As filed with the Securities and Exchange Commission on December 19, 2000
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 INVESTORS TRUST, INC.
(Exact Name of Registrant as Specified in Charter)
100 Light Street
Baltimore, MD 21202
(Address of Principal Executive Offices)
(410) 539-0000
(Registrant's Area Code and Telephone Number)
Marc R. Duffy, Esq.
Legg Mason Wood Walker, Inc.
100 Light Street
Baltimore, MD 21202
(Name and Address of Agent for Service)
Copies to:
Arthur J. Brown, Esq.
Valerie M. Baruch, Esq.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
2nd Floor
Washington, D.C. 20036-1800
Telephone: (202) 778-9367
Approximate Date of Proposed Public Offering: as soon as practicable
after this Registration Statement becomes effective under the Securities Act of
1933.
It is proposed that this filing will become effective on January 22,
2001, pursuant to Rule 488.
Title of securities being registered: Primary Class, Institutional
Class and Financial Intermediary Class shares of capital stock, par value $0.001
per share, of the series of the Registrant designated Legg Mason Balanced Trust.
No filing fee is required because of reliance on Section 24(f) under
the Investment Company Act of 1940, as amended.
<PAGE>
LEGG MASON INVESTORS TRUST, INC.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement contains the following papers and documents:
Cover Sheet
Contents of Registration Statement
Letter to Shareholders
Notice of Special Meeting
Part A - Prospectus/Proxy Statement
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
2
<PAGE>
LEGG MASON INVESTORS TRUST, INC.
PART A
<PAGE>
BARTLETT BASIC VALUE FUND
(A SERIES OF BARTLETT CAPITAL TRUST)
January 26, 2001
Dear Bartlett Basic Value Fund Shareholder:
The attached proxy materials describe a proposal that Bartlett Basic Value
Fund merge into Legg Mason Balanced Trust, a series of Legg Mason Investors
Trust, Inc. If the proposal is approved and implemented, each shareholder of
Bartlett Basic Value Fund will automatically become a shareholder of Legg Mason
Balanced Trust.
YOUR BOARD OF TRUSTEES RECOMMENDS A VOTE FOR THE PROPOSAL. The board
believes that combining the two Funds will benefit Bartlett Basic Value Fund's
shareholders by providing them with a portfolio that has a similar investment
objective and a similar investment strategy. The shares of Bartlett Basic Value
Fund will be invested in a fund managed by Bartlett & Co. with a substantially
larger asset base and lower overall expenses. The attached proxy materials
provide more information about the proposed reorganization and the two Funds.
YOUR VOTE IS IMPORTANT NO MATTER HOW MANY SHARES YOU OWN. Voting your
shares early will help prevent costly follow-up mail and telephone solicitation.
After reviewing the attached materials, please complete, date and sign your
proxy card and mail it in the enclosed return envelope today. As an alternative
to using the paper proxy card to vote, you may vote by facsimile or in person.
Very truly yours,
Edward A. Taber, III
President
Bartlett Capital Trust/Bartlett
Basic Value Fund
<PAGE>
BARTLETT BASIC VALUE FUND
(A SERIES OF BARTLETT CAPITAL TRUST)
----------
NOTICE OF
SPECIAL MEETING OF SHAREHOLDERS
MARCH 9, 2001
----------
To the Shareholders:
A special meeting of shareholders of Bartlett Basic Value Fund, a series
of Bartlett Capital Trust, will be held on March 9, 2001 at 10:00 a.m., at the
offices of Bartlett Basic Value Fund at 100 Light Street, Baltimore, Maryland
21202, for the following purposes:
(1) To approve an Agreement and Plan of Reorganization and Termination
under which Legg Mason Balanced Trust, a series of Legg Mason Investors Trust,
Inc., would acquire all the assets of Bartlett Basic Value Fund in exchange
solely for shares of Legg Mason Balanced Trust and the assumption by Legg Mason
Balanced Trust of all of Bartlett Basic Value Fund's liabilities, followed by
the distribution of those shares to the shareholders of Bartlett Basic Value
Fund, all as described in the accompanying Prospectus/Proxy Statement; and
(2) To transact such other business as may properly come before the
meeting or any adjournment thereof.
You are entitled to vote at the meeting and any adjournment thereof if you
owned shares of Bartlett Basic Value Fund at the close of business on January
26, 2001. IF YOU ATTEND THE MEETING, YOU MAY VOTE YOUR SHARES IN PERSON. IF YOU
DO NOT EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN, DATE AND RETURN THE
ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE PAID ENVELOPE. As an alternative to
using the paper proxy card to vote, you may vote by facsimile or in person.
By order of the board of trustees,
Marie K. Karpinski
Secretary
January 26, 2001
<PAGE>
-------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT
NO MATTER HOW MANY SHARES YOU OWN
Please indicate your voting instructions on the enclosed proxy card, sign
and date the card, and return it in the envelope provided. IF YOU SIGN, DATE AND
RETURN THE PROXY CARD BUT GIVE NO VOTING INSTRUCTIONS, YOUR SHARES WILL BE VOTED
"FOR" THE PROPOSAL DESCRIBED ABOVE. In order to avoid the additional expense of
further solicitation, we ask your cooperation in mailing your proxy card
promptly. As an alternative to using the paper proxy card to vote, you may vote
by mail, by facsimile machine, or in person. Shares that are registered in your
name may be voted by faxing your completed proxy card(s) to 1-___-____. If we do
not receive your completed proxy cards after several weeks, we or someone on our
behalf may contact you.
Unless proxy cards submitted by corporations and partnerships are signed by the
appropriate persons as indicated in the voting instructions on the proxy card,
they will not be voted.
-------------------------------------------------------------------------------
2
<PAGE>
LEGG MASON BALANCED TRUST (A SERIES OF LEGG MASON
INVESTORS TRUST, INC.)
BARTLETT BASIC VALUE FUND
(A SERIES OF BARTLETT CAPITAL TRUST)
100 LIGHT STREET
BALTIMORE, MD 21202
(410) 539-0000
PROSPECTUS/PROXY STATEMENT
JANUARY 26, 2001
This Prospectus/Proxy Statement ("Proxy Statement") is being furnished to
shareholders of Bartlett Basic Value Fund, a series of Bartlett Capital Trust,
in connection with the solicitation of proxies by its board of trustees for use
at a special meeting of its shareholders to be held on March 9, 2001 at 10:00
a.m., Eastern time, and at any adjournment thereof, if it is adjourned for any
reason.
As more fully described in this Proxy Statement, the purpose of the
meeting is to vote on a proposed reorganization in which Legg Mason Balanced
Trust, a series of Legg Mason Investors Trust, Inc. ("Investors Trust"), would
acquire all the assets of Bartlett Basic Value Fund, in exchange solely for
shares of Legg Mason Balanced Trust and the assumption by Legg Mason Balanced
Trust of all the liabilities of Bartlett Basic Value Fund. Those shares of Legg
Mason Balanced Trust would then be distributed to the shareholders of Bartlett
Basic Value Fund, so that each shareholder would receive a number of full and
fractional shares of Legg Mason Balanced Trust having an aggregate value that,
on the effective date of the Reorganization, would equal the aggregate net asset
value of the shareholder's shares of Bartlett Basic Value Fund. (These
transactions are referred to collectively as the "Reorganization.") As soon as
practicable following the distribution of shares, Bartlett Basic Value Fund
would be terminated.
Legg Mason Balanced Trust is a series of Investors Trust, an open-end,
diversified investment company. Whereas Bartlett Basic Value Fund seeks capital
appreciation and, secondarily income, by investing primarily in equity
securities; Legg Mason Balanced Trust seeks long-term capital appreciation and
current income by investing up to 75% of its assets in equity securities and by
investing at least 25% of its assets in debt securities.
This Proxy Statement, which should be retained for future reference, sets
forth concisely information about the Reorganization and Legg Mason Balanced
Trust that a shareholder should know before voting on the Reorganization. A
Statement of Additional Information, dated January 22, 2001, relating to the
Reorganization and including historical financial statements ("Reorganization
Statement of Additional Information"), has been filed with the Securities and
Exchange Commission ("SEC") and is incorporated herein by this reference (that
is, the Reorganization Statement of Additional Information is legally a part of
this Proxy Statement). A Primary Class Shares Prospectus dated [July 31, 2000]
<PAGE>
and an Institutional* and Financial Intermediary Class Shares Prospectus for
Legg Mason Balanced Trust, dated January 21, 2001, have each been filed with the
SEC and are incorporated herein by reference. A Class A and Class C Shares
Prospectus and a Class Y Shares Prospectus, each dated April 28, 2000 for
Bartlett Basic Value Fund have been filed with the SEC and also are incorporated
herein by this reference. Management's discussion of the performance of Legg
Mason Balanced Trust, which is included in its Annual Report to Shareholders for
the fiscal year ended March 31, 2000, is attached as Appendix C to this Proxy
Statement/Prospectus. A copy of Legg Mason Balanced Trust's Institutional Class
and Financial Intermediary Class Prospectus dated January 21, 2001 is attached
as Appendix E to this proxy statement.
A Statement of Additional Information for Legg Mason Balanced Trust, dated
January 21, 2001, and that Fund's Annual Report to Shareholders for the fiscal
year ended March 31, 2000, and Semi-Annual Report to Shareholders for the period
ended September 30, 2000, have each been filed with the SEC and are incorporated
by reference into the Reorganization Statement of Additional Information. In
addition, a Statement of Additional Information for Bartlett Basic Value Fund,
dated April 28, 2000, and that Fund's Annual Report to Class A and Class C
Shareholders and Annual Report to Class Y Shareholders for the fiscal year ended
December 31, 1999, and Semi-Annual Report to Class A and Class C Shareholders
and Semi-annual Report to Class Y Shareholders for the period ended June 30,
2000, have each been filed with the SEC and are incorporated by reference into
the Reorganization Statement of Additional Information.
The Bartlett Basic Value Fund and Legg Mason Balanced Trust documents
incorporated by reference herein and in the Reorganization Statement of
Additional Information and additional information about the Funds has been filed
with the SEC may be obtained without charge, and further inquiries may be made,
by writing to Legg Mason Wood Walker, Inc., 100 Light Street, P.O. Box 1476,
Baltimore, Maryland 21203-1476, or by calling toll-free 1-800-822-5544. The SEC
maintains a website (http://www.sec.gov) that contains material incorporated by
reference, together with other information regarding Legg Mason Balanced Trust
and Bartlett Basic Value Fund. Copies of such material may also be obtained,
after paying a duplicating fee, from the Public Reference Branch, Office of
Consumer Affairs and Information Services, Securities and Exchange Commission,
Washington, DC 20549, or by electronic request at the following e-mail address:
[email protected].
THE SEC HAS NOT APPROVED OR DISAPPROVED THE SHARES OF LEGG MASON BALANCED
TRUST BEING OFFERED IN THE REORGANIZATION OR DETERMINED WHETHER THIS PROXY
STATEMENT IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------
* In November 2000, the Navigator Class of Legg Mason Balanced Trust was renamed
the Institutional Class.
ii
<PAGE>
TABLE OF CONTENTS
SECTION TITLE PAGE
VOTING INFORMATION...........................................................1
THE REORGANIZATION...........................................................3
SYNOPSIS.....................................................................3
The Proposed Reorganization...............................................3
Comparative Fee Table.....................................................4
Example of Effect on Fund Expenses........................................5
Investment Objectives and Policies........................................6
Forms of Organization.....................................................7
Investment Adviser........................................................8
Distributor...............................................................8
Fund Directors and Officers...............................................9
Operations of Legg Mason Balanced Trust Following the Reorganization.....10
Performance..............................................................10
Purchases and Redemptions................................................11
Exchanges................................................................12
Dividends and Other Distributions........................................13
Federal Income Tax Consequences of the Reorganization....................13
COMPARISON OF PRINCIPAL RISK FACTORS........................................13
THE PROPOSED TRANSACTION....................................................15
Reorganization Plan......................................................15
Reasons for the Reorganization...........................................17
Description of Securities to be Issued...................................18
Temporary Waiver of Investment Restrictions..............................18
Federal Income Tax Considerations........................................18
Capitalization...........................................................19
Additional Information about Legg Mason Balanced Trust - Financial
Highlights...............................................................20
OTHER BUSINESS..............................................................22
MISCELLANEOUS...............................................................22
Available Information....................................................22
Legal Matters............................................................22
Experts..................................................................22
APPENDIX A: Principal Shareholders........................................A-1
APPENDIX B: Agreement and Plan of Reorganization and Termination..........B-1
APPENDIX C: Management's Discussion of Fund Performance (Legg Mason Balanced
Trust).....................................................................C-1
APPENDIX D: Comparison of Investment Objectives and Limitations of Bartlett
Basic Value Fund and Legg Mason Balanced Trust..........................D-1
APPENDIX E: Form of Proxy.................................................E-1
iii
<PAGE>
BARTLETT BASIC VALUE FUND
(a series of Bartlett Capital Trust)
-----------
PROSPECTUS/PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
MARCH 9, 2001
-----------
VOTING INFORMATION
This Prospectus/Proxy Statement ("Proxy Statement") is being furnished to
shareholders of Bartlett Basic Value Fund, a series of Bartlett Capital Trust,
in connection with the solicitation of proxies from its shareholders by the
board of trustees of Bartlett Capital Trust ("Board") for use at a special
meeting of shareholders to be held on March 9, 2001, and at any adjournment
thereof ("Meeting"). This Proxy Statement will first be mailed to shareholders
on or about January 26, 2001.
A majority of Bartlett Basic Value Fund's shares outstanding on January
26, 2001 ("Record Date"), represented in person or by proxy, shall constitute a
quorum and must be present for the transaction of business at the Meeting. If a
quorum is not present at the Meeting or a quorum is present but sufficient votes
to approve the proposal are not received, or for any other legal reason, the
persons named as proxies may propose one or more adjournments of the Meeting to
permit further solicitation of proxies. Any such adjournment will require the
affirmative vote of a majority of those shares represented at the Meeting in
person or by proxy. The persons named as proxies will vote those proxies 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.
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 any 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 directions as indicated on the proxy card, 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 the proposal. In
addition, if you sign, date and return the proxy card, but give no voting
instructions, the duly appointed proxies may, in their discretion, vote upon any
1
<PAGE>
other matters that 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, revocation must be received by Bartlett Capital Trust prior to the
Meeting and must indicate your name and account number. If you attend the
Meeting in person you may, if you wish, vote by ballot at the Meeting, thereby
canceling any proxy previously given. Proxies voted by facsimile may be revoked
at any time before they are voted in the same manner that proxies voted by mail
may be revoked.
As of January 22, 2001, Bartlett Basic Value Fund had _____________ shares
of beneficial interest outstanding, which were composed of the following
classes: __________ Class A shares, __________ Class C shares, and __________
Class Y shares. Shareholder Communications Corp., 17 State Street, 22nd Floor,
New York, New York 10004, has been retained to aid in the solicitation of
proxies. The costs of retaining Shareholder Communications Corp., which are
anticipated to be approximately $_______, and other expenses incurred in
connection with the solicitation of proxies and the holding of the Meeting, will
be borne by Legg Mason Wood Walker, Inc. ("Legg Mason") or one of its affiliates
and not by either Bartlett Basic Value Fund or Legg Mason Balanced Trust (each a
"Fund").
[Except as set forth in Appendix A, as of January 22, 2001, each Fund does
not know of any person who owns beneficially 5% or more of the shares of any
class of that Fund. As of that same date, Trustees and officers of Bartlett
Capital Trust, as a group, own in the aggregate less than 1% of the shares of
Bartlett Basic Value Fund.]
REQUIRED VOTE. Approval of the proposal requires the affirmative vote of a
majority of the outstanding voting securities of Bartlett Basic Value Fund as
defined in the 1940 Act. This means that the proposal must be approved by the
lesser of (1) 67% or more of the Fund's shares present at the Meeting if the
owners of more than 50% of its outstanding shares are present in person or by
proxy or (2) more than 50% of its outstanding shares. Each outstanding full
share of Bartlett Basic Value Fund is entitled to one vote, and each outstanding
fractional share thereof is entitled to a proportionate fractional share of one
vote. If the proposal is not approved by the requisite vote of shareholders of
Bartlett Basic Value Fund, the Board of Trustees of Bartlett Capital Trust will
determine what action to take.
2
<PAGE>
THE REORGANIZATION
PROPOSAL. TO APPROVE AN AGREEMENT AND PLAN OF REORGANIZATION AND
TERMINATION ("REORGANIZATION PLAN") UNDER WHICH LEGG MASON BALANCED TRUST
WOULD ACQUIRE ALL THE ASSETS OF BARTLETT BASIC VALUE FUND IN EXCHANGE
SOLELY FOR SHARES OF LEGG MASON BALANCED TRUST AND THE ASSUMPTION BY LEGG
MASON BALANCED TRUST OF ALL OF BARTLETT BASIC VALUE FUND'S LIABILITIES,
FOLLOWED BY THE DISTRIBUTION OF THOSE SHARES TO THE SHAREHOLDERS OF
BARTLETT BASIC VALUE FUND ("REORGANIZATION").
SYNOPSIS
The following is a summary of certain information contained elsewhere in
this Proxy Statement, the Prospectuses of each Fund (which are incorporated
herein by reference) and Statement of Additional Information of each Fund (which
are incorporated by reference into the Reorganization Statement of Additional
Information), and the Reorganization Plan. A copy of the form of the
Reorganization Plan is attached as Appendix B to this Proxy Statement. As
discussed more fully below, the Board believes that the Reorganization will
benefit Bartlett Basic Value Fund's shareholders. The Funds are essentially
compatible in terms of their investment objectives, policies, strategies and
limitations.
THE PROPOSED REORGANIZATION
The Board considered and approved the Reorganization Plan at a meeting
held on October 30, 2000. The Reorganization Plan provides for the acquisition
of all the assets of Bartlett Basic Value Fund by Legg Mason Balanced Trust, in
exchange solely for shares of common stock of Legg Mason Balanced Trust and the
assumption by Legg Mason Balanced Trust of all the liabilities of Bartlett Basic
Value Fund. Bartlett Basic Value Fund then will distribute those shares of Legg
Mason Balanced Trust to its shareholders, so that each Bartlett Basic Value Fund
shareholder will receive the number of full and fractional shares that is equal
in aggregate value to the value of the shareholder's holdings in Bartlett Basic
Value Fund as of the day the Reorganization is completed. Bartlett Basic Value
Fund will be terminated as soon as practicable thereafter.
If the Reorganization Plan is approved by Bartlett Basic Value Fund
shareholders, shareholders of each class of Bartlett Basic Value Fund will
receive in the Reorganization shares of a comparable class of Legg Mason
Balanced Trust. That is, Class C shareholders of Bartlett Basic Value Fund will
receive Primary Class shares of Legg Mason Balanced Trust, Class A shareholders
of Bartlett Basic Value Fund will receive Financial Intermediary Class shares of
Legg Mason Balanced Trust and Class Y shareholders of Bartlett Basic Value Fund
will receive Institutional Class shares of Legg Mason Balanced Trust. Additional
information about the Financial Intermediary Class shares is included in the
January 21, 2001 Institutional and Financial Intermediary Class prospectus for
Legg Mason Balanced Trust incorporated herein by reference.
3
<PAGE>
The Reorganization will occur as of the close of business on March 30,
2001, or at a later date when the Reorganization is approved and all
contingencies have been met ("Closing Date").
For the reasons set forth below under "The Proposed Transaction - Reasons
for the Reorganization," the Board, including its trustees who are not
"interested persons," as that term is defined in the Investment Company Act of
1940, as amended ("1940 Act"), of Bartlett Capital Trust or Legg Mason Investors
Trust, Inc. ("Investors Trust"), ("Independent Trustees"), has determined that
the Reorganization is in the best interests of Bartlett Basic Value Fund and
that the interests of Bartlett Basic Value Fund's shareholders will not be
diluted as a result of the Reorganization. Accordingly, the Board recommends
approval of the Reorganization. In addition, the board of directors of Investors
Trust, including its directors who are not "interested persons," as that term is
defined in the 1940 Act, of Bartlett Capital Trust or Investors Trust has
determined that the Reorganization is in the best interests of Legg Mason
Balanced Trust and that the interests of Legg Mason Balanced Trust's
shareholders will not be diluted as a result of the Reorganization.
COMPARATIVE FEE TABLE
As shown in the tables below, the expense ratios of the Class A, Class C
and Class Y shares of Bartlett Basic Value Fund are generally higher than the
expense ratios of the comparable classes of Legg Mason Balanced Trust shares,
which have declined over most of the past three years. Although these expense
ratios are historical only, the terms of the contracts that Legg Mason Balanced
Trust has with its service providers warrant an expectation of lower costs for
the combined Fund. As noted below, Bartlett has agreed to waive fees until April
30, 2001 to the extent Bartlett Basic Value Fund's expenses exceed the annual
rates of average daily net assets set forth below. If the Reorganization is not
approved by Bartlett Basic Value Fund shareholders, Bartlett does not expect to
continue to waive fees after April 30, 2001 and Fund expenses could be higher.
The current fees and expenses incurred by each Fund as of the end of the
most recently completed fiscal year (March 31, 2000 for Legg Mason Balanced
Trust) and (December 31, 2000 for Bartlett Basic Value Fund), and PRO FORMA fees
for Legg Mason Balanced Trust after the Reorganization are shown below. Because
as of the date of this Proxy Statement, Financial Intermediary Class and
Institutional Class shares of Legg Mason Balanced Trust have been authorized but
not issued; "Other expenses" are based on estimated amounts.
<TABLE>
<CAPTION>
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
LEGG MASON PRO FORMA
BALANCED TRUST BARTLETT BASIC VALUE COMBINED FUND
-------------- -------------------- -------------
Financial
Primary Institutional Intermediary Primary Institutional Financial
Class Class Class Class C Class Y Class A Class Class Intermediary
Shares Shares(e) Shares(e) Shares Shares Shares Shares Shares Class Shares
------ --------- --------- ------ ------ ------ ------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Maximum none none none none none 4.75% none none none
sales charge
imposed
on purchases
of shares
Deferred none none none 1.00%(b) none none(a) none none none
Sales Charge
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) (AS A % OF NET ASSETS)
LEGG MASON PRO FORMA
BALANCED TRUST(d) BARTLETT BASIC VALUE (c) COMBINED FUND
-----------------------------------------------------------------------------------------------------------
Primary Institutional Financial Primary Institutional Financial
Class Class Intermediary Class C Class Y Class A Class Class Intermediary
Shares Shares Class Shares Shares Shares Shares Shares Shares Class Shares
------ ------ -------------- ------ ------ ------ ------ ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees 0.75% 0.75% ___% 0. % 0. % 0. % 0.75% 0.75% ___%
Rule 12b-1 fees 0.75% none ___% 0. % none 0. % 0.75% none ___%
Other expenses 0.39% 0.39% ___% 0. % 0. % 0. % 0. % 0. % ___%
----- ----- ---- ----- ----- ----- ----- ----- ----
Total fund 1.89% 1.14% ___% 0. % 0. % 0. % 0. % 0. % ___%
operating
expenses
</TABLE>
(a) A contingent deferred sales charge (" CDSC") of 1% of the net asset value of
Class A shares of the Fund is imposed on redemptions of shares purchased
pursuant to the front-end sales charge waiver on purchases of $1 million or more
of Class A shares made within one year of the purchase date.
(b) A CDSC of 1% of the net asset value at the time of purchase or sale,
whichever is less, may be charged on redemptions of Bartlett Basic Value Fund
Class C shares made within one year of the purchase date. A sales charge will
not be imposed on redemptions occurring as a result of the Reorganization.
(c) Bartlett, as investment adviser, has voluntarily agreed to waive fees so
that expenses of Class A shares, Class C shares, and Class Y shares (exclusive
of taxes, interest, brokerage and extraordinary expenses) do not exceed annual
rates of 1.15%, 1.90% and 0.90%, respectively, of the Fund's average daily net
assets attributable to that particular class. These voluntary waivers will
continue until April 30, 2001 and may be terminated at any time. With these
waivers, for the fiscal year ended December 31, 2000, annualized management fees
and total fund operating expenses were ____% and ____%, respectively, for Class
A shares, ____% and ____%, respectively, for Class C shares, and ____% and
____%, respectively, for Class Y shares.
(d) The manager has a voluntary agreement to waive fees so that expenses of
Primary Class shares, Institutional Class shares and Financial Intermediary
Class shares (exclusive of taxes, interest, brokerage and extraordinary
expenses) do not exceed annual rates of 1.85%, 1.10%, [and ___%] respectively,
of the Fund's average daily net assets attributable to that particular class.
These voluntary waivers will continue until August 1, 2001 and may be terminated
at any time. With these waivers, annualized management fees and total fund
operating expenses for the fiscal year ended March 31, 2000, were 0.71% and
1.85%, respectively, for Primary Class shares and would be 0.71% and 1.10%,
respectively, for Institutional Class shares and 0.71% and 1.35%, respectively,
for Financial Intermediary Class shares.
(e) Estimated.
EXAMPLE OF EFFECT ON FUND EXPENSES
The Example is intended to help you compare the cost of investing in
Bartlett Basic Value Fund with the cost of investing in Legg Mason Balanced
Trust, as it presently exists, and the cost of investing in Legg Mason Balanced
Trust, assuming the Reorganization has been completed.
The Example assumes that you invest $10,000 in the specified Fund for the
time periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each
year, that all dividends and other distributions are reinvested and that the
Fund's operating expenses are those shown in the tables above. Although your
actual costs may be higher or lower, based on these assumptions, your costs
would be:
5
<PAGE>
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
<S> <C> <C> <C> <C>
BARTLETT BASIC VALUE FUND:
Class A $ $ $ $
Class C $ $ $ $
(assuming no redemption) $ $ $ $
Class Y $ $ $ $
LEGG MASON BALANCED TRUST:
Primary Class shares $192 $594 $1,021 $2,212
Institutional Class shares $116 $362 $ 628 $1,386
Financial Intermediary Class $142 $440 $ 761 $1,669
shares
COMBINED FUND (PRO FORMA):
Primary Class shares $ $ $ $
Institutional Class shares $ $ $ $
Financial Intermediary Class $ $ $ $
shares
</TABLE>
INVESTMENT OBJECTIVES AND POLICIES
Bartlett Basic Value Fund seeks capital appreciation and, secondarily,
seeks income by investing in equities with "value" characteristics; Legg Mason
Balanced Trust seeks capital appreciation and income by investing principally in
equities and in debt securities equal to at least 25% of assets. The requirement
of Legg Mason Balanced Trust for a minimum holding of 25% in fixed income
securities is different than Bartlett Basic Value Fund. While Bartlett Basic
Value Fund may also invest in debt securities of governmental or corporate
issuers, it does not have the same policy of investing in a minimum percentage
of those securities. Fixed income securities have not been the main focus of
either Fund. Legg Mason Balanced Trust is managed as a balanced fund. This
approach attempts to "balance" the potential for growth and greater volatility
of stocks with the historically stable income and more moderate average price
fluctuations of fixed income securities. The proportion of the Fund's assets
invested in each type of security will vary from time to time in accordance with
Bartlett's assessment of investment opportunities. It is currently anticipated
that the Fund will invest an average of 60% of its total assets in common stocks
and preferred stocks and the remaining 40% in various fixed income securities.
Bartlett, the adviser of each of Bartlett Basic Value Fund and Legg Mason
Balanced Trust, uses essentially the same criteria for buying and selling
securities for each Fund. Investments for Bartlett Basic Value Fund are made
using a bottom-up, value-based investment strategy. Bartlett's approach to
equity investment is to screen equities for valuations based upon earnings, cash
flow, book value and dividend multiples that fall into the lower half of the
stock universe (primarily U.S.). It then performs a more intense financial and
company evaluation to select those stocks that have superior outlooks.
6
<PAGE>
Bartlett's goal in individual stock selection and portfolio construction is to
produce a diversified portfolio with above average potential for growth and
financial strength, albeit with attractive valuations. It selects stocks
generally with a time horizon of about two years and portfolio turnover is low.
On behalf of Legg Mason Balanced Trust, Bartlett also uses a value-based
investment strategy and combines it with certain growth style analysis. For
equity securities, Bartlett emphasizes dividend-paying equity securities that
offer the potential for long-term growth and common stocks or securities
convertible into common stocks that do not pay current dividends but offer
prospects for capital appreciation and future income. Stocks are selected taking
into consideration adequate portfolio diversification by sector and by industry,
as well as by equity characteristics. With respect to fixed income securities,
the Fund may invest in securities of any maturity, but expects to maintain its
portfolio of fixed income securities so as to have an average dollar-weighted
maturity of between four and five years. No more than 5% of the Fund's total
assets will be invested in fixed income or convertible securities rated below
BBB or Baa at the time of purchase, or comparable unrated securities. Fixed
income security selection is based upon identifying those fixed income
securities deemed to be undervalued, taking into consideration sector analysis,
yield curve analysis and credit analysis.
The Funds' portfolios reflect similarities between Bartlett's strategies
for each Fund. [As of June 30, 2000,] Bartlett Basic Value Fund had a portfolio
that was over 99% invested in equity securities of 34 different companies.
Bartlett Basic Value Fund's holdings were very similar to the equity portion of
Legg Mason Balanced Trust's portfolio, which was over 62% invested in equity
securities of 39 different companies. [Thirty one of the 34 equity securities
held by the Bartlett Basic Value Fund were also held by Legg Mason Balanced
Trust.] Like Bartlett Basic Value Fund, with the limited number of holdings in
the portfolio of Legg Mason Balanced Trust, most represent one percent or more
of the total value of the portfolio. The remainder of Legg Mason Balanced
Trust's portfolio, as of June 30, 2000, was primarily invested in U.S.
government and agency obligations (12%), corporate and other bonds (14%) and
U.S. government agency mortgage-backed securities (10%).
A chart comparing the stated policies, including less significant
policies, and the objectives of each Fund is attached as Appendix D hereto.
FORMS OF ORGANIZATION
Legg Mason Balanced Trust is a series of Investors Trust, an open-end,
diversified investment company that was organized as a Maryland corporation on
May 5, 1993. That Fund offers Primary Class shares, and following the
Reorganization will also offer Institutional Class shares and Financial
Intermediary Class shares.
Bartlett Basic Value Fund is a series of Bartlett Capital Trust, an
open-end, diversified investment company that was established as a business
trust under the laws of Massachusetts by an Agreement and Declaration of Trust
dated October 31, 1982. That Fund currently offers three classes of shares:
Class A shares, Class C shares, and Class Y shares.
Neither Bartlett Capital Trust nor Investors Trust is required to (nor
7
<PAGE>
does it) hold annual shareholder meetings. Neither Fund issues share
certificates.
INVESTMENT ADVISER
Bartlett, a wholly owned subsidiary of Legg Mason, Inc., currently serves
as the investment adviser to both Bartlett Basic Value Fund and Legg Mason
Balanced Trust, and Fund Adviser serves as manager for both Funds. Fund Adviser
and Bartlett, respectively, which are both wholly owned subsidiaries of Legg
Mason, Inc., have been providing investment management and advisory services to
Legg Mason Balanced Trust since its inception. Fund Adviser acts as manager or
adviser to investment companies with aggregate assets of over [$23 billion].
Bartlett has assets of about [$55 million] under management.
Bartlett Basic Value Fund pays Bartlett a fee, subject to any fee waiver
arrangements in place, computed daily and paid monthly at the annual rate of
0.75% of Bartlett Basic Value Fund's net assets. Bartlett has agreed to waive
fees until April 30, 2001 to the extent that the Fund's expenses exceed the
following annual rates of average daily net assets: Class A - 1.15%, Class C -
1.90% and Class Y - 0.90%. If the Reorganization is not approved by Bartlett
Basic Value Fund shareholders, Bartlett does not expect to continue to waive
fees after April 30, 2001, and Fund expenses could be higher.
The management fees charged to Legg Mason Balanced Trust by Fund Adviser
are the same as the fees paid by Bartlett Basic Value Fund to Bartlett. Fund
Adviser serves as the manager of Legg Mason Balanced Trust and receives for its
services a management fee, calculated daily and payable monthly, at an annual
rate equal to 0.75% of the Fund's average daily net assets. Fund Adviser pays
Bartlett a monthly fee of 66 2/3% of the fee it receives from the Fund, net of
any waivers by Fund Adviser. For the fiscal year ended March 31, 2000, Bartlett
received $227,716 in advisory fees with respect to Legg Mason Balanced Trust.
Fund Adviser has voluntarily agreed to waive its fees, to the extent that Legg
Mason Balanced Trust's total annual operating expenses attributable to Primary
Class, Institutional Class, and Financial Intermediary Class shares (exclusive
of taxes, interest, brokerage and extraordinary expenses) exceed 1.85%, 1.10%,
and ___% of the Fund's average daily net assets attributable to that particular
class, respectively until August 1, 2001. For the fiscal year ended March 31,
2000, Legg Mason Balanced Trust paid advisory fees to Fund Adviser (prior to
fees waived) of $355,804. For the fiscal year ended March 31, 2000, $14,212 in
advisory fees were waived by Fund Adviser.
DISTRIBUTOR
Bartlett Basic Value Fund's distributor, Legg Mason Financial Partners,
Inc., and Legg Mason Balanced Trust's distributor, Legg Mason Wood Walker, Inc.
("Legg Mason"), are both wholly owned subsidiaries of Legg Mason, Inc. Legg
Mason will continue to distribute shares of Balanced Trust after the
Reorganization. The access to Legg Mason's vastly larger marketing resources,
among other things, could enable the combined Fund to be serviced and marketed
more efficiently, which could result in a future increase in assets and
shareholders.
Legg Mason acts as distributor of Legg Mason Balanced Trust's shares
pursuant to an Underwriting Agreement with Investors Trust. The Underwriting
Agreement obligates Legg Mason to promote the sale of Fund shares and to pay
certain expenses in connection with its distribution efforts, including the
8
<PAGE>
printing and distribution of prospectuses and periodic reports used in
connection with the offering to prospective investors (after the prospectuses
and reports have been prepared, set in type and mailed to existing shareholders
at the Fund's expense) and for supplementary sales literature and advertising
costs.
Legg Mason Balanced Trust has adopted a Distribution and Shareholder
Services Plan ("Plan") pertaining to Primary Class shares ("Primary Class Plan")
and a Plan pertaining to Financial Intermediary Class shares ("Financial
Intermediary Class Plan"). Each Plan, among other things, permits the Fund to
pay Legg Mason, from assets attributable to the Fund's Primary Class shares or
Financial Intermediary Class shares, fees for its services related to sales and
distribution of Primary Class shares or Financial Intermediary Class shares,
respectively, and the provision of ongoing services to holders of those shares.
Distribution activities for which such payments may be made include, but are not
limited to, compensation to persons who engage in or support distribution and
redemption of shares, printing of prospectuses and reports for persons other
than existing shareholders, advertising, preparation and distribution of sales
literature, overhead, travel and telephone expenses all with respect to the
class of shares paying the fee only.
As compensation for its services and expenses, pursuant to the Primary
Class Plan, Legg Mason receives from Legg Mason Balanced Trust an annual
distribution fee equivalent to 0.50% of its average daily net assets
attributable to Primary Class shares and a service fee equivalent to 0.25% of
its average daily net assets attributable to Primary Class shares in accordance
with the Primary Class Plan.
As compensation for its services and expenses, Legg Mason Balanced Trust
can pay Legg Mason an annual distribution and service fee of up to 0.40% of its
average daily net assets attributable to Financial Intermediary Class shares in
accordance with the Financial Intermediary Class Plan (although the directors to
date have approved payments of only 0.25% of average net assets). The
distribution and service fees are calculated daily and paid monthly.
Because these fees are paid out of the Fund's assets on an ongoing basis,
over time these fees will increase the cost of an investment and may cost more
than paying other types of sales charges.
OTHER FUND SERVICE PROVIDERS
The Funds have the same transfer and shareholder servicing agent (Boston
Financial Data Services) and the same custodian (State Street Bank and Trust
Company). Upon completion of the Reorganization, those entities will continue to
provide services to the combined Fund. The independent accountants for Bartlett
Basic Value Fund are PricewaterhouseCoopers LLP. Ernst & Young LLP, the
independent auditors for Legg Mason Balanced Trust, will continue to serve the
combined Fund.
FUND DIRECTORS AND OFFICERS
Investors Trust's directors will continue to serve in that capacity for
the reorganized Fund. For a complete description of the directors and officers
of Investors Trust, including a description of each director's principal
occupation for the past five years and compensation paid to each director, see
9
<PAGE>
the January 21, 2001, Investors Trust Statement of Additional Information for
Legg Mason Balance Trust, incorporated by reference into the Reorganization
Statement of Additional Information.
OPERATIONS OF LEGG MASON BALANCED TRUST FOLLOWING THE REORGANIZATION
As indicated above, Bartlett believes that the two Funds are essentially
compatible in terms of their investment objectives, policies, strategies and
limitations. It is also anticipated that at least a majority of current assets
held by Bartlett Basic Value Fund will be retained by Legg Mason Balanced Trust
following the Reorganization. Accordingly, the Reorganization would not result
in material brokerage or other transactional costs or the realization of a
significant amount of net capital gains as a result of the disposition of
portfolio securities. Bartlett Basic Value Fund will sell most, if not all, of
any assets that may not be held by Legg Mason Balanced Trust. The proceeds of
such sales will be held in temporary investments or reinvested in assets that
qualify to be held by Legg Mason Balanced Trust. The possible need for Bartlett
Basic Value Fund to dispose of assets prior to the Reorganization could result
in selling securities at a disadvantageous time and could result in its
realizing losses that would not otherwise have been realized. Alternatively,
these sales could result in Bartlett Basic Value Fund's realizing gains that
would not otherwise have been realized, which would be included in a
distribution to its shareholders just prior to the Reorganization. In any event,
those sales of assets and any new purchases will involve brokerage and other
transactional expenses to Bartlett Basic Value Fund.
PERFORMANCE
Legg Mason Balanced Trust has three authorized classes of shares: Primary
Class shares, Institutional Class shares and Financial Intermediary Class
shares. Institutional Class and Financial Intermediary Class shares have been
authorized but not issued; the information provided below is for Primary Class
shares. Each class is subject to different expenses. The information below
provides an indication of the risks of investing in the Fund by showing changes
in the Fund's performance from year to year. Annual returns assume reinvestment
of dividends and distributions. Historical performance of a fund does not
necessarily indicate what will happen in the future.
Legg Mason Balanced Trust Primary Class Shares -
YEAR BY YEAR TOTAL RETURN AS OF DECEMBER 31 OF EACH YEAR (%)
[Bar chart with the following values to be inserted]
CALENDAR YEAR TOTAL RETURN
------------- ------------
1997 18.71%
1998 5.60%
1999 -1.37%
2000 _.___%
Total return as of December 31, 2000 is ____%.
10
<PAGE>
QUARTER ENDED TOTAL RETURN
Best quarter %
Worst quarter %
Set forth below are the average annual total returns for the periods
indicated for the two Funds, by class. The tables also compare each Fund's
returns to returns of a broad-based market index, which is unmanaged and
therefore, does not include any sales charges or expenses. Past performance is
not a guarantee of future results.
<TABLE>
<CAPTION>
LEGG MASON BALANCED TRUST
Primary Institutional Financial Intermediary S&P 500
Class Shares Class Shares Class Shares Index
------------ ------------ ------------ -----
<S> <C> <C> <C> <C>
1 Year Ended December 31, 2000 _.__% n/a n/a _.__%
3 Years Ended December 31, _.__% n/a n/a _.__%
2000
Life of Class _.__%(a) n/a(b) n/a(b) _.__%
</TABLE>
<TABLE>
<CAPTION>
BARTLETT BASIC VALUE FUND
Class A Class C Class Y S&P 500
Shares Shares Shares Index
------ ------ ------ -----
<S> <C> <C> <C> <C>
1 Year Ended December 31, 2000 . %*/ . % . % . %
--- -- --- -- --- -- --- --
. %
--- --
3 Years Ended December 31, 2000 . %*/ . % . % . %
--- -- --- -- --- -- --- --
. %
--- --
5 Years Ended December 31, 2000 . %*/ n/a n/a . %
--- -- --- --
. %
--- --
Life of Class . %*/ . %(d) . %(e) A: . %(c)
--- -- --- -- --- -- -----
. %(c) C: . %(d)
--- -- -----
.
Y: -----%(a)
</TABLE>
* The first number reflects the total return information on Class A shares
excluding the maximum 4.75% sales charge which became effective July 21, 1997.
The second number reflects return information including the sales charge.
(a) Inception Date - October 1, 1996.
(b) As of the date of this prospectus/proxy statement, Institutional Class
shares and Financial Intermediary Class shares of Legg Mason Balanced Trust
have been authorized but not issued.
(c) Inception Date - May 5, 1983. Index returns are for April 29, 1983 to
December 31, 2000.
(d) Inception Date - September 12, 1997. Index returns are for September 12,
1997 to December 31, 2000.
(e) Inception Date - August 15, 1997. Index returns are for August 15, 1997
to December 31, 2000.
PURCHASES AND REDEMPTIONS
PURCHASES. Bartlett Basic Value Fund Class A and Class C shares, and Legg
Mason Balanced Trust Primary Class shares may be purchased through brokers
affiliated with Legg Mason, through unaffiliated brokers that have entered into
an agreement with Legg Mason, or through automatic investment plans. Bartlett
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<PAGE>
Basic Value Fund Class Y shares, Legg Mason Balanced Trust Institutional Class
shares and Legg Mason Balanced Trust Financial Intermediary Class shares each
may be purchased by qualified institutional investors either directly from that
Fund's distributor or through an institutional intermediary. Shares of each Fund
are sold on a continuous basis at a price based on the net asset value ("NAV")
per share next determined after receipt of a purchase order in good form (plus
any front-end sales charge applicable to Class A shares). Purchase orders
received before the close of the New York Stock Exchange (the "Exchange")
(normally 4:00 p.m., Eastern time) will be processed at the Fund's net asset
value as of the close of the Exchange on that day, plus any sales charge. Orders
received after the close of the Exchange will be processed at the Fund's net
asset value (plus any applicable sales charge) as of the close of the Exchange
on the next day that the Exchange is open. For a more complete discussion of
share purchases, see the "How to Invest" sections in the Bartlett Basic Value
Fund Prospectuses, and in the Legg Mason Balanced Trust Prospectuses.
REDEMPTIONS. Shares of all classes of both Funds may be redeemed by
telephone, by mail, or by the Funds' Systematic Withdrawal Plan. Redemptions are
made at the NAV per share of each Fund next determined after a request in proper
form is received. For Bartlett Basic Value Fund, a CDSC of 1% of the shares' NAV
at the time of purchase or sale, whichever is less, may be charged on
redemptions made within one year of the purchase date of shares purchased
pursuant to the front-end sales charge waiver for purchases of $1 million or
more. Normally, proceeds from redemptions of Class A, C and Y shares of Bartlett
Basic Value Fund will settle in customers' brokerage accounts two business days
after the trade date. Proceeds from redemptions of Primary Class shares of Legg
Mason Balanced Trust will generally be received by customers within a week.
Payment of the proceeds of redemption of Legg Mason Balanced Trust Institutional
Class shares and Financial Intermediary Class shares normally will be made by
wire one business day after receipt of a redemption request in good order.
However, each Fund reserves the right to take up to seven days to make payment
upon redemption if, in the judgment of that Fund's investment adviser, the Fund
could be adversely affected by immediate payment. For a more complete discussion
of share redemption procedures, see "How to Sell Your Shares" sections in the
Bartlett Basic Value Fund Prospectuses and in the Legg Mason Balanced Trust
Prospectuses.
Redemptions of Bartlett Basic Value Fund shares may be effected through
the Closing Date.
EXCHANGES
Primary Class shares of Legg Mason Balanced Trust may be exchanged for the
corresponding class of shares of any of the other Legg Mason Funds, provided
these funds are eligible for sale in your state of residence. Financial
Intermediary Class and Institutional Class shares of Legg Mason Balanced Trust
may be exchanged for shares of Legg Mason Cash Reserve Trust or the
corresponding class of shares of any of the other Legg Mason funds, except Legg
Mason Opportunity Trust, provided these funds are eligible for sale in your
state of residence. (Not all Legg Mason Funds have Financial Intermediary Class
and Institutional Class shares.) Shares of Bartlett Basic Value Fund may be
exchanged for the corresponding class of shares of the other Bartlett Fund or
Legg Mason Cash Reserve Trust, provided these funds are eligible for sale in
12
<PAGE>
your state of residence. For a more complete discussion of Bartlett Basic Value
Fund's exchange policies, see "Services for Investors" in the Bartlett Basic
Value Fund prospectuses. For a more complete discussion of Legg Mason Balanced
Trust's exchange policies, see "Services for Investors - Exchange Privilege" in
the Legg Mason Balanced Trust Prospectuses.
DIVIDENDS AND OTHER DISTRIBUTIONS
Each Fund earns investment income in the form of dividends on investments,
and Legg Mason Balanced Trust earns interest on fixed income investments
substantially all of which is distributed in the form of dividends to its
shareholders. Each Fund declares and pays dividends from net investment income
on a quarterly basis. Dividends are automatically reinvested in the same class
of shares of the distributing Fund unless otherwise requested.
Each Fund also realizes capital gains and losses when it sells securities
or derivatives for more or less than it paid. If total gains on these sales
exceed total losses (including losses carried forward from previous years), the
Fund has capital gain net income. Net realized capital gains, if any, together
with net gains realized on foreign currency transactions, if any, are
distributed to each Fund's shareholders at the end of the taxable year in which
the gains are realized. Capital and foreign currency gain distributions are
automatically reinvested in the same class of shares of the distributing Fund on
the payable date unless otherwise requested.
On or immediately before the Closing Date, Bartlett Basic Value Fund will
declare as a distribution substantially all of its net investment income and
realized net capital gain, if any, through that date and distribute that amount
plus any previously declared but unpaid distributions, in order to continue to
maintain its tax status as a regulated investment company.
FEDERAL INCOME TAX CONSEQUENCES OF THE REORGANIZATION
The Funds will receive an opinion of their counsel, Kirkpatrick & Lockhart
LLP, to the effect that the Reorganization will qualify as a tax-free
reorganization within the meaning of section 368(a)(1)(D) of the Internal
Revenue Code of 1986, as amended ("Code"). Accordingly, neither Fund nor their
shareholders will recognize any gain or loss as a result of the Reorganization.
See "The Proposed Transaction - Federal Income Tax Considerations," below. If
Bartlett Basic Value Fund sells securities prior to the Closing Date, there may
be net recognized gains or losses to that Fund. Any net recognized gains would
increase the amount of any distribution made to shareholders of Bartlett Basic
Value Fund prior to the Closing Date.
COMPARISON OF PRINCIPAL RISK FACTORS
An investment in Legg Mason Balanced Trust is subject to specific risks
arising from the types of securities in which the Fund invests and general risks
arising from investing in any mutual fund. There is no assurance that the Fund
will meet its investment objective; investors could lose money by investing in
the Fund. As with all mutual funds, an investment in either of these Funds is
not insured by or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency. Because Bartlett Basic Value Fund's investment
objective and policies are similar to those of Legg Mason Balanced Trust, an
investment in Legg Mason Balanced Trust is subject to many of the same specific
risks as an investment in Bartlett Basic Value Fund but is also subject to the
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<PAGE>
risk associated with investing in fixed income securities because at least 25%
of its assets will be invested in such securities. The principal specific risks
associated with investing in Legg Mason Balanced Trust include:
MARKET RISK. Stock prices generally fluctuate more than those of other
securities, such as debt securities. Market risk, the risk that prices of
securities will go down because of the interplay of market forces, may affect a
single issuer, industry or section of the economy or may affect the market as a
whole. The Fund may experience a substantial or complete loss on an individual
stock.
VALUE STYLE RISK. The value approach to investing involves the risk that
those stocks may remain undervalued. Value stocks as a group may be out of favor
and underperform the overall equity market for a long period of time, while the
market concentrates on "growth" stocks.
Value funds often concentrate much of their investments in certain
industries, and thus will be more susceptible to factors adversely affecting
issuers within that industry than would a more diversified portfolio of
securities.
INVESTMENT MODELS. The proprietary models used by the advisers to evaluate
securities markets are based on the advisers' understanding of the interplay of
market factors and do not assure successful investment. The markets, or the
prices of individual securities, may be affected by factors not foreseen in
developing the models.
INTEREST RATE AND CREDIT RISK OF DEBT SECURITIES. Debt securities are
subject to interest rate risk, which is the possibility that the market prices
of the Fund's investments may decline due to an increase in market interest
rates. Generally, the longer the maturity of a fixed income security, the
greater is the effect on its value when rates change.
Debt securities are also subject to credit risk, I.E., the risk that an
issuer of securities will be unable to pay principal and interest when due, or
that the value of the security will suffer because investors believe the issuer
is less able to pay. This is broadly gauged by the credit ratings of the
securities in which each fund invests. However, ratings are only the opinions of
the agencies issuing them and are not absolute guarantees as to quality.
Debt securities rated BBB/Baa or better, and unrated securities considered
by the Fund's adviser to be of equivalent quality, are considered investment
grade. Debt securities rated below BBB/Baa, which the Fund may purchase from
time to time, are deemed by the ratings agencies to be speculative and may
involve major risk or exposure to adverse conditions. Those in the lowest rating
categories may involve a substantial risk of default or may be in default.
Changes in economic conditions or developments regarding the individual issuer
are more likely to cause price volatility and weaken the capacity of such
securities to make principal and interest payments than is the case for higher
grade debt securities.
CALL RISK. Many fixed income securities, especially those issued at high
interest rates, provide that the issuer may repay them early. Issuers often
exercise this right when interest rates are low. Accordingly, holders of
callable securities may not benefit fully from the increase in value that other
fixed-income securities experience when rates decline. Furthermore, the Fund may
14
<PAGE>
reinvest the proceeds of the payoff at current yields, which are lower than
those paid by the security that was paid off.
SPECIAL RISKS OF MORTGAGE-BACKED SECURITIES. Mortgage-backed securities
represent an interest in a pool of mortgages. When market interest rates
decline, many mortgages are refinanced, and mortgage-backed securities are paid
off earlier than expected. The effect on the Fund's return is similar to that
discussed above for call risk. When market interest rates increase, the market
values of mortgage-backed securities decline. At the same time, however,
mortgage refinancing slows, which lengthens the effective maturities of these
securities. As a result, the negative effect of the rate increase on the market
value of mortgage securities is usually more pronounced than it is for other
types of fixed income securities.
CONVERTIBLE SECURITIES. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for a
prescribed amount of common stock of the same or a different issuer within a
particular period of time at a specified price or formula.
The value of a convertible security is a function of (1) its yield in
comparison with the yields of other securities of comparable maturity and
quality that do not have a conversion privilege and (2) its worth, at market
value, if converted into the underlying common stock. Convertible securities are
typically issued by smaller capitalized companies whose stock prices may be
volatile. The price of a convertible security often reflects such variations in
the price of the underlying common stock in a way that non-convertible debt does
not.
THE PROPOSED TRANSACTION
REORGANIZATION PLAN
The terms and conditions under which the proposed transaction will be
consummated are set forth in the 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, which is attached as
Appendix B to this Proxy Statement.
The Reorganization Plan provides for (a) the acquisition by Legg Mason
Balanced Trust on the Closing Date of all the assets of Bartlett Basic Value
Fund in exchange solely for Legg Mason Balanced Trust shares and the assumption
by Legg Mason Balanced Trust of all of Bartlett Basic Value Fund's liabilities
and (b) the distribution of those Legg Mason Balanced Trust shares to the
shareholders of Bartlett Basic Value Fund.
The assets of Bartlett Basic Value Fund to be acquired by Legg Mason
Balanced Trust include all cash, cash equivalents, securities, receivables,
claims and rights of action, rights to register shares under applicable
securities laws, books and records, deferred and prepaid expenses shown as
assets on Bartlett Basic Value Fund's books, and all other property owned by
Bartlett Basic Value Fund. Legg Mason Balanced Trust will assume all of Bartlett
Basic Value Fund's liabilities, debts, obligations and duties of whatever kind
or nature; provided, however, that Bartlett Basic Value Fund will use its best
efforts to discharge all of its known liabilities before the Closing Date. Legg
Mason Balanced Trust will deliver its shares to Bartlett Basic Value Fund, which
will distribute the shares to Bartlett Basic Value Fund's shareholders.
15
<PAGE>
The value of Bartlett Basic Value Fund's assets to be acquired by Legg
Mason Balanced Trust and the NAV per share of the Legg Mason Balanced Trust
shares to be exchanged for those assets will be determined as of the close of
regular trading on the Exchange on the Closing Date ("Valuation Time"), using
the valuation procedures described in each Fund's then-current Prospectus and
Statement of Additional Information. Bartlett Basic Value Fund's net value shall
be the value of its assets to be acquired by Legg Mason Balanced Trust, less the
amount of its liabilities, as of the Valuation Time.
On, or as soon as practicable after, the Closing Date, Bartlett Basic
Value Fund will distribute the Legg Mason Balanced Trust shares it receives PRO
RATA to its shareholders of record as of the effective time of the
Reorganization, so that each Bartlett Basic Value Fund shareholder will receive
a number of full and fractional Legg Mason Balanced Trust shares of the
corresponding class equal in aggregate value to the shareholder's holdings in
Bartlett Basic Value Fund (I.E., the account for a shareholder of Class A, Class
C or Class Y shares of Bartlett Basic Value Fund will be credited with the
respective PRO RATA number of Financial Intermediary Class, Primary Class or
Institutional Class shares, respectively, of Legg Mason Balanced Trust due that
shareholder). Bartlett Basic Value Fund will be terminated as soon as
practicable after the share distribution. The shares will be distributed by
opening accounts on the books of Legg Mason Balanced Trust in the names of
Bartlett Basic Value Fund shareholders and by transferring to those accounts the
shares previously credited to the account of Bartlett Basic Value Fund on those
books. Fractional shares in Legg Mason Balanced Trust will be rounded to the
third decimal place.
Because Legg Mason Balanced Trust shares will be issued at NAV in exchange
for the net assets of Bartlett Basic Value Fund, the aggregate value of Legg
Mason Balanced Trust shares issued to Bartlett Basic Value Fund shareholders
will equal the aggregate value of Bartlett Basic Value Fund shares. The NAV per
share of each class of Legg Mason Balanced Trust will be unchanged by the
transaction. Thus, the Reorganization will not result in a dilution of any
shareholder's interest.
Any transfer taxes payable upon the issuance of Legg Mason Balanced Trust
shares in a name other than that of the registered Bartlett Basic Value Fund
shareholder will be paid by the person to whom those shares are to be issued as
a condition of the transfer. Any reporting responsibility of Bartlett Basic
Value Fund to a public authority will continue to be its responsibility until it
is dissolved.
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
either 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 interests of shareholders of either
Fund.
All costs of either Fund pertaining to the Reorganization will be borne by
Legg Mason or one of its affiliates.
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<PAGE>
REASONS FOR THE REORGANIZATION
Bartlett Basic Value Fund assets have declined substantially over the past
three year period ending December 31, 2000 from approximately [$119] million to
[$53 million.] During that same time period, Legg Mason Balanced Trust's assets
increased from [$18 million] to [$37 million] and the Legg Mason Family of Funds
has grown to over [$23 billion]. The Reorganization is being proposed because of
the anticipated benefits by merging into a Fund with a similar investment
objective and policies that also can provide better prospects for economies of
scale, I.E., lower cost, for each class of shares and whose past performance
generally has been better.
In approving the Reorganization, the Board of Bartlett Basic Value Fund,
including a majority of its Independent Trustees, considered a number of
factors, including the following:
(1) the compatibility of the Funds' investment objectives, policies and
restrictions and the compatibility of the assets being acquired to
those already held by Legg Mason Balanced Trust;
(2) the effect of the Reorganization on expected investment performance;
(3) the effect of the Reorganization on the expense ratio of each class
of the Fund relative to its current expense ratio;
(4) the costs to be incurred by the Fund as a result of the
Reorganization, which will be borne by Legg Mason or one of its
affiliates;
(5) the tax consequences of the Reorganization;
(6) possible alternatives to the Reorganization; and
(7) the potential benefits of the transaction to other persons,
including Bartlett, Fund Adviser, Legg Mason, and Legg Mason
Financial Partners, Inc. ("LMFP").
The Reorganization was recommended to the Board of Bartlett Capital Trust
by Bartlett and LMFP at a meeting held on October 30, 2000. In considering the
Reorganization, the Board especially noted the fact that over the past few years
the Bartlett Basic Value Fund has continued to lose assets and has not
substantially improved its performance. The Board also considered Bartlett's
advice that the Reorganization should provide experienced portfolio management
and a lower cost structure for shareholders.
The Board also noted that the Reorganization will also generate possible
tax costs to shareholders caused by gains realized on the portfolio realignment.
Nevertheless, given the long-term benefits, including the expense savings to
shareholders and potential investment performance advantages, the Board, as well
as Bartlett and LMFP, believe that the Reorganization would be in the best
interests of the Fund and its shareholders.
17
<PAGE>
DESCRIPTION OF SECURITIES TO BE ISSUED
Investors Trust is registered with the SEC as an open-end management
investment company. It has authorized capital stock (par value $0.001 per
share), including 625,000,000 shares allocated to Legg Mason Balanced Trust, of
which 375,000,000 shares are allocated to Primary Class shares, 125,000,000
shares are allocated to Institutional Class shares, and 125,000,000 shares are
allocated to Financial Intermediary Class shares. Shares of Legg Mason Balanced
Trust entitle their holders to one vote per full share and fractional votes for
fractional shares held.
Legg Mason Balanced Trust does not hold annual meetings of shareholders.
There normally will be no meetings of shareholders for the purpose of electing
directors unless fewer than a majority of the directors holding office have been
elected by shareholders, at which time the directors then in office will call a
shareholders' meeting for the election of directors. The directors will call
annual or special meetings of shareholders for action by shareholder vote as may
be required by the 1940 Act or Investors Trust's Articles of Incorporation or
Bylaws, or at their discretion.
TEMPORARY WAIVER OF INVESTMENT RESTRICTIONS
Certain fundamental investment restrictions of Bartlett Basic Value Fund,
which prohibit it from acquiring more than a stated percentage of ownership of
another company or industry, might be construed as restricting its ability to
carry out the Reorganization. By approving the Reorganization Plan, Bartlett
Basic Value Fund shareholders will be agreeing to waive, only for the purpose of
the Reorganization, those fundamental investment restrictions that could
prohibit or otherwise impede the transaction.
FEDERAL INCOME TAX CONSIDERATIONS
The exchange of Bartlett Basic Value Fund's assets for Legg Mason Balanced
Trust shares and Legg Mason Balanced Trust's assumption of Bartlett Basic Value
Fund's liabilities is intended to qualify for federal income tax purposes as a
tax-free reorganization under section 368(a)(1)(D) of the Code. The Funds will
receive an opinion of their counsel, Kirkpatrick & Lockhart LLP, substantially
to the effect that -
(1) Legg Mason Balanced Trust's acquisition of Bartlett Basic Value
Fund's assets in exchange solely for Legg Mason Balanced Trust shares and
Legg Mason Balanced Trust's assumption of Bartlett Basic Value Fund's
liabilities, followed by Bartlett Basic Value Fund's distribution of those
shares PRO RATA to its shareholders constructively in exchange for their
Bartlett Basic Value Fund shares, will qualify as a reorganization within
the meaning of section 368(a)(1)(D) of the Code, and each Fund will be "a
party to a reorganization" within the meaning of section 368(b) of the
Code;
(2) Bartlett Basic Value Fund will recognize no gain or loss on the
transfer to Legg Mason Balanced Trust of its assets in exchange solely for
Legg Mason Balanced Trust shares and Legg Mason Balanced Trust's
assumption of Bartlett Basic Value Fund's liabilities or on the subsequent
distribution of those shares to Bartlett Basic Value Fund's shareholders
in constructive exchange for their Bartlett Basic Value Fund shares;
18
<PAGE>
(3) Legg Mason Balanced Trust will recognize no gain or loss on its
receipt of the transferred assets in exchange solely for its shares and
its assumption of Bartlett Basic Value Fund's liabilities;
(4) Legg Mason Balanced Trust's basis in the transferred assets will
be the same as the basis therein in Bartlett Basic Value Fund's hands
immediately before the Reorganization, and Legg Mason Balanced Trust's
holding period for those assets will include Bartlett Basic Value Fund's
holding period therefor;
(5) A Bartlett Basic Value Fund shareholder will recognize no gain
or loss on the constructive exchange of all its Bartlett Basic Value Fund
shares solely for Legg Mason Balanced Trust shares pursuant to the
Reorganization; and
(6) A Bartlett Basic Value Fund shareholder's aggregate basis in the
Legg Mason Balanced Trust shares it receives in the Reorganization will be
the same as the aggregate basis in its Bartlett Basic Value Fund shares it
constructively surrenders in exchange for those Legg Mason Balanced Trust
shares, and its holding period for those Legg Mason Balanced Trust shares
will include its holding period for those Bartlett Basic Value Fund
shares, provided the shareholder holds them as capital assets on the
Closing Date.
The tax opinion will state that no opinion is expressed as to the effect
of the Reorganization on either Fund or any Bartlett Basic Value Fund
shareholder with respect to any asset as to which any unrealized gain or loss is
required to be recognized for federal income tax purposes at the end of a
taxable year (or on the termination or transfer thereof) under a mark-to-market
system of accounting.
Shareholders of Bartlett Basic Value Fund should consult their tax
advisers regarding the effect, if any, of the Reorganization in light of their
individual circumstances. Because the foregoing discussion only relates to the
federal income tax consequences of the Reorganization, those shareholders also
should consult their tax advisers about state and local tax consequences, if
any, of the Reorganization.
CAPITALIZATION
The following table shows the capitalization (unaudited) of each Fund as
of September 30, 2000, and on a PRO FORMA combined basis as of September 30,
2000, giving effect to the Reorganization (amounts are in thousands):
<TABLE>
<CAPTION>
Bartlett Legg Mason Pro Forma
Basic Value Balanced Trust Combined
------------------------ --------------------- ---------------------
<S> <C> <C> <C>
Net Assets
Class A/Financial Intermediary $ 51,574,611 $ -- $ 51,574,611
Class C/Primary 747,480 $ 36,509,467 $ 37,256,947
Class Y/Institutional(A) $ 62,987 $ -- $ 62,987
------------------------ --------------------- ---------------------
Total $ 52,685,078 $ 36,509,467 $ 89,194,545
======================== ===================== =====================
19
<PAGE>
Net Asset Value Per Share
Class A/Financial Intermediary $ 13.66 N/A $ 12.20
Class C/Primary $ 13.43 $ 12.20 $ 12.20
Class Y/Institutional(A) $ 13.63 N/A $ 12.20
Shares Outstanding
Class A/Financial Intermediary 3,776,018 -- 4,227,427
Class C/Primary 55,657 2,993,322 3,054,591
Class Y/Institutional(A) 26,629 -- 29,753
</TABLE>
(A) Formerly Navigator Class
ADDITIONAL INFORMATION ABOUT LEGG MASON BALANCED TRUST - FINANCIAL HIGHLIGHTS
The table below provides selected per share data and ratios for one share
of Legg Mason Balanced Trust for each of the periods shown. This information is
supplemented by the financial statements and accompanying notes in Legg Mason
Balanced Trust's Annual Report to Shareholders for the fiscal year ended March
31, 2000 and in Legg Mason Balanced Trust's Semi-Annual Report to Shareholders
for the period ended September 30, 2000. The financial highlights for
fiscal years ended March 31, 2000 and earlier shown below have been audited
by Ernst & Young LLP, independent auditors, whose report is included in the
Annual Report to Shareholders.
<TABLE>
<CAPTION>
LEGG MASON BALANCED TRUST
Income from
Investment Operations
--------------------------------------------------------
Net Realized &
Unrealized Gain Total From
Net Asset Value, Net Investment (Loss) On Investment
Beginning of Year Income (a) Investments Operations
----------------- ----------------- ------------ ----------
<S> <C> <C> <C> <C>
PRIMARY CLASS
Six Months Ended
September 30, 2000* $ 12.20 $ .08 (a) $ (.03) $ .05
Years Ended March 31,
2000 11.98 .20 (a) .33 .53
1999 12.62 .22 (a) (.56) (.34)
1998 10.16 .21 (a) 2.58 2.79
1997 (b) 10.00 .09 (a) .11 .20
20
<PAGE>
Distributions
---------------------------------------------------------------------------------------
In Excess From Net
From Net of Net Realized Gain Net Asset
Investment Investment on Total Value, End of
Income Income Investments Distribution Year
------ ------ ----------- ------------ ----
PRIMARY CLASS
Six Months Ended
September 30, 2000* $ (.05) $ -- $ -- $ (.05) $ 12.20
Years Ended March 31,
2000 (.27) (.04) -- (.31) 12.20
1999 (.19) -- (.11) (.30) 11.98
1998 (.21) -- (.12) (.33) 12.62
1997 (b) (.04) -- -- (.04) 10.16
</TABLE>
<TABLE>
<CAPTION>
LEGG MASON BALANCED TRUST
RATIOS/SUPPLEMENTAL DATA
--------------------------------------------------------------------------------------------------------------------
Net Investment
Expenses to Income to Portfolio Net Assets,
Total Return Average Net Average Net Turnover Rate End of Period
(%) Assets (%) (a) Assets (%) (a) (%) (thousands -- $)
--- -------------- -------------- --- ----------------
<S> <C> <C> <C> <C> <C>
PRIMARY CLASS
Six Months Ended
September 30, 2000* .41 (c) 1.85 (a) (d) 1.26 (a) (d) 34.9 (d) 36,509
Years Ended March 31,
2000 4.53 1.85 (a) 1.67 (a) 58.0 37,026
1999 (2.69) 1.85 (a) 1.96 (a) 50.0 55,900
1998 27.80 1.85 (a) 2.08 (a) 34.5 47,761
1997 (b) 2.02 (c) 1.85 (a) (d) 2.52 (a) (d) 5.1 (d) 17,948
</TABLE>
(a) Net of fees waived pursuant to a voluntary expense limitation of 1.85% of
average daily net assets. If no fees had been waived, the annualized
ratio of expenses to average daily net assets would have been as follows:
for the six months ended September 30, 2000, 2.09%; for the years ended
March 31, 2000, 1.88%; 1999, 1.90%; 1998, 2.14%; and for the period from
October 1, 1996 (commencement of operations) to March 31, 1997, 3.03%.
(b) For the period October 1, 1996 (commencement of operations) to March 31,
1997.
(c) Not annualized.
(d) Annualized.
* Unaudited financial information for the period April 1, 2000 to September
30, 2000.
THE BOARD UNANIMOUSLY RECOMMENDS THAT
THE SHAREHOLDERS VOTE "FOR" THE PROPOSAL
-------------------------
21
<PAGE>
OTHER BUSINESS
The Board knows of no other business to be brought before the Meeting. If,
however, any other matters properly come before the Meeting, it is the intention
that proxies that do not contain specific instructions to the contrary will be
voted on such matters in accordance with the judgment of the persons designated
in the proxies.
MISCELLANEOUS
AVAILABLE INFORMATION
Investors Trust and Bartlett Capital Trust are each subject to the
information requirements of the Securities Exchange Act of 1934 and the 1940 Act
and in accordance therewith each files reports and other information with the
SEC. Reports, proxy statements, registration statements and other information
may be inspected without charge and copied at the Public Reference Room
maintained by the SEC at 450 Fifth Street, N.W., Washington, DC 20549, and at
the following regional offices of the SEC: 7 World Trade Center, Suite 1300, New
York, NY 10048, and 500 West Madison Street, 14th floor, Chicago, IL 60661.
Information on the operation of the Public Reference Room may be obtained by
calling the SEC at 1-202-942-8090. The SEC maintains an internet web site at
http://www.sec.gov that contains information regarding Investors Trust and
Bartlett Capital Trust, and other registrants that file electronically with the
SEC. Copies of such material may also be obtained, after paying a duplicating
fee, from the Public Reference Branch, Office of Consumer Affairs and
Information Services, Securities and Exchange Commission, Washington, DC, 20549,
or by electronic request at the following e-mail address: [email protected].
LEGAL MATTERS
Certain legal matters in connection with the issuance of Legg Mason
Balanced Trust shares as part of the Reorganization will be passed upon by Legg
Mason Balanced Trust's counsel, Kirkpatrick & Lockhart LLP.
EXPERTS
The audited financial statements of Legg Mason Balanced Trust,
incorporated by reference into the Reorganization Statement of Additional
Information and incorporated by reference or included in its Statement of
Additional Information, have been audited by Ernst & Young LLP, independent
auditors for Legg Mason Balanced Trust. The audited financial statements of
Bartlett Basic Value Fund, incorporated by reference into the Reorganization
Statement of Additional Information and incorporated by reference or included in
its Statement of Additional Information, have been audited by
PricewaterhouseCoopers LLP, independent accountants for Bartlett Basic Value
Fund. The report of Ernst & Young LLP is included in the Annual Report to
Shareholders for the fiscal year ended March 31, 2000 for Legg Mason Balanced
Trust and the report of PricewaterhouseCoopers LLP is included in the Annual
Report to Shareholders for the fiscal year ended December 31, 1999 for Bartlett
Basic Value Fund. The financial statements audited by PricewaterhouseCoopers LLP
and Ernst & Young LLP, respectively, have been incorporated by reference into
22
<PAGE>
the Reorganization Statement of Additional Information in reliance on their
reports given on their authority as experts in auditing and accounting matters.
23
<PAGE>
APPENDIX A
----------
PRINCIPAL SHAREHOLDERS
----------------------
The following table sets forth the beneficial ownership of each Fund's
outstanding equity securities as of ______ __, 2001 by each beneficial owner of
5% or more of a Fund's outstanding equity securities.
LEGG MASON BALANCED TRUST
NATURE OF
NAME AND ADDRESS OWNERSHIP AMOUNT PERCENT
---------------- --------- ------ -------
BARTLETT BASIC VALUE FUND
NATURE OF
NAME AND ADDRESSED OWNERSHIP AMOUNT PERCENT
------------------ --------- ------ -------
A-1
<PAGE>
APPENDIX B
AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION
THIS AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION ("Agreement")
is made as of _____________ __, 2001, between BARTLETT CAPITAL TRUST, a
Massachusetts business trust ("Trust"), on behalf of Bartlett Basic Value Fund,
a segregated portfolio of assets ("series") thereof ("Target"), and LEGG MASON
INVESTORS TRUST, INC., a Maryland corporation ("Corporation"), on behalf its
Legg Mason Balanced Trust series ("Acquiring Fund"). (Target and Acquiring Fund
are sometimes referred to herein individually as a "Fund" and collectively as
the "Funds," and Trust and Corporation are sometimes referred to herein
individually as an "Investment Company" and collectively as the "Investment
Companies.") 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 Corporation on behalf of Acquiring Fund and by Trust on
behalf of Target.
The Investment Companies wish to effect a reorganization described in
section 368(a)(1)(D) of the Internal Revenue Code of 1986, as amended ("Code"),
and intend this Agreement to be, and adopt it as, a "plan of reorganization"
within the meaning of the regulations under the Code ("Regulations"). The
reorganization will involve the transfer to Acquiring Fund of Target's assets in
exchange solely for voting shares of common stock of Acquiring Fund, par value
$0.001 per share ("Acquiring Fund Shares"), and the assumption by Acquiring Fund
of Target's liabilities, followed by the constructive distribution of the
Acquiring Fund Shares PRO RATA to the holders of shares of beneficial interest
in Target ("Target Shares") in exchange therefor, all on the terms and
conditions set forth herein. The foregoing transactions are referred to herein
collectively as the "Reorganization."
The Target Shares are divided into three classes, designated Class A,
Class C, and Class Y shares ("Class A Target Shares," "Class C Target Shares,"
and "Class Y Target Shares," respectively). The Acquiring Fund Shares also are
divided into three classes, designated Financial Intermediary Class, Primary
Class, and Institutional Class shares ("Financial Intermediary Class Acquiring
Fund Shares," "Primary Class Acquiring Fund Shares," and "Institutional Class
Acquiring Fund Shares," respectively). Each class of Acquiring Fund Shares is
substantially similar to the corresponding class of Target Shares -- Class A
Target Shares correspond to Financial Intermediary Class Acquiring Fund Shares,
Class C Target Shares correspond to Primary Class Acquiring Fund Shares, and
Class Y Target Shares correspond to Institutional Class Acquiring Fund Shares --
except that Class C Target Shares are subject to a contingent deferred sales
charge, while Primary Class Acquiring Fund Shares are not subject to such a
charge.
In consideration of the mutual promises contained herein, the parties
agree as follows:
B-1
<PAGE>
1. PLAN OF REORGANIZATION AND TERMINATION
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 (rounded to the third decimal place) (i) Financial
Intermediary Class Acquiring Fund Shares determined by dividing the net
value of Target (computed as set forth in paragraph 2.1) ("Target
Value") attributable to the Class A Target Shares by the net asset
value ("NAV") of a Financial Intermediary Class Acquiring Fund Share
(computed as set forth in paragraph 2.2), (ii) Primary Class Acquiring
Fund Shares determined by dividing the Target Value attributable to the
Class C Target Shares by the NAV of a Primary Class Acquiring Fund
Share (as so computed), and (iii) Institutional Class Acquiring Fund
Shares determined by dividing the Target Value attributable to the
Class Y Target Shares by the NAV of an Institutional Class Acquiring
Fund Share (as so computed), 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 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 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 its known Liabilities
before the Effective Time.
1.4. At or immediately 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 substantially all of its
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 distribute the Acquiring Fund Shares it receives
pursuant to paragraph 1.1 to Target's shareholders of record, determined as of
the Effective Time (each a "Shareholder" and collectively "Shareholders"), in
constructive exchange for their Target Shares. Such distribution shall be
accomplished by Corporation's transfer agent's opening accounts on Acquiring
Fund's share transfer books in the Shareholders' names and transferring such
B-2
<PAGE>
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 Shares due that Shareholder, by class (I.E., the
account for a Shareholder of Class A Target Shares shall be credited with the
respective PRO RATA number of Financial Intermediary Class Acquiring Fund Shares
due that Shareholder, the account for a Shareholder of Class C Target Shares
shall be credited with the respective PRO RATA number of Primary Class Acquiring
Fund Shares due that Shareholder, and the account for a Shareholder of Class Y
Target Shares shall be credited with the respective PRO RATA number of
Institutional Class Acquiring Fund Shares due that Shareholder). All outstanding
Target Shares, including any represented by certificates, shall simultaneously
be canceled on Target's share transfer books. Acquiring Fund shall not issue
certificates representing the Acquiring Fund Shares issued in connection with
the Reorganization.
1.6. As soon as reasonably practicable after distribution of the
Acquiring Fund Shares pursuant to paragraph 1.5, but in all events within six
months after the Effective Time, Target shall be terminated as a series of Trust
and any further actions shall be taken in connection therewith as required by
applicable law.
1.7. Any reporting responsibility of Target to a public authority
is and shall remain its responsibility up to and including the date on which it
is terminated.
1.8. Any transfer taxes payable upon issuance of Acquiring Fund Shares
in a name other than that of the registered holder on Target's books of the
Target Shares constructively exchanged therefor shall be paid by the person to
whom such Acquiring Fund Shares are to be issued, as a condition of such
transfer.
2. VALUATION
2.1. For purposes of paragraph 1.1(a), Target's net value shall be (a)
the value of the Assets computed as of the close of regular trading on the New
York Stock Exchange ("NYSE") on the date of the Closing ("Valuation Time"),
using the valuation procedures set forth in Target's then-current prospectuses
and statement of additional information ("SAI"), less (b) the amount of the
Liabilities as of the Valuation Time.
2.2. For purposes of paragraph 1.1(a), the NAV per share of each class
of Acquiring Fund Shares shall be computed as of the Valuation Time, using the
valuation procedures set forth in Acquiring Fund's then-current prospectuses and
SAI.
2.3. All computations pursuant to paragraph 2.1 shall be made by or
under the direction of Bartlett & Co. All computations pursuant to paragraph 2.2
shall be made by or under the direction of Legg Mason Fund Adviser, Inc.
("LMFA").
3. CLOSING AND EFFECTIVE TIME
3.1. The Reorganization, together with related acts necessary to
consummate the same ("Closing"), shall occur at Corporation's principal office
on or about March 30, 2001, or at such other place and/or on such other date as
B-3
<PAGE>
to which the Investment Companies may agree. All acts taking place at the
Closing shall be deemed to take place simultaneously as of the close of business
on the date thereof or at such other time as to which the Investment Companies
may agree ("Effective Time"). If, immediately before the Valuation Time, (a) the
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 share of each class of
Acquiring Fund Shares 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. Trust's fund accounting and pricing agent shall deliver at the
Closing a certificate of an authorized officer verifying that the information
(including adjusted basis and holding period, by lot) concerning the Assets,
including all portfolio securities, transferred by Target to Acquiring Fund, as
reflected on Acquiring Fund's books immediately following the Closing, does or
will conform to such information on Target's books immediately before the
Closing. Trust'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. Trust shall deliver to Corporation at the Closing a list of the
names and addresses of the Shareholders and the number of outstanding Target
Shares (by class) owned by each Shareholder, all as of the Effective Time,
certified by Trust's Secretary or Assistant Secretary. Corporation's 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. Corporation
shall issue and deliver a confirmation to Trust evidencing the Acquiring Fund
Shares to be credited to Target at the Effective Time or provide evidence
satisfactory to Trust that such Acquiring Fund Shares have been credited to
Target's account on Acquiring Fund's books. At the Closing, each party shall
deliver to the other bills of sale, checks, assignments, stock certificates,
receipts, or other documents the other party or its counsel reasonably requests.
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. Trust is a trust operating under a written declaration
of trust, the beneficial interest in which is divided into transferable
shares ("Business Trust"), that is duly organized and validly existing
under the laws of the Commonwealth of Massachusetts; and a copy of its
B-4
<PAGE>
Amended and Restated Agreement and Declaration of Trust ("Declaration
of Trust") is on file with the Secretary of the Commonwealth of
Massachusetts;
4.1.2. Trust is duly registered as an open-end management
investment company under the Investment Company Act of 1940, as amended
("1940 Act"), and such registration is in full force and effect;
4.1.3. Target is a duly established and designated series of
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 (except securities that are subject to "securities loans"
as referred to in section 851(b)(2) of the Code); and on delivery and
payment for the Assets, Acquiring Fund will acquire good and marketable
title thereto;
4.1.5. Target's current prospectuses and SAI conform in all
material respects to the applicable requirements of the Securities Act
of 1933, as amended ("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 Declaration of Trust or Trust's 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 otherwise disclosed in writing to and accepted
by Corporation;
4.1.7. Except as otherwise disclosed in writing to and accepted
by 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 or 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 Corporation, no litigation, administrative proceeding, or
investigation of or before any court or governmental body is presently
pending or (to Trust's knowledge) threatened against Trust with respect
to Target or any of its properties or assets that, if adversely
determined, would materially and adversely affect Target's financial
B-5
<PAGE>
condition or the conduct of its business; Trust 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 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, this Agreement
constitutes 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, as amended ("1934 Act"), or the 1940 Act for the execution or
performance of this Agreement by Trust, except for (a) the filing with
the Securities and Exchange Commission ("SEC") of a registration
statement by Corporation on Form N-14 relating to the Acquiring Fund
Shares issuable hereunder, and any supplement or amendment thereto
("Registration Statement"), including therein a prospectus/proxy
statement ("Proxy Statement"), and (b) 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 (as defined 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
Corporation for use therein;
4.1.13. The Liabilities were incurred by Target in the ordinary
course of its business; and there are no Liabilities other than
Liabilities disclosed or provided for in Trust's financial statements
referred to in paragraph 4.1.19 and Liabilities incurred by Target in
the ordinary course of its business subsequent to June 30, 2000, or
otherwise disclosed to Corporation, none of which has been materially
adverse to the business, assets, or results of Target's operations;
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4.1.14. Target is a "fund" as defined in section 851(g)(2) of the
the Code; it qualified for treatment as a regulated investment company
under Subchapter M of the Code ("RIC") for each past taxable year since
it commenced operations and will continue to meet all the requirements
for such qualification for its current taxable year; the Assets shall
be invested at all times through the Effective Time in a manner that
ensures compliance with the foregoing; and Target has no earnings and
profits accumulated in any taxable year in which the provisions of
Subchapter M did not apply to it;
4.1.15. Target is not under the jurisdiction of a court in a
"title 11 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;
4.1.17. During the five-year period ending at the Effective Time,
(a) neither Target nor any person "related" (as defined in section
1.368-1(e)(3) of the Regulations) to Target will have acquired Target
Shares with consideration other than Acquiring Fund Shares or Target
Shares, except for shares redeemed in the ordinary course of Target's
business as a series of an open-end investment company as required by
section 22(e) of the 1940 Act, and (b) no distributions will have been
made with respect to Target Shares (other than normal, regular dividend
distributions made pursuant to Target's historic dividend-paying
practice), either directly or through any transaction, agreement, or
arrangement with any other person, except for dividends qualifying for
the deduction for dividends paid (as defined in section 561 of the
Code) referred to in sections 852(a)(1) and 4982(c)(1)(A) of the Code;
4.1.18. Target's federal income tax returns, and all applicable
state and local tax returns, for all taxable years to and including the
taxable year ended December 31, 1999, have been timely filed and all
taxes payable pursuant to such returns have been timely paid; and
4.1.19. Trust's audited financial statements for the year ended
December 31, 1999, and unaudited financial statements for the six
months ended June 30, 2000, to be delivered to Corporation, fairly
represent Target's financial position as of each such date and the
results of its operations and changes in its net assets for the periods
then ended.
4.2. Acquiring Fund represents and warrants as follows:
4.2.1. Corporation is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Maryland;
and its Articles of Incorporation are on file with the Department of
Assessments and Taxation of Maryland;
4.2.2. Corporation is duly registered as an open-end management
investment company under the 1940 Act, and such registration is in full
force and effect;
4.2.3. Acquiring Fund is a duly established and designated
series of Corporation;
4.2.4. No consideration other than Acquiring Fund Shares
(and Acquiring Fund's assumption of the Liabilities) will be issued in
exchange for the Assets in the Reorganization;
4.2.5. The Acquiring Fund Shares to be issued and delivered to
Target hereunder will, at the Effective Time, have been duly authorized
and, when issued and delivered as provided herein (including the
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receipt of consideration in exchange therefor exceeding their par
value), will be duly and validly issued and outstanding shares of
Acquiring Fund, fully paid and non-assessable;
4.2.6. Acquiring Fund's current prospectuses and SAI 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 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 otherwise disclosed in writing to and accepted by
Trust;
4.2.8. Except as otherwise disclosed in writing to and
accepted by Trust, no litigation, administrative proceeding, or
investigation of or before any court or governmental body is presently
pending or (to Corporation's knowledge) threatened against 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;
Corporation 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 Corporation's board of directors
(together with Trust's board of trustees, the "Boards"), which has made
the determinations required by Rule 17a-8(a) under the 1940 Act; and
this Agreement constitutes 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 Corporation,
except for (a) the filing with the SEC of the Registration Statement
and a post-effective amendment to Corporation's registration statement
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on Form N1-A and (b) 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, 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 Trust for use therein;
4.2.12. Acquiring Fund is a "fund" as defined in section
851(g)(2) of the Code; it qualified for treatment as a RIC for each
past taxable year since it commenced operations and will continue to
meet all the requirements for such qualification for its current
taxable year; Acquiring Fund intends to continue to meet all such
requirements for the next taxable year; and it has no 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 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 is there any plan or intention for
Acquiring Fund, or any person "related" (within the meaning of section
1.368-1(e)(3) of the Regulations) to Acquiring Fund, to acquire --
during the five-year period beginning at the Effective Time, either
directly or through any transaction, agreement, or arrangement with any
other person -- with consideration other than Acquiring Fund Shares,
any Acquiring Fund Shares issued to the Shareholders pursuant to the
Reorganization, except for redemptions in the ordinary course of
Acquiring Fund's business as an open-end investment company as required
by section 22(e) of the 1940 Act;
4.2.14. Following the Reorganization, Acquiring Fund (a) will
continue Target's "historic business" (within the meaning of section
1.368-1(d)(2) of the Regulations) and (b) will use a significant
portion of Target's "historic business assets" (within the meaning of
section 1.368-1(d)(3) of the Regulations) in a business; moreover,
Acquiring Fund (c) has no plan or intention to sell or otherwise
dispose of any of the Assets, except for dispositions made in the
ordinary course of that business and dispositions necessary to maintain
its status as a RIC, and (d) 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 a business trust or any
"fund" thereof (within the meaning of section 851(g)(2) of the Code)
following the Reorganization;
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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;
4.2.17. Acquiring Fund does not directly or indirectly own, nor
at the Effective Time will it directly or indirectly own, nor has it
directly or indirectly owned at any time during the past five years,
any shares of Target;
4.2.18. During the five-year period ending at the Effective Time,
neither Acquiring Fund nor any person "related" (as defined in section
1.368-1(e)(3) of the Regulations) to Acquiring Fund will have acquired
Target Shares with consideration other than Acquiring Fund Shares;
4.2.19. Acquiring Fund's federal income tax returns, and all
applicable state and local tax returns, for all taxable years to and
including the taxable year ended March 31, 2000, have been timely filed
and all taxes payable pursuant to such returns have been timely paid;
4.2.20. Corporation's financial statements for the year ended
March 31, 2000, and unaudited financial statements for the six months
ended September 30, 2000, to be delivered to Trust, fairly represent
Acquiring Fund's financial position as of each such date and the
results of its operations and changes in its net assets for the periods
then ended; and
4.2.21. If the Reorganization is consummated, Acquiring Fund will
treat each Shareholder that receives Acquiring Fund Shares in
connection with the Reorganization as having made a minimum initial
purchase of such shares for the purpose of making additional
investments therein, regardless of the value of the shares so received.
4.3. Each Fund represents and warrants as follows:
4.3.1. The fair market value of the Acquiring Fund Shares
received by each Shareholder will be approximately equal to the fair
market value of its Target Shares constructively surrendered in
exchange therefor;
4.3.2. Its management (a) is unaware of any plan or intention
of Shareholders to redeem, sell, or otherwise dispose of (i) any
portion of their Target Shares before the Reorganization to any person
"related" (within the meaning of section 1.368-1(e)(3) of the
Regulations) to either Fund or (ii) any portion of the Acquiring Fund
Shares to be received by them in the Reorganization to any person
related (as so defined) to Acquiring Fund, (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 a series of an open-end investment
company, (c) 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, and (d) does not anticipate that
there will be extraordinary redemptions of Acquiring Fund Shares
immediately following the Reorganization;
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4.3.3. The Shareholders will pay their own expenses, if any,
incurred in connection with the Reorganization;
4.3.4. The fair market value of the Assets on a going concern
basis will equal or exceed the Liabilities to be assumed by Acquiring
Fund and those to which the Assets are subject;
4.3.5. There is no intercompany indebtedness between the Funds
that was issued or acquired, or will be settled, at a discount;
4.3.6. 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 its Reorganization expenses and to make
redemptions and distributions immediately before the Reorganization
(except (a) redemptions in the ordinary course of its business required
by section 22(e) of the 1940 Act and (b) regular, normal dividend
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) will be included as assets held thereby immediately before the
Reorganization;
4.3.7. None of the compensation received by any Shareholder
who is an employee of or service provider to Target will be separate
consideration for, or allocable to, any of the Target Shares held by
such Shareholder; none of the Acquiring Fund Shares received by any
such Shareholder will be separate consideration for, or allocable to,
any employment agreement, investment advisory agreement, or other
service agreement; and the consideration paid to any such Shareholder
will be for services actually rendered and will be commensurate with
amounts paid to third parties bargaining at arm's-length for similar
services;
4.3.8. Immediately after the Reorganization, the Shareholders
will own shares constituting "control" (within the meaning of section
304(c) of the Code) of Acquiring Fund;
4.3.9. Neither Fund will be reimbursed for any expenses incurred
by it or on its behalf in connection with the Reorganization unless
those expenses are solely and directly related to the Reorganization
(determined in accordance with the guidelines set forth in Rev. Rul.
73-54, 1973-1 C.B. 187) ("Reorganization Expenses"); and
4.3.10 The aggregate value of the acquisitions, redemptions, and
distributions limited by paragraphs 4.1.17, 4.2.13, and 4.2.18 will not
exceed 50% of the value (without giving effect to such acquisitions,
redemptions, and distributions) of the proprietary interest in Target
at the Effective Time.
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:
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(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 (1) Target shall not
dispose of more than an insignificant portion of its historic business
assets (as defined above) during such period without Acquiring Fund's
prior consent and (2) if Target's shareholders' approve this Agreement
(and the transactions contemplated hereby), then between the date of
such approval and the Closing, the Investment Companies shall
coordinate the Funds' respective portfolios so that the transfer of the
Assets to Acquiring Fund will not cause it to fail to be in compliance
with all of its investment policies and restrictions immediately after
the Closing.
5.2. Target covenants to call a shareholders' meeting to consider and
act on this Agreement and to take all other action necessary to obtain approval
of the transactions contemplated hereby ("Shareholders' Meeting").
5.3. Target covenants that the Acquiring Fund Shares to be delivered
hereunder are not being acquired for the purpose of making any distribution
thereof, other than in accordance with the terms hereof.
5.4. Target covenants that it will assist Corporation in obtaining
information Corporation reasonably requests concerning the beneficial ownership
of Target Shares.
5.5. Target covenants that its 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 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
Shares to be delivered hereunder, and otherwise to carry out the intent and
purpose hereof.
5.8. Acquiring Fund covenants to use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act, the 1940 Act, and
such state securities laws it may deem appropriate in order to continue its
operations after the Effective Time.
5.9. Subject to this Agreement, each Fund covenants to take or cause
to be taken all actions, and to do or cause to be done all things, reasonably
necessary, proper, or advisable to consummate and effectuate the transactions
contemplated hereby.
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6. CONDITIONS PRECEDENT
Each Fund's obligations hereunder shall be subject to (a) performance
by the other Fund of all its 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 both Boards 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 Investment Company 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
Investment Company 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. Trust shall have received an opinion of Kirkpatrick & Lockhart
LLP ("Counsel") substantially to the effect that:
6.4.1. Acquiring Fund is a duly established series of
Corporation, a corporation duly organized, validly existing, and in
good standing under the laws of the State of Maryland with power under
its Articles of Incorporation to own all its properties and assets and,
to Counsel's knowledge, to carry on its business as presently
conducted;
6.4.2. This Agreement (a) has been duly authorized, executed,
and delivered by Corporation on behalf of Acquiring Fund and (b)
assuming due authorization, execution, and delivery of this Agreement
by Trust on behalf of Target, is a valid and legally binding obligation
of Corporation with respect to Acquiring Fund, enforceable in
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accordance with its terms, except as the same may be limited by
bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium, and similar laws relating to or affecting creditors' rights
and by general principles of equity;
6.4.3. The Acquiring Fund Shares to be issued and distributed
to the Shareholders under this Agreement, assuming their due delivery
as contemplated by this Agreement and the receipt of consideration in
exchange therefor exceeding their par value, will be duly authorized
and validly issued and outstanding and fully paid and non-assessable;
6.4.4. The execution and delivery of this Agreement did not,
and the consummation of the transactions contemplated hereby will not,
materially violate Corporation's Articles of Incorporation or By-Laws
or any provision of any agreement (known to Counsel, without any
independent inquiry or investigation) to which Corporation (with
respect to Acquiring Fund) is a party or by which it is bound or (to
Counsel's knowledge, 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 Corporation
(with respect to Acquiring Fund) is a party or by which it is bound,
except as set forth in such opinion or as otherwise disclosed in
writing to and accepted by Trust;
6.4.5. To Counsel's knowledge (without any independent inquiry
or investigation), no consent, approval, authorization, or order of any
court or governmental authority is required for the consummation by
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. Corporation is registered with the SEC as an investment
company, and to Counsel's knowledge no order has been issued or
proceeding instituted to suspend such registration; and
6.4.7. To Counsel's knowledge (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 Corporation (with respect to Acquiring Fund) or any of
its properties or assets attributable or allocable to Acquiring Fund
and (b) 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 Trust.
In rendering such opinion, Counsel may (1) rely, as to matters governed by the
laws of the State of Maryland, on an opinion of competent Maryland counsel, (2)
make assumptions regarding the authenticity, genuineness, and/or conformity of
documents and copies thereof without independent verification thereof, (3) limit
such opinion to applicable federal and state law, and (4) define the word
"knowledge" and related terms to mean the knowledge of attorneys then with
Counsel who have devoted substantive attention to matters directly related to
this Agreement and the Reorganization.
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6.5. Corporation shall have received an opinion of Counsel
substantially to the effect that:
6.5.1. Target is a duly established series of Trust, a
Business Trust duly organized and validly existing under the laws of
the Commonwealth of Massachusetts with power under the Declaration of
Trust to own all its properties and assets and, to Counsel's knowledge,
to carry on its business as presently conducted;
6.5.2. This Agreement (a) has been duly authorized, executed,
and delivered by Trust on behalf of Target and (b) assuming due
authorization, execution, and delivery of this Agreement by Corporation
on behalf of Acquiring Fund, is a valid and legally binding obligation
of 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 Declaration of Trust or Trust's By-Laws or any
provision of any agreement (known to Counsel, without any independent
inquiry or investigation) to which Trust (with respect to Target) is a
party or by which it is bound or (to Counsel's knowledge, 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 Trust (with respect to Target) is a party
or by which it is bound, except as set forth in such opinion or as
otherwise disclosed in writing to and accepted by Corporation;
6.5.4. To Counsel's knowledge (without any independent inquiry
or investigation), no consent, approval, authorization, or order of any
court or governmental authority is required for the consummation by
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. Trust is registered with the SEC as an investment
company, and to Counsel's knowledge no order has been issued or
proceeding instituted to suspend such registration; and
6.5.6. To Counsel's knowledge (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 Trust (with respect to Target) or any of its
properties or assets attributable or allocable to Target and (b) Trust
(with respect to Target) is not a party to or subject to the provisions
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of any order, decree, or judgment of any court or governmental body
that materially and adversely affects Target's business, except as set
forth in such opinion or as otherwise disclosed in writing to and
accepted by Corporation.
In rendering such opinion, Counsel may (1) rely, as to matters governed by the
laws of the Commonwealth of Massachusetts, on an opinion of competent
Massachusetts counsel, (2) make assumptions regarding the authenticity,
genuineness, and/or conformity of documents and copies thereof without
independent verification thereof, (3) limit such opinion to applicable federal
and state law, and (4) define the word "knowledge" and related terms to mean the
knowledge of attorneys then with Counsel who have devoted substantive attention
to matters directly related to this Agreement and the Reorganization.
6.6. Each Investment Company shall have received an opinion of
Counsel, addressed to and in form and substance reasonably satisfactory to it,
as to the federal income tax consequences mentioned below ("Tax Opinion"). In
rendering the Tax Opinion, Counsel may rely as to factual matters, exclusively
and without independent verification, on the representations made in this
Agreement, which Counsel may treat as representations and warranties made to it,
and in separate letters addressed to Counsel and the certificates delivered
pursuant to paragraph 3.4. The Tax Opinion shall be substantially to the effect
that, based on the facts and assumptions stated therein and conditioned on
consummation of the Reorganization in accordance with this Agreement, for
federal income tax purposes:
6.6.1. Acquiring Fund's acquisition of the Assets in exchange
solely for Acquiring Fund Shares and Acquiring Fund's assumption of the
Liabilities, followed by Target's distribution of those shares PRO RATA
to the Shareholders constructively in exchange for their Target Shares,
will qualify as a reorganization within the meaning of section
368(a)(1)(D) 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. Target will recognize no gain or loss on the transfer
of the Assets to Acquiring Fund in exchange solely for Acquiring Fund
Shares and Acquiring Fund's assumption of the Liabilities or on the
subsequent distribution of those shares to the Shareholders in
constructive exchange for their Target Shares;
6.6.3. Acquiring Fund will recognize no gain or loss on its
receipt of the Assets in exchange solely for Acquiring Fund Shares and
its assumption of the Liabilities;
6.6.4. Acquiring Fund's basis in the Assets will be the same
as Target's basis therein immediately before the Reorganization, and
Acquiring Fund's holding period for the Assets will include Target's
holding period therefor;
6.6.5. A Shareholder will recognize no gain or loss on the
constructive exchange of all its Target Shares solely for Acquiring
Fund Shares pursuant to the Reorganization; and
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6.6.6. A Shareholder's aggregate basis in the Acquiring Fund
Shares it receives in the Reorganization will be the same as the
aggregate basis for its Target Shares it constructively surrenders in
exchange for those Acquiring Fund Shares, and its holding period for
those Acquiring Fund Shares will include its holding period for those
Target Shares, provided the Shareholder held them as capital assets at
the Effective Time.
Notwithstanding subparagraphs 6.6.2 and 6.6.4, the Tax Opinion may state that no
opinion is expressed as to the effect of the Reorganization on the Funds or any
Shareholder with respect to any asset as to which any unrealized gain or loss is
required to be recognized for federal income tax purposes at the end of a
taxable year (or on the termination or transfer thereof) under a mark-to-market
system of accounting.
At any time before the Closing, either Investment Company may waive any
of the foregoing conditions (except that set forth in paragraph 6.1) if, in the
judgment of its Board, such waiver will not have a material adverse effect on
its Fund's 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 the Reorganization
Expenses will be borne by LMFA or one of its affiliates.
8. ENTIRE AGREEMENT; NO 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 not
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
29, 2001; 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.
B-17
<PAGE>
10. AMENDMENT
This Agreement may be amended, modified, or supplemented at any time,
notwithstanding approval thereof by Target's shareholders, in any manner
mutually agreed on 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 Trust is a Business Trust. Notice is
hereby given that this instrument is executed on behalf of Trust's trustees
solely in their capacities as trustees, and not individually, and that 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 Targets' assets and property. Acquiring Fund agrees that, in
asserting any rights or claims under this Agreement, it shall look only to
Target's assets and property in settlement of such rights or claims and not to
such trustees or shareholders.
11.4. This Agreement may be executed in one or more counterparts, all
of which shall be considered one and the same agreement, and shall become
effective when one or more counterparts have been executed by each Investment
Company and delivered to the other party hereto. The headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
B-18
<PAGE>
IN WITNESS WHEREOF, each party has caused this Agreement to be executed
and delivered by its duly authorized officers as of the day and year first
written above.
BARTLETT CAPITAL TRUST,
on behalf of its series,
Bartlett Basic Value Fund
By:
---------------------------------
Marie K. Karpinski
Vice President
LEGG MASON INVESTORS TRUST, INC.,
on behalf of its series,
Legg Mason Balanced Trust
By:
---------------------------------
Marie K. Karpinski
Vice President
B-19
<PAGE>
APPENDIX C
----------
Legg Mason Balanced Trust
Portfolio Managers' Comments, 3/31/00
INVESTMENT RESULTS
Cumulative results for the Balanced Trust for the periods ended March
31, 2000, are listed below, along with those of some representative benchmarks:
Life
3 Months 1 Year of Class*
-------- ------ --------
Balanced Trust +3.30% +4.53% +32.62%
Lipper Balanced Fund Index +2.98% +10.45% +64.06%
S&P 500 Stock Composite Index +2.29% +17.94% +130.00%
Lehman Intermediate Government/
Corporate Bond Index +1.50% +2.09% +22.10%
------------
* The Balanced Trust return is for the period October 1, 1996 (inception of the
Fund) to March 31, 2000. Index returns are for the period September 30, 1996
to March 31, 2000.
EQUITIES
While our equity performance improved nicely during the first quarter of
2000, our full fiscal year results still lagged the S&P 500 Index by a
substantial margin. Until very recently, the equity market was paced almost
exclusively by technology companies. Though our companies generally delivered
solid business results throughout the last year, with excellent growth in
earnings and cash flow, many stocks underperformed as investors shunned value
stocks in sectors like manufacturing, financial services, and health care. The
extremely "narrow" market environment was very challenging for managers who
believe in diversified and value-based stock selection.
Our guiding principle as value investors is that STOCK PRICES PARALLEL
BUSINESS PERFORMANCE OVER THE LONG RUN, so we are very encouraged by the
continued fundamental progress of our companies. First quarter earnings reports
have been solid, and many of our companies are following up with healthy
dividend increases and stock repurchase programs. We are hopeful that the
nascent shift in favor of high-quality companies and away from more speculative
"dot.com" stocks will continue, for such a change would favor our companies.
For most of the first quarter of 2000, we experienced a continuation of
the unusual market conditions that prevailed last year. Technology stocks
soared, while the rest of the market snored. THE WALL STREET JOURNAL suggested
that investors were differentiating between "Old Economy" and "New Economy"
companies, and following the NASDAQ became a national pastime as this popular
technology-laden index rocketed to record highs. Like many value investors, we
found ourselves amazed by the popularity of unproven "dot.com" companies and the
corresponding indifference toward excellent companies with solid earnings
prospects.
The extreme market conditions allowed us to buy very good companies at
attractive prices during the quarter. We added to positions in EMERSON ELECTRIC,
JOHNSON & JOHNSON and MCDONALD'S as these fine companies were available at very
attractive relative valuations. We initiated a new position in CVS, a pharmacy
<PAGE>
retailer whose stock price had collapsed apparently in response to the
disclosure of a financial scandal at Rite Aid. We felt this "guilt by
association" was unwarranted, and further believed that the Rite Aid problems
would allow for accelerated store expansion and market share gains by CVS. In
the technology sector, we added DELL COMPUTER early in the year after the stock
had been buffeted by the highly publicized Y2K impact on hardware spending.
Following a severe 40% sell-off of LUCENT TECHNOLOGIES, we bought the stock. We
concluded that the company was experiencing transitional problems related to new
product development, challenges that seemed very manageable and unlikely to
deter it from continued long-term growth as a dominant telecommunications
equipment supplier.
Companies eliminated from the portfolio during the quarter included AMR,
GATX, KAYDON, POST PROPERTIES, and POTASH. We have a substantial overweighting
in financial services companies, so eliminating GATX was done largely to
moderate the interest rate sensitivity of the portfolio. We sold POST PROPERTIES
for the same reason, though we also feared they might experience excess capacity
in some of their markets, which would cause fundamental deterioration. AMR and
KAYDON were disappointments, and we were pleased to reallocate funds from those
sales to higher quality companies as opportunities developed.
The equities in the Fund turned in above-market performance during the
latest quarter, and this has continued so far in April. We certainly welcome the
nascent shift toward blue-chip firms and away from "dot.coms," as it seems that
arithmetic has supplanted optimism in the evaluation of companies. Value
investors were being fitted for dunce caps earlier this year, but the resurgence
of quality companies over more speculative fare has prompted a reassessment.
We continue to be guided by the conviction that stock prices ultimately
parallel business performance. We feel very comfortable with our diversified
portfolio of fine companies. They collectively show double-digit earnings and
dividend growth rates, high earnings predictability, excellent financial
strength and solid ROE. Yet they are currently valued - using traditional
measurements like earnings and cash flow multiples - at a considerable discount
to the S&P 500 Index. We feel confident that this diversified portfolio of fine
companies will perform very well over the long haul, both in absolute and
relative terms and on a risk-adjusted basis.
FIXED INCOME
During the twelve months ended March 31, 2000, the fixed income portion
of the Fund continued to outperform the market. This period was characterized by
rising interest rates and a flattening yield curve. Our outperformance can
primarily be attributed to favorable sector allocation. Specifically, the Fund
was overweight in mortgage-backed securities and Treasury Inflation Index Notes
(TIPS), which were among the best performing sectors of the fixed-income market,
and maintained an underweight position in intermediate corporate bonds, which
was one of the poorest performing sectors. Additionally, our foray into
longer-dated Treasury bonds in the first quarter of 2000 was additive to
investment performance as the market came to realize the bullish significance of
a reduction, and indeed possible elimination, of the longer-term bonds issued by
the U.S. government.
In our last report to shareholders dated December 31, 1999, we expressed
the view that U.S. Treasury bonds were extremely cheap at current levels and
that fundamentals were quite positive due to the fact that the U.S. Treasury had
announced its intention to buy back $30 billion of U.S. government debt via open
market purchases. Further, we felt that it was very likely that the next 12 to
18 months would produce a significant bond rally as a result of increased
allocations to the fixed income sector. Little did we know that this significant
rally was right around the corner and, during the past quarter, Treasury bonds
with maturities in excess of ten years embarked on a swift rally that left many
institutional investors, who were underweighted in Treasury securities,
scrambling to readjust their portfolios. For the quarter, the Lehman
C-2
<PAGE>
Intermediate Government/Corporate Index posted a return of 1.5%, and
longer-dated bonds produced returns approaching double digits.
I am pleased to report that, for the most part, we got it right for the
quarter, as we had significant exposure to Treasury securities, both in
long-term Treasury coupon bonds (which we traded in and out of during the
quarter) and a significant exposure to zero coupon Treasury STRIPS, which we
continue to favor. These positions, coupled with a significant position in
Treasury Inflation Index bonds (TIPS), as well as underexposure to
intermediate-to-long term corporate bonds, were all additive to the Fund's
returns for the quarter. The only drag on performance was our exposure to
mortgage pass-through securities, which underperformed significantly during this
period.
The debate about inflation rages on, with one camp believing that a
sustained pattern of continued Fed tightenings will be necessary to rein in the
economy, while the other camp believes that inflation will remain comparatively
benign and that economic growth, in and of itself, does not have any bearing on
inflation. Our inclination would be to belong to the latter camp and, although
bonds are no longer as undervalued as they were earlier in the year, we continue
to believe in a secular decline in interest rates that will persist for some
time. In addition, with speculation in the so-called "new economy" sectors of
the stock market at mania levels, it is quite possible that we could see a
flight to quality due to a significant correction in the stock market. To us,
the current market eerily resembles the conditions that existed in the third
quarter of 1987, when stocks were overvalued and the Federal Reserve was
vigorously tightening interest rates. We believe that the current inverted yield
curve is not attributable solely to the expectation of a reduced supply of
long-dated bonds, but rather is a classical late stage occurrence from
unwarranted Federal Reserve tightening of short-term interest rates, which
becomes increasingly discounted in the longer maturities of the bond market. We
would point out that historically, every inverted yield curve eventually has led
to a significant bond rally, and we believe that the current period will prove
to be no exception.
We are enthusiastic about the volatility that exists in the bond market,
for it is exactly this type of market condition that gives rise to opportunities
due to price dislocations resulting from this volatility. Whether or not we have
our bets placed correctly remains to be seen; however, we are finding very
compelling values in the mortgage securities market as, in most cases, these
securities are trading at wider spreads than were seen in the 1998 Long-Term
Capital debacle. In addition, there are two other anomalies that exist in the
market at present, one of which we believe is unwarranted while the other is
warranted.
Specifically, the yield spreads on government-sponsored enterprise debt
(Federal National Mortgage Association and Federal Home Loan Mortgage
Association) are trading at the widest spreads in more than a decade. This is a
result of recent legislation introduced in Congress that proposes to sever the
implicit government guarantee that Fannie Mae and Freddie Mac have enjoyed since
their creation. At issue is whether the agencies will be able to maintain their
AAA credit rating if this legislation is successful in cutting the umbilical
cord between the Treasury and the government agencies. At present, the debt of
these agencies is trading at spreads that are normally reflective of single A or
indeed even BBB credits, which is perceived to be quite attractive. While it is
anyone's guess as to what the government may do, we believe it is unlikely that
this legislation will pass in its present form and, if it is successful at some
point, it is unlikely it will take on the draconian effect of a massive
downgrade against agency securities. The other anomaly is that corporate bonds
are also trading at historically wide levels. In this instance, we believe the
market is more rational for two reasons: one, if the Federal Reserve is
successful in slowing down the economy either through tightening or through
inducing a stock market decline, the best earnings of the cycle will be behind
corporate issuers, which normally is an environment that leads to a slowdown or
recession, which is typically accompanied by widening corporate spreads. In
addition, reminiscent of the mid-eighties, we perceive there to be a high degree
C-3
<PAGE>
of event risk in the corporate market due to the fact that many of the major
issuers of corporate debt are exactly the types of companies that will be prone
to mergers, takeovers and/or restructurings, all three of which are seldom
favorable to the bondholder. Accordingly, we will proceed with caution in the
corporate bond market.
At this point, we would characterize the overall bond market as fairly
valued; however, we believe that the undervaluation in the sectors mentioned
previously will allow our fixed income holdings to produce attractive total
returns over the next twelve months and, regardless of whether the Fed continues
tightening or not, that a year from now, we will see lower interest rates in
general.
As always, we appreciate your continued support.
James B. Hagerty, CFA
Peter A. Sorrentino, CFA
Equity Portfolio Managers
Dale H. Rabiner, CFA
Fixed Income Portfolio Manager
April 17, 2000
C-4
<PAGE>
Legg Mason Balanced Trust
Performance Information, Primary Class
Cumulative Average Annual
Total Return Total Return
One Year +4.53% +4.53%
Life of Class* +32.62 +8.40
* Inception date: October 1, 1996.
Comparison Line Graph Plot Points:
<TABLE>
<CAPTION>
Lehman Intermediate
Balanced Trust Lipper Balanced Standard & Poor's 500 Government/Corporate
Primary Class Fund Index(1) Stock Composite Index(2) Bond Index(3)
<S> <C> <C> <C> <C>
10/1/96 $10,000 $10,000 $10,000 $10,000
10,383 10,559 10,833 10,306
3/31/97 10,202 10,609 11,124 10,217
11,114 11,752 13,066 10,589
12,026 12,507 14,044 10,960
12,325 12,703 14,448 11,311
3/31/98 13,038 13,708 16,463 11,483
12,850 13,916 17,007 11,783
11,941 13,111 15,315 12,367
13,016 14,619 18,576 12,383
3/31/99 12,687 14,854 19,503 12,235
13,092 15,521 20,879 12,101
12,343 14,878 19,573 12,166
12,838 15,932 22,485 12,117
3/31/00 13,262 16,406 23,000 12,443
</TABLE>
--------
(1) The Lipper Balanced Fund Index is composed of approximately 30 funds whose
primary objective is to conserve principal by maintaining a balanced portfolio
of stocks and bonds with stock/bond ratio ranges of approximately 60%/40%.
(2) An unmanaged index of widely held common stocks.
(3) The Lehman Intermediate Government/Corporate Bond Index includes government
and corporate bond securities, including U.S. Government Treasury and agency
securities, corporate and Yankee bonds. The index returns are market value
weighted, inclusive of accrued interest, and include bonds with maturities
between 1 and 10 years. The return for this Index is for the period beginning
September 30, 1996.
C-5
<PAGE>
<TABLE>
<CAPTION>
APPENDIX D
COMPARISON OF INVESTMENT OBJECTIVES AND LIMITATIONS OF
BARTLETT BASIC VALUE FUND AND LEGG MASON BALANCED TRUST
=====================================================================================================================
LEGG MASON BALANCED TRUST BARTLETT BASIC VALUE FUND
=====================================================================================================================
INVESTMENT OBJECTIVE INVESTMENT OBJECTIVE
=====================================================================================================================
<S> <C>
Long-term capital appreciation and current income in order Capital appreciation
to achieve an attractive total investment return consistent
with reasonable risk.
=====================================================================================================================
TYPES OF INVESTMENTS TYPES OF INVESTMENTS
=====================================================================================================================
Under normal conditions, the Fund invests up to 75% of its Seeks to achieve objective by investing primarily in
assets in equity securities. The adviser emphasizes common stocks or securities convertible into common
dividend-paying equity securities that, in the opinion of stocks that the adviser believes to be selling at
the adviser, offer the potential for long-term growth and attractive prices relative to their intrinsic value.
common stocks or securities convertible into common stocks Income is a secondary consideration.
that do not pay current dividends, but offer prospects for
capital appreciation and future income. Stocks are
selected based on value-oriented selection criteria, The adviser offers a bottom up, value based approach to
taking into consideration adequate portfolio investing in equity securities, with the goal of
diversification - by sector and by industry, as well as by producing investment returns that are above average
equity characteristics. over long-term market cycles while seeking to maintain
below average levels of risk.
=====================================================================================================================
D-1
<PAGE>
=====================================================================================================================
LEGG MASON BALANCED TRUST BARTLETT BASIC VALUE FUND
=====================================================================================================================
Fund invests at least 25% of its assets in fixed income Fund may invest in debt securities of governmental or
securities, including, without limitation, preferred corporate issuers.
stocks, bonds, debentures, municipal obligations, and
mortgage-related securities; certificates of deposit;
Treasury bills, notes, bonds and other obligations of the
U.S. government, its agencies and instrumentalities; high
quality commercial paper and other money market
instruments; and repurchase agreements.
Fund may invest in securities of any maturity, but,
under normal circumstances, expects to maintain its
portfolio of fixed income securities so as to have an
average dollar-weighted maturity of between four and
five years. No more than 5% of the Fund's total assets
will be invested in fixed income or convertible
securities rated below BBB or Baa at the time of
purchase, or comparable unrated securities.
Fund is managed as a balanced Fund. This approach
attempts to "balance" the potential for growth and
greater volatility of stocks with the historically
stable income and more moderate average price
fluctuations of fixed income securities. It is
currently anticipated that the Fund will invest an
average of 60% of its total assets in common stocks and
preferred stocks and the remaining 40% in various fixed
income securities.
Fixed income security selection is based upon
identifying those fixed income securities that the
adviser deems to be undervalued, taking into
consideration sector analysis, yield curve analysis and
credit analysis.
=====================================================================================================================
When cash is temporarily available, or for temporary For temporary defensive purposes, Fund may invest
defensive purposes, Fund may invest without limit in without limit in money market instruments, cash
repurchase agreements and money market instruments, equivalents, short-term government and corporate
including high-quality short-term debt securities. obligations or repurchase agreements.
D-2
<PAGE>
=====================================================================================================================
LEGG MASON BALANCED TRUST BARTLETT BASIC VALUE FUND
=====================================================================================================================
REPURCHASE AGREEMENTS REPURCHASE AGREEMENTS
=====================================================================================================================
When cash is temporarily available or for temporary Same policy
defensive purposes, Fund may invest without limit in
repurchase agreements and money market instruments,
including high quality short-term debt securities.
=====================================================================================================================
"UNSEASONED COMPANIES" "UNSEASONED COMPANIES"
=====================================================================================================================
No stated policy Fund invests only in securities of companies with at
least three years of operating history.
=====================================================================================================================
OPTIONS, FUTURES AND OTHER STRATEGIES OPTIONS, FUTURES AND OTHER STRATEGIES
=====================================================================================================================
NON-FUNDAMENTAL LIMITATION: FUNDAMENTAL LIMITATION:
Fund may invest in certain options, futures contracts, Fund will not purchase or sell puts, calls, options
options on futures contracts, forward currency or straddles except as described in the statement of
contracts, swaps, caps, floors, collars, indexed additional information.
securities and other derivative instruments to attempt
to enhance its income or yield or to attempt to hedge The statement of additional information states that
its investments. the Fund may invest in certain options, futures
contracts, options on futures contracts, forward
Fund may enter into futures contracts and related currency contracts, swaps, caps, floors, collars,
options provided that not more than 5% of its net indexed securities and other derivative instruments
assets are required as a futures contract deposit to attempt to enhance its income or yield or to
and/or premium; in addition, the Fund may not enter attempt to hedge its investments.
into futures contracts or related options if, as a
result, more than 20% of the Fund's total assets would
be so invested.
=====================================================================================================================
EMERGING MARKET SECURITIES EMERGING MARKET SECURITIES
=====================================================================================================================
Fund may invest in securities of issuers based in emerging Fund may invest in securities of issuers based in
markets. emerging markets.
Bartlett & Co. currently anticipates that Fund will not
invest more than 10% of its total assets in foreign
securities.
D-3
<PAGE>
=====================================================================================================================
LEGG MASON BALANCED TRUST BARTLETT BASIC VALUE FUND
=====================================================================================================================
FORWARD COMMITMENTS, REVERSE REPURCHASE AGREEMENTS AND FORWARD COMMITMENTS, REVERSE REPURCHASE AGREEMENTS AND
DOLLAR ROLLS DOLLAR ROLLS
=====================================================================================================================
Fund may enter into commitments to purchase securities on Fund may purchase or sell securities on a "forward
a when-issued basis. commitment" basis, including purchases in a
"when-issued" basis, a "when, as and if issued"
basis and a "to be announced" basis. Fund may invest
no more than 5% of its net assets in forward
commitments.
Fund may enter into reverse repurchase agreements
and dollar roll transactions with certain
broker/dealers and banks but may invest no more than
5% of its net assets, respectively, in such
transactions.
=====================================================================================================================
U.S. GOVERNMENT OBLIGATIONS AND RELATED SECURITIES U.S. GOVERNMENT OBLIGATIONS AND RELATED SECURITIES
=====================================================================================================================
Fund may invest in U.S. government obligations and related Fund may invest in U.S. government obligations and
securities related participation interests. In addition, Fund
may invest in custodial receipts that evidence
ownership of future interest payments, principal
payments or both on certain U.S. government
obligations.
=====================================================================================================================
MUNICIPAL OBLIGATIONS MUNICIPAL OBLIGATIONS
=====================================================================================================================
Fund may invest no more than 5% of its net assets in Same policy
municipal obligations (including participation
interests).
=====================================================================================================================
ZERO COUPON AND PAY-IN-KIND BONDS ZERO COUPON AND PAY-IN-KIND BONDS
=====================================================================================================================
Fund may invest no more than 5% of its net assets in Same policy
zero coupon bonds or pay-in-kind bonds, respectively.
=====================================================================================================================
FLOATING AND VARIABLE RATE OBLIGATIONS FLOATING AND VARIABLE RATE OBLIGATIONS
=====================================================================================================================
Fund may invest no more than 5% of its net assets in Same policy
floating and variable rate obligations, respectively.
D-4
<PAGE>
=====================================================================================================================
LEGG MASON BALANCED TRUST BARTLETT BASIC VALUE FUND
=====================================================================================================================
STRUCTURED SECURITIES STRUCTURED SECURITIES
=====================================================================================================================
No stated policy. Fund may invest no more than 5% of its net assets in
structured securities which are derived from
securities that are issued by U.S. government
agencies and are denominated in U.S. dollars.
=====================================================================================================================
MORTGAGE-RELATED SECURITIES MORTGAGE-RELATED SECURITIES
=====================================================================================================================
Fund may invest in mortgage-related securities, Fund may invest no more than 5% of its net assets in
including investments made directly in mortgages mortgage-related securities.
secured by real estate.
=====================================================================================================================
ASSET-BACKED AND RECEIVABLE-BACKED SECURITIES ASSET-BACKED AND RECEIVABLE-BACKED SECURITIES
=====================================================================================================================
No stated policy. Fund may invest no more than 5% of its net assets in
asset-backed securities and receivable-backed
securities.
=====================================================================================================================
LOAN PARTICIPATION INTERESTS LOAN PARTICIPATION INTERESTS
=====================================================================================================================
No stated policy. Fund may invest no more than 5% of its assets in loan
participation interests.
D-5
<PAGE>
=====================================================================================================================
LEGG MASON BALANCED TRUST BARTLETT BASIC VALUE FUND
=====================================================================================================================
FUNDAMENTAL INVESTMENT RESTRICTIONS FUNDAMENTAL INVESTMENT RESTRICTIONS
=====================================================================================================================
BORROWING BORROWING
=====================================================================================================================
Fund may not borrow money, except from banks or Fund will not borrow money, except (a) from a bank,
through reverse repurchase agreements for temporary provided that immediately after such borrowing there
purposes in an aggregate amount not to exceed 5% of is an asset coverage of 300% for all borrowings of
the value of its total assets at the time of the Fund; or (b) from a bank or other persons for
borrowings. (Although not a fundamental policy temporary purposes only, provided that such
subject to shareholder approval, the Fund will repay temporary borrowings are in an amount not exceeding
any money borrowed before any portfolio securities 5% of the Fund's total assets at the time when the
are purchased). borrowing is made. This limitation does not preclude
Fund from entering into reverse repurchase
transactions and dollar rolls, provided that it has
an asset coverage of 300% for all borrowings and
repurchase commitments pursuant to reverse
repurchase transactions and dollar rolls.
=====================================================================================================================
DIVERSIFICATION DIVERSIFICATION
=====================================================================================================================
With respect to 75% of its total assets, the Fund Fund will not purchase the securities of any issuer
may not invest more than 5% of its total assets if such purchase at the time thereof would cause less
(taken at market value) in securities of any one than 75% of the value of its total assets to be
issuer, other than the U.S. government, its agencies invested in cash and cash items (including
and instrumentalities, or purchase more than 10% of receivables), securities issued by the U.S.
the voting securities of any one issuer. government, its agencies or instrumentalities and
repurchase agreements with respect thereto,
securities of other investment companies, other
securities for the purposes of this calculation
limited in respect of any one issuer to an amount not
greater in value than 5% of the value of the total
assets of the Fund and to not more than 10% of the
outstanding voting securities of such issuer.
D-6
<PAGE>
=====================================================================================================================
LEGG MASON BALANCED TRUST BARTLETT BASIC VALUE FUND
=====================================================================================================================
ILLIQUID AND RESTRICTED INVESTMENTS ILLIQUID AND RESTRICTED INVESTMENTS
=====================================================================================================================
NON-FUNDAMENTAL LIMITATION: FUNDAMENTAL LIMITATION:
Fund may invest up to 15% of its net assets in illiquid Fund will not invest more than 10% of its net assets in
investments. securities for which there are legal or contractual
restrictions on resale and other illiquid securities.
=====================================================================================================================
SENIOR SECURITIES PLEDGING; SENIOR SECURITIES
=====================================================================================================================
Fund may not issue senior securities, except as permitted Fund will not mortgage, pledge, hypothecate or in any
under the 1940 Act. manner transfer, as security for indebtedness, any
assets of the Fund except as may be necessary in
connection with borrowings described above. (Margin
deposits, security interests, liens and collateral
arrangements with respect to transactions involving
options, futures contracts, short sales and other
permitted investments and techniques are not deemed
to be a mortgage, pledge or hypothecation of assets
for purposes of this limitation.)
=====================================================================================================================
SHORT SALES SHORT SALES
=====================================================================================================================
NON-FUNDAMENTAL LIMITATION:
Fund may not make short sales of securities or Fund will not effect short sales of securities
maintain a short position, except that the Fund may except as described in the Statement of Additional
sell short "against the box". This limit does not Information.
apply to short sales and short positions in
connection with its use of options, futures The statement of additional information states that
contracts and options on futures contracts (Fund the Fund may sell a security short in anticipation
does not intend to make short sales in excess of 5% of a decline in market value of the security. The
of its net assets during the coming year). Fund may invest no more than 5% of its net assets in
short sales.
D-7
<PAGE>
=====================================================================================================================
LEGG MASON BALANCED TRUST BARTLETT BASIC VALUE FUND
=====================================================================================================================
UNDERWRITING UNDERWRITING
=====================================================================================================================
Fund may not engage in the business of underwriting Fund will not act as underwriter of securities
the securities of other issuers except insofar as issued by other persons. This limitation is not
the Fund may be deemed an underwriter under the 1933 applicable to the extent that, in connection with
Act in disposing of a portfolio security. the disposition of portfolio securities (including
restricted securities), the Fund may be deemed an
underwriter under certain federal securities laws.
=====================================================================================================================
REAL ESTATE REAL ESTATE
=====================================================================================================================
Fund may not buy or hold any real estate; provided, Fund will not purchase, hold or deal in real estate.
however, that instruments secured by real estate or This limitation is not applicable to investments in
interests therein are not subject to this limitation. securities which are secured by or represent
interests in real estate or to securities issued by
companies, including real estate investment trusts,
that invest in real estate or interests in real
estate. This limitation does not preclude the Fund
from investing in mortgage-related securities.
=====================================================================================================================
COMMODITIES COMMODITIES
=====================================================================================================================
Fund may not purchase or sell any commodities or Fund will not purchase, hold or deal in commodities
commodities contracts, except that the Fund may or commodities futures contracts except as described
purchase or sell currencies, interest rate and in the statement of additional information.
currency futures contracts, options on currencies,
securities, and securities indexes and options on The statement of additional information stats that
interest rate and currency futures contracts. the Fund may invest in certain options, futures
contracts, options on futures contracts, forward
currency contracts, swaps, caps, floors, collars,
indexed securities and other derivative instruments
to attempt to enhance its income or yield or to
attempt to hedge its investments.
D-8
<PAGE>
=====================================================================================================================
LEGG MASON BALANCED TRUST BARTLETT BASIC VALUE FUND
=====================================================================================================================
LOANS LOANS
=====================================================================================================================
Fund may not make loans, except loans of portfolio Fund will not make loans to other persons, except (a)
securities and except to the extent the purchase of notes, by loaning portfolio securities, (b) by engaging in
bonds or other evidences of indebtedness, the entry into repurchase agreements, (c) by purchasing non-publicly
repurchase agreements or deposits with banks and other offered debt securities, or (d) through direct
financial institutions may be considered loans. investments in mortgages. For purposes of this
limitation, the term "loans" shall not include the
purchase of a portion of an issue of publicly
distributed bonds, debentures or other securities.
=====================================================================================================================
INDUSTRY CONCENTRATION INDUSTRY CONCENTRATION
=====================================================================================================================
Fund may not purchase any security if, as a result Fund will not invest 25% or more of its total assets in
thereof, 25% or more of its total assets would be invested a particular industry. This limitation is not
in the securities of issuers having their principal applicable to investments in obligations issued or
business activities in the same industry. This limitation guaranteed by the U.S. government, its agencies and
does not apply to securities issued or guaranteed by the instrumentalities or repurchase agreements with respect
U.S. government, its agencies and instrumentalities or thereto.
repurchase agreements with respect thereto.
=====================================================================================================================
MARGIN MARGIN
=====================================================================================================================
NON-FUNDAMENTAL LIMITATION: Fund will not purchase securities or evidences of
interest thereon on "margin". This limitation is not
applicable to short term credit obtained by the Fund
Fund may not buy securities on "margin", except for for the clearance of purchases and sales or redemption
short-term credits necessary for clearance of portfolio of securities, or to arrangements with respect to
transactions and except that the Fund may make margin transactions involving options, futures contracts,
deposits in connection with the use of permitted currency short sales and other permitted investments and
futures contracts and options on currency futures techniques (including foreign currency exchange
contracts. contracts)
=====================================================================================================================
D-9
<PAGE>
=====================================================================================================================
LEGG MASON BALANCED TRUST BARTLETT BASIC VALUE FUND
=====================================================================================================================
SECURITIES OF OTHER INVESTMENT COMPANIES SECURITIES OF OTHER INVESTMENT COMPANIES
=====================================================================================================================
NON-FUNDAMENTAL LIMITATION: Fund will not invest more than 10% of its total
assets in securities of other investment companies
Fund may invest in the securities of other investment or invest more than 5% of its total assets in
companies, but Fund will not (a) invest more than 10% of securities of any investment company and will not
its total assets in securities of other investment purchase more than 3% of the outstanding voting
companies; (b) invest more than 5% of its total assets in stock of any investment company.
securities of any investment company; and (c) purchase
more than 3% of the outstanding voting stock of any
investment company.
=====================================================================================================================
OIL AND GAS PROGRAMS OIL AND GAS PROGRAMS
=====================================================================================================================
No stated policy Fund will not purchase, hold or deal in oil, gas or
other mineral explorative or development programs.
=====================================================================================================================
OPTIONS OPTIONS
=====================================================================================================================
No stated policy Fund will not purchase or sell puts, calls, options
or straddles except as described in the Statement of
Additional Information.
The statement of additional information states that
the Fund may invest in certain options, futures
contracts, options on futures contracts, forward
currency contracts, swaps, caps, floors, collars,
indexed securities and other derivative instruments
to attempt to enhance its income or yield or to
attempt to hedge its investments.
=====================================================================================================================
</TABLE>
D-10
<PAGE>
APPENDIX E
----------
[Name and Address]
BARTLETT CAPITAL TRUST
BARTLETT BASIC VALUE FUND
PROXY FOR THE SPECIAL MEETING OF SHAREHOLDERS
March 9, 2001
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF
BARTLETT CAPITAL TRUST ("TRUST") and relates to a proposal with respect to the
Trust and to Bartlett Basic Value Fund ("Fund"), a series of the Trust. The
undersigned hereby appoints as proxies Marc R. Duffy and Philip E. Sachs, and
each of them (with power of substitution), to vote all shares of common stock of
the undersigned in the Fund at the Special Meeting of Shareholders to be held at
10:00 a.m., Eastern time, on March 9, 2001, at the offices of the Fund and at
any adjournment thereof ("Meeting"), 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 grant authority to vote
"FOR" all proposals relating to the Trust and the Fund WITH DISCRETIONARY POWER
TO VOTE UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
YOUR VOTE IS IMPORTANT. IF YOU ARE NOT VOTING BY FACSIMILE, PLEASE SIGN AND DATE
THIS PROXY BELOW AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
TO VOTE BY FACSIMILE TRANSMISSION, PLEASE FAX YOUR COMPLETED PROXY CARD TO
1-___-____.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
[XXX] KEEP THIS PORTION FOR YOUR RECORDS
E-1
<PAGE>
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
BARTLETT CAPITAL TRUST
Bartlett Basic Value Fund.
VOTE ON PROPOSAL FOR AGAINST ABSTAIN
1. Approval of an Agreement and Plan of / / / / / /
Reorganization and Termination under
which Legg Mason Balanced Trust would
acquire all of the assets of Bartlett
Basic Value Fund in exchange solely
for shares of Legg Mason Balanced
Trust and the assumption by Legg
Mason Balanced Trust of all of
Bartlett Basic Value Fund's
liabilities, followed by the
distribution of those shares to the
shareholders of Bartlett Basic Value
Fund.
YOUR VOTE IS IMPORTANT. IF YOU ARE NOT VOTING BY FACSIMILE, PLEASE SIGN AND DATE
THIS PROXY BELOW AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
TO VOTE BY FACSIMILE TRANSMISSION, PLEASE FAX YOUR COMPLETED PROXY CARD TO
1-___-____.
Please sign exactly as name appears hereon. If stock is held in the name of
joint owners, each should sign. Attorneys-in-fact, executors, administrators,
etc. should so indicate. If shareholder is a corporation or partnership, please
sign in full corporate or partnership name by authorized person.
-------------------------------------- ------------------------------
Signature Date
-------------------------------------- ------------------------------
Signature (Joint Owners) Date
E-2
<PAGE>
LEGG MASON INVESTORS TRUST, INC.
PART B
<PAGE>
LEGG MASON BALANCED TRUST
(A SERIES OF LEGG MASON INVESTORS TRUST, INC.)
BARTLETT BASIC VALUE FUND
(A SERIES OF BARTLETT CAPITAL TRUST)
100 LIGHT STREET
BALTIMORE MARYLAND 21202
STATEMENT OF ADDITIONAL INFORMATION
JANUARY 26, 2001
This Statement of Additional Information relates specifically to the
proposed reorganization whereby Legg Mason Balanced Trust would acquire the
assets of Bartlett Basic Value Fund in exchange solely for shares of Legg Mason
Balanced Trust and the assumption by Legg Mason Balanced Trust of Bartlett Basic
Value Fund's liabilities ("Reorganization"). This Statement of Additional
Information consists of this cover page, the PRO FORMA financial statements of
Legg Mason Balanced Trust (giving effect to the Reorganization) and the
following described documents, each of which is incorporated by reference
herein:
(1) The Statement of Additional Information of Legg Mason Balanced
Trust, dated January 21, 2001.
(2) The Annual Report to Primary Class shareholders of Legg Mason
Balanced Trust for the fiscal year ended March 31, 2000. EDGAR accession
number: 0000950169-00-000543.
(3) The Semi-Annual Report to Primary Class shareholders of Legg
Mason Balanced Trust for the period ended September 30, 2000. EDGAR accession
number: 0001021408-00-003641.
(4) The Statement of Additional Information of Bartlett Basic Value
Fund, dated April 28, 2000. EDGAR accession number: 0000810868-00-000037.
(5) The Annual Report to Class A and Class C Shareholders of Bartlett
Basic Value Fund for the fiscal year ended December 31, 1999. EDGAR
accession number: 0000950169-00-000169.
(6) The Annual Report to Class Y Shareholders of Bartlett Basic Value
Fund for the fiscal year ended December 31, 1999. EDGAR accession number:
0000950169-00-000169.
(7) The Semi-Annual Report to Class A and Class C shareholders of
Bartlett Basic Value Fund for the period ended September 30, 2000. EDGAR
accession number: 0000950169-00-001110.
(8) The Semi-Annual Report to Class Y shareholders of Bartlett Basic
Value Fund for the period ended September 30, 2000. EDGAR accession number:
0000950169-00-001110.
B-1
<PAGE>
This Statement of Additional Information is not a prospectus and should be
read only in conjunction with the Prospectus/Proxy Statement dated January 26,
2001 relating to the above-referenced matter. A copy of the Prospectus/Proxy
Statement may be obtained by calling toll-free 1-800-822-5544.
B-2
<PAGE>
TABLE OF CONTENTS
Unaudited Proforma Combined Financial Statements of Legg Mason Balanced Trust
and Bartlett Basic Value Fund...............................................B-4
B-3
<PAGE>
LEGG MASON BALANCED TRUST
AND
BARTLETT BASIC VALUE FUND
PROFORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
B-4
<PAGE>
<TABLE>
<CAPTION>
LEGG MASON BALANCED TRUST
PRO FORMA
CAPITALIZATION AND RATIOS
SEPTEMBER 30, 2000
(UNAUDITED)
Bartlett Legg Mason Pro Forma
Basic Value Balanced Trust Combined
-------------------- ------------------ ------------------
<S> <C> <C> <C>
Net Assets
Class A/Financial Intermediary $ 51,574,611 $ - $ 51,574,611
Class C/Primary $ 747,480 $ 36,509,467 $ 37,256,947
Class Y/Institutional (A) $ 362,987 $ - $ 362,987
-------------------- ------------------ ------------------
Total $ 52,685,078 $ 36,509,467 $ 89,194,545
==================== ================== ==================
Net Asset Value Per Share
Class A/Financial Intermediary $ 13.66 N/A $ 12.20
Class C/Primary $ 13.43 $ 12.20 $ 12.20
Class Y/Institutional (A) $ 13.63 N/A $ 12.20
Shares Outstanding
Class A/Financial Intermediary 3,776,018 - 4,227,427
Class C/Primary 55,657 2,993,322 3,054,591
Class Y/Institutional (A) 26,629 - 29,753
Ratio of expenses to average net assets (B)
BEFORE FEE WAIVERS
Class A/Financial Intermediary 1.51% - 1.23%
Class C/Primary 2.30% 2.09% 1.78%
Class Y/Institutional (A) 1.28% - 0.97%
AFTER FEE WAIVERS
Class A/Financial Intermediary 1.15% - 1.23%
Class C/Primary 1.90% 1.85% 1.78%
Class Y/Institutional (A) 0.90% 1.10% 0.97%
--------------------
(A) Formerly Navigator Class
(B) Annualized
</TABLE>
B-5
<PAGE>
<TABLE>
<CAPTION>
LEGG MASON BALANCED TRUST
PRO FORMA
STATEMENT OF ASSETS AND LIABILITIES
AS OF SEPTEMBER 30, 2000
(UNAUDITED)
Bartlett Legg Mason Pro Forma Pro Forma
Basic Value Balanced Trust Adjustments Combined
------------------ ------------------- ------------------- ----------------
<S> <C> <C> <C> <C>
ASSETS
Investments, at market value $ 52,930,378 $ 36,342,120 $ 89,272,498
Cash 724 418 1,142
Receivable for Fund shares sold 13,003 24,949 37,952
Dividend and Interest receivable 27,117 204,777 231,894
Other Assets 3,609 17,180 20,789
------------------ ------------------- ------------------- ----------------
Total Assets 52,974,831 36,589,444 - 89,564,275
------------------ ------------------- ------------------- ----------------
LIABILITIES
Payable for Fund shares repurchased 275,671 5,036 280,707
Advisory and Distribution fees payable - 38,295 38,295
Accrued expenses and other liabilities 14,082 36,646 50,728
------------------ ------------------- ------------------- ----------------
Total Liabilities 289,753 79,977 - 369,730
------------------ ------------------- ------------------- ----------------
Net Assets $ 52,685,078 $ 36,509,467 $ - $ 89,194,545
================== =================== =================== ================
ANALYSIS OF NET ASSETS
Accumulated paid in capital $ 30,760,081 $ 33,084,441 $ 63,844,522
Distributions in excess of net investment
income (227,026) (25,122) (252,148)
Accumulated net realized gain/(loss)
on investments 10,628,956 782,568 11,411,524
Unrealized appreciation/of investments 11,523,067 2,667,580 14,190,647
------------------ ------------------- ------------------- ----------------
Net Assets $ 52,685,078 $ 36,509,467 $ - $ 89,194,545
================== =================== =================== ================
OUTSTANDING SHARES
CLASS A/FINANCIAL INTERMEDIARY(A) 3,776,018 N/A 451,409 4,227,427
CLASS C/PRIMARY 55,657 2,993,322 5,612 3,054,591
CLASS Y/INSTITUTIONAL(B) 26,629 N/A 3,124 29,753
NET ASSET VALUE PER SHARE:
CLASS A/FINANCIAL INTERMEDIARY(A) $13.66 N/A $12.20
------------------ ------------------- ----------------
CLASS C/PRIMARY $13.43 $12.20 $12.20
------------------ ------------------- ----------------
CLASS Y/INSTITUTIONAL(B) $13.63 N/A $12.20
------------------ ------------------- ----------------
(A) Class A shares of Bartlett Basic Value are exchanged for for new
Financial Intermediary shares of Legg Mason Balanced Trust, to be
established upon consumption of the merger. Initial per share values of
Financial Intermediary Class shares are presumed to equal that of Primary
Class shares.
(B) Class Y shares of Bartlett Basic Value are exchanged for
Institutoional Class shares (formerly Navigator Class) of Legg Mason
Balanced Trust, to commence operations upon consumption of the merger.
Initial per share values of the Institutional Class shares are presumed to
equal that of Primary Class shares.
</TABLE>
B-6
<PAGE>
<TABLE>
<CAPTION>
LEGG MASON BALANCED TRUST
PRO FORMA
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets)(as
a % of net assets)
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 2000 (UNAUDITED)
Legg Mason
Bartlett Basic Value Balanced Trust Pro Forma Combined Fund
------------------------------------ ----------------------- -------------------------------------
Primary Navigator Financial Primary Institutional
Class A Class C Class Y Class Class Intermediary Class Class(A)
Shares Shares Shares Shares Shares Shares Shares Shares
---------- ---------- ----------- ----------- ---------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees 0.75% 0.75% 0.75% 0.75% 0.75% 0.75% 0.75% 0.75%
Rule 12b-1 fees 0.25% 1.00% none 0.75% none 0.25% 0.75% none
Other expenses 0.51% 0.55% 0.53% 0.59% 0.59% 0.23% 0.28% 0.22%
---------- ---------- ----------- ----------- ---------- ------------ ---------- -----------
Total fund
operating expenses 1.51% 2.30% 1.28% 2.09% 1.34% 1.23% 1.78% 0.97%
========== ========== =========== =========== ========== ============ ========== ===========
Expense limit 1.15% 1.90% 0.90% 1.85% 1.10% 1.35% 1.85% 1.10%
========== ========== =========== =========== ========== ============ ========== ===========
(A)Formerly the Navigator Class
</TABLE>
B-7
<PAGE>
<TABLE>
<CAPTION>
LEGG MASON BALANCED TRUST
PRO FORMA
STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 2000
(UNAUDITED)
Bartlett Legg Mason Pro Forma
Basic Value Balanced Trust Adjustments Combined
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend Income $ 912,000 $ 399,000 $ - $ 1,311,000
Interest Income 51,000 863,000 - 914,000
Less Foreign tax withheld (4,000) (2,000) - (6,000)
----------------
---------------- ---------------- ----------------
Total Income 959,000 1,260,000 - 2,219,000
---------------- ---------------- ---------------- ----------------
EXPENSES
Management fee 490,000 293,000 - 783,000
Distribution and service fees 169,000 293,000 (2,975)(A) 459,025
Transfer agent and shareholder servicing fee 34,000 39,000 (31,542) (B) 41,458
Audit and legal fees 68,000 33,000 (64,000) (B) 37,000
Custodian fee 97,000 47,000 (42,610) (B) 101,390
Directors fees 34,000 6,000 (34,000) (C) 6,000
Organizational expense - 17,000 - 17,000
Registration fees 37,000 15,000 (26,000) (B) 26,000
Reports to shareholders 26,000 31,000 (26,000) (B) 31,000
Other expense 5,000 1,000 (2,604) (B) 3,396
---------------- ---------------- ---------------- ----------------
960,000 775,000 (229,731) 1,505,269
Fees Waived (204,000) (50,000) 254,000 -
---------------- ----------------- ---------------- ----------------
Total expenses, net of fees waived 756,000 725,000 24,269 1,505,269
---------------- ---------------- ---------------- ----------------
NET INVESTMENT INCOME 203,000 535,000 (24,269) 713,731
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain (loss) on investments 11,049,000 1,295,000 - 12,344,000
Change in unrealized appreciation (depreciation)
of investments 15,942,000 1,150,000 - 17,092,000
---------------- ---------------- ------------------ ----------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 26,991,000 2,445,000 - 29,436,000
---------------- ---------------- ---------------- ----------------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $ 27,194,000 $ 2,980,000 $ (24,269) $ 30,149,731
================ ================ ================ ================
(A) Based on contract in effect for the surviving fund.
(B) Decrease due to the elimination of duplicative expenses achieved by merging
the funds.
(C) Based on director compensation plan for the surviving fund.
</TABLE>
B-8
<PAGE>
<TABLE>
<CAPTION>
LEGG MASON BALANCED TRUST
PRO FORMA
PORTFOLIO OF INVESTMENTS (C)
SEPTEMBER 30, 2000
(Unaudited) % OF BARTLETT LEGG MASON PRO FORMA
Net Basic Value Balanced Trust Combined
Assets Shares/Par Market Value Shares/Par Market Value Shares/Par Market Value
-------- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
COMMON STOCKS AND EQUITY INTERESTS 83.90%
Basic Materials 1.74%
Construction and Building Materials 1.74%
Martin Marietta Materials, Inc. 30,000 $1,148,400 10,500 $ 401,940 40,500 $ 1,550,340
CAPITAL GOODS 7.15%
Electrical Equipment 2.45%
Emerson Electric Company 24,000 1,608,000 8,600 576,200 32,600 2,184,200
Machinery (Diversified) 2.00%
Dover Corporation 26,000 1,220,375 12,000 563,250 38,000 1,783,625
Manufacturing (Diversified) 2.70%
Illinois Tool Wks Incorporated 10,000 558,750 10,000 558,750
Tyco International Ltd. 22,700 1,177,563 13,000 674,375 35,700 1,851,938
------------- ------------ ---------------
1,736,313 674,375 2,410,688
COMMUNICATIONS SERVICES 5.85%
Telecommunications (Long Distance) 1.71%
AT&T Corp. 37,000 1,086,875 15,000 440,625 52,000 1,527,500
Telephone 4.14%
Broadwing Inc. 46,000 1,175,875 20,000 511,250 66,000 1,687,125 (A)
WorldCom, Inc. 47,000 1,427,625 19,000 577,125 66,000 2,004,750 (A)
------------- ------------ ---------------
2,603,500 1,088,375 3,691,875
CONSUMER CYCLICALS 6.27%
Automobiles 1.34%
Ford Motor Company 47,408 1,200,015 47,408 1,200,015
Retail (Building Supplies) 0.71%
The Home Depot, Inc. 12,000 636,750 12,000 636,750
Retail (Department Stores) 2.18%
Target Corporation 56,000 1,435,000 20,000 512,500 76,000 1,947,500
Retail (Discounters) 1.45%
Family Dollar Stores, Inc. 67,000 1,289,750 67,000 1,289,750
Services 0.59%
Cintas Corporation 12,000 522,750 12,000 522,750
B-9
<PAGE>
LEGG MASON BALANCED TRUST
PRO FORMA
PORTFOLIO OF INVESTMENTS (C)
SEPTEMBER 30, 2000
(Unaudited) % OF BARTLETT LEGG MASON PRO FORMA
Net Basic Value Balanced Trust Combined
Assets Shares/Par Market Value Shares/Par Market Value Shares/Par Market Value
-------- --------------------------------------------------------------------------
CONSUMER STAPLES 11.25%
Beverages (Alcoholic) 2.66%
Anheuser-Busch Companies, Inc. 40,000 1,692,500 16,000 677,000 56,000 2,369,500
Distributors (Food and Health) 0.52%
SYSCO Corporation 10,000 463,125 10,000 463,125
Entertainment 3.95%
The Walt Disney Company 30,000 1,147,500 10,000 382,500 40,000 1,530,000
Time Warner Inc. 19,000 1,486,750 6,500 508,625 25,500 1,995,375
------------- ------------ ---------------
2,634,250 891,125 3,525,375
Restaurants 2.25%
McDonald's Corporation 41,000 1,237,687 25,500 769,781 66,500 2,007,468
Retail (Drug Stores) 1.87%
CVS Corporation 23,000 1,065,188 13,000 602,063 36,000 1,667,251
ENERGY 6.23%
Oil and Gas (Exploration and Production) 2.81%
BP Amoco Plc 9,348 495,444 9,348 495,444
Texaco Inc. 8,000 420,000 8,000 420,000
Unocal Corporation 45,000 1,594,688 45,000 1,594,688
------------- ------------ ---------------
1,594,688 915,444 2,510,132
Oil and Gas (Refining and Marketing) 3.42%
Total Fina Elf 35,000 2,570,312 6,500 477,344 41,500 3,047,656
FINANCIALS 17.43%
Banking 0.56%
Marshall & Ilsley Corporation 10,000 501,250 10,000 501,250
Banks (Major Regional) 3.59%
Mellon Financial Corporation 50,000 2,318,750 19,000 881,125 69,000 3,199,875
Financial (Diversified) 10.17%
Blackrock North American Government
Income Trust, Inc. 78,000 770,250 78,000 770,250
Chateau Communities, Inc. 10,000 268,125 10,000 268,125
Citigroup Inc. 40,000 2,162,500 17,333 937,065 57,333 3,099,565
Fannie Mae 55,000 3,932,500 14,000 1,001,000 69,000 4,933,500
------------- ------------ ---------------
6,095,000 2,976,440 9,071,440
Investment Management 2.16%
Stilwell Financial, Inc. 29,000 1,261,500 15,400 669,900 44,400 1,931,400 (A)
B-10
<PAGE>
LEGG MASON BALANCED TRUST
PRO FORMA
PORTFOLIO OF INVESTMENTS (C)
SEPTEMBER 30, 2000
(Unaudited) % OF BARTLETT LEGG MASON PRO FORMA
Net Basic Value Balanced Trust Combined
Assets Shares/Par Market Value Shares/Par Market Value Shares/Par Market Value
-------- --------------------------------------------------------------------------
Savings and Loan Companies 0.95%
Charter One Financial, Inc. 34,650 844,594 34,650 844,594
HEALTH CARE 11.03%
Health Care (Diversified) 6.63%
Abbott Laboratories 60,000 2,853,750 19,500 927,469 79,500 3,781,219
Johnson & Johnson 15,700 1,474,819 7,000 657,562 22,700 2,132,381
------------- ------------ ---------------
4,328,569 1,585,031 5,913,600
Health Care (Drugs/Major
Pharmaceuticals) 3.73%
Merck & Co., Inc. 17,000 1,265,438 9,000 669,937 26,000 1,935,375
Pharmacia Corporation 23,000 1,384,312 23,000 1,384,312
------------- ------------ ---------------
2,649,750 669,937 3,319,687
Health Care (Medical Products and
Supplies) 0.67%
Guidant Corporation 8,500 600,844 8,500 600,844 (A)
TECHNOLOGY 14.82%
Communications Equipment 3.72%
Lucent Technologies, Inc. 35,000 1,069,688 15,000 458,438 50,000 1,528,126
Nortel Networks Corporation 20,600 1,226,987 9,400 559,887 30,000 1,786,874
------------- ------------ --------------
2,296,675 1,018,325 3,315,000
Computers (Hardware) 5.01%
Dell Computer Corporation 34,500 1,063,031 17,800 548,462 52,300 1,611,493 (A)
International Business Machines
Corporation 19,800 2,227,500 5,600 630,000 25,400 2,857,500
------------ ----------- ------------
3,290,531 1,178,462 4,468,993
Computers (Software/Services) 2.37%
Microsoft Corporation 25,000 1,507,813 10,000 603,125 35,000 2,110,938 (A)
Electronics (Semiconductors) 3.72%
Intel Corporation 32,400 1,346,625 10,000 415,625 42,400 1,762,250
Texas Instruments Incorporated 25,000 1,179,687 8,000 377,500 33,000 1,557,187
------------- ------------ ---------------
2,526,312 793,125 3,319,437
TRANSPORTATION 2.14%
Railroads 2.14%
Union Pacific Corporation 35,000 1,360,625 14,000 544,250 49,000 1,904,875
------------- ------------ ---------------
TOTAL COMMON STOCKS AND EQUITY INTERESTS 51,758,378 23,079,055 74,837,433
------------- ------------ ---------------
FIXED INCOME SECURITIES 14.17%
CORPORATE BONDS AND NOTES 5.62%
Banking and Finance 2.31%
Associates Corporation of North America,
5.500%, 2/15/02 400,000 392,708 400,000 392,708
General Electric Capital Corporation,
6.29%, 12/15/07 1,000,000 991,870 1,000,000 991,870
B-11
<PAGE>
LEGG MASON BALANCED TRUST
PRO FORMA
PORTFOLIO OF INVESTMENTS (C)
SEPTEMBER 30, 2000
(Unaudited) % OF BARTLETT LEGG MASON PRO FORMA
Net Basic Value Balanced Trust Combined
Assets Shares/Par Market Value Shares/Par Market Value Shares/Par Market Value
-------- --------------------------------------------------------------------------
Merrill Lynch & Co., Inc., 6.000%,
11/15/04 700,000 677,271 700,000 677,271
------------ ---------------
2,061,849 2,061,849
Finance 0.85%
General Motors Acceptance
Corporation, 6.300%, 7/8/02 770,000 762,589 770,000 762,589
Hotels and Restaurants 0.57%
Hilton Hotels Corp, 5.000%, 5/16/06 600,000 505,500 600,000 505,500
Media 0.76%
Tribune Company, 6.500%, 7/30/04 700,000 680,393 700,000 680,393
Transportation 0.60%
Union Pacific Corporation, 5.780%,
10/15/01 550,000 540,776 550,000 540,776
Waste Management 0.53%
Waste Management Inc, 4.000%, 2/1/02 500,000 470,000 500,000 470,000
------------ ---------------
TOTAL CORPORATE BONDS AND NOTES 5,021,107 5,021,107
------------ ---------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS 5.07%
Fixed-Rate Securities 4.41%
Fannie Mae,6.77%, 9/1/05 375,000 376,639 375,000 376,639
Fannie Mae, 7.250%, 1/15/10 750,000 773,437 750,000 773,437
Federal Farm Credit Bank, 5.520%,
2/25/02 775,000 764,344 775,000 764,344
United States Treasury Notes, 6.625%,
3/31/02 150,000 151,008 150,000 151,008
United States Treasury Notes, 6.500%,
5/15/05 to 10/15/06 1,330,000 1,364,713 1,330,000 1,364,713
United States Treasury Notes, 6.000%,
8/15/09 500,000 502,500 500,000 502,500
------------ ---------------
3,932,641 3,932,641
Stripped Securities 0.66%
United States Treasury STRIPS, 8/15/05 200,000 151,002 200,000 151,002 (B)
United States Treasury STRIPS, 11/15/05 300,000 222,318 300,000 222,318 (B)
United States Treasury STRIPS, 5/15/06 300,000 216,081 300,000 216,081 (B)
----------- --------------
589,401 589,401
----------- --------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS 4,522,042 4,522,042
----------- --------------
B-12
<PAGE>
LEGG MASON BALANCED TRUST
PRO FORMA
PORTFOLIO OF INVESTMENTS (C)
SEPTEMBER 30, 2000
(Unaudited) % OF BARTLETT LEGG MASON PRO FORMA
Net Basic Value Balanced Trust Combined
Assets Shares/Par Market Value Shares/Par Market Value Shares/Par Market Value
-------- --------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES 3.48%
Fixed-Rate Securities 3.48%
Fannie Mae 536,346 504,438 536,346 504,438
Fannie Mae 375,000 382,616 375,000 382,616
Government National Mortgage Association 1,071,557 1,005,260 1,071,557 1,005,260
Government National Mortgage Association 1,186,471 1,207,602 1,186,471 1,207,602
------------ ---------------
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED
SECURITIES 3,099,916 3,099,916
------------ ---------------
REPURCHASE AGREEMENTS 2.02%
State Street Bank & Trust Co. 1,172,000 1,172,000 1,172,000 1,172,000
3.5%, dated 9/29/00, to be repurchased
at $1,172,112
on 10/02/00 (Collateral: $1,180,000
Fannie Mae
mortgage-backed securities, 6.40%,
due 12/21/01, value $1,198,000)
3.5%, dated 9/29/00, to be repurchased
at $620,060 on 10/2/00 (Collateral:
$625,000 Fannie Mae mortgage-backed
securities, 6.35%, due 6/22/01,
value $640,000) 620,000 620,000 620,000 620,000
-----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS AT MARKET 100.09% 52,930,378 36,342,120 89,272,498
------------- --------------- --------------
TOTAL INVESTMENTS AT COST 41,407,311 33,674,540 75,081,851
------------- --------------- ---------------
--------------------------------------------
(A) Non Income Producing
(B) STRIPS-Separate Trading of Registered Interest and Principal of
Securities. A pre-stripped zero coupon bond that is a direct obligation
of the U.S. Treasury.
(C) No adjustments are shown to the unaudited pro forma combined
portfolio of investments due to the fact that upon consumption of the
merger, securiites would need to be sold in order for The Balanced Trust
to comply with its Prospectus restrictions. The foregoing sentence shall
not restrict in any way the ability of the investment advisor of either
of the funds from buying or selling securities in the normal course of
such fund's business and operations.
</TABLE>
B-13
<PAGE>
<TABLE>
<CAPTION>
Balanced Trust FI Class expenses
LM Balanced Trust
2000 PROSPECTUS/FUND EXPENSES CALCULATION
Financial Intermediary Class
AS of March 31, 2000
YEAR AMT. INV. 5% 1.3900% END VALUE AVG VALUE ANN. EXPS. CUM. EXPS.
<S> <C> <C> <C> <C> <C> <C>
1 10,000.00 361.00 10,361.00 10,180.50 141.51 141.51
2 10,361.00 374.03 10,735.03 10,548.02 146.62 288.13
3 10,735.03 387.53 11,122.57 10,928.80 151.91 440.04
4 11,122.57 401.52 11,524.09 11,323.33 157.39 597.43
5 11,524.09 416.02 11,940.11 11,732.10 163.08 760.51
6 11,940.11 431.04 12,371.15 12,155.63 168.96 929.47
7 12,371.15 446.60 12,817.75 12,594.45 175.06 1104.53
8 12,817.75 462.72 13,280.47 13,049.11 181.38 1285.92
9 13,280.47 479.42 13,759.89 13,520.18 187.93 1473.85
10 13,759.89 496.73 14,256.63 14,008.26 194.71 1668.56
3/31/00 Navigator Class expense rate: 1.14%
FI Class distribution rate: 0.25%
--------------
1.39%
--------------
footnote d: management fes would be .71% and total fund operating expenses 1.35%
</TABLE>
B-14
<PAGE>
<TABLE>
<CAPTION>
Balanced Trust Inst Class expenses
LM Balanced Trust
2000 PROSPECTUS/FUND EXPENSES CALCULATION
Institutional Shares
As of March 31, 2000
YEAR AMT. INV. 5% 1.1400% END VALUE AVG VALUE ANN. EXPS. CUM. EXPS.
<S> <C> <C> <C> <C> <C> <C>
1 10,000.00 386.00 10,386.00 10,193.00 116.20 116.20
2 10,386.00 400.90 10,786.90 10,586.45 120.69 236.89
3 10,786.90 416.37 11,203.27 10,995.09 125.34 362.23
4 11,203.27 432.45 11,635.72 11,419.50 130.18 492.41
5 11,635.72 449.14 12,084.86 11,860.29 135.21 627.62
6 12,084.86 466.48 12,551.33 12,318.10 140.43 768.05
7 12,551.33 484.48 13,035.82 12,793.58 145.85 913.89
8 13,035.82 503.18 13,539.00 13,287.41 151.48 1065.37
9 13,539.00 522.61 14,061.60 13,800.30 157.32 1222.69
10 14,061.60 542.78 14,604.38 14,332.99 163.40 1386.09
</TABLE>
B-15
<PAGE>
LEGG MASON BALANCED TRUST
PRO FORMA NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
1) DESCRIPTION OF THE FUND
The Legg Mason Balanced Trust, ("Balanced Trust") a series of Investors
Trust, Inc. ("Corporation"), is registered under the Investment Company Act of
1940, as amended, as an open-end, diversified investment company.
Balanced Trust consists of three classes of shares: Financial Intermediary
Class, Primary Class and Institutional Class. All shareholders bear the common
expenses of the Funds based on the daily net assets of each class, without
distinction between share classes. Dividends are declared separately for each
class. Differences in per share dividend rates are generally due to differences
in separate class expenses.
2) BASIS OF PRO FORMA PRESENTATION
The accompanying pro forma financial statements are presented to show the
effect of the proposed acquisition of Bartlett Basic Value Fund, ("Basic Value")
a series of Bartlett Capital Trust, by Balanced Trust as if such acquisition had
taken place as of October 1, 1999.
Under the terms of the Plan of Reorganization, the combination of Basic
Value and Balanced Trust will be accounted for by a method of accounting for
tax-free mergers of investment companies (sometimes referred to as the pooling
without restatement method). The acquisition would be accomplished by an
acquisition of the net assets of Basic Value in exchange for shares of Balanced
Trust at net asset value. The statement of assets and liabilities and the
related statement of operations of Basic Value and Balanced Trust have been
combined as of and for the twelve months ended September 30, 2000.
The accompanying pro forma financial statements should be read in
conjunction with the financial statements of Balanced Trust and Basic Value
included in their respective semi-annual reports dated September 30, 2000 and
June 30, 2000, respectively.
The following notes refer to the accompanying pro forma financial
statements as if the above-mentioned acquisition of Basic Value by Balanced
Trust had taken place as of October 1, 1999.
3) SIGNIFICANT ACCOUNTING POLICIES:
SECURITY VALUATION
Equity securities and options listed on national securities exchanges are
valued at the last sale price as of the close of business on the day the
securities are being valued. Listed securities not traded on a particular day
and securities traded in the over-the-counter market are valued at the mean
between the closing bid and ask prices quoted by brokers or dealers that make
markets in the securities. Portfolio securities traded both in the
over-the-counter market and on an exchange are valued according to the broadest
and most representative market. In the absence of readily available market
quotations, securities are valued at fair value under procedures established by
and under the general supervision of the Board of Directors.
B-16
<PAGE>
Fixed income securities generally are valued by using market quotations or
independent pricing services that use prices provided by market makers or
estimates of market values. Fixed income securities having a maturity of less
than 60 days are valued at amortized cost.
INVESTMENT INCOME AND DISTRIBUTIONS TO SHAREHOLDERS
Interest income and expenses are recorded on the accrual basis. Bond
premiums are amortized for financial reporting and federal income tax purposes.
Bond discounts, other than original issue and zero-coupon bonds, are not
amortized for financial reporting and federal income tax purposes. Dividend
income and distributions to shareholders are allocated at the class level and
are recorded on the ex-dividend date. Dividends from net investment income, if
available, will be paid quarterly. Net capital gain distributions, which are
calculated at the Fund level, are declared and paid after the end of the tax
year in which the gain is realized. Distributions are determined in accordance
with federal income tax regulations, which may differ from those determined in
accordance with generally accepted accounting principles; accordingly, periodic
reclassifications are made within the Fund's capital accounts to reflect income
and gains available for distribution under federal income tax regulations.
SECURITY TRANSACTIONS
Security transactions are recorded on the trade date. Realized gains and
losses from security transactions are reported on an identified cost basis for
both financial reporting and federal income tax purposes.
DEFERRED ORGANIZATIONAL EXPENSES
Deferred organizational expenses of $86,000 are being amortized on a
straight-line basis over 5 years commencing on the date operations began.
FEDERAL INCOME TAXES
No provision for federal income or excise taxes is required since Balanced
Trust intends to continue to qualify as a regulated investment company and
distribute substantially all of its taxable income to its shareholders.
USE OF ESTIMATES
Preparation of the financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
4) REPURCHASE AGREEMENTS:
All repurchase agreements are fully collateralized by obligations issued
by the U.S. Government or its agencies, and such collateral is in the possession
of the Funds' custodian. The value of such collateral includes accrued interest.
Risks arise from the possible delay in recovery or potential loss of rights in
the collateral should the issuer of the repurchase agreement fail financially.
Balanced Trust investment advisers review the value of the collateral and the
creditworthiness of those banks and dealers with which Balanced Trust enters
into repurchase agreements to evaluate potential risks.
5) TRANSACTIONS WITH AFFILIATES:
Balanced Trust has a management agreement with Legg Mason Fund Adviser,
Inc. ("LMFA"). Pursuant to this agreement, LMFA provides Balanced Trust with
B-17
<PAGE>
management and administrative services for which it pays a fee, computed daily
and payable monthly, at an annual rate of the it's average daily net assets.
LMFA has agreed to waive its fees in any month to the extent Balanced
Trust's expenses (exclusive of taxes, interest, brokerage and extraordinary
expenses) exceed during that month certain annual rates of it's average daily
net assets as shown in the following chart:
--------------------------------------------------------------------
Balanced Trust Management Expense Expense Limitation
Fee Limitation Expiration
--------------------------------------------------------------------
-Financial .75% 1.35% Indefinitely
Intermediary Class
--------------------------------------------------------------------
-Primary Class .75% 1.85% Indefinitely
--------------------------------------------------------------------
-Navigator Class .75% 1.10% Indefinitely
--------------------------------------------------------------------
Bartlett & Co. ("Bartlett") serves as investment adviser to Balanced
Trust. Bartlett is responsible for the actual investment activity. LMFA pays
Bartlett a fee for its services, computed daily and payable monthly, at an
annual rate equal to 66 2/3% of the fee received by LMFA.
Legg Mason Wood Walker, Incorporated ("Legg Mason"), a member of the New
York Stock Exchange, serves as distributor. Legg Mason receives an annual
distribution fee and an annual service fee based on Balanced Trust's average
daily net assets, computed daily and payable monthly as follows:
--------------------------------------------------
Balanced Trust Distribution Service Fee
Fee
--------------------------------------------------
-Financial N/A .25%
Intermediary Class
--------------------------------------------------
-Primary Class .50% .25%
--------------------------------------------------
-Navigator Class N/A N/A
--------------------------------------------------
LMFA, Legg Mason, Bartlett, are corporate affiliates and wholly owned
subsidiaries of Legg Mason, Inc.
6) LINE OF CREDIT:
Balanced Trust along with certain other Legg Mason Funds, participate in a
$200 million line of credit ("Credit Agreement") to be utilized as an emergency
source of cash in the event of unanticipated, large redemption requests by
shareholders. Pursuant to the Credit Agreement, each participating Fund is
liable only for principal and interest payments related to borrowings made by
that Fund. Borrowings under the Credit Agreement bear interest at prevailing
short-term interest rates. For the twelve months ended September 30, 2000,
Balanced Trust had no borrowings under the Credit Agreement.
B-18
<PAGE>
LEGG MASON INVESTORS TRUST, INC.
PART C
<PAGE>
OTHER INFORMATION
Item 15. Indemnification
This item is incorporated by reference to Item 27 of Part C of
Post-Effective Amendment No. 6 to the registration statement,
SEC File No. 33-62174, filed January 31, 1997.
Item 16. Exhibits
(1) (a) Articles of Incorporation (3)
(b) Articles Supplementary (3)
(c) Articles Supplementary (3)
(d) Articles Supplementary 1998 (4)
(e) Articles of Amendment (8)
(f) Articles of Amendment -- filed herewith
(2) Amended By-Laws (3)
(3) Voting trust agreement -- none
(4) Agreement and Plan of Reorganization and Termination is attached
hereto as Appendix B to the Prospectus/Proxy statement
(5) Instruments defining the rights of security holders with respect
to American Leading Companies Trust, Balanced Trust, U.S.
Small-Capitalization Value Trust, and Financial Services Fund
are contained in the Articles of Incorporation and subsequent
amendments and By-Laws which are incorporated by reference to
Exhibit (b) to Post-Effective Amendment No. 6 to Registrant's
Registration Statement (SEC File No. 33-62174), filed July 31,
1997.
(6) (a) Investment Advisory and Management Agreement -- American
Leading Companies Trust (3)
(b) Investment Advisory Agreement -- Balanced Trust (3)
(c) Advisory Agreement -- American Leading Companies Trust (3)
(d) Management Agreement -- Balanced Trust (3)
(e) Investment Advisory Agreement -- U.S. Small-Cap Value
Trust (5)
(f) Management Agreement -- U.S. Small-Cap Value Trust (5)
(g) Investment Advisory and Administration Agreement --
Financial Services Fund (11)
(h) Sub-Advisory Agreement -- Financial Services Fund (11)
(7) (a) Underwriting Agreement -- American Leading Companies
Trust (3)
(b) Amended Underwriting Agreement -- American Leading
Companies Trust (2)
(c) Underwriting Agreement -- Balanced Trust (2)
(d) Underwriting Agreement -- U.S. Small-Cap Value Trust (5)
<PAGE>
(e) Dealer Agreement with respect to Navigator Shares (2)
(f) Underwriting Agreement -- Financial Services Fund (11)
(8) Bonus, profit sharing or pension plans -- none
(9) Custodian agreement (1)
(10) (a) Plan pursuant to Rule 12b-1
(i) Plan pursuant to Rule 12b-1 -- American Leading
Companies Trust (3)
(ii) Amended Plan pursuant to Rule 12b-1 -- American
Leading Companies Trust (2)
(iii) Plan pursuant to Rule 12b-1 -- Balanced Trust
Primary Class shares (2)
(iv) Plan pursuant to Rule 12b-1 -- U.S. Small-Cap Value
Trust (5)
(v) Plan pursuant to 12b-1 -- Financial Services Fund
Class A shares (11)
(vi) Plan pursuant to 12b-1 -- Financial Services Fund
Primary Class shares (11)
(vii) Form of plan pursuant to Rule 12b-1 -- Balanced
Trust Financial Intermediary Class shares --
filed herewith
(b) Plans pursuant to Rule 18f-3
(i) Plan Pursuant to Rule 18f-3 -- Financial Services
Fund (11)
(ii) Form of Plan Pursuant to Rule 18f-3 -- American
Leading Companies Trust (9)
(iii) Form of Plan Pursuant to Rule 18f-3 -- Small-Cap
Value Trust
(iv) Form of Plan Pursuant to Rule 18f-3 -- Balanced
Trust -- filed herewith
(11) Opinion and consent of Kirkpatrick & Lockhart LLP regarding the
legality of the securities being registered -- filed herewith
(12) Opinion and consent of Kirkpatrick & Lockhart LLP regarding
certain tax matters in connection with LM Balanced Trust and
Bartlett Basic Value Fund reorganization -- to be filed
(13) (a) Transfer Agent Agreement (1)
(b) Credit Agreement (6)
(c) Amendment to Credit Agreement (10)
(14) Consent of Ernst & Young LLP -- filed herewith
(15) Financial statements omitted pursuant to Item 14(a)(i) -- none
(16) Manually signed copy of power of attorney -- filed herewith
(17) Additional Exhibits -- none
<PAGE>
(1) Incorporated by reference to the corresponding exhibit of
Post-Effective Amendment No. 4 to the registration statement, SEC File
No. 33-62174, filed May 17, 1996.
(2) Incorporated by reference to the corresponding exhibit of
Post-Effective Amendment No. 5 to the registration statement, SEC File
No. 33-62174, filed July 31, 1996.
(3) Incorporated by reference to the corresponding exhibit of
Post-Effective Amendment No. 6 to the registration statement, SEC File
No. 33-62174, filed January 31, 1997.
(4) Incorporated by reference to the corresponding exhibit of
Post-Effective Amendment No. 9 to the registration statement, SEC File
No. 33-62174, filed March 18, 1998.
(5) Incorporated by reference to the corresponding exhibit of
Post-Effective Amendment No. 10 to the Registration Statement, SEC File
No. 33-62174, filed May 29, 1998.
(6) Incorporated by reference to the corresponding exhibit of
Post-Effective Amendment No. 26 to the registration statement of Legg Mason
Value Trust, Inc., SEC File No. 2-75766, filed May 28, 1999.
(7) Incorporated by reference to the corresponding exhibit of
Post-Effective Amendment No. 11 to the Registration Statement, SEC File
No. 33-62174, filed May 28, 1999.
(8) Incorporated by reference to the corresponding exhibit of
Post-Effective Amendment No. 12 to the Registration Statement, SEC File
No. 33-62174, filed July 2, 1999.
(9) Incorporated by reference to the corresponding exhibit of
Post-Effective Amendment No. 13 to the Registration Statement, SEC File
No. 33-62174, filed July 30, 1999.
(10) Incorporated by reference to the corresponding exhibit of
Post-Effective Amendment No. 2 to the Registration Statement of Legg Mason
Investment Trust, Inc., SEC File No. 333-88715, filed March 28, 2000.
(11) Incorporated by reference to the corresponding exhibit of
Post-Effective Amendment No. 16 to the Registration Statement, SEC File
No. 33-62174, filed July 21, 2000.
Item 17. Undertakings
(1) The undersigned Registrant agrees that prior to any public re-offering
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
re-offering prospectus will contain the information called for by the applicable
registration form for re-offering 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.
(3) Registrant hereby undertakes to file a post-effective amendment to
this registration statement on Form N-14, containing an opinion of counsel
supporting the tax consequences of the reorganization described herein within a
reasonable time after receipt of such opinion.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant, Legg Mason Investors Trust, Inc., has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of Baltimore and State of Maryland, on the 19th day
of December, 2000.
LEGG MASON INVESTORS TRUST, INC.
By:
/s/Marie K. Karpinski
---------------------------------
Marie K. Karpinski
Vice President and Treasurer
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 December 19, 2000
------------------------------ and Director
John F. Curley, Jr.
/s/ Edward A. Taber, III * President and Director December 19, 2000
------------------------------
Edward A. Taber, III
/s/ Richard G. Gilmore * Director December 19, 2000
------------------------------
Richard G. Gilmore
/s/ Arnold L. Lehman * Director December 19, 2000
------------------------------
Arnold L. Lehman
/s/ Jill E. McGovern * Director December 19, 2000
------------------------------
Jill E. McGovern
/s/ T.A. Rodgers * Director December 19, 2000
------------------------------
T.A. Rodgers
/s/ G. Peter O'Brien * Director December 19, 2000
------------------------------
G. Peter O'Brien
/s/ Nelson A. Diaz * Director December 19, 2000
------------------------------
Nelson A. Diaz
/s/ Marie K. Karpinski Vice President December 19, 2000
------------------------------ and Treasurer
Marie K. Karpinski
*Signature affixed by Marie K. Karpinski pursuant to a power of attorney dated
November 10, 2000, a copy of which is filed herewith.
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
(1) - Articles of Amendment.
(10(a)(vii) - Form of plan pursuant to Rule 12b-1 -- Balanced
Trust Financial Intermediary Class Shares.
(10)(b)(iv) - Form of plan pursuant to Rule 18f-3
-- Balanced Trust.
(11) - Opinion and consent of Kirkpatrick & Lockhart LLP
regarding the legality of securities being
registered.
(14) - Consent of Ernst & Young LLP.
(16) - Manually signed copy of power of attorney.
