As filed with the Securities and Exchange Commission on March 15, 2013
Securities Act File No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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| Pre-Effective Amendment No. | | ¨ | | |
| Post-Effective Amendment No. | | ¨ | | |
(Check appropriate box or boxes)
Legg Mason Partners Equity Trust
(Exact Name of Registrant as Specified in Charter)
620 Eighth Avenue, New York, New York 10018
(Address of Principal Executive Offices)
Registrant’s Telephone Number, including Area Code (877) 721-1926
Robert I. Frenkel
Legg Mason Partners Equity Trust
100 First Stamford Place
Stamford, Connecticut 06902
(Name and Address of Agent for Service)
Copies to:
Benjamin Haskin, Esq.
Willkie Farr & Gallagher LLP
1875 K Street NW
Washington, DC 20006
Approximate Date of Proposed Public Offering: As soon as practicable after the effective date of this Registration Statement.
Title of Securities Being Registered:
Class A, Class C, Class I, Class R1 and Class 1 shares of ClearBridge Large Cap Value Fund
Registrant has registered an indefinite amount of securities pursuant to Rule 24f-2 under the Investment Company Act of 1940, as amended; accordingly, no fee is payable herewith in reliance upon Section 24(f).
It is proposed that this filing will become effective on April 14, 2013 pursuant to Rule 488 under the Securities Act of 1933, as amended.
LEGG MASON PARTNERS EQUITY TRUST
LEGG MASON CAPITAL MANAGEMENT ALL CAP FUND
620 Eighth Avenue
New York, New York 10018
Special Meeting of Shareholders to be held on July 11, 2013
April [ ], 2013
Dear Shareholder:
You are being asked to vote on a proposed reorganization transaction related to your fund, Legg Mason Capital Management All Cap Fund, a series of Legg Mason Partners Equity Trust, a Maryland statutory trust (the “Trust”). Detailed information about the proposal is contained in the enclosed materials.
The Board of Trustees of the Trust (the “Board”) has called a special meeting of shareholders (the “Meeting”) for your fund to be held on July 11, 2013, at the offices of Legg Mason Partners Fund Advisor, LLC, 620 Eighth Avenue, New York, New York 10018 at 10:00 a.m., Eastern time, in order to consider and vote on the proposed transaction regarding your fund. The transaction involves a proposal to reorganize your fund into ClearBridge Large Cap Value Fund, another series of the Trust (the “Reorganization”). The attached Proxy Statement/Prospectus asks for your approval of the proposed Reorganization for your fund. After careful consideration, the Board recommends that you vote “FOR” the proposed Reorganization.
Your vote is very important to us regardless of the number of shares you own. Whether or not you plan to attend the Meeting in person, please read the Proxy Statement/Prospectus and authorize a proxy to vote promptly. To authorize a proxy to cast your vote, simply complete, sign and return the Proxy Card in the enclosed postage-paid envelope or follow the instructions on the Proxy Card for voting by touch-tone telephone or on the Internet.
It is important that your vote be received no later than the time of the Meeting.
Sincerely,
R. Jay Gerken, President
Legg Mason Partners Equity Trust
LEGG MASON PARTNERS EQUITY TRUST
LEGG MASON CAPITAL MANAGEMENT ALL CAP FUND
IMPORTANT NEWS FOR SHAREHOLDERS
The enclosed combined Proxy Statement/Prospectus describes a proposal to reorganize your fund into ClearBridge Large Cap Value Fund (the “Acquiring Fund”), a series of Legg Mason Partners Equity Trust (the “Trust”). While we encourage you to read the full text of the enclosed combined Proxy Statement/Prospectus, here is a brief overview of the proposed fund reorganization. Please refer to the more complete information about the reorganization contained elsewhere in the combined Proxy Statement/Prospectus.
COMMON QUESTIONS ABOUT THE PROPOSED REORGANIZATION
| | Q. | WHY IS A SHAREHOLDER MEETING BEING HELD? |
A. The Board of Trustees of the Trust (the “Board”) has approved a reorganization, subject to shareholder approval, under which your fund would be combined with the Acquiring Fund, another Legg Mason-affiliated fund advised by Legg Mason Partners Fund Advisor, LLC (“LMPFA”), that has investment objectives, policies and strategies similar to those of your fund (the “Reorganization”). If shareholders of your fund approve the Reorganization, you would become a shareholder of the Acquiring Fund.
| | Q. | HOW WILL THE REORGANIZATION AFFECT ME? |
A. If the Reorganization is approved, your fund’s assets and liabilities will be combined with the assets and liabilities of the Acquiring Fund and you will become a shareholder of the Acquiring Fund. You will receive shares of the Acquiring Fund having an aggregate net asset value equal to the aggregate net asset value of the shares of your fund that you own on the date of the Reorganization.
| | Q. | WHY IS THE REORGANIZATION BEING RECOMMENDED? |
A. Your fund’s Board and management believe that the Reorganization is in the best interests of your fund and its shareholders. The Reorganization is a part of management’s continuing effort to rationalize the Legg Mason equity funds into a more cohesive product set and eliminate overlapping products. This in turn may provide enhanced opportunities for realizing greater economies of scale in the form of lower total operating expenses over time. In addition, the Board does not expect your fund to experience significant growth in the foreseeable future and believes that the combined fund would be better positioned for growth than your fund on its own. The Board also believes that the proposed Reorganization is preferable to liquidating your fund, as it will provide shareholders with the opportunity to continue participating in a fund with a similar investment program that is part of a large, diverse fund family.
The Board notes that the Acquiring Fund has had better average annual performance than your fund over the one-, five- and ten-year periods ended December 31, 2012, for the share classes outstanding during those periods. The Board also notes that your fund’s current management fee rate is expected to decrease as a result of the Reorganization. In addition, based on expenses of the funds as of March 1, 2013, following the Reorganization, you would be invested in a fund that has higher net assets, lower gross expense ratios and the same or lower net expense ratios based on current contractual arrangements for waiving fees and/or reimbursing expenses in place for each fund.
The Board also considered the continuity of investment management services. LMPFA, the Acquiring Fund’s investment manager, currently serves as your fund’s sub-administrator, and Western Asset Management Company manages cash and short-term instruments for both funds.
| | Q. | ARE MY FUND’S INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND RELATED POLICIES SIMILAR TO THOSE OF THE ACQUIRING FUND? |
A. Yes. There are, however, certain differences in investment objectives, principal investment policies and strategies, and principal risks between your fund (the “Target Fund”) and the Acquiring Fund. Please see “Comparison of Investment Objectives, Strategies and Principal Risks of Investing in the Funds” in the Proxy Statement/Prospectus. The following chart provides a brief summary of some of the more significant of these differences, as considered by the Board.
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| | | Target Fund | | Acquiring Fund |
Investment Objective(s) | | The Target Fund seeks long-term capital growth. | | The Acquiring Fund seeks long-term growth of capital as its primary investment objective. Current income is a secondary objective. |
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Issuer Market Capitalization | | The Target Fund invests primarily in equity securities that, in the portfolio manager’s opinion, offer the potential for capital growth. The Target Fund may invest in issuers of any size, allowing the portfolio manager flexibility to identify investment opportunities that are expected to help the Target Fund achieve its investment objective. | | Under normal circumstances, the Acquiring Fund invests at least 80% of the value of its net assets, plus borrowings for investment purposes, if any, in equity securities, or other investments with similar economic characteristics, of companies with large market capitalizations. |
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Diversification | | The Target Fund is classified as “non-diversified,” which means it may invest a larger percentage of its assets in a smaller number of issuers than a diversified fund, although the Target Fund has been operated as a diversified fund. | | The Acquiring Fund is classified as diversified. |
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Foreign Investments | | The Target Fund may invest up to 25% of its net assets in foreign securities, either directly or through depositary receipts. | | The Acquiring Fund may invest up to 20% of its net assets in equity securities of foreign issuers, either directly or through depositary receipts. |
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Derivatives | | The Target Fund may engage in a variety of transactions using derivatives, such as futures and options on securities, securities indexes or currencies, options on these futures, forward currency contracts and interest rate or currency swaps. Derivatives may be used by the Target Fund for any of the following purposes: • As a hedging technique in an attempt to manage risk in the Target Fund’s portfolio • As a substitute for buying or selling securities • As a cash flow management technique | | The Acquiring Fund may engage in a variety of transactions using derivatives, such as options on securities and currencies; forward foreign currency contracts; interest rate futures and options on interest rate futures. Derivatives may be used by the Acquiring Fund for any of the following purposes: • As a hedging technique in an attempt to manage risk in the Acquiring Fund’s portfolio • As a substitute for buying or selling securities • As a means of enhancing returns |
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| | Q. | HOW WILL THE REORGANIZATION AFFECT FUND FEES AND EXPENSES? |
A. The Reorganization will have the following effects on the fees and expenses of the corresponding classes of your fund:
| | • | | Total operating expenses, both before and after any applicable contractual fee waivers and/or expense reimbursements, of each class of the combined fund are expected to be the same as or lower than total operating expenses, before and after contractual fee waivers and/or expense reimbursements, if any, of the corresponding class of your fund. |
| | • | | Based on asset levels as of October 31, 2012 for the Acquiring Fund and as of April 30, 2012 for the Target Fund, the Acquiring Fund pays a management fee of 0.59% of average daily net assets, which is lower than your fund’s effective management fee of 0.70% of average daily net assets. Based on asset levels as of those dates, the management fee of the combined fund is expected to be lower than your fund’s management fee (decreasing from 0.70% of average daily net assets to 0.55% of average daily net assets). |
| | • | | Any sales charges or deferred sales charges imposed on a class of the combined fund will be the same as those imposed on the corresponding class of your fund. |
Please see “Summary—Comparison of Fees and Expenses” in the Proxy Statement/Prospectus for a detailed breakdown of the fees and expenses paid by your fund in comparison with those paid by the Acquiring Fund and the combined fund.
| | Q. | WILL I HAVE TO PAY ANY SALES LOAD, CHARGE OR OTHER COMMISSION IN CONNECTION WITH THE REORGANIZATION? |
A. No. No sales load, contingent deferred sales charge, commission, redemption fee or other transactional fee will be charged as in connection with the Reorganization. You will receive shares of the Acquiring Fund having an aggregate net asset value equal to the aggregate net asset value of the shares of your fund that you own on the date of the Reorganization.
| | Q. | WHAT CLASSES OF SHARES WILL I RECEIVE? |
A. You will receive shares of the same class of the Acquiring Fund as you currently hold in your fund. On March 15, 2013, Class B shares of the Target Fund were reclassified as Class A shares. As a result, if you previously held Class B shares of your fund, you will receive Class A shares of the Acquiring Fund in the Reorganization. On March 22, 2013, Class A shares of the Target Fund held by shareholders through a financial intermediary that has a direct transfer agent relationship with the fund (“Direct TA Accounts”) were converted into Class A2 shares. As a result, Direct TA Accounts that previously held Class A shares of the Target Fund will receive Class A2 shares of the Acquiring Fund in the Reorganization; all other Class A shareholders will receive Class A shares of the Acquiring Fund in the Reorganization. Similarly, if you hold Class C, Class I or Class 1 shares of your fund, you will receive Class C, Class I or Class 1 shares, respectively, of the Acquiring Fund. No matter which class of shares you hold in the Target Fund, you will receive shares of the Acquiring Fund having an aggregate net asset value equal to the aggregate net asset value of the shares of the Target Fund that you own on the date of the Reorganization.
| | Q. | WILL I RECEIVE THE SAME NUMBER OF SHARES OF THE ACQUIRING FUND AS I CURRENTLY OWN OF MY FUND? |
A. No. You will receive shares of the Acquiring Fund with the same aggregate net asset value as the shares of the Target Fund you own prior to the Reorganization. However, the number of shares you receive will depend on the relative net asset value of the shares of the Target Fund and the Acquiring Fund as of the close of business on the day of the closing of the Reorganization (the “Closing Date”). Thus, if as of the Closing Date, the net asset value of a share of the Acquiring Fund is lower than the net asset value of the corresponding share class of the Target Fund, you will receive a greater number of shares of the Acquiring Fund in the Reorganization than you held in the Target Fund before the Reorganization. On the other hand, if the net asset value of a share of the Acquiring Fund is higher than the net asset value of the corresponding share class of the Target Fund, you will receive fewer shares of the Acquiring Fund in the Reorganization than you held in the Target Fund before the Reorganization. The aggregate net asset value of your Acquiring Fund shares immediately after the Reorganization will be the same as the aggregate net asset value of your Target Fund shares immediately prior to the Reorganization.
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| | Q. | WHAT IF I REDEEM OR EXCHANGE MY SHARES BEFORE THE CLOSING OF THE REORGANIZATION? |
A. Redemptions or exchanges of fund shares that occur before the closing of the Reorganization will be processed according to your fund’s policies and procedures in effect at the time of the redemption or exchange.
| | Q. | WILL MY SHAREHOLDER PRIVILEGES CHANGE AS A RESULT OF THE REORGANIZATION? |
A. No. You will receive the same class of shares of the Acquiring Fund as you owned on the record date, April 5, 2013. Your current privilege to exchange shares of your fund for shares of other funds distributed by Legg Mason Investor Services, LLC will not change.
Please see “Summary—Comparison of Sales Loads, Distribution and Shareholder Servicing Arrangements and Purchase, Redemption and Exchange Policies and Procedures” and “Purchases, Redemptions and Exchanges of Fund Shares; Other Shareholder Information” in the Proxy Statement/Prospectus for a description of the differences among fund classes.
| | Q. | CAN I PURCHASE ADDITIONAL SHARES IN MY FUND PRIOR TO THE REORGANIZATION? |
A. Class A, Class A2, Class C and Class I shares of your fund are currently available for purchase and incoming exchanges. However, if the shareholders of your fund approve the Reorganization, your fund will close to new purchases and exchanges approximately two business days prior to the closing of the Reorganization. Class 1 shares of your fund were closed for purchases and incoming exchanges as of July 27, 2007, so that Target Fund shareholders may not add to their positions, if any, in Class 1 shares except through dividend reinvestment.
| | Q. | WILL I HAVE TO PAY ANY TAXES AS A RESULT OF THE REORGANIZATION? |
A. The Reorganization is intended to qualify as a tax-free transaction for federal income tax purposes. Assuming the Reorganization qualifies for such treatment, you will not recognize a gain or loss for federal income tax purposes as a direct result of the Reorganization. As a condition to the closing of the Reorganization, your fund will receive an opinion of Willkie Farr & Gallagher LLP to the effect that the Reorganization will qualify for such treatment. Opinions of counsel are not binding on the Internal Revenue Service or the courts. You should talk to your tax adviser about any state, local and other tax consequences of your fund’s Reorganization.
| | Q. | WHO WILL PAY FOR THE REORGANIZATION? |
A. Your fund and your fund’s manager will each be responsible for 50% of the fees, costs and expenses that are solely and directly related to the Reorganization (the “Reorganization Costs”) that are allocated to your fund. The Acquiring Fund and the Acquiring Fund’s manager will each be responsible for 50% of the Reorganization Costs allocated to the Acquiring Fund. Transaction costs, if any, associated with repositioning your fund’s portfolio in connection with the Reorganization will be borne by your fund before the Reorganization.
Estimated Reorganization Costs have been allocated between your fund and the Acquiring Fund as follows: Legal—your fund: $90,000, the Acquiring Fund: $90,000; Audit—your fund: $5,000, the Acquiring Fund: $5,000; and Printing, postage, proxy out-of-pocket costs and proxy solicitation, mailing, reporting and tabulation costs (approximately $294,400)—all allocated to your fund.
Legg Mason, Inc., on behalf of your fund, has retained Computershare Fund Services, a proxy solicitation firm, to assist in the solicitation of proxies. It is anticipated that Computershare Fund Services will be paid approximately $255,000 for such solicitation services, to be borne by your fund and your fund’s manager as described above.
| | Q. | HOW DOES THE BOARD RECOMMEND THAT I VOTE? |
A. The Board, including all of the independent Board members, unanimously recommends that you vote FOR the Reorganization.
| | Q. | WHAT HAPPENS IF THE REORGANIZATION IS NOT APPROVED? |
A. If the shareholders of your fund do not approve the Reorganization, then you will remain a shareholder of your fund.
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| | Q. | I AM AN INVESTOR WHO HOLDS A SMALL NUMBER OF SHARES. WHY SHOULD I VOTE? |
A. Your vote makes a difference. If many shareholders like you fail to vote their proxies, your fund may not receive enough votes to go forward with the shareholder meeting, and additional costs will be incurred to solicit additional proxies.
| | Q. | WHEN IS THE REORGANIZATION OF MY FUND EXPECTED TO HAPPEN? |
A. If the shareholders of your fund approve the Reorganization, the Reorganization is expected to occur on or about July 19, 2013.
| | Q. | HOW CAN I VOTE OR AUTHORIZE A PROXY TO VOTE? |
A. In addition to voting in person at the Meeting or authorizing a proxy to vote by mail by returning the enclosed proxy card, you also may authorize a proxy to vote by either touch-tone telephone or online via the Internet, as follows:
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To authorize a proxy to vote by touch-tone telephone: | | To authorize a proxy to vote by Internet: |
(1) Read the Proxy Statement/Prospectus and have your Proxy Card at hand. | | (1) Read the Proxy Statement/Prospectus and have your Proxy Card at hand. |
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(2) Call the toll-free number that appears on your Proxy Card. | | (2) Go to the website that appears on your Proxy Card. |
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(3) Enter the control number set out on the Proxy Card and follow the simple instructions. | | (3) Enter the control number set out on the Proxy Card and follow the simple instructions. |
A. If you owned shares of your fund at the close of business on April 5, 2013, you are entitled to vote those shares, even if you are no longer a shareholder of the fund.
| | Q. | WHOM DO I CALL IF I HAVE QUESTIONS? |
A. If you need more information or have any questions about how to authorize a proxy to cast your vote, please call Computershare Fund Services, your fund’s proxy solicitor, at 1-888-985-2050.
Your vote is important. Please authorize a proxy to vote promptly to avoid the additional expense of another solicitation.
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LEGG MASON PARTNERS EQUITY TRUST
a Maryland statutory trust
Legg Mason Capital Management All Cap Fund
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 11, 2013
Please take notice that a Special Meeting of Shareholders (the “Meeting”) of Legg Mason Capital Management All Cap Fund (the “Target Fund”), a series of Legg Mason Partners Equity Trust (the “Trust”), will be held at the offices of Legg Mason Partners Fund Advisor, LLC, 620 Eighth Avenue, New York, New York 10018, on July 11, 2013, at 10:00 a.m., Eastern time, for the following purposes:
PROPOSAL 1: | To consider and vote upon an Agreement and Plan of Reorganization, providing for (i) the acquisition of all of the assets of the Target Fund by ClearBridge Large Cap Value Fund (the “Acquiring Fund”), a series of the Trust, in exchange for the assumption of all of the liabilities of the Target Fund and for shares of the Acquiring Fund, to be distributed to the shareholders of the Target Fund, and (ii) the subsequent termination of the Target Fund as a series of the Trust. |
PROPOSAL 2: | To transact such other business as may properly come before the Meeting or any adjournments or postponements thereof. |
The appointed proxies will vote in their discretion on any other business as may properly come before the Meeting or any adjournments or postponements thereof.
Shareholders of record of the Target Fund at the close of business on April 5, 2013 (the “Record Date”) are entitled to notice of, and to vote at, the Meeting and at any adjournments or postponements thereof.
YOUR VOTE ON THIS MATTER IS IMPORTANT. PLEASE AUTHORIZE A PROXY TO VOTE YOUR SHARES PROMPTLY BY SIGNING AND DATING THE ENCLOSED PROXY CARD AND RETURNING IT IN THE ACCOMPANYING POSTAGE-PAID RETURN ENVELOPE OR BY FOLLOWING THE ENCLOSED INSTRUCTIONS TO AUTHORIZE A PROXY TO VOTE YOUR SHARES BY TELEPHONE OR OVER THE INTERNET.
By order of the Board of Trustees,
Robert I. Frenkel
Secretary
Legg Mason Partners Equity Trust
April [ ], 2013
SUBJECT TO COMPLETION, DATED MARCH 15, 2013
PROXY STATEMENT/PROSPECTUS
APRIL [ ], 2013
PROXY STATEMENT FOR:
LEGG MASON PARTNERS EQUITY TRUST
Legg Mason Capital Management All Cap Fund
(the “Target Fund”)
620 Eighth Avenue
New York, New York 10018
1-877-721-1926
PROSPECTUS FOR:
LEGG MASON PARTNERS EQUITY TRUST
Clearbridge Large Cap Value Fund
(the “Acquiring Fund”)
(the Target Fund, together with the Acquiring Fund, the “Funds” and each, a “Fund”)
620 Eighth Avenue
New York, New York 10018
1-877-721-1926
This combined Proxy Statement and Prospectus (the “Proxy Statement/Prospectus”) is being furnished in connection with the solicitation of proxies by the Board of Trustees (the “Board”) of Legg Mason Partners Equity Trust (the “Trust”), a Maryland statutory trust, for a Special Meeting of Shareholders of the Target Fund (the “Meeting”). The Meeting will be held on July 11, 2013, at 10:00 a.m., Eastern time, at the offices of Legg Mason Partners Fund Advisor, LLC, 620 Eighth Avenue, New York, New York 10018. At the Meeting, shareholders of the Target Fund as of the close of business on April 5, 2013 (the “Record Date”) will be asked to consider and act upon the following:
PROPOSAL 1: | To consider and vote upon a proposal to approve an Agreement and Plan of Reorganization (the “Reorganization Agreement”), providing for (i) the acquisition of all of the assets of the Target Fund by the Acquiring Fund, in exchange for the assumption of all of the liabilities of the Target Fund and for shares of the Acquiring Fund to be distributed to the shareholders of the Target Fund (the “Reorganization”), and (ii) the subsequent termination of the Target Fund as a series of the Trust. |
PROPOSAL 2: | To transact such other business as may properly come before the Meeting or any adjournments or postponements thereof. |
The Reorganization Agreement contemplates the transfer of all of the assets of the Target Fund to the Acquiring Fund, in exchange for the assumption of all of the liabilities of the Target Fund by the Acquiring Fund and for shares of the Acquiring Fund having an aggregate net asset value equal to the aggregate net asset value of the Target Fund. The Target Fund would then distribute to its shareholders the portion of the shares of the Acquiring Fund to which each such shareholder is entitled, with each shareholder receiving shares of the Acquiring Fund having an aggregate net asset value equal to the aggregate net asset value of the shares of the Target Fund held by that shareholder as of the close of business on the day of the closing of the Reorganization (the “Closing Date”). Thereafter, the Target Fund would be terminated as a series of the Trust.
As a shareholder of the Target Fund, you are being asked to consider and vote upon the approval of the Reorganization Agreement pursuant to which the Reorganization of the Target Fund would be accomplished. Because the Reorganization will result in shareholders of the Target Fund holding shares of the Acquiring Fund, this Proxy Statement also serves as a Prospectus for the Acquiring Fund.
If the Reorganization of the Target Fund is approved, the shareholders of the Target Fund will receive shares of the Acquiring Fund according to the following chart:
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Target Fund—Share Class Exchanged | | Acquiring Fund—Share Class Received* |
Legg Mason Capital Management All Cap Fund | | ClearBridge Large Cap Value Fund |
Class A | | Class A |
Class A2 (Class R1 prior to March 22, 2013) | | Class A2 (Class R1 prior to July 19, 2013)** |
Class C | | Class C |
Class I | | Class I |
Class 1 | | Class 1*** |
| * | The Acquiring Fund also offers Class FI, Class R and Class IS shares. There were no Class FI, Class R or Class IS shares outstanding on the Record Date. These classes are not offered by this Proxy Statement/Prospectus. |
| ** | There were no Class R1 shares of the Acquiring Fund outstanding as of the Record Date. |
| *** | Class 1 shares will be established in connection with the Reorganization. |
If the Reorganization Agreement is approved, the shareholders of the Target Fund will receive full and fractional shares of the Acquiring Fund of the corresponding class of shares of the Target Fund set forth in the above chart.
No sales charge will be imposed on the shares of the Acquiring Fund received by Target Fund shareholders in connection with the Reorganization. For more information about the classes of shares offered by each of the Funds, see “Summary—Comparison of Sales Loads, Distribution and Shareholder Servicing Arrangements and Purchase, Redemption and Exchange Policies and Procedures” and “Purchases, Redemptions and Exchanges of Fund Shares; Other Shareholder Information” in this Proxy Statement/Prospectus.
The Reorganization is expected to qualify as a “reorganization” within the meaning of Section 368 of the Internal Revenue Code of 1986, as amended, for federal income tax purposes. See “Information about the Proposed Reorganization—Federal Income Tax Consequences” below. Shareholders should consult their tax advisers to determine the actual impact of the Reorganization in light of their individual tax circumstances.
Each Fund is a separate series of a registered open-end management investment company organized as a Maryland statutory trust. The investment objectives and principal investment strategies of the Target Fund are generally similar to those of the Acquiring Fund. There are, however, certain differences in investment objectives, policies, strategies and principal risks. Please see “Comparison of Investment Objectives, Strategies and Principal Risks of Investing in the Funds” in this Proxy Statement/Prospectus.
This Proxy Statement/Prospectus, which you should retain for future reference, sets forth concisely the information about the Acquiring Fund that a prospective investor should know before investing. A Statement of Additional Information (the “Reorganization SAI”) dated April [ ], 2013, relating to this Proxy Statement/Prospectus and the Reorganization has been filed with the Securities and Exchange Commission (the “SEC”) and is incorporated by reference into this Proxy Statement/Prospectus. A copy of the Reorganization SAI is available upon request and without charge by writing to the Acquiring Fund at the address listed above or calling Legg Mason at 1-877-721-1926.
For more information regarding the Funds, see the current prospectuses of the Funds (the “Prospectuses”) and statements of additional information of the Funds (the “Fund SAIs”) filed with the SEC on the dates listed in Appendix A. The Prospectus and Fund SAI of the Target Fund are incorporated into this Proxy Statement/Prospectus by reference. The Prospectus of the Acquiring Fund is not being incorporated by reference.
The audited financial statements and related independent registered public accounting firm’s report for the Target Fund contained in the annual report for the fiscal year ended April 30, 2012 and the semi-annual report for the fiscal period ended October 31, 2012 are incorporated herein by reference. You may receive without charge copies of the Prospectuses, Fund SAIs, and annual and semi-annual reports for the Funds by calling Legg Mason at 1-877-721-1926, or by writing the Funds at 100 First Stamford Place, Attn: Shareholder Services—5th Floor, Stamford, Connecticut 06902.
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The financial highlights for the Acquiring Fund contained in the annual report to shareholders for the fiscal year ended October 31, 2012 are attached to this Proxy Statement/Prospectus as Appendix C. In addition, you can copy and review this Proxy Statement/Prospectus and the complete filing on Form N-14 containing the Proxy Statement/Prospectus and any of the above-referenced documents at the SEC’s Public Reference Room in Washington, DC. You may obtain information about the operation of the Public Reference Room by calling the SEC at (202) 551-8090. Reports and other information about each Fund are available on the EDGAR Database on the SEC’s internet site at www.sec.gov. You may obtain copies of this information, after paying a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov, or by writing the SEC’s Public Reference Room, 100 F Street, N.E., Washington, DC 20549.
A copy of the form of Reorganization Agreement pertaining to the Reorganization accompanies this Proxy Statement/Prospectus as Appendix B.
The information contained herein concerning the Target Fund has been provided by, and is included herein in reliance upon, the Target Fund. The information contained herein concerning the Acquiring Fund has been provided by, and is included herein in reliance upon, the Acquiring Fund.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES NOR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
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INDEX OF APPENDICES
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| Appendix A: | | Dates of Prospectuses, Fund SAIs and Shareholder Reports | | A-1 |
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| Appendix B: | | Agreement and Plan of Reorganization | | B-1 |
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| Appendix C: | | Financial Highlights of the Acquiring Fund | | C-1 |
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| Appendix D: | | Historical Performance for Each Fund | | D-1 |
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| Appendix E: | | Instructions for Signing Proxy Card | | E-1 |
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| Appendix F: | | 5% Shareholders of the Target Fund and Acquiring Fund | | F-1 |
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SUMMARY
This summary is qualified in its entirety by reference to the additional information contained elsewhere in this Proxy Statement/Prospectus and the Reorganization Agreement, the form of which is attached to this Proxy Statement/Prospectus as Appendix B.
Proposed Reorganization
At meetings held on February 5-6, 2013, the Board of the Acquiring Fund and the Target Fund, including all of the Board members who are not “interested persons” of the Funds under the Investment Company Act of 1940, as amended (the “1940 Act”) (“Independent Board Members”), unanimously approved the Reorganization Agreement. The Reorganization Agreement provides for:
1. the transfer of all of the assets of the Target Fund, in exchange for the assumption of all of the liabilities of the Target Fund and for shares of the Acquiring Fund having an aggregate net asset value equal to the aggregate net asset value of the shares of the Target Fund;
2. the distribution of shares of the Acquiring Fund to the shareholders of the Target Fund; and
3. the termination of the Target Fund.
The Reorganization Agreement is subject to approval by the shareholders of the Target Fund. The Reorganization, if approved by shareholders of the Target Fund, is scheduled to be effective as of the close of business on July 19, 2013, or on such later date as the parties may agree (“Closing Date”). As a result of the Reorganization, each shareholder of the Target Fund will become the owner of the number of full and fractional shares of the Acquiring Fund having an aggregate net asset value equal to the aggregate net asset value of the shareholder’s Target Fund shares as of the close of business on the Closing Date. On March 15, 2013, Class B shares of the Target Fund were reclassified as Class A shares of the Target Fund. On March 22, 2013, Class R1 shares of the Target Fund were reclassified as Class A2 shares of the Target Fund and Class A shares of the Target Fund held by shareholders through a financial intermediary with a direct transfer agent relationship with the Fund (“Direct TA Accounts”) were converted into Class A2 shares of the Target Fund. As a result, Class A, Class A2, Class C, Class I and Class 1 shareholders of the Target Fund will receive the same class of shares of the Acquiring Fund. See “Information about the Proposed Reorganization” below. For more information about the classes of shares offered by the Funds, see “Summary—Comparison of Sales Loads, Distribution and Shareholder Servicing Arrangements and Purchase, Redemption and Exchange Policies and Procedures” below and “Purchases, Redemptions and Exchanges of Fund Shares; Other Shareholder Information” below.
For the reasons set forth below in “Information about the Proposed Reorganization—Reasons for the Reorganization and Board Considerations,” the Board of the Target Fund, including all of the Independent Board Members, has concluded that participation in the Reorganization of the Target Fund is in the best interests of the Target Fund and that the interests of the Target Fund’s existing shareholders would not be diluted as a result of the Reorganization. The Board, therefore, is hereby submitting the Reorganization Agreement to the shareholders of the Target Fund and recommending that shareholders of the Target Fund vote “FOR” the Reorganization Agreement effecting the Reorganization. The Board of the Acquiring Fund has also approved the Reorganization on behalf of the Acquiring Fund.
Approval of the Reorganization of the Target Fund will require the affirmative vote of a majority of the outstanding voting securities of the Target Fund, as defined in the 1940 Act. A “majority of the outstanding voting securities” is defined in the 1940 Act as the lesser of (a) 67% or more of the voting power of the voting securities present at the Meeting, if the holders of more than 50% of the outstanding voting securities of the Target Fund are present at the Meeting or represented by proxy, or (b) more than 50% of the voting power of the outstanding voting securities of the Target Fund. See “Additional Information about the Target Fund and the Acquiring Fund—Voting Information” below.
As a condition to the closing of the Reorganization, each party to the Reorganization Agreement (other than Legg Mason Partners Fund Advisor, LLC (“LMPFA”)), must receive an opinion of Willkie Farr & Gallagher LLP to the effect that the Reorganization will be treated as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”). Accordingly, subject to the limited exceptions described below under the heading
1
“Information about the Proposed Reorganization—Federal Income Tax Consequences,” it is expected that neither the Target Fund nor its shareholders will recognize gain or loss as a result of the Reorganization, and that the aggregate tax basis of the Acquiring Fund shares received by each Target Fund shareholder will be the same as the aggregate tax basis of the shareholder’s Target Fund shares. For more information about the federal income tax consequences of the Reorganization, see “Information about the Proposed Reorganization—Federal Income Tax Consequences” below.
As described further under the heading “Portfolio Securities,” it is currently anticipated that a substantial portion of the portfolio securities currently held by the Target Fund will be sold prior to and solely and directly related to the Reorganization. The tax impact of such sales will depend on the difference between the price at which such portfolio securities are sold and the Target Fund’s tax basis in such securities. Any net capital gains recognized on these sales, after the application of any available capital loss carryovers, will be distributed to the Target Fund shareholders as capital gain dividends (to the extent of net realized long-term capital gain, i.e., the excess of net long-term capital gain over net short-term capital loss) and/or ordinary dividends (to the extent of net realized short-term capital gain, i.e., the excess of net short-term capital gain over net long-term capital loss) during or with respect to the Target Fund’s taxable year that ends on the Closing Date, and any such distributions will be taxable to shareholders. As of the date hereof, the Target Fund is not expected to recognize any capital gains in excess of its capital loss carryover in connection with the repositioning of the Target Fund’s portfolio related to the Reorganization. The portion of the portfolio securities to be sold and the tax consequences related to those sales are estimates based on, among other things, historical data, current market conditions and the Target Fund’s ability to use available carryovers, and are subject to change. In addition, the Target Fund will distribute to its shareholders, in one or more taxable distributions, all of the net investment income and net capital gain realized in the normal course of its operations and not previously distributed for taxable years ending on or prior to the Closing Date. The transaction costs associated with repositioning the Target Fund’s portfolio related to the Reorganization will be borne by the Target Fund before the Reorganization.
Certain Defined Terms Used in this Proxy Statement/Prospectus
The Target Fund and the Acquiring Fund are each series of a Maryland statutory trust. For ease of reference and clarity of presentation, shares of beneficial interest of the Acquiring Fund and Target Fund are hereinafter referred to as “shares,” holders of shares are hereinafter referred to as “shareholders” and the Board of Trustees overseeing the Acquiring Fund and the Target Fund is referred to herein as the “Board.”
Comparison of Investment Objectives and Principal Investment Strategies
This section will help you compare the investment objectives and principal investment strategies of the Target Fund and the Acquiring Fund. Please be aware that this is only a brief discussion. More detailed comparisons of the Funds, including risks, and a chart providing a side-by-side comparison of the Funds and their investment objectives, principal investment strategies and management, appear below in this Proxy Statement/Prospectus. The investment objectives and principal investment strategies of the Acquiring Fund will apply to the combined fund following the Reorganization. More information can be found in the Funds’ Prospectuses and Fund SAIs.
The Funds have similar investment objectives. The Acquiring Fund seeks long-term growth of capital as its primary investment objective. Current income is a secondary objective. The Target Fund seeks long-term capital growth.
Under normal circumstances, the Acquiring Fund invests at least 80% of the value of its net assets, plus borrowings for investment purposes, if any, in equity securities, or other investments with similar economic characteristics, of companies with large market capitalizations. The Target Fund invests primarily in equity securities that, in the portfolio manager’s opinion, offer the potential for capital growth. The Target Fund may invest in issuers of any size, allowing the portfolio manager flexibility to identify investment opportunities that are expected to help the Fund achieve its investment objective. Each Fund may invest in foreign securities both directly and through depositary receipts of those securities. However, there are certain differences in principal investment policies and strategies between the Funds.
2
| | | | |
| | | Target Fund | | Acquiring Fund |
Principal Investment Policies and Strategies | | The Target Fund invests primarily in equity securities that, in the portfolio manager’s opinion, offer the potential for capital growth. The Target Fund may invest in issuers of any size, allowing the portfolio manager flexibility to identify investment opportunities that are expected to help the Target Fund achieve its investment objective. | | Under normal circumstances, the Acquiring Fund invests at least 80% of the value of its net assets, plus borrowings for investment purposes, if any, in equity securities, or other investments with similar economic characteristics, of companies with large market capitalizations. Large capitalization companies are those companies with market capitalizations similar to companies in the Russell 1000 Index (the “Index”). The size of the companies in the Index changes with market conditions and the composition of the Index. As of December 31, 2012, the largest market capitalization of a company in the Index was approximately $394.61 billion and the median market capitalization of a company of the Index was approximately $4.98 billion. Securities of companies whose market capitalizations no longer meet this definition after purchase by the Fund still will be considered securities of large capitalization companies for purposes of the Fund’s 80% investment policy. |
| | |
Selection Process | | The portfolio manager follows an intrinsic value discipline in selecting securities, which means that the portfolio manager seeks to purchase securities trading at large discounts to their assessment of the companies’ estimated values. The portfolio manager determines intrinsic value by measuring the company’s value on such factors as the discounted value of its projected future free cash flows, the capability to earn returns on capital in excess of its cost of capital, private market values of similar companies and the costs to replicate the business. These and other factors may be more or less significant depending on the type of company. The portfolio manager may also consider qualitative factors in selecting stocks, including an assessment of the company’s products, competitive positioning, strategy, industry economics and | | The portfolio managers emphasize individual security selection while diversifying the Acquiring Fund’s investments across industries, which may help to reduce risk. The portfolio managers focus on established large capitalization companies (over $5 billion in market capitalization), seeking to identify those companies with favorable valuations and attractive growth potential. The portfolio managers employ fundamental analysis to analyze each company in detail, ranking its management, strategy and competitive market position. In selecting individual companies for investment, the portfolio managers look for: • Share prices that appear to be temporarily oversold or do not reflect positive company developments |
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| | | | |
| | | Target Fund | | Acquiring Fund |
| | dynamics and regulatory frameworks, among others. Securities may be undervalued due to, among other things, uncertainty arising from the limited availability of accurate information, economic growth and changes, changes in competitive conditions, technological change, investor overreaction to negative news or events and changes in governmental policy or geopolitical dynamics. | | • Share prices that appear to undervalue the company’s assets, particularly on a sum-of-the-parts basis • Special situations including corporate events, changes in management, regulatory changes or turnaround situations • Company specific items such as competitive market position, competitive products and services, experienced management team and stable financial condition. |
| | |
Foreign Investments | | The Target Fund may invest up to 25% of its net assets in foreign securities, either directly or through depositary receipts. | | The Acquiring Fund may invest up to 20% of its net assets in equity securities of foreign issuers, either directly or through depositary receipts. |
| | |
Diversification | | The Target Fund is classified as “non-diversified,” which means it may invest a larger percentage of its assets in a smaller number of issuers than a diversified fund, although the Target Fund has been operated as a diversified fund. | | The Acquiring Fund is classified as diversified. |
| | |
Derivatives | | The Target Fund may engage in a variety of transactions using derivatives, such as futures and options on securities, securities indexes or currencies, options on these futures, forward currency contracts and interest rate or currency swaps. Derivatives may be used by the Target Fund for any of the following purposes: • As a hedging technique in an attempt to manage risk in the Target Fund’s portfolio • As a substitute for buying or selling securities • As a cash flow management technique | | The Acquiring Fund may engage in a variety of transactions using derivatives, such as options on securities and currencies; forward foreign currency contracts; interest rate futures and options on interest rate futures. Derivatives may be used by the Acquiring Fund for any of the following purposes: • As a hedging technique in an attempt to manage risk in the Acquiring Fund’s portfolio • As a substitute for buying or selling securities • As a means of enhancing returns |
The Target Fund and the Acquiring Fund are subject to similar principal risk factors, which are described below.
Effect on Expenses
This section summarizes the effect of the Reorganization on the fees and expenses of the Target Fund.
Following the Reorganization, if approved by shareholders, the effective management fee of the combined fund is expected to be 0.55% of the Fund’s average daily net assets, assuming the combined asset levels of the Acquiring Fund and the Target Fund as of October 31, 2012 for the Acquiring Fund and as of April 30, 2012 for the Target Fund. This fee is
4
lower than both the Acquiring Fund’s effective management fee at asset levels as of October 31, 2012 (0.59% of average daily net assets) and the Target Fund’s effective management fee at asset levels as of April 30, 2012 (0.70% of average daily net assets).
Based on expenses of the Funds as of March 1, 2013, the post-Reorganization operating expense ratio of each class of shares of the combined fund is expected to be the same as or lower than the pre-Reorganization expense ratio of such class of shares of the Target Fund, before and after applicable contractual fee waiver and expense reimbursement arrangements. Specifically, gross and net total operating expenses of Class A, Class C, Class I and Class 1 of the Acquiring Fund are expected to be lower than gross and net total operating expenses of the corresponding classes of the Target Fund. Gross total operating expenses of Class A2 of the combined fund are expected to be lower than the gross total operating expenses of Class A2 of the Target Fund, while net total operating expenses of Class A2 of the combined fund are expected to remain the same as the net total operating expenses of Class A2 of the Target Fund. In addition, the contractual expense caps for each class of the combined fund are expected to be the same as or lower than the contractual expense caps for the corresponding classes of the Target Fund. The Reorganization, if approved by shareholders, will not have any effect on the shareholder services available to shareholders of the Target Fund.
Comparison of Fees and Expenses
The tables below compare the fees and expenses of shares of the Target Fund as of the end of its fiscal year on April 30, 2012, as shown in its current prospectus dated September 1, 2012, and of shares of the Acquiring Fund as of the end of its fiscal year on October 31, 2012, as shown in its current prospectus dated March 1, 2013, and show the estimated fees and expenses of the combined fund, on a pro forma basis, as if the Reorganization had occurred on March 1, 2013. The estimates are based on contracts and agreements in effect as of March 1, 2013, unless otherwise noted, and reflect the operating expense accrual rates on that date, which are based on each Fund’s net assets as of the prior fiscal year end, as adjusted to show the anticipated impact of the proposed reclassification of each Fund’s Class B shares into its respective Class A shares and of the proposed conversion of the Target Fund’s Class A shares held by Direct TA Accounts into Target Fund Class A2 shares, all of which occurred prior to the Record Date. Accordingly, the actual fees and expenses of each class of each Fund and the combined fund as of the Closing Date may differ from those reflected in the tables below due to changes in net assets from those as of March 1, 2013. Changes in net assets may result from purchases and redemptions of Fund shares, market appreciation or depreciation, and other factors occurring between that date and the Closing Date. As a general matter, changes (positive or negative) in a Fund’s expense ratio resulting from fluctuations in the Target Fund’s or Acquiring Fund’s net assets will be borne by the shareholders of the applicable Fund and the combined fund. For information concerning the net assets of each Fund and class as of March , 2013, please see “Additional Information about the Target Fund and the Acquiring Fund—Capitalization.”
| | | | | | | | | | | | |
| | | Pre-Reorganization* | | | | |
| | | Legg Mason
Capital
Management
All Cap Fund | | | ClearBridge
Large Cap
Value Fund | | | Pro Forma
Combined
ClearBridge
Large Cap
Value Fund | |
| | | Class A | | | Class A | | | Class A | |
Shareholder fees (fees paid directly from your investment): | | | | | | | | | | | | |
Maximum sales charge (load) imposed on purchases (as a % of offering price) (%) | | | 5.75 | % | | | 5.75 | % | | | 5.75 | % |
Maximum deferred sales charge (load) (as a % of the lower of net asset value at purchase or redemption) (%) | | | None | | | | None | | | | None | |
Small account fee(a) | | $ | 15 | | | $ | 15 | | | $ | 15 | |
Annual fund operating expenses (expenses that you pay each year as a percentage of the value of your investment): | | | | | | | | | | | | |
Management fees | | | 0.70 | % | | | 0.59 | % | | | 0.55 | % |
Distribution and service (12b-1) fees | | | 0.25 | % | | | 0.25 | % | | | 0.25 | % |
Other expenses | | | 0.20 | % | | | 0.18 | % | | | 0.18 | % |
| | | | | | | | | | | | |
Total annual Fund operating expenses | | | 1.15 | % | | | 1.02 | % | | | 0.98 | % |
| | | | | | | | | | | | |
Fees waived and/or expenses reimbursed | | | N/A | | | | N/A | | | | N/A | |
Total annual fund operating expenses after waiving fees and/or reimbursing expenses | | | 1.15 | % | | | 1.02 | % | | | 0.98 | % |
5
| | | | | | | | | | | | |
| | | Pre-Reorganization* | | | | |
| | | Legg Mason
Capital
Management
All Cap Fund | | | ClearBridge
Large Cap
Value Fund | | | Pro Forma
Combined
ClearBridge
Large Cap
Value Fund | |
| | | Class A2 | | | Class A2± | | | Class A2± | |
Shareholder fees (fees paid directly from your investment): | | | | | | | | | | | | |
Maximum sales charge (load) imposed on purchases (as a % of offering price) (%) | | | 5.75 | % | | | N/A | | | | 5.75 | % |
Maximum deferred sales charge (load) (as a % of the lower of net asset value at purchase or redemption) (%) | | | None | | | | N/A | | | | None | |
Small account fee(a) | | $ | 15 | | | | N/A | | | $ | 15 | |
Annual fund operating expenses (expenses that you pay each year as a percentage of the value of your investment): | | | | | | | | | | | | |
Management fees | | | 0.70 | % | | | N/A | | | | 0.55 | % |
Distribution and service (12b-1) fees | | | 0.25 | % | | | N/A | | | | 0.25 | % |
Other expenses | | | 0.70 | %(b) | | | N/A | | | | 0.69 | %(b) |
| | | | | | | | | | | | |
Total annual Fund operating expenses | | | 1.65 | % | | | N/A | | | | 1.49 | % |
| | | | | | | | | | | | |
Fees waived and/or expenses reimbursed | | | (0.23 | )%(c) | | | N/A | | | | (0.07 | )%(c) |
Total annual fund operating expenses after waiving fees and/or reimbursing expenses | | | 1.42 | % | | | N/A | | | | 1.42 | % |
| | | | | | | | | | | | |
| | | Pre-Reorganization* | | | | |
| | | Legg Mason
Capital
Management
All Cap Fund | | | ClearBridge
Large Cap
Value Fund | | | Pro Forma
Combined
ClearBridge
Large Cap
Value Fund | |
| | | Class C | | | Class C | | | Class C | |
Shareholder fees (fees paid directly from your investment): | | | | | | | | | | | | |
Maximum sales charge (load) imposed on purchases (as a % of offering price) (%) | | | None | | | | None | | | | None | |
Maximum deferred sales charge (load) (as a % of the lower of net asset value at purchase or redemption) (%) | | | 1.00 | % | | | 1.00 | % | | | 1.00 | % |
Small account fee(a) | | $ | 15 | | | $ | 15 | | | $ | 15 | |
Annual fund operating expenses (expenses that you pay each year as a percentage of the value of your investment): | | | | | | | | | | | | |
Management fees | | | 0.70 | % | | | 0.59 | % | | | 0.55 | % |
Distribution and service (12b-1) fees | | | 1.00 | % | | | 1.00 | % | | | 1.00 | % |
Other expenses | | | 0.20 | % | | | 0.19 | % | | | 0.19 | % |
| | | | | | | | | | | | |
Total annual Fund operating expenses | | | 1.90 | % | | | 1.78 | % | | | 1.74 | % |
| | | | | | | | | | | | |
Fees waived and/or expenses reimbursed | | | N/A | | | | N/A | | | | N/A | |
Total annual fund operating expenses after waiving fees and/or reimbursing expenses | | | 1.90 | % | | | 1.78 | % | | | 1.74 | % |
6
| | | | | | | | | | | | |
| | | Pre-Reorganization* | | | | |
| | | Legg Mason
Capital
Management
All Cap Fund | | | ClearBridge
Large Cap
Value Fund | | | Pro Forma
Combined
ClearBridge
Large Cap
Value Fund | |
| | | Class I | | | Class I | | | Class I | |
Shareholder fees (fees paid directly from your investment): | | | | | | | | | | | | |
Maximum sales charge (load) imposed on purchases (as a % of offering price) (%) | | | None | | | | None | | | | None | |
Maximum deferred sales charge (load) (as a % of the lower of net asset value at purchase or redemption) (%) | | | None | | | | None | | | | None | |
Small account fee | | | None | | | | None | | | | None | |
Annual fund operating expenses (expenses that you pay each year as a percentage of the value of your investment): | | | | | | | | | | | | |
Management fees | | | 0.70 | % | | | 0.59 | % | | | 0.55 | % |
Distribution and service (12b-1) fees | | | — | | | | — | | | | — | |
Other expenses | | | 0.32 | % | | | 0.10 | % | | | 0.10 | % |
| | | | | | | | | | | | |
Total annual Fund operating expenses | | | 1.02 | % | | | 0.69 | % | | | 0.65 | % |
| | | | | | | | | | | | |
Fees waived and/or expenses reimbursed | | | (0.02 | )%(d) | | | N/A | (e) | | | N/A | (e) |
Total annual fund operating expenses after waiving fees and/or reimbursing expenses | | | 1.00 | % | | | 0.69 | % | | | 0.65 | % |
| | | | | | | | | | | | |
| | | Pre-Reorganization* | | | | |
| | | Legg Mason
Capital
Management
All Cap Fund | | | ClearBridge
Large Cap
Value Fund | | | Pro Forma
Combined
ClearBridge
Large Cap
Value Fund | |
| | | Class 1 | | | Class 1± | | | Class 1± | |
Shareholder fees (fees paid directly from your investment): | | | | | | | | | | | | |
Maximum sales charge (load) imposed on purchases (as a % of offering price) (%) | | | None | | | | N/A | | | | None | |
Maximum deferred sales charge (load) (as a % of the lower of net asset value at purchase or redemption) (%) | | | None | | | | N/A | | | | None | |
Small account fee(a) | | $ | 15 | | | | N/A | | | $ | 15 | |
Annual fund operating expenses (expenses that you pay each year as a percentage of the value of your investment): | | | | | | | | | | | | |
Management fees | | | 0.70 | % | | | N/A | | | | 0.55 | % |
Distribution and service (12b-1) fees | | | — | | | | N/A | | | | — | |
Other expenses | | | 0.37 | % | | | N/A | | | | 0.37 | %(b) |
| | | | | | | | | | | | |
Total annual Fund operating expenses | | | 1.07 | % | | | N/A | | | | 0.92 | % |
| | | | | | | | | | | | |
Fees waived and/or expenses reimbursed | | | N/A | % | | | N/A | | | | N/A | % |
Total annual fund operating expenses after waiving fees and/or reimbursing expenses | | | 1.07 | %(f) | | | N/A | | | | 0.92 | %(f) |
| * | Expense Ratios are from the Prospectus dated September 1, 2012 for the Target Fund and the Prospectus dated March 1, 2013 for the Acquiring Fund, except that the expense ratios presented for each of the Target Fund and Acquiring Fund include (i) the anticipated impact of the proposed reclassification of each Fund’s Class B shares into its respective Class A shares and (ii) the anticipated impact of the proposed conversion of the Target Fund’s Class A shares held by Direct TA Accounts into Target Fund Class A2 shares, all of which occurred prior to the Record Date. Class R1 shares of the Target Fund were reclassified as Class A2 shares of the Target Fund prior to the Record Date and Class R1 shares of the Acquiring Fund will be reclassified as Class A2 shares of the Acquiring Fund as of July 19, 2013, if the Reorganization is approved by Target Fund shareholders and becomes effective. |
7
| (a) | If your shares are held in a direct account and the value of your account is below $1,000 ($250 for retirement plans that are not employer-sponsored), the Fund may charge you a fee of $3.75 per account that is determined and assessed quarterly (with an annual maximum of $15.00 per account). Direct accounts generally include accounts held in the name of the individual investor on the Fund’s books and records. |
| (b) | “Other expenses” for Class A2 and Class 1 shares are estimated for the current fiscal year. Actual expenses may differ from estimates. |
| (c) | The manager has agreed to waive fees and/or reimburse operating expenses (other than interest, brokerage, taxes, extraordinary expenses and acquired fund fees and expenses) so that total annual operating expenses are not expected to exceed 1.42% for Class A2 shares. This arrangement cannot be terminated prior to December 31, 2014 without the Board’s consent. The manager is permitted to recapture amounts waived or reimbursed to a class during the same fiscal year if the class’ total annual operating expenses have fallen to a level below the limit described above. |
| (d) | The manager has agreed to waive fees and/or reimburse operating expenses (other than interest, brokerage, taxes, extraordinary expenses and acquired fund fees and expenses) so that total annual operating expenses are not expected to exceed 1.00% for Class I shares. This arrangement cannot be terminated prior to December 31, 2014 without the Board’s consent. The manager is permitted to recapture amounts waived or reimbursed to a class during the same fiscal year if the class’ total annual operating expenses have fallen to a level below the limit described above. |
| (e) | The manager has agreed to waive fees and/or reimburse operating expenses (other than interest, brokerage, taxes, extraordinary expenses and acquired fund fees and expenses) so that total annual operating expenses are not expected to exceed 0.90% for Class I shares, subject to recapture as described below. This arrangement cannot be terminated prior to December 31, 2014 without the Board’s consent. The manager is permitted to recapture amounts waived or reimbursed to a class during the same fiscal year if the class’ total annual operating expenses have fallen to a level below the limit described above. |
| (f) | The manager has agreed to waive fees and/or reimburse operating expenses (other than interest, brokerage, taxes, extraordinary expenses and acquired fund fees and expenses) so that total annual operating expenses for Class 1 shares are not expected to exceed total annual operating expenses of Class A shares. This arrangement cannot be terminated prior to December 31, 2014 without the Board’s consent. The manager is permitted to recapture amounts waived or reimbursed to a class during the same fiscal year if the class’ total annual operating expenses have fallen to a level below the limit described above. |
| ± | Class 1 shares of the Acquiring Fund will be created in connection with the Reorganization. Class R1 shares of the Acquiring Fund will be reclassified as Class A2 shares as of July 19, 2013, if the Reorganization is approved by Target Fund shareholders and becomes effective. |
The following examples help you compare the costs of investing in each of the Funds with the costs of investing in other mutual funds. The examples assume that you invest $10,000 for the periods shown, that your investment has a 5% return each year, that you reinvest all distributions and dividends, and that each Fund’s operating expenses (before fee waivers and expense reimbursements, if any) remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
| | | | | | | | | | | | | | | | |
| | | 1 Year | | | 3 Years | | | 5 Years | | | 10 Years | |
Class A | | | | | | | | | | | | | | | | |
Legg Mason Capital Management All Cap Fund (with or without redemption) | | $ | 685 | | | $ | 919 | | | $ | 1,171 | | | $ | 1,891 | |
ClearBridge Large Cap Value Fund (with or without redemption) | | $ | 673 | | | $ | 881 | | | $ | 1,106 | | | $ | 1,751 | |
Pro Forma Combined ClearBridge Large Cap Value Fund (with or without redemption) | | $ | 669 | | | $ | 869 | | | $ | 1,085 | | | $ | 1,706 | |
| | | | |
Class A2 | | | | | | | | | | | | | | | | |
Legg Mason Capital Management All Cap Fund (with or without redemption) | | $ | 711 | | | $ | 1,044 | | | $ | 1,400 | | | $ | 2,399 | |
ClearBridge Large Cap Value Fund (with or without redemption) | | | N/A | | | | N/A | | | | N/A | | | | N/A | |
Pro Forma Combined ClearBridge Large Cap Value Fund (with or without redemption) | | $ | 711 | | | $ | 1,012 | | | $ | 1,335 | | | $ | 2,246 | |
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| | | | | | | | | | | | | | | | |
| | | 1 Year | | | 3 Years | | | 5 Years | | | 10 Years | |
Class C | | | | | | | | | | | | | | | | |
Legg Mason Capital Management All Cap Fund (with redemption) | | $ | 293 | | | $ | 597 | | | $ | 1,026 | | | $ | 2,222 | |
Legg Mason Capital Management All Cap Fund (without redemption) | | $ | 193 | | | $ | 597 | | | $ | 1,026 | | | $ | 2,222 | |
ClearBridge Large Cap Value Fund (with redemption) | | $ | 281 | | | $ | 561 | | | $ | 965 | | | $ | 2,096 | |
ClearBridge Large Cap Value Fund (without redemption) | | $ | 181 | | | $ | 561 | | | $ | 965 | | | $ | 2,096 | |
Pro Forma Combined ClearBridge Large Cap Value Fund (with redemption) | | $ | 277 | | | $ | 549 | | | $ | 945 | | | $ | 2,053 | |
Pro Forma Combined ClearBridge Large Cap Value Fund (without redemption) | | $ | 177 | | | $ | 549 | | | $ | 945 | | | $ | 2,053 | |
| | | | |
Class I | | | | | | | | | | | | | | | | |
Legg Mason Capital Management All Cap Fund (with or without redemption) | | $ | 102 | | | $ | 322 | | | $ | 561 | | | $ | 1,246 | |
ClearBridge Large Cap Value Fund (with or without redemption) | | $ | 70 | | | $ | 221 | | | $ | 384 | | | $ | 859 | |
Pro Forma Combined ClearBridge Large Cap Value Fund (with or without redemption) | | $ | 66 | | | $ | 207 | | | $ | 361 | | | $ | 808 | |
| | | | |
Class 1 | | | | | | | | | | | | | | | | |
Legg Mason Capital Management All Cap Fund (with or without redemption) | | $ | 109 | | | $ | 340 | | | $ | 589 | | | $ | 1,304 | |
ClearBridge Large Cap Value Fund (with or without redemption) | | | N/A | | | | N/A | | | | N/A | | | | N/A | |
Pro Forma Combined ClearBridge Large Cap Value Fund (with or without redemption) | | $ | 94 | | | $ | 294 | | | $ | 510 | | | $ | 1,132 | |
Comparison of Sales Loads, Distribution and Shareholder Servicing Arrangements and Purchase, Redemption and Exchange Policies and Procedures
No sales loads or deferred sales charges will be incurred by Target Fund shareholders in connection with the Reorganization.
The exchange privileges that shareholders of the Target Fund currently have with the other funds distributed by Legg Mason Investor Services, LLC will not change.
More information about the sales load, distribution and shareholder servicing arrangements for the shares of the Acquiring Fund and the procedures for making purchases, redemptions and exchanges of shares are set forth in “Purchases, Redemptions and Exchanges of Fund Shares; Other Shareholder Information” below.
9
COMPARISON OF INVESTMENT OBJECTIVES, STRATEGIES AND PRINCIPAL RISKS OF INVESTING IN THE FUNDS
The following discussion comparing the investment objectives, strategies and principal risks of the Target Fund with the Acquiring Fund is based upon and qualified in its entirety by the disclosure appearing in the Prospectuses (as supplemented) of the Funds under the captions “Investment objective,” “Principal investment strategies,” “Certain risks” and “More on the fund’s investment strategies, investments and risks.” The Prospectuses (as supplemented from time to time) are dated as follows:
| | | | |
Target Fund | | Prospectus Dated | |
Legg Mason Capital Management All Cap Fund | | | September 1, 2012 | |
| |
Acquiring Fund | | Prospectus Dated | |
ClearBridge Large Cap Value Fund | | | March 1, 2013 | |
The investment objective and principal investment strategies and principal risks of the Acquiring Fund will apply to the combined fund following the Reorganization with the Target Fund.
Investment Objectives
The Acquiring Fund seeks long-term growth of capital as its primary investment objective. Current income is a secondary objective.
The Target Fund seeks long-term capital growth.
Principal Investment Policies and Strategies
The Target Fund invests primarily in equity securities that, in the portfolio manager’s opinion, offer the potential for capital growth. The Target Fund may invest in issuers of any size, allowing the portfolio manager flexibility to identify investment opportunities that are expected to help the Fund achieve its investment objective. Each Fund may invest in foreign securities both directly and through depositary receipts of those securities. Under normal circumstances, the Acquiring Fund invests at least 80% of the value of its net assets, plus borrowings for investment purposes, if any, in equity securities, or other investments with similar economic characteristics, of companies with large market capitalizations. Large capitalization companies are those companies with market capitalizations similar to companies in the Russell 1000 Index (the “Index”).
Both Funds may use derivatives, but only the Target Fund may use derivatives as a cash flow management technique, and only the Acquiring Fund may use derivatives as a means of enhancing returns. The Target Fund may use futures and options on securities, securities indexes or currencies, and options on these futures, while the Acquiring Fund may use options on securities, interest rate futures and options on interest rate futures. The Target Fund may use interest rate or currency swaps, whereas the Acquiring Fund may not. The Target Fund is classified as non-diversified (although it has been operated as diversified), while the Acquiring Fund is classified as diversified.
Risk Factors
Because the Funds have similar investment objectives and principal investment policies and strategies, the Funds share many of the same risks. You could lose money on your investment in either Fund and either Fund may not perform as well as other investments.
The following summarizes the principal risks of investing in either of the Funds:
| | • | | Stock market and equity securities risk. The securities markets are volatile and the market prices of the Fund’s securities may decline generally. Securities fluctuate in price based on changes in a company’s financial condition and overall market and economic conditions. If the market prices of the securities owned by the Fund fall, the value |
10
| | of your investment in the fund will decline. The financial crisis that began in 2008 has caused a significant decline in the value and liquidity of many securities of issuers worldwide. In response to the crisis, the U.S. and other governments and the Federal Reserve and certain foreign central banks have taken steps to support financial markets. The withdrawal of this support, failure of efforts to respond to the crisis, or investor perception that such efforts are not succeeding could also negatively affect financial markets generally as well as the value and liquidity of certain securities. In addition, policy and legislative changes in the United States and in other countries are changing many aspects of financial regulation. The impact of these changes on the markets, and the practical implications for market participants, may not be fully known for some time. |
| | • | | Issuer risk. The value of a security can go up or down more than the market as a whole and can perform differently from the value of the market as a whole, often due to disappointing earnings reports by the issuer, unsuccessful products or services, loss of major customers, major litigation against the issuer or changes in government regulations affecting the issuer or the competitive environment. The Fund may experience a substantial or complete loss on an individual security. Historically, the prices of securities of small and medium capitalization companies have generally gone up or down more than those of large capitalization companies, although even large capitalization companies may fall out of favor with investors. |
| | • | | Liquidity risk. Some assets held by the Fund may be difficult to sell, or illiquid, particularly during times of market turmoil. Illiquid assets may also be difficult to value. If the Fund is forced to sell an illiquid asset to meet redemption requests or other cash needs, the Fund may be forced to sell at a loss. |
| | • | | Portfolio selection risk. The value of your investment may decrease if the portfolio managers’ judgment about the attractiveness, value or market trends affecting a particular security, industry or sector or about market movements is incorrect. |
| | • | | Value investing risk. The value approach to investing involves the risk that stocks may remain undervalued. Value stocks may underperform the overall equity market while the market concentrates on growth stocks. Although the Fund will not concentrate its investments in any one industry or industry group, it may, like many value funds, weight its investments toward certain industries, thus increasing its exposure to factors adversely affecting issuers within those industries. |
| | • | | Risk of increase in expenses. Your actual costs of investing in the Fund may be higher than the expenses shown in “Annual fund operating expenses” for a variety of reasons. For example, expense ratios may be higher than those shown if a fee limitation is changed or terminated or if average net assets decrease. Net assets are more likely to decrease and Fund expense ratios are more likely to increase when markets are volatile. |
The Acquiring Fund also characterizes the following as a risk of investing in the Fund:
| | • | | Large capitalization company risk. Large capitalization companies may fall out of favor with investors. |
The Target Fund also characterizes the following as risks of investing in the Fund:
| | • | | Foreign investments risk. The Fund’s investments in securities of foreign issuers or issuers with significant exposure to foreign markets involve additional risk. Foreign countries in which the Fund may invest may have markets that are less liquid, less regulated and more volatile than U.S. markets. The value of the Fund’s investments may decline because of factors affecting the particular issuer as well as foreign markets and issuers generally, such as unfavorable government actions, and political or financial instability. Lack of information may also affect the value of these securities. |
| | • | | Currency risk. The value of investments in securities denominated in foreign currencies increases or decreases as the rates of exchange between those currencies and the U.S. dollar change. Currency conversion costs and currency fluctuations could erase investment gains or add to investment losses. Currency exchange rates can be volatile, and are affected by factors such as general economic conditions, the actions of the U.S. and foreign governments or central banks, the imposition of currency controls and speculation. |
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| | • | | Non-diversification risk. The Fund is classified as “non-diversified,” which means it may invest a larger percentage of its assets in a smaller number of issuers than a diversified fund. To the extent the Fund invests its assets in a smaller number of issuers, the Fund will be more susceptible to negative events affecting those issuers than a diversified fund. |
Side-by-Side Comparison
The following chart shows a side-by-side comparison of the investment objective, principal investment policies and strategies, manager and portfolio managers of the Target Fund and the Acquiring Fund.
| | | | |
| | | Legg Mason Capital Management
All Cap Fund (Target Fund) | | ClearBridge Large Cap Value Fund
(Acquiring Fund) |
Investment Objective | | The Target Fund seeks long-term capital growth. The Target Fund’s investment objective may be changed by the Board without shareholder approval and on notice to shareholders. | | The Acquiring Fund seeks long-term growth of capital as its primary investment objective. Current income is a secondary objective. The Acquiring Fund’s investment objective may be changed by the Board without shareholder approval and on notice to shareholders. |
| | |
Principal Investment Policies and Strategies | | The Target Fund invests primarily in equity securities that, in the portfolio manager’s opinion, offer the potential for capital growth. The Target Fund may invest in issuers of any size, allowing the portfolio manager flexibility to identify investment opportunities that are expected to help the Target Fund achieve its investment objective. | | Under normal circumstances, the Acquiring Fund invests at least 80% of the value of its net assets, plus borrowings for investment purposes, if any, in equity securities, or other investments with similar economic characteristics, of companies with large market capitalizations. Large capitalization companies are those companies with market capitalizations similar to companies in the Russell 1000 Index (the “Index”). The size of the companies in the Index changes with market conditions and the composition of the Index. As of December 31, 2012, the largest market capitalization of a company in the Index was approximately $394.61 billion and the median market capitalization of a company of the Index was approximately $4.98 billion. Securities of companies whose market capitalizations no longer meet this definition after purchase by the Acquiring Fund still will be considered securities of large capitalization companies for purposes of the Acquiring Fund’s 80% investment policy. |
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| | | | |
| | | Legg Mason Capital Management
All Cap Fund (Target Fund) | | ClearBridge Large Cap Value Fund
(Acquiring Fund) |
Selection Process | | The portfolio manager follows an intrinsic value discipline in selecting securities, which means that the portfolio manager seeks to purchase securities trading at large discounts to their assessment of the companies’ estimated values. The portfolio manager determines intrinsic value by measuring the company’s value on such factors as the discounted value of its projected future free cash flows, the capability to earn returns on capital in excess of its cost of capital, private market values of similar companies and the costs to replicate the business. These and other factors may be more or less significant depending on the type of company. The portfolio manager may also consider qualitative factors in selecting stocks, including an assessment of the company’s products, competitive positioning, strategy, industry economics and dynamics and regulatory frameworks, among others. Securities may be undervalued due to, among other things, uncertainty arising from the limited availability of accurate information, economic growth and changes, changes in competitive conditions, technological change, investor overreaction to negative news or events and changes in governmental policy or geopolitical dynamics. | | The portfolio managers emphasize individual security selection while diversifying the Acquiring Fund’s investments across industries, which may help to reduce risk. The portfolio managers focus on established large capitalization companies (over $5 billion in market capitalization), seeking to identify those companies with favorable valuations and attractive growth potential. The portfolio managers employ fundamental analysis to analyze each company in detail, ranking its management, strategy and competitive market position. In selecting individual companies for investment, the portfolio managers look for: • Share prices that appear to be temporarily oversold or do not reflect positive company developments • Share prices that appear to undervalue the company’s assets, particularly on a sum-of-the-parts basis • Special situations including corporate events, changes in management, regulatory changes or turnaround situations • Company specific items such as competitive market position, competitive products and services, experienced management team and stable financial condition. |
| | |
Foreign Investments | | The Target Fund may invest up to 25% of its net assets in foreign securities, either directly or through depositary receipts. | | The Acquiring Fund may invest up to 20% of its net assets in equity securities of foreign issuers, either directly or through depositary receipts. |
| | |
Diversification | | The Target Fund is classified as “non-diversified,” which means it may invest a larger percentage of its assets in a smaller number of issuers than a diversified fund, although the Target Fund has been operated as a diversified fund. | | The Acquiring Fund is classified as diversified. |
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| | | | |
| | | Legg Mason Capital Management
All Cap Fund (Target Fund) | | ClearBridge Large Cap Value Fund
(Acquiring Fund) |
Derivatives | | The Target Fund may engage in a variety of transactions using derivatives, such as futures and options on securities, securities indexes or currencies, options on these futures, forward currency contracts and interest rate or currency swaps. Derivatives may be used by the Target Fund for any of the following purposes: • As a hedging technique in an attempt to manage risk in the Target Fund’s portfolio • As a substitute for buying or selling securities • As a cash flow management technique | | The Acquiring Fund may engage in a variety of transactions using derivatives, such as options on securities and currencies; forward foreign currency contracts; interest rate futures and options on interest rate futures. Derivatives may be used by the Acquiring Fund for any of the following purposes: • As a hedging technique in an attempt to manage risk in the Acquiring Fund’s portfolio • As a substitute for buying or selling securities • As a means of enhancing returns |
| | |
Investment Manager/Subadviser | | Legg Mason Capital Management, LLC (investment manager) Legg Mason Partners Fund Advisor, LLC (sub-administrator) Western Asset Management Company (manages cash and short-term instruments) | | Legg Mason Partners Fund Advisor, LLC (investment manager) ClearBridge Investments, LLC (subadviser) Western Asset Management Company (manages cash and short-term instruments) |
| | |
Portfolio Managers | | Jay Leopold, CFA | | Dmitry Khaykin and Robert Feitler |
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PURCHASES, REDEMPTIONS AND EXCHANGES OF ACQUIRING FUND SHARES; OTHER SHAREHOLDER INFORMATION REGARDING THE ACQUIRING FUND
This section describes some of the classes of shares that the Acquiring Fund will make available after the Reorganization and how shareholders may buy and sell those Fund shares. It also describes how the Acquiring Fund values its securities and the Fund’s policies on frequent trading of Fund shares.
Class FI, Class R and Class IS shares of the Acquiring Fund are not offered by this Proxy Statement/Prospectus.
Choosing a Class of Shares to Buy
Individual investors can generally invest in Class A, Class A2 and Class C shares. Individual investors who invest directly with the Fund and who meet the $1,000,000 minimum initial investment requirement may purchase Class I shares. Individual investors who held Class I shares prior to November 20, 2006 are permitted to make additional investments in Class I shares.
Investors who hold their shares through a financial intermediary that has a direct transfer agent relationship with the Fund (“Direct TA Accounts”) will not be permitted to acquire Class A shares of the Fund through new purchases or incoming exchanges. Direct TA Accounts will be permitted to acquire Class A2, Class C or Class I shares.
Retirement Plan and Institutional Investors and Clients of Eligible Financial Intermediaries should refer to “Retirement and Institutional Investors—Eligible Investors” below for a description of the classes available to them. Each class has different sales charges and expenses, allowing you to choose a class that may be appropriate for you.
When choosing which class of shares to buy, you should consider:
| | • | | How much you plan to invest |
| | • | | How long you expect to own the shares |
| | • | | The expenses paid by each class detailed in the fee table and example at the front of the Fund’s Prospectus |
| | • | | Whether you qualify for any reduction or waiver of sales charges |
| | • | | Availability of share classes |
When choosing between Class A or Class A2 and Class C shares, you should be aware that, generally speaking, the larger the size of your investment and the longer your investment horizon, the more likely it will be that Class C shares will not be as advantageous as Class A or Class A2 shares. The annual distribution and/or service fees on Class C shares may cost you more over the longer term than the front-end sales charge and service fees you would have paid for larger purchases of Class A or Class A2 shares. If you are eligible to purchase Class I shares, you should be aware that Class I shares are not subject to a front-end sales charge and generally have lower annual expenses than Class A2 or Class C shares.
Each class of shares (other than Class A2 shares and Class 1 shares) is authorized to pay fees for recordkeeping services to Service Agents (defined below). As a result, operating expenses of classes that incur new or additional recordkeeping fees may increase over time.
You may buy shares:
| | • | | Through banks, brokers, dealers, insurance companies, investment advisers, financial consultants or advisers, mutual fund supermarkets and other financial intermediaries that have entered into an agreement with the distributor to sell shares of the Fund (each called a “Service Agent”) |
Your Service Agent may provide shareholder services that differ from the services provided by other Service Agents. Services provided by your Service Agent may vary by class. You should ask your Service Agent to explain the shareholder
15
services it provides for each class and the compensation it receives in connection with each class. Remember that your Service Agent may receive different compensation depending on the share class in which you invest.
Your Service Agent may not offer all classes of shares. You should contact your Service Agent for further information.
More information about the Fund’s classes of shares is available through the Legg Mason funds’ website. You’ll find detailed information about sales charges and ways you can qualify for reduced or waived sales charges, including:
| | • | | The front-end sales charges that apply to the purchase of Class A or Class A2 shares |
| | • | | The contingent deferred sales charges that apply to the redemption of Class C shares and certain Class A or Class A2 shares |
| | • | | Who qualifies for lower sales charges on Class A or Class A2 shares |
| | • | | Who qualifies for a sales load waiver |
To visit the website, go to http://www.leggmason.com/individualinvestors/products, and click on the name of the Fund in the dropdown menu.
Purchase and Sale of Fund Shares
You may purchase, redeem or exchange shares of the Fund each day the New York Stock Exchange is open, at the Fund’s net asset value determined after receipt of your request in good order, subject to any applicable sales charge.
The Fund’s initial and subsequent investment minimums generally are as follows:
Investment minimum initial/additional investment ($)
| | | | | | | | | | |
| | | Class A | | Class A2 | | Class C | | Class I | | Class 11 |
General | | 1,000/50 | | 1,000/50 | | 1,000/50 | | 1 million/None* | | N/A |
Uniform Gifts or Transfers to Minor Accounts | | 1,000/50 | | 1,000/50 | | 1,000/50 | | 1 million/None* | | N/A |
IRAs | | 250/50 | | 250/50 | | 250/50 | | 1 million/None* | | N/A |
SIMPLE IRAs | | None/None | | None/None | | None/None | | 1 million/None* | | N/A |
Systematic Investment Plans | | 50/50 | | 50/50 | | 50/50 | | 1 million/None* | | N/A |
Clients of Eligible Financial Intermediaries | | None/None | | None/None | | N/A | | None/None | | N/A |
Eligible Investment Programs | | None/None | | None/None | | N/A | | None/None | | N/A |
Retirement Plans with omnibus accounts held on the books of the Fund and certain rollover IRAs | | None/None | | None/None | | None/None | | None/None | | N/A |
Other Retirement Plans | | None/None | | None/None | | None/None | | 1 million/None* | | N/A |
Institutional Investors | | 1,000/50 | | 1,000/50 | | 1,000/50 | | 1 million/None | | N/A |
| * | Available to investors investing directly with the Fund. |
| 1 | Class 1 shares are not available for purchase or incoming exchanges. |
Your financial intermediary may impose different investment minimums.
For more information about how to purchase, redeem or exchange shares, and to learn which classes of shares are available to you, you should contact your financial intermediary, or, if you hold your shares or plan to purchase shares through the Fund, you should contact the Fund by phone at 1-877-721-1926 or by mail at Legg Mason Funds, P.O. Box 55214, Boston, MA 02205-8504.
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Comparing the Fund’s Classes
The following table compares key features of the Fund’s classes. You should review the fee table and example at the front of the Fund’s Prospectus carefully before choosing your share class. Your Service Agent can help you choose a class that may be appropriate for you. Your Service Agent may receive different compensation depending upon which class you choose.
| | | | | | | | | | |
| | | Key Features | | Initial Sales
Charge | | Contingent
Deferred
Sales Charge | | Annual Distribution
and/or Service Fees | | Exchange
Privilege1 |
Class A | | • Initial sales charge • You may qualify for reduction or waiver of initial sales charge • Generally lower annual expenses than Class C | | Up to 5.75%; reduced or waived for large purchases and certain investors. No charge for purchases of $1 million or more | | 1.00% on purchases of $1 million or more if you redeem within 18 months of purchase (or within 12 months for shares purchased prior to August 1, 2012); waived for certain investors | | 0.25% of average daily net assets | | Class A shares of funds sold by the distributor |
| | | | | |
Class A2 | | • Initial sales charge • You may qualify for reduction or waiver of initial sales charge • Generally lower expenses than Class C • Available only to investors who hold shares through a financial intermediary that has a direct transfer agent relationship with the Fund | | Up to 5.75%; reduced or waived for large purchases and certain investors. No charge for purchases of $1 million or more | | 1.00% on purchases of $1 million or more if you redeem within 18 months of purchase; waived for certain investors | | 0.25% of average daily net assets | | Class A2 shares of funds sold by the distributor |
| | | | | |
Class C | | • No initial sales charge • Contingent deferred sales charge for only 1 year • Does not convert to Class A • Generally higher annual expenses than Class A | | None | | 1.00% if you redeem within 1 year of purchase; waived for certain investors | | 1.00% of average daily net assets | | Class C shares of funds sold by the distributor |
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| | | | | | | | | | |
| | | Key Features | | Initial Sales
Charge | | Contingent
Deferred
Sales Charge | | Annual Distribution
and/or Service Fees | | Exchange
Privilege1 |
Class I | | • No initial or contingent deferred sales charge • Only offered to institutional and other eligible investors • Generally lower annual expenses than all classes except Class IS | | None | | None | | None | | Class I shares of funds sold by the distributor |
| | | | | |
Class 1 | | • Closed to all purchases and incoming exchanges | | N/A | | None | | None | | Class A shares of funds available for exchange |
| 1 | Ask your Service Agent about the funds available for exchange. |
Sales Charges
Class A and Class A2 shares
You buy Class A or Class A2 shares at the offering price, which is the net asset value plus a sales charge. You pay a lower rate as the size of your investment increases to certain levels called breakpoints. You do not pay a sales charge on the Fund’s distributions or dividends that you reinvest in additional Class A or Class A2 shares.
The table below shows the rate of sales charge you pay, depending on the amount you purchase. It also shows the amount of broker/dealer compensation that will be paid out of the sales charge if you buy shares from a Service Agent. For Class A or Class A2 shares sold by the distributor, the distributor will receive the sales charge imposed on purchases of Class A or Class A2 shares (or any contingent deferred sales charge paid on redemptions) and will retain the full amount of such sales charge. Service Agents will receive a distribution and/or service fee payable on Class A or Class A2 shares at an annual rate of up to 0.25% of the average daily net assets represented by the Class A or Class A2 shares serviced by them.
| | | | | | | | | | | | |
Amount of Investment | | Sales Charge
as % of
Offering Price | | | Sales Charge
as % of
Net Amount
Invested | | | Broker/Dealer
Commission
as % of
Offering Price | |
Less than $25,000 | | | 5.75 | | | | 6.10 | | | | 5.00 | |
$25,000 but less than $50,000 | | | 5.00 | | | | 5.26 | | | | 4.25 | |
$50,000 but less than $100,000 | | | 4.50 | | | | 4.71 | | | | 3.75 | |
$100,000 but less than $250,000 | | | 3.50 | | | | 3.63 | | | | 2.75 | |
$250,000 but less than $500,000 | | | 2.50 | | | | 2.56 | | | | 2.00 | |
$500,000 but less than $750,000 | | | 2.00 | | | | 2.04 | | | | 1.60 | |
$750,000 but less than $1 million | | | 1.50 | | | | 1.52 | | | | 1.20 | |
$1 million or more1 | | | -0- | | | | -0- | | | | up to 1.00 | |
| 1 | The distributor may pay a commission of up to 1.00% to a Service Agent for purchase amounts of $1 million or more. In such cases, starting in the thirteenth month after purchase, the Service Agent will also receive an annual distribution and/or service fee of up to 0.25% of the average daily net assets represented by the Class A or Class A2 shares held by its clients. Prior to the thirteenth month, the distributor will retain this fee. Where the Service Agent does not receive the payment of this commission, the Service Agent will instead receive the annual distribution and/or service fee starting immediately after purchase. Please contact your Service Agent for more information. |
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Investments of $1,000,000 or more
You do not pay an initial sales charge when you buy $1,000,000 or more of Class A or Class A2 shares. However, if you redeem these Class A or Class A2 shares within 18 months of purchase (or within 12 months for Class A shares purchased prior to August 1, 2012 or within 12 months for Class A2 shares that were converted from Class A shares that you purchased prior to August 1, 2012), you will pay a contingent deferred sales charge of 1.00%.
Qualifying for a reduced Class A or Class A2 sales charge
There are several ways you can combine multiple purchases of Class A or Class A2 shares of funds sold by the distributor to take advantage of the breakpoints in the sales charge schedule. In order to take advantage of reductions in sales charges that may be available to you when you purchase Fund shares, you must inform your Service Agent or the Fund if you are eligible for a letter of intent or a right of accumulation and if you own shares of other funds that are eligible to be aggregated with your purchases. Certain records, such as account statements, may be necessary in order to verify your eligibility for a reduced sales charge.
Accumulation Privilege—allows you to combine the current value of shares of the Fund with other shares of funds sold by the distributor that are owned by:
| | • | | your spouse and children under the age of 21 |
with the dollar amount of your next purchase of Class A shares or Class A2 shares, as applicable, for purposes of calculating the initial sales charges.
If you hold Fund shares in accounts at two or more Service Agents, please contact your Service Agents to determine which shares may be combined.
Shares of money market funds sold by the distributor acquired by exchange from other funds offered with a sales charge may be combined. Shares of money market funds sold by the distributor that were not acquired by exchange from other funds offered with a sales charge may not be combined. Please contact your Service Agent for additional information.
Certain trustees and other fiduciaries may be entitled to combine accounts in determining their sales charge.
Letter of Intent—allows you to purchase Class A or Class A2 shares of funds sold by the distributor over a 13-month period and pay the same sales charge, if any, as if all shares had been purchased at once. At the time you enter into the letter of intent, you select your asset goal amount. Generally, purchases of shares of funds sold by the distributor that are purchased during the 13-month period by:
| | • | | your spouse and children under the age of 21 |
are eligible for inclusion under the letter of intent, based on the public offering price at the time of the purchase and any capital appreciation on those shares. In addition, you can include toward your asset goal amount the current value of any eligible holdings.
If you hold shares of funds sold by the distributor in accounts at two or more Service Agents, please contact your Service Agents to determine which shares may be credited toward your letter of intent asset goal.
Shares of money market funds sold by the distributor acquired by exchange from other funds offered with a sales charge may be credited toward your letter of intent asset goal. Please contact your Service Agent for additional information.
If you do not meet your asset goal amount, shares in the amount of any sales charges due, based on the amount of your actual purchases, will be redeemed from your account.
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Waivers for certain Class A or Class A2 investors
Class A or Class A2 initial sales charges are waived for certain types of investors, including:
| | • | | Employees of Service Agents |
| | • | | Investors who redeemed Class A or Class A2 shares of a fund sold by the distributor in the past 60 days, if the investor’s Service Agent is notified |
| | • | | Trustees/Directors and officers of any Legg Mason-sponsored fund |
| | • | | Employees of Legg Mason and its subsidiaries |
| | • | | Investors investing through certain Retirement Plans |
| | • | | Investors who rollover fund shares from a qualified retirement plan into an individual retirement account administered on the same retirement plan platform |
If you qualify for a waiver of the Class A or Class A2 initial sales charge, you must notify your Service Agent or call the Fund at 1-877-721-1926 at the time of purchase and provide sufficient information at the time of purchase to permit verification that the purchase qualifies for the initial sales charge waiver.
If you want to learn about additional waivers of Class A or Class A2 initial sales charges, contact your Service Agent, consult the Fund SAI or visit the Legg Mason funds’ website, http://www.leggmason.com/individualinvestors/products, and click on the name of the Fund in the dropdown menu.
Class C shares
You buy Class C shares at net asset value with no initial sales charge. However, if you redeem your Class C shares within one year of purchase, you will pay a contingent deferred sales charge of 1.00%.
Legg Mason Investor Services, LLC (“LMIS”) generally will pay Service Agents selling Class C shares a commission of up to 1.00% of the purchase price of the Class C shares they sell. LMIS will retain the contingent deferred sales charges and an annual distribution and/or service fee of up to 1.00% of the average daily net assets represented by the Class C shares serviced by these Service Agents until the thirteenth month after purchase. Starting in the thirteenth month after purchase, these Service Agents will receive an annual distribution and/or service fee of up to 1.00% of the average daily net assets represented by the Class C shares serviced by them.
Class I shares
You buy Class I shares at net asset value with no initial sales charge and no contingent deferred sales charge when redeemed. Class I shares are not subject to any distribution and/or service fees.
Class 1 shares
The Fund does not offer Class 1 shares for purchase by new or existing investors or for incoming exchanges. If you owned Class 1 shares of the Target Fund on July 27, 2007, you may continue to hold those shares, but you may not add to your Class 1 share position except through dividend reinvestment.
More about Contingent Deferred Sales Charges
The contingent deferred sales charge is based on the net asset value at the time of purchase or redemption, whichever is less, and therefore you do not pay a sales charge on amounts representing appreciation or depreciation.
In addition, you do not pay a contingent deferred sales charge:
| | • | | When you exchange shares for shares of another fund sold by the distributor |
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| | • | | On shares representing reinvested distributions and dividends |
| | • | | On shares no longer subject to the contingent deferred sales charge |
Each time you place a request to redeem shares, the Fund will first redeem any shares in your account that are not subject to a contingent deferred sales charge and then redeem the shares in your account that have been held the longest.
If you redeem shares of a fund sold by the distributor and pay a contingent deferred sales charge, you may, under certain circumstances, reinvest all or part of the redemption proceeds within 60 days and receive pro rata credit for any contingent deferred sales charge imposed on the prior redemption. Please contact your Service Agent for additional information.
The distributor receives contingent deferred sales charges as partial compensation for its expenses in selling shares, including the payment of compensation to your Service Agent.
Contingent deferred sales charge waivers
The contingent deferred sales charge for each share class will generally be waived:
| | • | | On payments made through certain systematic withdrawal plans |
| | • | | On certain distributions from a Retirement Plan |
| | • | | For Retirement Plans with omnibus accounts held on the books of the Fund |
| | • | | For involuntary redemptions of small account balances |
| | • | | For 12 months following the death or disability of a shareholder |
If you want to learn more about additional waivers of contingent deferred sales charges, contact your Service Agent, consult the Fund SAI or visit the Legg Mason funds’ website, http://www.leggmason.com/individualinvestors/products, and click on the name of the Fund in the dropdown menu.
Retirement and Institutional Investors—Eligible Investors
Retirement Plans
“Retirement Plans” include 401(k) plans, 457 plans, employer-sponsored 403(b) plans, profit-sharing plans, non-qualified deferred compensation plans and other similar employer-sponsored retirement plans. Retirement Plans do not include individual retirement vehicles, such as traditional and Roth individual retirement accounts, Coverdell education savings accounts, individual 403(b)(7) custodial accounts, Keogh plans, SEPs, SARSEPs, SIMPLE IRAs or similar accounts.
Retirement Plans with omnibus accounts held on the books of the Fund can generally choose among six classes of shares, of which the Fund is offering Class A, Class A2, Class C and Class I shares through this Proxy Statement/Prospectus.
Investors who rollover fund shares from a Retirement Plan into an individual retirement account administered on the same retirement plan platform may hold, purchase and exchange shares of the Fund to the same extent as the applicable Retirement Plan.
Although Retirement Plans with omnibus accounts held on the books of the Fund are not subject to minimum initial investment requirements for any of these share classes, certain investment minimums may be imposed by a financial intermediary. The distributor may impose certain additional requirements. Please contact your Service Agent for more information.
Other Retirement Plans
“Other Retirement Plans” include Retirement Plans investing through brokerage accounts and also include certain Retirement Plans with direct relationships to the Fund that are neither Institutional Investors nor investing through omnibus
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accounts. Other Retirement Plans and individual retirement vehicles, such as IRAs, are treated like individual investors for purposes of determining sales charges and any applicable sales charge reductions or waivers.
“Other Retirement Plans” do not include arrangements whereby an investor would rollover fund shares from a Retirement Plan into an individual retirement account administered on the same retirement plan platform. Such arrangements are deemed to be “Retirement Plans” and are subject to the rights and privileges described under “Retirement and Institutional Investors—eligible investors—Retirement Plans.”
Other Retirement Plan investors can generally invest in Class A, Class A2, Class C and Class I shares. Individual retirement vehicles may also choose between these share classes.
Clients of Eligible Financial Intermediaries
“Clients of Eligible Financial Intermediaries” are investors who invest in the Fund through financial intermediaries that (i) charge such investors an ongoing fee for advisory, investment, consulting or similar services, or (ii) have entered into an agreement with the distributor to offer Class A, Class A2, Class FI, Class R or Class I shares through a no-load network or platform (“Eligible Investment Programs”). Such investors may include pension and profit sharing plans, other employee benefit trusts, endowments, foundations and corporations. Eligible Investment Programs may also include college savings vehicles such as Section 529 plans and direct retail investment platforms through mutual fund “supermarkets,” where the sponsor links its client’s account (including IRA accounts on such platforms) to a master account in the sponsor’s name. The financial intermediary may impose separate investment minimums.
Clients of Eligible Financial Intermediaries may generally invest in Class A, Class A2, Class FI, Class R or Class I shares. Class I shares are available for exchange from Class A, Class A2 or Class C shares of the fund by participants in the Eligible Investment Programs.
Institutional Investors
“Institutional Investors” may include corporations, banks, trust companies, insurance companies, investment companies, foundations, endowments, defined benefit plans and other similar entities. The distributor or the financial intermediary may impose additional eligibility requirements or criteria to determine if an investor, including the types of investors listed above, qualifies as an Institutional Investor.
Institutional Investors may invest in Class I shares if they meet the $1,000,000 minimum initial investment requirement. Institutional Investors may also invest in Class A, Class A2 and Class C shares, which have different investment minimums, fees and expenses.
Class A shares—Retirement Plans
Retirement Plans may buy Class A shares. Under certain programs for current and prospective Retirement Plan investors sponsored by financial intermediaries, the initial sales charge and contingent deferred sales charge for Class A shares are waived where:
| | • | | Such Retirement Plan’s recordkeeper offers only load-waived shares, |
| | • | | Fund shares are held on the books of the Fund through an omnibus account, and |
| | • | | The Retirement Plan has more than 100 participants or has total assets exceeding $1 million. |
LMIS does not pay Service Agents selling Class A shares to Retirement Plans with a direct omnibus relationship with the Fund a commission on the purchase price of Class A shares sold by them. However, for certain Retirement Plans that are permitted to purchase shares at net asset value, LMIS may pay Service Agents commissions of up to 1.00% of the purchase price of the Class A shares that are purchased with regular ongoing plan contributions. Please contact your Service Agent for more information.
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Class A2 shares—Retirement Plans
Retirement Plans may buy Class A2 shares. Under certain programs for current and prospective Retirement Plan investors sponsored by financial intermediaries, the initial sales charge and contingent deferred sales charge for Class A2 shares are waived where:
| | • | | Such Retirement Plan’s recordkeeper offers only load-waived shares, |
| | • | | Fund shares are held on the books of the fund through an omnibus account, and |
| | • | | The Retirement Plan has more than 100 participants or has total assets exceeding $1 million. |
LMIS does not pay Service Agents selling Class A2 shares to Retirement Plans with a direct omnibus relationship with the Fund a commission on the purchase price of Class A2 shares sold by them. However, for certain Retirement Plans that are permitted to purchase shares at net asset value, LMIS may pay Service Agents commissions of up to 1.00% of the purchase price of the Class A2 shares that are purchased with regular ongoing plan contributions. Please contact your Service Agent for more information.
Class C shares—Retirement Plans
Retirement Plans with omnibus accounts held on the books of the Fund may buy Class C shares at net asset value without paying a contingent deferred sales charge. LMIS does not pay Service Agents selling Class C shares to Retirement Plans with omnibus accounts held on the books of the Fund a commission on the purchase price of Class C shares sold by them. Instead, immediately after purchase, LMIS may pay these Service Agents an annual distribution and/or service fee of up to 1.00% of the average daily net assets represented by the Class C shares serviced by them.
Certain Retirement Plan programs with exchange features in effect prior to November 20, 2006, as approved by LMIS, will be eligible for exchange from Class C shares to Class A shares in accordance with the program terms. Please see the Fund SAI for more details.
Class I shares
Class I shares are offered only to Institutional Investors and individual investors (investing directly with the Fund) who meet the $1,000,000 minimum initial investment requirement, Retirement Plans with omnibus accounts held on the books of the Fund and certain rollover IRAs, Clients of Eligible Financial Intermediaries and other investors authorized by LMIS. Individual investors who held Class I shares prior to November 20, 2006 are permitted to make additional investments in Class I shares. Certain waivers of these requirements for individuals associated with the Fund, Legg Mason or its affiliates are discussed in the Fund’s SAI.
Other Considerations
Plan sponsors, plan fiduciaries and other financial intermediaries may choose to impose qualification requirements that differ from the Fund’s share class eligibility standards. In certain cases this could result in the selection of a share class with higher distribution and/or service fees than otherwise would have been charged. The Fund is not responsible for, and has no control over, the decision of any plan sponsor, plan fiduciary or financial intermediary to impose such differing requirements. Please consult with your plan sponsor, plan fiduciary or financial intermediary for more information about available share classes.
Your Service Agent may not offer all share classes. Please contact your Service Agent for additional details.
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Buying Shares
| | |
Generally | | You may buy shares at their net asset value next determined after receipt by your Service Agent or the transfer agent of your purchase request in good order, plus any applicable sales charge. You must provide the following information for your order to be processed: • Name of fund being bought • Class of shares being bought • Dollar amount or number of shares being bought • Account number (if existing account) |
| Through a Service Agent | | You should contact your Service Agent to open a brokerage account and make arrangements to buy shares. Your Service Agent may charge an annual account maintenance fee. |
| Through the Fund | | Investors should contact the Fund at 1-877-721-1926 to open an account and make arrangements to buy shares. For initial purchases, complete and send your account application to the Fund at the following address: Legg Mason Funds P.O. Box 55214 Boston, Massachusetts 02205-8504 Subsequent purchases should be sent to the same address. Enclose a check to pay for the shares. For more information, please call the Fund between 8:00 a.m. and 5:30 p.m. (Eastern time). |
| Through a systematic investment plan | | You may authorize your Service Agent or the transfer agent to transfer funds automatically from (i) a regular bank account, (ii) cash held in a brokerage account with a Service Agent or (iii) certain money market funds, in order to buy shares on a regular basis. • Amounts transferred must meet the applicable minimums (see “Purchase and Sale of Fund shares”) • Amounts may be transferred monthly, every alternate month, quarterly, semi-annually or annually • If you do not have sufficient funds in your account on a transfer date, you may be charged a fee For more information, please contact your Service Agent or the Fund or consult the Fund SAI. |
Exchanging Shares
| | |
Generally | | You may exchange shares of the Fund for the same class of shares of other funds sold by the distributor on any day that both the Fund and the fund into which you are exchanging are open for business. For investors who qualify as Clients of Eligible Financial Intermediaries and participate in Eligible Investment Programs made available through their financial intermediaries (such as investors in fee-based advisory or mutual fund “wrap” programs), an exchange may be made from Class A, Class A2 or Class C shares to Class I shares of the same fund under certain limited circumstances. Please refer to the section of the Fund’s Prospectus titled “Retirement and Institutional Investors—eligible investors” or contact your financial intermediary for more information. An exchange of shares of one fund for shares of another fund is considered a sale and generally results in a capital gain or loss for federal income tax purposes, unless you are investing through an IRA, 401(k) or other tax-advantaged account. An exchange of shares of one class directly for shares of another class of the same fund normally should not be taxable for federal income tax purposes. You should talk to your tax advisor before making an exchange. The exchange privilege is not intended as a vehicle for short-term trading. The Fund may suspend or terminate your exchange privilege if you engage in a pattern of excessive exchanges. |
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| | |
| Legg Mason offers a distinctive family of funds tailored to help meet the varying needs of large and small investors | | You may exchange shares at their net asset value next determined after receipt by your Service Agent or the transfer agent of your exchange request in good order. • If you bought shares through a Service Agent, contact your Service Agent to learn which funds your Service Agent makes available to you for exchanges • If you bought shares directly from the Fund, contact the Fund at 1-877-721-1926 to learn which funds are available to you for exchanges • Exchanges may be made only between accounts that have identical registrations • Not all funds offer all classes • Some funds are offered only in a limited number of states. Your Service Agent or the Fund will provide information about the funds offered in your state Always be sure to read the prospectus of the fund into which you are exchanging shares. |
| Investment minimums, sales charges and other requirements | | • In most instances, your shares will not be subject to an initial sales charge or a contingent deferred sales charge at the time of the exchange. You may be charged an initial or contingent deferred sales charge if the shares being exchanged were not subject to a sales charge • Except as noted above, your contingent deferred sales charge (if any) will continue to be measured from the date of your original purchase of shares subject to a contingent deferred sales charge, and you will be subject to the contingent deferred sales charge of the Fund that you originally purchased • You will generally be required to meet the minimum investment requirement for the class of shares of the Fund or share class into which your exchange is made (except in the case of systematic exchange plans) • Your exchange will also be subject to any other requirements of the Fund or share class into which you are exchanging shares • The Fund may suspend or terminate your exchange privilege if you engage in a pattern of excessive exchanges |
By telephone | | Contact your Service Agent or, if you hold shares directly with the Fund, call the Fund at 1-877-721-1926 between 8:00 a.m. and 5:30 p.m. (Eastern time) for information. Exchanges are priced at the net asset value next determined. |
By mail | | Contact your Service Agent or, if you hold shares directly with the Fund, write to the Fund at the following address: Legg Mason Funds P.O. Box 55214 Boston, Massachusetts 02205-8504 |
| Through a systematic exchange plan | | You may be permitted to schedule automatic exchanges of shares of the Fund for shares of other funds available for exchange. All requirements for exchanging shares described above apply to these exchanges. In addition: • Exchanges may be made monthly, every alternate month, quarterly, semi-annually or annually • Each exchange must meet the applicable investment minimums for systematic investment plans (see “Purchase and Sale of Fund shares”) For more information, please contact your Service Agent or the Fund or consult the Fund SAI. |
Redeeming Shares
| | |
Generally | | You may redeem shares at their net asset value next determined after receipt by your Service Agent or the transfer agent of your redemption request in good order, less any applicable contingent deferred sales charge. If the shares are held by a fiduciary or corporation, partnership or similar entity, other documents may be required. |
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| | |
| Redemption proceeds | | Your redemption proceeds normally will be sent within 3 business days after your request is received in good order, but in any event within 7 days, except that your proceeds may be delayed for up to 10 days if your share purchase was made by check. Your redemption proceeds may be delayed, or your right to receive redemption proceeds suspended, if the New York Stock Exchange (“NYSE”) is closed (other than on weekends or holidays) or trading is restricted, if an emergency exists, or otherwise as permitted by order of the SEC. If you have a brokerage account with a Service Agent, your redemption proceeds will be sent to your Service Agent. Your redemption proceeds can be sent by check to your address of record or by wire or electronic transfer (ACH) to a bank account designated by you. To change the bank account designated to receive wire or electronic transfers, you will be required to deliver a new written authorization and may be asked to provide other documents. You may be charged a fee on a wire or an electronic transfer (ACH). In other cases, unless you direct otherwise, your proceeds will be paid by check mailed to your address of record. The Fund reserves the right to pay redemption proceeds by giving you securities. You may pay transaction costs to dispose of the securities, and you may receive less for them than the price at which they were valued for purposes of the redemption. |
By mail | | Contact your Service Agent or, if you hold shares directly with the Fund, write to the Fund at the following address: Legg Mason Funds P.O. Box 55214 Boston, Massachusetts 02205-8504 Your written request must provide the following: • The Fund name, the class of shares being redeemed and your account number • The dollar amount or number of shares being redeemed • Signature of each owner exactly as the account is registered • Signature guarantees, as applicable (see “Other things to know about transactions”) |
By telephone | | If your account application permits, you may be eligible to redeem shares by telephone. Contact your Service Agent or, if you hold shares directly with the Fund, call the Fund at 1-877-721-1926 between 8:00 a.m. and 5:30 p.m. (Eastern time) for more information. Please have the following information ready when you call: • Name of Fund being redeemed • Class of shares being redeemed • Account number |
| Automatic cash withdrawal plans | | You may be permitted to schedule automatic redemptions of a portion of your shares. To qualify, you must own shares of the Fund with a value of at least $10,000 ($5,000 for Retirement Plan accounts) and each automatic redemption must be at least $50. The following conditions apply: • Redemptions may be made monthly, every alternate month, quarterly, semi-annually or annually • If your shares are subject to a contingent deferred sales charge, the charge will be required to be paid upon redemption. However, the charge will be waived if your automatic redemptions are equal to or less than 2% per month of your account balance on the date the redemptions commence, up to a maximum of 12% in one year • You must elect to have all dividends and distributions reinvested For more information, please contact your Service Agent or consult the Fund SAI. |
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Other Things to Know about Transactions
When you buy, exchange or redeem shares, your request must be in good order. This means you have provided the following information, without which your request may not be processed:
| | • | | In the case of a purchase (including a purchase as part of an exchange transaction), the class of shares being bought |
| | • | | In the case of an exchange or redemption, the class of shares being exchanged or redeemed (if you own more than one class) |
| | • | | Dollar amount or number of shares being bought, exchanged or redeemed |
| | • | | In certain circumstances, the signature of each owner exactly as the account is registered (see “Redeeming shares”) |
The Fund generally will not permit non-resident aliens with non-U.S. addresses to establish accounts. U.S. citizens with APO/FPO addresses or addresses in the United States (including its territories) and resident aliens with U.S. addresses are permitted to establish accounts with the Fund. Subject to the requirements of local law, U.S. citizens residing in foreign countries are permitted to establish accounts with the Fund.
In certain circumstances, such as during periods of market volatility, severe weather and emergencies, shareholders may experience difficulties placing exchange or redemption orders by telephone. In that case, shareholders should consider using the Fund’s other exchange and redemption procedures described above under “Exchanging Shares” and “Redeeming Shares.”
The transfer agent or the Fund will employ reasonable procedures to confirm that any telephone exchange or redemption request is genuine, which may include recording calls, asking the caller to provide certain personal identification information, sending you a written confirmation or requiring other confirmation procedures from time to time. If these procedures are followed, neither the Fund nor its agents will bear any liability for these transactions.
The Fund has the right to:
| | • | | Suspend the offering of shares |
| | • | | Waive or change minimum initial and additional investment amounts |
| | • | | Reject any purchase or exchange order |
| | • | | Change, revoke or suspend the exchange privilege |
| | • | | Suspend telephone transactions |
| | • | | Suspend or postpone redemptions of shares on any day when trading on the NYSE is restricted or as otherwise permitted by the SEC |
| | • | | Close your account after a period of inactivity, as determined by state law, and transfer your shares to the appropriate state |
For your protection, the Fund or your Service Agent may request additional information in connection with large redemptions, unusual activity in your account, or otherwise to ensure your redemption request is in good order. Please contact your Service Agent or the Fund for more information.
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Signature Guarantees
To be in good order, your redemption request must include a signature guarantee if you:
| | • | | Are redeeming shares and sending the proceeds to an address or bank not currently on file |
| | • | | Changed your account registration or your address within 30 days |
| | • | | Want the check paid to someone other than the account owner(s) |
| | • | | Are transferring the redemption proceeds to an account with a different registration |
You can obtain a signature guarantee from most banks, dealers, brokers, credit unions and federal savings and loan institutions, but not from a notary public.
Anti-Money Laundering
Federal anti-money laundering regulations require all financial institutions to obtain, verify and record information that identifies each person who opens an account. When you sign your account application, you may be asked to provide additional information in order for the Fund to verify your identity in accordance with these regulations. Accounts may be restricted and/or closed, and the monies withheld, pending verification of this information or as otherwise required under these and other federal regulations.
Small Account Fees/Mandatory Redemptions
Small accounts may be subject to a small account fee or to mandatory redemption, as described below, depending on whether the account is held directly with the Fund or through a Service Agent.
Direct accounts
Direct accounts generally include accounts held in the name of the individual investor on the Fund’s books and records. To offset the relatively higher impact on Fund expenses of servicing smaller direct accounts, if your shares are held in a direct account and the value of your account is below $1,000 (if applicable, $250 for Retirement Plans that are not employer-sponsored) for any reason (including declines in net asset value), the Fund may charge you a fee of $3.75 per account that is determined and assessed quarterly on the last business day of the quarter (with an annual maximum of $15.00 per account). The small account fee will be charged by redeeming shares in your account. If the value of your account is $3.75 or less, the amount in the account may be exhausted to pay the small account fee. The small account fee will not be assessed on systematic investment plans until the end of the first quarter after the account has been established for 15 months. Payment of the small account fee through a redemption of fund shares may result in tax consequences to you (see “Taxes” for more information).
The small account fee will not be charged on, if applicable: (i) Retirement Plans (but will be charged on other plans that are not employer-sponsored such as traditional and Roth individual retirement accounts, Coverdell education savings accounts, individual 403(b)(7) custodial accounts, Keogh plans, SEPs, SARSEPs, SIMPLE IRAs or similar accounts); (ii) Legg Mason funds that have been closed to subsequent purchases for all classes; (iii) accounts that do not have a valid address as evidenced by mail being returned to the Fund or its agents; and (iv) Class I shares.
If your share class is no longer offered, you may not be able to bring your account up to the minimum investment amount (although you may exchange into existing accounts at other Legg Mason funds in which you hold the same share class, to the extent otherwise permitted by those funds and subject to any applicable sales charges).
Non-direct accounts
“Non-direct accounts” include omnibus accounts and accounts jointly maintained by the Service Agent and the Fund. Such accounts are not subject to the small account fee that may be charged to direct accounts.
The Fund reserves the right to ask you to bring your non-direct account up to a minimum investment amount determined by your Service Agent if the aggregate value of the Fund shares in your account is less than $500 for any reason (including
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solely due to declines in net asset value and/or failure to invest at least $500 within a reasonable period). You will be notified in writing and will have 60 days to make an additional investment to bring your account value up to the required level. If you choose not to do so within this 60-day period, the Fund may close your account and send you the redemption proceeds. If your share class is no longer offered, you may not be able to bring your account up to the minimum investment amount. Some shareholders who hold accounts in multiple classes of the same fund may have those accounts aggregated for the purposes of these calculations. If your account is closed, you will not be eligible to have your account reinstated without imposition of any sales charges that may apply to your new purchase. Please contact your Service Agent for more information. Any redemption of Fund shares may result in tax consequences to you (see “Taxes” below for more information).
All accounts
The Fund may, with prior notice, change the minimum size of accounts subject to mandatory redemption, which may vary by class, implement fees for small non-direct accounts or change the amount of the fee for small direct accounts.
Subject to applicable law, the Fund may, with prior notice, adopt other policies from time to time requiring mandatory redemption of shares in certain circumstances.
For more information, please contact your Service Agent or the Fund or consult the Fund SAI.
Frequent Trading of Fund Shares
Frequent purchases and redemptions of Fund shares may interfere with the efficient management of the Fund, increase Fund transaction costs, and have a negative effect on the Fund’s long-term shareholders. For example, in order to handle large flows of cash into and out of the Fund, the subadviser may need to allocate more assets to cash or other short-term investments or sell securities, rather than maintaining full investment in securities selected to achieve the Fund’s investment objective. Frequent trading may cause the Fund to sell securities at less favorable prices. Transaction costs, such as brokerage commissions and market spreads, can detract from the Fund’s performance. In addition, the return received by long-term shareholders may be reduced when trades by other shareholders are made in an effort to take advantage of certain pricing discrepancies, when, for example, it is believed that the Fund’s share price, which is determined at the close of the NYSE on each trading day, does not accurately reflect the value of the Fund’s investments. Funds investing in foreign securities have been particularly susceptible to this form of arbitrage, but other funds could also be affected.
Because of the potential harm to funds sold by the Fund’s distributor and their long-term shareholders, the Board has approved policies and procedures that are intended to detect and discourage excessive trading and market timing abuses through the use of various surveillance techniques. Under these policies and procedures, the Fund may limit additional exchanges or purchases of Fund shares by shareholders who are believed by the manager to be engaged in these abusive trading activities in the Fund or in other funds sold by the distributor. In the event that an exchange or purchase request is rejected, the shareholder may nonetheless redeem its shares. The intent of the policies and procedures is not to inhibit legitimate strategies, such as asset allocation, dollar cost averaging, or similar activities that may nonetheless result in frequent trading of Fund shares.
Under the Fund’s policies and procedures, the Fund reserves the right to restrict or reject purchases of shares (including exchanges) without prior notice whenever a pattern of excessive trading by a shareholder is detected in funds sold by the distributor. A committee established by the manager administers the policy. The policy provides that the committee may take action, which may include using its best efforts to restrict a shareholder’s trading privileges in funds sold by the distributor, if that shareholder has engaged in one or more “Round Trips” across all funds sold by the distributor. However, the committee has the discretion to determine that action is not necessary if it is determined that the pattern of trading is not abusive or harmful. In making such a determination, the committee will consider, among other things, the nature of the shareholder’s account, the reason for the frequent trading, the amount of trading and the particular funds in which the trading has occurred. Additionally, the committee has the discretion to make inquiries or to take any action against a shareholder whose trading appears inconsistent with the frequent trading policy, regardless of the number of Round Trips. Examples of the types of actions the committee may take include heightened surveillance of a shareholder account, providing a written warning letter to an account holder, restricting the shareholder from purchasing additional shares in the Fund altogether or imposing other restrictions (such as requiring
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purchase orders to be submitted by mail) that would deter the shareholder from trading frequently in the Fund. The committee will generally follow a system of progressive deterrence, although it is not required to do so.
A “Round Trip” is defined as a purchase (including subscriptions and exchanges) into a fund sold by the distributor followed by a sale (including redemptions and exchanges) of the same or a similar number of shares out of that fund within 30 days of such purchase. Purchases and sales of the Fund’s shares pursuant to an automatic investment plan or similar program for periodic transactions are not considered in determining Round Trips. These policies and procedures do not apply to money market funds sold by the distributor.
The policies apply to any account, whether a direct account or accounts with financial intermediaries such as investment advisers, broker/dealers or retirement plan administrators, commonly called omnibus accounts, where the intermediary holds Fund shares for a number of its customers in one account. The Fund’s ability to monitor trading in omnibus accounts may, however, be severely limited due to the lack of access to an individual investor’s trading activity when orders are placed through these types of accounts. There may also be operational and technological limitations on the ability of the Fund’s service providers to identify or terminate frequent trading activity within the various types of omnibus accounts. The distributor has entered into agreements with intermediaries requiring the intermediaries to, among other things, help identify frequent trading activity and prohibit further purchases or exchanges by a shareholder identified as having engaged in frequent trading.
The Fund has also adopted policies and procedures to prevent the selective release of information about the Fund’s holdings, as such information may be used for market-timing and similar abusive practices.
The policies provide for ongoing assessment of the effectiveness of current policies and surveillance tools, and the Board reserves the right to modify these or adopt additional policies and restrictions in the future. Shareholders should be aware, however, that any surveillance techniques currently employed by the Fund or other techniques that may be adopted in the future may not be effective, particularly where the trading takes place through certain types of omnibus accounts. Furthermore, the Fund may not apply its policies consistently or uniformly, resulting in the risk that some shareholders may be able to engage in frequent trading while others will bear the costs and effects of that trading.
Although the Fund will attempt to monitor shareholder transactions for certain patterns of frequent trading activity, there can be no assurance that all such trading activity can be identified, prevented or terminated. Monitoring of shareholder transactions may only occur for shareholder transactions that exceed a certain transaction amount threshold, which may change from time to time. The Fund reserves the right to refuse any client or reject any purchase order for shares (including exchanges) for any reason.
Record Ownership
If you hold shares through a Service Agent, your Service Agent may establish and maintain your account and be the shareholder of record. In the event that the Fund holds a shareholder meeting, your Service Agent, as record holder, will be entitled to vote your shares in accordance and may seek voting instructions from you. If you do not give your Service Agent voting instructions, your Service Agent, under certain circumstances, may nonetheless be entitled to vote your shares.
Dividends, Other Distributions and Taxes
Dividends and Other Distributions
The Fund generally pays dividends quarterly from its net investment income, if any, and potentially from short-term capital gains. The Fund generally distributes long-term capital gain, if any, once in December and at such other times as are necessary.
Unless you elect to receive dividends and/or other distributions in cash, your dividends and capital gain distributions will be automatically reinvested in shares of the same class you hold, at the net asset value determined on the reinvestment date. You do not pay a sales charge on reinvested distributions or dividends.
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If you hold Class A, Class A2 or Class C shares directly with the Fund, you may instruct the Fund to have your dividends and/or distributions invested in the corresponding class of shares of another fund sold by the distributor, subject to the following conditions:
| | • | | You have a minimum account balance of $10,000 in the Fund and |
| | • | | The other fund is available for sale in your state. |
To change those instructions, you must notify your Service Agent or the Fund at least three days before the next distribution is to be paid.
Please contact your Service Agent or the Fund to discuss what options are available to you for receiving your dividends and other distributions.
The Board reserves the right to revise the dividend policy or postpone the payment of dividends if warranted in the Board’s judgment due to unusual circumstances.
Taxes
The following discussion is very general, applies only to shareholders who are U.S. persons, and does not address shareholders subject to special rules, such as those who hold Fund shares through an IRA, 401(k) plan or other tax-advantaged account. Except as specifically noted, the discussion is limited to federal income tax matters, and does not address state, local, foreign or non-income taxes. Further information regarding taxes, including certain federal income tax considerations relevant to non-U.S. persons, is included in the Fund SAI. Because each shareholder’s circumstances are different and special tax rules may apply, you should consult your tax adviser about federal, state, local and/or foreign tax considerations that may be relevant to your particular situation.
In general, redeeming shares, exchanging shares and receiving dividends and distributions (whether received in cash or reinvested in additional shares or shares of another fund) are all taxable events. An exchange between classes of shares of the same fund normally is not taxable for federal income tax purposes, whether or not the shares are held in a taxable account.
The following table summarizes the tax status of certain transactions related to the Fund.
| | |
Transaction | | Federal income tax status |
Redemption or exchange of shares | | Usually capital gain or loss; long-term only if shares are owned more than one year |
| |
Dividends of investment income and distributions of net short-term capital gain | | Ordinary income, or in certain cases qualified dividend income |
| |
Distributions of net capital gain (excess of net long-term capital gain over net short-term capital loss) | | Long-term capital gain |
Distributions of investment income that the Fund reports as “qualified dividend income” may be eligible to be taxed to noncorporate shareholders at the reduced rates applicable to long-term capital gain if certain requirements are satisfied. Distributions of net capital gain reported by the Fund as capital gain dividends are taxable to you as long-term capital gain regardless of how long you have owned your shares. Noncorporate shareholders ordinarily pay tax at reduced rates on long-term capital gain.
You may want to avoid buying shares when the Fund is about to declare a dividend or capital gain distribution because it will be taxable to you even though it may economically represent a return of a portion of your investment.
Beginning in 2013, a Medicare contribution tax will be imposed at the rate of 3.8% on net investment income of U.S. individuals with income exceeding specified thresholds, and on undistributed net investment income of certain estates and trusts. Net investment income generally includes for this purpose dividends and capital gain distributions paid by the Fund and gain on the redemption or exchange of Fund shares.
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A dividend declared by the Fund in October, November or December and paid during January of the following year will, in certain circumstances, be treated as paid in December for tax purposes.
After the end of each year, your Service Agent or the Fund will provide you with information about the distributions and dividends you received and any redemptions of shares during the previous year. Because each shareholder’s circumstances are different and special tax rules may apply, you should consult your tax adviser about your investment in the Fund.
Share Price
You may buy, exchange or redeem shares at their net asset value next determined after receipt of your request in good order, adjusted for any applicable sales charge. The Fund’s net asset value per share is the value of its assets minus its liabilities divided by the number of shares outstanding. Net asset value is calculated separately for each class of shares.
The Fund calculates its net asset value every day the NYSE is open. The Fund generally values its securities and other assets and calculates its net asset value as of the close of regular trading on the NYSE, normally at 4:00 p.m. (Eastern time). If the NYSE closes at another time, the Fund will calculate its net asset value as of the actual closing time. The NYSE is closed on certain holidays listed in the Fund’s SAI.
In order to buy, redeem or exchange shares at a certain day’s price, you must place your order with your Service Agent or the transfer agent before the NYSE closes on that day. If the NYSE closes early on that day, you must place your order prior to the actual closing time. It is the responsibility of the Service Agent to transmit all orders to buy, exchange or redeem shares to the transfer agent on a timely basis.
Valuation of the Fund’s securities and other assets is performed in accordance with procedures approved by the Board. These procedures delegate most valuation functions to the manager, which, in turn, uses independent third party pricing services approved by the Fund’s Board. Under the procedures, assets are valued as follows:
| | • | | Equity securities and certain derivative instruments that are traded on an exchange are valued at the closing price or, if that price is unavailable or deemed by the manager not representative of market value, the last sale price. Where a security is traded on more than one exchange (as is often the case overseas), the security is generally valued at the price on the exchange considered by the manager to be the primary exchange. In the case of securities not traded on an exchange, or if exchange prices are not otherwise available, the prices are typically determined by independent third party pricing services that use a variety of techniques and methodologies. |
| | • | | The valuations for fixed income securities and certain derivative instruments are typically the prices supplied by independent third party pricing services, which may use market prices or broker/dealer quotations or a variety of fair valuation techniques and methodologies. Short-term fixed income securities that will mature in 60 days or less are valued at amortized cost, unless it is determined that using this method would not reflect an investment’s fair value. |
| | • | | The valuations of securities traded on foreign markets and certain fixed income securities will generally be based on prices determined as of the earlier closing time of the markets on which they primarily trade, unless a significant event has occurred. When the Fund holds securities or other assets that are denominated in a foreign currency, the Fund will normally use the currency exchange rates as of 4:00 p.m. (Eastern time). The Fund uses a fair value model developed by an independent third party pricing service to value foreign equity securities on days when a certain percentage change in the value of a domestic equity security index suggests that the closing prices on foreign exchanges may no longer represent the value of those securities at the time of closing of the NYSE. Foreign markets are open for trading on weekends and other days when the Fund does not price its shares. Therefore, the value of the Fund’s shares may change on days when you will not be able to purchase or redeem the Fund’s shares. |
| | • | | For investments in exchange-traded funds, the market price is usually the closing sale or official closing price on that exchange. |
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| | • | | If independent third party pricing services are unable to supply prices for a portfolio investment, or if the prices supplied are deemed by the manager to be unreliable, the market price may be determined by the manager using quotations from one or more broker/dealers. When such prices or quotations are not available, or when the manager believes that they are unreliable, the manager may price securities using fair value procedures approved by the Board. These procedures permit, among other things, the use of a matrix, formula or other method that takes into consideration market indices, yield curves and other specific adjustments to determine fair value. Fair value of a security is the amount, as determined by the manager in good faith, that the Fund might reasonably expect to receive upon a current sale of the security. The Fund may also use fair value procedures if the manager determines that a significant event has occurred between the time at which a market price is determined and the time at which the Fund’s net asset value is calculated. |
Many factors may influence the price at which the Fund could sell any particular portfolio investment. The sales price may well differ—higher or lower—from the Fund’s last valuation, and such differences could be significant, particularly for securities that trade in relatively thin markets and/or markets that experience extreme volatility. Moreover, valuing securities using fair value methodologies involves greater reliance on judgment than valuing securities based on market quotations. A fund that uses fair value methodologies may value those securities higher or lower than another fund using market quotations or its own fair value methodologies to price the same securities. There can be no assurance that the Fund could obtain the value assigned to a security if it were to sell the security at approximately the time at which the Fund determines its net asset value. Investors who purchase or redeem Fund shares on days when the Fund is holding fair-valued securities may receive a greater or lesser number of shares, or higher or lower redemption proceeds, than they would have received if the Fund had not fair-valued the security or had used a different methodology.
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INFORMATION ABOUT THE PROPOSED REORGANIZATION
The Reorganization Agreement
The following summary of the Reorganization Agreement is qualified in its entirety by reference to the form of Reorganization Agreement attached as Appendix B to this Proxy Statement/Prospectus. The Reorganization Agreement provides for (1) the transfer of all of the assets of the Target Fund to the Acquiring Fund, in exchange for the assumption of all of the liabilities of the Target Fund and for shares of the Acquiring Fund having an aggregate net asset value equal to the aggregate net asset value of the shares of the Target Fund, (2) the distribution of Class A, Class A2, Class C, Class I and Class 1 shares of the Acquiring Fund to the shareholders of the Target Fund in redemption of the Target Fund shares and (3) the termination of the Target Fund as a series of the Trust. Subject to the satisfaction of the conditions described below, the Reorganization is scheduled to occur as of the close of business on July 19, 2013, or on such later date as the parties may agree (“Closing Date”).
The number of full and fractional shares of the Acquiring Fund to be received by the Target Fund shareholder in the Reorganization will be equal in aggregate net asset value to the aggregate net asset value of the shares of the Target Fund held by that shareholder as of the close of regularly scheduled trading on the New York Stock Exchange (“NYSE”) on the Closing Date or such later time as the Target Fund’s net asset value is calculated. As soon as reasonably practicable after the Closing Date, the Target Fund will distribute pro rata to its shareholders of record within each share class, as of the close of regularly scheduled trading on the NYSE on the Closing Date, the shares of corresponding class of the Acquiring Fund received by the Target Fund in the Reorganization, and will terminate as a series of the Trust. The distribution of the Acquiring Fund’s shares will be accomplished by the transfer of the Acquiring Fund shares then credited to the account of the Target Fund on the books of the Acquiring Fund to open accounts on the share records of the Acquiring Fund in the names of the Target Fund’s shareholders.
All issued and outstanding shares of the Target Fund will thereafter be redeemed and any share certificates representing shares of the Target Fund will be null and void.
After such distribution, the Target Fund will take all necessary steps under Maryland law, its declaration of trust and any other applicable law to effect its termination as a series of the Trust.
The Reorganization Agreement may be terminated and the Reorganization abandoned at any time prior to the Closing Date without penalty to either Fund if circumstances develop that, in the opinion of the Board of the Target Fund or the Acquiring Fund, make proceeding with the Reorganization inadvisable. The Reorganization Agreement provides that the Target Fund and the Acquiring Fund may waive compliance with any of the covenants or conditions made therein for the benefit of either Fund, other than the requirements that: (a) the Reorganization Agreement be approved by shareholders of the Target Fund; and (b) the Funds receive the opinion of Willkie Farr & Gallagher LLP that the transaction contemplated by the Reorganization Agreement will constitute a tax-free reorganization for federal income tax purposes. The Reorganization Agreement may be amended, modified or supplemented in such manner as may be deemed necessary or advisable by the authorized officers of the Target Fund and the Acquiring Fund, provided, however, that following the Meeting, no such amendment shall have the effect of changing the provisions for determining the number of Acquiring Fund shares to be issued to Target Fund shareholders to the detriment of such shareholders without their further approval.
Approval of the Reorganization Agreement will require the affirmative vote of a majority of the outstanding voting securities of the Target Fund as defined in the 1940 Act. See “Additional Information about the Target Fund and the Acquiring Fund—Voting Information” below.
Description of the Acquiring Fund’s Shares
On March 15, 2013, Class B shares of the Target Fund were reclassified as Class A shares. As a result, if you previously held Class B shares of the Target Fund, you will receive Class A shares of the Acquiring Fund in the Reorganization. On March 22, 2013, Class R1 shares of the Target Fund were reclassified as Class A2 shares, and Class A shares of the Target Fund held by shareholders through a financial intermediary that has a direct transfer agent relationship with the Fund (“Direct TA Accounts”) were converted into Class A2 shares of the Target Fund. As a result, Direct TA Accounts that
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previously held Class A shares of the Target Fund will receive Class A2 shares of the Acquiring Fund in the Reorganization; all other Class A shareholders of the Target Fund will receive Class A shares of the Acquiring Fund in the Reorganization.
Class A, Class A2, Class C, Class I and Class 1 Target Fund shareholders of record as of the Closing Date will receive Class A, Class A2, Class C, Class I and Class 1 shares of the Acquiring Fund. Each such share will be fully paid and non-assessable when issued and will have no preemptive or conversion rights. The Acquiring Fund will not issue share certificates.
Reasons for the Reorganization and Board Considerations
The proposed Reorganization was presented to the Target Fund’s Board for consideration at a Board meeting held on February 5-6, 2013, and was approved at that meeting. Following extensive discussions of the potential advantages and disadvantages to the Target Fund, based on its evaluation of all material factors, including those described below, the Target Fund’s Board, including all of the Independent Board Members, determined that: (1) participation in the proposed Reorganization is in the best interests of the Target Fund; and (2) the Reorganization would not result in the dilution of the interests of the Target Fund’s shareholders. In considering the proposal, the Board did not identify any single factor or piece of information as all-important or controlling.
The Target Fund’s Board considered a number of factors in recommending the Reorganization, including the following:
| | • | | the recommendations of LMPFA with respect to the Reorganization; |
| | • | | the potential efficiencies and economies of scale that are expected to result from the Reorganization; |
| | • | | the benefits to shareholders of the Target Fund expected to result from the Reorganization; |
| | • | | that LMPFA will reimburse the Target Fund for 50% of the costs and expenses allocated to the Target Fund and solely and directly related to the Reorganization; |
| | • | | the relative performance histories of the two Funds; |
| | • | | the annual fund operating expenses and shareholder fees that Target Fund shareholders are expected to pay as shareholders of the Acquiring Fund after the Reorganization; |
| | • | | the fact that following the adoption of new investment strategies in connection with a reorganization in 2007, the Target Fund has failed to retain a sufficient level of assets, resulting in increased operating expenses; |
| | • | | the fact that the Reorganization is expected to be treated as a “reorganization” for federal income tax purposes; |
| | • | | the similarities and differences in the investment objectives, strategies, policies and risks of the Acquiring Fund and the Target Fund; |
| | • | | the fact that LMPFA, Western Asset, and the Target Fund’s distributor, transfer agent and custodian will continue to provide their respective services to the Acquiring Fund; and |
| | • | | the alternatives available to the Target Fund. |
The Board considered the potential benefits of the proposed Reorganization to Legg Mason. If the Reorganization of the Target Fund is approved by its shareholders and is consummated, Legg Mason is expected to achieve higher profitability due to decreased costs. Legg Mason is expected to reduce the level of its operational expenses for administrative, compliance and portfolio management services as the number of separate funds declines. To the extent that the Reorganization helps to streamline the Legg Mason fund family, encourage a more focused marketing and distribution effort, reduce investor confusion, produce better performance and generally make the Legg Mason funds more attractive investment vehicles to the investing public, Legg Mason will benefit from the increased revenues of rising asset levels.
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The Board considered that, based on recent asset levels, the Target Fund pays an effective management fee rate of 0.70% of average daily net assets, which is higher than the Acquiring Fund’s effective management fee rate of 0.59% of average daily net assets. Moreover, if the Reorganization is approved by shareholders of the Target Fund, based on recent asset levels the combined fund’s effective management fee is expected to be 0.55% of the combined fund’s average net assets. In addition, the Board considered that, based on expenses of the Funds as of a recent date, following the Reorganization, Target Fund shareholders would be invested in a fund that has higher net assets, lower gross operating expense ratios and the same or lower net operating expense ratios based on current contractual arrangements for waiving fees and/or reimbursing expenses in place for each Fund.
In addition, the Board considered that the Target Fund has failed to retain a sufficient level of assets and the management has expressed concern that the Target Fund will not grow substantially in the future. Following the adoption of new investment strategies in connection with a reorganization in 2007, the Target Fund has failed to retain a sufficient level of assets, resulting in increased operating expenses. The Target Fund’s performance has been volatile over the past six years, with substantial declines in calendar 2007 and calendar 2008, and has been below the average of its Lipper Multi-Cap Core peer group for the 1-, 5- and 10-year periods ended December 31, 2012. As a result of this performance track record, the fund is not expected to experience significant growth in the foreseeable future.
The proposed Reorganization was presented to the Board, on behalf of the Acquiring Fund, for consideration at a Board meeting held on February 5-6, 2013. The Board, on behalf of the Acquiring Fund, including all of the Independent Board Members, determined that: (1) participation in the Reorganization is in the best interests of the Acquiring Fund; and (2) the Reorganization would not result in the dilution of the interests of the Acquiring Fund’s shareholders.
Federal Income Tax Consequences
The Reorganization is conditioned upon the receipt by the parties to the Reorganization Agreement (other than LMPFA) of an opinion from Willkie Farr & Gallagher LLP, substantially to the effect that, based upon certain facts, assumptions and representations of the parties, for federal income tax purposes:
(i) The acquisition by the Acquiring Fund of all of the assets of the Target Fund solely in exchange for shares of the Acquiring Fund and the assumption by the Acquiring Fund of the liabilities of the Target Fund, followed by the distribution by the Target Fund to its shareholders of Acquiring Fund shares in complete liquidation of the Target Fund, all pursuant to the Reorganization Agreement, will constitute a “reorganization” within the meaning of Section 368(a) of the Code, and the Acquiring Fund and the Target Fund will each be a “party to a reorganization” within the meaning of Section 368(b) of the Code;
(ii) No gain or loss will be recognized by the Target Fund upon the transfer of the assets of the Target Fund to the Acquiring Fund in exchange for the Acquiring Fund shares and the assumption by the Acquiring Fund of the liabilities of the Target Fund, or upon the distribution of the Acquiring Fund Shares by the Target Fund to its shareholders in liquidation except for (A) any gain or loss that may be recognized with respect to contracts subject to Section 1256 of the Code, (B) any gain that may be recognized on the transfer of stock in a “passive foreign investment company” as defined in Section 1297(a) of the Code and (C) any other gain or loss that may be required to be recognized as a result of the closing of the Target Fund’s taxable year or upon the transfer of a Target Fund asset regardless of whether such transfer would otherwise be a nonrecognition transaction under the Code;
(iii) No gain or loss will be recognized by the Target Fund shareholders upon the exchange of their shares of the Target Fund solely for shares of the Acquiring Fund as part of the Reorganization;
(iv) The aggregate basis of the shares of the Acquiring Fund that each Target Fund shareholder receives in the Reorganization will be the same as the aggregate basis of his or her Target Fund shares exchanged therefor;
(v) The holding period of the shares of the Acquiring Fund received by each Target Fund shareholder pursuant to the Reorganization will include the holding period of the shares of the Target Fund exchanged therefor, provided that the Target Fund shareholder held the shares of the Target Fund as capital assets on the date of the exchange;
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(vi) No gain or loss will be recognized by the Acquiring Fund upon receipt of the assets of the Target Fund solely in exchange for shares of the Acquiring Fund and the assumption by the Acquiring Fund of the liabilities of the Target Fund;
(vii) The basis in the hands of the Acquiring Fund of the assets of the Target Fund transferred to the Acquiring Fund in the Reorganization will be the same as the basis of such assets in the hands of the Target Fund immediately prior to the Closing increased by the amount of gain (or decreased by the amount of loss), if any, recognized by the Target Fund upon the transfer; and
(vii) The holding period of each asset of the Target Fund transferred to the Acquiring Fund in the Reorganization in the hands of the Acquiring Fund, other than any asset with respect to which gain or loss is required to be recognized in the Reorganization, will include the period during which such asset was held by the Target Fund (except where investment activities of the Acquiring Fund have the effect of reducing or eliminating the holding period with respect to an asset).
The opinion will not express an opinion as to the tax effects to the Target Fund, the Acquiring Fund or the respective shareholders of each from the marking to market of certain categories of assets as of the closing of the taxable year of the Target Fund at the time of the Reorganization.
While neither of the Funds is aware of any adverse state, local or foreign tax consequences of the proposed Reorganization, they have not requested any ruling or opinion with respect to such consequences, and shareholders should consult their own tax advisers with respect to such matters.
Immediately prior to the Reorganization, the Target Fund will pay a dividend or dividends, which, together with all previous dividends, are intended to have the effect of distributing to its shareholders all of its investment company taxable income for taxable years ending on or prior to the Closing Date (computed without regard to any deduction for dividends paid) and all of its net capital gain, if any, realized in taxable years ending on or prior to the Closing Date (after reduction for any available capital loss carryover). Such dividends will be included in the taxable income of each of the Target Fund’s shareholders.
Information Regarding Tax Capital Loss Carryovers
Federal income tax law permits a regulated investment company to carry forward its net capital losses generated in taxable years beginning after December 22, 2010 (“Post-2010 Losses”) for an unlimited period. Federal income tax law also permits a regulated investment company to carry forward capital losses generated in taxable years beginning prior to December 22, 2010 (“Pre-2011 Losses”) for a period of up to eight taxable years, provided that such loss carryovers are utilized only after the full utilization of all Post-2010 Losses.
The Reorganization will cause the taxable year of the Target Fund to close, which will accelerate the schedule for expiration of its carryovers of Pre-2011 Losses, and could also result in a net capital loss for the taxable year ending on the Closing Date. Because the Acquiring Fund has a carryover of Post-2010 Losses, the Reorganization may also delay the utilization of each Fund’s Pre-2011 Losses. In addition, the Reorganization is expected to result in a limitation on the Acquiring Fund’s ability to use carryovers of the Target Fund and, potentially, to use unrealized capital losses inherent in the tax bases of the assets acquired, if realized within five years following the Reorganization. Those limitations, imposed by Section 382 of the Code, will apply if, as expected, the shareholders of the Target Fund own less than 50% of the Acquiring Fund immediately after the Reorganization, and will be imposed on an annual basis. The annual Section 382 limitation for periods following the Reorganization generally will equal the product of the net asset value of the Target Fund immediately prior to the Reorganization and the “long-term tax-exempt rate,” published by the Internal Revenue Service, in effect at the time of the Reorganization.
Under Section 384 of the Code, if the Acquiring Fund or the Target Fund has a net unrealized gain inherent in its assets at the time of the Reorganization, then, under certain circumstances, that gain, to the extent realized within five years following the Reorganization, may not be offset by a carryover of losses realized prior to the Reorganization (other than a carryover of that Fund’s own losses) or, in certain cases, by a net unrealized loss inherent at the time of the Reorganization in the assets of the other Fund.
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As of December 31, 2012, the Funds are entitled to capital loss carryovers for federal income tax purposes in the amounts set forth below:
| | | | | | | | | | | | | | | | | | | | |
Target Fund | | | | | Acquiring Fund | |
| | | Amount of
Carryover | | | Fiscal Year of
Expiration
Prior to
Reorganization | | | | | | | Amount of
Carryover | | | Fiscal Year of
Expiration
Prior to
Reorganization | |
| | $ | (238,787,601 | ) | | | 4/30/2017 | | | | | | | $ | (4,957,958 | ) | | | No Expiration | (1) |
| | | (174,575,876 | ) | | | 4/30/2018 | | | | | | | | (4,070,212 | ) | | | 10/31/2016 | |
| | | | | | | | | | | | | | | (56,878,573 | ) | | | 10/31/2017 | |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | (413,363,477 | ) | | | | | | | | | | $ | (65,906,743 | ) | | | | |
| | | | | | | | | | | | | | | | | | | | |
| (1) | The Acquiring Fund is permitted to carry forward these capital losses for an unlimited period. However, these losses will be required to be utilized prior to the Acquiring Fund’s other capital losses with the expiration dates above. As a result of this ordering rule, the other capital losses may be more likely to expire unutilized. Additionally, these capital losses retain their character as either short-term or long-term capital losses rather than being considered all short-term as are the Acquiring Fund’s other capital losses listed above. |
Target Fund
Based on the recent data referred to above, the Reorganization would impact the use of the Target Fund’s capital loss carryovers in the following manner: (1) the expiration date of the Pre-2011 Losses would be accelerated by one year and realign themselves to the year of the Acquiring Fund; for example, the carryovers due to expire on April 30, 2017 would expire on October 31, 2015; (2) the Pre-2011 Losses would not be available to be utilized until all Post-2010 Losses of the Acquiring Fund have been used; (3) a small portion of the Target Fund’s carryovers would benefit the shareholders of the combined fund, rather than only the shareholders of the Target Fund; (4) the aggregate amount of the carryovers that could be utilized in any taxable year would be limited to the product of the long-term tax-exempt rate at the time of the Reorganization and the net asset value of the Target Fund at that time (approximately $12,200,000 per year based on data as of a recent date); this limitation would be increased by any capital gains realized after the Reorganization on securities held by the Target Fund that had unrealized appreciation at the time of the Reorganization; and (5) any gains recognized after the Reorganization that are attributable to appreciation in the Acquiring Fund’s portfolio at the time of the Reorganization would not be able to offset the capital loss carryover of the Target Fund.
Based on such data, the combination of the above-referenced limitations on the use of loss carryovers would result in a significant portion (from $311,600,000 to $373,300,000 based on data as of a recent date) of the Target Fund’s loss carryovers expiring unused. It should be noted that there would be no assurances that the Target Fund would be able to use such losses in the absence of the Reorganization. Additionally, the Target Fund shareholders may benefit from the use of the Acquiring Fund’s capital loss carryovers by the combined fund after the Reorganization.
Acquiring Fund
Based on the recent data referred to above, the Reorganization would impact the use of the Acquiring Fund’s capital loss carryovers in the following manner: (1) the Acquiring Fund’s carryovers would benefit the shareholders of the combined fund, rather than only the shareholders of the Acquiring Fund; and (2) any gains recognized after the Reorganization attributable to unrealized appreciation in the Target Fund’s portfolio at the time of the Reorganization would not be able to offset the capital loss carryovers of the Acquiring Fund. Additionally, the Acquiring Fund shareholders may benefit from the use of a small portion of the Target Fund’s capital loss carryovers by the combined fund after the Reorganization.
Information Applicable to Both Funds
The capital loss carryovers and limitations described above may change significantly between now and the Closing Date, expected to be approximately July 19, 2013. Further, the ability of each Fund to use loss carryovers (even in the
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absence of the Reorganization) depends on factors other than loss limitations, such as the future realization of capital gains or losses. The effect of the combination of these factors on the use of loss carryovers may result in some portion of the Pre-2011 Losses of either or both of the Funds expiring unused. This may result in shareholders paying more taxes or paying taxes sooner than they otherwise would if the Reorganization did not occur.
TERMINATION OF THE TARGET FUND
If the Reorganization of the Target Fund is effected, the Target Fund will be terminated.
PORTFOLIO SECURITIES
If the Reorganization is effected, it is currently anticipated that a substantial portion of the portfolio securities of the Target Fund (approximately 77% measured as of December 3, 2012) and none of the investment portfolio of the Acquiring Fund will be sold prior to and solely and directly related to the Reorganization. It is anticipated that transaction costs of approximately $280,000 or $0.006 per share will be incurred by the Target Fund to reposition its portfolio in connection with the Reorganization. As of the date hereof, the Target Fund is not expected to recognize any capital gains in excess of its capital loss carryover in connection with the repositioning of the Target Fund’s portfolio. The portion of the portfolio securities to be sold and the transaction costs and tax consequences related to those sales are estimates based on, among other things, historical data, current market conditions and the Funds’ ability to use available carryovers, and are subject to change.
INFORMATION ABOUT MANAGEMENT OF THE ACQUIRING FUND
LMPFA, with offices at 620 Eighth Avenue, New York, New York 10018, is the Acquiring Fund’s investment manager. LMPFA also serves as the investment manager of other Legg Mason-sponsored funds. LMPFA provides administrative and certain oversight services to the Fund. As of December 31, 2012, LMPFA’s total assets under management were approximately $180.6 billion.
ClearBridge Investments, LLC (“ClearBridge” or the “subadviser”) provides the day-to-day portfolio management of the Acquiring Fund, except for the management of cash and short-term instruments. ClearBridge has offices at 620 Eighth Avenue, New York, New York 10018 and is an investment adviser that was formed to succeed to the equity securities portfolio management business of Citigroup Asset Management, which was acquired by Legg Mason in December 2005, but traces back its asset management expertise over 45 years to several prominent firms including Smith Barney Asset Management, Davis Skaggs Investment Management and Salomon Brothers Asset Management. As of December 31, 2012, ClearBridge’s total assets under management were approximately $55.5 billion.
Western Asset Management Company (“Western Asset”) manages the Acquiring Fund’s cash and short-term instruments. Western Asset, established in 1971, has offices at 385 East Colorado Boulevard, Pasadena, California 91101 and 620 Eighth Avenue, New York, New York 10018. Western Asset acts as investment adviser to institutional accounts, such as corporate pension plans, mutual funds and endowment funds. As of December 31, 2012, the total assets under management of Western Asset and its supervised affiliates were approximately $461.9 billion.
LMPFA, ClearBridge and Western Asset are wholly-owned subsidiaries of Legg Mason. Legg Mason, whose principal executive offices are at 100 International Drive, Baltimore, Maryland 21202, is a global asset management company. As of December 31, 2012, Legg Mason’s asset management operations had aggregate assets under management of approximately $648.9 billion.
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Management and sub-advisory fees paid to LMPFA, ClearBridge and Western Asset by the Acquiring Fund prior to the Reorganization are as follows:
| | | | | | |
Investment Manager | | Fee Rate (percentage of average daily net assets) | | Subadviser | | Rate Received by Subadviser |
LMPFA | | 0.650% of assets up to and including $350 million; 0.550% of assets over $350 million and up to and including $500 million; 0.525% of assets over $500 million and up to and including $750 million; 0.500% of assets over $750 million and up to and including $1 billion; and 0.450% of assets over $1 billion. | | ClearBridge Western Asset | | The aggregate sub-advisory fee payable to ClearBridge and Western Asset is 70% of the management fee paid to LMPFA, net of fee waivers and expense reimbursements |
The Acquiring Fund’s management fee may be increased or decreased based on the performance of the Fund relative to the investment record of the S&P 500 Index. This type of fee is sometimes referred to as a “fulcrum” fee. At the end of each calendar quarter, for each percentage point of difference between the investment performance of the class of shares of the Acquiring Fund with the lowest performance for the period and the S&P 500 Index over the last prior 12-month period, the Acquiring Fund’s base management fee is adjusted upward or downward by the product of (i) 1/4 of 0.01% multiplied by (ii) the average daily net assets of the Fund for the 12-month period preceding the end of the calendar quarter. The base fee is calculated based on average daily net assets over the most recent quarter while the performance adjustment is based on average daily net assets over a 12-month period. The performance adjustment, therefore, is based in part on the Fund’s historical performance during a rolling 12-month period preceding the time at which it is assessed. Under the current breakpoint fee structure for the base fee, if the assets of the Fund decrease, the rate of the base fee increases. Accordingly, as the Fund’s assets decrease, the performance adjustment is added to or subtracted from a base fee of a higher rate. If the amount by which the Fund outperforms or underperforms the S&P 500 Index is not a whole percentage point, a pro rata adjustment will be made. However, there will be no performance adjustment unless the investment performance of the Fund exceeds or is exceeded by the investment record of the S&P 500 Index by at least one percentage point. The maximum quarterly adjustment is 0.025%, which would occur if the Fund’s performance exceeds or is exceeded by the S&P 500 Index by ten or more percentage points.
For the fiscal year ended October 31, 2012, the Acquiring Fund paid effective management fees of 0.59% of its average daily net assets for management services, with a performance adjustment of less than 0.01%.
Information about the factors considered by the Board of the Acquiring Fund in approving the investment management agreement with LMPFA and the sub-advisory agreements with each of ClearBridge and Western Asset is contained in the Semi-Annual Report for the Acquiring Fund for the fiscal period ended April 30, 2012.
Portfolio Managers of the Acquiring Fund
Dmitry Khaykin and Robert Feitler are the portfolio managers primarily responsible for the day-to-day management of the Fund. Mr. Khaykin and Mr. Feitler have served as portfolio managers since 2007 and 2004, respectively.
Mr. Khaykin is a Portfolio Manager and a Managing Director of ClearBridge. He joined a predecessor organization of ClearBridge in 2003. Prior to 2003, Mr. Khaykin was a research analyst for the telecommunications sector at Gabelli & Company, Inc. and an associate in the risk management division of Morgan Stanley & Co., Inc.
Mr. Feitler is a Portfolio Manager and a Managing Director of ClearBridge. He joined a predecessor organization of ClearBridge in 1995.
The Acquiring Fund’s SAI provides information about the compensation of the portfolio managers, other accounts they manage and any Acquiring Fund shares held by the portfolio managers.
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ADDITIONAL INFORMATION ABOUT THE TARGET FUND AND THE ACQUIRING FUND
Legg Mason and certain of the Acquiring Fund’s service providers, which include Legg Mason-affiliated service providers, have a financial interest in the Reorganization because their respective fees under agreements with the Acquiring Fund generally increase as the amount of the assets of the Acquiring Fund increases, and the amount of those assets will increase as a result of the Reorganization. However, the increase in assets of the Acquiring Fund is expected to be offset by the concomitant loss of the Target Fund’s assets, resulting in decreases of fees of certain Legg Mason-affiliated service providers to the Target Fund.
Information about the Target Fund and the Acquiring Fund is included in the Funds’ Prospectuses, Fund SAIs and annual reports filed with the SEC and dated as listed in Appendix A. Copies of all these documents, the Reorganization SAI and any subsequently released shareholder reports are available upon request and without charge by calling Legg Mason at 1-877-721-1926, by writing to Legg Mason Funds, P.O. Box 55214, Boston, MA 02205-8504 or by visiting the Funds’ website at www.leggmason.com/individualinvestors.
Both Funds are subject to the informational requirements of the Securities Exchange Act of 1934 and in accordance therewith file reports and other information including proxy materials, reports and charter documents with the SEC. These reports and other information can be inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, NE, Washington, DC 20549. Reports and other information about each Fund are available on the EDGAR Database on the SEC’s website at www.sec.gov. Copies of such material can also be obtained from the Public Reference Branch, Office of Consumer Affairs and Information Services, SEC, 100 F Street, NE, Washington, DC 20549 at prescribed rates.
Financial Highlights
The most recent fiscal year end of the Target Fund is April 30, 2012 and the most recent fiscal year end of the Acquiring Fund is October 31, 2012.
The financial highlights of the Acquiring Fund contained in Appendix C have been derived from financial statements audited by KPMG LLP, the Fund’s independent registered public accounting firm.
Historical performance of each Fund is detailed in Appendix D of this Proxy Statement/Prospectus.
Distribution Arrangements
LMIS, a wholly-owned broker/dealer subsidiary of Legg Mason, located at 100 International Drive, Baltimore, Maryland 21202, serves as the Acquiring Fund’s sole and exclusive distributor.
The Acquiring Fund has adopted a shareholder services and distribution plan. Under the plan, the Acquiring Fund pays distribution and/or service fees based on annualized percentages of average daily net assets, of up to 0.25% for Class A shares, up to 0.25% for Class A2 shares and up to 1.00% for Class C shares. These fees are an ongoing expense and, over time, will increase the cost of your investment and may cost you more than other types of sales charges. Class I shares and Class 1 shares are not subject to distribution and/or service fees under the plan.
In addition, the distributor, the manager and/or their affiliates make payments for distribution, shareholder servicing, marketing and promotional activities and related expenses out of their profits and other available sources, including profits from their relationships with the Acquiring Fund. These payments are not reflected as additional expenses in the fee tables contained in this Proxy Statement/Prospectus. The recipients of these payments may include the Acquiring Fund’s distributor and affiliates of the manager, as well as non-affiliated broker/dealers, insurance companies, financial institutions and other financial intermediaries through which investors may purchase shares of the Acquiring Fund, including your financial intermediary. The total amount of these payments is substantial, may be substantial to any given recipient and may exceed the costs and expenses incurred by the recipient for any fund-related marketing or shareholder servicing activities. The payments described in this paragraph are often referred to as “revenue sharing payments.” Revenue sharing arrangements are separately negotiated between the distributor, the manager and/or their affiliates, and the recipients of these payments.
41
Revenue sharing payments create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Acquiring Fund to you. Contact your financial intermediary for details about revenue sharing payments it receives or may receive. Revenue sharing payments, as well as the payments under the shareholder services and distribution plan (where applicable), also benefit the manager, the distributor and their affiliates to the extent the payments result in more assets being invested in the Acquiring Fund on which fees are being charged.
Form of Organization
Each Fund is a series of Legg Mason Partners Equity Trust, a Maryland statutory trust.
Capitalization
The following table set forth the unaudited capitalization of the Target Fund and the Acquiring Fund as of the date set out below, and on a pro forma basis as of that date, giving effect to the proposed acquisition of assets at net asset value. The pro forma capitalization information is for informational purposes only. No assurance can be given as to how many shares of the Acquiring Fund shareholders of the Target Fund will receive on the Closing Date, and the information below should not be relied upon to reflect the number of shares of the Acquiring Fund that actually will be received.
Pro Forma Combined Capitalization Table
Legg Mason Capital Management All Cap Fund and ClearBridge Large Cap Value Fund
As of March , 2013 (Unaudited)
| | | | | | | | | | | | | | | | |
| | | Legg Mason
Capital
Management
All Cap Fund* | | | ClearBridge
Large Cap
Value Fund | | | Pro Forma
Adjustments | | | Pro Forma
Combined
ClearBridge
Large Cap
Value Fund | |
Class A: | | | | | | | | | | | | | | | | |
Net Assets | | $ | [ | ] | | $ | [ | ] | | $ | [ | ](a) | | $ | [ | ] |
Shares Outstanding | | | [ | ] | | | [ | ] | | | [ | ](b) | | | [ | ] |
Net Asset Value Per Share | | $ | [ | ] | | $ | [ | ] | | | | | | $ | [ | ] |
| | | | |
Class A2: | | | | | | | | | | | | | | | | |
Net Assets | | $ | [ | ] | | $ | [ | ] | | $ | [ | ](a) | | $ | [ | ] |
Shares Outstanding | | | [ | ] | | | [ | ] | | | [ | ](b) | | | [ | ] |
Net Asset Value Per Share | | $ | [ | ] | | $ | [ | ] | | | | | | $ | [ | ] |
| | | | |
Class C: | | | | | | | | | | | | | | | | |
Net Assets | | $ | [ | ] | | $ | [ | ] | | | [ | ](a) | | $ | [ | ] |
Shares Outstanding | | | [ | ] | | | [ | ] | | | [ | ](b) | | | [ | ] |
Net Asset Value Per Share | | $ | [ | ] | | $ | [ | ] | | | | | | $ | [ | ] |
| | | | |
Class I: | | | | | | | | | | | | | | | | |
Net Assets | | $ | [ | ] | | $ | [ | ] | | | [ | ](a) | | $ | [ | ] |
Shares Outstanding | | | [ | ] | | | [ | ] | | | [ | ](b) | | | [ | ] |
Net Asset Value Per Share | | $ | [ | ] | | $ | [ | ] | | | | | | $ | [ | ] |
| | | | |
Class 1: | | | | | | | | | | | | | | | | |
Net Assets | | $ | [ | ] | | $ | [ | ] | | | [ | ](a) | | $ | [ | ] |
Shares Outstanding | | | [ | ] | | | [ | ] | | | [ | ](b) | | | [ | ] |
Net Asset Value Per Share | | $ | [ | ] | | $ | [ | ] | | | | | | $ | [ | ] |
| (a) | Reflects adjustment for estimated reorganization and transaction costs of $[ ]. |
| (b) | Reflects adjustment to the number of shares outstanding due to the Reorganization. |
42
Dividends and Distributions
The Acquiring Fund generally pays dividends quarterly from its net investment income, if any, and potentially from short-term capital gains. The Fund generally distributes long-term capital gain, if any, once in December and at such other times as are necessary. The Target Fund generally pays dividends and makes capital gain distributions, if any, typically once or twice a year.
Unless you elect to receive dividends and/or other distributions in cash, your dividends and capital gain distributions will be automatically reinvested in shares of the same class you hold, at the net asset value determined on the reinvestment date. You do not pay a sales charge on reinvested distributions or dividends.
If you hold Class A, Class A2 or Class C shares directly with the Fund, you may instruct the Fund to have your dividends and/or distributions invested in the corresponding class of shares of another fund sold by the distributor, subject to the following conditions:
| | • | | You have a minimum account balance of $10,000 in the Fund and |
| | • | | The other fund is available for sale in your state. |
To change those instructions, you must notify your Service Agent or the Fund at least three days before the next distribution is to be paid.
Please contact your Service Agent or the Fund to discuss what options are available to you for receiving your dividends and other distributions.
The Board reserves the right to revise the dividend policy or postpone the payment of dividends if warranted in the Board’s judgment due to unusual circumstances.
For more information on the distribution policies of the Acquiring Fund, see “Purchases, Redemptions and Exchanges of Fund Shares; Other Shareholder Information” in this Proxy Statement/Prospectus, above.
Other Business
The Board of the Target Fund does not intend to present any other business at the Meeting. If, however, any other matters are properly brought before the Meeting or any adjournment or postponement thereof, the persons named as proxies will vote thereon in accordance with their discretion.
Shareholder Communications with the Board
A shareholder who wants to communicate with the Board or any individual Board member should write to his or her Fund to the attention of Robert I. Frenkel, Secretary, 100 First Stamford Place—6th Floor, Stamford, Connecticut 06902. The letter should indicate that you are a Fund shareholder. If the communication is intended for a specific Board member and so indicates, it will be sent only to that Board member. If a communication does not indicate a specific Board member it will be sent to the chair of the governance committee of the Board and the outside counsel to the Independent Board Members for further distribution as deemed appropriate by such persons.
Voting Information
This Proxy Statement/Prospectus is furnished in connection with a solicitation of proxies by the Target Fund’s Board to be exercised at the Meeting. This Proxy Statement/Prospectus, along with the Notice of Special Meeting and a proxy card, are first being mailed to shareholders of the Target Fund on or about April [ ], 2013 or as soon as practicable thereafter. Only shareholders of record as of the close of business on the Record Date will be entitled to notice of, and to vote at, the Meeting, and at any adjournments or postponements thereof. If the enclosed proxy card is properly completed, signed and dated and returned in time to be voted at the Meeting, the proxies named thereon will vote the shares represented by the proxy card in accordance with the instructions marked thereon. Unmarked but properly signed and dated proxy cards will be
43
voted “FOR” approval of the Reorganization Agreement and in the discretion of the designated proxy holders on any other matter which may properly come before the meeting. Please see Appendix E to this Proxy Statement/Prospectus for instructions on how to sign your proxy card.
A shareholder may revoke a proxy at any time prior to its exercise at the Meeting by (1) submitting to the Target Fund a subsequently executed proxy, (2) delivering to the Target Fund a written notice of revocation (addressed to the Assistant Secretary at the principal executive office of the Target Fund at the address shown at the beginning of this Proxy Statement/Prospectus) or (3) otherwise giving notice of revocation at the Meeting. Merely attending the Meeting, however, will not revoke any previously executed proxy. Unless revoked, all valid and executed proxies will be voted in accordance with the specifications thereon or, in the absence of such specifications, for approval of the Reorganization Agreement and the Reorganization contemplated thereby. Votes cast by proxy or in person at the Meeting will be tabulated by the inspectors of election appointed for the Meeting. The inspectors of election will determine whether or not a quorum is present at the Meeting. The inspectors of election will treat abstentions and “broker non-votes” as present for purposes of determining a quorum.
Broker/dealer firms holding shares of the Target Fund in “street name” for the benefit of their customers and clients will request the instructions of such customers and clients on how to vote their shares with respect to approval of the Reorganization Agreement before the Meeting. The NYSE takes the position that a broker/dealer that is a member of the NYSE and that has not received instructions from a customer or client prior to the date specified in the broker/dealer firm’s request for voting instructions may not vote such customer’s or client’s shares with respect to approval of the Reorganization Agreement. A signed proxy card or other authorization by a beneficial owner of Target Fund shares that does not specify how the beneficial owner’s shares should be voted on the proposal will be deemed an instruction to vote such shares in favor of the proposal.
If you hold shares of the Target Fund through a bank or other financial institution or intermediary (called a service agent) that has entered into a service agreement with the Target Fund or the distributor of the Target Fund, the service agent may be the record holder of your shares. At the Meeting, a service agent will vote shares for which it receives instructions from its customers in accordance with those instructions. A signed proxy card or other authorization by a shareholder that does not specify how the shareholder’s shares should be voted on the proposal will be deemed an instruction to vote such shares in favor of the proposal. Depending on its policies, applicable law or contractual or other restrictions, a service agent may be permitted to vote shares with respect to which it has not received specific voting instructions from its customers. In those cases, the service agent may, but may not be required to, vote such shares in the same proportion as those shares for which the service agent has received voting instructions.
If you beneficially own shares that are held in “street name” through a broker/dealer or that are held of record by a service agent, and if you do not give specific voting instructions for your shares, they may not be voted at all or, as described above, they may be voted in a manner that you may not intend. Therefore, you are strongly encouraged to give your broker/dealer or service agent specific instructions as to how you want your shares to be voted.
Photographic identification will be required for admission to the Meeting.
Proxy Solicitation
LMPFA and the Target Fund will each pay 50% of the costs solely and directly related to the Reorganization, including any proxy solicitation costs, and allocated to the Target Fund, and LMPFA and the Acquiring Fund will each pay 50% of the costs solely and directly related to the Reorganization and allocated to the Acquiring Fund. Transaction costs associated with repositioning the Fund’s portfolio in connection with the Reorganization will be borne by the Target Fund before the Reorganization.
Estimated costs of the Reorganization have been allocated between the Target Fund and the Acquiring Fund as follows: Legal—the Target Fund: $90,000, the Acquiring Fund: $90,000; Audit—the Target Fund: $5,000, the Acquiring Fund: $5,000; and Printing, postage, proxy out-of-pocket costs and proxy solicitation, mailing, reporting and tabulation costs (approximately $294,400)—all allocated to the Target Fund.
44
Solicitation may be made by letter or telephone by officers or employees of Legg Mason, or by dealers and their representatives. Brokerage houses, banks and other fiduciaries may be requested to forward proxy solicitation material to the beneficial owner of shares of the Target Fund to obtain authorization for the execution of proxies. The Target Fund will reimburse brokerage firms, custodians, banks and fiduciaries for their expenses in forwarding the Proxy Statement/Prospectus and proxy materials to the beneficial owners of the Target Fund’s shares. Legg Mason, on behalf of the Target Fund, has retained Computershare Fund Services, a proxy solicitation firm, to assist in the solicitation of proxies. It is anticipated that Computershare Fund Services will be paid approximately $255,000, which is included in the amount above, for such solicitation services, to be borne by LMPFA and the Target Fund as described above. Computershare Fund Services may solicit proxies personally and by telephone.
Quorum
The holders of outstanding shares entitled to vote and present in person or by proxy representing 30% of the voting power of the Target Fund shall constitute a quorum at the Meeting.
Vote Required
The affirmative vote of a majority of the outstanding voting securities of the Target Fund is required to approve the Reorganization Agreement, which under applicable law means the vote of the lesser of (a) 67% or more of the voting power of the voting securities present at the Meeting, if the holders of more than 50% of the outstanding voting securities of the Target Fund are present at the Meeting or represented by proxy, or (b) more than 50% of the voting power of the outstanding voting securities of the Target Fund. Each whole share (or fractional share) outstanding on the Record Date shall entitle the holder thereof to a number of votes equal to the net asset value of the share (or fractional share) in United States dollars determined at the close of business on the Record Date.
Effect of Abstentions and Broker “Non-Votes”
For purposes of determining the presence of a quorum for transacting business at the Meeting, executed proxies marked as abstentions and “broker non-votes” (i.e., proxies from brokers or nominees indicating that such persons have not received instructions from the beneficial owner or other persons entitled to vote shares on a particular matter with respect to which the brokers or nominees do not have discretionary power) will be treated as shares that are present for quorum purposes but which have not been voted. Accordingly, abstentions and broker non-votes will have the effect of a vote against approval of the Reorganization. As a result, shareholders are urged to sign and date their proxy card and forward their voting instructions promptly.
Adjournments
In the event that a quorum shall not be present at the Meeting or in the event that a quorum is present but sufficient votes to approve the Reorganization Agreement are not received, the chairman of the Meeting or, if a proposal to adjourn is submitted to a vote of shareholders by the chairman, the shareholders of the Target Fund, by the affirmative vote of a majority of votes cast on the adjournment, shall have the power to adjourn the Meeting from time to time, without notice other than announcement at the Meeting, until the requisite number of shares entitled to vote at the Meeting shall be present. Unless a proxy provides otherwise, the persons named as proxies will vote upon such adjournment in their discretion. Any adjourned meeting may be held as adjourned without further notice, even if the date of such adjourned meeting is more than 120 days after the notice of the original meeting or the postponement thereof, was mailed or sent.
Future Shareholder Proposals
The Target Fund does not hold annual meetings of shareholders. A shareholder proposal intended to be presented at a future special meeting of shareholders of the Target Fund must be received at the offices of the Target Fund, to the attention of Robert I. Frenkel, Secretary, 100 First Stamford Place—6th Floor, Stamford, Connecticut 06902, in accordance with the time periods set forth for advance notice in the bylaws applicable to the Target Fund or, if no such time period is specified, at a reasonable time before the Target Fund begins to print and mail its proxy materials. Timely submission of a proposal does not guarantee that such proposal will be included in a proxy statement.
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Record Date and Outstanding Shares
Only shareholders of record of the Target Fund at the close of business on the Record Date are entitled to notice of and to vote at the Meeting and at any postponements or adjournments thereof. The chart below lists the number of Class A, Class A2, Class C, Class I and Class 1 shares of the Target Fund that were outstanding and entitled to vote as of the close of business on the Record Date.
| | |
Class | | Total Shares Outstanding |
Class A | | |
Class A2 | | |
Class C | | |
Class I | | |
Class 1 | | |
To the knowledge of the Funds, as of the Record Date, except as set forth on Appendix F, no person owned beneficially or of record 5% or more of any class of the Target Fund’s or the Acquiring Fund’s outstanding shares.
[To the knowledge of the Funds, as of [the Record Date ], less than 1% of the outstanding shares of the Target Fund and the Acquiring Fund were owned directly or beneficially in the aggregate by the Board members and officers of the Target Fund and the Acquiring Fund.]
THE BOARD OF THE TARGET FUND, INCLUDING THE INDEPENDENT BOARD MEMBERS, UNANIMOUSLY RECOMMENDS APPROVAL OF THE REORGANIZATION AGREEMENT. ANY SIGNED AND DATED, BUT UNMARKED, PROXIES WITHOUT INSTRUCTIONS TO THE CONTRARY WILL BE VOTED IN FAVOR OF APPROVAL OF THE REORGANIZATION AGREEMENT.
By order of the Board of Trustees,
Robert I. Frenkel
Secretary
Legg Mason Partners Equity Trust
46
INDEX OF APPENDICES
| | | | |
APPENDIX A: | | Dates of Prospectuses, Fund SAIs and Shareholder Reports | | A-1 |
| | |
APPENDIX B: | | Form of Agreement and Plan of Reorganization | | B-1 |
| | |
APPENDIX C: | | Financial Highlights of the Acquiring Fund | | C-1 |
| | |
APPENDIX D: | | Historical Performance for Each Fund | | D-1 |
| | |
APPENDIX E: | | Instructions for Signing Proxy Card | | E-1 |
| | |
APPENDIX F: | | 5% Shareholders of the Target Fund and Acquiring Fund | | F-1 |
47
APPENDIX A
Dates of Prospectuses, Fund Statements of
Additional Information and Shareholder Reports
| | | | | | |
Fund | | Summary Prospectus Dated | | Prospectus and Fund
SAI Dated | | Shareholder Report Dated |
Legg Mason Capital Management All Cap Fund | | September 1, 2012
(filed on September 4, 2012) Accession No.
0001193125-12-377734 | | September 1, 2012
(filed on August 23, 2012) Accession No. 0001193125-12-366639 | | April 30, 2012
(filed on August 23, 2012) Accession No. 0001193125-12-278441 (Annual Report)
October 31, 2012
(filed on December 27, 2012) Accession No. 0001193125-12-515962 (Semi-Annual Report) |
| | | |
ClearBridge Large Cap Value Fund | | March 1, 2013
(filed on March 1, 2013) Accession No.
0001193125-13-085118 | | March 1, 2013
(filed on February 22, 2013) Accession No. 0001193125-13-071518 | | October 31, 2012 (filed on December 27, 2012) Accession No. 0001193125-12-516012 (Annual Report) |
A-1
APPENDIX B
Form of Agreement and Plan of Reorganization
LEGG MASON CAPITAL MANAGEMENT ALL CAP FUND AND CLEARBRIDGE LARGE CAP VALUE FUND
This AGREEMENT AND PLAN OF REORGANIZATION (“Agreement”) is made as of this [ ] day of [ ], 2013, by and between Legg Mason Partners Equity Trust, a Maryland statutory trust (the “Trust”), with its principal place of business at 620 Eighth Avenue, New York, New York 10018, on behalf of its series ClearBridge Large Cap Value Fund (the “Acquiring Fund” or a “Fund”), and on behalf of its series Legg Mason Capital Management All Cap Fund (the “Target Fund” or a “Fund”), and, solely for purposes of paragraph 10.2 hereof, Legg Mason Partners Fund Advisor, LLC (“LMPFA”).
WHEREAS, each of the Acquiring Fund and the Target Fund is a series of the Trust, an open-end management investment company registered pursuant to the Investment Company Act of 1940, as amended (the “1940 Act”);
WHEREAS, it is intended that, for United States federal income tax purposes (i) the transactions contemplated by this Agreement constitute a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”), and (ii) this Agreement constitutes a plan of reorganization within the meaning of Section 368 of the Code and Treasury Regulations Section 1.368-2(g);
WHEREAS, the reorganization will consist of (1) the sale, assignment, conveyance, transfer and delivery of all of the property and assets of the Target Fund to the Acquiring Fund in exchange solely for classes of shares of beneficial interest of the Acquiring Fund (the “Acquiring Fund Shares”) corresponding to the classes of outstanding shares of beneficial interest of the Target Fund (the “Target Fund Shares”), as described herein, and the assumption by the Acquiring Fund of all liabilities of the Target Fund, and (2) the distribution of the Acquiring Fund Shares to the shareholders of the Target Fund and the subsequent redemption of the Target Fund Shares and termination of the Target Fund as a series of the Trust, as provided herein (the “Reorganization”), all upon the terms and conditions hereinafter set forth in this Agreement;
WHEREAS, the Target Fund currently owns securities that are generally assets of the character in which the Acquiring Fund is permitted to invest;
WHEREAS, the Board of Trustees of the Trust (the “Board”), including a majority of its members who are not “interested persons” (as that term is defined in the 1940 Act) of the Trust (the “Independent Trustees”), has determined, with respect to the Acquiring Fund, that the sale, assignment, conveyance, transfer and delivery of all of the property and assets of the Target Fund for Acquiring Fund Shares and the assumption of all liabilities of the Target Fund by the Acquiring Fund is in the best interests of the Acquiring Fund and that the interests of the existing shareholders of the Acquiring Fund will not be diluted as a result of the Reorganization;
WHEREAS, the Board, including a majority of its members who are Independent Trustees, has determined, with respect to the Target Fund, that the sale, assignment, conveyance, transfer and delivery of all of the property and assets of the Target Fund for Acquiring Fund Shares and the assumption of all liabilities of the Target Fund by the Acquiring Fund is in the best interests of the Target Fund and that the interests of the existing shareholders of the Target Fund will not be diluted as a result of the Reorganization; and
WHEREAS, in this Agreement, any references to a Fund taking action shall mean and include all necessary actions of the Trust, as applicable, on behalf of a Fund, unless the context of this Agreement or the 1940 Act requires otherwise;
NOW, THEREFORE, in consideration of the premises and of the covenants and agreements hereinafter set forth, the parties hereto covenant and agree as follows:
1. TRANSFER OF ASSETS OF THE TARGET FUND TO THE ACQUIRING FUND IN EXCHANGE FOR ACQUIRING FUND SHARES, ASSUMPTION OF ALL TARGET FUND LIABILITIES AND TERMINATION OF THE TARGET FUND
1.1 Subject to requisite approvals and the other terms and conditions herein set forth and on the basis of the representations and warranties contained herein, the Trust, on behalf of the Target Fund, agrees to sell, assign, convey,
B-1
transfer and deliver all of its Assets, as defined and set forth in paragraph 1.2, to the Acquiring Fund, and the Trust, on behalf of the Acquiring Fund, agrees in exchange therefor: (a) to deliver to the Target Fund the number, determined in accordance with paragraph 2.3, of full and fractional Acquiring Fund Shares corresponding to each class of Target Fund Shares as of the time and date set forth in paragraph 3.1, determined by dividing the value of the Target Fund’s net assets (computed in the manner and as of the time and date set forth in paragraph 2.1) by the net asset value of one share of the corresponding class of Acquiring Fund Shares (computed in the manner and as of the time and date set forth in paragraph 2.2); and (b) to assume all liabilities of the Target Fund. Such transactions shall take place on a closing date as provided for in paragraph 3.1 (the “Closing Date”).
1.2 The property and assets of the Trust attributable to the Target Fund to be sold, assigned, conveyed, transferred and delivered to and acquired by the Trust, on behalf of the Acquiring Fund, shall consist of all assets and property of every kind and nature of the Target Fund, including, without limitation, all rights, receivables (including dividend, interest and other receivables), cash, cash equivalents, claims (whether absolute or contingent, known or unknown), securities, commodities and futures interests, good will and other intangible property, any deferred or prepaid expenses and all interests, rights, privileges and powers, the Target Fund owns at the Valuation Date (as defined in paragraph 2.1) (collectively, “Assets”). The Trust, on behalf of the Acquiring Fund, shall assume all of the liabilities and obligations of the Target Fund, including, without limitation, all indemnification obligations of the Target Fund with respect to the current and former members of the Board and officers of the Trust, whether accrued or contingent, known or unknown, existing at the Valuation Date except for (a) obligations of the Target Fund arising under this Agreement and (b) all expenses that 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) borne by LMPFA and/or the Target Fund pursuant to paragraph 10.2 (collectively, “Liabilities”). The Target Fund will sell, assign, convey, transfer and deliver to the Trust, on behalf of the Acquiring Fund, any rights, payments, stock dividends, or other securities received by the Target Fund after the Closing Date as payments, stock dividends or other distributions on or with respect to the Assets transferred, which rights, payments, stock dividends, and other securities shall be deemed included in the property and assets transferred to the Trust, on behalf of the Acquiring Fund, at the Closing Date and shall not be separately valued, in which case any such distribution that remains unpaid as of the Closing Date shall be included in the determination of the value of the Assets of the Target Fund acquired by the Trust on behalf of the Acquiring Fund.
1.3 The Target Fund will make reasonable efforts to discharge all of its known Liabilities prior to the Valuation Date.
1.4 On or as soon as practicable prior to the Closing Date, the Target Fund will declare and pay to its shareholders of record one or more dividends and/or other distributions so that it will have distributed substantially all of (a) the sum of (i) its investment company taxable income as defined in the Code (computed without regard to any deduction for dividends paid), (ii) the excess of its investment income excludible from gross income under Section 103 of the Code, if any, over its deductions disallowed under Sections 265 and 171 of the Code (“net tax-exempt income”), and (iii) its net capital gain as defined in the Code, if any, and (b) any other amounts as necessary, in each case for all tax periods ending on or before the Closing Date (and treating the current taxable year as ending on the Closing Date), such that the Target Fund will have no tax liability under Section 852 or Section 4982 of the Code for the current and any prior tax periods.
1.5 Immediately following the actions contemplated by paragraph 1.1, the Trust shall take such actions as may be necessary or appropriate to complete the liquidation of the Target Fund. To complete the liquidation, the Trust, on behalf of the Target Fund, shall (a) on the Closing Date, distribute to the shareholders of record of the Target Fund Shares as of the Closing Date (“Target Fund Shareholders”), on a pro rata basis within each share class, the corresponding class of Acquiring Fund Shares received by the Trust, on behalf of the Target Fund, pursuant to paragraph 1.1, (b) on the Closing Date, redeem shares of the Target Fund and (c) terminate the Target Fund as a series of the Trust in accordance with Maryland law. Such distribution and redemption shall be accomplished, with respect to the Target Fund Shares, by the transfer on the Closing Date of the corresponding classes of Acquiring Fund Shares then credited to the account of the Target Fund on the books of the Acquiring Fund to open accounts on the share records of the Acquiring Fund in the names of the Target Fund Shareholders. The aggregate net asset value of the Acquiring Fund Shares to be so credited to the Target Fund Shareholders shall be equal to the aggregate net asset value of the Target Fund Shares owned by Target Fund Shareholders on the Closing Date. All issued and outstanding Target Fund Shares will be cancelled on the books of the Target Fund. The Acquiring Fund shall not issue certificates representing any class of Acquiring Fund Shares in connection with such exchange.
B-2
1.6 Ownership of Acquiring Fund Shares will be shown on the books of each transfer agent of the Acquiring Fund for the credit of the respective accounts of the Target Fund Shareholders.
1.7 Any reporting responsibility of the Target Fund, including, but not limited to, the responsibility for filing regulatory reports, tax returns, or other documents with the Securities and Exchange Commission (“Commission”), any state securities commission, and any federal, state or local tax authorities or any other relevant regulatory authority, is and shall remain the responsibility of the Trust, on behalf of the Target Fund. The Trust shall fully cooperate to the extent necessary or desirable for these responsibilities to be discharged.
2. VALUATION
2.1 The value of the Assets and the amount of the Liabilities shall be determined as of the time for calculation of net asset value as set forth in the then-current prospectus for the Target Fund, and after the declaration and payment of any dividends and/or other distributions by the Target Fund, on the Closing Date (such time and date being hereinafter called the “Valuation Date”), computed using the valuation procedures established by the Board. All computations of value and amounts shall be made by (a) State Street Bank and Trust Company, in its capacity as accounting agent for the Target Fund, or (b) in the case of securities subject to fair valuation, in accordance with the valuation procedures of the Trust adopted in good faith by the Board.
2.2. The net asset value per share of each class of Acquiring Fund Shares shall be determined to the nearest full cent on the Valuation Date, using the valuation procedures established by the Board. All computations of value shall be made by (a) State Street Bank and Trust Company, in its capacity as accounting agent for the Acquiring Fund, or (b) in the case of securities subject to fair valuation, in accordance with the valuation procedures of the Trust adopted in good faith by the Board.
2.3. The number of each class of Acquiring Fund Shares to be issued in exchange for the Assets shall be determined by dividing the value of the net assets with respect to each corresponding class of Target Fund Shares, determined using the same valuation procedures referred to in paragraph 2.1, by the net asset value of the corresponding class of an Acquiring Fund Share, determined using the same valuation procedures referred to in paragraph 2.2.
3. CLOSING AND CLOSING DATE
3.1 Subject to the terms and conditions set forth herein, the Closing Date shall be [ ], 2013, or such other date as the parties may agree. All acts taking place at the closing of the transactions provided for in this Agreement (“Closing”) shall be deemed to take place simultaneously as of the “close of business” on the Closing Date unless otherwise agreed to by the parties. The close of business on the Closing Date shall be as of 4:00 p.m., Eastern Time or such later time on that date as the Target Fund’s net asset value is calculated in accordance with paragraph 2.1 and after the declaration and payment of any dividends. The Closing shall be held at the offices of LMPFA or at such other time and/or place as the parties may agree.
3.2 The Trust shall direct State Street Bank and Trust Company (the “Custodian”) to transfer ownership of the Assets, at the time of the Closing, from the accounts of the Target Fund that the Custodian maintains as custodian for the Target Fund to the accounts of the Acquiring Fund that the Custodian maintains as custodian for the Acquiring Fund and to deliver to the Acquiring Fund, at the Closing, a certificate of an authorized officer stating that the Assets of the Target Fund have been so transferred as of the Closing Date. The Trust, on behalf of the Target Fund, shall deliver to the Acquiring Fund, at the Closing, a certificate of an authorized officer stating that all necessary taxes in connection with the delivery of the Assets of the Target Fund, including all applicable federal and state stock transfer stamps, if any, have been paid or provision for payment has been made.
3.3 The Trust shall direct each of Boston Financial Data Services, Inc., and BNY Mellon Asset Servicing (U.S.) Inc., in its capacity as a transfer agent for the Target Fund (each, a “Transfer Agent”), to deliver to the Trust at the Closing a certificate of an authorized officer stating that its records contain the name and address of each Target Fund Shareholder and the number and percentage ownership of the outstanding class of Target Fund Shares owned by each such shareholder immediately prior to the Closing. The Acquiring Fund shall deliver to the Secretary of the Trust, on behalf of the Target Fund, a confirmation evidencing that (a) the appropriate number of Acquiring Fund Shares have been credited to the Target
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Fund’s account on the books of the Acquiring Fund pursuant to paragraph 1.1 prior to the actions contemplated by paragraph 1.5 and (b) the appropriate number of Acquiring Fund Shares have been credited to the accounts of the Target Fund Shareholders on the books of the Acquiring Fund pursuant to paragraph 1.5. At the Closing, each Fund shall deliver to the other Fund such bills of sale, checks, assignments, share certificates, if any, receipts or other documents as the other Fund or its counsel may reasonably request.
3.4 In the event that on the Valuation Date (a) the New York Stock Exchange or another primary trading market for portfolio securities of the Acquiring Fund or the Target Fund (each, an “Exchange”) shall be closed to trading or trading thereupon shall be restricted, or (b) trading or the reporting of trading on such Exchange or elsewhere shall be disrupted so that accurate appraisal of the value of the net assets of the Target Fund or the Acquiring Fund is impracticable (in the judgment of the Board), the Closing Date shall be postponed until the first Friday (that is also a business day) after the day when trading shall have been fully resumed and reporting shall have been restored, or such other date as the parties may agree.
4. REPRESENTATIONS AND WARRANTIES
4.1 Except as has been previously communicated, the Trust, on behalf of the Target Fund, represents and warrants to the Acquiring Fund as follows:
(a) The Target Fund is duly established as a series of the Trust, which is a statutory trust duly organized, validly existing and in good standing under the laws of the State of Maryland, with power under its Declaration of Trust, as amended or supplemented (the “Declaration”), to own all of its assets and to carry on its business as it is being conducted as of the date hereof. The Trust is duly qualified to do business as a foreign corporation (or other entity, as prescribed by applicable law) in each jurisdiction in which the conduct of its business makes such qualification necessary except where the failure to so qualify would not have a material adverse effect on the condition (financial or otherwise), business, properties, net assets or results of operations of the Trust. The Trust has all necessary federal, state and local authorizations to carry on its business as now being conducted and to fulfill the terms of this Agreement, except as described in paragraph 4.1(c).
(b) The Trust is a registered open-end management investment company, and its registration with the Commission as an investment company under the 1940 Act, and the registration of each class of Target Fund Shares under the Securities Act of 1933, as amended (“1933 Act”), is in full force and effect and the Target Fund is in compliance in all material respects with the 1940 Act and 1933 Act and rules and regulations under each.
(c) No consent, approval, authorization, or order of any court or governmental authority is required for the consummation by the Target Fund of the transactions contemplated herein, except such as may be required under the 1933 Act, the Securities Exchange Act of 1934, as amended (“1934 Act”), the 1940 Act, state securities laws and the Hart-Scott-Rodino Act.
(d) The current prospectus and statement of additional information of the Target Fund (true and correct copies of which have been delivered to the Acquiring Fund) and each prospectus and statement of additional information of the Target Fund used during the three (3) years prior to the date of this Agreement conforms or conformed at the time of its use in all material respects to the applicable requirements of the 1933 Act and the 1940 Act and the rules and regulations of the Commission thereunder and does not or did not at the time of its use 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 materially misleading.
(e) On the Closing Date, the Trust, on behalf of the Target Fund, will have good title to the Assets and full right, power and authority to sell, assign, convey, transfer and deliver such Assets hereunder free of any liens or other encumbrances, and upon delivery and payment for the Assets, the Trust, on behalf of the Acquiring Fund, will acquire good title thereto, subject to no restrictions on the full transfer thereof, excluding such restrictions as might arise under the 1933 Act.
(f) The Target Fund is not engaged currently, and the execution, delivery and performance of this Agreement by the Trust, on behalf of the Target Fund, will not result, in a material violation of Maryland law or of the Declaration or the bylaws, as amended, of the Trust, or of any agreement, indenture, instrument, contract, lease or other undertaking to which the Trust, on behalf of the Target Fund, is a party or by which it is bound, and the execution, delivery and
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performance of this Agreement by the Trust, on behalf of the Target Fund, will not result in the acceleration of any material obligation, or the imposition of any material penalty, under any agreement, indenture, instrument, contract, lease, other undertaking, judgment or decree to which the Trust, on behalf of the Target Fund, is a party or by which it is bound.
(g) All material contracts or other commitments of the Target Fund (other than this Agreement and contracts or other commitments entered into in order to effect the transactions contemplated by this Agreement, certain investment contracts, including options, futures, swaps and forward contracts, the indemnification agreements of the current and former members of the Board, and those contracts listed in Schedule 4.1) will terminate without liability to the Target Fund on or prior to the Closing Date. Each contract listed in Schedule 4.1 is a valid, binding and enforceable obligation of the Target Fund and, to the Target Fund’s knowledge, the other parties thereto (assuming due authorization, execution and delivery by the other parties thereto) and the assignment by the Target Fund to the Acquiring Fund of each such contract will not result in the termination of such contract, any breach or default thereunder by the Target Fund or the imposition of any penalty thereunder.
(h) No litigation or administrative proceeding or investigation of or before any court or governmental body is pending or, to the Trust’s knowledge, threatened against the Trust, with respect to the Target Fund or any of its properties or assets, that, if adversely determined, would materially and adversely affect its financial condition or the conduct of the Target Fund’s business. The Trust, on behalf of the Target 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 the Target Fund’s business or the Trust’s ability to consummate the transactions herein contemplated on behalf of the Target Fund.
(i) The Statement of Assets and Liabilities, Statements of Operations and Changes in Net Assets and Schedule of Investments of the Target Fund as of the last day of and for the most recently completed fiscal year of the Target Fund prior to the date of this Agreement have been audited by KPMG LLP, an independent registered public accounting firm, and are in accordance with accounting principles generally accepted in the United States of America (“GAAP”) consistently applied, and such statements (true and correct copies of which have been furnished to the Trust) present fairly, in all material respects, the financial condition of the Target Fund as of such date and for such period in accordance with GAAP, and there are no known contingent, accrued or other liabilities of the Target Fund required to be reflected on a balance sheet (including the notes thereto) in accordance with GAAP as of such date that are not disclosed therein. The Statement of Assets and Liabilities, Statements of Operations and Changes in Net Assets and Schedule of Investments (unaudited) of the Target Fund as at the last day of and for the most recently completed fiscal half year of the Target Fund following the date of the audited annual statements referenced above are in accordance with GAAP consistently applied, and such statements (true and correct copies of which have been furnished to the Acquiring Fund) present fairly, in all material respects, the financial condition of the Target Fund, and all known contingent, accrued or other liabilities of the Target Fund required to be reflected on a balance sheet (including the notes thereto) in accordance with GAAP as of such date are disclosed therein.
(j) Since the last day of the most recently completed fiscal year of the Target Fund prior to the date of this Agreement, there has not been any material adverse change in the Target Fund’s financial condition, assets, liabilities or business, other than changes occurring in the ordinary course of business, or any incurrence by the Target Fund of indebtedness for money borrowed maturing more than one year from the date such indebtedness was incurred. For the purposes of this subparagraph (j), a decline in net asset value per share of Target Fund Shares due to declines in market values of securities held by the Target Fund, the discharge of Target Fund liabilities, or the redemption of Target Fund Shares by Target Fund Shareholders shall not constitute a material adverse change.
(k) On the Closing Date, all federal and other tax returns, dividend reporting forms and other tax-related reports of the Target Fund required by law to have been filed by such date (taking into account any extensions) shall have been filed and shall be correct in all material respects, and all federal and other taxes shown as due or required to be shown as due on said returns and reports shall have been paid or provision shall have been made for the payment thereof and, to the best of the Trust’s knowledge, no such return is currently under audit and no assessment has been asserted with respect to such returns.
(l) The Target Fund is a separate series of the Trust and is treated as a corporation separate from any and all other series of the Trust under Section 851(g) of the Code. For each taxable year of its operation (including the taxable year ending on the Closing Date), the Target Fund has met (or for that year will meet) the requirements of Subchapter M of
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Chapter 1 of the Code for qualification and treatment as a “regulated investment company,” has had in effect an election to be treated as such, has been (or for that year will be) eligible to compute and has computed (or for that year will compute) its federal income tax under Section 852 of the Code, and on or before the Closing Date, will have declared and paid dividends sufficient to distribute substantially all of (a) the sum of (i) its net tax-exempt income, (ii) its investment company taxable income (as defined in the Code) (computed without regard to any deduction for dividends paid), and (iii) any net capital gain (as defined in the Code), and (b) any other amounts as necessary, in each case for all tax periods ending on or before the Closing Date (including the taxable year ending on the Closing Date), such that the Target Fund will have no tax liability under Section 852 or Section 4982 of the Code for the current and any prior tax periods.
(m) All issued and outstanding Target Fund Shares are, and on the Closing Date will be, duly authorized and validly and legally issued and outstanding, fully paid and non-assessable by the Trust, have been offered and sold in any state or territory (including, without limitation, the District of Columbia) in which they have been offered or sold, in compliance in all material respects with applicable registration requirements of all applicable federal and state securities laws and are not subject to preemptive or dissenter’s rights. All of the issued and outstanding Target Fund Shares will, at the time of Closing, be held by the persons and in the amounts set forth in the records of each Transfer Agent, on behalf of the Target Fund, as provided in paragraph 3.3. The Target Fund does not have outstanding any options, warrants or other rights to subscribe for or purchase any of the Target Fund Shares, nor is there outstanding any security convertible into any of the Target Fund Shares.
(n) The Target Fund will review its assets to ensure that prior to the Closing Date its assets do not include any assets that the Acquiring Fund is not permitted, or reasonably believes to be unsuitable for it, to acquire, including without limitation any security that, prior to its acquisition by the Target Fund, is unsuitable for the Acquiring Fund to acquire.
(o) The execution, delivery and performance of this Agreement, and the transactions contemplated herein, have been duly authorized by all necessary action on the part of the Board (including the determinations required by Rule 17a-8(a) under the 1940 Act), on behalf of the Target Fund, and this Agreement constitutes a valid and binding obligation of the Trust, on behalf of the Target Fund, enforceable in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization, moratorium and other laws relating to or affecting creditors’ rights and to general equity principles.
(p) The combined proxy statement and prospectus (“Proxy Statement”) to be included in the Registration Statement (as defined in paragraph 5.6), insofar as it relates to the Target Fund and its shares, from the effective date of the Registration Statement through the date of the meeting of Target Fund Shareholders contemplated therein and on the Closing Date, will (i) not contain any statement which, at the time and in light of the circumstances under which it is made, is false or misleading with respect to any material fact, or which omits to state any material fact necessary in order to make the statements therein not false or misleading (provided that this representation and warranty shall not apply to statements in or omissions from the Proxy Statement made in reliance upon and in conformity with information that was furnished by the Trust for use therein) and (ii) comply in all material respects with the provisions of the 1933 Act, 1934 Act and the 1940 Act and the rules and regulations thereunder. The information to be furnished by the Target Fund for use in registration statements and other documents filed or to be filed with any federal, state or local regulatory authority (including the Financial Industry Regulatory Authority (“FINRA”)), as may be prepared in connection with the transactions contemplated hereby, shall be accurate and complete in all material respects and shall comply in all material respects with federal securities and other laws and regulations thereunder applicable thereto.
4.2 Except as has been previously communicated, the Trust, on behalf of the Acquiring Fund, represents and warrants to the Target Fund as follows:
(a) The Acquiring Fund is duly established as a series of the Trust, which is a statutory trust duly organized, validly existing and in good standing under the laws of the State of Maryland, with the power under its Declaration, to own all of its assets and to carry on its business as it is being conducted as of the date hereof. The Trust is duly qualified to do business as a foreign corporation (or other entity, as prescribed by applicable law) in each jurisdiction in which the conduct of its business makes such qualification necessary except where the failure to so qualify would not have a material adverse effect on the condition (financial or otherwise), business, properties, net assets or results of operations of the Trust. The Trust has all necessary federal, state and local authorizations to carry on its business as now being conducted and to fulfill the terms of this Agreement, except as described in paragraph 4.2(c).
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(b) The Trust is a registered open-end management investment company, and its registration with the Commission as an investment company under the 1940 Act, and the registration of each class of Acquiring Fund Shares under the 1933 Act, is in full force and effect or will be in full force and effect as of the Closing Date.
(c) No consent, approval, authorization, or order of any court or governmental authority is required for the consummation by the Acquiring Fund of the transactions contemplated herein, except such as may be required under the 1933 Act, the 1934 Act, the 1940 Act, state securities laws and the Hart-Scott-Rodino Act.
(d) The current prospectus and statement of additional information of the Acquiring Fund (true and correct copies of which have been delivered to the Target Fund) and each prospectus and statement of additional information of the Acquiring Fund used during the three (3) years prior to the date of this Agreement conforms or conformed at the time of its use in all material respects to the applicable requirements of the 1933 Act and the 1940 Act and the rules and regulations of the Commission thereunder and does not or did not at the time of its use 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 materially misleading.
(e) The Acquiring Fund is not engaged currently, and the execution, delivery and performance of this Agreement by the Trust, on behalf of the Acquiring Fund, will not result, in a material violation of Maryland law or the Declaration or the bylaws, as amended, of the Trust, or of any agreement, indenture, instrument, contract, lease or other undertaking to which the Trust, on behalf of the Acquiring Fund, is a party or by which it is bound, and the execution, delivery and performance of this Agreement by the Trust, on behalf of the Acquiring Fund, will not result in the acceleration of any material obligation, or the imposition of any material penalty, under any agreement, indenture, instrument, contract, lease, other undertaking, judgment or decree to which the Trust, on behalf of the Acquiring Fund, is a party or by which it is bound.
(f) No litigation or administrative proceeding or investigation of or before any court or governmental body is pending or, to the Trust’s knowledge, threatened against the Trust, with respect to the Acquiring Fund, or any of its properties or assets, that, if adversely determined, would materially and adversely affect its financial condition or the conduct of the Acquiring Fund’s business. The Trust, on behalf of the 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 the Acquiring Fund’s business or the Trust’s ability to consummate the transactions herein contemplated on behalf of the Acquiring Fund.
(g) The Statement of Assets and Liabilities, Statements of Operations and Changes in Net Assets and Schedule of Investments of the Acquiring Fund as of the last day of and for the most recently completed fiscal year of the Acquiring Fund prior to the date of this Agreement have been audited by KPMG LLP, an independent registered public accounting firm, and are in accordance with GAAP consistently applied, and such statements (true and correct copies of which have been furnished to the Target Fund) present fairly, in all material respects, the financial condition of the Acquiring Fund as of such date and for such period in accordance with GAAP, and there are no known contingent, accrued or other liabilities of the Acquiring Fund required to be reflected on a balance sheet (including the notes thereto) in accordance with GAAP as of such date that are not disclosed therein. The Statement of Assets and Liabilities, Statements of Operations and Changes in Net Assets and Schedule of Investments (unaudited) of the Acquiring Fund as at the last day of and for the most recently completed fiscal half year of the Acquiring Fund following the date of the audited annual statements referenced above are in accordance with GAAP consistently applied, and such statements (true and correct copies of which have been furnished to the Acquiring Fund) present fairly, in all material respects, the financial condition of the Acquiring Fund, and all known contingent, accrued or other liabilities of the Acquiring Fund required to be reflected on a balance sheet (including the notes thereto) in accordance with GAAP as of such date are disclosed therein.
(h) Since the last day of the most recently completed fiscal year of the Acquiring Fund prior to the date of this Agreement, there has not been any material adverse change in the Acquiring Fund’s financial condition, assets, liabilities or business, other than changes occurring in the ordinary course of business, or any incurrence by the Acquiring Fund of indebtedness for money borrowed maturing more than one year from the date such indebtedness was incurred. For the purposes of this subparagraph (h), a decline in net asset value per share of Acquiring Fund Shares due to declines in market values of securities held by the Acquiring Fund, the discharge of Acquiring Fund liabilities, or the redemption of Acquiring Fund Shares by shareholders of the Acquiring Fund shall not constitute a material adverse change.
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(i) On the Closing Date, all federal and other tax returns, dividend reporting forms and other tax-related reports of the Acquiring Fund required by law to have been filed by such date (taking into account any extensions) shall have been filed and shall be correct in all material respects, and all federal and other taxes shown as due or required to be shown as due on said returns and reports shall have been paid or provision shall have been made for the payment thereof and, to the best of the Trust’s knowledge, no such return is currently under audit and no assessment has been asserted with respect to such returns.
(j) The Acquiring Fund is a separate series of the Trust and is treated as a corporation separate from any and all other series of the Trust under Section 851(g) of the Code. For each taxable year of its operation (including the taxable year that includes the Closing Date), the Acquiring Fund has met (and for the latter year expects to meet) the requirements of Subchapter M of Chapter 1 of the Code for qualification and treatment as a “regulated investment company,” has had in effect an election to be treated as such, and has been (and for the latter year expects to be) eligible to compute and has computed (and for the latter year expects to compute) its federal income tax under Section 852 of the Code.
(k) All issued and outstanding Acquiring Fund Shares are, and on the Closing Date will be, duly authorized and validly and legally issued and outstanding, fully paid and non-assessable by the Trust and will have been offered and sold in any state or territory (including, without limitation, the District of Columbia) in which they have been offered or sold, in compliance in all material respects with applicable registration requirements of all applicable federal and state securities laws. The Acquiring Fund does not have outstanding any options, warrants or other rights to subscribe for or purchase any Acquiring Fund Shares, nor is there outstanding any security convertible into any Acquiring Fund Shares. All of the Acquiring Fund Shares to be issued and delivered to the Trust, for the account of the Target Fund Shareholders, pursuant to this Agreement, will on the Closing Date have been duly authorized and, when so issued and delivered, will be duly and validly and legally issued Acquiring Fund Shares and be fully paid and non-assessable by the Trust.
(l) The execution, delivery and performance of this Agreement, and the transactions contemplated herein, have been duly authorized by all necessary action on the part of the Board, on behalf of the Acquiring Fund, and this Agreement constitutes a valid and binding obligation of the Trust, on behalf of the Acquiring Fund, enforceable in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization, moratorium and other laws relating to or affecting creditors’ rights and to general equity principles.
(m) The Proxy Statement to be included in the Registration Statement (as defined in paragraph 5.6), insofar as it relates to the Acquiring Fund and the Acquiring Fund Shares, from the effective date of the Registration Statement through the date of the meeting of Target Fund Shareholders and on the Closing Date, will (i) not contain any statement which, at the time and in the light of the circumstances under which it is made, is false or misleading with respect to any material fact, or which omits to state any material fact necessary to make the statements therein not false or misleading (provided that this representation and warranty shall not apply to statements in or omissions from the Proxy Statement made in reliance upon and in conformity with information that was furnished by the Trust for use therein) and (ii) comply in all material respects with the provisions of the 1933 Act and the 1940 Act and the rules and regulations thereunder. The information to be furnished by the Acquiring Fund for use in registration statements and other documents filed or to be filed with any federal, state or local regulatory authority (including FINRA), as may be prepared in connection with the transactions contemplated hereby, shall be accurate and complete in all material respects and shall comply in all material respects with federal securities and other laws and regulations applicable thereto.
5. COVENANTS
The Trust, on behalf of the Target Fund and the Acquiring Fund, hereby further covenants as follows:
5.1 The Target Fund and the Acquiring Fund each will operate its business in the ordinary course and shall comply in all material respects with all applicable laws, rules and regulations between the date hereof and the Closing Date, it being understood that such ordinary course of business will include the declaration and payment of customary dividends and other distributions, and any other distribution that may be advisable.
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5.2 The Trust will call and hold a meeting of the Target Fund Shareholders to consider and act upon this Agreement and to take all other action necessary to obtain approval of the transactions contemplated herein. As soon as reasonably practicable after the Closing, the Trust shall (a) distribute to the Target Fund Shareholders, on a pro rata basis within each share class, the corresponding class of Acquiring Fund Shares received by the Trust, on behalf of the Target Fund, pursuant to paragraph 1.1 in cancellation of Target Fund Shares in accordance with Maryland law and (b) terminate the Target Fund as a series of the Trust as described in paragraph 1.5.
5.3 The Acquiring Fund Shares to be acquired by the Target Fund hereunder are not being acquired for the purpose of making any distribution thereof, other than in accordance with the terms of this Agreement.
5.4 The Trust, on behalf of the Target Fund, will assist in obtaining such information as the Acquiring Fund reasonably requests concerning the beneficial ownership of the Target Fund Shares.
5.5 Subject to the provisions of this Agreement, the Trust, on behalf of the Acquiring Fund and the Target Fund, will take, or cause to be taken, all action, and do or cause to be done, all things reasonably necessary, proper or advisable to consummate and make effective the transactions contemplated by this Agreement.
5.6 The Trust, on behalf of the Acquiring Fund, shall prepare and file a Registration Statement on Form N-14 in compliance with the 1933 Act and the 1940 Act and the rules and regulations thereunder with respect to the Reorganization (the “Registration Statement”). The Trust, on behalf of the Target Fund, will provide to the Acquiring Fund such information regarding the Target Fund as may be reasonably necessary for the preparation of the Registration Statement.
5.7 The Trust, on behalf of each of the Acquiring Fund and the Target Fund, will use all reasonable efforts to fulfill or obtain the fulfillment of the conditions precedent to effect the transactions contemplated by this Agreement as promptly as practicable.
5.8 The Trust, on behalf of the Target Fund, will, from time to time, as and when reasonably requested by the Acquiring 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 Trust, on behalf of the Acquiring Fund, may reasonably deem necessary or desirable in order to vest in and confirm (a) the Trust’s title to and possession of the Acquiring Fund Shares to be delivered hereunder and (b) the Trust’s title to and possession of all the Assets, and to otherwise carry out the intent and purpose of this Agreement.
5.9 The Trust, on behalf of the Acquiring Fund, will use all reasonable efforts to obtain such approvals and authorizations required by the 1933 Act, the 1940 Act and such of the state blue sky or securities laws as may be necessary in order to continue its operations after the Closing Date.
5.10 The Trust shall not change the Declaration or the Acquiring Fund’s prospectus or statement of additional information so as to restrict permitted investments for the Acquiring Fund, except as required by the Commission prior to the Closing.
5.11 The Target Fund and the Acquiring Fund will each report the Reorganization as a reorganization within the meaning of Section 368(a) of the Code on its federal income tax return for its respective taxable year in which the Reorganization occurs, including filing any and all statements required by Treasury Regulations Section 1.368-3.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TRUST, ON BEHALF OF THE TARGET FUND
The obligations of the Trust, on behalf of the Target Fund, to consummate the transactions provided for herein shall be subject, at the Trust’s election, to the following conditions:
6.1 All representations and warranties of the Trust, on behalf of the Acquiring Fund, contained in this Agreement shall be true and correct in all material respects as of the date hereof and, except as they may be affected by the transactions contemplated by this Agreement, as of the Closing Date, with the same force and effect as if made on and as of the Closing Date.
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6.2 The Trust, on behalf of the Acquiring Fund, shall have performed all of the covenants and complied with all of the provisions required by this Agreement to be performed or complied with by the Trust, on behalf of the Acquiring Fund, on or before the Closing Date.
6.3 The Trust, on behalf of the Acquiring Fund, shall have executed and delivered an assumption of the Liabilities and all such other agreements and instruments as the Trust may reasonably deem necessary or desirable in order to vest in and confirm (a) the Target Fund’s title to and possession of the Acquiring Fund Shares to be delivered hereunder and (b) the Trust’s assumption of all of the Liabilities, and to otherwise carry out the intent and purpose of this Agreement.
6.4 The Trust, on behalf of the Acquiring Fund, shall have delivered to the Target Fund a certificate executed in the name of the Trust, on behalf of the Acquiring Fund, by the Trust’s President or Vice President and its Treasurer or Assistant Treasurer, in a form reasonably satisfactory to the Target Fund and dated as of the Closing Date, as to the matters set forth in paragraphs 6.1 and 6.2 and as to such other matters as the Target Fund shall reasonably request.
6.5 The Trust, on behalf of each of the Acquiring Fund and the Target Fund, shall have agreed on the number of full and fractional Acquiring Fund Shares to be issued in connection with the Reorganization after such number has been calculated in accordance with paragraph 1.1.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TRUST, ON BEHALF OF THE ACQUIRING FUND
The obligations of the Trust, on behalf of the Acquiring Fund, to consummate the transactions provided for herein shall be subject, at the Trust’s election, to the following conditions:
7.1 All representations and warranties of the Trust, on behalf of the Target Fund, contained in this Agreement shall be true and correct in all material respects as of the date hereof and, except as they may be affected by the transactions contemplated by this Agreement, as of the Closing Date, with the same force and effect as if made on and as of the Closing Date.
7.2 The Trust, on behalf of the Target Fund, shall have performed all of the covenants and complied with all of the provisions required by this Agreement to be performed or complied with by the Trust, on behalf of the Target Fund, on or before the Closing Date.
7.3 The Trust, on behalf of the Target Fund, shall have delivered to the Acquiring Fund a Statement of Assets and Liabilities of the Target Fund as of the Closing Date, including a schedule of investments, certified by the Treasurer of the Trust on behalf of the Target Fund. The Trust, on behalf of the Target Fund, shall have executed and delivered all such assignments and other instruments of transfer as the Acquiring Fund may reasonably deem necessary or desirable in order to vest in and confirm (a) the Target Fund’s title to and possession of the Acquiring Fund Shares to be delivered hereunder and (b) the Acquiring Fund’s title to and possession of all the Assets and to otherwise carry out the intent and purpose of this Agreement.
7.4 The Trust, on behalf of the Target Fund, shall have delivered to the Acquiring Fund a certificate executed in the name of the Trust, on behalf of the Target Fund, by the Trust’s President or Vice President and its Treasurer or Assistant Treasurer, in a form reasonably satisfactory to the Acquiring Fund and dated as of the Closing Date, as to the matters set forth in paragraphs 7.1 and 7.2 and as to such other matters as the Acquiring Fund shall reasonably request.
7.5 The Trust, on behalf of each of the Target Fund and the Acquiring Fund, shall have agreed on the number of full and fractional Acquiring Fund Shares to be issued in connection with the Reorganization after such number has been calculated in accordance with paragraph 1.1.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TRUST
If any of the conditions set forth in paragraph 8.1 or paragraph 8.5 have not been satisfied on or before the Closing Date, the Transaction contemplated by this Agreement shall not be consummated. If any of the other conditions set forth below
B-10
have not been satisfied on or before the Closing Date with respect to each of the Target Fund and the Acquiring Fund, the Trust shall be entitled, at its option, to refuse to consummate the transactions contemplated by this Agreement:
8.1 This Agreement and the transactions contemplated herein shall have been approved by the requisite vote of the holders of the outstanding shares of the Target Fund, in accordance with the provisions of the 1940 Act and the Declaration, the bylaws, as amended, of the Trust, and Maryland law, as applicable, and certified copies of the report of the inspector of elections evidencing such approval, if any such approval is required, shall have been delivered to the Acquiring Fund. Notwithstanding anything herein to the contrary, the Trust may not waive the condition set forth in this paragraph 8.1.
8.2 On the Closing Date, no court or governmental agency of competent jurisdiction shall have issued any order that remains in effect and that restrains or enjoins the Trust, with respect to the Target Fund or the Acquiring Fund, from completing the transactions contemplated by this Agreement.
8.3 All consents of other parties and all other consents, orders and permits of federal, state and local regulatory authorities deemed necessary by the Trust to permit consummation, in all material respects, of the transactions contemplated hereby shall have been obtained, except where failure to obtain any such consent, order or permit would not involve a risk of a material adverse effect on the assets or properties of the Acquiring Fund or the Target Fund.
8.4 The Registration Statement shall have become effective under the 1933 Act and no stop orders suspending the effectiveness thereof shall have been issued and, to the best knowledge of the parties hereto, no investigation or proceeding for that purpose shall have been instituted or be pending.
8.5 The parties (other than LMPFA) shall have received the opinion of Willkie Farr & Gallagher LLP, dated the Closing Date, substantially to the effect that, based upon certain facts, assumptions and representations and upon certifications made by the Trust, on behalf of the Target Fund and the Acquiring Fund, and their respective authorized officers, for U.S. federal income tax purposes: (i) the acquisition by the Acquiring Fund of the Assets solely in exchange for the Acquiring Fund Shares and the assumption by the Acquiring Fund of the Liabilities of the Target Fund, followed by the distribution by the Target Fund to its shareholders of Acquiring Fund Shares in complete liquidation of the Target Fund, all pursuant to the Agreement, will constitute a “reorganization” within the meaning of Section 368(a) of the Code, and the Acquiring Fund and the Target Fund will each be a “party to a reorganization” within the meaning of Section 368(b) of the Code; (ii) no gain or loss will be recognized by the Target Fund upon the transfer of the Assets to the Acquiring Fund in exchange for the Acquiring Fund Shares and the assumption by the Acquiring Fund of the Liabilities, or upon the distribution of the Acquiring Fund Shares by the Target Fund to its shareholders in liquidation except for (A) any gain or loss that may be recognized with respect to contracts subject to Section 1256 of the Code, (B) any gain that may be recognized on the transfer of stock in a “passive foreign investment company” as defined in Section 1297(a) of the Code and (C) any other gain or loss that may be required to be recognized as a result of the closing of the Target Fund’s taxable year or upon the transfer of an asset regardless of whether such transfer would otherwise be a nonrecognition transaction under the Code; (iii) the basis in the hands of the Acquiring Fund of the Assets transferred to the Acquiring Fund in the Reorganization will be the same as the basis of such Assets in the hands of the Target Fund immediately prior to the Closing increased by the amount of gain (or decreased by the amount of loss), if any, recognized by the Target Fund upon the transfer; (iv) the holding periods in the hands of the Acquiring Fund of the Assets transferred to the Acquiring Fund in the Reorganization, other than any Asset with respect to which gain or loss is required to be recognized in the Reorganization, will include the periods during which the respective Assets were held by the Target Fund (except where investment activities of the Acquiring Fund have the effect of reducing or eliminating the holding period with respect to an Asset); (v) no gain or loss will be recognized by the Acquiring Fund upon receipt of the Assets solely in exchange for the Acquiring Fund Shares and the assumption by the Acquiring Fund of the Liabilities; (vi) no gain or loss will be recognized by the Target Fund Shareholders upon the exchange of their Target Fund Shares solely for the Acquiring Fund Shares as part of the Reorganization; (vii) the aggregate basis of the Acquiring Fund Shares that each Target Fund Shareholder receives in the Reorganization will be the same as the aggregate basis of his or her Target Fund Shares exchanged therefor; and (viii) a Target Fund Shareholder’s holding period for his or her Acquiring Fund Shares received in the Reorganization will include the period for which he or she held the Target Fund Shares exchanged therefor, provided that he or she held the Target Fund Shares as capital assets on the date of the exchange. The delivery of such opinion is conditioned upon the receipt by Willkie Farr & Gallagher LLP of representations it shall request of the Trust, on behalf of each of the Target Fund and the Acquiring Fund. Notwithstanding anything herein to the contrary, no party hereto may waive the condition set forth in this paragraph 8.5.
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8.6 [Reserved.]
8.7 [Reserved.]
8.8 The Assets will include no assets which the Acquiring Fund, by reason of limitations contained in the Declaration or in the Acquiring Fund’s investment restrictions in effect on the Closing Date, may not properly acquire.
9. INDEMNIFICATION
9.1 The Trust, out of the Acquiring Fund’s assets and property (including any amounts paid to the Acquiring Fund pursuant to any applicable liability insurance policies or indemnification agreements), agrees to indemnify and hold harmless the members of the Board and the Trust’s officers from and against any and all losses, claims, damages, liabilities or expenses (including, without limitation, the payment of reasonable legal fees and reasonable costs of investigation) to which the Trust and those members of the Board and officers may become subject, insofar as such loss, claim, damage, liability or expense (or actions with respect thereto) arises out of or is based on (a) any breach by the Trust, on behalf of the Acquiring Fund, of any of its representations, warranties, covenants or agreements set forth in this Agreement or (b) any act, error, omission, neglect, misstatement, materially misleading statement, breach of duty or other act wrongfully done or attempted to be committed by the Trust or the members of the Board or the Trust’s officers prior to the Closing Date, in each case on behalf of the Acquiring Fund, provided that such indemnification by the Trust is not (i) in violation of any applicable law or (ii) otherwise prohibited as a result of any applicable order or decree issued by any governing regulatory authority or court of competent jurisdiction.
9.2 The Trust, out of the Target Fund’s assets and property (including any amounts paid to the Target Fund pursuant to any applicable liability insurance policies or indemnification agreements), agrees to indemnify and hold harmless the members of the Board and the Trust’s officers from and against any and all losses, claims, damages, liabilities or expenses (including, without limitation, the payment of reasonable legal fees and reasonable costs of investigation) to which the Trust and those members of the Board and officers may become subject, insofar as such loss, claim, damage, liability or expense (or actions with respect thereto) arises out of or is based on (a) any breach by the Trust, on behalf of the Target Fund, of any of its representations, warranties, covenants or agreements set forth in this Agreement or (b) any act, error, omission, neglect, misstatement, materially misleading statement, breach of duty or other act wrongfully done or attempted to be committed by the Trust or the members of the Board or the Trust’s officers prior to the Closing Date, in each case on behalf of the Target Fund, provided that such indemnification by the Trust is not (i) in violation of any applicable law or (ii) otherwise prohibited as a result of any applicable order or decree issued by any governing regulatory authority or court of competent jurisdiction.
10. BROKER FEES AND EXPENSES
10.1 The Trust, on behalf of each of the Acquiring Fund and the Target Fund, represents and warrants that there are no brokers or finders entitled to receive any payments in connection with the transactions provided for herein.
10.2 LMPFA will pay half of the expenses and the out-of-pocket costs and expenses incurred by the Acquiring Fund solely and directly in connection with the Reorganization. LMPFA will pay half of the expenses and out-of-pocket costs and expenses incurred by the Target Fund solely and directly in connection with the Reorganization. Such costs and expenses include the cost of printing and mailing the Proxy Statement, accompanying notice of special meeting and proxy card, along with postage and proxy solicitation costs. Such costs and expenses do not include: (a) the transaction costs associated with repositioning the Target Fund’s portfolio, if any, in connection with the Reorganization and (b) the costs of related prospectus disclosure changes, both of which costs and expenses will be borne by the Target Fund before the Reorganization. Notwithstanding any of the foregoing, expenses will in any event be paid by the party directly incurring such expenses if and to the extent that the payment by another person of such expenses would result in a Fund’s failure to qualify for treatment as a “regulated investment company” within the meaning of Section 851 of the Code or would prevent the Reorganization from qualifying as a reorganization within the meaning of Section 368(a) of the Code.
11. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
11.1 The Trust agrees that it has not, on behalf of either the Acquiring Fund or the Target Fund, made any representation, warranty or covenant not set forth herein and that this Agreement constitutes the entire agreement between the parties.
B-12
11.2 The covenants to be performed after the Closing by the Trust, and the obligations of the Trust, on behalf of the Acquiring Fund and the Target Fund, in Article 9, shall survive the Closing. All other representations, warranties and covenants contained in this Agreement or in any document delivered pursuant hereto or in connection herewith shall not survive the consummation of the transactions contemplated hereunder and shall terminate on the Closing.
12. TERMINATION
This Agreement may be terminated and the transactions contemplated hereby may be abandoned at any time prior to the Closing Date without penalty to either Fund by resolution of the Board, if circumstances should develop that, in the opinion of the Board, make proceeding with the Agreement inadvisable with respect to the Acquiring Fund or the Target Fund. Any such termination resolution will be effective when communicated to the other party. The obligations of LMPFA set forth in paragraph 10.2 shall survive termination of this Agreement.
13. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as may be deemed necessary or advisable by the authorized officers of the Trust; provided, however, that following the meeting of the Target Fund Shareholders called by the Target Fund pursuant to paragraph 5.2 of this Agreement, no such amendment may have the effect of changing the provisions for determining the number of Acquiring Fund Shares to be issued to Target Fund Shareholders under this Agreement to the detriment of such shareholders without their further approval.
14. NOTICES
Any notice, report, statement or demand required or permitted by any provisions of this Agreement shall be in writing and shall be given by facsimile, electronic delivery (i.e., e-mail), personal service or prepaid or certified mail addressed to the Trust at its address set forth in the preamble to this Agreement, to the attention of its President.
15. HEADINGS; COUNTERPARTS; GOVERNING LAW; SEVERABILITY; ASSIGNMENT; LIMITATION OF LIABILITY
15.1 The Article headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.
15.2 This Agreement may be executed in any number of counterparts, each of which shall be deemed an original.
15.3 This Agreement shall be governed by and construed and interpreted in accordance with the internal laws of the State of Maryland.
15.4 This Agreement shall bind and inure to the benefit of the parties hereto and their respective successors and assigns, but no assignment or transfer hereof or of any rights or obligations hereunder shall be made by any party without the written consent of the other parties. Nothing herein expressed or implied is intended or shall be construed to confer upon or give any person, firm or corporation, other than the parties hereto and their respective successors and assigns, any rights or remedies under or by reason of this Agreement.
15.5 Consistent with the Declaration, the obligations of the Trust with respect to each of the Acquiring Fund and the Target Fund, entered into in the name or on behalf of the Trust by any of its Trustees, officers, employees or agents are made not individually, but in such capacities, and are not binding upon any of the Trustees, officers, employees, agents or shareholders of the Trust, personally, but bind only the assets of the Trust belonging to the Acquiring Fund and the Target Fund, and all persons dealing with any series or funds of the Trust must look solely to the assets of the Trust belonging to such series or fund for the enforcement of any claims against the Trust.
[Remainder of page intentionally left blank.]
B-13
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed by its duly authorized officer.
LEGG MASON PARTNERS EQUITY TRUST,
on behalf of its series CLEARBRIDGE LARGE CAP VALUE FUND
| | | | |
By: | | | | |
Name: R. Jay Gerken | | | | |
Title: President | | | | |
LEGG MASON PARTNERS EQUITY TRUST,
on behalf of its series LEGG MASON CAPITAL MANAGEMENT ALL CAP FUND
| | | | |
By: | | | | |
Name: R. Jay Gerken | | | | |
Title: President | | | | |
Solely for purposes of paragraph 10.2 of the Agreement:
LEGG MASON PARTNERS FUND ADVISOR, LLC
| | | | |
By: | | | | |
Name: R. Jay Gerken | | | | |
Title: President | | | | |
B-14
SCHEDULE 4.1
[None.]
B-15
APPENDIX C
Financial Highlights of ClearBridge Large Cap Value Fund
The financial highlights tables are intended to help you understand the performance of the fund’s Class A, Class B, Class C and Class I shares for the past five years, unless otherwise noted. Certain information reflects financial results for a single share. Total return represents the rate that a shareholder would have earned (or lost) on a fund share assuming reinvestment of all dividends and distributions. The information in the following tables has been derived from the fund’s and the predecessor fund’s financial statements, which have been audited by KPMG LLP, an independent registered public accounting firm, whose report, along with the fund’s financial statements, is included in the Annual Report (available upon request). The financial information shown below for periods prior to April 16, 2007 is that of the fund’s predecessor.
| | | | | | | | | | | | | | | | | | | | | | | | |
For a share of each class of beneficial interest outstanding throughout each year ended October 31,
unless otherwise noted: | |
| Class A Shares1 | | 2012 | | | 2011 | | | 2010 | | | 20092 | | | 20083 | | | 20073 | |
| | | | | | |
| Net asset value, beginning of year | | | $17.35 | | | | $16.28 | | | | $15.06 | | | | $13.24 | | | | $21.34 | | | | $21.81 | |
| | | | | | |
| Income (loss) from operations: | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income | | | 0.33 | | | | 0.27 | | | | 0.27 | | | | 0.21 | | | | 0.29 | | | | 0.28 | |
Net realized and unrealized gain (loss) | | | 2.71 | | | | 1.07 | | | | 1.23 | | | | 1.84 | | | | (7.69) | | | | 0.49 | |
Proceeds from settlement of a regulatory matter | | | — | | | | — | | | | 0.03 | | | | — | | | | — | | | | — | |
Total income (loss) from operations | | | 3.04 | | | | 1.34 | | | | 1.53 | | | | 2.05 | | | | (7.40) | | | | 0.77 | |
| | | | | | |
| Less distributions from: | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income | | | (0.33) | | | | (0.27) | | | | (0.31) | | | | (0.23) | | | | (0.27) | | | | (0.28) | |
Net realized gains | | | — | | | | — | | | | — | | | | — | | | | (0.43) | | | | (0.96) | |
Total distributions | | | (0.33) | | | | (0.27) | | | | (0.31) | | | | (0.23) | | | | (0.70) | | | | (1.24) | |
| | | | | | |
| Net asset value, end of year | | | $20.06 | | | | $17.35 | | | | $16.28 | | | | $15.06 | | | | $13.24 | | | | $21.34 | |
Total return4 | | | 17.61 | % | | | 8.26 | % | | | 10.24 | %5 | | | 15.79 | % | | | (35.52) | % | | | 3.50 | % |
| | | | | | |
| Net assets, end of year (000s) | | | $293,451 | | | | $271,942 | | | | $280,712 | | | | $289,956 | | | | $290,115 | | | | $583,441 | |
| | | | | | |
| Ratios to average net assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Gross expenses | | | 1.01 | % | | | 1.01 | % | | | 0.96 | % | | | 0.98 | %6 | | | 0.95 | % | | | 0.86 | % |
Net expenses7 | | | 1.01 | | | | 1.01 | | | | 0.96 | | | | 0.98 | 6 | | | 0.95 | | | | 0.85 | 8 |
Net investment income | | | 1.73 | | | | 1.54 | | | | 1.72 | | | | 1.91 | 6 | | | 1.61 | | | | 1.23 | |
| | | | | | |
| Portfolio turnover rate | | | 11 | % | | | 16 | % | | | 19 | % | | | 20 | % | | | 23 | % | | | 14 | % |
| 1 | Per share amounts have been calculated using the average shares method. |
| 2 | For the period January 1, 2009 through October 31, 2009. |
| 3 | For the year ended December 31. |
| 4 | Performance figures, exclusive of sales charges, may reflect compensating balance arrangements, fee waivers and/or expense reimbursements. In the absence of compensating balance arrangements, fee waivers and/or expense reimbursements, the total return would have been lower. Past performance is no guarantee of future results. Total returns for periods of less than one year are not annualized. |
| 5 | The total return reflects a payment received due to the settlement of a regulatory matter. Absent this payment, the total return would have been 10.03%. Class A received $539,741 related to this distribution. |
| 7 | The impact of compensating balance arrangements, if any, was less than 0.01%. |
| 8 | Reflects fee waivers and/or expense reimbursements. |
C-1
| | | | | | | | | | | | | | | | | | | | | | | | |
For a share of each class of beneficial interest outstanding throughout each year ended October 31,
unless otherwise noted: | |
| Class B Shares*,1 | | 2012 | | | 2011 | | | 2010 | | | 20092 | | | 20083 | | | 20073 | |
| | | | | | |
| Net asset value, beginning of year | | | $16.79 | | | | $15.77 | | | | $14.63 | | | | $12.89 | | | | $20.79 | | | | $21.28 | |
| | | | | | |
| Income (loss) from operations: | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income | | | 0.13 | | | | 0.08 | | | | 0.12 | | | | 0.11 | | | | 0.12 | | | | 0.10 | |
Net realized and unrealized gain (loss) | | | 2.61 | | | | 1.03 | | | | 1.15 | | | | 1.78 | | | | (7.46) | | | | 0.47 | |
Proceeds from settlement of a regulatory matter | | | — | | | | — | | | | 0.36 | | | | — | | | | — | | | | — | |
Total income (loss) from operations | | | 2.74 | | | | 1.11 | | | | 1.63 | | | | 1.89 | | | | (7.34) | | | | 0.57 | |
| | | | | | |
| Less distributions from: | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income | | | (0.12) | | | | (0.09) | | | | (0.49) | | | | (0.15) | | | | (0.13) | | | | (0.10) | |
Net realized gains | | | — | | | | — | | | | — | | | | — | | | | (0.43) | | | | (0.96) | |
Total distributions | | | (0.12) | | | | (0.09) | | | | (0.49) | | | | (0.15) | | | | (0.56) | | | | (1.06) | |
| | | | | | |
| Net asset value, end of year | | | $19.41 | | | | $16.79 | | | | $15.77 | | | | $14.63 | | | | $12.89 | | | | $20.79 | |
Total return4 | | | 16.34 | % | | | 7.05 | % | | | 11.49 | %5 | | | 14.85 | % | | | (36.05) | % | | | 2.67 | % |
| | | | | | |
| Net assets, end of year (000s) | | | $2,210 | | | | $3,546 | | | | $5,081 | | | | $8,073 | | | | $12,146 | | | | $36,423 | |
| | | | | | |
| Ratios to average net assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Gross expenses | | | 2.10 | % | | | 2.10 | % | | | 1.95 | % | | | 1.87 | %6 | | | 1.81 | % | | | 1.62 | % |
Net expenses7 | | | 2.10 | | | | 2.10 | | | | 1.95 | | | | 1.87 | 6 | | | 1.80 | 8,9 | | | 1.62 | 8,9 |
Net investment income | | | 0.72 | | | | 0.47 | | | | 0.79 | | | | 1.07 | 6 | | | 0.70 | | | | 0.44 | |
| | | | | | |
| Portfolio turnover rate | | | 11 | % | | | 16 | % | | | 19 | % | | | 20 | % | | | 23 | % | | | 14 | % |
| * | All outstanding Class B shares of the fund were reclassified as Class A shares of the fund on March 15, 2013. |
| 1 | Per share amounts have been calculated using the average shares method. |
| 2 | For the period January 1, 2009 through October 31, 2009. |
| 3 | For the year ended December 31. |
| 4 | Performance figures, exclusive of contingent deferred sales charges, may reflect compensating balance arrangements, fee waivers and/or expense reimbursements. In the absence of compensating balance arrangements, fee waivers and/or expense reimbursements, the total return would have been lower. Past performance is no guarantee of future results. Total returns for periods of less than one year are not annualized. |
| 5 | The total return reflects a payment received due to the settlement of a regulatory matter. Absent this payment, the total return would have been 8.95%. Class B received $142,705 related to this distribution. |
| 7 | The impact of compensating balance arrangements, if any, was less than 0.01%. |
| 8 | Reflects fee waivers and/or expense reimbursements. |
| 9 | As a result of a contractual expense limitation, effective March 5, 2007 until May 1, 2008, the ratio of expenses, other than brokerage, taxes and extraordinary expenses, to average net assets of Class B shares did not exceed 1.76%. |
C-2
| | | | | | | | | | | | | | | | | | | | | | | | |
For a share of each class of beneficial interest outstanding throughout each year ended October 31,
unless otherwise noted: | |
| Class C Shares1 | | 2012 | | | 2011 | | | 2010 | | | 20092 | | | 20083 | | | 20073 | |
| | | | | | |
| Net asset value, beginning of year | | | $16.93 | | | | $15.89 | | | | $14.70 | | | | $12.95 | | | | $20.88 | | | | $21.37 | |
| | | | | | |
| Income (loss) from operations: | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income | | | 0.18 | | | | 0.13 | | | | 0.14 | | | | 0.13 | | | | 0.16 | | | | 0.11 | |
Net realized and unrealized gain (loss) | | | 2.63 | | | | 1.05 | | | | 1.21 | | | | 1.78 | | | | (7.51) | | | | 0.48 | |
Proceeds from settlement of a regulatory matter | | | — | | | | — | | | | 0.04 | | | | — | | | | — | | | | — | |
Total income (loss) from operations | | | 2.81 | | | | 1.18 | | | | 1.39 | | | | 1.91 | | | | (7.35) | | | | 0.59 | |
| | | | | | |
| Less distributions from: | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income | | | (0.18) | | | | (0.14) | | | | (0.20) | | | | (0.16) | | | | (0.15) | | | | (0.12) | |
Net realized gains | | | — | | | | — | | | | — | | | | — | | | | (0.43) | | | | (0.96) | |
Total distributions | | | (0.18) | | | | (0.14) | | | | (0.20) | | | | (0.16) | | | | (0.58) | | | | (1.08) | |
| | | | | | |
| Net asset value, end of year | | | $19.56 | | | | $16.93 | | | | $15.89 | | | | $14.70 | | | | $12.95 | | | | $20.88 | |
Total return4 | | | 16.67 | % | | | 7.44 | % | | | 9.55 | %5 | | | 14.99 | % | | | (35.94) | % | | | 2.71 | % |
| | | | | | |
| Net assets, end of year (000s) | | | $43,485 | | | | $44,818 | | | | $52,164 | | | | $39,388 | | | | $41,205 | | | | $87,905 | |
| | | | | | |
| Ratios to average net assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Gross expenses | | | 1.78 | % | | | 1.79 | % | | | 1.76 | % | | | 1.71 | %6 | | | 1.66 | % | | | 1.57 | % |
Net expenses7 | | | 1.78 | | | | 1.78 | 8,9 | | | 1.69 | 8,9 | | | 1.71 | 6 | | | 1.66 | 8,10 | | | 1.57 | 8,10 |
Net investment income | | | 0.97 | | | | 0.78 | | | | 0.92 | | | | 1.19 | 6 | | | 0.89 | | | | 0.52 | |
| | | | | | |
| Portfolio turnover rate | | | 11 | % | | | 16 | % | | | 19 | % | | | 20 | % | | | 23 | % | | | 14 | % |
| 1 | Per share amounts have been calculated using the average shares method. |
| 2 | For the period January 1, 2009 through October 31, 2009. |
| 3 | For the year ended December 31. |
| 4 | Performance figures, exclusive of contingent deferred sales charges, may reflect compensating balance arrangements, fee waivers and/or expense reimbursements. In the absence of compensating balance arrangements, fee waivers and/or expense reimbursements, the total return would have been lower. Past performance is no guarantee of future results. Total returns for periods of less than one year are not annualized. |
| 5 | The total return reflects a payment received due to the settlement of a regulatory matter. Absent this payment, the total return would have been 9.28%. Class C received $143,002 related to this distribution. |
| 7 | The impact of compensating balance arrangements, if any, was less than 0.01%. |
| 8 | Reflects fee waivers and/or expense reimbursements. |
| 9 | As a result of a contractual expense limitation, effective December 21, 2009 until February 26, 2011, the ratio of expenses, other than brokerage, taxes and extraordinary expenses, to average net assets of Class C shares did not exceed 1.73%. |
| 10 | As a result of a contractual limitation, effective March 5, 2007 until May 1, 2008, the ratio of expenses, other than brokerage, taxes and extraordinary expenses, to average net assets of Class C shares did not exceed 1.64%. |
C-3
| | | | | | | | | | | | | | | | | | | | | | | | |
For a share of each class of beneficial interest outstanding throughout each year ended October 31,
unless otherwise noted: | |
| Class I Shares1 | | 2012 | | | 2011 | | | 2010 | | | 20092 | | | 20083 | | | 20073,4 | |
| | | | | | |
| Net asset value, beginning of year | | | $17.33 | | | | $16.26 | | | | $15.03 | | | | $13.22 | | | | $21.29 | | | | $21.77 | |
| | | | | | |
| Income (loss) from operations: | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income | | | 0.39 | | | | 0.33 | | | | 0.32 | | | | 0.24 | | | | 0.35 | | | | 0.34 | |
Net realized and unrealized gain (loss) | | | 2.69 | | | | 1.07 | | | | 1.23 | | | | 1.83 | | | | (7.66) | | | | 0.48 | |
Total income (loss) from operations | | | 3.08 | | | | 1.40 | | | | 1.55 | | | | 2.07 | | | | (7.31) | | | | 0.82 | |
| | | | | | |
| Less distributions from: | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income | | | (0.39) | | | | (0.33) | | | | (0.32) | | | | (0.26) | | | | (0.33) | | | | (0.34) | |
Net realized gains | | | — | | | | — | | | | — | | | | — | | | | (0.43) | | | | (0.96) | |
Total distributions | | | (0.39) | | | | (0.33) | | | | (0.32) | | | | (0.26) | | | | (0.76) | | | | (1.30) | |
| | | | | | |
| Net asset value, end of year | | | $20.02 | | | | $17.33 | | | | $16.26 | | | | $15.03 | | | | $13.22 | | | | $21.29 | |
Total return5 | | | 17.89 | % | | | 8.64 | % | | | 10.44 | % | | | 15.99 | % | | | (35.23) | % | | | 3.75 | % |
| | | | | | |
| Net assets, end of year (000s) | | | $389,564 | | | | $348,857 | | | | $355,400 | | | | $349,584 | | | | $327,822 | | | | $571,317 | |
| | | | | | |
| Ratios to average net assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Gross expenses | | | 0.69 | % | | | 0.67 | % | | | 0.65 | % | | | 0.70 | %6 | | | 0.61 | % | | | 0.57 | % |
Net expenses7 | | | 0.69 | 8 | | | 0.67 | 8,9 | | | 0.65 | 8,9 | | | 0.70 | 6,8 | | | 0.59 | 10,11 | | | 0.54 | 10,11 |
Net investment income | | | 2.05 | | | | 1.89 | | | | 2.02 | | | | 2.18 | 6 | | | 1.98 | | | | 1.52 | |
| | | | | | |
| Portfolio turnover rate | | | 11 | % | | | 16 | % | | | 19 | % | | | 20 | % | | | 23 | % | | | 14 | % |
| 1 | Per share amounts have been calculated using the average shares method. |
| 2 | For the period January 1, 2009 through October 31, 2009. |
| 3 | For the year ended December 31. |
| 4 | As of August 17, 2007, all Class I shares converted to Class O shares and Class O shares were redesignated as Class I shares. |
| 5 | Performance figures may reflect compensating balance arrangements, fee waivers and/or expense reimbursements. In the absence of compensating balance arrangements, fee waivers and/or expense reimbursements, the total return would have been lower. Past performance is no guarantee of future results. Total returns for periods of less than one year are not annualized. |
| 7 | The impact of compensating balance arrangements, if any, was less than 0.01%. |
| 8 | As a result of an expense limitation arrangement, effective September 18, 2009, the ratio of expenses, other than interest, brokerage, taxes, extraordinary expenses and acquired fund fees and expenses, to average net assets of Class I shares did not exceed 0.90%. This expense limitation arrangement cannot be terminated prior to December 31, 2014 without the Board of Trustees’ consent. |
| 9 | As a result of a contractual expense limitation, effective December 21, 2009 until February 26, 2011, the ratio of expenses, other than interest, brokerage, taxes and extraordinary expenses, to average net assets of Class I shares did not exceed 0.71%. This contractual expense limitation superseded the expense limitation of 0.90% for Class I shares for the period December 21, 2009 until February 26, 2011. |
| 10 | Reflects fee waivers and/or expense reimbursements. |
| 11 | As a result of a contractual expense limitation, effective March 5, 2007 until May 1, 2008, the ratio of expenses, other than brokerage, taxes and extraordinary expenses, to average net assets of Class I shares did not exceed 0.56%. |
C-4
APPENDIX D
HISTORICAL PERFORMANCE FOR EACH FUND
Legg Mason Capital Management All Cap Fund
The accompanying bar chart and table provide some indication of the risks of investing in the Fund. The bar chart shows changes in the Fund’s performance from year to year for Class A shares. The table shows the average annual total returns of each class of the Fund that has been in operation for at least one full calendar year and also compares the Fund’s performance with the average annual total returns of an index or other benchmark. No performance information is presented for Class A2 shares because this share class was not in existence during the periods shown. The returns for Class A2 shares would differ from those of Class A shares to the extent Class A2 shares bear different expenses. The Fund makes updated performance information available at the Fund’s website, http://www.leggmason.com/individualinvestors/products/mutual-funds/annualized_performance (select share class), or by calling the Fund at 1-877-721-1926.
The Fund’s past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future.
Sales charges are not reflected in the accompanying bar chart, and if those charges were included, returns would be less than those shown.
Prior to February 2, 2007, the Fund had a different manager and followed different investment strategies under the name “Legg Mason Partners Multiple Discipline Funds All Cap Growth and Value.” Prior to January 21, 2004, the Fund followed different investment strategies under the name “Premier Selections All Cap Growth Fund.”
Class A Shares
| | |
| Total returns (before taxes) (%) |
| |
 | | Best quarter: 6/30/2009 28.75% Worst quarter: 12/31/2008 (26.35)% The year-to-date return as of the most recent calendar quarter, which ended March 31, 2013, was [ ] |
| | | | | | | | | | |
| Average annual total returns (for periods ended December 31, 2012) (%) |
| | | 1 year | | 5 years | | 10 years | | Since inception (for
classes with fewer
than 10 years of
performance) | | Inception date |
| | | | | |
| Class A | | | | | | | | | | |
| Return before taxes | | 7.91 | | (1.80) | | 3.08 | | | | |
| Return after taxes on distributions | | 7.76 | | (1.84) | | 3.06 | | | | |
| Return after taxes on distributions and sale of fund shares | | 5.14 | | (1.54) | | 2.65 | | | | |
| | | | | |
| Other Classes (Return before taxes only) | | | | | | | | | | |
| Class C | | 12.99 | | (0.88) | | 3.19 | | | | |
| Class I1 | | 14.91 | | (0.25) | | | | (2.80) | | 10/02/2007 |
| Class 11 | | 14.89 | | (0.34) | | | | (4.25) | | 02/02/2007 |
| Russell 3000 Index (reflects no deductions for fees, expenses or taxes) | | 16.42 | | 2.04 | | 7.68 | | | | |
| 1 | For Class I and Class 1 shares, each for the period from the class’ commencement of operations to December 31, 2012, the average annual total return of the Russell 3000 Index was 1.00% and 2.13%, respectively. |
D-1
The after-tax returns are shown only for Class A shares, are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown, and the after-tax returns shown are not relevant to investors who hold their fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns for classes other than Class A will vary from returns shown for Class A.
D-2
ClearBridge Large Cap Value Fund
The accompanying bar chart and table provide some indication of the risks of investing in the Fund. The bar chart shows changes in the Fund’s performance from year to year for Class I shares. The table shows the average annual total returns of each class of the Fund that has been in operation for at least one full calendar year and also compares the Fund’s performance with the average annual total returns of an index or other benchmark. No performance information is presented for Class A2 or Class 1 shares because these share classes were not in existence during the periods shown. The returns for Class A2 and Class 1 shares would differ from those of Class I shares to the extent Class A2 or Class 1 shares bear different expenses. The Fund makes updated performance information available at the Fund’s website, http://www.leggmason.com/individualinvestors/products/mutual-funds/annualized_performance (select share class), or by calling the Fund at 1-877-721-1926.
The Fund’s past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future.
Sales charges are not reflected in the accompanying bar chart, and if those charges were included, returns would be less than those shown.
Prior to March 1, 2010, the Fund invested primarily in common stocks of established U.S. companies under the name “Legg Mason ClearBridge Investors Value Fund.”
Class I Shares
| | |
| Total returns (before taxes) (%) |
| |
 | | Best quarter (06/30/2003): 19.87 Worst quarter (12/31/2008): (19.93) The year-to-date return as of the most recent calendar quarter, which ended March 31, 2013, was [ ] |
| | | | | | |
| Average annual total returns (for periods ended December 31, 2012) (%) |
| | | 1 year | | 5 years | | 10 years |
| | | |
| Class I | | | | | | |
| Return before taxes | | 16.57 | | 1.46 | | 7.45 |
| Return after taxes on distributions | | 15.79 | | 0.66 | | 6.37 |
| Return after taxes on distributions and sale of fund shares | | 10.76 | | 0.77 | | 6.03 |
| | | |
| Other Classes (Return before taxes only) | | | | | | |
| Class A | | 9.55 | | (0.03) | | 6.49 |
| Class C | | 14.37 | | 0.43 | | 6.30 |
| Russell 1000 Value Index (reflects no deduction for fees, expenses or taxes) | | 17.51 | | 0.59 | | 7.38 |
| S&P 500 Index (reflects no deduction for fees, expenses or taxes) | | 16.00 | | 1.66 | | 7.10 |
After-tax returns are shown only for Class I shares are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown, and the after-tax returns shown are not relevant to investors who hold their fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns for classes other than Class I will vary from returns shown for Class I.
D-3
APPENDIX E
Instructions for Signing Proxy Card
The following general rules for signing the voting instruction card may be of assistance to you and avoid the time and expense involved in validating your vote if you fail to sign your voting instruction card properly.
1. Individual Accounts: Sign your name exactly as it appears in the registration on the voting instruction card.
2. Joint Accounts: Either party may sign, but the name of the party signing should conform exactly to the name shown in the registration on the voting instruction card.
3. All Other Accounts: The capacity of the individual signing the voting instruction card should be indicated unless it is reflected in the form of registration. For example:
| | |
Registration | | Valid Signature |
Corporate Accounts | | |
| |
(1) ABC Corp. | | ABC Corp. |
| |
(2) ABC Corp. | | John Doe, Treasurer |
| |
(3) ABC Corp., c/o John Doe, Treasurer | | John Doe |
| |
(4) ABC Corp. Profit Sharing Plan | | John Doe, Trustee |
| |
Trust Accounts | | |
| |
(1) ABC Trust | | Jane B. Doe, Trustee |
| |
(2) Jane B. Doe, Trustee, u/t/d 12/28/78 | | Jane B. Doe |
| |
Custodial or Estate Accounts | | |
| |
(1) John B. Smith, Cust., f/b/o John B. Smith, Jr. UGMA | | John B. Smith |
| |
(2) Estate of John B. Smith | | John B. Smith Jr., Executor |
E-1
APPENDIX F
5% Shareholders of the Target Fund and Acquiring Fund
To the knowledge of the Funds, as of [ ], 2013, the following persons owned beneficially or of record 5% or more of such Fund’s outstanding shares:
Legg Mason Capital Management All Cap Fund
| | | | |
Class | | Name and Address of Shareholder | | Percent
Ownership |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
ClearBridge Large Cap Value Fund
| | | | |
Class | | Name and Address of Shareholder | | Percent
Ownership |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
F-1
SUBJECT TO COMPLETION, DATED MARCH 15, 2013
STATEMENT OF ADDITIONAL INFORMATION
APRIL [ ], 2013
LEGG MASON PARTNERS EQUITY TRUST
ClearBridge Large Cap Value Fund
| | |
Acquisition of the Assets and Liabilities of: | | By and in Exchange for Shares of: |
| Legg Mason Capital Management All Cap Fund | | ClearBridge Large Cap Value Fund |
| |
620 Eighth Avenue New York, New York 10018 1-877-721-1926 | | 620 Eighth Avenue New York, New York 10018 1-877-721-1926 |
This Statement of Additional Information, which is not a prospectus, supplements and should be read in conjunction with the Proxy Statement/Prospectus dated April [ ], 2013, relating specifically to the proposed transfer of all of the assets and the assumption of all of the liabilities of Legg Mason Capital Management All Cap Fund (the “Target Fund”), a series of Legg Mason Partners Equity Trust (the “Trust”), in exchange for the assumption of all of the Target Fund’s liabilities by, and for shares of, ClearBridge Large Cap Value Fund (the “Acquiring Fund” and together with the Target Fund, the “Funds” and each, a “Fund”), also a series of the Trust, having an aggregate value equal to those of the Target Fund. To obtain a copy of the Proxy Statement/Prospectus, please write to the Acquiring Fund at the address set forth above or call 1-877-721-1926. The transfer is to occur pursuant to an Agreement and Plan of Reorganization. Unless otherwise indicated, capitalized terms used herein and not otherwise defined have the same meanings as are given to them in the Proxy Statement/Prospectus.
TABLE OF CONTENTS
S-1
GENERAL INFORMATION
A Special Meeting of Shareholders of the Target Fund to consider the Reorganization will be held at the offices of Legg Mason Partners Fund Advisor, LLC, 620 Eighth Avenue, New York, New York 10018, on July 11, 2013, at 10:00 a.m., Eastern time. For further information about the Reorganization, see the Proxy Statement/Prospectus.
FINANCIAL STATEMENTS AND OTHER INCORPORATED DOCUMENTS
The Statement of Additional Information related to the Proxy Statement/Prospectus dated April , 2013, consists of this cover page and the following documents, each of which was filed electronically with the Securities and Exchange Commission and is incorporated by reference herein:
The Statement of Additional Information of the Acquiring Fund:
| | | | |
Fund | | Date and Filing Date | | Accession Number |
ClearBridge Large Cap Value Fund | | March 1, 2013
(filed on February 22, 2013) | | 0001193125-13-071518 |
The Statement of Additional Information of the Target Fund:
| | | | |
Fund | | Date and Filing Date | | Accession Number |
Legg Mason Capital Management All Cap Fund | | September 1, 2012
(filed on August 23, 2012) | | 0001193125-12-366639 |
The financial statements of the Acquiring Fund and related independent registered public accounting firm’s report as included in the Fund’s Annual Report filed for the year ended October 31, 2012:
| | | | |
Fund | | Year Ended/Filing Date | | Accession Number |
ClearBridge Large Cap Value Fund | | October 31, 2012
(filed on December 27, 2012) | | 0001193125-12-516012 |
The financial statements of the Target Fund and related independent registered public accounting firm’s report as included in the Fund’s Annual Report filed for the year ended April 30, 2012:
| | | | |
Fund | | Period Ended/Filing Date | | Accession Number |
Legg Mason Capital Management All Cap Fund | | April 30, 2012
(filed on August 23, 2012) | | 0001193125-12-278441 |
The financial statements of the Target Fund and related independent registered public accounting firm’s report as included in the Fund’s Semiannual Report filed for the period ended October 31, 2012:
| | | | |
Fund | | Period Ended/Filing Date | | Accession Number |
Legg Mason Capital Management All Cap Fund | | October 31, 2012
(filed on December 27, 2012) | | 0001193125-12-515962 |
PRO FORMA FINANCIAL STATEMENTS
The unaudited pro forma information provided herein should be read in conjunction with the annual report to shareholders, for the fiscal year ended April 30, 2012 for the Target Fund, and for the fiscal year ended October 31, 2012 for the Acquiring Fund.
S-2
On February 5-6, 2013 the Board of Trustees of the Trust approved an Agreement and Plan of Reorganization (the “Reorganization Agreement”) whereby the Acquiring Fund will acquire all the assets, and assume all of the liabilities, of the Target Fund and the Target Fund will receive shares of the Acquiring Fund, to be distributed to the shareholders of the Target Fund in redemption of all of the outstanding shares of the Target Fund, and thereafter be terminated as a series of the Trust (the “Reorganization”).
The unaudited pro forma information set forth below for the year ended October 31, 2012 is intended to present ratios and supplemental data as if the acquisition of the Target Fund by the Acquiring Fund had been consummated at November 1, 2011.
The Target Fund is managed by Legg Mason Capital Management, LLC (“LMCM”). Legg Mason Partners Fund Advisor, LLC (“LMPFA”) is the investment manager of the Acquiring Fund and the sub-administrator of the Target Fund. ClearBridge Investments, LLC (“ClearBridge”) is the investment subadviser of the Acquiring Fund. Western Asset Management Company (“Western Asset”) manages the cash and short-term instruments of each Fund.
The Target Fund pays a management fee calculated daily and paid monthly, at an annual rate of 0.700% of the Fund’s average daily net assets up to $2 billion and 0.650% of the Fund’s average daily net assets over $2 billion. The Acquiring Fund pays a management fee calculated daily and paid monthly, at an annual rate of 0.650% of assets up to and including $350 million; 0.550% of assets over $350 million and up to and including $500 million; 0.525% of assets over $500 million and up to and including $750 million; 0.500% of assets over $750 million and up to and including $1 billion; and 0.450% of assets over $1 billion. LMCM pays Western Asset and LMPFA pays ClearBridge and Western Asset a portion of the management fees received from the Fund for subadvisory services.
The Acquiring Fund’s management fee may be increased or decreased based on the performance of the Fund relative to the investment record of the S&P 500 Index. This type of fee is sometimes referred to as a “fulcrum” fee. At the end of each calendar quarter, for each percentage point by which the investment performance of the class of shares of the Fund that has the lowest performance for the period exceeds or is exceeded by the investment record of the S&P 500 Index over the one year period ending on the last day of the calendar quarter for which the adjustment is being calculated, the base fee will be adjusted upward or downward by the product of: (i) 1/4 of 0.01% multiplied by (ii) the average daily net assets of the Fund for the one year period preceding the end of the calendar quarter. The base fee is calculated based on average daily net assets over the most recent quarter while the performance adjustment is based on average daily net assets over a one-year period. The performance adjustment, therefore, is based in part on the Fund’s historical performance during a rolling one-year period preceding the time at which it is assessed. Under the current breakpoint fee structure for the base fee, if the assets of the Fund decrease, the rate of the base fee increases. Accordingly, as the Fund’s assets decrease, the performance adjustment is added to or subtracted from a base fee of a higher rate. If the amount by which the Fund outperforms or underperforms the S&P 500 Index is not a whole percentage point, a pro rata adjustment shall be made. However, there will be no performance adjustment unless the investment performance of the Fund exceeds or is exceeded by the investment record of the S&P 500 Index by at least one percentage point. The maximum quarterly adjustment is 1/4 of 0.10%, which would occur if the Fund’s performance exceeds or is exceeded by the S&P 500 Index by ten or more percentage points.
The Target Fund and Acquiring Fund have the same distributor, transfer agent and custodian as one another. Each of these service providers has entered into an agreement with the Target Fund and the Acquiring Fund, which governs the provisions of services to such funds. Such agreements have the same terms with respect to each Fund.
As of October 31, 2012, the net assets of: (i) the Target Fund were approximately $420,637,222 and (ii) the Acquiring Fund were approximately $728,710,080. The net assets of the combined fund as of October 31, 2012 would have been approximately $1,149,347,302.
S-3
On a pro forma basis for the year ended October 31, 2012, the proposed Reorganization would have resulted in the following approximate decreases to expenses charged:
| | | | |
Investment management fees | | $ | 901,326 | |
Shareholder reporting fees | | $ | 5,384 | |
Registration fees | | $ | 29,925 | |
Legal fees | | $ | 46,175 | |
Audit and tax | | $ | 33,568 | |
Miscellaneous fees | | $ | 5,828 | |
Fee waivers and/or expenses reimbursed would have decreased by approximately $70 for the year ended October 31, 2012 on a pro forma basis, as a result of the proposed Reorganization.
No significant accounting policies (including valuation of portfolio securities) will change as a result of the proposed Reorganization.
The Reorganization will be accounted for as a tax-free reorganization of investment companies. In a tax-free reorganization:
| | 1. | No gain or loss is recognized by the target fund upon the transfer of its assets to the acquiring fund in exchange for shares of the acquiring fund and the assumption by the acquiring fund of all of the liabilities of the target fund, or upon the distribution of the shares of the acquiring fund by the target fund to its shareholders in liquidation of the target fund. |
| | 2. | No gain or loss is recognized by the target fund shareholders upon the exchange of their shares of the target fund solely for shares of the acquiring fund pursuant to the reorganization. |
| | 3. | The historical cost of investment securities generally is carried forward to the acquiring fund. |
The results of operations of the Acquiring Fund for pre-combination periods will not be restated.
As of December 31, 2012, the Funds are entitled to capital loss carryovers for federal income tax purposes in the amounts set forth below:
| | | | | | | | | | | | | | | | | | | | |
Target Fund | | | | | Acquiring Fund | |
| | | Amount of
Carryover | | | Fiscal Year of
Expiration
Prior to
Reorganization | | | | | | | Amount of
Carryover | | | Fiscal Year of
Expiration
Prior to
Reorganization | |
| | $ | (238,787,601 | ) | | | 4/30/2017 | | | | | | | $ | (4,957,958 | ) | | | No Expiration | (1) |
| | | (174,575,876 | ) | | | 4/30/2018 | | | | | | | | (4,070,212 | ) | | | 10/31/2016 | |
| | | | | | | | | | | | | | | (56,878,573 | ) | | | 10/31/2017 | |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | (413,363,477 | ) | | | | | | | | Total | | $ | (65,906,743 | ) | | | | |
| | | | | | | | | | | | | | | | | | | | |
| (1) | The Acquiring Fund is permitted to carry forward these capital losses for an unlimited period. However, these losses will be required to be utilized prior to the Acquiring Fund’s other capital losses with the expiration dates above. As a result of this ordering rule, the other capital losses may be more likely to expire unutilized. Additionally, these capital losses retain their character as either short-term or long-term capital losses rather than being considered all short-term as are the Acquiring Fund’s other capital losses listed above. |
Target Fund
Based on the recent data referred to above, the Reorganization would impact the use of the Target Fund’s capital loss carryovers in the following manner: (1) the expiration date of the Pre-2011 Losses would be accelerated by one year and realign themselves to the year of the Acquiring Fund; for example, the carryovers due to expire on April 30, 2017 would expire on October 31, 2015; (2) the Pre-2011 Losses would not be available to be utilized until all Post-2010 Losses of the
S-4
Acquiring Fund have been used; (3) a small portion of the Target Fund’s carryovers would benefit the shareholders of the combined fund, rather than only the shareholders of the Target Fund; (4) the aggregate amount of the carryovers that could be utilized in any taxable year would be limited to the product of the long-term tax-exempt rate at the time of the Reorganization and the net asset value of the Target Fund at that time (approximately $12,200,000 per year based on data as of a recent date); this limitation would be increased by any capital gains realized after the Reorganization on securities held by the Target Fund that had unrealized appreciation at the time of the Reorganization; and (5) any gains recognized after the Reorganization that are attributable to appreciation in the Acquiring Fund’s portfolio at the time of the Reorganization would not be able to offset the capital loss carryover of the Target Fund.
Based on such data, the combination of the above-referenced limitations on the use of loss carryovers would result in a significant portion (from $311,600,000 to $373,300,000 based on data as of a recent date) of the Target Fund’s loss carryovers expiring unused. It should be noted that there would be no assurances that the Target Fund would be able to use such losses in the absence of the Reorganization. Additionally, the Target Fund shareholders may benefit from the use of the Acquiring Fund’s capital loss carryovers by the combined fund after the Reorganization.
Acquiring Fund
Based on the recent data referred to above, the Reorganization would impact the use of the Acquiring Fund’s capital loss carryovers in the following manner: (1) the Acquiring Fund’s carryovers would benefit the shareholders of the combined fund, rather than only the shareholders of the Acquiring Fund; and (2) any gains recognized after the Reorganization attributable to unrealized appreciation in the Target Fund’s portfolio at the time of the Reorganization would not be able to offset the capital loss carryovers of the Acquiring Fund. Additionally, the Acquiring Fund shareholders may benefit from the use of a small portion of the Target Fund’s capital loss carryovers by the combined fund after the Reorganization.
Information Applicable to Both Funds
The capital loss carryovers and limitations described above may change significantly between now and the Closing Date, expected to be approximately July 19, 2013. Further, the ability of each Fund to use loss carryovers (even in the absence of the Reorganization) depends on factors other than loss limitations, such as the future realization of capital gains or losses. The effect of the combination of these factors on the use of loss carryovers may result in some portion of the Pre-2011 Losses of either or both of the Funds expiring unused. This may result in shareholders paying more taxes or paying taxes sooner than they otherwise would if the Reorganization did not occur.
The Target Fund will pay estimated reorganization costs of $194,700 out of $389,400 expected to be incurred in connection with entering into and carrying out the provisions of the Reorganization Agreement, whether or not the Reorganization is consummated. This estimate reflects LMPFA paying 50% of the estimated costs that would otherwise be incurred by the Target Fund. LMPFA will also pay 50% of the Acquiring Fund’s reorganization costs whether or not the Reorganization is consummated.
S-5
PART C
OTHER INFORMATION
The response to this item is incorporated herein by reference to Pre-Effective Amendment No. 1 as filed on December 6, 1991.
The directors and officers of the Registrant and the personnel of the Registrant’s manager are insured under an errors and omissions liability insurance policy. The Registrant and its officers are also insured under the fidelity bond required by Rule 17g-1 under the Investment Company Act of 1940.
Reference is hereby made to (a) paragraph 9 of the Distribution Agreement between the Registrant and LMIS, incorporated by reference herein.
| | | | | | |
| (1) | | (a) | | | | The Registrant’s Declaration of Trust dated as of October 2, 2006 is incorporated herein by reference to Post-Effective Amendment No. 70 as filed with the SEC on April 16, 2007 (“Post-Effective Amendment No. 70”). |
| | (b) | | | | The Registrant’s Declaration of Trust dated as of October 2, 2006 as amended and restated as of August 18, 2011 is incorporated herein by reference to Post-Effective Amendment No. 213 as filed with the SEC on August 22, 2011 (“Post-Effective Amendment No. 213”). |
| | (c) | | | | Designation of Series of Shares of Beneficial Interests in the Trust effective as of February 8, 2007 is incorporated herein by reference to Post-Effective Amendment No. 70. |
| | (d) | | | | Amended and Restated Designation of Series of Shares of Beneficial Interests in the Trust effective as of August 9, 2007 is incorporated herein by reference to Post-Effective Amendment No. 72 as filed with the SEC on August 24, 2007 (“Post-Effective Amendment No. 72”). |
| | (e) | | | | Amended and Restated Designation of Classes effective as of August 9, 2007 is incorporated herein by reference to Post-Effective Amendment No. 72. |
| | (f) | | | | Amended and Restated Designation of Series of Shares of Beneficial Interests in the Trust and Amended and Restated Designation of Classes effective as of November 8, 2007 is incorporated herein by reference to Post-Effective Amendment No. 76 as filed with the SEC on November 30, 2007 (“Post-Effective Amendment No. 76”). |
| | (g) | | | | Amended and Restated Designation of Series of Shares of Beneficial Interests in the Trust effective as of February 7, 2008 is incorporated herein by reference to Post-Effective Amendment No. 87 as filed with the SEC on February 15, 2008 (“Post-Effective Amendment No. 87”). |
| | (h) | | | | Amended and Restated Designation of Classes effective as of February 7, 2008 is incorporated herein by reference to Post-Effective Amendment No. 87. |
| | (i) | | | | Amended and Restated Designation of Series of Shares of Beneficial Interests in the Trust effective as of May 8, 2008 is incorporated herein by reference to Post-Effective Amendment No. 109 as filed with the SEC on June 3, 2008 (“Post-Effective Amendment No. 109”). |
| | (j) | | | | Amended and Restated Designation of Classes effective as of May 8, 2008 is incorporated herein by reference to Post-Effective Amendment No. 109. |
| | (k) | | | | Amended and Restated Designation of Series of Shares of Beneficial Interests in the Trust effective as of June 6, 2008 is incorporated herein by reference to Post-Effective Amendment No. 110 as filed with the SEC on June 6, 2008 (“Post-Effective Amendment No. 110”). |
| | (l) | | | | Amended and Restated Designation of Classes effective as of June 6, 2008 is incorporated herein by reference to Post-Effective Amendment No. 110. |
| | (m) | | | | Amended and Restated Designation of Series of Shares of Beneficial Interests in the Trust effective as of January 28, 2009 is incorporated herein by reference to Post-Effective Amendment No. 133 as filed with the SEC on January 28, 2009 (“Post-Effective Amendment No. 133”). |
| | (n) | | | | Amended and Restated Designation of Classes effective as of January 28, 2009 is incorporated herein by reference to Post-Effective Amendment No. 133. |
C-1
| | | | | | |
| | (o) | | | | Amended and Restated Designation of Classes effective as of February 26, 2009 is incorporated herein by reference to Post-Effective Amendment No. 137 as filed with the SEC on February 27, 2009 (“Post-Effective Amendment No. 137”). |
| | (p) | | | | Amended and Restated Designation of Classes effective as of February 26, 2009 is incorporated herein by reference to Post-Effective Amendment No. 146 as filed with the SEC on June 25, 2009 (“Post-Effective Amendment No. 146”). |
| | (q) | | | | Amended and Restated Designation of Series of Shares of Beneficial Interests in the Trust effective as of August 5, 2009 is incorporated herein by reference to Post-Effective Amendment No. 150 as filed with the SEC on November 6, 2009 (“Post-Effective Amendment No. 150”). |
| | (r) | | | | Amended and Restated Designation of Classes effective as of August 5, 2009 is incorporated herein by reference to Post-Effective Amendment No. 150. |
| | (s) | | | | Amended and Restated Designation of Series of Shares of Beneficial Interest in the Trust effective as of December 7, 2009 is incorporated herein by reference to Post-Effective Amendment No. 159 as filed with the SEC on February 16, 2010 (“Post-Effective Amendment No. 159”). |
| | (t) | | | | Amended and Restated Designation of Classes effective as of December 7, 2009 is incorporated herein by reference to Post-Effective Amendment No. 159. |
| | (u) | | | | Amended and Restated Designation of Series of Shares of Beneficial Interest in the Trust effective as of February 4, 2010 is incorporated herein by reference to Post-Effective Amendment No. 162 as filed with the SEC on February 16, 2010 (“Post-Effective Amendment No. 162”). |
| | (v) | | | | Amended and Restated Designation of Classes effective as of February 4, 2010 is incorporated herein by reference to Post-Effective Amendment No. 162. |
| | (w) | | | | Amended and Restated Designation of Series of Shares of Beneficial Interest in the Trust effective as of May 6, 2010 is incorporated herein by reference to Post-Effective Amendment No. 171 as filed with the SEC on June 4, 2010 (“Post-Effective Amendment No. 171”). |
| | (x) | | | | Amended and Restated Designation of Classes effective as of May 6, 2010 is incorporated herein by reference to Post-Effective Amendment No. 171. |
| | (y) | | | | Amended and Restated Designation of Series of Shares of Beneficial Interests in the Trust effective as of May 6, 2010 is incorporated herein by reference to Post-Effective Amendment No. 172 as filed with the SEC on June 16, 2010 (“Post-Effective Amendment No. 172”). |
| | (z) | | | | Amended and Restated Designation of Classes effective as of May 6, 2010 is incorporated herein by reference to Post-Effective Amendment No. 172. |
| | (aa) | | | | Amended and Restated Designation of Series of Shares of Beneficial Interest in the Trust effective as of June 15, 2010 is incorporated herein by reference to Post-Effective Amendment No. 173 as filed with the SEC on July 28, 2010 (“Post-Effective Amendment No. 173”). |
| | (bb) | | | | Amended and Restated Designation of Classes effective as of June 15, 2010 is incorporated herein by reference to Post-Effective Amendment No. 173. |
| | (cc) | | | | Amended and Restated Designation of Series of Shares of Beneficial Interest in the Trust is incorporated herein by reference to Post-Effective Amendment No. 179 as filed with the SEC on December 29, 2010. |
| | (dd) | | | | Amended and Restated Designation of Classes effective as of November 4, 2010 is incorporated herein by reference to Exhibit 1(bb) to the Registration Statement on Form N-14 of Legg Mason Partners Equity Trust as filed with the SEC on November 19, 2010. |
| | (ee) | | | | Amended and Restated Designation of Series of Shares of Beneficial Interest in the Trust effective as of January 17, 2012 is incorporated herein by reference to Post-Effective Amendment No. 218 as filed with the SEC on January 25, 2012 (“Post-Effective Amendment No. 218”). |
| | (ff) | | | | Amended and Restated Designation of Classes effective as of January 17, 2012 is incorporated herein by reference to Post-Effective Amendment No. 218. |
| | (gg) | | | | Amended and Restated Designation of Series of Shares of Beneficial Interest in the Trust effective as of April 13, 2012 is incorporated herein by reference to Post-Effective Amendment No. 230 as filed with the SEC on April 13, 2012 (“Post-Effective Amendment No. 230”). |
| | (hh) | | | | Amended and Restated Designation of Classes effective as of April 13, 2012 is incorporated herein by reference to Post-Effective Amendment No. 230. |
| | (ii) | | | | Amended and Restated Designation of Classes effective as of August 1, 2012 is incorporated herein by reference to Post-Effective Amendment No. 243 as filed with the SEC on August 23, 2012. |
C-2
| | | | | | |
| | (jj) | | | | Amended and Restated Designation of Series of Shares of Beneficial Interest in the Trust effective as of September 12, 2012 is incorporated herein by reference to Post-Effective Amendment No. 246 as filed with the SEC on September 12, 2012 (“Post-Effective Amendment No. 246”). |
| | (kk) | | | | Amended and Restated Designation of Classes effective as of September 12, 2012 is incorporated herein by reference to Post-Effective Amendment No. 246. |
| | (ll) | | | | Amended and Restated Designation of Series effective as of October 1, 2012 is incorporated herein by reference to Post-Effective Amendment No. 249 as filed with the SEC on November 30, 2012 (“Post-Effective Amendment No. 249”). |
| | (mm) | | | | Amended and Restated Designation of Series dated November 28, 2012 is incorporated herein by reference to Post-Effective Amendment No. 249. |
| | (nn) | | | | Amended and Restated Designation of Classes dated November 28, 2012 is incorporated herein by reference to Post-Effective Amendment No. 249. |
| | (oo) | | | | Amended and Restated Designation of Classes dated January 1, 2013 is incorporated herein by reference to Post-Effective Amendment No. 255 as filed with the SEC on December 12, 2012. |
| | (pp) | | | | Amended and Restated Designation of Classes dated February 6, 2013 is incorporated herein by reference to Post-Effective Amendment No. 257 as filed with the SEC on February 22, 2013. |
| | | |
| (2) | | (a) | | | | The Registrant’s By-Laws dated October 4, 2006 are incorporated herein by reference to Post-Effective Amendment No. 70. |
| | (b) | | | | The Registrant’s By-Laws dated October 4, 2006 as amended and restated as of August 18, 2011 are incorporated herein by reference to Post-Effective Amendment No. 213. |
| | |
| (3) | | | | Not Applicable. |
| | |
| (4) | | | | Form of Agreement and Plan of Reorganization is included in Part A of the Registration Statement on Form N-14. |
| | |
| (5) | | | | Not Applicable. |
| | | |
| (6) | | (a) | | | | Form of Management Agreement between the Registrant, on behalf of Legg Mason ClearBridge Large Cap Value Fund (formerly known as Legg Mason ClearBridge Investors Value Fund), and Legg Mason Partners Fund Advisor, LLC (“LMPFA”) is incorporated herein by reference to Post-Effective Amendment No. 78 as filed with the SEC on December 14, 2007 (“Post-Effective Amendment No. 78”). |
| | (b) | | | | Form of Subadvisory Agreement between LMPFA and ClearBridge, with respect to Legg Mason ClearBridge Large Cap Value Fund (formerly known as Legg Mason ClearBridge Investors Value Fund), is incorporated herein by reference to Post-Effective Amendment No. 78. |
| | (c) | | | | Form of Subadvisory Agreement between LMPFA and WAM, regarding Legg Mason ClearBridge Large Cap Value Fund, dated February 2, 2011, is incorporated herein by reference to Post-Effective Amendment No. 215 as filed with the SEC on December 16, 2011 (“Post-Effective Amendment No. 215”). |
| | (d) | | | | Form of Subadvisory Agreement between LMPFA and WAM, regarding Legg Mason Capital Management All Cap Fund, is incorporated herein by reference to Post-Effective Amendment No. 247 as filed with the SEC on September 26, 2012. |
| | (e) | | | | Form of Sub-administration Agreement between LMCM and LMPFA, with respect to Legg Mason Capital Management All Cap Fund, is incorporated herein by reference to Post-Effective Amendment No. 76. |
| | | |
| (7) | | (a) | | | | Form of Distribution Agreement with Citigroup Global Markets Inc. (“CGMI”) is incorporated herein by reference to Post-Effective Amendment No. 30 as filed with the SEC on August 16, 2000 (“Post-Effective Amendment No. 30”). |
| | (c) | | | | Form of Distribution Agreement with PFS Distributors, Inc. is incorporated herein by reference to Post-Effective Amendment No. 30. |
| | (d) | | | | Form of Amendment to the Distribution Agreement with CGMI dated as of December 1, 2005, is incorporated herein by reference to Post-Effective Amendment No. 56 as filed with the SEC on January 27, 2006 (“Post-Effective Amendment No. 56”). |
| | (e) | | | | Form of Amendment of Distribution Agreement and Assumption of Duties and Responsibilities, among the Registrant, PFS Distributors, Inc. and PFS Investments, Inc. (“PFS”), dated as of December 1, 2005, is incorporated herein by reference to Post-Effective Amendment No. 56. |
| | (f) | | | | Letter Agreement amending the Distribution Agreements with CGMI dated April 10, 2007, is incorporated herein by reference to Post-Effective Amendment No. 76. |
C-3
| | | | | | |
| | (g) | | | | Letter Agreement amending the Distribution Agreements with PFS dated April 6, 2007, is incorporated herein by reference to Post-Effective Amendment No. 76. |
| | (h) | | | | Form of Distribution Agreement with Legg Mason Investor Services, LLC (“LMIS”) is incorporated herein by reference to Post-Effective Amendment No. 128, as filed with the SEC on December 15, 2008. |
| | (i) | | | | Form of Distribution Agreement with LMIS dated August 5, 2010 is incorporated herein by reference to Post-Effective Amendment No. 218. |
| | | |
| (8) | | (a) | | | | Emeritus Retirement Plan relating to certain funds, established effective as of January 1, 2007, is incorporated herein by reference to Post-Effective Amendment No. 60 as filed with the SEC on December 5, 2006 (“Post-Effective Amendment No. 60”). |
| | (b) | | | | Amended and Restated Trustee Retirement Plan relating to certain funds dated as of January 1, 2005 (the “General Retirement Plan”), is incorporated herein by reference to Post-Effective Amendment No. 61 as filed with the SEC on January 8, 2007 (“Post-Effective Amendment No. 61”). |
| | (c) | | | | Legg Mason Investment Series (f/k/a Smith Barney Investment Series) Amended and Restated Trustees Retirement Plan dated as of January 1, 2005, is incorporated herein by reference to Post-Effective Amendment No. 61. |
| | (d) | | | | Amendment to the General Retirement Plan and the Legg Mason Partners Investment Series Amended and Restated Trustees Retirement Plan is incorporated herein by reference to Post-Effective Amendment No. 61. |
| | (e) | | | | Amended and Restated Emeritus Retirement Plan relating to certain funds, established effective as of January 1, 2007, is incorporated herein by reference to Post-Effective Amendment No. 61. |
| | | |
| (9) | | (a) | | | | Custodian Services Agreement with State Street Bank and Trust Company (“State Street”), dated October 5, 2012, is incorporated herein by reference to Post-Effective Amendment No. 249. |
| | (b) | | | | Fund Accounting Services Agreement with State Street, dated October 5, 2012, is incorporated herein by reference to Post-Effective Amendment No. 249. |
| | (c) | | | | Letter Agreement amending the Custodian Services Agreement and Fund Accounting Services Agreement with State Street, effective as of November 30, 2012, is incorporated herein by reference to Post-Effective Amendment No. 249. |
| | (d) | | | | Form of Letter Agreement amending the Custodian Services Agreement and Fund Accounting Services Agreement with State Street is incorporated herein by reference to Post-Effective Amendment No. 259 as filed with the SEC on February 25, 2013. |
| | | |
| (10) | | (a) | | | | Amended Shareholder Services and Distribution Plan relating to Class A, B, C, FI, R and I Shares is incorporated herein by reference to Post-Effective Amendment No. 74 as filed with the SEC on November 1, 2007. |
| | (b) | | | | Amended Shareholder Services and Distribution Plan relating to Class A, B, C, FI, R and I Shares is incorporated herein by reference to Post-Effective Amendment No. 81 as filed with the SEC on January 29, 2008. |
| | (c) | | | | Amended Shareholder Services and Distribution Plan relating to Class A, B, C, FI, R, I and IS Shares dated as of February 7, 2008 is incorporated herein by reference to Post-Effective Amendment No. 86 as filed with the SEC on February 15, 2008. |
| | (d) | | | | Amended Shareholder Services and Distribution Plan relating to Class A, B, C, FI, R, I and IS Shares dated as of August 7, 2008 is incorporated herein by reference to Post-Effective Amendment No. 119 as filed with the SEC on August 28, 2008. |
| | (e) | | | | Amended Shareholder Services and Distribution Plan relating to Class R1 Shares dated as of February 26, 2009 is incorporated herein by reference to Post-Effective Amendment No. 137. |
| | (f) | | | | Amended Shareholder Services and Distribution Plan relating to Class R1 Shares dated as of February 26, 2009 is incorporated herein by reference to Post-Effective Amendment No. 146. |
| | (g) | | | | Amended Shareholder Services and Distribution Plan dated as of December 7, 2009 is incorporated herein by reference to Post-Effective Amendment No. 159. |
| | (h) | | | | Amended Shareholder Services and Distribution Plan dated as of February 4, 2010 is incorporated herein by reference to Post-Effective Amendment No. 162. |
| | (i) | | | | Amended Shareholder Services and Distribution Plan dated as of August 5, 2010 is incorporated herein by reference to Post-Effective Amendment No. 177 as filed with the SEC on August 31, 2010. |
| | (j) | | | | Rule 18f-3(d) Multiple Class Plan of the Registrant pursuant to Rule 18f-3 is incorporated herein by reference to Post-Effective Amendment No. 76. |
C-4
| | | | | | |
| | |
| (11) | | | | Opinion and consent of Venable LLP as to the legality of the securities being registered is filed herewith. |
| | |
| (12) | | | | Form of Opinion of Willkie Farr & Gallagher LLP supporting the tax matters and consequences to shareholders discussed in the Proxy Statement/Prospectus is filed herewith. |
| | |
| (13) | | | | Not Applicable. |
| | |
| (14) | | | | Consent of Independent Registered Public Accounting Firm is filed herewith. |
| | |
| (15) | | | | Not Applicable. |
| | |
| (16) | | | | Power of Attorney is filed herewith. |
| | | |
| (17) | | (a) | | | | Form of Proxy Card is filed herewith. |
| | (b) | | | | Audited Financial Statements of the Annual Report of ClearBridge Large Cap Value Fund for the year ended October 31, 2012 are filed herewith. |
| | (c) | | | | Audited Financial Statements of the Annual Report of Legg Mason Capital Management All Cap Fund for the year ended April 30, 2012 are filed herewith. |
| | (d) | | | | Unaudited Financial Statements of the Semi-Annual Report of Legg Mason Capital Management All Cap Fund for the period ended October 31, 2012 is filed herewith. |
| | (e) | | | | Transfer Agency and Services Agreement, dated January 1, 2006, between the Registrant and BNY Mellon Investment Servicing (US) Inc. (“BNY”) (formerly PNC Global Investment Servicing (U.S.) Inc.) is incorporated herein by reference to Post-Effective Amendment No. 56. |
| | (f) | | | | Co-Transfer Agency and Services Agreement, dated April 1, 2009, between the Registrant and BNY incorporated herein by reference to Post-Effective Amendment No. 147 as filed with the SEC on July 29, 2009. |
| | (g) | | | | Form of Letter Agreement amending the Co-Transfer Agency and Services Agreement, dated April 1, 2009, between the Registrant and BNY is incorporated herein by reference to Post-Effective Amendment No. 238 as filed with the SEC on June 25, 2012 (“Post-Effective Amendment No. 238”). |
| | (h) | | | | Transfer Agency and Services Agreement, dated April 4, 2009, between each series of the Registrant and Boston Financial Data Services, Inc. is incorporated herein by reference to Post-Effective Amendment No. 141 as filed with the SEC on April 9, 2009 (“Post-Effective Amendment No. 141”). |
| | (i) | | | | Form of Letter Agreement amending the Transfer Agency and Services Agreement, dated April 4, 2009, between each series of the Registrant and Boston Financial Data Services, Inc. is incorporated herein by reference to Post-Effective Amendment No. 238. |
| | (j) | | | | Form of Letter Agreement amending the Transfer Agency and Services Agreement, dated April 4, 2009, between each series of the Registrant and Boston Financial Data Services, Inc., dated November 28, 2012 is incorporated herein by reference to Post-Effective Amendment No. 249. |
| | (k) | | | | Form of Letter Agreement amending the Transfer Agency and Services Agreement, dated April 4, 2009, between each series of the Registrant and Boston Financial Data Services, Inc. is incorporated herein by reference to Post-Effective Amendment No. 259. |
| | (l) | | | | Form of License Agreement between the Registrant and Legg Mason Properties, Inc. is incorporated herein by reference to Post-Effective Amendment No. 58 as filed with the SEC on April 28, 2006 (“Post-Effective Amendment No. 58”). |
| | (m) | | | | License Agreement between the Registrant and Citigroup Inc. dated December 1, 2005 is incorporated herein by reference to Post-Effective Amendment No. 58. |
| | (n) | | | | Form of Fee Waiver and Expense Reimbursement Agreement is incorporated herein by reference to Post-Effective Amendment No. 60. |
| | (o) | | | | Letter Agreement amending the Transfer Agency and Services Agreement with BNY, dated April 9, 2007, is incorporated herein by reference to Post-Effective Amendment No. 76. |
| | (p) | | | | Fee Waiver and Expense Reimbursement Resolutions adopted by the Board of Trustees are incorporated herein by reference to Post-Effective Amendment No. 198 filed on April 26, 2011. |
| | (q) | | | | Fee Waiver and Expense Reimbursement Resolutions adopted by the Board of Trustees are incorporated herein by reference to Post-Effective Amendment No. 259. |
| | (r) | | | | Purchase Agreement between the Registrant and Shearson Lehman Brothers Inc. is incorporated herein by reference to Pre-Effective Amendment No. 1 as filed on December 6, 1991. |
| | (s) | | | | Code of Ethics of Legg Mason & Co., LLC (adopted by LMPFA, LMIS and Legg Mason Global Asset Allocation, LLC) is incorporated herein by reference to Post-Effective Amendment No. 215. |
| | (t) | | | | Code of Ethics of Legg Mason Capital Management, LLC is incorporated herein by reference to Post-Effective Amendment No. 73 as filed with the SEC on August 27, 2007. |
C-5
| | | | | | |
| | (u) | | | | Code of Ethics of ClearBridge Investments, LLC (formerly known as ClearBridge Advisors, LLC) is incorporated herein by reference to Post-Effective Amendment No. 148 as filed with the SEC on August 26, 2009. |
| | (v) | | | | Code of Ethics of Western Asset Management Company is incorporated herein by reference to Post-Effective Amendment No. 215. |
| | (w) | | | | Statement of Additional Information of ClearBridge Large Cap Value Fund, dated March 1, 2013, is filed herewith. |
| | (x) | | | | Prospectus and Statement of Additional Information of Legg Mason Capital Management All Cap Fund, dated September 1, 2012, is filed herewith. |
(1) The undersigned registrant agrees that prior to any public reoffering of the securities registered through the use of a 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 [17 CFR 230.145c], the reoffering prospectus will contain the information called for by the applicable registration form for the reofferings 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 1933 Act, 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) The Registrant hereby undertakes to file, by post-effective amendment, the final opinion of Willkie Farr & Gallagher LLP supporting the tax consequences of the proposed reorganization as soon as practicable after the closing of the reorganization.
C-6
SIGNATURES
As required by the Securities Act of 1933, this registration statement has been signed on behalf of the registrant, in the City of New York and State of New York, on this 15th day of March, 2013.
| | |
| LEGG MASON PARTNERS EQUITY TRUST, |
| on behalf of ClearBridge Large Cap Value Fund |
| |
| By: | | /S/ R. JAY GERKEN |
| | R. Jay Gerken |
| | President and Chief Executive Officer |
As required by the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
| | | | |
SIGNATURE | | TITLE | | DATE |
| | |
/S/ R. JAY GERKEN | | President, Chief Executive Officer and Trustee | | March 15, 2013 |
| R. Jay Gerken | | |
| | |
/S/ RICHARD F. SENNETT | | Principal Chief Financial Officer | | March 15, 2013 |
| Richard F. Sennett | | |
| | |
/S/ PAUL R. ADES* | | Trustee | | March 15, 2013 |
| Paul R. Ades | | |
| | |
/S/ ANDREW L. BREECH* | | Trustee | | March 15, 2013 |
| Andrew L. Breech | | |
| | |
/S/ DWIGHT B. CRANE* | | Trustee | | March 15, 2013 |
| Dwight B. Crane | | |
| | |
/S/ FRANK G. HUBBARD* | | Trustee | | March 15, 2013 |
| Frank G. Hubbard | | |
| | |
/S/ HOWARD J. JOHNSON* | | Trustee | | March 15, 2013 |
| Howard J. Johnson | | |
| | |
/S/ JEROME H. MILLER* | | Trustee | | March 15, 2013 |
| Jerome H. Miller | | |
| | |
/S/ KEN MILLER* | | Trustee | | March 15, 2013 |
| Ken Miller | | |
| | |
/S/ JOHN J. MURPHY* | | Trustee | | March 15, 2013 |
| John J. Murphy | | |
| | |
/S/ THOMAS F. SCHLAFLY* | | Trustee | | March 15, 2013 |
| Thomas F. Schlafly | | |
| | |
/S/ JERRY A. VISCIONE* | | Trustee | | March 15, 2013 |
| Jerry A. Viscione | | |
| | | | | | |
| *BY: | | /s/ R. JAY GERKEN R. Jay Gerken | | | | March 15, 2013 |
| * | Attorney-in-Fact, pursuant to Power of Attorney. |
EXHIBIT INDEX
| | |
EXHIBIT NO. | | EXHIBITS |
| (11) | | Opinion and consent of Venable LLP as to the legality of the securities being registered. |
| |
| (12) | | Form of Opinion of Willkie Farr & Gallagher LLP supporting the tax matters and consequences to shareholders discussed in the Proxy Statement/Prospectus. |
| |
| (14) | | Consent of Independent Registered Public Accounting Firm. |
| |
| (16) | | Power of Attorney. |
| |
| (17) (a) | | Form of Proxy Card. |
| |
| (b) | | Audited Financial Statements of the Annual Report of ClearBridge Large Cap Value Fund for the year ended October 31, 2012. |
| |
| (c) | | Audited Financial Statements of the Annual Report of Legg Mason Capital Management All Cap Fund for the year ended April 30, 2012. |
| |
| (d) | | Unaudited Financial Statements of the Semi-Annual Report of Legg Mason Capital Management All Cap Fund for the period ended October 31, 2012. |
| |
| (w) | | Statement of Additional Information of ClearBridge Large Cap Value Fund, dated March 1, 2013. |
| |
| (x) | | Prospectus and Statement of Additional Information of Legg Mason Capital Management All Cap Fund, dated September 1, 2012. |
