentage tests will
be satisfied by each Fund. Accordingly, we believe that section 368(a)(2)(F)
will not cause the Reorganization to fail to qualify as a C reorganization with
respect to either Fund.
C. Transfer of "Substantially All" of the Properties.
For an acquisition to qualify as a C reorganization, the acquiring
corporation must acquire "substantially all of the properties" of the transferor
corporation solely in exchange for all or part of the acquiring corporation's
stock. For purposes of issuing private letter rulings, the Service considers the
transfer of at least 70% of the transferor's gross assets, and at least 90% of
its net assets, held immediately before the reorganization to satisfy the
"substantially all" requirement. Rev. Proc. 77-37, 1977-2 C.B. 568. The
Reorganization will involve such a transfer. Accordingly, we believe that the
Reorganization will involve the transfer to Acquiring Fund of substantially all
of Target's properties.
D. Qualifying Consideration.
For an acquisition to qualify as a C reorganization, the acquiring
corporation must acquire at least 80% (by fair market value) of the transferor's
property solely in exchange for voting stock. Section 368(a)(2)(B)(iii). The
assumption of liabilities by the acquiring corporation or its acquisition of
property subject to liabilities normally are disregarded (section 368(a)(1)(C)),
but the amount of any such liabilities will be treated as money paid for the
transferor's property if the acquiring corporation exchanges any money or
property (other than its voting stock) therefor. Section 368(a)(2)(B). Because
Acquiring Fund will exchange only the Acquiring Fund Shares, and no money or
other property, for the Assets, we believe that the Reorganization will satisfy
the solely-for-voting-stock requirement to qualify as a C reorganization.
E. Requirements of Continuity.
Treasury Regulation section 1.368-1(b) sets forth two prerequisites to
a valid reorganization: (1) a continuity of the business enterprise under the
modified corporate form ("continuity of business") and (2) a continuity of
interest therein on the part of those persons who, directly or indirectly, were
the owners of the enterprise prior to the reorganization ("continuity of
interest").
1. Continuity of Business.
The continuity of business enterprise test as set forth in Treas. Reg.
ss. 1.368-1(d)(2) requires that the acquiring corporation must either (i)
continue the acquired corporation's historic business ("business continuity") or
(ii) use a significant portion of the acquired corporation's historic business
assets in a business ("asset continuity").
While there is no authority that deals directly with the requirement of
continuity of business in the context of a transaction such as the
Reorganization, Rev. Rul. 87-76, 1987-2 C.B. 84, deals with a somewhat similar
situation. In that ruling, P was a RIC that invested exclusively in municipal
securities. P acquired the assets of T in exchange for P common stock in a
transaction that was intended to qualify as a C reorganization. Prior to the
exchange, T sold its entire portfolio of corporate securities and purchased a
portfolio of municipal bonds. The Service held that this transaction did not
qualify as a reorganization for the following reasons: (1) because T had sold
its historic assets prior to the exchange, there was no asset continuity; and
(2) the failure of P to engage in the business of investing in corporate
securities after the exchange caused the transaction to lack business continuity
as well.
The Funds' investment objectives and investment policies are similar.
Furthermore, Acquiring Fund will actively continue Target's business in the same
manner that Target con ducted it immediately before the Reorganization.
Accordingly, there will be business continuity.
Acquiring Fund not only will continue Target's historic business, but
Acquiring Fund also (1) has no plan or intention to sell or otherwise dispose of
any of the Assets, except for dispositions made in the ordinary course of its
business and dispositions necessary to maintain its status as a RIC, and (2)
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. Accordingly, there will be asset continuity as
well.
For all the foregoing reasons, we believe that the Reorganization will
meet the continuity of business requirement.
2. Continuity of Interest.
For purposes of issuing private letter rulings, the Service considers
the continuity of interest requirement of Treas. Reg. ss. 1.368-1(b) satisfied
if ownership in an acquiring corporation on the part of a transferor
corporation's former shareholders is equal in value to at least 50% of the value
of all the formerly outstanding shares of the transferor corporation. Rev.
Proc. 77-37, supra; but see Rev. Rul. 56-345, 1956-2 C.B. 206 (continuity of
interest was held to exist in a reorganization of two RICs where immediately
after the reorganization 26% of the shares were redeemed in order to allow
investment in a third RIC); also see Reef Corp. v. Commissioner, 368 F.2d 125
(5th Cir. 1966), cert. denied, 386 U.S. 1018 (1967) (a redemption of 48% of a
transferor corporation's stock was not a sufficient shift in proprietary
interest to disqualify a transaction as a reorganization under section
368(a)(2)(F) ("F Reorganization"), even though only 52% of the transferor's
shareholders would hold all the transferee's stock); Aetna Casualty and Surety
Co. v. U.S., 568 F.2d 811, 822-23 (2d Cir. 1976) (redemption of a 38.39%
minority interest did not prevent a transaction from qualifying as an F
Reorganization); Rev. Rul. 61-156, 1961-2 C.B. 62 (a transaction qualified as an
F Reorganization even though the transferor's shareholders acquired only 45% of
the transferee's stock, while the remaining 55% of that stock was issued to new
shareholders in a public underwriting immediately after the transfer).
No minimum holding period for shares of an acquiring corporation is
imposed under the Code on the acquired corporation's shareholders. Rev. Rul.
66-23, 1966-1 C.B. 67, provides generally that "unrestricted rights of ownership
for a period of time sufficient to warrant the conclusion that such ownership is
definite and substantial" will suffice and that "ordinarily, the Service will
treat five years of unrestricted . . . ownership as a sufficient period" for
continuity of interest purposes.
A preconceived plan or arrangement by or among an acquired
corporation's shareholders to dispose of more than 50% of an acquiring
corporation's shares could be problematic. Shareholders with no such
preconceived plan or arrangement, however, are basically free to sell any part
of the shares received by them in the reorganization without fear of breaking
continuity of interest, because the subsequent sale will be treated as an
independent transaction from the reorganization.
Neither Fund (1) is aware of any plan or intention of Shareholders to
dispose of any portion of the Acquiring Fund Shares to be received by them in
the Reorganization or (2) anticipates dispositions thereof 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, each Fund 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. Accordingly, we believe that the
Reorganization will meet the continuity of interest requirement of Treas. Reg.
ss. 1.368-1(b).
F. Distribution by Target.
Section 368(a)(2)(G)(i) provides that a transaction will not qualify as
a C reorganization unless the corporation whose properties are acquired
distributes the stock it receives and its other property in pursuance of the
plan of reorganization. Under the Plan -- which we believe constitutes a "plan
of reorganization" within the meaning of Treas. Reg. ss. 1.368-2(g) -- Target
will distribute all the Acquiring Fund Shares to its shareholders in
constructive exchange for their Target Shares; as soon as is reasonably
practicable thereafter, Target will be terminated. Accordingly, we believe that
the requirements of section 368(a)(2)(G)(i) will be satisfied.
G. Business Purpose.
All reorganizations must meet the judicially imposed requirements of
the "business purpose doctrine," which was established in Gregory v. Helvering,
293 U.S. 465 (1935), and is now set forth in Treas. Reg. ss.ss. 1.368-1(b),
- -1(c), and -2(g) (the last of which provides that, to qualify as a
reorganization, a transaction must be "undertaken for reasons germane to
the continuance of the business of a corporation a party to the
reorganization"). Under that doctrine, a transaction must have a bona fide
business purpose (and not a purpose to avoid federal income tax) to
constitute a valid reorganization. The substantial business purposes of the
Reorganization are outlined above. Accordingly, we believe that the
Reorganization is being undertaken for bona fide business purposes (and not a
purpose to avoid federal income tax) and therefore meets the requirements of
the business purpose doctrine.
For all the foregoing reasons, we believe that the Reorganization will
constitute a reorganization within the meaning of section 368(a)(1)(C).
H. Both Funds are Parties to the Reorganization.
Section 368(b)(2) and Treas. Reg. ss. 1.368-1(f) provide that if one
corporation transfers substantially all of its properties to a second
corporation in exchange for all or a part of the voting stock of the second
corporation, then both corporations are parties to a reorganization. Target is
transferring substantially all of its properties to Acquiring Fund in exchange
for Acquiring Fund Shares. Accordingly, we believe that each Fund will be "a
party to a reorganization."
II. No Gain or Loss Will Be Recognized to Target.
Under sections 361(a) and (c), no gain or loss will be recognized to a
corporation that is a party to a reorganization (1) on the exchange of property,
pursuant to the plan of reorganization, solely for stock or securities in
another corporate party to the reorganization or (2) on the distribution to its
shareholders, pursuant to that plan, of stock in such other corporation that was
received by the distributing corporation in the exchange. (Such a distribution
is required by section 368(a)(2)(G)(i) for a reorganization to qualify as a C
reorganization.) Section 361(c)(4) provides that specified provisions requiring
recognition of gain on certain distributions shall not apply to a distribution
described in (2) above.
Section 357(a) provides in pertinent part that, except as provided in
section 357(b), if a taxpayer receives property that would be permitted to be
received under section 361 without recognition of gain if it were the sole
consideration and, as part of the consideration, another party to the exchange
assumes a liability of the taxpayer or acquires from the taxpayer property
subject to a liability, then that assumption or acquisition shall not be treated
as money or other property and shall not prevent the exchange from being within
section 361. Section 357(b) applies where the principal purpose of the
assumption or acquisition was a tax avoidance purpose or not a bona fide
business purpose.
As noted above, the Reorganization will constitute a C reorganization,
each Fund will be a party to a reorganization, and the Plan constitutes a plan
of reorganization. Target will exchange the Assets solely for the Acquiring
Fund Shares and Acquiring Fund's assumption of the Liabilities and then will be
terminated pursuant to the Plan, distributing those shares to its shareholders
in constructive exchange for their Target Shares. As also noted above, we
believe that the Reorganization is being undertaken for bona fide business
purposes (and not a purpose to avoid federal income tax); we also do not believe
that the principal purpose of Acquiring Fund's assumption of the Liabilities is
avoidance of federal income tax on the proposed transaction. Accordingly, we
believe that no gain or loss will be recognized to Target on the
Reorganization.3/
3/ Notwithstanding anything herein to the contrary, 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.
III. No Gain or Loss Will Be Recognized to Acquiring Fund.
Section 1032(a) provides that no gain or loss will be recognized to a
corporation on the receipt by it of money or other property in exchange for its
shares. Acquiring Fund will issue the Acquiring Fund Shares to Target in
exchange for the Assets, which consist of money and securities. Accordingly, we
believe that no gain or loss will be recognized to Acquiring Fund on the
Reorganization.
IV. Acquiring Fund's Basis for the Assets Will Be a Carryover Basis, and
Its Holding Period Will Include Target's Holding Period.
Section 362(b) provides that property acquired by a corporation in
connection with a reorganization will have the same basis in that corporation's
hands as the basis of the property in the transferor corporation's hands
immediately before the exchange, increased by any gain recognized to the
transferor on the transfer. As noted above, the Reorganization will constitute a
C reorganization and Target will recognize no gain on the Reorganization under
section 361(a). Accordingly, we believe that Acquiring Fund's basis for the
Assets will be the same as the basis thereof in Target's hands immediately
before the Reorganization.
Section 1223(2) provides that where property acquired in an exchange
has a carryover basis, the property will have a holding period in the hands of
the acquiror that includes the holding period of the property in the
transferor's hands. As stated above, Acquiring Fund's basis for the Assets
will be a carryover basis. Accordingly, we believe that Acquiring Fund's
holding period for the Assets will include Target's holding period therefor.
V. No Gain or Loss Will Be Recognized to a Shareholder.
Under section 354(a), no gain or loss is recognized to a shareholder
who exchanges shares for other shares pursuant to a plan of reorganization,
where the shares exchanged, as well as the shares received, are those of a
corporation that is a party to the reorganization. As stated above, the
Reorganization will constitute a C reorganization, the Plan constitutes a plan
of reorganization, and each Fund will be a party to a reorganization.
Accordingly, we believe that under section 354 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.
VI. A Shareholder's Basis for Acquiring Fund Shares Will Be a Substituted
Basis, and its Holding Period therefor Will Include its Holding Period
for its Target Shares.
Section 358(a)(1) provides, in part, that in the case of an exchange to
which section 354 applies, the basis of any shares received in the transaction
without the recognition of gain is the same as the basis of the property
transferred in exchange therefor, decreased by, among other things, the fair
market value of any other property and the amount of any money received in the
transaction and increased by the amount of any gain recognized on the exchange
by the shareholder.
As noted above, the Reorganization will constitute a C reorganization
and under section 354 no gain or loss will be recognized to a Shareholder on the
constructive exchange of its Target Shares for Acquiring Fund Shares in the
Reorganization. No property will be distributed to the Shareholders other than
the Acquiring Fund Shares, and no money will be distributed to them pursuant to
the Reorganization. Accordingly, we believe that 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.
Under section 1223(1), the holding period of property received in an
exchange includes the holding period of the property exchanged therefor if the
acquired property has, for the purpose of determining gain or loss, the same
basis in the holder's hands as the property exchanged therefor ("substituted
basis") and such property was a capital asset. As noted above, a Shareholder
will have a substituted basis for the Acquiring Fund Shares it receives in the
Reorganization; accordingly, provided that the Shareholder held its Target
Shares as capital assets on the Closing Date, we believe its holding period
for those Acquiring Fund Shares will include its holding period for those Target
Shares.
We hereby consent to this opinion accompanying the Registration
Statement and to the references to our firm under the captions "Approval of the
Reorganizations of Bartlett Fixed Income Fund and Bartlett Short Term Bond Fund
into Legg Mason U.S. Government Intermediate-Term Portfolio -- Synopsis --
Federal Income Tax Consequences of the Reorganizations" and "General
Information -- Federal Income Tax Considerations Applicable to Each Transaction"
in the Proxy.
Very truly yours,
KIRKPATRICK & LOCKHART LLP
/s/ Joel D. Almquist
Joel D. Almquist
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Legg Mason
U.S. Government Intermediate-Term Portfolio
We consent to the following with respect to the Registration Statement of Legg
Mason U.S. Government Intermediate-Term Portfolio ("Intermediate-Term"), a
series of Legg Mason Income Trust, Inc., on Form N-14 under the Securities Act
of 1933, with respect to the transfer of all the assets and liabilities of
Bartlett Fixed Income Fund and Bartlett Short-Term Bond Fund, each a series of
Bartlett Capital Trust to Intermediate-Term in exchange for shares of
Intermediate-Term:
1. The incorporation by reference of our report dated February 1, 1996,
on our audit of the financial statements and financial highlights
of Intermediate-Term, which is included in the Annual Report to
Shareholders for the year ended December 31, 1995, in the Statement
of Additional Information of Legg Mason Income Trust, Inc., dated
May 1, 1996, and the Combined Proxy Statement and Prospectus of
Legg Mason U.S. Government Intermediate-Term.
2. The reference to our Firm under the heading "Independent Accountants"
in the Statement of Additional Information of Legg Mason Income
Trust, Inc. dated May 1, 1996 and "Financial Statements" in the
Combined Proxy Statement and Prospectus of Legg Mason U.S. Government
Intermediate-Term.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
September 20, 1996
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement on Form N-14 of our report dated May 3,
1996 and to all references to our Firm included in or made a part of this
filing.
/s/ Arthur Andersen LLP
-----------------------
ARTHUR ANDERSEN LLP
Cincinnati, Ohio,
September 14, 1996
As filed with the Securities and Exchange Commission on April 28, 1987
Registration No. 33-12092
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 [ X ]
Pre-Effective Amendment No. 1 [ X ]
Post-Effective Amendment No. [ ]
and
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 [ X ]
Amendment No: 1
LEGG MASON INCOME TRUST, INC.
(Exact Name of Registrant as Specified in Charter)
7 East Redwood Street
Baltimore, Maryland 21202
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (301) 539-3400
Copies to:
CHARLES A. BACIGALUPO ARTHUR J. BROWN, ESQ.
7 East Redwood Street Kirkpatrick & Lockhart
Baltimore, Maryland 21202 1800 M Street, N.W.
(Name and Address of South Lobby - Ninth Floor
Agent for Service) Washington, D.C. 20036-5891
Approximate Date of Proposed Public Offering: As soon as practicable
after the effective date of this Registration Statement.
Pursuant to the provisions of Rule 24f-2 under the Investment Company
Act of 1940, an indefinite number of shares of beneficial interest is being
registered by this Registration Statement.
Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
Effective as of 12:00 noon, New York time, on April 28, 1987
("Effective Time"), Legg Mason Income Trust, Inc., a Maryland corporation
("Fund"), succeeded to all of the assets and liabilities of Legg Mason Income
Trust, a Massachusetts business trust ("Trust"). The Fund hereby adopts this
Registration Statement (Nos. 33-12092 and 811-5029) of the Trust as its own,
effective as of the Effective Time, for all purposes of the Securities Act of
1933, the Securities Exchange Act of 1934 and the Investment Company Act of
1940.
PROXY
-----
BARTLETT FIXED INCOME FUND
Special Meeting of Shareholders - December 6, 1996
The undersigned hereby appoints as proxies Marie K. Karpinski and
_______________ and each of them (with power of substitution) to vote for the
undersigned all shares of beneficial interest in the undersigned at the
aforesaid meeting and any adjournment thereof with all the power the undersigned
would have if personally present. The shares represented by this proxy will be
voted as instructed. Unless indicated to the contrary, this proxy shall be
deemed to indicate authority to vote "FOR" all proposals. This proxy is
solicited on behalf of the Board of Trustees of Bartlett Capital Trust.
YOUR VOTE IS IMPORTANT
Please date and sign this proxy on the reverse side and return it in the
enclosed envelope to Legg Mason Fund Adviser, Inc., P.O. Box 1476, Baltimore, MD
21203.
This proxy will not be voted unless it is dated and signed exactly
as instructed below.
Sign exactly as name appears hereon.
<TABLE>
<S> <C>
If the shares are held
jointly, each Shareholder
named should sign. If only
one signs, his or her
signature will be binding.
If the Shareholder is a
corporation, the President
or Vice President should
sign in his or her own
name, indicating title. If
the shareholder is a
partnership, a partner
____________________(L.S.) should sign in his or her
own name, indicating that
____________________(L.S.) Date ____________, 1996 he or she is a "Partner."
</TABLE>
<PAGE>
Please indicate your vote by an "X" in the appropriate box below.
The board of trustees recommends a vote "FOR"
1. Approval of an Agreement and Plan of Reorganization and Termination
between Legg Mason Intermediate-Term Portfolio and Bartlett Fixed Income Fund.
FOR _______ AGAINST _______ ABSTAIN ______
Please sign and date the reverse side of this card
PROXY
-----
BARTLETT SHORT TERM BOND FUND
Special Meeting of Shareholders - December 6, 1996
The undersigned hereby appoints as proxies Marie K. Karpinski and
_______________ and each of them (with power of substitution) to vote for the
undersigned all shares of beneficial interest in the undersigned at the
aforesaid meeting and any adjournment thereof with all the power the undersigned
would have if personally present. The shares represented by this proxy will be
voted as instructed. Unless indicated to the contrary, this proxy shall be
deemed to indicate authority to vote "FOR" all proposals. This proxy is
solicited on behalf of the Board of Trustees of Bartlett Capital Trust.
YOUR VOTE IS IMPORTANT
Please date and sign this proxy on the reverse side and return it in the
enclosed envelope to Legg Mason Fund Adviser, Inc., P.O. Box 1476, Baltimore, MD
21203.
This proxy will not be voted unless it is dated and signed exactly
as instructed below.
Sign exactly as name appears hereon.
<TABLE>
<S> <C>
If the shares are held
jointly, each Shareholder
named should sign. If only
one signs, his or her
signature will be binding.
If the Shareholder is a
corporation, the President
or Vice President should
sign in his or her own
name, indicating title. If
the shareholder is a
partnership, a partner
____________________(L.S.) should sign in his or her
own name, indicating that
____________________(L.S.) Date ____________, 1996 he or she is a "Partner."
</TABLE>
<PAGE>
Please indicate your vote by an "X" in the appropriate box below.
The board of trustees recommends a vote "FOR"
1. Approval of an Agreement and Plan of Reorganization and Termination
between Legg Mason Intermediate-Term Portfolio and Bartlett Short Term Bond
Fund.
FOR _______ AGAINST _______ ABSTAIN ______
Please sign and date the reverse side of this card
