As filed with the U.S. Securities and Exchange Commission on May 13, 2015
Securities Act File No. 33-49552
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT
UNDER
| | | | |
THE SECURITIES ACT OF 1933 | | | | |
Pre-Effective Amendment No. | | ¨ | | |
Post-Effective Amendment No. | | ¨ | | |
Legg Mason Partners Institutional Trust
(Exact Name of Registrant as Specified in Charter)
620 Eighth Avenue, New York, New York 10018
(Address of Principal Executive Offices) (Zip Code)
Registrant’s Telephone Number, including Area Code (877) 721-1926
Robert I. Frenkel
Legg Mason Partners Institutional Trust
100 First Stamford Place
Stamford, Connecticut 06902
(Name and Address of Agent for Service)
COPY TO:
Roger P. Joseph, Esq.
Morgan, Lewis & Bockius LLP
One Federal Street
Boston, Massachusetts 02110
Approximate Date of Proposed Public Offering: As soon as practicable after the effective date of this Registration Statement.
TITLE OF SECURITIES BEING REGISTERED:
Institutional Shares of Western Asset Institutional Tax Free Reserves
Investor Shares of Western Asset Institutional Tax Free Reserves
The 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 June 12, 2015 pursuant to Rule 488.
LEGG MASON PARTNERS INSTITUTIONAL TRUST
WESTERN ASSET INSTITUTIONAL AMT FREE MUNICIPAL MONEY MARKET FUND
620 Eighth Avenue
New York, New York 10018
[ ], 2015
Dear Shareholder:
The Board of Trustees of your fund, Western Asset Institutional AMT Free Municipal Money Market Fund, a series of Legg Mason Partners Institutional Trust (the “Trust”), has approved the reorganization of your fund into Western Asset Institutional Tax Free Reserves (“Institutional Tax Free Reserves”), also an institutional prime money market fund and a series of the Trust, after considering the recommendation of Legg Mason Partners Fund Advisor, LLC, the investment manager to your fund, and concluding that such reorganization would be in the best interests of your fund. The reorganization is expected to occur on or about July 24, 2015. Upon completion of the reorganization, you will become a shareholder of Institutional Tax Free Reserves, and you will receive shares of the corresponding class of Institutional Tax Free Reserves equal in value to your shares of your fund. The reorganization is expected to be tax-free to you for federal income tax purposes, and no commission, redemption fee or other transactional fee will be charged as a result of the reorganization.
The reorganization does not require shareholder approval, and you are not being asked to vote. We do, however, ask that you review the enclosed information statement/prospectus, which contains information about Institutional Tax Free Reserves, outlines the differences between your fund and Institutional Tax Free Reserves and provides details about the terms and conditions of the reorganization.
The Board of Trustees of your fund has unanimously approved your fund’s reorganization and believes the reorganization is in the best interests of your fund.
If you have any questions, please call 1-800-625-4554.
Sincerely,
[signature to be provided]
LEGG MASON PARTNERS INSTITUTIONAL TRUST
WESTERN ASSET INSTITUTIONAL AMT FREE MUNICIPAL MONEY MARKET FUND
IMPORTANT NEWS FOR SHAREHOLDERS
The enclosed Information Statement/Prospectus describes the contemplated reorganization of your fund into a compatible fund. While we encourage you to read the full text of the enclosed Information Statement/Prospectus, here is a brief overview of the fund reorganization. Please refer to the more complete information about the reorganization contained elsewhere in the Information Statement/Prospectus.
COMMON QUESTIONS ABOUT THE REORGANIZATION
| Q. | HOW WILL THE REORGANIZATION AFFECT ME? |
A. In connection with the reorganization, your fund’s assets and liabilities will be combined with the assets and liabilities of Western Asset Institutional Tax Free Reserves (the “Acquiring Fund”), also an institutional prime money market fund and a series of Legg Mason Partners Institutional Trust, 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 OCCURRING? |
A. The board (the “Board”) of Legg Mason Partners Institutional Trust and management believe that the reorganization is in the best interests of your fund. Your fund’s manager believes that a larger, combined fund may be more competitive in the current environment. The Board also believes that the reorganization will permit shareholders to remain invested in a Legg Mason money market fund that is expected to have the same or potentially lower fees and expenses. The Board notes that the Acquiring Fund and your fund have had similar average annual performance over the one-, three-, five- and ten-year periods ended February 27, 2015. In the case of each fund, the manager has waived a portion of its fees to support the fund’s yield.
| Q. | ARE MY FUND’S INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND RELATED POLICIES SIMILAR TO THOSE OF THE ACQUIRING FUND? |
A. Yes. The funds have substantially similar investment objectives and strategies. Each fund is an institutional “prime” money market fund that invests in short-term high quality municipal securities whose interest is exempt from federal income tax, including the federal alternative minimum tax applicable to individuals (“tax-free money market securities”), in accordance with the requirements of Rule 2a-7 under the Investment Company Act of 1940, as amended (the “1940 Act”). These municipal securities include debt obligations issued by any of the 50 states and their political subdivisions, agencies and public authorities, certain other governmental issuers (such as Puerto Rico, the U.S. Virgin Islands and Guam) and other qualifying issuers. These securities include participation or other interests in municipal securities and other structured securities such as variable rate demand obligations, tender option bonds, partnership interests and swap-based securities, many of which may be issued or backed by U.S. or non-U.S. banks. The most significant differences between your fund and the Acquiring Fund are: (i) while your fund will ordinarily not invest in taxable securities unless suitable AMT-free municipal securities are not available, the Acquiring Fund may invest up to 20% of its assets in taxable securities under ordinary circumstances; and (ii) the Acquiring Fund is a feeder fund in a master-feeder structure and invests all of its assets in Tax Free Reserves Portfolio, a master fund that has the same investment objectives and strategies as the Acquiring Fund, whereas your fund invests directly in portfolio securities. Please see “Comparison of Investment Objectives, Strategies and Principal Risks of Investing in the Funds” in the Information Statement/Prospectus.
| Q. | HOW IS THE REORGANIZATION EXPECTED TO AFFECT FUND FEES AND EXPENSES? |
A. The reorganization is expected to have the following effects on the fees and expenses of shares of your fund:
| • | | Total annual fund operating expenses (before and after fee waivers and/or expense reimbursements) of shares of your fund are not expected to increase as a result of the reorganization. Total annual fund operating expenses of Institutional Shares of your fund (after fee waivers and/or expense reimbursement) are expected to decrease. |
| • | | The management fee rates for your fund and the Acquiring Fund are the same. |
Please see “Summary—Comparison of Fees and Expenses” in the Information Statement/Prospectus for a detailed breakdown of the fees and expenses paid by your fund in comparison with those paid by the Acquiring 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 a result of 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 Institutional Shares of the Acquiring Fund if you hold Institutional Shares of your fund. You will receive Investor Shares of the Acquiring Fund if you hold Investor Shares of your fund.
| 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 as you hold in your fund with substantially the same privileges.
Your current privilege to exchange shares of your fund for shares of the corresponding class of other money market funds distributed by Legg Mason Investor Services, LLC will not change.
Please see “Summary—Comparison of Sales Loads and Purchase, Redemption and Exchange Policies and Procedures” and “Purchases, Redemptions and Exchanges of Fund Shares; Other Shareholder Information” in the Information Statement/Prospectus.
| Q. | CAN I PURCHASE ADDITIONAL SHARES IN MY FUND PRIOR TO THE REORGANIZATION? |
A. Yes.
| Q. | WILL I HAVE TO PAY ANY TAXES AS A RESULT OF THE REORGANIZATION? |
A. It is expected that you will not recognize a gain or loss for federal income tax purposes as a direct result of the reorganization. You will receive, in one or more distributions, all or a portion of which may be taxable, your share of the net investment income (including net tax-exempt interest income) and net capital gain realized in the normal course of your fund’s operations and not previously distributed for taxable years ending on or prior to the Closing Date. 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. The funds’ manager and/or its affiliates will pay all of the fees, costs and expenses allocated to the funds in connection with the reorganization. It is not expected that it will be necessary to reposition either fund’s portfolio in connection with the reorganization. However, transaction costs associated with any such repositioning by a fund would be borne by the fund.
| Q. | WHEN IS THE REORGANIZATION OF MY FUND EXPECTED TO HAPPEN? |
A. The reorganization of your fund is expected to occur on or about July 24, 2015.
| Q. | WHOM DO I CALL IF I HAVE QUESTIONS? |
A. If you need more information or have any questions, please call 1-800-625-4554.
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The information in this Information Statement/Prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This Information Statement/Prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION
INFORMATION STATEMENT/PROSPECTUS
[ ], 2015
INFORMATION STATEMENT FOR:
LEGG MASON PARTNERS INSTITUTIONAL TRUST
Western Asset Institutional AMT Free Municipal Money Market Fund
(the “Target Fund”)
620 Eighth Avenue
New York, NY 10018
1-877-721-1926
PROSPECTUS FOR:
LEGG MASON PARTNERS INSTITUTIONAL TRUST
Western Asset Institutional Tax Free Reserves
(the “Acquiring Fund”)
(each a “Fund” and, together, the “Funds”)
620 Eighth Avenue
New York, NY 10018
1-877-721-1926
Each Fund is a separate series of the Trust, a registered open-end management investment company organized as a Maryland statutory trust. Each Fund is a money market fund. The investment objective, policies and principal investment strategies of the Target Fund are substantially similar to those of the Acquiring Fund. Please see “Comparison of Investment Objectives, Strategies and Principal Risks of Investing in the Funds” in this combined Information Statement and Prospectus (the “Information Statement/Prospectus”).
This Information 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 [ ], 2015, relating to this Information Statement/Prospectus and the Reorganization has been filed with the Securities and Exchange Commission (the “SEC”) and is incorporated by reference into this Information Statement/Prospectus. A copy of the Reorganization SAI is available upon request and without charge by writing to the Acquiring Fund at 100 First Stamford Place, Attn: Shareholders Services—5th Floor, Stamford, Connecticut 06902 or calling 1-800-625-4554.
For more information regarding the Funds, see the Funds’ current prospectuses (the “Prospectuses”) and statements of additional information (the “Fund SAIs”) filed with the SEC on the dates as listed in Appendix A. The Target Fund Prospectuses and each Fund SAI are incorporated into this Information Statement/Prospectus by reference. The Prospectuses of the Acquiring Fund are 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 August 31, 2014 are incorporated herein by reference. The unaudited financial statements for the Target Fund contained in the semi-annual report for the period ended February 28, 2015 are incorporated herein by reference. You may receive without charge a copy of the Prospectus, Fund SAI, and annual and semi-annual report for each Fund by calling 1-800-625-4554, or by writing the Funds at 100 First Stamford Place, Attn: Shareholders Services—5th Floor, Stamford, Connecticut 06902.
The financial highlights for the Acquiring Fund contained in the semi-annual report for the fiscal period ended February 28, 2015 are attached to this Information Statement/Prospectus as Appendix B.
In addition, you can copy and review this Information Statement/Prospectus and the complete filing on Form N-14 containing the Information 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 the Agreement and Plan of Reorganization (the “Reorganization Agreement”) pertaining to the Reorganization accompanies this Information Statement/Prospectus as Appendix C.
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 INFORMATION STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
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SUMMARY
This summary is qualified in its entirety by reference to the additional information contained elsewhere in this Information Statement/Prospectus and the Reorganization Agreement, the form of which is attached to this Information Statement/Prospectus as Appendix C.
Reorganization
At a meeting held on May 12 and 13, 2015, the Board of Trustees (the “Board”) of Legg Mason Partners Institutional Trust (the “Trust”), 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 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 shares of the Target Fund;
2. the distribution of shares of the corresponding class of the Acquiring Fund to the shareholders of the Target Fund; and
3. the termination of the Target Fund (collectively the “Reorganization”).
The Reorganization Agreement is not subject to approval by the shareholders of the Target Fund. The Reorganization is scheduled to be effective as of the close of business on July 24, 2015, or on such later date as the parties may agree (“Closing Date”). As a result of the Reorganization of the Target Fund, each shareholder holding Institutional Shares or Investor Shares of the Target Fund will become the owner of the number of full and fractional shares of the corresponding class 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. The Target Fund and the Acquiring Fund are money market funds whose shares are valued at amortized cost. Accordingly, it is expected that the shares you receive in the reorganization will have a net asset value at amortized cost of $1.00 per share. The Funds’ valuation policies are identical. See “Information about the Reorganization” below. For more information about the shares of the Target Fund and the Acquiring Fund, see “Summary—Comparison of Sales Loads 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 Reorganization—Reasons for the Reorganization and Board Considerations,” the Board, 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 has also approved the Reorganization on behalf of the Acquiring Fund.
It is expected that, subject to the limited exceptions described below under the heading “Information about the Reorganization—Federal Income Tax Consequences,” neither the Target Fund nor its shareholders will recognize gain or loss as a direct 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, see “Information about the Reorganization—Federal Income Tax Consequences” below.
Target Fund shareholders will receive, in one or more distributions, all of the net investment income (including net tax-exempt interest income) and net capital gain realized and not previously distributed for taxable years ending on or prior to the Closing Date. Some or all of those distributions will be taxable to you. It is not anticipated that any transaction costs will be incurred in connection with the Reorganization.
Certain Defined Terms Used in this Information Statement/Prospectus
The Target Fund and the Acquiring Fund are each series of the Trust, 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.”
1
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 principal investment strategies and management, appear below in this Information Statement/Prospectus. The investment objective and principal investment strategies of the Acquiring Fund will apply to the combined Fund following the Reorganization. More information can be found in each Fund’s Prospectus and Fund SAI.
The Funds have substantially similar investment objectives. The Target Fund seeks current income that is exempt from federal income tax to the extent consistent with preservation of capital and the maintenance of liquidity. The Acquiring Fund’s investment objectives are to provide shareholders with high levels of current income exempt from federal income taxes, preservation of capital and liquidity.
The Funds have substantially similar principal investment strategies. Each Fund is an institutional “prime” money market fund that invests in high quality, U.S. dollar-denominated short-term debt securities in accordance with the requirements of Rule 2a-7 under the Investment Company Act of 1940, as amended (the “1940 Act”). Each Fund may invest in short-term high quality municipal securities whose interest is exempt from federal income tax, including the federal alternative minimum tax applicable to individuals (“tax-free money market securities”). These municipal securities include debt obligations issued by any of the 50 states and their political subdivisions, agencies and public authorities, certain other governmental issuers (such as Puerto Rico, the U.S. Virgin Islands and Guam) and other qualifying issuers. These securities include participation or other interests in municipal securities and other structured securities such as variable rate demand obligations, tender option bonds, partnership interests and swap-based securities, many of which may be issued or backed by U.S. or non-U.S. banks.
Differences between the Funds include:
| • | | Each Fund invests in tax-free money market securities. While the Target Fund is required to invest “substantially all” of its assets in tax-free money market securities, the Acquiring Fund is required to invest “at least 80%” of its assets in such securities. |
| • | | While the Target Fund will ordinarily not invest in taxable securities unless suitable AMT-free municipal securities are not available, the Acquiring Fund may invest up to 20% of its assets in taxable securities under ordinary circumstances. |
| • | | The Acquiring Fund is a feeder fund in a master-feeder structure, and invests all of its assets in Tax Free Reserves Portfolio, a master fund that has the same investment objectives and strategies as the Acquiring Fund. In contrast, the Target Fund invests directly in portfolio securities. |
Effect on Expenses
Total annual fund operating expenses (before and after fee waivers and/or expense reimbursements) of shares of your Fund are not expected to increase as a result of the reorganization, and total annual fund operating expenses of Institutional Shares of your Fund (after fee waivers and/or expense reimbursements) are expected to decrease. The Board of Trustees of the Funds has approved extension of existing fee waivers for both the Target Fund and the Acquiring Fund through December 31, 2016. Additional voluntary waivers also may apply.
Comparison of Fees and Expenses
The tables below compare the fees and expenses of shares of the Target Fund and shares of the Acquiring Fund. Such expenses are taken from each Fund’s current prospectuses (dated December 29, 2014). The tables also show the estimated fees and expenses of shares of the combined Fund, on a pro forma basis, for the twelve-month period ended on February 28, 2015. As a general matter, changes (positive or negative) in a Fund’s expense ratio resulting from fluctuations in the Target
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Fund’s or Acquiring Fund’s net assets will be borne by the shareholders of the applicable Fund and the combined Fund. The actual fees and expenses of the Funds and the combined Fund as of the Closing Date may differ from those reflected in the tables below.
| | | | | | | | | | | | |
| | Pre-Reorganization | | | Pro Forma Combined Fund | |
| | Western Asset Institutional AMT Free Municipal Money Market Fund | | | Western Asset Institutional Tax Free Reserves(1) | | | Western Asset Institutional Tax Free Reserves Pro Forma Combined Fund(1) | |
| | Institutional Shares | | | Institutional Shares | | | Institutional Shares | |
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 | |
Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment) (%) | | | | | | | | | | | | |
Management Fees | | | 0.25 | | | | 0.25 | | | | 0.25 | |
Distribution and/or Service (12b-1) Fees | | | None | | | | None | | | | None | |
Other Expenses | | | 0.05 | | | | 0.06 | | | | 0.05 | |
| | | | | | | | | | | | |
Total Annual Fund Operating Expenses | | | 0.30 | | | | 0.31 | | | | 0.30 | |
| | | | | | | | | | | | |
Fees Waived and/or Expenses Reimbursed(2) | | | (0.07 | ) | | | (0.11 | ) | | | (0.10 | ) |
Total Annual Fund Operating Expenses After Waiving Fees and/or Reimbursing Expenses | | | 0.23 | | | | 0.20 | | | | 0.20 | |
| | | | | | | | | | | | |
| | Pre-Reorganization | | | Pro Forma Combined Fund | |
| | Western Asset Institutional AMT Free Municipal Money Market Fund | | | Western Asset Institutional Tax Free Reserves(1) | | | Western Asset Institutional Tax Free Reserves Pro Forma Combined Fund(1) | |
| | Investor Shares | | | Investor Shares | | | Investor Shares | |
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 | |
Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment) (%) | | | | | | | | | | | | |
Management Fees | | | 0.25 | | | | 0.25 | | | | 0.25 | |
Distribution and/or Service (12b-1) Fees | | | 0.10 | | | | 0.10 | | | | 0.10 | |
Other Expenses | | | 0.05 | | | | 0.07 | | | | 0.05 | |
| | | | | | | | | | | | |
Total Annual Fund Operating Expenses | | | 0.40 | | | | 0.42 | | | | 0.40 | |
| | | | | | | | | | | | |
Fees Waived and/or Expenses Reimbursed(3) | | | (0.05 | ) | | | (0.07 | ) | | | (0.05 | ) |
Total Annual Fund Operating Expenses After Waiving Fees and/or Reimbursing Expenses | | | 0.35 | | | | 0.35 | | | | 0.35 | |
(1) | The Fund is a feeder fund that invests in securities through an underlying mutual fund, Tax Free Reserves Portfolio. The information in this table and in the Example below reflects the direct fees and expenses of the Fund and its allocated share of fees and expenses of Tax Free Reserves Portfolio. The gross expenses in the financial highlights do not reflect the reduction in the Fund’s management fee by the amount paid by the Fund for its allocable share of the management fee paid to Tax Free Reserves Portfolio. |
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(2) | 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) for Institutional Shares of the Target Fund and Acquiring Fund so that total annual operating expenses are not expected to exceed 0.23% and 0.20%, respectively. This arrangement cannot be terminated prior to December 31, 2016 without the Board of Trustees’ consent. Additional amounts may be voluntarily forgone or reimbursed from time to time. The manager is permitted to recapture any such amounts forgone or reimbursed to the class during the same fiscal year if the class’ total annual operating expenses have fallen to a level below the limit described above. |
(3) | 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 0.35% for Investor Shares. This arrangement cannot be terminated prior to December 31, 2016 without the Board of Trustees’ consent. Additional amounts may be voluntarily waived and/or reimbursed from time to time. The manager is permitted to recapture amounts waived and/or reimbursed to the class during the same fiscal year if the class’ total annual operating expenses have fallen to a level below the limit described above. |
The following examples help you compare the costs of investing in Institutional Shares of the Target Fund, the Acquiring Fund and the combined Fund with the costs of investing in other mutual funds. The examples assume that: you invest $10,000 for the periods shown, your investment has a 5% return each year, you reinvest all distributions and dividends, each Fund’s operating expenses remain the same and the fees and expenses of the underlying Legg Mason-affiliated funds are reflected. 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 | |
Institutional Shares | | | | | | | | | | | | | | | | |
Western Asset Institutional AMT Free Municipal Money Market Fund (with or without redemption) | | $ | 24 | | | $ | 90 | | | $ | 162 | | | $ | 373 | |
Western Asset Institutional Tax Free Reserves (with or without redemption) | | $ | 20 | | | $ | 88 | | | $ | 162 | | | $ | 382 | |
Pro Forma Combined Western Asset Institutional Tax Free Reserves Fund (with or without redemption) | | $ | 20 | | | $ | 86 | | | $ | 158 | | | $ | 369 | |
Investor Shares | | | | | | | | | | | | | | | | |
Western Asset Institutional AMT Free Municipal Money Market Fund (with or without redemption) | | $ | 36 | | | $ | 124 | | | $ | 220 | | | $ | 501 | |
Western Asset Institutional Tax Free Reserves (with or without redemption) | | $ | 36 | | | $ | 128 | | | $ | 228 | | | $ | 523 | |
Pro Forma Combined Western Asset Institutional Tax Free Reserves Fund (with or without redemption) | | $ | 36 | | | $ | 124 | | | $ | 220 | | | $ | 501 | |
Comparison of Sales Loads and Purchase, Redemption and Exchange Policies and Procedures
There are no sales loads or contingent deferred sales charges with respect to Institutional Shares or Investor Shares of the Target Fund or the Acquiring Fund.
The purchase and sale policies and procedures with respect to shares of the corresponding classes of the Target Fund and the Acquiring Fund are the same.
The minimum investment amounts for shares of the corresponding classes of the Target Fund and the Acquiring Fund are the same.
The exchange privileges with respect to shares of the corresponding classes of the Target Fund and the Acquiring Fund are the same and, therefore, the exchange privileges that shareholders of the Target Fund currently have with other money market funds distributed by Legg Mason Investor Services, LLC (“LMIS” or the “distributor”) will not change as a result of the Reorganization.
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.
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COMPARISON OF INVESTMENT OBJECTIVES, STRATEGIES AND
PRINCIPAL RISKS OF INVESTING IN THE FUNDS
The following discussion comparing the investment objectives, policies, 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. The Prospectuses (as supplemented from time to time) are dated as follows:
| | | | |
Target Fund | | Prospectuses Dated | |
Western Asset Institutional AMT Free Municipal Money Market Fund | | | December 29, 2014 | |
| |
Acquiring Fund | | Prospectuses Dated | |
Western Asset Institutional Tax Free Reserves | | | December 29, 2014 | |
The investment objective, principal investment strategies and principal risks of the Acquiring Fund will apply to the combined Fund following the Reorganization with the Target Fund.
Investment objective
The Funds have substantially similar investment objectives. The Target Fund seeks current income that is exempt from federal income tax to the extent consistent with preservation of capital and the maintenance of liquidity. The Acquiring Fund seeks to provide shareholders with high levels of current income exempt from federal income taxes, preservation of capital and liquidity. Each Fund’s investment objective may be changed without shareholder approval.
Primary investment policies and strategies
Each Fund is a money market fund, and tries to maintain a share price of $1.00. Each Fund must follow strict rules as to the credit quality, liquidity, maturity and diversification of the Fund’s investments.
Each Fund is an institutional “prime” money market fund that invests in high quality, U.S. dollar-denominated short-term debt securities in accordance with the requirements of Rule 2a-7 under the Investment Company Act of 1940, as amended (the “1940 Act”). Each Fund may invest in short-term high quality municipal securities whose interest is exempt from federal income tax, including the federal alternative minimum tax applicable to individuals (“tax-free money market securities”). These municipal securities include debt obligations issued by any of the 50 states and their political subdivisions, agencies and public authorities, certain other governmental issuers (such as Puerto Rico, the U.S. Virgin Islands and Guam) and other qualifying issuers. These securities include participation or other interests in municipal securities and other structured securities such as variable rate demand obligations, tender option bonds, partnership interests and swap-based securities, many of which may be issued or backed by U.S. or non-U.S. banks. Each Fund invests in securities that have remaining maturities of 397 days or less. Each Fund also maintains a weighted average maturity of not more than 60 days.
Differences between the principal investment strategies of the Target Fund and those of the Acquiring Fund include:
| • | | Each Fund invests in tax-free money market securities. While the Target Fund is required to invest “substantially all” of its assets in tax-free money market securities, the Acquiring Fund is required to invest “at least 80%” of its assets in such securities. |
| • | | The Target Fund invests directly in portfolio securities. In contrast, the Acquiring Fund is a feeder fund in a master-feeder structure, and invests all of its assets in Tax Free Reserves Portfolio, a master fund that has the same investment objectives and strategies as the Acquiring Fund. The investment strategies and risks of the Acquiring Fund described herein apply to and correspond to those of Tax Free Reserves Portfolio. |
Risk factors
Because the Funds have similar investment objectives, principal investment policies and principal investment strategies, the Funds share many of the same risks. An investment in either Fund is not a bank deposit and is not insured or guaranteed
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by the Federal Deposit Insurance Corporation or any other government agency. Although each Fund seeks to maintain the value of your investment at $1.00 per share, it is possible to lose money by investing in a Fund. A Fund could underperform other short-term debt instruments or money market funds.
The following summarizes the principal risks of investing in either of the Funds:
| • | | Market and interest rate risk. General market conditions, such as real or perceived adverse economic or political conditions, inflation, changes in interest rates, lack of liquidity in the bond markets or adverse investor sentiment could cause the value of your investment in the fund, or its yield, to decline. The value of your investment may also go down when interest rates rise. Interest rates have been historically low, so the fund faces a heightened risk that interest rates may rise. |
| • | | Recent market events risk. Financial markets in the United States, Europe and elsewhere have experienced increased volatility and lack of liquidity since the global financial crisis began in 2008. |
Governmental and non-governmental issuers defaulted on, or were forced to restructure, their debts. These market conditions may continue, worsen or spread. The U.S. government and the Federal Reserve, as well as certain foreign governments and their central banks have taken steps to support financial markets, including by keeping interest rates at historically low levels. More recently, the Federal Reserve has reduced its market support activities. Further reduction or withdrawal of this support, or other related efforts in response to the crisis could negatively affect financial markets generally as well as result in higher interest rates, increase market volatility and reduce the value and liquidity of certain securities.
Whether or not the fund invests in securities of issuers located in or with significant exposure to countries experiencing economic and financial difficulties, the value and liquidity of the fund’s investments may be negatively affected. In addition, policy and legislative changes in the United States and in other countries are affecting many aspects of financial regulation, and may in some instances contribute to decreased liquidity and increased volatility in the financial markets.
| • | | Credit risk. An issuer or other obligor (such as a party providing insurance or other credit enhancement) of a security held by the fund or a counterparty to a financial contract with the fund may default or its credit may be downgraded, or the value of assets underlying a security may decline. |
| • | | Yield risk. The amount of income received by the fund will go up or down depending on variations in short-term interest rates, and when interest rates are very low the fund’s expenses could absorb all or a significant portion of the fund’s income. If interest rates increase, the fund’s yield may not increase proportionately. For example, the fund’s manager may discontinue any temporary voluntary fee limitation or recoup amounts previously waived and/or reimbursed. In addition, the implementation of the new requirements recently adopted for money market funds may have a negative effect on the fund’s yield. |
| • | | Tax Risk. The income on the fund’s municipal securities could become subject to federal income tax due to noncompliant conduct by issuers, unfavorable legislation or litigation or adverse interpretations by regulatory authorities. |
| • | | Structured securities risk. The payment and credit qualities of structured securities derive from their underlying assets, and they may behave in ways not anticipated by the fund, or they may not receive tax, accounting or regulatory treatment anticipated by the fund. |
| • | | Concentration risk. The fund may invest a significant portion of its assets in municipal securities and interests in municipal securities that are issued or backed by U.S. and non-U.S. banks and other financial services companies, and thus will be more susceptible to negative events affecting the worldwide financial services sector. |
| • | | Risks relating to investments in municipal securities. Municipal issuers may be adversely affected by rising health care costs, increasing unfunded pension liabilities, and by the phasing out of federal programs providing financial support. Unfavorable conditions and developments relating to projects financed with municipal securities can result in lower revenues to issuers of municipal securities, potentially resulting in defaults. The value of municipal securities can also be adversely affected by changes in the financial condition of one or more individual municipal issuers or insurers of municipal issuers, regulatory and political developments, tax law changes or other legislative actions, and by uncertainties and public perceptions concerning these and other factors. In recent periods an |
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| increasing number of municipal issuers have defaulted on obligations, been downgraded or commenced insolvency proceedings. Financial difficulties of municipal issuers may continue or get worse. |
| • | | Prepayment or call risk. Many issuers have a right to prepay their securities. If interest rates fall, an issuer may exercise this right. If this happens, the fund will be forced to reinvest prepayment proceeds at a time when yields on securities available in the market are lower than the yield on the prepaid security. |
| • | | Extension risk. If interest rates rise, repayments of fixed income securities may occur more slowly than anticipated by the market. This may drive the prices of these securities down because their interest rates are lower than the current interest rate and they remain outstanding longer. |
| • | | Portfolio selection risk. The value of your investment may decrease if the subadviser’s judgment about the quality, relative yield, value or market trends affecting a particular security, industry, sector or region, or about interest rates is incorrect. |
| • | | Liquidity risk. The fund may make investments that are illiquid or that become illiquid after purchase. The liquidity and value of investments can deteriorate rapidly and those investments may be difficult or impossible to sell, particularly during times of market turmoil. These illiquid investments may also be difficult to value. If the fund is forced to sell an illiquid investment to meet redemption requests or other cash needs, the fund may be forced to sell at a loss. |
| • | | Money market fund reform risk. New requirements for money market funds will take effect over the course of 2015 and 2016. The new regulations will impact funds differently depending upon the types of investors that will be permitted to invest in a fund, and the types of securities in which a fund may invest. “Retail” money market funds will generally limit their beneficial owners to natural persons. All other money market funds will be considered to be “institutional” money market funds. |
“Prime” money market funds will be permitted to invest primarily in corporate or other non- governmental securities, “U.S. government” money market funds will be required to invest a very high percentage of their assets in U.S. government securities and “municipal” money market funds will be required to invest significantly in municipal securities. Under the new requirements, institutional prime money market funds and institutional municipal money market funds will be required to sell and redeem shares at prices based on their market value (a floating net asset value). Retail money market funds and institutional U.S. government money market funds will not be subject to the floating net asset value requirement. The new rules will also permit or require both retail and institutional money market funds to impose liquidity fees and suspend redemptions temporarily in certain circumstances. As a result, money market funds will be required to implement changes that will impact and may adversely affect the funds and their investors.
| • | | Redemption risk. The fund may experience heavy redemptions that could cause the fund to liquidate its assets at inopportune times or at a loss or depressed value and that could affect the fund’s ability to maintain a $1.00 share price. In addition, the fund may suspend redemptions when permitted by applicable regulations. |
Side-by-Side Comparison
The following chart shows a side-by-side comparison of the investment objective, principal investment strategies, manager and subadviser of the Target Fund and the Acquiring Fund. In the chart below, if a row extends across the entire chart, the information disclosed applies to both the Target Fund and the Acquiring Fund. The investment objective, principal investment strategies, manager, subadviser and portfolio managers of the Acquiring Fund described herein apply to and correspond to those of Tax Free Reserves Portfolio.
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| | Western Asset Institutional AMT Free Municipal Money Market Fund (Target Fund) | | Western Asset Institutional
Tax Free Reserves (Acquiring Fund) |
Investment Objective | | The fund seeks current income that is exempt from federal income tax to the extent consistent with preservation of capital and the maintenance of liquidity. | | The fund’s investment objectives are to provide shareholders with high levels of current income exempt from federal income taxes, preservation of capital and liquidity. |
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| | Western Asset Institutional AMT Free Municipal Money Market Fund (Target Fund) | | Western Asset Institutional
Tax Free Reserves (Acquiring Fund) |
Principal Investment Strategies | | The fund is a money market fund that, under normal circumstances, will invest substantially all of its assets in short-term high quality municipal securities whose interest is exempt from federal income tax, including the federal alternative minimum tax. | | The fund is a money market fund that, under normal market conditions, invests at least 80% of its assets in short-term high quality municipal obligations and interests in municipal obligations that pay interest that is exempt from federal income tax, including the federal alternative minimum tax. |
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| | Municipal securities include debt obligations issued by any of the 50 states and their political subdivisions, agencies and public authorities, certain other governmental issuers (such as Puerto Rico, the U.S. Virgin Islands and Guam) and other qualifying issuers. These securities include participation or other interests in municipal securities and other structured securities such as variable rate demand obligations, tender option bonds, partnership interests and swap-based securities, many of which may be issued or backed by U.S. or non-U.S. banks. |
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| | Some municipal securities, such as general obligation issues, are backed by the issuer’s taxing authority, while other municipal securities, such as revenue issues, are backed only by revenues from certain facilities or other sources and not by the issuer itself. The fund invests in securities that, at the time of purchase, are rated by one or more rating agencies in the highest short-term rating category (or, with respect to not more than 3% of its total assets, in the second highest category) or, if not rated, are determined by the subadviser to be of equivalent quality. |
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| | The interest paid on municipal securities purchased by the fund is excluded from gross income for regular federal income tax purposes, and, as noted above, will not typically be subject to the federal alternative minimum tax. As a result, the rate of interest paid on these securities normally is lower than the rate of interest paid on fully taxable securities. | | [Not specifically addressed in the Acquiring Fund’s principal investment strategies, but equally applicable to the Acquiring Fund.] |
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| | Under normal circumstances, the fund must invest at least 80% of its net assets in short-term high quality municipal obligations and interests in municipal obligations that pay interest that is exempt from federal income tax, including the federal alternative minimum tax. Although the fund will ordinarily not invest in securities the interest on which is subject to regular federal income tax or the federal alternative minimum tax, when the subadviser believes that suitable AMT-free municipal securities are not available, the fund may temporarily invest up to 20% of its assets in investments that pay interest that may be subject to federal income tax or the federal alternative minimum tax. In addition, the fund may depart from its principal investment strategies in response to unusually adverse market, economic or political conditions. | | Under normal circumstances, the fund may invest up to 20% of its assets in investments that pay interest that may be subject to regular federal income tax and/or the federal alternative minimum tax, although for temporary or defensive purposes, the fund may invest an unlimited amount in such securities. |
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| | Western Asset Institutional AMT Free Municipal Money Market Fund (Target Fund) | | Western Asset Institutional
Tax Free Reserves (Acquiring Fund) |
| | As a money market fund, the fund tries to maintain a share price of $1.00, and must follow strict rules as to the credit quality, liquidity, diversification and maturity of its investments. Where required by these rules, the fund’s subadviser or Board will decide whether a security should be held or sold in the event of credit downgrades or certain other events occurring after purchase. |
More on the Funds’ Investments
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| | Western Asset Institutional AMT Free Municipal Money Market Fund (Target Fund) | | Western Asset Institutional Tax Free Reserves (Acquiring Fund) |
Credit quality | | Each Fund invests in securities that, at the time of purchase, are rated by one or more rating agencies in the highest short-term rating category (or with respect to not more than 3% of its total assets, in the second highest category) or, if not rated, are determined by the subadviser to be of equivalent quality. In addition, each security, at the time of purchase by a fund, has been determined by the subadviser to present minimal credit risk. Where required by applicable rules, a fund’s subadviser or Board will decide whether a security should be held or sold in the event of certain credit events occurring after purchase. |
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Maturity | | Each Fund invests in securities that, at the time of purchase, are treated under applicable regulations as having remaining maturities of 397 days or less. Each Fund maintains a weighted average maturity of not more than 60 days. In addition, each fund must comply with rules with respect to the fund’s weighted average life. Where required by applicable rules, if, after purchase, payment upon maturity does not occur or the maturity on a security is extended, the fund’s subadviser or Board will decide whether the security should be held or sold. |
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Liquidity | | Each fund must follow strict rules with respect to the liquidity of its portfolio securities including, as applicable, daily and weekly liquidity requirements. In addition, a fund may not purchase illiquid securities if, as a result of the acquisition, more than 5% of the fund’s total assets would be invested in illiquid securities. Illiquid securities are those that, as determined by the subadviser, may not be disposed of in the ordinary course of business within seven days at approximately the value ascribed to them by the fund. Securities that are deemed liquid at the time of purchase by a fund may become illiquid following purchase. |
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Money Market Instruments | | Money market instruments are short-term IOUs issued by banks or other non-governmental issuers, the U.S. or foreign governments, or state or local governments. Money market instruments generally have maturity dates of 13 months or less, and may pay interest at fixed, floating or adjustable rates, or may be purchased at a discount. Money market instruments may include certificates of deposit, bankers’ acceptances, variable rate demand securities (where the interest rate is reset periodically and the holder may demand payment from the issuer or another obligor at any time), preferred shares, fixed-term obligations, commercial paper (short-term unsecured debt), asset-backed commercial paper, other mortgage-backed and asset-backed securities and repurchase agreements. Asset-backed commercial paper refers to a debt |
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| | Western Asset Institutional AMT Free Municipal Money Market Fund (Target Fund) | | Western Asset Institutional Tax Free Reserves (Acquiring Fund) |
| | security with an original term to maturity of up to 270 days that may be backed by residential and commercial mortgage loans or mortgage-backed securities or other types of receivables. Payments due on asset backed commercial paper are supported by cash flows from underlying assets, or one or more liquidity or credit support providers, or both. |
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U.S. Treasury Obligations | | U.S. Treasury obligations are direct debt obligations issued by the U.S. government. Treasury bills, with maturities normally from 4 weeks to 52 weeks, are typically issued at a discount as they pay interest only upon maturity. Treasury bills are non-callable. Treasury notes have a maturity between two and ten years and typically pay interest semi-annually, while Treasury bonds have a maturity of over ten years and pay interest semiannually. Treasuries also include STRIPS, TIPS and FRNs. STRIPS are Treasury obligations with separately traded principal and interest component parts that are transferable through the federal book-entry system. Because payments on STRIPS are made only at maturity, during periods of changing interest rates, STRIPS may be more volatile than unstripped U.S. Treasury obligations with comparable maturities. TIPS are Treasury Inflation-Protected Securities, the principal of which increases with inflation and decreases with deflation, as measured by the Consumer Price Index. At maturity, a TIPS holder is entitled to the adjusted principal or original principal, whichever is greater. TIPS pay interest twice a year, at a fixed rate. The rate is applied to the adjusted principal; so, like the principal, interest payments rise with inflation and fall with deflation. However, because the interest rate is fixed, TIPS may lose value when market interest rates decrease, particularly during periods of low inflation. FRNs are newly introduced floating rate notes that are indexed to the most recent 13-week Treasury bill auction High Rate, and which pay interest quarterly. U.S. Treasury obligations typically offer lower interest rates than other obligations. |
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U.S. Government Obligations | | U.S. government obligations include U.S. Treasury obligations and other obligations of, or guaranteed by, the U.S. government, its agencies or government-sponsored entities. Although the U.S. government guarantees principal and interest payments on securities issued by the U.S. government and some of its agencies, such as securities issued by the Government National Mortgage Association (“Ginnie Mae”), this guarantee does not apply to losses resulting from declines in the market value of these securities. U.S. government obligations include zero coupon securities that make payments of interest and principal only upon maturity and which therefore tend to be subject to greater volatility than interest bearing securities with comparable maturities. Some of the U.S. government securities that a fund may hold are not guaranteed or backed by the full faith and credit of the U.S. government, such as those issued by Fannie Mae (formally known as the Federal National Mortgage Association) and Freddie Mac (formally known as the Federal Home Loan Mortgage Corporation). The maximum potential liability of the issuers of some U.S. government obligations may greatly exceed their current resources, including any legal right to support from the U.S. government. Although the U.S. government has in the past provided financial support to Fannie Mae and Freddie Mac, there can be no assurance that it will support these or other government-sponsored enterprises in the future. |
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| | Western Asset Institutional AMT Free Municipal Money Market Fund (Target Fund) | | Western Asset Institutional Tax Free Reserves (Acquiring Fund) |
Structured instruments | | Structured instruments are specifically structured so that they are eligible for purchase by money market funds, including securities that have demand, tender or put features, or interest rate reset features. Structured instruments may take the form of participation interests or receipts in underlying securities or other assets, and in some cases are backed by a financial institution serving as a liquidity provider. Some of these instruments may have an interest rate swap feature which substitutes a floating or variable interest rate for the fixed interest rate on an underlying security. The payment and credit qualities of these instruments derive from the underlying assets embedded in the structure. |
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| | Structured securities include variable rate demand instruments and participation interests that are backed by underlying municipal or other securities. Variable rate demand instruments require the issuer or a third party, such as a bank, insurer or broker/dealer, to repurchase the security for its face value upon demand and typically have interest rates that reset on a daily or weekly basis. In a participation interest, a bank or other financial institution sells undivided interests in a municipal or other security it owns. Participation interests may be supported by a bank letter of credit or guarantee. The interest rate generally is adjusted periodically, and the holder can sell the interests back to the issuer after a specified notice period. |
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Mortgage-backed and asset-backed securities | | Mortgage-backed securities may be issued or guaranteed by government-sponsored entities such as Fannie Mae or Freddie Mac or by agencies of the U.S. government, such as Ginnie Mae, or by municipal issuers. Mortgage-backed securities represent direct or indirect participations in, or are collateralized by and payable from, mortgage loans secured by real property. |
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| | Asset-backed securities represent participations in, or are secured by and payable from, assets such as installment sales or loan contracts, leases, credit card receivables and other categories of receivables. |
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Municipal securities | | Municipal securities include debt obligations issued by any of the 50 states and their political subdivisions, agencies and public authorities, certain other governmental issuers (such as Puerto Rico, the U.S. Virgin Islands and Guam) and other qualifying issuers, participation or other interests in these securities and other structured securities. Although municipal securities are issued by qualifying issuers, payments of principal and interest on municipal securities may be derived solely from revenues from certain facilities, mortgages or private industries, and may not be backed by the issuers themselves. |
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| | Municipal securities include general obligation bonds, revenue bonds, housing authority bonds, private activity bonds, industrial development bonds, residual interest bonds, tender option bonds, tax and revenue anticipation notes, bond anticipation notes, tax-exempt commercial paper, municipal leases, participation certificates and custodial receipts. General obligation bonds are backed by the full faith and credit of the issuing entity. Revenue bonds are typically used to fund public works projects, such as toll roads, airports and transportation facilities, that are expected to produce income to make the payments on the bonds, since they are not backed by the full taxing power of the municipality. Housing authority bonds are used primarily to fund low to middle income residential projects and may be backed by the payments made on the underlying mortgages. Tax and revenue |
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| | Western Asset Institutional AMT Free Municipal Money Market Fund (Target Fund) | | Western Asset Institutional Tax Free Reserves (Acquiring Fund) |
| | anticipation notes are generally issued in order to finance short-term cash needs or, occasionally, to finance construction. Tax and revenue anticipation notes are expected to be repaid from taxes or designated revenues in the related period, and they may or may not be general obligations of the issuing entity. Bond anticipation notes are issued with the expectation that their principal and interest will be paid out of proceeds from renewal notes or bonds and may be issued to finance such items as land acquisition, facility acquisition and/or construction and capital improvement projects. Some of these securities may have stated final maturities of more than 397 days but have demand features that entitle a fund to receive the principal amount of the securities either at any time or at specified intervals. |
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| | Municipal securities include municipal lease obligations, which are undivided interests issued by a state or municipality in a lease or installment purchase contract which generally relates to equipment or facilities. In some cases payments under municipal leases do not have to be made unless money is specifically approved for that purpose by an appropriate legislative body. |
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| | Each of the Funds may invest more than 25% of its assets in municipal securities that derive income from similar types of projects or that are otherwise related in such a way that an economic, business or political development or change affecting one of the securities would also affect the others. |
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Banking industry concentration | | The Fund may invest without limit in obligations of U.S. banks and up to 25% of its assets in U.S. dollar-denominated obligations of non-U.S. banks. Obligations of foreign branches of U.S. banks and U.S. branches of foreign banks may be considered obligations of U.S. banks if they meet certain requirements. Bank obligations include bank notes, certificates of deposit, time deposits, banker’s acceptances, commercial paper and other similar obligations. They also include Eurodollar and Yankee obligations, such as certificates of deposit issued in U.S. dollars by foreign banks and foreign branches of U.S. banks. Bank obligations also include participation interests in municipal securities issued and/or backed by banks and other obligations that have credit support or liquidity features provided by banks. |
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When-issued securities, delayed delivery and forward commitment transactions | | Each Fund may purchase securities under arrangements (called when-issued, delayed delivery, to be announced or forward commitment basis) where the securities will not be delivered or paid for immediately. A fund will set aside assets to pay for these securities at the time of the agreement. Such transactions involve a risk of loss, for example, if the value of the securities declines prior to the settlement date or if the assets set aside to pay for these securities decline in value prior to the settlement date. Therefore, these transactions may have a leveraging effect on a fund, making the value of an investment in the fund more volatile and increasing the fund’s overall investment exposure. Typically, no income accrues on securities a fund has committed to purchase prior to the time delivery of the securities is made, although the fund may earn income on securities it has set aside to cover these positions. |
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Repurchase agreements | | In a repurchase agreement, a fund purchases securities from a counterparty, upon the agreement of the counterparty to repurchase the securities from the fund at a later date, and at a specified price, which is typically higher than the purchase price paid by the fund. The securities purchased serve as the fund’s |
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| | Western Asset Institutional AMT Free Municipal Money Market Fund (Target Fund) | | Western Asset Institutional Tax Free Reserves (Acquiring Fund) |
| | collateral for the obligation of the counterparty to repurchase the securities. If the counterparty does not repurchase the securities, the fund is entitled to sell the securities, but the fund may not be able to sell them for the price at which they were purchased, thus causing a loss. Additionally, if the counterparty becomes insolvent, there is some risk that the fund will not have a right to the securities, or the immediate right to sell the securities. |
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Reverse repurchase agreements and other borrowings | | Each fund may borrow money as a means of raising money to satisfy redemption requests or for other temporary or emergency purposes by entering into reverse repurchase agreements or other borrowing transactions. In a reverse repurchase agreement, a fund sells securities to a counterparty, in return for cash, and the fund agrees to repurchase the securities at a later date and for a higher price, representing the cost to the fund for the money borrowed. Although the funds do not intend to use these transactions for leveraging purposes, reverse repurchase agreements and other borrowing transactions may make the value of an investment in a fund more volatile and increase the fund’s overall investment exposure. |
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Variable rate demand notes | | Variable rate demand notes (VRDNs) and other similar obligations are typically long term instruments issued with a floating rate of interest by municipalities or other issuers. The interest rate usually resets every one to seven days, based on a published interest rate index. Investors typically may resell a VRDN to a third-party financial intermediary serving as a remarketing agent on up to seven days’ notice. A VRDN may be supported by a liquidity facility or a letter of credit. These features permit the VRDN to be treated by a fund as a short-term instrument. Investments in VRDNs involve credit risk with respect to the issuer as well as with respect to the financial institutions providing remarketing, liquidity or credit support. In addition, failures or defaults by one or more of those entities could result in a fund holding a long-term fixed rate illiquid investment. |
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Defensive investing | | The Fund may depart from its principal investment strategies in response to unusually adverse market, economic or political conditions by taking temporary defensive positions and investing without limit in any type of taxable money market instruments, including those subject to the federal alternative minimum tax, or holding cash, without regard to any percentage limitations. | | The Fund may depart from its principal investment strategies in response to adverse market, economic or political conditions by taking temporary defensive positions and investing, without limit, in any type of high quality taxable money market instruments, or holding cash, without regard to any percentage limitations. |
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Investments by other funds | | A fund may be an investment option for other funds, including affiliated funds. |
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Other investments | | Each fund may also use other strategies and invest in other investments that are described, along with their risks, in the Fund SAIs. However, a fund might not use all of the strategies and techniques or invest in all of the types of investments described in this Prospectus or in the Fund SAIs. |
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Investment Manager/Subadviser | | Legg Mason Partners Fund Advisor, LLC/Western Asset Management Company |
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Fundamental investment policies
There are no material differences between the fundamental investment policies of the Target Fund and those of the Acquiring Fund. The following chart shows a side-by-side comparison of the fundamental investment policies of the Target Fund and the Acquiring Fund. In the chart below, if a row extends across the entire chart, the information disclosed applies to both the Target Fund and the Acquiring Fund. The fundamental investment policies of the Acquiring Fund described herein apply to and correspond to those of Tax Free Reserves Portfolio.
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| | Western Asset Institutional AMT Free Municipal Money Market Fund (Target Fund) | | Western Asset Institutional Tax Free Reserves (Acquiring Fund) |
(1) | | The Fund may not borrow money except as permitted by (i) the 1940 Act, or interpretations or modifications by the SEC, SEC staff or other authority with appropriate jurisdiction, or (ii) exemptive or other relief or permission from the SEC, SEC staff or other authority. |
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(2) | | The Fund may not engage in the business of underwriting the securities of other issuers except as permitted by (i) the 1940 Act, or interpretations or modifications by the SEC, SEC staff or other authority with appropriate jurisdiction, or (ii) exemptive or other relief or permission from the SEC, SEC staff or other authority. |
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(3) | | The Fund may lend money or other assets to the extent permitted by (i) the 1940 Act, or interpretations or modifications by the SEC, SEC staff or other authority with appropriate jurisdiction, or (ii) exemptive or other relief or permission from the SEC, SEC staff or other authority. |
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(4) | | The Fund may not issue senior securities except as permitted by (i) the 1940 Act, or interpretations or modifications by the SEC, SEC staff or other authority with appropriate jurisdiction, or (ii) exemptive or other relief or permission from the SEC, SEC staff or other authority. |
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(5) | | The Fund may not purchase or sell real estate except as permitted by (i) the 1940 Act, or interpretations or modifications by the SEC, SEC staff or other authority with appropriate jurisdiction, or (ii) exemptive or other relief or permission from the SEC, SEC staff or other authority. |
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(6) | | The Fund may purchase or sell commodities or contracts related to commodities to the extent permitted by (i) the 1940 Act, or interpretations or modifications by the SEC, SEC staff or other authority with appropriate jurisdiction, or (ii) exemptive or other relief or permission from the SEC, SEC staff or other authority. |
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(7) | | Except as permitted by exemptive or other relief or permission from the SEC, SEC staff or other authority with appropriate jurisdiction, the fund may not make any investment if, as a result, the fund’s investments will be concentrated in any one industry, except that the fund may invest without limit in obligations issued by banks. | | The fund may not purchase any securities of an issuer in a particular industry if as a result 25% or more of its total assets (taken at market value at the time of purchase) would be invested in securities of issuers whose principal business activities are in the same industry, except that the fund may invest at least 25% of its assets in bank obligations issued by domestic banks, including bank participation interests in municipal obligations. |
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(8) | | Under normal circumstances, the fund must invest at least 80% of its net assets in short-term high quality municipal obligations and interests in municipal obligations that pay interest that is exempt from federal income tax, including the federal alternative minimum tax. | | Under normal market conditions, the fund invests at least 80% of its assets in municipal obligations and interests in municipal obligations that pay interest that is exempt from federal income tax, including the federal alternative minimum tax. |
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PURCHASES, REDEMPTIONS AND EXCHANGES OF FUND SHARES;
OTHER SHAREHOLDER INFORMATION
This section describes Institutional Shares and Investor Shares of the Acquiring Fund and how shareholders may buy and sell Institutional Shares and Investor Shares. It also describes how the Acquiring Fund values its securities and the Fund’s policies on frequent trading of Fund shares. This Information Statement/Prospectus describes only Institutional Shares and Investor Shares of the Acquiring Fund. The Acquiring Fund also offers Administrative Shares, but this share class is not involved in the Reorganization.
Institutional Shares
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 funds (each called a “Service Agent”) |
Please note that Institutional Shares are not available to individual investors, except for individual investors buying directly from a fund.
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 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.
Investor Shares
You may set up an account to buy shares only through a Service Agent.
You should contact your Service Agent to open an account to buy shares. Your Service Agent may charge an annual account maintenance fee.
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 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.
Investment minimums
Minimum initial and additional investment amounts vary depending on the class of shares you buy and the nature of your investment.
| | | | |
Investment Minimum Initial/Additional Investment | | Institutional Shares | |
General/Institutional Investors purchasing through the Fund | | $ | 1 million/$50 | |
Accounts managed/advised by an investment advisory subsidiary of Legg Mason | | $ | 50,000/$50 | |
| |
Investment Minimum Initial/Additional Investment | | Investor Shares | |
Institutional Investors purchasing through financial intermediaries | | $ | 1 million/$50 | |
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Your financial intermediary may impose different investment minimums.
The Acquiring Fund normally calculates its net asset value as of each hour from 9:00 a.m. (Eastern time) until its close of business (normally 12:00 noon (Eastern time)) on each fund business day. The Acquiring Fund may close early under certain circumstances. For more information, please contact your financial intermediary, or contact the Acquiring Fund by phone (1-877-721-1926 or 1-203-703-6002).
Buying shares
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Generally | | You may buy shares of the Acquiring Fund on any day that the Acquiring Fund is open for business, as described under “Share price/Fund business days.” Shares are sold at their net asset value next determined after receipt by your Service Agent or the transfer agent of your purchase request in good order. 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. If you are purchasing by wire you must contact your Service Agent to arrange for the wiring of federal funds. Your Service Agent may charge an annual account maintenance fee. |
Through the Fund | | Investors should contact the Acquiring Fund at 1-877-721-1926 or 1-203-703-6002 to open an account and make arrangements to buy shares. If you are purchasing shares by wiring federal funds, you must contact the Acquiring Fund at 1-877-721-1926 or 1-203-703-6002 to arrange for the wiring of federal funds. If you are purchasing by check, enclose a check to pay for the shares. For initial purchases, complete and send your account application to the Acquiring Fund at the following address: |
| | Institutional Shares | | Investor Shares |
| | Regular Mail: Western Asset Money Market Funds P.O. Box 55083 Boston, Massachusetts 02205-5083 Express, Certified or Registered Mail: Western Asset Money Market Funds c/o Boston Financial Data Services 30 Dan Road Canton, Massachusetts 02021-2809 | | Regular Mail: Western Asset Money Market Funds P.O. Box 55083 Boston, Massachusetts 02205-5083 Express, Certified or Registered Mail: Western Asset Money Market Funds c/o Boston Financial Data Services 30 Dan Road Canton, Massachusetts 02021-2809 |
| | If you pay by check and your check does not clear in due course, your purchase will be canceled and you will be responsible for any expenses and losses to a fund. If the Acquiring Fund does not receive your purchase wire by the close of the Federal Reserve wire transfer system on the day you placed your order, your order will be canceled and you could be liable for any losses or fees incurred by the Acquiring Fund or its agents. |
| | Purchase requests placed by telephone during the Acquiring Fund service desk’s hours of operation and received in good order will be accepted for processing at the net asset value next determined. The Acquiring Fund service desk’s normal hours of operations are between 8:00 a.m. and 5:30 p.m. (Eastern time) each fund business day.
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When shares begin to earn dividends | | If your order for a purchase to be made in federal funds is received by the Acquiring Fund in good order prior to the Acquiring Fund’s close of business on a fund business day, shares purchased will normally be entitled to receive dividends declared on that day and orders received after the Acquiring Fund’s close of business on a fund business day will normally begin to earn dividends on the following business day. If you pay by check, your shares generally begin to earn dividends on the fund business day following receipt of the check. If you are purchasing through a Service Agent, you should check with your Service Agent to determine when your purchase order will be effective. |
Exchanging shares
| | | | |
Generally | | You may exchange shares of the Acquiring Fund for shares of a corresponding class, if offered, of any other Western Asset money market fund made available to you on any day that both the Acquiring Fund and the fund into which you are exchanging are open for business. An exchange of shares of the Acquiring Fund for shares of another fund is generally a taxable transaction, but you will not have any gain or loss on an exchange so long as the Acquiring Fund maintains a net asset value of $1.00 per share. |
Western Asset offers a distinctive family of money market funds tailored to help meet the varying needs of large and small investors | | You may exchange shares at the final net asset value calculated on a fund business day after receipt by your Service Agent or the transfer agent of your exchange request in good order. • If you are a customer of a Service Agent, contact your Service Agent to learn which funds your Service Agent makes available to you for exchanges. Other shareholders should contact the funds at 1-877-721-1926 or 1-203-703-6002 • Exchanges may be made only between accounts that have identical registrations • The exchange privilege may be changed or terminated at any time Always be sure to read the prospectus of the fund into which you are exchanging shares. |
Investment minimums and other requirements | | Your exchange will be subject to the requirements of the fund into which you are exchanging shares. |
By telephone | | You may place exchange orders by telephone if your account permits. Contact your Service Agent or, if you hold shares directly with a fund, call the fund at 1-877-721-1926 or 1-203-703-6002. |
By mail | | Contact your Service Agent or, if you hold shares directly with the Acquiring Fund, write the Acquiring Fund as follows: Regular Mail: Western Asset Money Market Funds P.O. Box 55083 Boston, Massachusetts 02205-5083 Express, Certified or Registered Mail: Western Asset Money Market Funds c/o Boston Financial Data Services 30 Dan Road Canton, Massachusetts 02021-2809 |
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Redeeming shares | | | | |
| |
Generally | | You may redeem shares of the Acquiring Fund on any day that the Acquiring Fund is open for business, as described under “Share price/Fund business days” below. Shares are redeemed at their net asset value next determined after receipt by your Service Agent or the transfer agent of your redemption request in good order. If the shares are held by a fiduciary or corporation, partnership or similar entity, other documents may be required. Contact your Service Agent or, if you hold shares directly with the Acquiring Fund, call the Acquiring Fund at 1-877-721-1926 or 1-203-703-6002 to redeem shares of the Acquiring Fund. |
Redemption proceeds | | If your request is received in good order by your Service Agent or the transfer agent prior to the time the Acquiring Fund makes its final net asset value calculation on any day the Acquiring Fund is open for business (normally 12:00 noon (Eastern time)), your redemption proceeds normally will be sent that day, but in any event within seven days, except that your proceeds may be delayed for up to 10 days if your share purchase was made by check. You generally are entitled to receive dividends on fund shares through the business day prior to the day on which your proceeds are sent to you. 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 the rules of or by the order of the Securities and Exchange Commission (“SEC”). If you hold your shares through a Service Agent, your Service Agent may have its own earlier deadlines for the receipt of a redemption request. Your sale or redemption proceeds will be sent by federal wire to your Service Agent. You should check with your Service Agent to determine when your proceeds will be available to you. If you hold your shares through the Acquiring Fund and have designated a bank account on your application form, you may have the proceeds sent by federal wire or by electronic transfer (ACH) to that bank account. 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 Acquiring Fund reserves the right to pay redemption proceeds by giving you securities instead of cash. You may pay transaction costs to dispose of the securities, and you may receive less 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 Acquiring Fund, write to the Acquiring Fund as follows: Regular Mail: Western Asset Money Market Funds P.O. Box 55083 Boston, Massachusetts 02205-5083 |
| | Express, Certified or Registered Mail: Western Asset Money Market Funds c/o Boston Financial Data Services 30 Dan Road Canton, Massachusetts 02021-2809 |
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| | 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 Acquiring Fund, call the Acquiring Fund at 1-877-721-1926 or 1-203-703-6002. Please have the following information ready when you place your redemption request: • Name of fund being redeemed • Class of shares being redeemed • Account number If you hold your shares directly with the Acquiring Fund and your telephonic redemption request is placed with the Acquiring Fund service desk during the Acquiring Fund service desk’s hours of operation and received in good order, your request will be accepted for processing at the net asset value next determined. The Acquiring Fund service desk’s normal hours of operations are between 8:00 a.m. and 5:30 p.m. (Eastern time) each fund business day. |
Your account statement will have more information on who to contact if you want to buy, exchange or redeem shares, or you can contact the Acquiring Fund between 8:00 a.m. and 5:30 p.m. (Eastern time) at 1-877-721-1926 or 1-203-703-6002.
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 Acquiring 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 Acquiring Fund. Subject to the requirements of local law, U.S. citizens residing in foreign countries are permitted to establish accounts with the Acquiring Fund. Neither the manager nor the Acquiring Fund are currently approved, registered or otherwise permitted to market to prospective investors which are domiciled in, or with a registered office in, any jurisdiction within the Member States of the European Union and the European Economic Area under any legislation implementing the Alternative Investment Fund Managers Directive (the “AIFMD”) and the supplementing Level 2 Delegated Regulation to the AIFMD in the relevant country.
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 Acquiring Fund’s other exchange and redemption procedures described under “Exchanging shares” and “Redeeming shares.”
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The transfer agent or the Acquiring 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 Acquiring Fund nor its agents will bear any liability for these transactions.
The Acquiring 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 |
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 Acquiring 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 balances/Mandatory redemptions
The Acquiring Fund reserves the right to ask you to bring your account up to a minimum investment amount determined by your Service Agent if the aggregate value of the Acquiring Fund shares in your account is less than $500 for any reason (including 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 Acquiring 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 Acquiring 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” for more information). The Acquiring Fund may, with prior notice, change the minimum size of accounts subject to mandatory redemption, which may vary by class, or implement fees for small accounts.
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Subject to applicable law, the Acquiring 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 Acquiring Fund’s SAI.
Frequent trading of fund shares
Money market funds are often used by investors for short-term investments, in place of bank checking or saving accounts, or for cash management purposes. Investors value the ability to add and withdraw their funds quickly, without restriction. For this reason the Acquiring Fund’s Board has not adopted policies and procedures, or imposed restrictions such as minimum holding periods, in order to deter frequent purchases and redemptions of money market fund shares. The Board also believes that money market funds, such as the Acquiring Fund, are not typically targets of abusive trading practices, because money market funds seek to maintain a $1.00 per share price and typically do not fluctuate in value based on market prices. However, some investors may seek to take advantage of a short-term disparity between the Acquiring Fund’s yield and current market yields, which could have the effect of reducing the Acquiring Fund’s yield. In addition, frequent purchases and redemptions of the Acquiring Fund shares could increase the Acquiring Fund’s portfolio transaction costs and may interfere with the efficient management of the Acquiring Fund’s portfolio, which could detract from the Acquiring Fund’s performance.
Reduction in number of shares
In order to maintain a $1.00 per share net asset value, if the value of the Acquiring Fund’s assets were to decline, the Acquiring Fund could reduce the number of its outstanding shares through a reverse stock split. If this happens, although each share would continue to be valued at $1.00 per share, each shareholder will own fewer shares of the Acquiring Fund and lose money. The Acquiring Fund could do this if, for example, there were a default on an investment held by the Acquiring Fund, if expenses exceed the Acquiring Fund’s income, or if an investment declined significantly in value. By investing in the Acquiring Fund, you agree to this reduction should it become necessary to maintain a $1.00 per share net asset value.
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 Acquiring Fund holds a shareholder meeting, your Service Agent, as record holder, will be entitled to vote your shares 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 Acquiring Fund calculates its net income and declares dividends each business day when it makes its final net asset value calculation. See “Buying shares” above for information about when recently purchased shares begin to earn dividends and “Redeeming shares” above for information about when shares redeemed cease to earn dividends. Dividends are distributed once a month, on or before the last business day of the month.
You can elect to receive dividends and/or other distributions in cash.
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.
If you hold shares directly with the Acquiring Fund and you elect to receive dividends and/or distributions in cash, you have the option to receive such dividends and/or distributions via a direct deposit to your bank account or, provided that the dividend and/or distribution is $10.00 or more, by check. If you choose to receive dividends and/or distributions via check, amounts less than $10.00 will automatically be reinvested in fund shares as described above.
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If you do not want dividends and/or distributions in amounts less than $10.00 to be reinvested in fund shares, you must elect to receive dividends and distributions via a direct deposit to your bank account.
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 Acquiring 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 SAIs. 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.
The Acquiring Fund expects that most of its distributions will be exempt-interest dividends, which are exempt from federal income tax but may be subject to state or local income taxes. Distributions of net capital gain (the excess of net long-term capital gain over net short-term capital loss) that are reported by the Acquiring Fund as capital gain dividends are taxable to you as long-term capital gain regardless of how long you have owned your shares. Other distributions are generally taxable as ordinary dividends. The Acquiring Fund does not expect any distributions to be treated as qualified dividend income, which for noncorporate shareholders may be taxed at reduced rates.
If you redeem shares or exchange them for shares of another fund, it is generally a taxable event. However, you will not have any gain or loss on the redemption or exchange so long as the Acquiring Fund maintains a net asset value of $1.00 per share.
A Medicare contribution tax is 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 (other than exempt-interest dividends) and capital gain distributions, if any, paid by the Acquiring Fund.
A dividend declared by the Acquiring 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 Acquiring Fund will provide you with information about the distributions and dividends you received, including exempt-interest dividends. Because each shareholder’s circumstances are different and special tax rules may apply, you should consult your tax adviser about your investment in the Acquiring Fund.
Share price/Fund business days
You may buy or redeem shares at their net asset value (“NAV”) next determined after receipt of your request in good order. You may exchange shares at the final NAV calculated on the Acquiring Fund business day after receipt of your request in good order.
The Acquiring Fund uses the amortized cost method to value its portfolio securities. Using this method, the Acquiring Fund constantly amortizes over the remaining life of a security the difference between the principal amount due at maturity and the cost of the security to the Acquiring Fund. This method of valuation is designed to permit a money market fund to maintain a constant NAV of $1.00 per share, but there is no guarantee that it will do so.
The Acquiring Fund’s NAV per share is the value of its assets minus its liabilities divided by the number of shares outstanding. NAV is calculated separately for each class of shares. The Acquiring Fund is open for business and calculates its NAV every day on which both the NYSE and the Federal Reserve Bank of New York (“FRBNY”) are open for business. Therefore, the Acquiring Fund will be closed on New Year’s Day, Martin Luther King, Jr. Day, Presidents’ Day, Good
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Friday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day and Christmas Day. Both the NYSE and FRBNY are also closed on weekends and may be closed because of an emergency or other unanticipated event. In the event the NYSE does not open for business because of an emergency or other unanticipated event, the Acquiring Fund may, but is not required to, open for purchase or redemption transactions if the Federal Reserve wire payment system is open.
The Acquiring Fund typically calculates its NAV as of each hour from 9:00 a.m. (Eastern time) until its close of business on each fund business day. However, the Acquiring Fund could, without advance notice, determine not to make one or more intraday calculations for a number of reasons such as unusual conditions in the bond, credit or other markets or unusual fund purchase or redemption activity. If the Acquiring Fund determined not to make an intraday calculation, purchases or redemptions would be effected at the next determined intraday or closing NAV, which may be greater or less than the price at which the purchase or redemption would otherwise have been effected.
On any day when the NYSE, the FRBNY or the bond markets (as recommended by the Securities Industry and Financial Markets Association) close early due to an unanticipated event, or if trading on the NYSE is restricted, an emergency arises or as otherwise permitted by the SEC, the Acquiring Fund reserves the right to close early and make its final NAV calculation as of the time of its early close.
The Acquiring Fund normally closes for business at 12:00 noon (Eastern time).
To determine whether the Acquiring Fund is open for business, please call the Acquiring Fund at 1-877-721-1926 or 1-203-703-6002 between 8:00 a.m. and 5:30 p.m. (Eastern time). You should contact your Service Agent to determine whether your Service Agent will be open for business.
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.
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INFORMATION ABOUT THE 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 C to this Information 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 by the Acquiring Fund and for classes of shares of beneficial interest of the Acquiring Fund corresponding to the classes of outstanding shares of beneficial interest of the Target 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 the Acquiring Fund shares to the shareholders of the Target Fund in redemption of the Target Fund shares and (3) the termination of the Target Fund. Subject to the satisfaction of the conditions described below, the Reorganization is scheduled to occur as of the close of business on July 24, 2015, or on such later date as the parties may agree (“Closing Date”).
Shareholders of Institutional Shares or Investor Shares of the Target Fund will receive shares of the corresponding class of the Acquiring Fund in the Reorganization.
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 NYSE on the Closing Date or such later time as the Target Fund’s net asset value is calculated. Because the Target Fund and the Acquiring Fund are both money market funds, shares of each Fund are valued at amortized cost. Accordingly, each Acquiring Fund share that you receive in the Reorganization is expected to have a net asset value at amortized cost of $1.00 per share.
All issued and outstanding shares of the Target Fund will thereafter be redeemed.
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.
The Reorganization Agreement may be terminated and the Reorganization abandoned at any time prior to the Closing Date 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. 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 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.
Description of the Acquiring Fund’s Shares
Shareholders holding Institutional Shares of the Target Fund will receive Institutional Shares of the Acquiring Fund. Shareholders holding Investor Shares of the Target Fund will receive Investor 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.
Transfer of Target Fund assets to Tax Free Reserves Portfolio in connection with the Reorganization
As noted above, the Acquiring Fund is a feeder fund in a master-feeder structure. Accordingly, the Acquiring Fund invests all of its assets in Tax Free Reserves Portfolio, a master fund that has the same investment objectives and strategies as the Acquiring Fund. As a result, the Acquiring Fund’s assets consist primarily of its interest in Tax Free Reserves Portfolio. Immediately prior to the closing of the Reorganization, the Target Fund will transfer substantially all of its assets to Tax Free Reserves Portfolio in exchange for an interest in Tax Free Reserves Portfolio equal in value to the net assets transferred. The Target Fund’s interest in Tax Free Reserves Portfolio will therefore be transferred to the Acquiring Fund in the Reorganization.
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Reasons for the Reorganization and Board Considerations
The Reorganization was presented to the Target Fund’s Board for consideration at a Board meeting held on May 12 and 13, 2015, and was approved at that meeting. Following extensive discussions of the advantages and disadvantages to the Target Fund, based on its evaluation of all material factors, including those described below, the Board, including all of the Independent Board Members, determined that: (1) participation in the 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 Board considered a number of factors prior to approving the Reorganization, including the following:
| • | | the recommendations of Legg Mason Partners Fund Advisor, LLC (“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 and/or its affiliates (“Legg Mason��) will pay all of the costs and expenses in connection with the Reorganization; |
| • | | the relative performance histories of the two Funds; |
| • | | the annual fund operating expenses and fees that Target Fund shareholders are expected to pay as shareholders of the Acquiring Fund after the Reorganization; |
| • | | the fact that it is expected that shareholders will not recognize a gain or loss for federal income tax purposes as a direct result of the Reorganization |
| • | | the similarities and differences in the investment objectives, strategies, policies and risks of the Acquiring Fund and the Target Fund; and |
| • | | The net asset value per share of each of the Target Fund and the Acquiring Fund. |
The Board considered the benefits to Legg Mason. If the Reorganization 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.
The proposed Reorganization was presented to the Board, on behalf of the Acquiring Fund, for consideration at a Board meeting held on May 12 and 13, 2015. The Board, on behalf of the Acquiring Fund, including all of the Independent Board Members, determined that: (1) participation in the proposed 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
It is expected that the parties to the Reorganization Agreement (other than LMPFA) will receive an opinion from Morgan, Lewis & Bockius LLP, substantially to the effect that, based upon certain facts, assumptions and representations of the parties, for federal income tax purposes:
(i) the Reorganization will constitute a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”), and the Target Fund and the Acquiring 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 Acquiring Fund upon receipt of the assets of the Target Fund solely in exchange for the Institutional Shares of the Acquiring Fund and the assumption by the Trust, on behalf of the Acquiring Fund, of the liabilities of the Target Fund;
(iii) the tax 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 tax basis of such assets in the hands of the Target Fund immediately prior to the transfer, 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,
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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 Target Fund upon the transfer of the assets of the Target Fund to the Acquiring Fund in exchange for the shares of the Acquiring Fund and the assumption by the Trust, on behalf of the Acquiring Fund, 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, 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;
(vi) no gain or loss will be recognized by the Target Fund shareholders upon the exchange of their Target Fund shares solely for shares of the Acquiring Fund as part of the Reorganization;
(vii) 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 tax basis of its Target Fund shares exchanged therefor; and
(viii) a Target Fund shareholder’s holding period for its shares of the Acquiring Fund received in the Reorganization will include the period for which it held the Target Fund shares exchanged therefor, provided that it held the Target Fund shares as capital assets on the date of the exchange.
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 of any other transactions undertaken in connection with the Reorganization or of 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.
Although it is expected that the parties (other than LMPFA) will receive a tax opinion as described above, the Acquiring Fund may waive the receipt of such an opinion as a condition to the closing of the Reorganization. The parties could, therefore, proceed with the Reorganization even if it does not constitute a “reorganization” for federal income tax purposes. Under such circumstances, the Target Fund would recognize gain or loss, if any, for federal income tax purposes on the transfer of its assets to the Acquiring Fund. Since, however, the aggregate tax basis of the assets of the Target Fund is approximately equal to their aggregate fair market value, it is not expected that any net gain or loss resulting from the Reorganization would be material in amount. Under such circumstances, the shareholders of the Target Fund would also recognize gain or loss, if any, for federal income tax purposes on the exchange of their Target Fund shares for shares of the Acquiring Fund, but so long as the Target Fund maintains a stable net asset value of $1.00 per share, such exchange generally would not result in any gain or loss.
While neither of the Acquiring Fund is aware of any adverse state or local tax consequences of the 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.
The Target Fund will declare 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), all of its net tax-exempt interest income, 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). All or a portion of such dividends may be included in the taxable income of the Target Fund’s shareholders.
Information Regarding Tax Capital Loss Carryovers
Federal income tax law permits a regulated investment company, such as each Fund, to carry forward its net capital losses realized in taxable years that began on or before December 22, 2010 (“Pre-2011 Losses”) for a period of up to eight taxable years. Unused capital losses realized during taxable years beginning after December 22, 2010 (“Post-2010 Losses”) may be carried forward for an unlimited number of taxable years, but such carryovers must be fully utilized before the regulated investment company is permitted to use any carryovers of Pre-2011 Losses. The Acquiring Fund is presently entitled to capital loss carryovers for federal income tax purposes in the amounts set forth below. The Reorganization will cause the taxable year of the Target Fund to close, and the Target Fund may also have a capital loss for its taxable year ending on the date of the Reorganization.
26
In the taxable year of the Acquiring Fund in which the Reorganization occurs, the Acquiring Fund will be able to use carryovers of the Target Fund’s capital losses (including any losses from the Target Fund’s short taxable year ending on the Closing Date), subject to the additional limitations described below, to offset only a prorated portion of the Acquiring Fund’s capital gains for such taxable year, based on the number of days remaining after the Closing Date in such taxable year.
The Reorganization is expected to result in a limitation on the Acquiring Fund’s abilities to use its capital loss carryovers. That limitation, imposed by Section 382 of the Code, will apply if, as expected, the shareholders of the Acquiring Fund immediately before the Reorganization 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 Acquiring 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. To the extent that the shareholders of the Target Fund immediately before the Reorganization own less than 50% of the Acquiring Fund immediately after the Reorganization, the annual Section 382 limitation will apply to the loss carryovers of the Target Fund. Such annual limitation 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 in effect at the time of the Reorganization.
As of the date of this Information Statement/Prospectus, the product of the current long-term tax-exempt rate (which is 2.47% for the month of May 2015) and the net asset value of the Acquiring Fund exceeds the Acquiring Fund’s current capital loss carryovers. No assurance can be given as to the net asset value of the Acquiring Fund or the long-term tax-exempt rate that will be in effect at the time of the Reorganization. Even if the Acquiring Fund were able to fully utilize its capital loss carryovers, the tax benefit resulting from those losses would be shared by both Funds’ shareholders following the Reorganization. Therefore, an Acquiring Fund shareholder may pay more taxes, or pay taxes sooner, than such shareholder otherwise would if the Reorganization did not occur.
As of their prior fiscal year ends, the Funds had the following unused capital loss carryovers:
| | | | | | | | | | | | | | | | |
| | Target Fund | | | Acquiring Fund | |
| | Amount of Carryover | | | Fiscal Year of Expiration Assuming No Reorganization | | | Amount of Carryover | | | Fiscal Year of Expiration Assuming No Reorganization | |
| | $ | 151,406 | | | | 8/31/2016 | | | $ | 78,520 | | | | 8/31/2017 | |
| | | 2,228 | | | | 8/31/2017 | | | | 4,808 | | | | 8/31/2018 | |
| | | | | | | | | | | 104 | | | | 8/31/2019 | |
| | | | | | | | | | | | | | | | |
Total | | $ | 153,634 | | | | | | | $ | 83,432 | | | | | |
| | | | | | | | | | | | | | | | |
Target Fund. The Reorganization would impact the use of the Target Fund’s capital loss carryovers in the following manner: (1) the expiration date of the carryovers of Pre-2011 Losses would move up one year (for example, the carryovers due to expire on August 31, 2016 would expire on August 31, 2015); and (2) the carryovers would benefit the shareholders of the combined fund, rather than only the shareholders of the Target Fund.
As a result of the Reorganization and because the expiration date of the carryovers of Pre-2011 Losses would move up one year, a substantial portion of the Target Fund’s capital loss carryover will expire on August 31, 2015, which is one year earlier than it would expire absent the Reorganization. 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 Reorganization and that the Target Fund shareholders after the Reorganization would share the benefits of the Acquiring Fund’s capital loss carryovers.
Acquiring Fund. The Reorganization would impact the use of the Acquiring Fund’s capital loss carryovers by benefiting the shareholders of the combined fund, rather than only the shareholders of the Acquiring Fund.
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 24, 2015. Further, the ability of each Fund to use these losses (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 combination of these factors on the use of loss carryovers may result in some portion of the loss carryovers of either or both of the Funds expiring unused.
27
TERMINATION OF THE TARGET FUND
If the Reorganization of the Target Fund is effected, the Target Fund will be terminated.
PORTFOLIO SECURITIES
Based on the Funds’ current holdings, it is not anticipated that any holdings in the investment portfolio of the Target Fund will be sold in connection with the Reorganization. Nonetheless, it is possible that there may be some dispositions of the portfolio securities of the Target Fund in connection with the Reorganization. Subject to market conditions at the time of any such disposition, the disposition of portfolio securities of the Target Fund may result in capital gain or loss. In the event of any such repositioning, the associated transaction costs will be borne by the Target Fund. As of the date hereof, the Target Fund is not expected to incur material transaction costs in the event of any repositioning of its portfolio in connection with the Reorganization. As noted above, immediately prior to the close of the Reorganization, the holdings in the investment portfolio of the Target Fund will be transferred to Tax Free Reserves Portfolio, the master fund in which the Acquiring Fund invests all of its investable assets, in exchange for an interest in Tax Free Reserves Portfolio equal in value to the assets transferred. Accordingly, the assets that will be transferred by the Target Fund to the Acquiring Fund in the Reorganization will be the Target Fund’s interest in Tax Free Reserves Portfolio. No transaction or other costs will be incurred in connection with the Target Fund’s transfer of portfolio holdings to Tax Free Reserves Portfolio.
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INFORMATION ABOUT MANAGEMENT OF THE ACQUIRING FUND
Investment Manager and Subadviser
LMPFA is the Acquiring Fund’s investment manager. LMPFA, with offices at 620 Eighth Avenue, New York, New York 10018, also serves as the investment manager of other Legg Mason-sponsored funds. LMPFA provides administrative and certain oversight services to the Acquiring Fund. As of December 31, 2014, LMPFA’s total assets under management were approximately $242.9 billion.
Western Asset Management Company (“Western Asset”) provides the day-to-day portfolio management the Acquiring Fund as subadviser. 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, 2014, the total assets under management of Western Asset and its supervised affiliates were approximately $466 billion.
LMPFA pays the subadviser a portion of the management fee that it receives from the Acquiring Fund. The Acquiring fund did not pay any additional advisory or other fees for advisory services provided by Western Asset.
LMPFA and Western Asset are wholly-owned subsidiaries of Legg Mason, Inc. Legg Mason, whose principal executive offices are at 620 Eighth Avenue, New York, New York 10018, is a global asset management company. As of December 31, 2014, Legg Mason’s asset management operations, including Western Asset and its supervised affiliates, had aggregate assets under management of approximately $709.1 billion.
| | | | | | |
Investment Adviser | | Management Fee Rate (percentage of average daily net assets) | | Subadviser | | Rate Received by Subadviser |
LMPFA | | 0.250% of average daily net assets on the first $1 billion 0.225% on assets over $1 billion and up to and including $2 billion 0.200% on assets over $2 billion and up to and including $5 billion 0.175% on assets over $5 billion and up to and including $10 billion 0.150% on assets over $10 billion | | Western Asset | | The subadvisory fee is 70% of the management fee paid to LMPFA, net of expense waivers and reimbursements |
For the fiscal year ended August 31, 2014, the Acquiring Fund paid management fees equal to 0.03% of the Fund’s average daily net assets for management services, after waivers and/or reimbursements.
Information about the factors considered by the Board of the Acquiring Fund in approving the investment management agreement with LMPFA and the sub-advisory agreement with Western Asset is contained in the Semi-Annual Report for the Acquiring Fund for the fiscal period ended February 28, 2015.
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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 the Fund at 1-800-625-4554, by writing to Western Asset Money Market Funds, P.O. Box 55083, Boston, MA 02205-5083 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 the Trust’s Declaration of Trust and Bylaws 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 for which financial statements are available is August 31, 2014. The most recent fiscal year end of the Acquiring Fund for which financial statements are available is August 31, 2014.
The financial highlights of the Acquiring Fund contained in Appendix B have been derived, in part, from financial statements audited by KPMG LLP, the Fund’s independent registered public accounting firm. The financial highlights of the Acquiring Fund contained in Appendix B for the six-month period ended February 28, 2015 are unaudited.
Performance of the Funds
Historical performance of each Fund is detailed in Appendix D of this Information 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 Target Fund’s and the Acquiring Fund’s sole and exclusive distributor.
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 Information 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.
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
30
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 the 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 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
Western Asset Institutional AMT Free Municipal Money Market Fund and
Western Asset Institutional Tax Free Reserves
As of February 28, 2015 (Unaudited)
| | | | | | | | | | | | | | | | |
| | Western Asset Institutional AMT Free Municipal Money Market Fund
| | | Western Asset Institutional Tax Free Reserves | | | Pro Forma Adjustments | | | Pro Forma Western Asset Institutional Tax Free Reserves Combined Fund | |
| | Institutional Shares | | | Institutional Shares | | | Institutional Shares1 | | | Institutional Shares | |
Net Assets | | $ | 502,152,363 | | | $ | 416,146,811 | | | $ | — | | | $ | 918,299,174 | |
Net Asset Value Per Share | | $ | 1.00 | | | $ | 1.00 | | | $ | — | | | $ | 1.00 | |
Net Shares Outstanding | | | 502,165,461 | | | | 416,205,489 | | | | — | | | | 918,370,950 | |
| | | | |
| | Western Asset Institutional AMT Free Municipal Money Market Fund | | | Western Asset Institutional Tax Free Reserves | | | Pro Forma Adjustments | | | Pro Forma Western Asset Institutional Tax Free Reserves Combined Fund | |
| | Investor Shares | | | Investor Shares | | | Investor Shares | | | Investor Shares | |
Net Assets | | $ | 112,831,502 | | | $ | 149,156,754 | | | $ | — | | | $ | 261,988,256 | |
Net Asset Value Per Share | | $ | 1.00 | | | $ | 1.00 | | | $ | — | | | $ | 1.00 | |
Net Shares Outstanding | | | 112,831,672 | | | | 149,156,805 | | | | — | | | | 261,988,477 | |
1 | The manager and/or its affiliates will pay all of the Target Fund’s and all of the Acquiring Fund’s reorganization costs, which are estimated to be approximately $64,000 and $55,000, respectively, whether or not the Reorganization is consummated. |
Dividends and Distributions
Each Fund calculates its net income each business day when it makes its final net asset value calculation. Dividends are distributed once a month, on or before the last business day of the month, and are reinvested in additional fund shares of the same class you hold. Alternatively, you can instruct your Service Agent or the Fund to have your dividends paid in cash. You can change your choice at any time to be effective as of the next dividend.
31
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, 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.
Outstanding Shares
To the knowledge of the Funds, as of [ ], 2015, except as set forth in Appendix E, no person owned beneficially or of record 5% or more of such Fund’s outstanding shares.
To the knowledge of the Funds, as of [ ], 2015, less than 1% of the outstanding shares of each 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.
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INDEX OF APPENDICES
Appendix A: | Dates of Prospectuses, Fund SAIs and Shareholder Reports |
Appendix B: | Financial Highlights of the Acquiring Fund |
Appendix C: | Form of Agreement and Plan of Reorganization |
Appendix D: | Historical Performance for Each Fund |
Appendix E: | 5% Shareholders of the Target Fund and Acquiring Fund |
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APPENDIX A
Dates of Prospectuses, Fund Statements of
Additional Information and Shareholder Reports
| | | | | | |
Fund | | Prospectuses and Fund SAI Dated | | Annual Reports | | Semi-Annual Reports |
Western Asset Institutional AMT Free Municipal Money Market Fund | | December 29, 2014 (Prospectuses and SAI filed on December 15, 2014; Accession number 0001193125-14-442657) | | August 31, 2014 (filed on October 24, 2014; Accession number 0000930413-10-004212) | | February 28, 2015 (filed on April 16, 2015; Accession number 0001193125-15-132623) |
| | | |
Western Asset Institutional Tax Free Reserves | | December 29, 2014 (Prospectuses and SAI filed on December 15, 2014; Accession number 0001193125-14-442657) | | August 31, 2014 (filed on October 24, 2014; Accession number 0001193125-14-381017) | | February 28, 2015 (filed on April 16, 2014; Accession number 0001193125-15-132524) |
A-1
APPENDIX B
Financial Highlights of Western Asset Institutional Tax Free Reserves
The financial highlights table is intended to help you understand the performance of Institutional Shares for the past five years and Investor Shares since inception, and of each class for the semi-annual period ended February 28, 2015. 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, except with respect to the six-month period ended February 28, 2015, has been derived from the fund’s financial statements, which have been audited by KPMG LLP, 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 highlights for the six-month period ended February 28, 2015 are unaudited.
| | | | | | | | | | | | | | | | | | | | | | | | |
For a share of each class of beneficial interest outstanding throughout each year ended August 31: | |
Institutional Shares | | Six-months Ended Feb. 28, 20151,2 (unaudited) | | | 20141 | | | 20131 | | | 2012 | | | 2011 | | | 2010 | |
| | | | | | |
Net asset value, beginning of year | | | $1.000 | | | | $1.000 | | | | $1.000 | | | | $1.000 | | | | $1.000 | | | | $1.000 | |
| | | | | | |
Income (loss) from operations: | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income | | | 0.000 | 3 | | | 0.000 | 3 | | | 0.000 | 3 | | | 0.001 | | | | 0.002 | | | | 0.002 | |
Net realized and unrealized gain (loss) | | | — | | | | 0.000 | 3 | | | 0.000 | 3 | | | (0.000) | 3 | | | (0.000) | 3 | | | 0.000 | 3 |
Total income from operations | | | 0.000 | 3 | | | 0.000 | 3 | | | 0.000 | 3 | | | 0.001 | | | | 0.002 | | | | 0.002 | |
| | | | | | |
Less distributions from: | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income | | | (0.000) | 3 | | | (0.000) | 3 | | | (0.000) | 3 | | | (0.001) | | | | (0.002) | | | | (0.002) | |
Total distributions | | | (0.000) | 3 | | | (0.000) | 3 | | | (0.000) | 3 | | | (0.001) | | | | (0.002) | | | | (0.002) | |
| | | | | | |
Net asset value, end of year | | | $1.000 | | | | $1.000 | | | | $1.000 | | | | $1.000 | | | | $1.000 | | | | $1.000 | |
Total return4 | | | 0.01 | % | | | 0.02 | % | | | 0.04 | % | | | 0.08 | % | | | 0.20 | % | | | 0.15 | % |
| | | | | | |
Net assets, end of year (millions) | | | $416 | | | | $481 | | | | $852 | | | | $1,147 | | | | $2,465 | | | | $2,461 | |
| | | | | | |
Ratios to average net assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Gross expenses5 | | | 0.46 | %6,7 | | | 0.46 | %7 | | | 0.45 | %7 | | | 0.29 | % | | | 0.26 | % | | | 0.34 | % |
Net expenses5,8,9 | | | 0.05 | 6 | | | 0.10 | | | | 0.14 | | | | 0.18 | | | | 0.18 | | | | 0.17 | |
Net investment income | | | 0.02 | 6 | | | 0.02 | | | | 0.04 | | | | 0.09 | | | | 0.20 | | | | 0.15 | |
1 | Per share amounts have been calculated using the average shares method. |
2 | For the six months ended February 28, 2015 (unaudited). |
3 | Amount represents less than $0.0005 per share. |
4 | 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. |
5 | Includes the fund’s share of Tax Free Reserves Portfolio’s allocated expenses. |
7 | The gross expenses do not reflect the reduction in the fund’s management fee by the amount paid by the Fund for its allocable share of the management fee paid by Tax Free Reserves Portfolio. |
8 | Reflects fee waivers and/or expense reimbursements. |
9 | As a result of an expense limitation arrangement, the ratio of expenses, other than interest, brokerage, taxes, extraordinary expenses and acquired fund fees and expenses, to average net assets of Institutional Shares did not exceed 0.20%. This expense limitation arrangement cannot be terminated prior to December 31, 2016 without the Board of Trustees’ consent. Additional amounts may be voluntarily waived and/or reimbursed from time to time. |
B-1
| | | | | | | | |
For a share of each class of beneficial interest outstanding throughout each year ended August 31: | |
Investor Shares1 | | 20152 | | | 20142 | |
| | |
Net asset value, beginning of year | | | $1.000 | | | | $1.000 | |
| | |
Income (loss) from operations: | | | | | | | | |
Net investment income4 | | | 0.000 | | | | 0.000 | |
Net realized gain (loss) | | | — | | | | 0.000 | 4 |
Total income from operations4 | | | 0.000 | | | | 0.000 | |
| | |
Less distributions from: | | | | | | | | |
Net investment income4 | | | 0.000 | | | | (0.000) | |
Total distributions4 | | | 0.000 | | | | (0.000) | |
| | |
Net asset value, end of year | | | $1.000 | | | | $1.000 | |
Total return5 | | | 0.00 | % | | | 0.01 | % |
| | |
Net assets, end of year (millions) | | | $149 | | | | $36 | |
| | |
Ratios to average net assets: | | | | | | | | |
Gross expenses7,8,9 | | | 0.56 | % | | | 0.57 | % |
Net expenses7,8,10,11 | | | 0.06 | | | | 0.10 | |
Net investment income8 | | | 0.01 | | | | 0.01 | |
1 | Per share amounts have been calculated using the average shares method. |
2 | For the six months ended February 28, 2015 (unaudited). |
3 | For the period December 23, 2013 (inception date) to August 31, 2014. |
4 | Amount represents less than $0.0005 per share. |
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. |
6 | Amount represents less than 0.005%. |
7 | Includes the Fund’s share of Tax Free Reserves Portfolio’s allocated expenses. |
9 | The gross expenses do not reflect the reduction in the Fund’s management fee by the amount paid by the Fund for its allocable share of the management fee paid by Tax Free Reserves Portfolio. |
10 | Reflects fee waivers and/or expense reimbursements. |
11 | As a result of an expense limitation arrangement, the ratio of expenses, other than interest, brokerage, taxes, extraordinary expenses and acquired fund fees and expenses, to average net assets of Investor Shares did not exceed 0.35%. This expense limitation arrangement cannot be terminated prior to December 31, 2016 without the Board of Trustees’ consent. Additional amounts may be voluntarily waived and/or reimbursed from time to time. |
B-2
APPENDIX C
Form of Agreement and Plan of Reorganization
This AGREEMENT AND PLAN OF REORGANIZATION (“Agreement”) is made as of this [ ] day of [ ], 2015, by and between Legg Mason Partners Institutional Trust, a Maryland statutory trust (the “Trust”), with its principal place of business at 100 International Drive, Baltimore, Maryland 21202, on behalf of its series Western Asset Institutional Tax Free Reserves (the “Acquiring Fund”), and the Trust on behalf of its series Western Asset Institutional AMT Free Municipal Money Market Fund (the “Target Fund”), and, solely for purposes of paragraph 10.2 hereof, Legg Mason Partners Fund Advisor, LLC (“LMPFA”).
WHEREAS, each of the Target Fund and the Acquiring 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 shares of beneficial interest of the Acquiring Fund (the “Acquiring Fund Shares”) of the classes 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 termination and complete liquidation 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, immediately prior to the actions contemplated by paragraph 1.1 herein, the Target Fund will contribute substantially all of its investable assets to Tax Free Reserves Portfolio, an underlying registered investment company through which the Acquiring Fund currently invests in securities, in exchange for an interest in Tax Free Reserves Portfolio equal in value to the assets contributed (the “Contribution”), and such interest in Tax Free Reserves Portfolio shall then constitute a property and asset of the Trust attributable to the Target Fund for purposes of this Agreement;
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, 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 not “interested persons” (as that term is defined in the 1940 Act) of the Trust, 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;
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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, immediately following the Contribution, the Trust, on behalf of the Target Fund, agrees to sell, assign, convey, transfer and deliver all of its property and assets, as 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 of full and fractional Acquiring Fund Shares corresponding to each class of the 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) attributable to each such class 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, stock dividends, or other securities received by the Target Fund after the Closing Date as stock dividends or other distributions on or with respect to the property and assets transferred, which rights, 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 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 realized net capital gain as defined in the Code (after deduction for any available capital loss carryover), 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), as dividends qualifying for the dividends paid deduction under Section 562 of the Code, 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) distribute to the shareholders of record with respect to each class of the Target Fund Shares as of the Closing Date (“Target Fund Shareholders”), on a pro rata basis within that share class, the Acquiring Fund Shares of the corresponding class received by the Trust, on behalf of the Target Fund, pursuant to paragraph 1.1, in complete redemption
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of the Target Fund Shares and (b) 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 each class of the Target Fund Shares, by the transfer on the Closing Date of the corresponding class 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 applicable Target Fund Shareholders. The aggregate net asset value of the Acquiring Fund Shares to be so credited to each Target Fund Shareholder within a share class shall be equal to the aggregate net asset value of the Target Fund Shares of that class owned by that Target Fund Shareholder 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.
1.6 Ownership of Acquiring Fund Shares will be shown on the books of the Acquiring Fund’s transfer agent 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 of any dividends 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. All computations of value and amounts pursuant to this paragraph 2.1 shall be subject to confirmation by the Acquiring Fund’s independent registered public accounting firm.
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. All computations of value and amounts pursuant to this paragraph 2.2 shall be subject to confirmation by the Target Fund’s independent registered public accounting firm.
3. CLOSING AND CLOSING DATE
3.1 Subject to the terms and conditions set forth herein, the Closing Date shall be [ ], 2015, 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 of any dividends. The Closing shall be held at the offices of Morgan, Lewis & Bockius LLP, One Federal Street, Boston, Massachusetts 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 Trust, 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.
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3.3 The Trust shall direct Boston Financial Data Services, Inc., in its capacity as transfer agent for the Target Fund (“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 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 party shall deliver to the other party such bills of sale, checks, assignments, share certificates, if any, receipts or other documents as the other party 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.
4. REPRESENTATIONS AND WARRANTIES
4.1 Except as has been fully disclosed in Schedule 4.1 of this Agreement, 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 “Charter”), 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 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.
(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 Charter or the
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bylaws 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 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, 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 pursuant to 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 Acquiring Fund) 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 shareholders of the Target Fund 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
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ending on the Closing Date), the Target Fund has met (or will 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, has been (or will be) eligible to compute and has computed (or will compute) its federal income tax under Section 852 of the Code, and on or before the Closing Date, will have distributed or will have declared dividends intended to be sufficient to distribute substantially all of (i) the excess of (x) its investment income excludible from gross income under Section 103 of the Code over (y) its deductions disallowed under Sections 265 and 171 of the Code (“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) (after reduction for any allowable capital loss carryover) that has accrued or been recognized, respectively, through the Closing Date such that for all tax periods ending on or before the Closing Date (including the taxable year ending on the Closing Date) the Target Fund will not have any tax liability under Section 852 or Section 4982. The Target Fund has no earnings and profits accumulated with respect to any taxable year in which the provisions of Subchapter M of the Code did not apply.
(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 and have been offered and sold in any state, territory or the District of Columbia in compliance in all material respects with applicable registration requirements of all applicable federal and state securities laws. 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 the 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, 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 information statement and prospectus (“Information Statement”) to be included in the Registration Statement (as defined in paragraph 5.5), insofar as it relates to the Target Fund, from the effective date of the Registration Statement through 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 Information 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 Target Fund for use in registration statements and other documents filed or to be filed with any federal, state or local regulatory authority, 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.
(q) The Trust, on behalf of the Target Fund, has satisfied all applicable provisions of Rule 17a-8 under the 1940 Act with respect to the transactions contemplated hereby.
4.2 Except as has been fully disclosed in Schedule 4.2 to this Agreement, 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 Charter 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 trust 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),
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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).
(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 Charter or the bylaws 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, 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 Target 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 (or will 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 (or will be) eligible to compute and has computed (or will compute) its federal income tax under Section 852 of the Code, and will have distributed (or will distribute) substantially all 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) (after reduction for any capital loss carryover) for taxable years ending prior to the Closing Date such that for all those years the Acquiring Fund will have no tax liability under Section 852 or Section 4982. The Acquiring Fund has no earnings and profits accumulated with respect to any taxable year in which the provisions of Subchapter M of the Code did not apply.
(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, territory or the District of Columbia 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, bankruptcy, insolvency, reorganization, moratorium and other laws relating to or affecting creditors’ rights and to general equity principles.
(m) The Information Statement to be included in the Registration Statement, insofar as it relates to the Acquiring Fund and the Acquiring Fund Shares, from the effective date of the Registration Statement through 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 Information 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, 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.
(n) The Trust, on behalf of the Acquiring Fund, has satisfied all applicable provisions of Rule 17a-8 under the 1940 Act with respect to the transactions contemplated hereby.
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
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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.
5.2 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.
5.3 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.
5.4 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.
5.5 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.
5.6 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.
5.7 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.
5.8 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.
5.9 The Trust shall not change the Charter, 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.
5.10 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 Treas. Reg. § 1.368-3.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF 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.
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.
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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, Vice President or other duly authorized officer and its Treasurer, Assistant Treasurer or other duly authorized officer, 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.
6.6 The Contribution shall have been consummated.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF 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 or other duly authorized officer 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, Vice President or other duly authorized officer and its Treasurer, Assistant Treasurer or other duly authorized officer, 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.
7.6 The Contribution shall have been consummated.
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8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TRUST
If any of the conditions set forth below 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 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.
8.2 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.
8.3 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.
8.4 The parties (other than LMPFA) shall have received the opinion of Morgan, Lewis & Bockius 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 each of the Target Fund and the Acquiring Fund, for federal income tax purposes: (i) the Reorganization will constitute a “reorganization” within the meaning of Section 368(a) of the Code, and the Target Fund and the Acquiring 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 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; (iii) the tax 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 tax basis of such Assets in the hands of the Target Fund immediately prior to the transfer, 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 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 Target Fund 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; (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 tax basis of the Acquiring Fund Shares that each Target Fund Shareholder receives in the Reorganization will be the same as the aggregate tax 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 Morgan, Lewis & Bockius LLP of representations it shall request of the Trust.
8.5 The Assets will include no assets which the Acquiring Fund, by reason of limitations contained in the Charter or in 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
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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, 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 its officers prior to the Closing Date, 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, or will cause one of its affiliates to pay, all of the costs of the Reorganization otherwise allocable to the Target Fund and to the Acquiring Fund, except that any transaction costs associated with repositioning a Fund’s portfolio in connection with the Reorganization will be borne by that Fund. 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 such party’s failure to qualify for tax 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.
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.
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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.
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 Charter, 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.]
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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed by its duly authorized officer.
LEGG MASON PARTNERS INSTITUTIONAL TRUST,
on behalf of its series WESTERN ASSET INSTITUTIONAL TAX FREE RESERVES
| | | | |
By: | | | | |
Name: | | | | |
Title: President and Principal Executive Officer | | |
LEGG MASON PARTNERS INSTITUTIONAL TRUST,
on behalf of its series WESTERN ASSET AMT FREE MUNICIPAL MONEY MARKET FUND
| | | | |
By: | | | | |
Name: | | | | |
Title: President and Principal Executive Officer | | |
Solely for purposes of paragraph 10.2 of the Agreement:
LEGG MASON PARTNERS FUND ADVISOR, LLC
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SCHEDULE 4.1
None.
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SCHEDULE 4.2
None.
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APPENDIX D
Historical Performance for Each Fund
Western Asset Institutional AMT Free Municipal Money Market 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 Institutional Shares, a class of the fund that is invested in the same portfolio of securities as Investor Shares. The table shows the average annual total returns of Institutional Shares and Investor Shares. The fund makes updated performance information available at the fund’s website, http://www.leggmason.com/individualinvestors/prospectuses (click on the name of the fund), or by calling the fund at 1-800-625-4554.
The fund’s past performance is not necessarily an indication of how the fund will perform in the future.
Institutional Shares
During the periods shown in the bar chart:
| | |
Total returns (%) |
| |
 | | Best quarter: 09/30/2007 0.88% Worst quarter: 09/30/2012 0.01% |
| | | | | | | | | | |
Average annual total returns (For the periods ended December 31, 2014) (%): | | | | |
| | 1 year | | 5 years | | 10 years | | Since Inception | | Inception Date |
Institutional Shares | | 0.04 | | 0.10 | | 1.19 | | N/A | | |
Investor Shares | | 0.01 | | — | | — | | 0.01 | | 12/23/2013 |
D-1
Western Asset Institutional Tax Free Reserves
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 Institutional Shares, a class of the fund that is invested in the same portfolio of securities as Investor Shares. The table shows the average annual total returns of Institutional Shares and Investor Shares. The fund makes updated performance information available at the fund’s website, http://www.leggmason.com/individualinvestors/prospectuses (click on the name of the fund), or by calling the fund at 1-877-721-1926 or 1-203-703-6002.
The fund’s past performance is not necessarily an indication of how the fund will perform in the future.
Institutional Shares
During the periods shown in the bar chart:
| | |
Total returns (%) |
| |
 | | Best quarter: 06/30/2007 0.90% Worst quarter: 03/31/2013 0.00% |
| | | | | | | | | | |
Average annual total returns (For the periods ended December 31, 2014) (%): | | |
| | 1 year | | 5 years | | 10 years | | Since Inception | | Inception Date |
Institutional Shares | | 0.02 | | 0.09 | | 1.19 | | N/A | | |
Investor Shares | | 0.01 | | — | | — | | 0.01 | | 12/23/2013 |
D-2
APPENDIX E
5% Shareholders of the Target Fund and Acquiring Fund
To the knowledge of the Funds, as of [ ], 2015, the following persons owned beneficially or of record 5% or more of such Fund’s outstanding shares:
Western Asset Institutional AMT Free Municipal Money Market Fund
| | | | |
Class | | Name and Address of Shareholder | | Percent Ownership |
Western Asset Institutional Tax Free Reserves
| | | | |
Class | | Name and Address of Shareholder | | Percent Ownership |
E-1
LEGG MASON PARTNERS INSTITUTIONAL TRUST
Western Asset Institutional Tax Free Reserves
STATEMENT OF ADDITIONAL INFORMATION
[ ], 2015
| | |
Acquisition of the Assets and Liabilities of: | | By and in Exchange for Shares of: |
Western Asset Institutional AMT Free Municipal Money Market Fund | | Western Asset Institutional Tax Free Reserves |
| |
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 Information Statement/Prospectus dated [ ], 2015, relating specifically to the transfer of all of the assets and the assumption of all of the liabilities of Western Asset Institutional AMT Free Municipal Money Market Fund (the “Target Fund”), a series of Legg Mason Partners Institutional Trust, in exchange for the assumption of all of the Target Fund’s liabilities by, and for shares of, Western Asset Institutional Tax Free Reserves (the “Acquiring Fund”), also a series of Legg Mason Partners Institutional Trust, having an aggregate value equal to those of the Target Fund. To obtain a copy of the Information Statement/Prospectus, please write to the Acquiring Fund at 100 First Stamford Place, Attn: Shareholders Services—5th Floor, Stamford, Connecticut 06902 or call 1-800-625-4554. 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 Information Statement/Prospectus.
TABLE OF CONTENTS
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GENERAL INFORMATION
The Target Fund’s Board has unanimously approved the Reorganization. The Reorganization does not require shareholder approval. For further information about the Reorganization, see the Information Statement/Prospectus.
FINANCIAL STATEMENTS AND OTHER INCORPORATED DOCUMENTS
The Statement of Additional Information related to the Information Statement/Prospectus dated [ ], 2015, consists of this cover page, the accompanying pro forma financial statements 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 Target Fund:
| | | | |
Fund | | Date and Filing Date | | Accession Number |
Western Asset Institutional AMT Free Municipal Money Market Fund | | December 29, 2014/December 15, 2014 | | 0001193125-14-442657 |
The Statement of Additional Information of the Acquiring Fund:
| | | | |
Fund | | Date and Filing Date | | Accession Number |
Western Asset Institutional Tax Free Reserves | | Statement of Additional Information: December 29, 2014/December 15, 2014 | | 0001193125-14-442657 |
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 August 31, 2014:
| | | | |
Fund | | Year Ended/Filing Date | | Accession Number |
Western Asset Institutional AMT Free Municipal Money Market Fund | | August 31, 2014/October 24, 2014 | | 0001193125-14-381402 |
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 August 31, 2014:
| | | | |
Fund | | Year Ended/Filing Date | | Accession Number |
Western Asset Institutional Tax Free Reserves | | August 31, 2014/October 24, 2014 | | 0001193125-14-381017 |
The financial statements of the Target Fund as included in the Fund’s Semi-Annual Report filed for the period ended February 28, 2015:
| | | | |
Fund | | Period Ended/Filing Date | | Accession Number |
Western Asset Institutional AMT Free Municipal Money Market Fund | | February 28, 2015/April 16, 2014 | | 0001193125-15-132623 |
The financial statements of the Acquiring Fund as included in the Fund’s Semi-Annual Report filed for the period ended February 28, 2015:
| | | | |
Fund | | Period Ended/Filing Date | | Accession Number |
Western Asset Institutional Tax Free Reserves | | February 28, 2015/April 16, 2014 | | 0001193125-15-132524 |
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PRO FORMA FINANCIAL STATEMENTS
The unaudited pro forma information provided herein should be read in conjunction with the annual and semi-annual reports to shareholders, for the periods ended August 31, 2014 and February 28, 2015, respectively, for Western Asset Institutional AMT Free Municipal Money Market Fund (the “Target Fund”) and Western Asset Institutional Tax Free Reserves (the “Acquiring Fund”).
At a meeting held on May 12 and 13, 2015, the Board of Legg Mason Partners Institutional Trust (the “Trust”) approved an Agreement and Plan of Reorganization (the “Reorganization”) whereby the Acquiring Fund will acquire all the assets of, and assume of 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 terminate as a series of the Trust.
The unaudited pro forma information set forth below for the period ended February 28, 2015 is intended to present ratios and supplemental data as if the acquisition of the Target Fund by the Acquiring Fund had been consummated at March 1, 2014.
Legg Mason Partners Fund Advisor, LLC (the “manager”) is the investment manager of each of the Target Fund and the Acquiring Fund. Western Asset Management Company (“Western Asset”) is an investment subadviser of each of the Target Fund and the Acquiring Fund pursuant to separate contracts between Western Asset and the manager with respect to each fund.
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 February 28, 2015, the net assets of: (i) the Target Fund were approximately $614,983,865 and (ii) the Acquiring Fund were approximately 565,303,565. The net assets of the combined fund as of February 28, 2015 would have been approximately $1,180,287,430.
On a pro forma basis for the twelve-month period ended February 28, 2015, the proposed reorganization would have resulted in the following approximate decreases to expenses charged:
| | | | |
Registration fees | | $ | 57,540 | |
Audit and tax | | $ | 37,119 | |
Legal fees | | $ | 45,421 | |
Custody fees | | $ | 5,449 | |
Other expenses | | $ | 94,171 | |
The Acquiring Fund will be the surviving fund for accounting purposes.
No significant accounting policies (including valuation of portfolio securities) will change as a result of the proposed reorganization. Based on the Funds’ current holdings, it is anticipated that no holdings will be sold in connection with the Reorganization. Nonetheless, it is possible that there may be some dispositions of the portfolio securities of the Target Fund in connection with the Reorganization. Subject to market conditions at the time of any such disposition, the disposition of portfolio securities of the Target Fund may result in a capital gain or loss. In the event of any such repositioning, the associated transaction costs will be borne by the Target Fund. As of the date hereof, the Target Fund is not expected to incur material transaction costs in the event of any repositioning of its portfolio in connection with the Reorganization.
The Reorganization is expected to 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 termination of the Target Fund. |
S-3
| 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.
At August 31, 2014, the Target Fund had a capital loss carryover of $153,634, of which $151,406 expires on August 31, 2016 and $2,228 expires on August 31, 2017. At August 31, 2014, the Acquiring Fund had a capital loss carryover of $83,432, of which $78,520 expires on August 31, 2017, $4,808 expires on August 31, 2018 and $104 expires on August 31, 2019.
The Reorganization would impact the use of the Target Fund’s current capital loss carryovers, all of which at the current time are subject to the eight taxable year expiration referred to above, in the following manner: (1) if the Reorganization closes on a date other than the Target Fund’s taxable year-end, it might cause the Fund’s carryovers of Pre-2011 to expire earlier than the time they otherwise would have expired; for example, the carryovers due to expire on August 31, 2016 would expire on August 31, 2015; and (2) the carryovers would benefit the shareholders of the combined Fund, rather than only the shareholders of the Target Fund.
The Reorganization would impact the use of the Acquiring Fund’s capital loss carryovers by benefiting the shareholders of the combined Fund, rather than only the shareholders of the Acquiring Fund.
The capital loss carryovers and limitations described above may change significantly between now and the Closing Date, expected to be approximately July 24, 2015. Further, the ability of each Fund to use losses and loss carryovers (even in the absence of the Reorganization) depends on factors other than these limitations, such as the future realization of capital gains or losses. The combination of these factors on the use of loss carryovers may result in some portion of the loss carryovers of either or both of the Funds expiring unused.
The manager and/or its affiliates will pay all of the Target Fund’s and all of the Acquiring Fund’s reorganization costs, which are estimated to be approximately $64,000 and $55,000, respectively, whether or not the Reorganization is consummated.
S-4
PART C:
OTHER INFORMATION
Provisions relating to indemnification of the Registrant’s Trustees and employees are included in Article IX of the Registrant’s Declaration of Trust, which is incorporated herein by reference.
Reference is hereby made to paragraph 10 of the Distribution Agreement between the Registrant and LMIS.
The Trustees 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, as amended.
Unless otherwise noted, all referenced are to the Registrant’s Registration Statement on Form N-1A (the “Registration Statement”) as filed with the Securities and Exchange Commission (the “SEC”) (File Nos. 33-49552 and 811-6740).
| | | | | | |
(1) | | | (a | ) | | The Registrant’s Declaration of Trust dated as of October 2, 2006, as amended and restated as of August 18, 2011 (the “Declaration of Trust”) is incorporated herein by reference to Post-Effective Amendment No. 69 to the Registrant’s Registration Statement on Form N-1A as filed with the Securities and Exchange Commission (the “SEC”) on September 21, 2011 (“Post-Effective Amendment No. 69”). |
| | | (b | ) | | Amended and Restated Designation of Series of Shares of Beneficial Interests in the Registrant and Amended and Restated Designation of Classes, each effective as of February 12, 2013 and in each case incorporated into the Declaration of Trust are incorporated herein by reference to Post-Effective Amendment No. 86 to the Registrant’s Registration Statement on Form N-1A as filed with the SEC on August 20, 2013 (“Post-Effective Amendment No. 86”). |
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(2) | | | The Registrant’s Bylaws as amended and restated as of August 18, 2011 are incorporated herein by reference to Post- Effective Amendment No. 69. |
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(3) | | | Not Applicable. |
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(4) | | | Form of Agreement and Plan of Reorganization is included in Part A to the Registration Statement on Form N-14. |
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(5) | | | Not Applicable. |
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(6) | | | (a) | | | Management Agreement between the Registrant, on behalf of Western Asset Institutional Tax Free Reserves (formerly, Western Asset / Citi Institutional Tax Free Reserves and before that, Citi Institutional Tax Free Reserves), and Legg Mason Partners Fund Advisor, LLC (“LMPFA”) dated April 13, 2007 is incorporated herein by reference to Post-Effective Amendment No. 43 to the Registrant’s Registration Statement on Form N-1A as filed with the SEC on September 27, 2007 (“Post-Effective Amendment No. 43”) |
| | | (b | ) | | Subadvisory Agreement between LMPFA and Western Asset Management Company (“WAM”), with respect to Western Asset Institutional Tax Free Reserves (formerly, Western Asset / Citi Institutional Tax Free Reserves and before that, Citi Institutional Tax Free Reserves), dated April 13, 2007 is incorporated herein by reference to Post-Effective Amendment No. 43. |
| | |
(7) | | | (a | ) | | Distribution Agreement between the Registrant and Legg Mason Investor Services, LLC (“LMIS”), on behalf of Western Asset Institutional Tax Free Reserves, dated August 10, 2010, as amended as of November 5, 2012, is incorporated herein by reference to Post-Effective Amendment No. 81 to the Registrant’s Registration Statement on Form N-1A as filed with the SEC on December 13, 2012 (“Post-Effective Amendment No. 81”). |
| | |
(8) | | | (a | ) | | Retirement Plan of the Registrant is incorporated herein by reference to Post-Effective Amendment No. 30 to the Registrant’s Registration Statement on Form N-1A as filed with the SEC on October 31, 2005 (“Post-Effective Amendment No. 30”). |
| | | (b | ) | | Form of Amendment to the Amended and Restated Trustee Retirement Plan is incorporated herein by reference to Post-Effective Amendment No. 36 to the Registrant’s Registration Statement on Form N-1A as filed with the SEC on December 28, 2006 (“Post-Effective Amendment No. 36”). |
| | | | | | |
(9) | | | (a | ) | | Custodian Services Agreement with State Street Bank and Trust Company (“State Street”) as custodian dated October 5, 2012 is incorporated herein by reference to Post-Effective Amendment No. 79 to the Registrant’s Registration Statement on Form N-1A as filed with the SEC on November 20, 2012 (“Post-Effective Amendment No. 79”). |
| | | (b | ) | | Fund Accounting Services Agreement with State Street dated October 5, 2012 is incorporated herein by reference to Post-Effective Amendment No. 79. |
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(10) | | | N/A |
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(11) | | | Opinion and Consent of Venable LLP as to the legality of the securities is filed herewith. |
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(12) | | | Form of Opinion of Morgan, Lewis & Bockius LLP supporting the tax matters and consequences to shareholders discussed in the Prospectus/Information Statement is filed herewith. |
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(13) | | | Not Applicable. |
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(14) | | | Consent of Independent Registered Public Accounting Firm is filed herewith. |
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(15) | | | Not Applicable. |
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(16) | | | Powers of Attorney are filed herewith. |
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(17) | | | (a | ) | | Prospectus of Institutional Shares of Western Asset Institutional AMT Free Municipal Money Market Fund and Western Asset Institutional Tax Free Reserves dated December 29, 2014 are filed herewith. |
| | | (b | ) | | Prospectus of Investor Shares of Western Asset Institutional AMT Free Municipal Money Market Fund and Western Asset Institutional Tax Free Reserves dated December 29, 2014 are filed herewith. |
| | | (c | ) | | SAI of Western Asset Institutional AMT Free Municipal Money Market Fund and Western Asset Institutional Tax Free Reserves dated December 29, 2014 are filed herewith. |
| | | (d | ) | | Audited Financial Statements of the Annual Report of Western Asset Institutional AMT Free Municipal Money Market Fund for the fiscal year ended August 31, 2014 is filed herewith. |
| | | (e | ) | | Audited Financial Statements of the Annual Report of Western Asset Institutional Tax Free Reserves for the fiscal year ended August 31, 2014 is filed herewith. |
| | | (f | ) | | Unaudited Financial Statements of the Semi-Annual Report of Western Asset Institutional AMT Free Municipal Money Market Fund for the fiscal period ended February 28, 2015 is filed herewith. |
| | | (g | ) | | Unaudited Financial Statements of the Semi-Annual Report of Western Asset Institutional Tax Free Reserves for the fiscal period ended February 28, 2015 is filed herewith. |
| | | (h | ) | | Transfer Agency and Services Agreement with Boston Financial Data Services, Inc. (“BFDS”), dated as of September 1, 2014 is incorporated herein by reference to Post-Effective Amendment No. 95 to the Registrant’s Registration Statement on Form N-1A as filed with the SEC on November 19, 2014 (“Post-Effective Amendment No. 95”). |
| | | (i | ) | | Schedule A to Transfer Agency and Services Agreement with BFDS, is incorporated herein by reference to Post-Effective Amendment No. 95. |
| | | (j | ) | | Service Mark Licensing Agreement between Citigroup, Inc. and the Registrant is incorporated herein by reference to Post-Effective Amendment No. 31 to the Registrant’s Registration Statement on Form N-1A as filed with the SEC on December 30, 2005 (“Post-Effective Amendment No. 31”). |
| | | (k | ) | | Code of Ethics of Legg Mason & Co., LLC dated as of March 10, 2011 (adopted by LMPFA and LMIS) is incorporated herein by reference to Post-Effective Amendment No. 71 to the Registrant’s Registration Statement on Form N-1A as filed with the SEC on December 13, 2011 (“Post-Effective Amendment No. 71”). |
| | | (l | ) | | Code of Ethics of WAM, WAML, Western Singapore and certain supervised affiliates dated November 1, 2013 is incorporated herein by reference to Post-Effective Amendment No. 93. |
| | | (m | ) | | Code of Ethics of Western Asset Management Company Ltd (Japan) is incorporated herein by reference to Post-Effective Amendment No. 46. |
(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 Morgan, Lewis & Bockius LLP supporting the tax consequences of the proposed reorganization as soon as practicable after the closing of the reorganization.
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, State of New York on this 13th day of May, 2015.
LEGG MASON PARTNERS INSTITUTIONAL TRUST, on behalf of its series:
Western Asset Institutional Tax Free Reserves
| | |
By: | | /s/ Kenneth D. Fuller |
| | Kenneth D. Fuller |
| | President and Principal Executive Officer |
WITNESS our hands on the date set forth below.
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/ Kenneth D. Fuller Kenneth D. Fuller | | President, Principal Executive Officer and Trustee | | May 13, 2015 |
| | |
/s/ Richard F. Sennett Richard F. Sennett | | Principal Financial Officer | | May 13, 2015 |
| | |
/s/ Elliott J. Berv* Elliott J. Berv | | Trustee | | May 13, 2015 |
| | |
/s/ Jane F. Dasher* Jane F. Dasher | | Trustee | | May 13, 2015 |
| | |
/s/ Mark T. Finn* Mark T. Finn | | Trustee | | May 13, 2015 |
| | |
/s/ Rainer Greeven* Rainer Greeven | | Trustee | | May 13, 2015 |
| | |
/s/ Stephen R. Gross* Stephen R. Gross | | Trustee | | May 13, 2015 |
| | |
/s/ Richard E. Hanson, Jr.* Richard E. Hanson, Jr. | | Trustee | | May 13, 2015 |
| | |
/s/ Diana R. Harrington* Diana R. Harrington | | Trustee | | May 13, 2015 |
| | |
/s/ Susan M. Heilbron* Susan M. Heilbron | | Trustee | | May 13, 2015 |
| | |
/s/ Susan B. Kerley* Susan B. Kerley | | Trustee | | May 13, 2015 |
| | | | |
SIGNATURE | | TITLE | | DATE |
| | |
/s/ Alan G. Merten* Alan G. Merten | | Trustee | | May 13, 2015 |
| | |
/s/ R. Richardson Pettit* R. Richardson Pettit | | Trustee | | May 13, 2015 |
| | |
*By: | | /s/ Kenneth D. Fuller |
| | Kenneth D. Fuller |
* | Attorney-in-Fact, pursuant to Power of Attorney. |
SIGNATURES
Master Portfolio Trust has duly caused this Registration Statement on Form N-14 of Legg Mason Partners Institutional Trust to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York and State of New York, on this 13th day of May, 2015.
MASTER PORTFOLIO TRUST, on behalf of its series:
Tax Free Reserves Portfolio
| | |
By: | | /s/ Kenneth D. Fuller |
| | Kenneth D. Fuller |
| | President and Principal 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/ Kenneth D. Fuller Kenneth D. Fuller | | President, Principal Executive Officer and Trustee | | May 13, 2015 |
| | |
/s/ Richard F. Sennett Richard F. Sennett | | Principal Financial Officer | | May 13, 2015 |
| | |
/s/ Elliott J. Berv* Elliott J. Berv | | Trustee | | May 13, 2015 |
| | |
/s/ Jane F. Dasher* Jane F. Dasher | | Trustee | | May 13, 2015 |
| | |
/s/ Mark T. Finn* Mark T. Finn | | Trustee | | May 13, 2015 |
| | |
/s/ Rainer Greeven* Rainer Greeven | | Trustee | | May 13, 2015 |
| | |
/s/ Stephen R. Gross* Stephen R. Gross | | Trustee | | May 13, 2015 |
| | |
/s/ Richard E. Hanson, Jr.* Richard E. Hanson, Jr. | | Trustee | | May 13, 2015 |
| | |
/s/ Diana R. Harrington* Diana R. Harrington | | Trustee | | May 13, 2015 |
| | |
/s/ Susan M. Heilbron* Susan M. Heilbron | | Trustee | | May 13, 2015 |
| | |
/s/ Susan B. Kerley* Susan B. Kerley | | Trustee | | May 13, 2015 |
| | | | |
SIGNATURE | | TITLE | | DATE |
| | |
/s/ Alan G. Merten* Alan G. Merten | | Trustee | | May 13, 2015 |
| | |
/s/ R. Richardson Pettit* R. Richardson Pettit | | Trustee | | May 13, 2015 |
| | |
*By: | | /s/ Kenneth D. Fuller |
| | Kenneth D. Fuller |
* | 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 |
| |
(12) | | Form of Opinion of Morgan, Lewis & Bockius LLP supporting the tax matters and consequences to shareholders discussed in the Prospectus/Information Statement |
| |
(14) | | Consent of Independent Registered Public Accounting Firm |
| |
(16) | | Powers of Attorney |
| |
(17)(a) | | Prospectus of Institutional Shares of Western Asset Institutional AMT Free Municipal Money Market Fund and Western Asset Institutional Tax Free Reserves dated December 29, 2014 |
| |
(17)(b) | | Prospectus of Investor Shares of Western Asset Institutional AMT Free Municipal Money Market Fund and Western Asset Institutional Tax Free Reserves dated December 29, 2014 |
| |
(17)(c) | | SAI of Western Asset Institutional AMT Free Municipal Money Market Fund and Western Asset Institutional Tax Free Reserves dated December 29, 2014 |
| |
(17)(d) | | Audited Financial Statements of the Annual Report of Western Asset Institutional AMT Free Municipal Money Market Fund for the fiscal year ended August 31, 2014 |
| |
(17)(e) | | Audited Financial Statements of the Annual Report of Western Asset Institutional Tax Free Reserves for the fiscal year ended August 31, 2014 |
| |
(17)(f) | | Unaudited Financial Statements of the Semi-Annual Report of Western Asset Institutional AMT Free Municipal Money Market Fund for the fiscal period ended February 28, 2015 |
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(17)(g) | | Unaudited Financial Statements of the Semi-Annual Report of Western Asset Institutional Tax Free Reserves for the fiscal period ended February 28, 2015 |