Form N-CSR LEGG MASON PARTNERS INST For: Aug 31
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-06740
Legg Mason Partners Institutional Trust
(Exact name of registrant as specified in charter)
620 Eighth Avenue, 47th Floor, New York, NY 10018
(Address of principal executive offices) (Zip code)
Robert I. Frenkel, Esq.
Legg Mason & Co., LLC
100 First Stamford Place
Stamford, CT 06902
(Name and address of agent for service)
Registrants telephone number, including area code: 1-877-721-1926
Date of fiscal year end: August 31
Date of reporting period: August 31, 2020
ITEM 1. | REPORT TO STOCKHOLDERS. |
The Annual Report to Stockholders is filed herewith.
Annual Report | August 31, 2020 |
WESTERN ASSET
SELECT TAX FREE RESERVES
Beginning in or after February 2021, as permitted by regulations adopted by the Securities and Exchange Commission, the Fund intends to no longer mail paper copies of the Funds shareholder reports like this one, unless you specifically request paper copies of the reports from the Fund or from your Service Agent or financial intermediary (such as a broker-dealer or bank). Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report.
If you already elected to receive shareholder reports electronically (e-delivery), you will not be affected by this change and you need not take any action. If you have not already elected e-delivery, you may elect to receive shareholder reports and other communications from the Fund electronically by contacting your Service Agent or, if you are a direct shareholder with the Fund, by calling 1-877-721-1926.
You may elect to receive all future reports in paper free of charge. If you invest through a Service Agent, you can contact your Service Agent to request that you continue to receive paper copies of your shareholder reports. That election will apply to all Legg Mason Funds held in your account at that Service Agent. If you are a direct shareholder with the Fund, you can call the Fund at 1-877-721-1926, or write to the Fund by regular mail at Legg Mason Funds, P.O. Box 9699, Providence, RI 02940-9699 or by express, certified or registered mail to Legg Mason Funds, 4400 Computer Drive, Westborough, MA 01581 to let the Fund know you wish to continue receiving paper copies of your shareholder reports. That election will apply to all Legg Mason Funds held in your account held directly with the fund complex.
INVESTMENT PRODUCTS: NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE |
Fund objectives
The Funds investment objectives are to provide shareholders with high levels of current income exempt from federal income taxes*, preservation of capital and liquidity.
* | A portion of the income may be subject to the federal alternative minimum tax (AMT), and state and local taxes will apply. Capital gains, if any, are fully taxable. Please consult your personal tax adviser or legal adviser. |
Dear Shareholder,
We are pleased to provide the annual report of Western Asset Select Tax Free Reserves for the twelve-month reporting period ended August 31, 2020. Please read on for a detailed look at prevailing economic and market conditions during the Funds reporting period and to learn how those conditions have affected Fund performance.
Special shareholder notice
On July 31, 2020, Franklin Resources, Inc. (Franklin Resources) acquired Legg Mason, Inc. (Legg Mason) in an all-cash transaction. As a result of the transaction, Legg Mason Partners Fund Advisor, LLC (LMPFA) and the subadviser(s) became indirect, wholly-owned subsidiaries of Franklin Resources. Under the Investment Company Act of 1940, as amended, consummation of the transaction automatically terminated the management and subadvisory agreements that were in place for the Fund prior to the transaction. The Funds manager and subadviser(s) continue to provide uninterrupted services with respect to the Fund pursuant to either new management and subadvisory agreements that were approved by Fund shareholders or interim management and subadvisory agreements that were approved by the Funds board for use while the Fund continues to seek shareholder approval of the new agreements.
Franklin Resources, whose principal executive offices are at One Franklin Parkway, San Mateo, California 94403, is a global investment management organization operating, together with its subsidiaries, as Franklin Templeton. As of August 31, 2020, after giving effect to the transaction described above, Franklin Templetons asset management operations had aggregate assets under management of approximately $1.4 trillion.
As always, we remain committed to providing you with excellent service and a full spectrum of investment choices. We also remain committed to supplementing the support you receive from your financial advisor. One way we accomplish this is through our website, www.leggmason.com. Here you can gain immediate access to market and investment information, including:
| Fund prices and performance, |
| Market insights and commentaries from our portfolio managers, and |
| A host of educational resources. |
We look forward to helping you meet your financial goals.
Sincerely,
Jane Trust, CFA
President and Chief Executive Officer
September 30, 2020
II | Western Asset Select Tax Free Reserves |
Q. What is the Funds investment strategy?
A. The Fund seeks to provide shareholders with high levels of current income exempt from federal income taxes, preservation of capital and liquidity. The Fund is a money market fund that invests in securities through an underlying mutual fund, Tax Free Reserves Portfolio (the Portfolio), which has the same investment objective and strategies as the Fund. Under normal market conditions, the Portfolio 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 (AMT). Municipal securities include debt obligations issued by any of the fifty 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 (VRDOs)i, 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. From time to time, the Portfolio may invest significantly in municipal obligations issued by a single state, including, but not limited to, New York.
The Portfolio 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, that we determined to be of equivalent quality. Under normal circumstances, the Portfolio 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 AMT, although for temporary or defensive purposes, the Portfolio may invest an unlimited amount in such securities.
As a retail 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 Funds and the Portfolios subadviser, Western Asset Management Company, LLC (Western Asset), or Board of Trustees will decide whether a security should be held or sold in the event of credit downgrades or certain other events occurring after purchase.
At Western Asset, we utilize a fixed income team approach, with decisions derived from interaction among various investment management sector specialists. The sector teams are comprised of Western Assets senior portfolio management personnel, research analysts and an in-house economist. Under this team approach, management of client fixed income portfolios will reflect a consensus of interdisciplinary views within the Western Asset organization.
Q. What were the overall market conditions during the Funds reporting period?
A. Both short-and long-term Treasury yields moved sharply lower during the twelve-month reporting period ended August 31, 2020. The yield for the two-year Treasury note began the reporting period at 1.50% and rose as high as 1.79% on September 13, 2019. The low for the period of 0.11% occurred several times toward the end of July 2020 and the beginning
Western Asset Select Tax Free Reserves 2020 Annual Report |
1 |
Fund overview (contd)
of August 2020, and ended the period at 0.14%. The yield for the ten-year Treasury began the reporting period at 1.50% and moved as high as 1.94% on November 8, 2019. The low for the period of 0.52% occurred on August 4, 2020, and ended the period at 0.72%.
The Federal Reserve Board (the Fed)ii took a number of actions to support the economy during the reporting period. At its meeting that concluded on July 31, 2019, prior to the beginning of the reporting period, the Fed reduced the federal funds rateiii from a range between 2.25% and 2.50% to a range between 2.00% and 2.25%. This represented the Feds first rate cut since 2008. The Fed then again lowered rates in September and October 2019 and ended calendar year 2019 with rates between 1.50% and 1.75%. After several months on hold, the Fed aggressively responded to the repercussions from the COVID-19 pandemic by cutting rates to a range between 1.00% and 1.25% on March 3, 2020, and then to a range between 0.00% and 0.25% on March 15, 2020. Finally, on August 27, 2020, the Fed announced a revision to its Statement on Longer-Run Goals and Monetary Policy Strategy. Fed Chair Jerome Powell said, Our revised statement reflects our appreciation for the benefits of a strong labor market ... and that a robust job market can be sustained without causing an unwelcome increase in inflation, as he explained the changes. As such, the Feds new approach to setting U.S. monetary policy will entail letting inflation and employment run higher, which could mean interest rates remain lower for longer than previously anticipated.
Q. How did we respond to these changing market conditions?
A. Considering the unprecedented volatility and flight to liquidity in early 2020, the Fund was conservatively positioned throughout the majority of the reporting period. Given the flat structure of the short end of the yield curveiv, we did not believe shareholders were adequately compensated for taking yield curve risk. As such, we maintained a neutral to shorter duration throughout the twelve-month reporting period. From a credit standpoint, we upgraded the Funds credit quality by allowing lower investment-grade issues to mature. From a structural standpoint, the Fund was overweight to variable rate demand notes (VRDNs)v and high quality municipal fixed-rate paper. We believed this conservative positioning would support NAV stability, as structured finance transactions were non-economical in March 2020.
Performance review
As of August 31, 2020, the seven-day current yield for Select Shares of Western Asset Select Tax Free Reserves was 0.01% and the seven-day effective yield, which reflects compounding, was 0.01%.1
1 | The seven-day current yield reflects the amount of income generated by the investment during that seven-day period and assumes that the income is generated each week over a 365-day period. The yield is shown as a percentage of the investment. The seven-day effective yield is calculated similarly to the seven-day current yield but, when annualized, the income earned by an investment in the Fund is assumed to be reinvested. The effective yield typically will be slightly higher than the current yield because of the compounding effect of the assumed reinvestment. |
2 |
Western Asset Select Tax Free Reserves 2020 Annual Report |
Certain investors may be subject to the AMT, and state and local taxes will apply. Capital gains, if any, are fully taxable. Please consult your personal tax or legal adviser.
The Fund does not invest directly in securities but instead invests all of its investable assets in an underlying mutual fund, the Portfolio, which has the same investment objective and strategies, and substantially the same policies as the Fund. Unless otherwise indicated, references to the Fund include the underlying mutual fund, the Portfolio.
Western Asset Select Tax Free Reserves Yields as of August 31, 2020 (unaudited) |
||||||||
Seven-Day Current Yield1 |
Seven-Day Effective Yield1 |
|||||||
Select Shares | 0.01 | % | 0.01 | % | ||||
Investor Shares | 0.01 | % | 0.01 | % |
The performance shown represents past performance. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown above. Yields will fluctuate. To obtain performance data current to the most recent month-end, please visit our website at www.leggmason.com/moneymarketfunds.
Absent fee waivers and/or expense reimbursements, the seven-day current yield and the seven-day effective yield for Select Shares would have been -0.37%; and the seven-day current yield and the seven-day effective yield for Investor Shares would have been -1.04%.
The manager has voluntarily undertaken to limit Fund expenses. Such expense limitations may fluctuate daily and are voluntary and temporary and may be terminated by the manager at any time without notice.
You could lose money by investing in the Fund. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. The Fund may impose a fee upon the sale of your shares or may temporarily suspend your ability to sell shares if the Funds liquidity falls below required minimums because of market conditions or other factors. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Funds sponsor has no legal obligation to provide financial support to the Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
Q. What were the most significant factors affecting Fund performance?
A. As mentioned, we allowed the portfolios average maturity to roll down, as the Fund was not being compensated for taking risk further out on the yield curve. As a result, an increasing overweight to VRDNs supported the performance from the beginning of the reporting period through February 2020, as the Securities Industry and Financial Markets Association Municipal Swap Index (SIFMA)vi averaged 1.19% from September 2019 through February 2020. This benefit was magnified in March 2020, when SIFMA reset rates increased to 5.2%. The Feds entrance into short term markets via the ability to purchase VRDNs and money market funds decreased this yield benefit from April 2020 through the
Western Asset Select Tax Free Reserves 2020 Annual Report |
3 |
Fund overview (contd)
remainder of the reporting period, as the SIFMA declined to 0.08%. Because the Feds entering of the market supported the technical backdrop for short term financings, the Funds structural underweight to challenged credits, tender option bonds and mutual fund financings detracted from relative performance, but remained supportive of NAV stability during periods of market volatility.
Thank you for your investment in Western Asset Select Tax Free Reserves. As always, we appreciate that you have chosen us to manage your assets and we remain focused on seeking to achieve the Funds investment goals.
Sincerely,
Western Asset Management Company, LLC
September 30, 2020
RISKS: You could lose money by investing in the Fund. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. The Fund may impose a fee upon the sale of your shares or may temporarily suspend your ability to sell shares if the Funds liquidity falls below required minimums because of market conditions or other factors. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Funds sponsor has no legal obligation to provide financial support to the Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time. If one or more money market funds were to incur a sizeable loss or impose fees on redemptions or suspend redemptions, there could be significant redemptions from money market funds in general, potentially driving the market prices of money market instruments down and adversely affecting market liquidity. Municipal securities purchased by the Fund may be adversely affected by changes in the financial condition of municipal issuers and insurers, regulatory and political developments, uncertainties and public perceptions, and other factors. Please see the Funds prospectus for a more complete discussion of these and other risks and the Funds investment strategies.
All investments are subject to risk including the possible loss of principal. Past performance is no guarantee of future results.
The information provided is not intended to be a forecast of future events, a guarantee of future results or investment advice. Views expressed may differ from those of the firm as a whole.
4 |
Western Asset Select Tax Free Reserves 2020 Annual Report |
i | Variable rate demand obligations (VRDOs) are floating rate debt obligations whose yields are pegged to short-term interest rates and may be sold back at par to the dealer/remarketing agent. |
ii | The Federal Reserve Board (the Fed) is responsible for the formulation of U.S. policies designed to promote economic growth, full employment, stable prices, and a sustainable pattern of international trade and payments. |
iii | The federal funds rate is the rate charged by one depository institution on an overnight sale of immediately available funds (balances at the Federal Reserve) to another depository institution; the rate may vary from depository institution to depository institution and from day to day. |
iv | The yield curve is the graphical depiction of the relationship, at a given time, between interest rates and securities that have similar characteristics, but differing maturity dates. |
v | Variable rate demand notes (VRDNs) are floating rate notes whose yields are pegged to short-term interest rates and may be sold back at par to the dealer/remarketing agent. |
vi | Securities Industry and Financial Markets Association Municipal Swap Index (SIFMA) is a 7-day high-grade market index comprised of tax-exempt Variable Rate Demand Obligations (VRDOs) with certain characteristics. |
Western Asset Select Tax Free Reserves 2020 Annual Report |
5 |
Portfolio at a glance (unaudited)
Tax Free Reserves Portfolio
The Fund invests all of its investable assets in Tax Free Reserves Portfolio, the investment breakdown of which is shown below.
Investment breakdown (%) as a percent of total investments
| The bar graph above represents the composition of the Portfolios investments as of August 31, 2020 and August 31, 2019. The Portfolio is actively managed. As a result, the composition of the Portfolios investments is subject to change at any time. |
6 |
Western Asset Select Tax Free Reserves 2020 Annual Report |
Example
As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs and (2) ongoing costs, including management fees; service and/or distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
This example is based on an investment of $1,000 invested on March 1, 2020 and held for the six months ended August 31, 2020.
Actual expenses
The table below titled Based on Actual Total Return provides information about actual account values and actual expenses. You may use the information provided in this table, together with the amount you invested, to estimate the expenses that you paid over the period. To estimate the expenses you paid on your account, divide your ending account value by $1,000 (for example, an $8,600 ending account value divided by $1,000 = 8.6), then multiply the result by the number under the heading entitled Expenses Paid During the Period.
Hypothetical example for comparison purposes
The table below titled Based on Hypothetical Total Return provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio and an assumed rate of return of 5.00% per year before expenses, which is not the Funds actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use the information provided in this table to compare the ongoing costs of investing in the Fund and other funds. To do so, compare the 5.00% hypothetical example relating to the Fund with the 5.00% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table below are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
Based on actual total return1 | Based on hypothetical total return1 | |||||||||||||||||||||||||||||||||||||||||||||
Actual Total Return2 |
Beginning Account Value |
Ending Account Value |
Annualized Expense Ratio3 |
Expenses Paid During the Period4 |
Hypothetical Annualized Total Return |
Beginning Account Value |
Ending Account Value |
Annualized Expense Ratio3 |
Expenses Paid During the Period4 |
|||||||||||||||||||||||||||||||||||||
Select Shares | 0.25 | % | $ | 1,000.00 | $ | 1,002.50 | 0.15 | % | $ | 0.76 | Select Shares | 5.00 | % | $ | 1,000.00 | $ | 1,024.38 | 0.15 | % | $ | 0.76 | |||||||||||||||||||||||||
Investor Shares | 0.24 | 1,000.00 | 1,002.40 | 0.17 | 0.86 | Investor Shares | 5.00 | 1,000.00 | 1,024.28 | 0.17 | 0.87 |
Western Asset Select Tax Free Reserves 2020 Annual Report |
7 |
Fund expenses (unaudited) (contd)
1 | For the six months ended August 31, 2020. |
2 | Assumes the reinvestment of all distributions, including returns of capital, if any, at net asset value. Total return is not annualized, as it may not be representative of the total return for the year. Performance figures may reflect fee waivers and/or expense reimbursements. In the absence of fee waivers and/or expense reimbursements, the total return would have been lower. Past performance is no guarantee of future results. |
3 | Includes the Funds share of Tax Free Reserves Portfolios allocated expenses. |
4 | Expenses (net of fee waivers and/or expense reimbursements) are equal to each class respective annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year (184), then divided by 366. |
8 |
Western Asset Select Tax Free Reserves 2020 Annual Report |
Statement of assets and liabilities
August 31, 2020
Assets: | ||||
Investment in Tax Free Reserves Portfolio, at value |
$ | 248,609,152 | ||
Prepaid expenses |
21,300 | |||
Total Assets |
248,630,452 | |||
Liabilities: | ||||
Audit fees payable |
17,613 | |||
Transfer agent fees payable |
9,619 | |||
Investment management fee payable |
8,259 | |||
Shareholder reports payable |
4,400 | |||
Legal fees payable |
3,370 | |||
Trustees fees payable |
925 | |||
Accrued expenses |
1,579 | |||
Total Liabilities |
45,765 | |||
Total Net Assets | $ | 248,584,687 | ||
Net Assets: | ||||
Par value (Note 5) |
$ | 2,485 | ||
Paid-in capital in excess of par value |
248,569,232 | |||
Total distributable earnings (loss) |
12,970 | |||
Total Net Assets | $ | 248,584,687 | ||
Net Assets: | ||||
Select Shares |
$243,790,881 | |||
Investor Shares |
$4,793,806 | |||
Shares Outstanding: | ||||
Select Shares |
243,755,938 | |||
Investor Shares |
4,793,358 | |||
Net Asset Value: | ||||
Select Shares |
$1.00 | |||
Investor Shares |
$1.00 |
See Notes to Financial Statements.
Western Asset Select Tax Free Reserves 2020 Annual Report |
9 |
For the Year Ended August 31, 2020
Investment Income: | ||||
Income from Tax Free Reserves Portfolio |
$ | 2,563,292 | ||
Allocated expenses from Tax Free Reserves Portfolio |
(515,292) | |||
Allocated waiver and/or expense reimbursements from Tax Free Reserves Portfolio |
409,650 | |||
Total Investment Income |
2,457,650 | |||
Expenses: | ||||
Investment management fee (Note 2) |
678,729 | |||
Transfer agent fees (Note 3) |
57,558 | |||
Registration fees |
42,581 | |||
Audit and tax fees |
21,661 | |||
Legal fees |
17,422 | |||
Fund accounting fees |
9,000 | |||
Trustees fees |
7,988 | |||
Service and/or distribution fees (Notes 2 and 3) |
6,300 | |||
Shareholder reports |
5,617 | |||
Insurance |
4,600 | |||
Miscellaneous expenses |
2,101 | |||
Total Expenses |
853,557 | |||
Less: Fee waivers and/or expense reimbursements (Notes 2 and 3) |
(506,960) | |||
Net Expenses |
346,597 | |||
Net Investment Income | 2,111,053 | |||
Net Realized Loss on Investments From Tax Free Reserves Portfolio | (4) | |||
Increase in Net Assets From Operations | $ | 2,111,049 |
See Notes to Financial Statements.
10 |
Western Asset Select Tax Free Reserves 2020 Annual Report |
Statements of changes in net assets
For the Years Ended August 31, | 2020 | 2019 | ||||||
Operations: | ||||||||
Net investment income |
$ | 2,111,053 | $ | 4,108,119 | ||||
Net realized gain (loss) |
(4) | 2,309 | ||||||
Increase in Net Assets From Operations |
2,111,049 | 4,110,428 | ||||||
Distributions to Shareholders From (Notes 1 and 4): | ||||||||
Total distributable earnings |
(2,109,994) | (4,111,402) | ||||||
Decrease in Net Assets From Distributions to Shareholders |
(2,109,994) | (4,111,402) | ||||||
Fund Share Transactions (Note 5): | ||||||||
Net proceeds from sale of shares |
68,026,248 | 137,076,118 | ||||||
Reinvestment of distributions |
2,088,766 | 4,065,609 | ||||||
Cost of shares repurchased |
(102,576,184) | (141,876,524) | ||||||
Decrease in Net Assets From Fund Share Transactions |
(32,461,170) | (734,797) | ||||||
Decrease in Net Assets |
(32,460,115) | (735,771) | ||||||
Net Assets: | ||||||||
Beginning of year |
281,044,802 | 281,780,573 | ||||||
End of year |
$ | 248,584,687 | $ | 281,044,802 |
See Notes to Financial Statements.
Western Asset Select Tax Free Reserves 2020 Annual Report |
11 |
For a share of each class of beneficial interest outstanding throughout each year ended August 31: | ||||||||||||||||||||
Select Shares1,2 | 2020 | 2019 | 2018 | 2017 | 2016 | |||||||||||||||
Net asset value, beginning of year | $1.000 | $1.000 | $1.000 | $1.000 | $1.000 | |||||||||||||||
Income (loss) from operations: | ||||||||||||||||||||
Net investment income |
0.008 | 0.014 | 0.010 | 0.006 | 0.001 | |||||||||||||||
Net realized gain (loss) |
(0.000) | 3 | 0.000 | 3 | | (0.000) | 3 | (0.000) | 3 | |||||||||||
Total income from operations |
0.008 | 0.014 | 0.010 | 0.006 | 0.001 | |||||||||||||||
Less distributions from: | ||||||||||||||||||||
Net investment income |
(0.008) | (0.014) | (0.010) | (0.006) | (0.001) | |||||||||||||||
Total distributions |
(0.008) | (0.014) | (0.010) | (0.006) | (0.001) | |||||||||||||||
Net asset value, end of year | $1.000 | $1.000 | $1.000 | $1.000 | $1.000 | |||||||||||||||
Total return4 |
0.76 | % | 1.43 | % | 1.05 | % | 0.59 | % | 0.13 | % | ||||||||||
Net assets, end of year (millions) | $244 | $273 | $266 | $318 | $1,005 | |||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Gross expenses5,6 |
0.49 | % | 0.50 | % | 0.51 | % | 0.50 | % | 0.45 | % | ||||||||||
Net expenses5,7,8 |
0.17 | 0.17 | 0.16 | 0.16 | 0.09 | |||||||||||||||
Net investment income |
0.78 | 1.42 | 1.04 | 0.58 | 0.14 |
1 | Prior to August 26, 2016, Select Shares were known as Institutional Shares. |
2 | Per share amounts have been calculated using the average shares method. |
3 | Amount represents less than $0.0005 per share. |
4 | Performance figures may reflect fee waivers and/or expense reimbursements. In the absence of fee waivers and/or expense reimbursements, the total return would have been lower. Past performance is no guarantee of future results. |
5 | Includes the Funds share of Tax Free Reserves Portfolios allocated expenses. |
6 | The gross expenses do not reflect the reduction in the Funds management fee, pursuant to the Funds investment management agreement, by the amount paid by the Fund for its allocable share of the management fee paid by Tax Free Reserves Portfolio. |
7 | As a result of an expense limitation arrangement, effective December 27, 2018, the ratio of total annual fund operating expenses, other than interest, brokerage, taxes, extraordinary expenses and acquired fund fees and expenses, to average net assets of Select Shares did not exceed 0.18%. This expense limitation arrangement cannot be terminated prior to December 31, 2020 without the Board of Trustees consent. Additional amounts may be voluntarily waived and/or reimbursed from time to time. Prior to December 27, 2018, the expense limitation was 0.20%. |
8 | Reflects fee waivers and/or expense reimbursements. |
See Notes to Financial Statements.
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Western Asset Select Tax Free Reserves 2020 Annual Report |
For a share of each class of beneficial interest outstanding throughout each year ended August 31: | ||||||||||||||||||||
Investor Shares1 | 2020 | 2019 | 2018 | 2017 | 2016 | |||||||||||||||
Net asset value, beginning of year | $1.000 | $1.000 | $1.000 | $1.000 | $1.000 | |||||||||||||||
Income (loss) from operations: | ||||||||||||||||||||
Net investment income |
0.008 | 0.014 | 0.010 | 0.005 | 0.001 | |||||||||||||||
Net realized gain (loss) |
(0.001) | 0.000 | 2 | | (0.000) | 2 | (0.000) | 2 | ||||||||||||
Total income from operations |
0.007 | 0.014 | 0.010 | 0.005 | 0.001 | |||||||||||||||
Less distributions from: | ||||||||||||||||||||
Net investment income |
(0.007) | (0.014) | (0.010) | (0.005) | (0.001) | |||||||||||||||
Total distributions |
(0.007) | (0.014) | (0.010) | (0.005) | (0.001) | |||||||||||||||
Net asset value, end of year | $1.000 | $1.000 | $1.000 | $1.000 | $1.000 | |||||||||||||||
Total return3 |
0.73 | % | 1.38 | % | 1.00 | % | 0.54 | % | 0.10 | % | ||||||||||
Net assets, end of year (000s) | $4,794 | $7,654 | $16,278 | $24,651 | $129,084 | |||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Gross expenses4,5 |
1.02 | % | 0.86 | % | 0.61 | % | 0.59 | % | 0.55 | % | ||||||||||
Net expenses4,6,7 |
0.21 | 0.22 | 0.21 | 0.21 | 0.11 | |||||||||||||||
Net investment income |
0.80 | 1.37 | 1.00 | 0.54 | 0.10 |
1 | Per share amounts have been calculated using the average shares method. |
2 | Amount represents less than $0.0005 per share. |
3 | Performance figures may reflect fee waivers and/or expense reimbursements. In the absence of fee waivers and/or expense reimbursements, the total return would have been lower. Past performance is no guarantee of future results. |
4 | Includes the Funds share of Tax Free Reserves Portfolios allocated expenses. |
5 | The gross expenses do not reflect the reduction in the Funds management fee, pursuant to the Funds investment management agreement, by the amount paid by the Fund for its allocable share of the management fee paid by Tax Free Reserves Portfolio. |
6 | As a result of an expense limitation arrangement, effective December 27, 2018, the ratio of total annual fund operating expenses, other than interest, brokerage, taxes, extraordinary expenses and acquired fund fees and expenses, to average net assets of Investor Shares did not exceed 0.23%. This expense limitation arrangement cannot be terminated prior to December 31, 2020 without the Board of Trustees consent. Additional amounts may be voluntarily waived and/or reimbursed from time to time. Prior to December 27, 2018, the expense limitation was 0.35%. |
7 | Reflects fee waivers and/or expense reimbursements. |
See Notes to Financial Statements.
Western Asset Select Tax Free Reserves 2020 Annual Report |
13 |
1. Organization and significant accounting policies
Western Asset Select Tax Free Reserves (the Fund) is a separate non-diversified investment series of Legg Mason Partners Institutional Trust (the Trust). The Trust, a Maryland statutory trust, is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company. The Fund invests all of its investable assets in Tax Free Reserves Portfolio (the Portfolio), a separate investment series of Master Portfolio Trust, that has the same investment objective as the Fund.
The financial statements of the Portfolio, including the schedule of investments, are contained elsewhere in this report and should be read in conjunction with the Funds financial statements.
The Fund is a retail money market fund, meaning that the Fund is only offered to accounts that are beneficially owned solely by natural persons. As a retail money market fund, the Fund tries to maintain a share price of $1.00. Under Rule 2a-7 of the 1940 Act, the Fund must follow strict rules as to the credit quality, liquidity, diversification and maturity of its investments. The Fund may impose fees upon the sale of shares or temporarily suspend the ability to sell shares if the Funds liquidity falls below required minimums because of market conditions or other factors.
The following are significant accounting policies consistently followed by the Fund and are in conformity with U.S. generally accepted accounting principles (GAAP). Estimates and assumptions are required to be made regarding assets, liabilities and changes in net assets resulting from operations when financial statements are prepared. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ. Subsequent events have been evaluated through the date the financial statements were issued.
(a) Investment valuation. The Fund records its investment in the Portfolio at value. The value of such investment in the Portfolio reflects the Funds proportionate interest (75.9% at August 31, 2020) in the net assets of the Portfolio.
GAAP establishes a disclosure hierarchy that categorizes the inputs to valuation techniques used to value assets and liabilities at measurement date. The disclosure and valuation of securities held by the Portfolio are discussed in Note 1(a) of the Portfolios Notes to Financial Statements, which are included elsewhere in this report.
(b) Investment transactions and investment income. Net investment income of the Portfolio is allocated pro rata, based on respective ownership interests, among the Fund and other investors in the Portfolio (the Holders) at the time of such determination. Gross realized gains and/or losses of the Portfolio are allocated to the Holders in a manner such that, the net asset values per share of each Holder, after each such allocation is closer to the total of all Holders net asset values divided by the aggregate number of shares outstanding for all Holders. The Fund also pays certain other expenses which can be directly attributed to the Fund.
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Western Asset Select Tax Free Reserves 2020 Annual Report |
(c) Distributions to shareholders. Distributions from net investment income on the shares of the Fund are declared each business day and are paid monthly. The Fund intends to satisfy conditions that will enable interest from municipal securities, which is exempt from federal and certain state income taxes, to retain such tax-exempt status when distributed to the shareholders of the Fund. Distributions of net realized gains, if any, are taxable and are declared at least annually. Distributions to shareholders of the Fund are recorded on the ex-dividend date and are determined in accordance with income tax regulations, which may differ from GAAP.
(d) Share class accounting. Investment income, common expenses and realized gains (losses) on investments are allocated to the various classes of the Fund on the basis of daily net assets of each class. Fees relating to a specific class are charged directly to that share class.
(e) Federal and other taxes. It is the Funds policy to comply with the federal income and excise tax requirements of the Internal Revenue Code of 1986 (the Code), as amended, applicable to regulated investment companies. Accordingly, the Fund intends to distribute its taxable income and net realized gains, if any, to shareholders in accordance with timing requirements imposed by the Code. Therefore, no federal or state income tax provision is required in the Funds financial statements.
Management has analyzed the Funds tax positions taken on income tax returns for all open tax years and has concluded that as of August 31, 2020, no provision for income tax is required in the Funds financial statements. The Funds federal and state income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state departments of revenue.
Dividends paid by the Fund from net interest received on tax-exempt money market instruments are not includable by shareholders as gross income for federal tax purposes because the Fund intends to meet certain requirements of the Internal Revenue Code applicable to regulated investment companies, including Subchapter M, which will enable the Fund to pay exempt-interest dividends. The portion of such interest, if any, earned on private activity bonds issued after August 7, 1986, may be considered a tax preference item to shareholders.
(f) Reclassification. GAAP requires that certain components of net assets be reclassified to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset value per share. During the current year, the Fund had no reclassifications.
2. Investment management agreement and other transactions with affiliates
Legg Mason Partners Fund Advisor, LLC (LMPFA) is the Funds and the Portfolios investment manager and Western Asset Management Company, LLC (Western Asset) is the Funds and the Portfolios subadviser. As of July 31, 2020, LMPFA and Western Asset are indirect, wholly-owned subsidiaries of Franklin Resources, Inc. (Franklin Resources). Prior
Western Asset Select Tax Free Reserves 2020 Annual Report |
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Notes to financial statements (contd)
to July 31, 2020, LMPFA and Western Asset were wholly-owned subsidiaries of Legg Mason, Inc. (Legg Mason). As of July 31, 2020, Legg Mason is a subsidiary of Franklin Resources.
Under the investment management agreement, the Fund pays an investment management fee, calculated daily and paid monthly, in accordance with the following breakpoint schedule:
Average Daily Net Assets | Annual Rate | |||
First $1 billion | 0.250 | % | ||
Next $1 billion | 0.225 | |||
Next $3 billion | 0.200 | |||
Next $5 billion | 0.175 | |||
Over $10 billion | 0.150 |
Since the Fund invests all of its investable assets in Tax Free Reserves Portfolio, the investment management fee of the Fund will be reduced by the investment management fee allocated to the Fund by Tax Free Reserves Portfolio.
LMPFA provides administrative and certain oversight services to the Fund. LMPFA delegates to the subadviser the day-to-day portfolio management of the Fund. For its services, LMPFA pays Western Asset monthly 70% of the net management fee it receives from the Fund.
As a result of expense limitation arrangements between the Fund and LMPFA, the ratio of total annual fund operating expenses, other than interest, brokerage, taxes, extraordinary expenses and acquired fund fees and expenses, to average net assets of Select Shares and Investor Shares did not exceed 0.18% and 0.23%, respectively. These expense limitation arrangements cannot be terminated prior to December 31, 2020 without the Board of Trustees consent. Additional amounts may be voluntarily waived and/or reimbursed from time to time.
During the year ended August 31, 2020, fees waived and/or expenses reimbursed amounted to $506,960.
LMPFA is permitted to recapture amounts waived and/or reimbursed to a class during the same fiscal year if the class total annual fund operating expenses have fallen to a level below the expense limitation (expense cap) in effect at the time the fees were earned or the expenses incurred. In no case will LMPFA recapture any amount that would result, on any particular business day of the Fund, in the class total annual fund operating expenses exceeding the expense cap or any other lower limit then in effect.
As of July 31, 2020, Legg Mason Investor Services, LLC (LMIS) is an indirect, wholly-owned broker-dealer subsidiary of Franklin Resources and serves as the Funds sole and exclusive distributor. Prior to July 31, 2020, LMIS was a wholly-owned broker-dealer subsidiary of Legg Mason.
As of July 31, 2020, all officers and one Trustee of the Trust are employees of Franklin Resources or its affiliates and do not receive compensation from the Trust. Prior to July 31,
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Western Asset Select Tax Free Reserves 2020 Annual Report |
2020, all officers and one Trustee of the Trust were employees of Legg Mason and did not receive compensation from the Trust.
3. Class specific expenses, waivers and/or expense reimbursements
The Fund has adopted a Rule 12b-1 shareholder services and distribution plan and under that plan the Fund pays service and/or distribution fees with respect to its Investor Shares calculated at the annual rate of 0.10% of the average daily net assets of the class. Service and/or distribution fees are accrued daily and paid monthly.
For the year ended August 31, 2020, class specific expenses were as follows:
Service and/or Distribution Fees |
Transfer Agent Fees |
|||||||
Select Shares | | $ | 29,957 | |||||
Investor Shares | $ | 6,300 | | 27,601 | ||||
Total | $ | 6,300 | $ | 57,558 |
| Amounts shown are exclusive of waivers. For the year ended August 31, 2020, the service and/or distribution fees waived amounted to $3,965 for Investor Shares. The Board of Trustees has determined that, until December 31, 2020, service and/or distribution fees shall not exceed 0.05% of average daily net assets attributable to Investor Shares. This arrangement cannot be terminated prior to December 31, 2020 without the Board of Trustees consent. |
For the year ended August 31, 2020, waivers and/or expense reimbursements by class were as follows:
Waivers/Expense Reimbursements |
||||
Select Shares | $ | 465,133 | ||
Investor Shares | 41,827 | |||
Total | $ | 506,960 |
4. Distributions to shareholders by class
Year Ended August 31, 2020 |
Year Ended August 31, 2019 |
|||||||
Net Investment Income: | ||||||||
Select Shares | $ | 2,060,402 | $ | 3,971,189 | ||||
Investor Shares | 49,592 | 140,213 | ||||||
Total | $ | 2,109,994 | $ | 4,111,402 |
5. Shares of beneficial interest
At August 31, 2020, the Trust had an unlimited number of shares of beneficial interest authorized with a par value of $0.00001 per share. The Fund has the ability to issue multiple classes of shares. Each class of shares represents an identical interest and has the same rights, except that each class bears certain direct expenses, including those specifically related to the distribution of its shares.
Western Asset Select Tax Free Reserves 2020 Annual Report |
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Notes to financial statements (contd)
Transactions in shares of each class were as follows:
Year Ended August 31, 2020 |
Year Ended August 31, 2019 |
|||||||
Select Shares | ||||||||
Shares sold | 68,026,248 | 137,076,115 | ||||||
Shares issued on reinvestment | 2,040,535 | 3,929,580 | ||||||
Shares repurchased | (99,669,625) | (133,116,146) | ||||||
Net increase (decrease) | (29,602,842) | 7,889,549 | ||||||
Investor Shares | ||||||||
Shares sold | | 3 | ||||||
Shares issued on reinvestment | 48,231 | 136,029 | ||||||
Shares repurchased | (2,906,559) | (8,760,378) | ||||||
Net decrease | (2,858,328) | (8,624,346) |
Because the Fund has maintained a $1.00 net asset value per share from inception, the number of shares sold, shares issued on reinvestment of dividends declared, and shares repurchased, is equal to the dollar amount shown in the Statements of Changes in Net Assets for the corresponding fund share transactions.
6. Income tax information and distributions to shareholders
The tax character of distributions paid during the fiscal years ended August 31, was as follows:
2020 | 2019 | |||||||
Distributions paid from: | ||||||||
Tax-exempt income | $ | 2,109,994 | $ | 4,111,402 |
As of August 31, 2020, there were no significant differences between the book and tax components of net assets.
Additionally, the Fund had a deferred loss of $18,450. These capital losses have been deferred in the current year as either short-term or long-term losses. The losses will be deemed to occur on the first day of the next taxable year in the same character as they were originally deferred and will be available to offset future taxable capital gains.
7. Other matter
The outbreak of the respiratory illness COVID-19 (commonly referred to as coronavirus) has continued to rapidly spread around the world, causing considerable uncertainty for the global economy and financial markets. The ultimate economic fallout from the pandemic, and the long-term impact on economies, markets, industries and individual issuers, are not known. The COVID-19 pandemic could adversely affect the value and liquidity of the Funds investments through the Portfolio, impair the Funds ability to satisfy redemption requests, and negatively impact the Funds performance. In addition, the outbreak of COVID-19, and measures taken to mitigate its effects, could result in disruptions to the services provided to the Fund by its service providers.
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Western Asset Select Tax Free Reserves 2020 Annual Report |
Report of independent registered public accounting firm
To the Board of Trustees of Legg Mason Partners Institutional Trust and Shareholders of Western Asset Select Tax Free Reserves
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of Western Asset Select Tax Free Reserves (one of the funds constituting Legg Mason Partners Institutional Trust, referred to hereafter as the Fund) as of August 31, 2020, the related statement of operations for the year ended August 31, 2020, the statement of changes in net assets for each of the two years in the period ended August 31, 2020, including the related notes, and the financial highlights for each of the three years in the period ended August 31, 2020 (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of August 31, 2020, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period ended August 31, 2020 and the financial highlights for each of the three years in the period ended August 31, 2020 in conformity with accounting principles generally accepted in the United States of America.
The financial statements of the Fund as of and for the year ended August 31, 2017 and the financial highlights for each of the periods ended on or prior to August 31, 2017 (not presented herein, other than the financial highlights) were audited by other auditors whose report dated October 20, 2017 expressed an unqualified opinion on those financial statements and financial highlights.
Basis for Opinion
These financial statements are the responsibility of the Funds management. Our responsibility is to express an opinion on the Funds financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of the security owned as of August 31, 2020 by correspondence with the accounting agent for the Tax Free Reserves Portfolio. We believe that our audits provide a reasonable basis for our opinion.
/s/PricewaterhouseCoopers LLP
Baltimore, Maryland
October 20, 2020
We have served as the auditor of one or more investment companies in the Franklin Templeton Group of Funds since 1948.
Western Asset Select Tax Free Reserves 2020 Annual Report |
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Board approval of new management and new subadvisory agreements (unaudited)
On February 18, 2020, Franklin Resources, Inc., a global investment management organization operating, together with its subsidiaries, as Franklin Templeton (Franklin Templeton), and Legg Mason, Inc. (Legg Mason) announced that they entered into a definitive agreement (the Transaction Agreement) for Franklin Templeton to acquire Legg Mason in an all-cash transaction (the Transaction). The Transaction closed on July 31, 2020. As part of this transaction, the Funds manager, Legg Mason Partners Fund Advisor, LLC (the Manager), and the Funds subadviser, Western Asset Management Company, LLC (the Subadviser, and collectively with the Manager, the Advisers), each a wholly owned subsidiary of Legg Mason, became wholly owned subsidiaries of Franklin Templeton. Under the Investment Company Act of 1940, as amended (the 1940 Act), the Transaction resulted in the automatic termination of the Funds management agreement with the Manager that was in place prior to the closing of the Transaction (the Existing Management Agreement) and the sub-advisory agreement between the Manager and the Subadviser that was in place prior to the closing of the Transaction (the Existing Sub-advisory Agreement, and, collectively, the Existing Agreements).
At a meeting of the Board of Trustees of Legg Mason Partners Institutional Trust (the Trust) held on April 14, 2020,1 the Board, including the Trustees who are not considered to be interested persons of the Trust (the Independent Trustees) under the 1940 Act, approved a new management agreement (the New Management Agreement) between the Trust and the Manager with respect to Western Asset Select Tax Free Reserves (the Fund), a series of the Trust, and the new sub-advisory agreement (the New Sub-Advisory Agreement, and collectively, the New Agreements) between the Manager and the Subadviser with respect to the Fund. The Board also authorized the Funds officers to submit the New Agreements to Fund shareholders for their approval. Fund shareholders were sent notice of the shareholder meeting and a proxy statement in April, 2020. Shareholders of the Fund have approved the New Agreements.
Background
On March 9, 2020, during a telephonic meeting, members of the Board discussed with Legg Mason management and certain Franklin Templeton representatives the Transaction and Franklin Templetons plans and intentions regarding the Legg Mason funds and Legg Masons asset management business, including the preservation and continued investment autonomy of the investment advisory businesses conducted by the Subadviser and the combination of Legg Masons and Franklin Templetons distribution resources.
1 | This meeting was held telephonically in reliance on an exemptive order issued by the Securities and Exchange Commission on March 25, 2020. Reliance on the exemptive order is necessary and appropriate due to circumstances related to current or potential effects of COVID-19. All Trustees participating in the telephonic meeting were able to hear each other simultaneously during the meeting. Reliance on the exemptive order requires Trustees, including a majority of the Independent Trustees, to ratify actions taken pursuant to the exemptive order by vote cast at the next in-person meeting. |
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Western Asset Select Tax Free Reserves |
On April 8, 2020, the Independent Trustees met with representatives of Legg Mason to discuss the Transaction and the New Agreements. In addition, the Independent Trustees met separately, with the assistance of their independent legal counsel, to discuss and evaluate the information provided and to consider what additional information was desired.
The Independent Trustees considered, among other things, whether it would be in the best interests of the Fund and its respective shareholders to approve the New Agreements, and the anticipated impacts of the Transaction on the Fund and its shareholders. To assist the Board in its consideration of the New Agreements, Franklin Templeton provided materials and information about Franklin Templeton, including its financial condition and asset management capabilities and organization, and Franklin Templeton and Legg Mason provided materials and information about the Transaction.
Before or during the April 14, 2020 meeting, the Board sought additional information as it deemed necessary and appropriate. In connection with the Boards consideration of the New Agreements, the Independent Trustees worked with their independent legal counsel to prepare requests for information that were submitted to Franklin Templeton and Legg Mason. The Board requested information relevant to the consideration of the New Agreements, distribution arrangements, and other anticipated impacts of the Transaction on the Fund and its shareholders. Franklin Templeton and Legg Mason provided documents and information in response to the request for information. Following their review of this information, the Independent Trustees submitted supplemental due diligence requests for additional information to Franklin Templeton and Legg Mason. Franklin Templeton and Legg Mason provided further information in response to this supplemental diligence request, which the Board reviewed. Senior management representatives from Franklin Templeton and Legg Mason participated in a portion of the meeting and addressed various questions raised by the Board.
At the April 14, 2020 meeting, representatives of Legg Mason (including representatives of the Advisers) and Franklin Templeton made presentations to, and responded to questions from, the Board. After the presentations and after reviewing the written materials provided, the Independent Trustees met in executive session with their counsel to consider the New Agreements.
The Boards evaluation of the New Agreements reflected the information provided specifically in connection with its review of the New Agreements, as well as, where relevant, information that was previously furnished to the Board in connection with the most recent renewal of the Existing Agreements at in-person meetings held in November 2019 and at other prior Board meetings.
Western Asset Select Tax Free Reserves |
21 |
Board approval of new management and new subadvisory agreements (unaudited) (contd)
Among other things, the Board considered:
(i) | the reputation, experience, financial strength and resources of Franklin Templeton and its investment advisory subsidiaries; |
(ii) | that Franklin Templeton informed the Board of its intent to maintain the investment autonomy of the Legg Mason investment advisory subsidiaries; |
(iii) | that Franklin Templeton and Legg Mason informed the Board that, following the Transaction, there would not be any expected diminution in the nature, quality and extent of services provided to the Fund and its shareholders by the Advisers, including compliance and other non-advisory services, and represented that there were not expected to be any changes in the portfolio management personnel managing the Fund as a result of the Transaction; |
(iv) | that Franklin Templeton and Legg Mason informed the Board regarding transition plans, including Legg Masons provision of retention incentives for certain Legg Mason corporate personnel prior to the closing of the Transaction, and Franklin Templetons provision of long-term retention mechanisms for certain personnel following the closing; |
(v) | that no changes to the Funds custodian or other service providers were expected as a result of the Transaction; |
(vi) | that Franklin Templeton informed the Board that it had no present intention to alter currently effective expense waivers and reimbursements after their expiration, and, while it reserves the right to do so in the future, it would consult with the Board before making any changes; |
(vii) | that Franklin Templeton did not expect to propose any changes to the investment objective of the Fund or any changes to the principal investment strategies of the Fund as a result of the Transaction; |
(viii) | the potential benefits to Fund shareholders from being part of a combined fund family with Franklin Templeton-sponsored funds and access to a broader array of investment opportunities; |
(ix) | that Franklin Templetons distribution capabilities, particularly with respect to retail investors, and significant network of intermediary relationships may provide additional opportunities for the Fund to grow assets and lower expense ratios by spreading expenses over a larger asset base; |
(x) | that Franklin Templeton and Legg Mason would each derive benefits from the Transaction and that, as a result, they had financial interests in the matters that were being considered; |
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Western Asset Select Tax Free Reserves |
(xi) | the fact that the Funds contractual management fee rates would remain the same and would not be increased by virtue of the New Agreements; |
(xii) | the terms and conditions of the New Agreements, including that each New Agreement is identical to its corresponding Existing Agreement except for their respective dates of execution, effectiveness and termination; |
(xiii) | the support expressed by the current senior management team at Legg Mason for the Transaction and Legg Masons recommendation that the Board approve the New Agreements; |
(xiv) | that the Existing Agreements were the product of multiple years of review and negotiation and information received and considered by the Board in the exercise of its business judgment during those years, and that within the past year the Board had performed a full review of and approved the Existing Agreements as required by the 1940 Act and had determined in the exercise of the Boards business judgment that each Adviser had the capabilities, resources and personnel necessary to provide the services provided to the Fund, and that the management and subadvisory fees paid by or in respect of the Fund represented reasonable compensation to the applicable Adviser in light of the services provided, the costs to the Adviser of providing those services, the fees and other expenses paid by similar funds, and such other matters as the Trustees considered relevant in the exercise of their business judgment, and represented an appropriate sharing between Fund shareholders and the Advisers of any economies of scale in the management of the Fund at current and anticipated asset levels; |
(xv) | that the Existing Agreements were considered and approved in November 2019; |
(xvi) | that the Fund would not bear the costs of obtaining shareholder approval of the New Agreements, including proxy solicitation costs, legal fees and the costs of printing and mailing the proxy statement; and |
(xvii) | that under the Transaction Agreement Franklin Templeton acknowledged that Legg Mason had entered into the Transaction Agreement in reliance upon the benefits and protections provided by Section 15(f) of the 1940 Act, and that, in furtherance of the foregoing, Franklin Templeton represented to the Trustees that it would conduct its business such that (a) for a period of not less than three years after the closing of the Transaction no more than 25% of the members of the Board shall be interested persons (as defined in the 1940 Act) of any investment adviser for a Fund, and (b) for a period of not less than two years after the closing, neither Franklin Templeton nor any of its affiliates shall impose an unfair burden (within the meaning of the 1940 Act, including any interpretations or no-action letters of the Securities and Exchange Commission) on the Fund as a result of the transactions contemplated by the |
Western Asset Select Tax Free Reserves |
23 |
Board approval of new management and new subadvisory agreements (unaudited) (contd)
Transaction Agreement or any express or implied terms, conditions or understandings applicable thereto. |
Certain of these considerations are discussed in more detail below.
The Board noted that the Fund is a feeder fund in a master-feeder structure, whereby, as a feeder fund, the Fund has the same investment objective and policies as the master fund, Tax Free Reserves Portfolio (the Master Fund), a series of Master Portfolio Trust, and the Fund invests substantially all of its assets in the Master Fund.
The information provided and presentations made to the Board encompassed the Fund and all other funds for which the Board has responsibility. The discussion below covers both the advisory and the administrative functions rendered by the Manager, both of which functions are encompassed by the New Management Agreement, as well as the advisory functions rendered by the Subadviser pursuant to the New Sub-Advisory Agreement.
Board approval of the New Agreements
The Independent Trustees were advised by separate independent legal counsel throughout the process. Prior to voting, the Independent Trustees received a memorandum from their independent legal counsel discussing the legal standards for their consideration of the proposed approval of the New Management Agreement and the New Sub-Advisory Agreement. The Independent Trustees also reviewed the proposed approval of the New Management Agreement and the New Sub-Advisory Agreement in private sessions with their independent legal counsel at which no representatives of the Manager and Subadviser were present. The Independent Trustees considered the New Management Agreement and the New Sub-Advisory Agreement separately in the course of their review. In doing so, they noted the respective roles of the Manager and the Subadviser in providing services to the Fund.
In their deliberations, the Trustees considered information received in connection with the most recent Board approval/continuation of each Existing Agreement in addition to information provided by Franklin Templeton and Legg Mason in connection with their evaluation of the terms and conditions of the New Agreements. In connection with the most recent approval/continuation of each Existing Agreement, and in connection with their review of each New Agreement, the Trustees did not identify any particular information that was all-important or controlling, and each Trustee may have attributed different weights to the various factors.
After considering all of the factors and information, and in the exercise of its business judgment, the Board, including the Independent Trustees, concluded that the New Agreements, including the fees payable thereunder, were fair and reasonable and that entering into the New Agreements for the Fund was in the best interests of the Funds
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Western Asset Select Tax Free Reserves |
shareholders and approved the New Agreements and recommended that shareholders approve the New Agreements.
Nature, extent and quality of the services under the New Agreements
The Board received and considered information regarding the nature, extent and quality of services provided to the Fund by the Manager and the Subadviser under the Existing Agreements. In evaluating the nature, quality and extent of the services to be provided by the Advisers under the New Agreements, the Trustees considered, among other things, the expected impact, if any, of the Transaction on the operations, facilities, organization and personnel of each Adviser, and that Franklin Templeton and Legg Mason advised the Boards that, following the Transaction, no diminution in the nature, quality and extent of services provided to the Fund and its shareholders by the Advisers, including compliance and other non-advisory services, were expected, and that no changes in portfolio management personnel as a result of the Transaction were expected. The Board has received information at regular meetings throughout the past year related to the services rendered by the Manager in its management of the Funds affairs and the Managers role in coordinating the activities of the Funds other service providers. The Boards evaluation of the services provided by the Manager and the Subadviser took into account the Boards knowledge gained as Trustees of funds in the Legg Mason fund complex, including knowledge gained regarding the scope and quality of the investment management and other capabilities of the Manager and the Subadviser, and the quality of the Managers administrative and other services. The Board observed that the scope of services provided by the Manager and the Subadviser, and the undertakings required of the Manager and Subadviser in connection with those services, including maintaining and monitoring their own and the Funds compliance programs, liquidity management programs and cybersecurity programs, had expanded over time as a result of regulatory, market and other developments. The Board also noted that on a regular basis it received and reviewed information from the Manager and the Subadviser regarding the Funds compliance policies and procedures established pursuant to Rule 38a-1 under the 1940 Act, and took that information into account in its evaluation of the New Agreements. The Board also considered the risks associated with the Fund borne by the Manager and its affiliates (such as entrepreneurial, operational, reputational, litigation and regulatory risk), as well as the Managers and the Subadvisers risk management processes.
The Board considered information provided by Franklin Templeton regarding its business and operating structure, scale of operation, leadership and reputation, distribution capabilities, and financial condition.
The Board also reviewed the qualifications, backgrounds and responsibilities of the Managers and the Subadvisers senior personnel and the team of investment professionals primarily responsible for the day-to-day portfolio management of the Fund. The Board also
Western Asset Select Tax Free Reserves |
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Board approval of new management and new subadvisory agreements (unaudited) (contd)
considered the financial resources of Legg Mason and Franklin Templeton and the importance of having a Fund manager with, or with access to, significant organizational and financial resources. The Board considered the benefits to the Fund of being part of a larger combined organization with greater financial resources following the Transaction, particularly during periods of market disruptions and volatility.
The Board also considered the policies and practices of the Manager and the Subadviser regarding the selection of brokers and dealers and the execution of portfolio transactions at the Master Fund level. In addition, the Board considered managements periodic reports to the Board on, among other things, its business plans and any organizational changes.
The Board received and considered performance information for the Fund as well as for a group of funds (the Performance Universe) selected by Broadridge Financial Solutions, Inc. (Broadridge), an independent provider of investment company data, based on classifications provided by Thomson Reuters Lipper (Lipper). The Board was provided with a description of the methodology used to determine the similarity of the Fund with the funds included in the Performance Universe. It was noted that while the Board found the Broadridge data generally useful they recognized its limitations, including that the data may vary depending on the end date selected and that the results of the performance comparisons may vary depending on the selection of the peer group and its composition over time. The Board also noted that it had received and discussed with management information throughout the year at periodic intervals comparing the Funds performance against its benchmark and against the Funds peers. In addition, the Board considered the Funds performance in light of overall financial market conditions.
The information comparing the Funds performance to that of its Performance Universe, consisting of all funds (including the Fund) classified as tax-exempt money market funds by Lipper, showed, among other data, that the Funds performance for the 1-, 3-, 5- and 10-year periods ended December 31, 2019 was above the median.
Based on their review of the materials provided and the assurances received from Franklin Templeton and Legg Mason, the Trustees determined that the Transaction was not expected to affect adversely the nature, extent and quality of services provided by each Adviser and that the Transaction was not expected to have an adverse effect on the ability of the Manager and Subadviser to provide those services, and the Board concluded that, overall, the nature, extent and quality of services expected to be provided, including performance, under the New Agreements were sufficient for approval.
Management fees and expense ratios
The Board considered that it had reviewed the Funds management fee and total expense ratio at the 2019 contract renewal meetings. The Board considered that the New Agreements would not change the Funds management fee rate or the computation method
26 |
Western Asset Select Tax Free Reserves |
for calculating such fees, and that there is no present intention to alter expense waiver and reimbursement arrangements that are currently in effect.
The Board reviewed and considered the contractual management fee (the Contractual Management Fee) and the actual management fees paid by the Fund to the Manager (the Actual Management Fee) in light of the nature, extent and quality of the management and sub-advisory services to be provided by the Manager and the Subadviser. The Board noted that the Funds expense information reflected both management fees and total expenses payable by the Fund as well as management fees and total expenses payable by the Master Fund. The Board also considered that fee waiver and/or expense reimbursement arrangements are currently in place for the Fund. The Board also noted that the compensation paid to the Subadviser is the responsibility and expense of the Manager, not the Fund.
In addition, the Board received and considered information provided by Broadridge comparing the Contractual Management Fee and the Actual Management Fee and the Funds total actual expenses with those of funds in both the relevant expense group and a broader group of funds, each selected by Broadridge based on classifications provided by Lipper. It was noted that while the Board found the Broadridge data generally useful they recognized its limitations, including that the data may vary depending on the selection of the peer group. The Board also reviewed information regarding fees charged by the Manager and/or the Subadviser to other U.S. clients investing primarily in an asset class similar to that of the Fund, including, where applicable, separate accounts.
The Manager reviewed with the Board the differences in services provided to these different types of accounts, noting that the Fund is provided with certain administrative services, office facilities, and Fund officers (including the Funds chief executive, chief financial and chief compliance officers), and that the Manager coordinates and oversees the provision of services to the Fund by other Fund service providers. The Board considered the fee comparisons in light of the differences in management of these different types of accounts and the differences in associated risks borne by the Advisers.
The Board considered the management fee, the fees of the Subadviser and the amount of the management fee retained by the Manager after payment of the subadvisory fee in each case in light of the services rendered for those amounts. The Board also received an analysis of Legg Mason complex-wide management fees for funds with a similar strategy provided by the Manager, which, among other things, set out a framework of fees based on asset classes.
The information comparing the Funds Contractual and Actual Management Fees as well as its actual total expense ratio to its expense group, consisting of a group of tax-exempt money market funds (including the Fund) chosen by Broadridge to be comparable to the
Western Asset Select Tax Free Reserves |
27 |
Board approval of new management and new subadvisory agreements (unaudited) (contd)
Fund, showed that the Funds Contractual Management Fee was higher than the median and Actual Management Fee was lower than the median. The Board noted that the Funds actual total expense ratio was lower than the median. The Board also considered that the current limitation on the Funds expenses is expected to continue through December 2020.
In evaluating the costs of the services to be provided by the Manager and Subadviser under the New Agreements, the Board considered, among other things, whether management fees or other expenses would change as a result of the Transaction. Based on their review of the materials provided and the assurances they had received from Franklin Templeton and Legg Mason, the Trustees determined that the Transaction would not increase the total fees payable by the Fund for management services.
Taking all of the above into consideration, as well as the factors identified below, the Board determined that the management fee and the subadvisory fee for the Fund were reasonable in light of the nature, extent and quality of the services to be provided to the Fund under the New Agreements.
Profitability and economies of scale
The Board received and considered an analysis of the profitability of the Manager and its affiliates in providing services to the Fund and in providing services to the Master Fund in which the Fund invests. The Board also received profitability information with respect to the Legg Mason fund complex as a whole. In addition, the Board received information with respect to the Managers allocation methodologies used in preparing this profitability data. It was noted that the allocation methodologies had been previously reviewed by an outside consultant. The profitability of the Manager and its affiliates was considered by the Board not excessive in light of the nature, extent and quality of the services provided to the Fund and the type of fund it represented.
The Board received and considered information concerning whether the Advisers realize economies of scale as the Funds assets grow. In conjunction with their most recent or prior deliberations concerning the Existing Agreements, the Board noted that fee breakpoints had been implemented for the Fund, as well as contractual expense limitations, and that after taking those breakpoints and expense limitations into account, the Board had determined that the total fees for management services, and administrative services for the Fund, were reasonable in light of the services provided, and that any economies of scale were being shared appropriately.
The Board noted that Franklin Templeton and Legg Mason are expected to realize cost savings from the Transaction based on synergies of operations, as well as to benefit from possible growth of the Fund resulting from enhanced distribution capabilities. However, they noted that other factors could also affect profitability and potential economies of scale, and that it was not possible to predict with any degree of certainty how the
28 |
Western Asset Select Tax Free Reserves |
Transaction would affect the Advisers profitability from their relationship with the Fund, nor to quantify at this time any possible future economies of scale. The Trustees noted they will have the opportunity to periodically re-examine such profitability and any economies of scale going forward.
The Board determined that the management fee structure for the Fund, including its breakpoints, was reasonable.
Other benefits to the Manager and the Subadviser
The Board considered other benefits received by the Manager, the Subadviser and their affiliates as a result of their relationship with the Fund, including the opportunity to offer additional products and services to Fund shareholders.
In light of the costs of providing investment management and other services to the Fund and the ongoing commitment of the Manager and the Subadviser to the Fund, the Board considered that the ancillary benefits that the Manager and its affiliates received are reasonable. In evaluating the fall-out benefits to be received by the Manager and Subadviser under the New Agreements, the Board considered whether the Transaction would have an impact on the fall-out benefits received by virtue of the Existing Agreements.
The Board considered that Franklin Templeton may derive reputational and other benefits from its ability to use the Legg Mason investment affiliates names in connection with operating and marketing the Fund. The Board also considered that the Transaction would significantly increase Franklin Templetons assets under management and expand Franklin Templetons investment capabilities.
Western Asset Select Tax Free Reserves |
29 |
Additional shareholder information (unaudited)
Results of special meeting of shareholders
On July 14, 2020 a special meeting of shareholders was held for the following purposes: 1) to approve a new management agreement between the Fund and its investment manager; and 2) to approve a new subadvisory agreement with respect to the Funds subadviser. The following table provides the number of votes cast for or against, as well as the number of abstentions and broker non-votes as to each matter voted on at the special meeting of shareholders. Each item voted on was approved.
Item Voted On | Voted For |
Voted Against |
Abstentions | Broker Non-Votes |
||||||||||||
To Approve a New Management Agreement with Legg Mason Partners Fund Advisor, LLC | 168,686,435.160 | 140,350.000 | 1,605,766.690 | 0 | ||||||||||||
To Approve a New Subadvisory Agreement with Western Asset Management Company, LLC | 168,686,435.160 | 140,350.000 | 1,605,766.690 | 0 |
30 |
Western Asset Select Tax Free Reserves |
Additional information (unaudited)
Information about Trustees and Officers
The business and affairs of Western Asset Select Tax Free Reserves (the Fund) are conducted by management under the supervision and subject to the direction of its Board of Trustees. The business address of each Trustee is c/o Jane Trust, Legg Mason, 100 International Drive, 11th Floor, Baltimore, Maryland 21202.
Previously, two different boards, the Legg Mason Partners Fixed Income Funds Board and the Western Asset Funds Board, oversaw substantially all the mutual funds within the Legg Mason fund complex that are advised by Western Asset Management Company, LLC. A joint proxy statement was mailed to solicit shareholder approval for the election of a unified board. On December 3, 2019, a joint special meeting of shareholders of the funds was held to elect the unified board members. During this meeting, shareholders approved these nominees for Board membership resulting in one Board overseeing these funds effective January 1, 2020.
Information pertaining to the Trustees and officers of the Board is set forth below. The Statement of Additional Information includes additional information about Trustees and is available, without charge, upon request by calling the Fund at 1-877-721-1926 or 1-203-703-6002.
Independent Trustees | ||
Robert Abeles, Jr. | ||
Year of birth | 1945 | |
Position(s) with Fund | Trustee | |
Term of office1 and length of time served2 | Since 2013 | |
Principal occupation(s) during the past five years | Board Member, Great Public Schools Now (since 2018); Senior Vice President Emeritus (since 2016) and formerly, Senior Vice President, Finance and Chief Financial Officer (2009 to 2016) at University of Southern California; Board Member, Excellent Education Development (since 2012) | |
Number of funds in fund complex overseen by Trustee3 | 57 | |
Other Trusteeships held by Trustee during the past five years | None | |
Jane F. Dasher | ||
Year of birth | 1949 | |
Position(s) with Fund | Trustee | |
Term of office1 and length of time served2 | Since 1999 | |
Principal occupation(s) during the past five years | Chief Financial Officer, Long Light Capital, LLC, formerly known as Korsant Partners, LLC (a family investment company) (since 1997) | |
Number of funds in fund complex overseen by Trustee3 | 57 | |
Other Trusteeships held by Trustee during the past five years | Director, Visual Kinematics, Inc. (since 2018) |
Western Asset Select Tax Free Reserves |
31 |
Additional information (unaudited) (contd)
Information about Trustees and Officers
Independent Trustees (contd) | ||
Anita L. DeFrantz | ||
Year of birth | 1952 | |
Position(s) with Fund | Trustee | |
Term of office1 and length of time served2 | Since 1998 | |
Principal occupation(s) during the past five years | President of Tubman Truth Corp. (since 2015); President Emeritus (since 2015) and formerly, President (1987 to 2015) and Director (1990 to 2015) of LA84 (formerly Amateur Athletic Foundation of Los Angeles); Member (since 1986), Member of the Executive Board (since 2013) and Vice President (since 2017) of the International Olympic Committee | |
Number of funds in fund complex overseen by Trustee3 | 57 | |
Other Trusteeships held by Trustee during the past five years | None | |
Susan B. Kerley | ||
Year of birth | 1951 | |
Position(s) with Fund | Trustee | |
Term of office1 and length of time served2 | Since 1992 | |
Principal occupation(s) during the past five years | Investment Consulting Partner, Strategic Management Advisors,LLC (investment consulting) (since 1990) | |
Number of funds in fund complex overseen by Trustee3 | 57 | |
Other Trusteeships held by Trustee during the past five years | Director and Trustee (since 1990) and Chairman (since 2017 and 2005 to 2012) of various series of MainStay Family of Funds (66 funds); formerly, Investment Company Institute (ICI) Board of Governors (2006 to 2014); ICI Executive Committee (2011 to 2014); Chairman of the Independent Directors Council (2012 to 2014) | |
Michael Larson* | ||
Year of birth | 1959 | |
Position(s) with Fund | Trustee | |
Term of office1 and length of time served2 | Since 2004 | |
Principal occupation(s) during the past five years | Chief Investment Officer for William H. Gates III (since 1994)4 | |
Number of funds in fund complex overseen by Trustee3 | 57 | |
Other Trusteeships held by Trustee during the past five years | Republic Services, Inc. (since 2009); Fomento Economico Mexicano, SAB (since 2011); Ecolab Inc. (since 2012); formerly, AutoNation, Inc. (2010 to 2018) |
32 |
Western Asset Select Tax Free Reserves |
Independent Trustees (contd) | ||
Avedick B. Poladian | ||
Year of birth | 1951 | |
Position(s) with Fund | Trustee | |
Term of office1 and length of time served2 | Since 2007 | |
Principal occupation(s) during the past five years | Director and Advisor (since 2017) and former Executive Vice President and Chief Operating Officer (2002 to 2016) of Lowe Enterprises, Inc. (privately held real estate and hospitality firm); formerly, Partner, Arthur Andersen, LLP (1974 to 2002) | |
Number of funds in fund complex overseen by Trustee3 | 57 | |
Other Trusteeships held by Trustee during the past five years | Occidental Petroleum Corporation (since 2008); California Resources Corporation (since 2014); and Public Storage (since 2010) | |
William E.B. Siart | ||
Year of birth | 1946 | |
Position(s) with Fund | Trustee and Chairman of the Board | |
Term of office1 and length of time served2 | Since 1997 (Chairman of the Board since 2020) | |
Principal occupation(s) during the past five years | Chairman of Great Public Schools Now (since 2015); Chairman of Excellent Education Development (since 2000); formerly, Trustee of The Getty Trust (since 2005 to 2017); Chairman of Walt Disney Concert Hall, Inc. (1998 to 2006) | |
Number of funds in fund complex overseen by Trustee3 | 57 | |
Other Trusteeships held by Trustee during the past five years | Member of Board of United States Golf Association, Executive Committee Member (since 2017); Trustee, University of Southern California (since 1994) | |
Jaynie Miller Studenmund | ||
Year of birth | 1954 | |
Position(s) with Fund | Trustee | |
Term of office1 and length of time served2 | Since 2004 | |
Principal occupation(s) during the past five years | Corporate Board Member and Advisor (since 2004); formerly, Chief Operating Officer of Overture Services, Inc. (publicly traded internet company that created search engine marketing) (2001 to 2004); President and Chief Operating Officer, PayMyBills (internet innovator in bill presentment/payment space) (1999 to 2001); Executive vice president for consumer and business banking for three national financial institutions (1984 to 1997) | |
Number of funds in fund complex overseen by Trustee3 | 57 | |
Other Trusteeships held by Trustee during the past five years | Director of Pacific Premier Bancorp Inc. and Pacific Premier Bank (since 2019); Director of EXL (operations management and analytics company) (since 2018); Director of CoreLogic, Inc. (information, analytics and business services company) (since 2012); formerly, Director of Pinnacle Entertainment, Inc. (gaming and hospitality company) (2012 to 2018); Director of LifeLock, Inc. (identity theft protection company) (2015 to 2017); Director of Orbitz Worldwide, Inc. (online travel company) (2007 to 2014) |
Western Asset Select Tax Free Reserves |
33 |
Additional information (unaudited) (contd)
Information about Trustees and Officers
Independent Trustees (contd) | ||
Peter J. Taylor | ||
Year of birth | 1958 | |
Position(s) with Fund | Trustee | |
Term of office1 and length of time served2 | Since 2019 | |
Principal occupation(s) during the past five years | President, ECMC Foundation (nonprofit organization) (since 2014); formerly, Executive Vice President and Chief Financial Officer for University of California system (2009 to 2014) | |
Number of funds in fund complex overseen by Trustee3 | 57 | |
Other Trusteeships held by Trustee during the past five years | Director of Pacific Mutual Holding Company5 (since 2016); Member of the Board of Trustees of California State University system (since 2015); Ralph M. Parson Foundation (since 2015), Kaiser Family Foundation (since 2012), and Edison International (since 2011) | |
Interested Trustee | ||
Ronald L. Olson6 | ||
Year of birth | 1941 | |
Position(s) with Fund | Trustee | |
Term of office1 and length of time served2 | Since 2005 | |
Principal occupation(s) during the past five years | Partner of Munger, Tolles & Olson LLP (law partnership) (since 1968) | |
Number of funds in fund complex overseen by Trustee3 | 57 | |
Other Trusteeships held by Trustee during the past five years | Berkshire Hathaway, Inc. (since 1997) | |
Interested Trustee and Officer | ||
Jane Trust, CFA7 | ||
Year of birth | 1962 | |
Position(s) with Fund | Trustee, President and Chief Executive Officer | |
Term of office1 and length of time served2 | Since 2015 | |
Principal occupation(s) during the past five years | Senior Vice President, Fund Board Management, Franklin Templeton (since 2020); Officer and/or Trustee/Director of 150 funds associated with Legg Mason Partners Fund Advisor, LLC (LMPFA) or its affiliates (since 2015); President and Chief Executive Officer of LMPFA (since 2015); formerly, Senior Managing Director (2018 to 2020) and Managing Director (2016 to 2018) of Legg Mason & Co., LLC (Legg Mason & Co.); Senior Vice President of LMPFA (2015) | |
Number of funds in fund complex overseen by Trustee3 | 149 | |
Other Trusteeships held by Trustee during the past five years | None |
34 |
Western Asset Select Tax Free Reserves |
Additional Officers | ||
Ted P. Becker Legg Mason 620 Eighth Avenue, 47th Floor, New York, NY 10018 | ||
Year of birth | 1951 | |
Position(s) with Fund | Chief Compliance Officer | |
Term of office1 and length of time served2 | Since 2007 | |
Principal occupation(s) during the past five years | Vice President, Global Compliance of Franklin Templeton (since 2020); Chief Compliance Officer of LMPFA (since 2006); Chief Compliance Officer of certain funds associated with Legg Mason & Co. or its affiliates (since 2006); formerly, Director of Global Compliance at Legg Mason (2006 to 2020); Managing Director of Compliance of Legg Mason & Co. (2005 to 2020) | |
Susan Kerr Legg Mason 620 Eighth Avenue, 47th Floor, New York, NY 10018 | ||
Year of birth | 1949 | |
Position(s) with Fund | Chief Anti-Money Laundering Compliance Officer | |
Term of office1 and length of time served2 | Since 2013 | |
Principal occupation(s) during the past five years | Senior Compliance Analyst, Franklin Templeton (since 2020); Chief Anti-Money Laundering Compliance Officer of certain funds associated with Legg Mason & Co. or its affiliates (since 2013) and Anti-Money Laundering Compliance Officer (since 2012), Senior Compliance Officer (since 2011) and Assistant Vice President (since 2010) of Legg Mason Investor Services, LLC (LMIS); formerly, Assistant Vice President of Legg Mason & Co. (2010 to 2020) | |
Jenna Bailey Legg Mason 100 First Stamford Place, 5th Floor, Stamford, CT 06902 | ||
Year of birth | 1978 | |
Position(s) with Fund | Identity Theft Prevention Officer | |
Term of office1 and length of time served2 | Since 2015 | |
Principal occupation(s) during the past five years | Senior Compliance Analyst of Franklin Templeton (since 2020); Identity Theft Prevention Officer of certain funds associated with Legg Mason & Co. or its affiliates (since 2015); formerly, Compliance Officer of Legg Mason & Co. (2013 to 2020); Assistant Vice President of Legg Mason & Co. (2011 to 2020) |
Western Asset Select Tax Free Reserves |
35 |
Additional information (unaudited) (contd)
Information about Trustees and Officers
Additional Officers (contd) | ||
Marc A. De Oliveira** 100 First Stamford Place, 6th Floor, Stamford, CT 06902 | ||
Year of birth | 1971 | |
Position(s) with Fund | Secretary and Chief Legal Officer | |
Term of office1 and length of time served2 | Since 2020 | |
Principal occupation(s) during the past five years | Associate General Counsel of Franklin Templeton (since 2020); Assistant Secretary of certain funds associated with Legg Mason & Co. or its affiliates (since 2006); formerly, Managing Director (2016 to 2020) and Associate General Counsel of Legg Mason & Co. (2005 to 2020) | |
Thomas C. Mandia Legg Mason 100 First Stamford Place, 6th Floor, Stamford, CT 06902 | ||
Year of birth | 1962 | |
Position(s) with Fund | Senior Vice President | |
Term of office1 and length of time served2 | Since 2020 | |
Principal occupation(s) during the past five years | Senior Associate General Counsel of Franklin Templeton (since 2020); Secretary of LMPFA (since 2006); Assistant Secretary of certain funds associated with Legg Mason & Co. or its affiliates (since 2006); Secretary of LM Asset Services, LLC (LMAS) (since 2002) and Legg Mason Fund Asset Management, Inc. (LMFAM) (since 2013) (formerly registered investment advisers); formerly, Managing Director and Deputy General Counsel of Legg Mason & Co. (2005 to 2020) | |
Christopher Berarducci 620 Eighth Avenue, 47th Floor, New York, NY 10018 | ||
Year of birth | 1974 | |
Position(s) with Fund | Treasurer and Principal Financial Officer | |
Term of office1 and length of time served2 | Since 2019 | |
Principal occupation(s) during the past five years | Vice President, Fund Administration and Reporting, Franklin Templeton (since 2020); Treasurer (since 2010) and Principal Financial Officer (since 2019) of certain funds associated with Legg Mason & Co. or its affiliates; formerly, Managing Director (2020), Director (2015 to 2020), and Vice President (2011 to 2015) of Legg Mason & Co. |
36 |
Western Asset Select Tax Free Reserves |
Additional Officers (contd) | ||
Jeanne M. Kelly Legg Mason 620 Eighth Avenue, 47th Floor, New York, NY 10018 | ||
Year of birth | 1951 | |
Position(s) with Fund | Senior Vice President | |
Term of office1 and length of time served2 | Since 2007 | |
Principal occupation(s) during the past five years | U.S. Fund Board Team Manager, Franklin Templeton (since 2020); Senior Vice President of certain funds associated with Legg Mason & Co. or its affiliates (since 2007); Senior Vice President of LMPFA (since 2006); President and Chief Executive Officer of LMAS and LMFAM (since 2015); formerly, Managing Director of Legg Mason & Co. (2005 to 2020); Senior Vice President of LMFAM (2013 to 2015) |
| Western Asset Management Company, LLC (Western Asset) is a subadviser with respect to the funds. Western Asset Management Company Limited (Western Asset London), Western Asset Management Company Ltd (Western Asset Japan) and Western Asset Management Company Pte. Ltd. (Western Asset Singapore and, collectively with Western Asset, Western Asset London and Western Asset Japan, the subadvisers), also serve as subadvisers to certain of the funds. |
| Trustees who are not interested persons of the Fund within the meaning of Section 2(a)(19) of the Investment Company Act of 1940, as amended (the 1940 Act). |
* | Effective March 6, 2020, Mr. Larson became a Trustee. |
** | Effective September 15, 2020, Mr. De Oliveira became Secretary and Chief Legal Officer. |
1 | Each Trustee and officer serves until his or her respective successor has been duly elected and qualified or until his or her earlier death, resignation, retirement or removal. |
2 | Indicates the earliest year in which the Trustee became a board member for a fund in the Legg Mason fund complex or the officer took such office. |
3 | Each board member also serves as a Director of Western Asset Investment Grade Income Fund Inc. and a Trustee of Western Asset Premier Bond Fund (closed-end investment companies), which are considered part of the same fund complex. Additionally, effective April 24, 2020, each board member serves as a Trustee of Western Asset Inflation-Linked Income Fund and Western Asset Inflation-Linked Opportunities & Income Fund, closed-end investment companies that are part of the same fund complex. |
4 | Mr. Larson is the chief investment officer for William H. Gates III and in that capacity oversees the investments of Mr. Gates and the investments of the Bill and Melinda Gates Foundation Trust (such combined investments are referred to as the Accounts). Since 1997, Western Asset has provided discretionary investment advice with respect to one or more Accounts. |
5 | Western Asset and its affiliates provide investment advisory services with respect to registered investment companies sponsored by an affiliate of Pacific Mutual Holding Company (Pacific Holdings). Affiliates of Pacific Holdings receive compensation from LMPFA or its affiliates for shareholder or distribution services provided with respect to registered investment companies for which Western Asset or its affiliates serve as investment adviser. |
6 | Mr. Olson is an interested person of the Fund, as defined in the 1940 Act, because his law firm has provided legal services to Western Asset. |
7 | Ms. Trust is an interested person of the Fund, as defined in the 1940 Act, because of her position with LMPFA and/or certain of its affiliates. |
Western Asset Select Tax Free Reserves |
37 |
Important tax information (unaudited)
All of the net investment income distributions paid monthly by the Fund for the taxable year ended August 31, 2020 qualify as tax-exempt interest dividends for Federal income tax purposes.
38 |
Western Asset Select Tax Free Reserves |
August 31, 2020
Tax Free Reserves Portfolio
Security | Rate | Maturity Date |
Face Amount |
Value | ||||||||||||
Short-Term Investments 100.5% | ||||||||||||||||
Municipal Bonds 98.0% | ||||||||||||||||
Arizona 4.4% |
||||||||||||||||
Arizona Health Facilities Authority Revenue, Banner Health Obligated Group, Series C, LOC - Bank of America N.A. |
0.020 | % | 1/1/46 | $ | 6,000,000 | $ | 6,000,000 | (a)(b) | ||||||||
Phoenix, AZ, IDA, Health Care Facilities Revenue, Mayo Clinic, Series B, SPA - Northern Trust Company |
0.010 | % | 11/15/52 | 8,300,000 | 8,300,000 | (a)(b) | ||||||||||
Total Arizona |
14,300,000 | |||||||||||||||
California 3.1% |
||||||||||||||||
Alameda County, CA, IDA Revenue, JMS Family Partnership Project, Series A, LOC - Wells Fargo Bank N.A. |
0.240 | % | 10/1/25 | 2,000,000 | 2,000,000 | (a)(b)(c) | ||||||||||
California State PCFA, Solid Waste Disposal Revenue, Edco Disposal Corp. Project, Series A, LOC - Wells Fargo Bank N.A. |
0.160 | % | 10/1/37 | 540,000 | 540,000 | (a)(b)(c) | ||||||||||
California State, GO, Kindergarten-University Public Education Facilities, Series B-5, LOC - U.S. Bank N.A. |
0.010 | % | 5/1/34 | 100,000 | 100,000 | (a)(b) | ||||||||||
California Statewide CDA, MFH Revenue, David Avenue Apartments, Series WW, LIQ - FHLMC |
0.110 | % | 12/1/42 | 1,580,000 | 1,580,000 | (a)(b)(c) | ||||||||||
Los Angeles County, CA, Revenue, Series A |
4.000 | % | 6/30/21 | 1,000,000 | 1,030,676 | |||||||||||
Los Angeles, CA, TRAN |
4.000 | % | 6/24/21 | 1,000,000 | 1,029,891 | |||||||||||
Los Angeles, CA, Community RDA, MFH Revenue, Grand Promenade Project, Refunding, LOC - FHLMC, LIQ - FHLMC |
0.100 | % | 4/1/32 | 1,900,000 | 1,900,000 | (a)(b) | ||||||||||
Los Angeles, CA, Department of Water Revenue, Series B-2, Refunding, SPA - Royal Bank of Canada |
0.010 | % | 7/1/35 | 2,000,000 | 2,000,000 | (a)(b) | ||||||||||
Total California |
10,180,567 | |||||||||||||||
Colorado 1.3% |
||||||||||||||||
Colorado State Educational & Cultural Facilities Authority Revenue, Nature Conservancy Project, Series A, Refunding |
0.140 | % | 7/1/27 | 213,000 | 213,000 | (a)(b) | ||||||||||
University of Colorado Hospital Authority Revenue, Series C, Refunding, SPA - TD Bank N.A. |
0.090 | % | 11/15/39 | 4,020,000 | 4,020,000 | (a)(b) | ||||||||||
Total Colorado |
4,233,000 |
See Notes to Financial Statements.
Tax Free Reserves Portfolio 2020 Annual Report |
39 |
Schedule of investments (contd)
August 31, 2020
Tax Free Reserves Portfolio
Security | Rate | Maturity Date |
Face Amount |
Value | ||||||||||||
Connecticut 1.0% |
||||||||||||||||
Connecticut State HEFA Revenue: |
||||||||||||||||
Trinity College, Series L, Refunding, LOC - JPMorgan Chase & Co. |
0.090 | % | 7/1/34 | $ | 2,045,000 | $ | 2,045,000 | (a)(b) | ||||||||
Yale University, Series V-1 |
0.010 | % | 7/1/36 | 1,075,000 | 1,075,000 | (a)(b) | ||||||||||
Total Connecticut |
3,120,000 | |||||||||||||||
Delaware 1.4% |
||||||||||||||||
University of Delaware Revenue: |
||||||||||||||||
SPA - TD Bank N.A. |
0.060 | % | 11/1/35 | 1,400,000 | 1,400,000 | (a)(b) | ||||||||||
Series C, Refunding, SPA - TD Bank N.A. |
0.030 | % | 11/1/37 | 3,150,000 | 3,150,000 | (a)(b) | ||||||||||
Total Delaware |
4,550,000 | |||||||||||||||
District of Columbia 0.7% |
||||||||||||||||
District of Columbia Revenue, Series A, LOC - TD Bank N.A. |
0.020 | % | 8/15/38 | 100,000 | 100,000 | (a)(b) | ||||||||||
Metropolitan Washington DC, Airports Authority Revenue: |
||||||||||||||||
Subseries A-1, Refunding, LOC - Sumitomo Mitsui Banking |
0.120 | % | 10/1/39 | 1,510,000 | 1,510,000 | (a)(b)(c) | ||||||||||
Subseries A-2, Refunding, LOC - Sumitomo Mitsui Banking |
0.120 | % | 10/1/21 | 600,000 | 600,000 | (a)(b)(c) | ||||||||||
Total District of Columbia |
2,210,000 | |||||||||||||||
Florida 3.6% |
||||||||||||||||
Florida Gulf Coast University Financing Corp., Revenue, Series A, LOC - TD Bank N.A. |
0.080 | % | 2/1/39 | 395,000 | 395,000 | (a)(b) | ||||||||||
Highlands County, FL, Health Facilities Authority Revenue: |
||||||||||||||||
Adventist Health System, Refunding |
0.100 | % | 11/15/26 | 4,150,000 | 4,150,000 | (a)(b) | ||||||||||
Adventist Health System, Refunding |
0.070 | % | 11/15/32 | 300,000 | 300,000 | (a)(b) | ||||||||||
Adventist Health System, Refunding |
0.080 | % | 11/15/33 | 1,495,000 | 1,495,000 | (a)(b) | ||||||||||
Adventist Health System, Refunding |
0.090 | % | 11/15/34 | 900,000 | 900,000 | (a)(b) | ||||||||||
Adventist Health System, Refunding |
0.090 | % | 11/15/35 | 2,000,000 | 2,000,000 | (a)(b) | ||||||||||
Volusia County, FL, HFA, MFH Revenue, Cape Morris Cove Apartments II, Series B, LOC - JPMorgan Chase & Co. |
0.130 | % | 10/15/42 | 2,540,000 | 2,540,000 | (a)(b)(c) | ||||||||||
Total Florida |
11,780,000 | |||||||||||||||
Georgia 3.5% |
||||||||||||||||
Coweta County, GA, Development Authority Revenue, W.Y. Newnan Holding LLC Project, LOC - Wells Fargo Bank N.A. |
0.190 | % | 4/1/32 | 2,765,000 | 2,765,000 | (a)(b)(c) |
See Notes to Financial Statements.
40 |
Tax Free Reserves Portfolio 2020 Annual Report |
Tax Free Reserves Portfolio
Security | Rate | Maturity Date |
Face Amount |
Value | ||||||||||||
Georgia continued |
||||||||||||||||
Douglas County, GA, Development Authority, IDR, Pandosia LLC Project, Series A, LOC - Wells Fargo Bank N.A. |
0.120 | % | 12/1/27 | $ | 1,300,000 | $ | 1,300,000 | (a)(b)(c) | ||||||||
Municipal Electric Authority of Georgia, Project 1, Subordinated, Series B, LOC - PNC Bank N.A. |
0.080 | % | 1/1/48 | 7,305,000 | 7,305,000 | (a)(b) | ||||||||||
Total Georgia |
11,370,000 | |||||||||||||||
Idaho 2.7% |
||||||||||||||||
Idaho State Health Facilities Authority Revenue, St. Lukes Health System, Series C, Refunding, LOC - U.S. Bank N.A. |
0.030 | % | 3/1/48 | 8,810,000 | 8,810,000 | (a)(b) | ||||||||||
Illinois 4.7% |
||||||||||||||||
Chicago, IL, MFH Revenue, Renaissance Center LP, Series A, LOC - BMO Harris Bank N.A. |
0.140 | % | 10/1/34 | 1,840,000 | 1,840,000 | (a)(b)(c) | ||||||||||
Illinois State EFA Revenue, The Adler Planetarium, LOC - PNC Bank N.A. |
0.100 | % | 4/1/31 | 7,350,000 | 7,350,000 | (a)(b) | ||||||||||
Illinois State Finance Authority Revenue: |
||||||||||||||||
University of Chicago Medical Center, Series A, LOC - Bank of America N.A. |
0.030 | % | 8/1/44 | 3,100,000 | 3,100,000 | (a)(b) | ||||||||||
University of Chicago Medical Center, Series B, LOC - Wells Fargo Bank N.A. |
0.030 | % | 8/1/44 | 3,005,000 | 3,005,000 | (a)(b) | ||||||||||
Total Illinois |
15,295,000 | |||||||||||||||
Indiana 5.4% |
||||||||||||||||
Hobart, IN, EDR, Albanese Confectionery, Series A, LOC - BMO Harris Bank N.A. |
0.140 | % | 7/1/31 | 315,000 | 315,000 | (a)(b)(c) | ||||||||||
Indiana State Finance Authority Hospital Revenue: |
||||||||||||||||
Parkview Health System Obligated Group, Series B, Refunding, LOC - Wells Fargo Bank N.A. |
0.030 | % | 11/1/39 | 3,700,000 | 3,700,000 | (a)(b) | ||||||||||
Parkview Health System Obligated Group, Series D, LOC - Wells Fargo Bank N.A. |
0.030 | % | 11/1/39 | 7,520,000 | 7,520,000 | (a)(b) | ||||||||||
Indianapolis, IN, MFH Revenue, Washington Pointe LP, Series A, LIQ - FNMA |
0.090 | % | 4/15/39 | 4,265,000 | 4,265,000 | (a)(b) | ||||||||||
St. Joseph County, IN, EDR, Logan Community Resources Inc. Project, LOC - PNC Bank N.A. |
0.110 | % | 5/1/34 | 2,020,000 | 2,020,000 | (a)(b) | ||||||||||
Total Indiana |
17,820,000 | |||||||||||||||
Massachusetts 0.5% |
||||||||||||||||
Massachusetts State DFA Revenue: |
||||||||||||||||
Boston University, Series U-6C, LOC - TD Bank N.A. |
0.010 | % | 10/1/42 | 200,000 | 200,000 | (a)(b) |
See Notes to Financial Statements.
Tax Free Reserves Portfolio 2020 Annual Report |
41 |
Schedule of investments (contd)
August 31, 2020
Tax Free Reserves Portfolio
Security | Rate | Maturity Date |
Face Amount |
Value | ||||||||||||
Massachusetts continued |
||||||||||||||||
Boston University, Series U-6E, Refunding, LOC - TD Bank N.A. |
0.010 | % | 10/1/42 | $ | 400,000 | $ | 400,000 | (a)(b) | ||||||||
Massachusetts State HEFA Revenue, Harvard University, Series Y |
0.070 | % | 7/1/35 | 400,000 | 400,000 | (a)(b) | ||||||||||
Massachusetts State IFA Revenue, Nova Realty Trust, Refunding, LOC - TD Bank N.A. |
0.080 | % | 12/1/24 | 600,000 | 600,000 | (a)(b) | ||||||||||
Total Massachusetts |
1,600,000 | |||||||||||||||
Michigan 2.0% |
||||||||||||||||
Michigan State Finance Authority Revenue, Series A-2 |
4.000 | % | 8/20/21 | 1,000,000 | 1,036,170 | |||||||||||
Michigan State Strategic Fund Ltd. Obligation Revenue, Kroger Co. Recovery Zone, LOC - Bank of Tokyo-Mitsubishi UFJ |
0.130 | % | 1/1/26 | 5,500,000 | 5,500,000 | (a)(b) | ||||||||||
Total Michigan |
6,536,170 | |||||||||||||||
Minnesota 1.5% |
||||||||||||||||
Minneapolis, MN, & St. Paul Housing & Redevelopment Authority Revenue, Allina Health System, Series B-2, LOC - JPMorgan Chase Bank |
0.020 | % | 11/15/35 | 400,000 | 400,000 | (a)(b) | ||||||||||
Minneapolis, MN, Health Care System Revenue, Fairview Health Services, Series C, Refunding, LOC - Wells Fargo Bank N.A. |
0.030 | % | 11/15/48 | 4,575,000 | 4,575,000 | (a)(b) | ||||||||||
Total Minnesota |
4,975,000 | |||||||||||||||
Mississippi 2.3% |
||||||||||||||||
Mississippi State Business Finance Corp., Gulf Opportunity Zone, IDR: |
||||||||||||||||
Chevron USA Inc. Project, Series A |
0.030 | % | 12/1/30 | 425,000 | 425,000 | (a)(b) | ||||||||||
Chevron USA Inc. Project, Series A |
0.030 | % | 11/1/35 | 150,000 | 150,000 | (a)(b) | ||||||||||
Chevron USA Inc. Project, Series B |
0.030 | % | 12/1/30 | 1,200,000 | 1,200,000 | (a)(b) | ||||||||||
Chevron USA Inc. Project, Series C |
0.030 | % | 12/1/30 | 700,000 | 700,000 | (a)(b) | ||||||||||
Chevron USA Inc. Project, Series D |
0.030 | % | 11/1/35 | 1,800,000 | 1,800,000 | (a)(b) | ||||||||||
Chevron USA Inc. Project, Series E |
0.030 | % | 12/1/30 | 1,400,000 | 1,400,000 | (a)(b) | ||||||||||
Chevron USA Inc. Project, Series G |
0.030 | % | 11/1/35 | 1,220,000 | 1,220,000 | (a)(b) | ||||||||||
Chevron USA Inc. Project, Series G |
0.030 | % | 11/1/35 | 500,000 | 500,000 | (a)(b) | ||||||||||
Total Mississippi |
7,395,000 | |||||||||||||||
Missouri 2.9% |
||||||||||||||||
Kansas City, MO, Special Obligation Revenue, Chouteau I-35 Project, Series C, Refunding, LOC - JPMorgan Chase & Co. |
0.120 | % | 3/1/24 | 520,000 | 520,000 | (a)(b) |
See Notes to Financial Statements.
42 |
Tax Free Reserves Portfolio 2020 Annual Report |
Tax Free Reserves Portfolio
Security | Rate | Maturity Date |
Face Amount |
Value | ||||||||||||
Missouri continued |
||||||||||||||||
Missouri State HEFA Revenue: |
||||||||||||||||
Saint Louis Priory School Project, LOC - U.S. Bank N.A. |
0.120 | % | 2/1/33 | $ | 260,000 | $ | 260,000 | (a)(b) | ||||||||
St. Louis University, Series B, LOC - U.S. Bank N.A. |
0.030 | % | 10/1/24 | 7,290,000 | 7,290,000 | (a)(b) | ||||||||||
Washington University, Series C, SPA - U.S. Bank N.A. |
0.020 | % | 3/1/40 | 1,500,000 | 1,500,000 | (a)(b) | ||||||||||
Total Missouri |
9,570,000 | |||||||||||||||
New Jersey 0.2% |
||||||||||||||||
Rahway, NJ, GO, Series 2020 |
2.000 | % | 7/28/21 | 500,000 | 507,432 | |||||||||||
New York 32.5% |
||||||||||||||||
MTA, NY, Dedicated Tax Revenue, Series A-1, Refunding, LOC - TD Bank N.A. |
0.020 | % | 11/1/31 | 2,170,000 | 2,170,000 | (a)(b) | ||||||||||
MTA, NY, Transportation Revenue: |
||||||||||||||||
Dedicated Tax Fund, Subseries B-1, LOC - Bank of Tokyo-Mitsubishi UFJ |
0.080 | % | 11/1/22 | 505,000 | 505,000 | (a)(b) | ||||||||||
Subseries D-2, LOC - Landesbank Hessen- Thueringen |
0.060 | % | 11/1/35 | 3,100,000 | 3,100,000 | (a)(b) | ||||||||||
Subseries E-1, LOC - U.S. Bank N.A. |
0.030 | % | 11/15/50 | 900,000 | 900,000 | (a)(b) | ||||||||||
Subseries G-2, Refunding, LOC - TD Bank N.A. |
0.070 | % | 11/1/32 | 1,000,000 | 1,000,000 | (a)(b) | ||||||||||
Nassau County, NY, GO, Series B |
4.000 | % | 12/21/20 | 1,000,000 | 1,011,382 | |||||||||||
Nassau County, NY, Industrial Development Agency Revenue, Cold Spring Harbor Laboratory, Refunding, SPA - TD Bank N.A. |
0.010 | % | 1/1/34 | 2,700,000 | 2,700,000 | (a)(b) | ||||||||||
Nassau County, NY, Interim Finance Authority Revenue, Sales Tax Secured, Series B, SPA - Sumitomo Mitsui Banking |
0.070 | % | 11/15/21 | 1,200,000 | 1,200,000 | (a)(b) | ||||||||||
New York City, NY, GO: |
||||||||||||||||
Subseries E-5, LOC - TD Bank N.A. |
0.020 | % | 3/1/48 | 100,000 | 100,000 | (a)(b) | ||||||||||
Subseries G-6, LOC - Mizuho Bank Ltd. |
0.020 | % | 4/1/42 | 200,000 | 200,000 | (a)(b) | ||||||||||
New York City, NY, HDC, Multi-Family Mortgage Revenue: |
||||||||||||||||
15 East Clarke Place Apartments, Series A, LOC - JPMorgan Chase & Co. |
0.100 | % | 9/1/37 | 3,000,000 | 3,000,000 | (a)(b)(c) | ||||||||||
Parkview II Apartments, Series A, LOC - Citibank N.A. |
0.140 | % | 12/1/37 | 1,300,000 | 1,300,000 | (a)(b)(c) | ||||||||||
The Dorado Apartments, Series A, LOC - Citibank N.A. |
0.140 | % | 6/1/40 | 1,170,000 | 1,170,000 | (a)(b)(c) |
See Notes to Financial Statements.
Tax Free Reserves Portfolio 2020 Annual Report |
43 |
Schedule of investments (contd)
August 31, 2020
Tax Free Reserves Portfolio
Security | Rate | Maturity Date |
Face Amount |
Value | ||||||||||||
New York continued |
||||||||||||||||
New York City, NY, HDC, Multi-Family Rental Housing Revenue, Related West 89th Street Development, Series A, LIQ - FNMA, LOC - FNMA |
0.100 | % | 11/15/29 | $ | 12,500,000 | $ | 12,500,000 | (a)(b)(c) | ||||||||
New York City, NY, IDA Revenue, Civic Facility Revenue, Jewish Board of Family and Childrens Services Inc., LOC - TD Bank N.A. |
0.090 | % | 7/1/25 | 3,245,000 | 3,245,000 | (a)(b) | ||||||||||
New York City, NY, Municipal Water Finance Authority, Water & Sewer System Revenue: |
||||||||||||||||
Second General Resolution Fiscal 2008, Series BB-5, Refunding, SPA - Bank of America N.A. |
0.030 | % | 6/15/33 | 450,000 | 450,000 | (a)(b) | ||||||||||
Second General Resolution Fiscal 2009, Series BB-2, Refunding, SPA - Landesbank Hessen-Thueringen |
0.050 | % | 6/15/39 | 3,700,000 | 3,700,000 | (a)(b) | ||||||||||
Second General Resolution Fiscal 2014, Series AA6, Refunding, SPA - Mizuho Bank Ltd. |
0.020 | % | 6/15/48 | 4,280,000 | 4,280,000 | (a)(b) | ||||||||||
Second General Resolution Fiscal 2016, Refunding, SPA - Bank of America N.A. |
0.030 | % | 6/15/48 | 3,500,000 | 3,500,000 | (a)(b) | ||||||||||
Second General Resolution Fiscal 2016, Series AA-2, Refunding, SPA - PNC Bank N.A. |
0.100 | % | 6/15/48 | 1,600,000 | 1,600,000 | (a)(b) | ||||||||||
New York City, NY, TFA Revenue Future Tax Secured: |
||||||||||||||||
Series A, Refunding, SPA - TD Bank N.A. |
0.020 | % | 11/1/29 | 1,000,000 | 1,000,000 | (a)(b) | ||||||||||
Subordinated, Series A, SPA - JPMorgan Chase & Co. |
0.020 | % | 8/1/45 | 600,000 | 600,000 | (a)(b) | ||||||||||
Subordinated, Series C-5, LOC - Sumitomo Mitsui Banking |
0.090 | % | 11/1/41 | 1,000,000 | 1,000,000 | (a)(b) | ||||||||||
Sustainable, Subordinated, Series C-2, SPA - Landesbank Hessen-Thueringen |
0.020 | % | 8/1/31 | 2,250,000 | 2,250,000 | (a)(b) | ||||||||||
New York City, NY, Trust for Cultural Resources Revenue, The New York Botanical Garden, Series A, Refunding, LOC - JPMorgan Chase & Co. |
0.100 | % | 7/1/32 | 110,000 | 110,000 | (a)(b) | ||||||||||
New York State Dormitory Authority Revenue: |
||||||||||||||||
City University, Series D, LOC - TD Bank N.A. |
0.070 | % | 7/1/31 | 200,000 | 200,000 | (a)(b) | ||||||||||
Non-State Supported Debt, Rockefeller University, Series A2, SPA - JPMorgan Chase & Co. |
0.080 | % | 7/1/32 | 7,550,000 | 7,550,000 | (a)(b) |
See Notes to Financial Statements.
44 |
Tax Free Reserves Portfolio 2020 Annual Report |
Tax Free Reserves Portfolio
Security | Rate | Maturity Date |
Face Amount |
Value | ||||||||||||
New York continued |
||||||||||||||||
Non-State Supported Debt, University of Rochester, Series C, LOC - JPMorgan Chase & Co. |
0.050 | % | 7/1/33 | $ | 270,000 | $ | 270,000 | (a)(b) | ||||||||
Subordinated, TRAN, Series B |
5.000 | % | 3/31/21 | 2,000,000 | 2,051,392 | |||||||||||
New York State Energy Research & Development Authority Facilities Revenue: |
||||||||||||||||
Consolidated Edison Co. of New York Inc. Project, Subseries A-2, LOC - Bank of Nova Scotia |
0.100 | % | 6/1/36 | 12,600,000 | 12,600,000 | (a)(b)(c) | ||||||||||
Consolidated Edison Co. of New York Inc. Project, Subseries C-3, LOC - Mizuho Bank Ltd. |
0.100 | % | 11/1/39 | 3,000,000 | 3,000,000 | (a)(b)(c) | ||||||||||
New York State HFA Revenue: |
||||||||||||||||
42nd & 10th Housing, Series A, LIQ - FHLMC |
0.100 | % | 11/1/41 | 1,500,000 | 1,500,000 | (a)(b)(c) | ||||||||||
55 West 25th Street Housing, Series A, LOC - FNMA |
0.100 | % | 11/15/38 | 2,400,000 | 2,400,000 | (a)(b)(c) | ||||||||||
160 Madison Avenue, Series A, LOC - Landesbank Hessen-Thueringen |
0.040 | % | 11/1/46 | 11,325,000 | 11,325,000 | (a)(b) | ||||||||||
250 West 93rd Street, Series A, LOC - Landesbank Hessen-Thueringen |
0.120 | % | 11/1/38 | 1,100,000 | 1,100,000 | (a)(b)(c) | ||||||||||
Weyant Green Apartments, Series A, LIQ - FNMA, LOC - FNMA |
0.100 | % | 5/15/37 | 1,000,000 | 1,000,000 | (a)(b)(c) | ||||||||||
New York State Urban Development Corp. Revenue, State Facilities, Series A3A, SPA - JPMorgan Chase & Co. |
0.090 | % | 3/15/33 | 3,895,000 | 3,895,000 | (a)(b) | ||||||||||
State of New York Mortgage Agency Homeowner Mortgage Revenue, Series 129, SPA - Royal Bank of Canada |
0.120 | % | 10/1/35 | 400,000 | 400,000 | (a)(b)(c) | ||||||||||
Triborough Bridge & Tunnel Authority, NY, Revenue: |
||||||||||||||||
Series F, Refunding, LOC - Citibank N.A. |
0.020 | % | 11/1/32 | 315,000 | 315,000 | (a)(b) | ||||||||||
Subseries B-2, Refunding, LOC - Citibank N.A. |
0.020 | % | 1/1/32 | 1,700,000 | 1,700,000 | (a)(b) | ||||||||||
Subseries B-3, Refunding, LOC - State Street |
||||||||||||||||
Bank & Trust Co. |
0.030 | % | 1/1/32 | 4,500,000 | 4,500,000 | (a)(b) | ||||||||||
Total New York |
106,397,774 | |||||||||||||||
North Carolina 0.2% |
||||||||||||||||
University of North Carolina at Chapel Hill, University of North Carolina Hospitals Revenue, Series A, Refunding, SPA - TD Bank N.A. |
0.070 | % | 2/1/24 | 800,000 | 800,000 | (a)(b) |
See Notes to Financial Statements.
Tax Free Reserves Portfolio 2020 Annual Report |
45 |
Schedule of investments (contd)
August 31, 2020
Tax Free Reserves Portfolio
Security | Rate | Maturity Date |
Face Amount |
Value | ||||||||||||
Ohio 0.8% |
||||||||||||||||
Ohio State University Revenue, Series B-2 |
0.080 | % | 12/1/39 | $ | 2,250,000 | $ | 2,250,000 | (a)(b) | ||||||||
Ohio State, GO, Common Schools, Series C |
0.080 | % | 6/15/26 | 520,000 | 520,000 | (a)(b) | ||||||||||
Total Ohio |
2,770,000 | |||||||||||||||
Oregon 2.3% |
||||||||||||||||
Oregon State Facilities Authority Revenue, Peacehealth, Series A, Refunding, LOC - U.S. Bank N.A. |
0.030 | % | 8/1/34 | 7,400,000 | 7,400,000 | (a)(b) | ||||||||||
Pennsylvania 3.3% |
||||||||||||||||
Allegheny County, PA, IDA Revenue, Education Center Watson, LOC - PNC Bank N.A. |
0.090 | % | 5/1/31 | 3,000,000 | 3,000,000 | (a)(b) | ||||||||||
Lancaster County, PA, Hospital Authority Revenue, Series D, Refunding, LOC - JPMorgan Chase & Co. |
0.030 | % | 7/1/34 | 370,000 | 370,000 | (a)(b) | ||||||||||
Pennsylvania State Turnpike Commission Revenue, Second Series, Refunding, LOC - TD Bank N.A. |
0.070 | % | 12/1/38 | 2,700,000 | 2,700,000 | (a)(b) | ||||||||||
Philadelphia, PA, Authority for IDR: |
||||||||||||||||
Gift of Life Donor Program Project, LOC - TD Bank N.A. |
0.080 | % | 12/1/34 | 900,000 | 900,000 | (a)(b) | ||||||||||
Series B, Refunding, LOC - TD Bank N.A. |
0.070 | % | 10/1/30 | 2,200,000 | 2,200,000 | (a)(b) | ||||||||||
Ridley, PA, School District, GO, LOC - TD Bank N.A. |
0.090 | % | 11/1/29 | 1,775,000 | 1,775,000 | (a)(b) | ||||||||||
Total Pennsylvania |
10,945,000 | |||||||||||||||
South Dakota 0.7% |
||||||||||||||||
South Dakota State Housing Development Authority, MFH Revenue, Country Meadows Apartments Project, LIQ - FHLMC |
0.090 | % | 1/1/44 | 2,420,000 | 2,420,000 | (a)(b) | ||||||||||
Texas 7.4% |
||||||||||||||||
Harris County, TX, Education Facilities Finance Corp. Revenue, Houston Methodist, Series B, Refunding |
0.020 | % | 12/1/59 | 3,800,000 | 3,800,000 | (a)(b) | ||||||||||
Harris County, TX, Health Facilities Development Corp. Revenue: |
||||||||||||||||
Methodist Hospital System, Series A-1, Refunding |
0.020 | % | 12/1/41 | 2,400,000 | 2,400,000 | (a)(b) | ||||||||||
Methodist Hospital System, Series A-2, Refunding |
0.020 | % | 12/1/41 | 3,875,000 | 3,875,000 | (a)(b) | ||||||||||
Houston, TX, Combined Utility System Revenue, First Lien, Series B-4, Refunding, LOC - PNC Bank N.A. |
0.090 | % | 5/15/34 | 7,500,000 | 7,500,000 | (a)(b) |
See Notes to Financial Statements.
46 |
Tax Free Reserves Portfolio 2020 Annual Report |
Tax Free Reserves Portfolio
Security | Rate | Maturity Date |
Face Amount |
Value | ||||||||||||
Texas continued |
||||||||||||||||
Tarrant County, TX, Cultural Education Facilities Finance Corp., Hospital Revenue, Baylor Health Care System Project, Series C, LOC - TD Bank N.A. |
0.020 | % | 11/15/50 | $ | 200,000 | $ | 200,000 | (a)(b) | ||||||||
Texas State, TRAN |
4.000 | % | 8/26/21 | 4,000,000 | 4,147,560 | (d) | ||||||||||
Texas State, Veterans Bonds, GO, SPA - Sumitomo Mitsui Banking |
0.130 | % | 12/1/47 | 2,400,000 | 2,400,000 | (a)(b) | ||||||||||
Total Texas |
24,322,560 | |||||||||||||||
Utah 1.3% |
||||||||||||||||
Murray City, UT, Hospital Revenue: |
||||||||||||||||
IHC Health Services Inc., Series B |
0.080 | % | 5/15/36 | 2,970,000 | 2,970,000 | (a)(b) | ||||||||||
IHC Health Services Inc., Series D |
0.010 | % | 5/15/36 | 700,000 | 700,000 | (a)(b) | ||||||||||
Utah County, UT, Hospital Revenue, Series C, SPA - TD Bank N.A. |
0.020 | % | 5/15/58 | 700,000 | 700,000 | (a)(b) | ||||||||||
Total Utah |
4,370,000 | |||||||||||||||
Washington 4.1% |
||||||||||||||||
Olympia, WA, EDC Revenue, Spring Air Northwest Project, LOC - U.S. Bank N.A. |
0.150 | % | 11/1/23 | 525,000 | 525,000 | (a)(b)(c) | ||||||||||
Vancouver, WA, Housing Authority Revenue, Refunding, LIQ - FHLMC |
0.090 | % | 12/1/38 | 4,935,000 | 4,935,000 | (a)(b) | ||||||||||
Washington Higher EFA Revenue, Refunding, Seattle University Project, Series A, LOC - U.S. Bank N.A. |
0.120 | % | 5/1/28 | 2,955,000 | 2,955,000 | (a)(b) | ||||||||||
Washington State Economic Development Finance Authority Revenue, Lyn-Tron Project, Series A, LOC - U.S. Bank N.A. |
0.200 | % | 10/1/22 | 515,000 | 515,000 | (a)(b)(c) | ||||||||||
Washington State HFC, Non-Profit Housing Revenue: |
||||||||||||||||
Overlake School Project, LOC - Wells Fargo Bank N.A. |
0.090 | % | 10/1/29 | 2,030,000 | 2,030,000 | (a)(b) | ||||||||||
Panorama Project, Refunding, Series P, LOC - Wells Fargo Bank N.A. |
0.090 | % | 4/1/43 | 2,495,000 | 2,495,000 | (a)(b) | ||||||||||
Total Washington |
13,455,000 | |||||||||||||||
Wisconsin 3.9% |
||||||||||||||||
University of Wisconsin, Hospitals & Clinics Authority Revenue, Series C, Refunding, SPA - BMO Harris Bank N.A. |
0.030 | % | 4/1/48 | 12,900,000 | 12,900,000 | (a)(b) | ||||||||||
Wyoming 0.3% |
||||||||||||||||
Wyoming CDA Revenue, SPA - Federal Home Loan Bank |
0.120 | % | 12/1/38 | 820,000 | 820,000 | (a)(b)(c) | ||||||||||
Total Municipal Bonds |
320,852,503 |
See Notes to Financial Statements.
Tax Free Reserves Portfolio 2020 Annual Report |
47 |
Schedule of investments (contd)
August 31, 2020
Tax Free Reserves Portfolio
Security | Rate | Maturity Date |
Face Amount |
Value | ||||||||||||
Commercial Paper 2.5% | ||||||||||||||||
Harris County, TX, Cultural Education Facilities Finance Corp. |
0.230 | % | 10/8/20 | $ | 5,000,000 | $ | 5,000,000 | |||||||||
University of North Texas |
0.170 | % | 9/17/20 | 3,200,000 | 3,200,000 | |||||||||||
Total Commercial Paper |
8,200,000 | |||||||||||||||
Total Investments 100.5% (Cost $329,052,503#) |
|
329,052,503 | ||||||||||||||
Liabilities in Excess of Other Assets (0.5)% |
(1,656,125 | ) | ||||||||||||||
Total Net Assets 100.0% |
$ | 327,396,378 |
# | Aggregate cost for federal income tax purposes is substantially the same. |
(a) | Variable rate demand obligations (VRDOs) have a demand feature under which the Portfolio can tender them back to the issuer or liquidity provider on no more than 7 days notice. The interest rate generally resets on a daily or weekly basis and is determined on the specific interest rate reset date by the Remarketing Agent, pursuant to a formula specified in official documents for the VRDO, or set at the highest rate allowable as specified in official documents for the VRDO. VRDOs are benchmarked to the Securities Industry and Financial Markets Association (SIFMA) Municipal Swap Index. The SIFMA Municipal Swap Index is compiled from weekly interest rate resets of tax-exempt VRDOs reported to the Municipal Securities Rulemaking Boards Short-term Obligation Rate Transparency System. |
(b) | Maturity date shown is the final maturity date. The security may be sold back to the issuer before final maturity. |
(c) | Income from this issue is considered a preference item for purposes of calculating the alternative minimum tax (AMT). |
(d) | Securities traded on a when-issued or delayed delivery basis. |
See Notes to Financial Statements.
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Tax Free Reserves Portfolio 2020 Annual Report |
Tax Free Reserves Portfolio
Abbreviation(s) used in this schedule: | ||
CDA | Communities Development Authority | |
DFA | Development Finance Agency | |
EDC | Economic Development Corporation | |
EDR | Economic Development Revenue | |
EFA | Educational Facilities Authority | |
FHLMC | Federal Home Loan Mortgage Corporation | |
FNMA | Federal National Mortgage Association | |
GO | General Obligation | |
HDC | Housing Development Corporation | |
HEFA | Health & Educational Facilities Authority | |
HFA | Housing Finance Agency | |
HFC | Housing Finance Commission | |
IDA | Industrial Development Authority | |
IDR | Industrial Development Revenue | |
IFA | Industrial Finance Agency | |
LIQ | Liquidity Facility | |
LOC | Letter of Credit | |
MFH | Multi-Family Housing | |
MTA | Metropolitan Transportation Authority | |
PCFA | Pollution Control Financing Authority | |
RDA | Redevelopment Agency | |
SPA | Standby Bond Purchase Agreement Insured Bonds | |
TFA | Transitional Finance Authority | |
TRAN | Tax & Revenue Anticipation Notes |
See Notes to Financial Statements.
Tax Free Reserves Portfolio 2020 Annual Report |
49 |
Statement of assets and liabilities
August 31, 2020
Assets: | ||||
Investments, at value |
$ | 329,052,503 | ||
Cash |
233,974 | |||
Receivable for securities sold |
2,450,000 | |||
Interest receivable |
60,519 | |||
Total Assets |
331,796,996 | |||
Liabilities: | ||||
Payable for securities purchased |
4,347,560 | |||
Trustees fees payable |
1,146 | |||
Accrued expenses |
51,912 | |||
Total Liabilities |
4,400,618 | |||
Total Net Assets | $ | 327,396,378 | ||
Represented by: | ||||
Paid-in capital | $ | 327,396,378 |
See Notes to Financial Statements.
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Tax Free Reserves Portfolio 2020 Annual Report |
For the Year Ended August 31, 2020
Investment Income: | ||||
Interest |
$ | 3,246,930 | ||
Expenses: | ||||
Investment management fee (Note 2) |
522,037 | |||
Fund accounting fees |
61,208 | |||
Audit and tax fees |
45,777 | |||
Legal fees |
14,721 | |||
Trustees fees |
9,951 | |||
Custody fees |
4,295 | |||
Interest expense |
93 | |||
Miscellaneous expenses |
1,841 | |||
Total Expenses |
659,923 | |||
Less: Fee waivers and/or expense reimbursements (Note 2) |
(524,899) | |||
Net Expenses |
135,024 | |||
Net Investment Income | 3,111,906 | |||
Net Realized Loss on Investments | (5) | |||
Increase in Net Assets From Operations | $ | 3,111,901 |
See Notes to Financial Statements.
Tax Free Reserves Portfolio 2020 Annual Report |
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Statements of changes in net assets
For the Years Ended August 31, | 2020 | 2019 | ||||||
Operations: | ||||||||
Net investment income |
$ | 3,111,906 | $ | 5,689,435 | ||||
Net realized gain (loss) |
(5) | 2,884 | ||||||
Increase in Net Assets From Operations |
3,111,901 | 5,692,319 | ||||||
Capital Transactions: | ||||||||
Proceeds from contributions |
216,158,064 | 456,760,446 | ||||||
Value of withdrawals |
(231,643,923) | (471,354,607) | ||||||
Decrease in Net Assets From Capital Transactions |
(15,485,859) | (14,594,161) | ||||||
Decrease in Net Assets |
(12,373,958) | (8,901,842) | ||||||
Net Assets: | ||||||||
Beginning of year |
339,770,336 | 348,672,178 | ||||||
End of year |
$ | 327,396,378 | $ | 339,770,336 |
See Notes to Financial Statements.
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For the years ended August 31: | ||||||||||||||||||||
2020 | 2019 | 2018 | 2017 | 2016 | ||||||||||||||||
Net assets, end of year (millions) | $327 | $340 | $349 | $421 | $1,315 | |||||||||||||||
Total return1 |
0.89 | % | 1.56 | % | 1.16 | % | 0.70 | % | 0.19 | % | ||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Gross expenses |
0.19 | % | 0.19 | % | 0.20 | % | 0.20 | % | 0.18 | % | ||||||||||
Net expenses2,3 |
0.04 | 0.04 | 0.05 | 0.05 | 0.03 | |||||||||||||||
Net investment income |
0.89 | 1.56 | 1.14 | 0.69 | 0.20 |
1 | 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. |
2 | The investment manager, pursuant to the terms of the feeder funds investment management agreement, has agreed to waive 0.15% of Portfolio expenses, attributable to the Portfolios investment management fee. Additional amounts may be voluntarily waived and/or reimbursed from time to time. |
3 | Reflects fee waivers and/or expense reimbursements. |
See Notes to Financial Statements.
Tax Free Reserves Portfolio 2020 Annual Report |
53 |
1. Organization and significant accounting policies
Tax Free Reserves Portfolio (the Portfolio) is a separate non-diversified investment series of Master Portfolio Trust (the Trust). The Trust, a Maryland statutory trust, is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company. The Declaration of Trust permits the Trustees to issue beneficial interests in the Portfolio. At August 31, 2020, all investors in the Portfolio were funds advised or administered by the investment manager of the Portfolio and/or its affiliates.
The Portfolio operates as a retail money market fund, meaning that only accounts beneficially owned solely by natural persons (retail investors) may be invested in funds that invest through the Portfolio. As a retail money market fund, the Portfolio seeks to sell and effect withdrawals of its interests at a price of $1.00. Under Rule 2a-7 of the 1940 Act (Rule 2a-7), the Portfolio must follow strict rules as to the credit quality, liquidity, diversification and maturity of its investments. The Portfolio may impose fees upon the withdrawal of interests or temporarily suspend the withdrawal of interests if the Portfolios liquidity falls below required minimums because of market conditions or other factors.
The following are significant accounting policies consistently followed by the Portfolio and are in conformity with U.S. generally accepted accounting principles (GAAP). Estimates and assumptions are required to be made regarding assets, liabilities and changes in net assets resulting from operations when financial statements are prepared. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ. Subsequent events have been evaluated through the date the financial statements were issued.
(a) Investment valuation. In accordance with Rule 2a-7, money market instruments are valued at amortized cost, which approximates market value. This method involves valuing portfolio securities at their cost and thereafter assuming a constant amortization to maturity of any discount or premium. The Portfolios use of amortized cost is subject to its compliance with certain conditions as specified by Rule 2a-7.
The Board of Trustees is responsible for the valuation process and has delegated the supervision of the daily valuation process to the Legg Mason North Atlantic Fund Valuation Committee (the Valuation Committee). The Valuation Committee, pursuant to the policies adopted by the Board of Trustees, is responsible for making fair value determinations, evaluating the effectiveness of the Portfolios pricing policies, and reporting to the Board of Trustees.
The Portfolio uses valuation techniques to measure fair value that are consistent with the market approach and/or income approach, depending on the type of security and the particular circumstance. The market approach uses prices and other relevant information
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generated by market transactions involving identical or comparable securities. The income approach uses valuation techniques to discount estimated future cash flows to present value.
GAAP establishes a disclosure hierarchy that categorizes the inputs to valuation techniques used to value assets and liabilities at measurement date. These inputs are summarized in the three broad levels listed below:
| Level 1 quoted prices in active markets for identical investments |
| Level 2 other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
| Level 3 significant unobservable inputs (including the Portfolios own assumptions in determining the fair value of investments) |
The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used in valuing the Portfolios assets carried at fair value:
ASSETS | ||||||||||||||||
Description | Quoted Prices (Level 1) |
Other Significant Observable Inputs (Level 2) |
Significant (Level 3) |
Total | ||||||||||||
Short-Term Investments |
| $ | 329,052,503 | | $ | 329,052,503 |
| See Schedule of Investments for additional detailed categorizations. |
(b) Securities traded on a when-issued and delayed delivery basis. The Portfolio may trade securities on a when-issued or delayed delivery basis. In when-issued and delayed delivery transactions, the securities are purchased or sold by the Portfolio with payment and delivery taking place in the future in order to secure what is considered to be an advantageous price and yield to the Portfolio at the time of entering into the transaction.
Purchasing such securities involves risk of loss if the value of the securities declines prior to settlement. These securities are subject to market fluctuations and their current value is determined in the same manner as for other securities.
(c) Interest income and expenses. Interest income (including interest income from payment-in-kind securities) consists of interest accrued and discount earned (including both original issue and market discount adjusted for amortization of premium) on the investments of the Portfolio. Expenses of the Portfolio are accrued daily. The Portfolio bears all costs of its operations other than expenses specifically assumed by the investment manager.
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55 |
Notes to financial statements (contd)
(d) Method of allocation. Net investment income of the Portfolio is allocated pro rata, based on respective ownership interests, among the Fund and other investors in the Portfolio (the Holders) at the time of such determination. Gross realized gains and/or losses of the Portfolio are allocated to the Holders in a manner such that, the net asset values per share of each Holder, after each such allocation is closer to the total of all Holders net asset values divided by the aggregate number of shares outstanding for all Holders.
(e) Credit and market risk. The Portfolio may invest in instruments 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. Demand features are often issued by third party financial institutions, generally domestic and foreign banks, and by brokerage firms or insurance companies. Frequently, floating rate and variable rate obligations are secured by letters of credit or other credit support arrangements provided by banks. Accordingly, the credit quality and liquidity of the Portfolios investments may be dependent in part on the credit quality of the institutions supporting the Portfolios investments and changes in the credit quality of these institutions could cause losses to the Portfolio and affect its share price. 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, and some may be asset-backed or mortgage-backed securities. Structured instruments are a type of derivative instrument and the payment and credit qualities of these instruments derive from the assets embedded in the structure.
(f) Compensating balance arrangements. The Portfolio has an arrangement with its custodian bank whereby a portion of the custodians fees is paid indirectly by credits earned on the Portfolios cash on deposit with the bank.
(g) Income taxes. The Portfolio is classified as a partnership for federal income tax purposes. As such, each investor in the Portfolio is treated as owner of its proportionate share of the net assets, income, expenses and realized gains and losses of the Portfolio. Therefore, no federal income tax provision is required. It is intended that the Portfolios assets will be managed so an investor in the Portfolio can satisfy the requirements of Subchapter M of the Internal Revenue Code.
Management has analyzed the Portfolios tax positions taken on income tax returns for all open tax years and has concluded that as of August 31, 2020, no provision for income tax is required in the Portfolios financial statements. The Portfolios federal and state income tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state departments of revenue.
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Tax Free Reserves Portfolio 2020 Annual Report |
(h) Other. Purchases, maturities and sales of money market instruments are accounted for on the date of the transaction. Realized gains and losses are calculated on the identified cost basis.
2. Investment management agreement and other transactions with affiliates
Legg Mason Partners Fund Advisor, LLC (LMPFA) is the Portfolios investment manager and Western Asset Management Company, LLC (Western Asset) is the Portfolios subadviser. As of July 31, 2020, LMPFA and Western Asset are indirect, wholly-owned subsidiaries of Franklin Resources, Inc. (Franklin Resources). Prior to July 31, 2020, LMPFA and Western Asset were wholly-owned subsidiaries of Legg Mason, Inc. (Legg Mason). As of July 31, 2020, Legg Mason is a subsidiary of Franklin Resources.
Under the investment management agreement, the Portfolio pays an investment management fee, calculated daily and paid monthly, at an annual rate of 0.15% of the Portfolios average daily net assets.
LMPFA provides administrative and certain oversight services to the Portfolio. LMPFA delegates to the subadviser the day-to-day portfolio management of the Portfolio. For its services, LMPFA pays Western Asset monthly 70% of the net management fee it receives from the Portfolio.
As a result of the investment management agreement between LMPFA and the feeder fund, LMPFA has agreed to waive 0.15% of Portfolio expenses, attributable to the Portfolios investment management fee. Additional amounts may be voluntarily waived and/or reimbursed from time to time.
During the year ended August 31, 2020, fees waived and/or expenses reimbursed amounted to $524,899.
LMPFA is permitted to recapture amounts waived and/or reimbursed to the Portfolio during the same fiscal year under certain circumstances.
As of July 31, 2020, all officers and one Trustee of the Trust are employees of Franklin Resources or its affiliates and do not receive compensation from the Trust. Prior to July 31, 2020, all officers and one Trustee of the Trust were employees of Legg Mason and did not receive compensation from the Trust.
The Portfolio is permitted to purchase or sell securities, typically short-term variable rate demand obligations, from or to certain other affiliated funds or portfolios under specified conditions outlined in procedures adopted by the Board of Trustees. The procedures have been designed to provide assurance that any purchase or sale of securities by the Portfolio from or to another fund or portfolio that is, or could be considered, an affiliate by virtue of having a common investment manager or subadviser (or affiliated investment manager or subadviser), common Trustees and/or common officers complies with Rule 17a-7 under the 1940 Act. Further, as defined under the procedures, each transaction is effected at the
Tax Free Reserves Portfolio 2020 Annual Report |
57 |
Notes to financial statements (contd)
current market price. For the year ended August 31, 2020, such purchase and sale transactions (excluding accrued interest) were $186,010,000 and $162,590,000, respectively.
3. Derivative instruments and hedging activities
During the year ended August 31, 2020, the Portfolio did not invest in derivative instruments.
4. Other matters
The outbreak of the respiratory illness COVID-19 (commonly referred to as coronavirus) has continued to rapidly spread around the world, causing considerable uncertainty for the global economy and financial markets. The ultimate economic fallout from the pandemic, and the long-term impact on economies, markets, industries and individual issuers, are not known. The COVID-19 pandemic could adversely affect the value and liquidity of the Portfolios investments, impair the Portfolios ability to satisfy withdrawal requests, and negatively impact the Portfolios performance. In addition, the outbreak of COVID-19, and measures taken to mitigate its effects, could result in disruptions to the services provided to the Portfolio by its service providers.
***
The Portfolios investments, payment obligations, and financing terms may be based on floating rates, such as the London Interbank Offered Rate, or LIBOR, which is the offered rate for short-term Eurodollar deposits between major international banks. Plans are underway to phase out the use of LIBOR by the end of 2021. There remains uncertainty regarding the nature of any replacement rate and the impact of the transition from LIBOR on the Portfolios transactions and the financial markets generally. As such, the potential effect of a transition away from LIBOR on the Portfolio or the Portfolios investments cannot yet be determined.
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Tax Free Reserves Portfolio 2020 Annual Report |
Report of independent registered public accounting firm
To the Board of Trustees of Master Portfolio Trust and Investors of Tax Free Reserves Portfolio
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Tax Free Reserves Portfolio (one of the funds constituting Master Portfolio Trust, referred to hereafter as the Fund) as of August 31, 2020, the related statement of operations for the year ended August 31, 2020, the statement of changes in net assets for each of the two years in the period ended August 31, 2020, including the related notes, and the financial highlights for each of the three years in the period ended August 31, 2020 (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of August 31, 2020, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period ended August 31, 2020 and the financial highlights for each of the three years in the period ended August 31, 2020 in conformity with accounting principles generally accepted in the United States of America.
The financial statements of the Fund as of and for the year ended August 31, 2017 and the financial highlights for each of the periods ended on or prior to August 31, 2017 (not presented herein, other than the financial highlights) were audited by other auditors whose report dated October 20, 2017 expressed an unqualified opinion on those financial statements and financial highlights.
Basis for Opinion
These financial statements are the responsibility of the Funds management. Our responsibility is to express an opinion on the Funds financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of August 31, 2020 by correspondence with the custodian and broker; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
/s/PricewaterhouseCoopers LLP
Baltimore, Maryland
October 20, 2020
We have served as the auditor of one or more investment companies in the Franklin Templeton Group of Funds since 1948.
Tax Free Reserves Portfolio 2020 Annual Report |
59 |
Board approval of new management and new subadvisory agreements (unaudited)
On February 18, 2020, Franklin Resources, Inc., a global investment management organization operating, together with its subsidiaries, as Franklin Templeton (Franklin Templeton), and Legg Mason, Inc. (Legg Mason) announced that they entered into a definitive agreement (the Transaction Agreement) for Franklin Templeton to acquire Legg Mason in an all-cash transaction (the Transaction). The Transaction closed on July 31, 2020. As part of this transaction, the Funds manager, Legg Mason Partners Fund Advisor, LLC (the Manager), and the Funds subadviser, Western Asset Management Company, LLC (the Subadviser, and collectively with the Manager, the Advisers), each a wholly owned subsidiary of Legg Mason, became wholly owned subsidiaries of Franklin Templeton. Under the Investment Company Act of 1940, as amended (the 1940 Act), the Transaction resulted in the automatic termination of the Funds management agreement with the Manager that was in place prior to the closing of the Transaction (the Existing Management Agreement) and the sub-advisory agreement between the Manager and the Subadviser that was in place prior to the closing of the Transaction (the Existing Sub-advisory Agreement, and, collectively, the Existing Agreements).
At a meeting of the Board of Trustees of Master Portfolio Trust (the Trust) held on April 14, 2020,1 the Board, including the Trustees who are not considered to be interested persons of the Trust (the Independent Trustees) under the 1940 Act, approved a new management agreement (the New Management Agreement) between the Trust and the Manager with respect to Tax Free Reserves Portfolio (the Fund), a series of the Trust, and the new sub-advisory agreement (the New Sub-Advisory Agreement, and collectively, the New Agreements) between the Manager and the Subadviser with respect to the Fund. The Board also authorized the Funds officers to submit the New Agreements to Fund shareholders for their approval. Fund shareholders were sent notice of the shareholder meeting and a proxy statement in April, 2020. Shareholders of the Fund have approved the New Agreements.
Background
On March 9, 2020, during a telephonic meeting, members of the Board discussed with Legg Mason management and certain Franklin Templeton representatives the Transaction and Franklin Templetons plans and intentions regarding the Legg Mason funds and Legg Masons asset management business, including the preservation and continued investment autonomy of the investment advisory businesses conducted by the Subadviser and the combination of Legg Masons and Franklin Templetons distribution resources.
1 | This meeting was held telephonically in reliance on an exemptive order issued by the Securities and Exchange Commission on March 25, 2020. Reliance on the exemptive order is necessary and appropriate due to circumstances related to current or potential effects of COVID-19. All Trustees participating in the telephonic meeting were able to hear each other simultaneously during the meeting. Reliance on the exemptive order requires Trustees, including a majority of the Independent Trustees, to ratify actions taken pursuant to the exemptive order by vote cast at the next in-person meeting. |
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Tax Free Reserves Portfolio |
On April 8, 2020, the Independent Trustees met with representatives of Legg Mason to discuss the Transaction and the New Agreements. In addition, the Independent Trustees met separately, with the assistance of their independent legal counsel, to discuss and evaluate the information provided and to consider what additional information was desired.
The Independent Trustees considered, among other things, whether it would be in the best interests of the Fund and its respective shareholders to approve the New Agreements, and the anticipated impacts of the Transaction on the Fund and its shareholders. To assist the Board in its consideration of the New Agreements, Franklin Templeton provided materials and information about Franklin Templeton, including its financial condition and asset management capabilities and organization, and Franklin Templeton and Legg Mason provided materials and information about the Transaction.
Before or during the April 14, 2020 meeting, the Board sought additional information as it deemed necessary and appropriate. In connection with the Boards consideration of the New Agreements, the Independent Trustees worked with their independent legal counsel to prepare requests for information that were submitted to Franklin Templeton and Legg Mason. The Board requested information relevant to the consideration of the New Agreements, distribution arrangements, and other anticipated impacts of the Transaction on the Fund and its shareholders. Franklin Templeton and Legg Mason provided documents and information in response to the request for information. Following their review of this information, the Independent Trustees submitted supplemental due diligence requests for additional information to Franklin Templeton and Legg Mason. Franklin Templeton and Legg Mason provided further information in response to this supplemental diligence request, which the Board reviewed. Senior management representatives from Franklin Templeton and Legg Mason participated in a portion of the meeting and addressed various questions raised by the Board.
At the April 14, 2020 meeting, representatives of Legg Mason (including representatives of the Advisers) and Franklin Templeton made presentations to, and responded to questions from, the Board. After the presentations and after reviewing the written materials provided, the Independent Trustees met in executive session with their counsel to consider the New Agreements.
The Boards evaluation of the New Agreements reflected the information provided specifically in connection with its review of the New Agreements, as well as, where relevant, information that was previously furnished to the Board in connection with the most recent renewal of the Existing Agreements at in-person meetings held in November 2019 and at other prior Board meetings.
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Board approval of new management and new subadvisory agreements (unaudited) (contd)
Among other things, the Board considered:
(i) | the reputation, experience, financial strength and resources of Franklin Templeton and its investment advisory subsidiaries; |
(ii) | that Franklin Templeton informed the Board of its intent to maintain the investment autonomy of the Legg Mason investment advisory subsidiaries; |
(iii) | that Franklin Templeton and Legg Mason informed the Board that, following the Transaction, there would not be any expected diminution in the nature, quality and extent of services provided to the Fund and its shareholders by the Advisers, including compliance and other non-advisory services, and represented that there were not expected to be any changes in the portfolio management personnel managing the Fund as a result of the Transaction; |
(iv) | that Franklin Templeton and Legg Mason informed the Board regarding transition plans, including Legg Masons provision of retention incentives for certain Legg Mason corporate personnel prior to the closing of the Transaction, and Franklin Templetons provision of long-term retention mechanisms for certain personnel following the closing; |
(v) | that no changes to the Funds custodian or other service providers were expected as a result of the Transaction; |
(vi) | that Franklin Templeton informed the Board that it had no present intention to alter currently effective expense waivers and reimbursements after their expiration, and, while it reserves the right to do so in the future, it would consult with the Board before making any changes; |
(vii) | that Franklin Templeton did not expect to propose any changes to the investment objective of the Fund or any changes to the principal investment strategies of the Fund as a result of the Transaction; |
(viii) | the potential benefits to Fund shareholders from being part of a combined fund family with Franklin Templeton-sponsored funds and access to a broader array of investment opportunities; |
(ix) | that Franklin Templetons distribution capabilities, particularly with respect to retail investors, and significant network of intermediary relationships may provide additional opportunities for the Fund to grow assets and lower expense ratios by spreading expenses over a larger asset base; |
(x) | that Franklin Templeton and Legg Mason would each derive benefits from the Transaction and that, as a result, they had financial interests in the matters that were being considered; |
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(xi) | the fact that the Funds contractual management fee rates would remain the same and would not be increased by virtue of the New Agreements; |
(xii) | the terms and conditions of the New Agreements, including that each New Agreement is identical to its corresponding Existing Agreement except for their respective dates of execution, effectiveness and termination; |
(xiii) | the support expressed by the current senior management team at Legg Mason for the Transaction and Legg Masons recommendation that the Board approve the New Agreements; |
(xiv) | that the Existing Agreements were the product of multiple years of review and negotiation and information received and considered by the Board in the exercise of its business judgment during those years, and that within the past year the Board had performed a full review of and approved the Existing Agreements as required by the 1940 Act and had determined in the exercise of the Boards business judgment that each Adviser had the capabilities, resources and personnel necessary to provide the services provided to the Fund, and that the management and subadvisory fees paid by or in respect of the Fund represented reasonable compensation to the applicable Adviser in light of the services provided, the costs to the Adviser of providing those services, the fees and other expenses paid by similar funds, and such other matters as the Trustees considered relevant in the exercise of their business judgment, and represented an appropriate sharing between Fund shareholders and the Advisers of any economies of scale in the management of the Fund at current and anticipated asset levels; |
(xv) | that the Existing Agreements were considered and approved in November 2019; |
(xvi) | that the Fund would not bear the costs of obtaining shareholder approval of the New Agreements, including proxy solicitation costs, legal fees and the costs of printing and mailing the proxy statement; and |
(xvii) | that under the Transaction Agreement Franklin Templeton acknowledged that Legg Mason had entered into the Transaction Agreement in reliance upon the benefits and protections provided by Section 15(f) of the 1940 Act, and that, in furtherance of the foregoing, Franklin Templeton represented to the Trustees that it would conduct its business such that (a) for a period of not less than three years after the closing of the Transaction no more than 25% of the members of the Board shall be interested persons (as defined in the 1940 Act) of any investment adviser for a Fund, and (b) for a period of not less than two years after the closing, neither Franklin Templeton nor any of its affiliates shall impose an unfair burden (within the meaning of the 1940 Act, including any interpretations or no-action letters of the Securities and Exchange Commission) on the Fund as a result of the transactions contemplated by the |
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Board approval of new management and new subadvisory agreements (unaudited) (contd)
Transaction Agreement or any express or implied terms, conditions or understandings applicable thereto. |
Certain of these considerations are discussed in more detail below.
The Board noted that the Fund is a master fund in a master-feeder structure, in which each feeder fund has the same investment objective and policies as the Fund and invests substantially all of its assets in the Fund.
The information provided and presentations made to the Board encompassed the Fund and all other funds for which the Board has responsibility, including the following feeder funds in the Fund (each a Feeder Fund): Western Asset Tax Free Reserves, a series of Legg Mason Partners Money Market Trust, and Western Asset Select Tax Free Reserves, a series of Legg Mason Partners Institutional Trust. The discussion below covers both the advisory and the administrative functions rendered by the Manager, both of which functions are encompassed by the New Management Agreement, as well as the advisory functions rendered by the Subadviser pursuant to the New Sub-Advisory Agreement.
Board approval of the New Agreements
The Independent Trustees were advised by separate independent legal counsel throughout the process. Prior to voting, the Independent Trustees received a memorandum from their independent legal counsel discussing the legal standards for their consideration of the proposed approval of the New Management Agreement and the New Sub-Advisory Agreement. The Independent Trustees also reviewed the proposed approval of the New Management Agreement and the New Sub-Advisory Agreement in private sessions with their independent legal counsel at which no representatives of the Manager and Subadviser were present. The Independent Trustees considered the New Management Agreement and the New Sub-Advisory Agreement separately in the course of their review. In doing so, they noted the respective roles of the Manager and the Subadviser in providing services to the Fund.
In their deliberations, the Trustees considered information received in connection with the most recent Board approval/continuation of each Existing Agreement in addition to information provided by Franklin Templeton and Legg Mason in connection with their evaluation of the terms and conditions of the New Agreements. In connection with the most recent approval/continuation of each Existing Agreement, and in connection with their review of each New Agreement, the Trustees did not identify any particular information that was all-important or controlling, and each Trustee may have attributed different weights to the various factors.
After considering all of the factors and information, and in the exercise of its business judgment, the Board, including the Independent Trustees, concluded that the New Agreements, including the fees payable thereunder, were fair and reasonable and that
64 |
Tax Free Reserves Portfolio |
entering into the New Agreements for the Fund was in the best interests of the Funds shareholders and approved the New Agreements and recommended that shareholders approve the New Agreements.
Nature, extent and quality of the services under the New Agreements
The Board received and considered information regarding the nature, extent and quality of services provided to the Fund by the Manager and the Subadviser under the Existing Agreements. In evaluating the nature, quality and extent of the services to be provided by the Advisers under the New Agreements, the Trustees considered, among other things, the expected impact, if any, of the Transaction on the operations, facilities, organization and personnel of each Adviser, and that Franklin Templeton and Legg Mason advised the Boards that, following the Transaction, no diminution in the nature, quality and extent of services provided to the Fund and its shareholders by the Advisers, including compliance and other non-advisory services, were expected, and that no changes in portfolio management personnel as a result of the Transaction were expected. The Board has received information at regular meetings throughout the past year related to the services rendered by the Manager in its management of the Funds affairs and the Managers role in coordinating the activities of the Funds other service providers. The Boards evaluation of the services provided by the Manager and the Subadviser took into account the Boards knowledge gained as Trustees of funds in the Legg Mason fund complex, including knowledge gained regarding the scope and quality of the investment management and other capabilities of the Manager and the Subadviser, and the quality of the Managers administrative and other services. The Board observed that the scope of services provided by the Manager and the Subadviser, and the undertakings required of the Manager and Subadviser in connection with those services, including maintaining and monitoring their own and the Funds compliance programs, liquidity management programs and cybersecurity programs, had expanded over time as a result of regulatory, market and other developments. The Board also noted that on a regular basis it received and reviewed information from the Manager and the Subadviser regarding the Funds compliance policies and procedures established pursuant to Rule 38a-1 under the 1940 Act, and took that information into account in its evaluation of the New Agreements. The Board also considered the risks associated with the Fund borne by the Manager and its affiliates (such as entrepreneurial, operational, reputational, litigation and regulatory risk), as well as the Managers and the Subadvisers risk management processes.
The Board considered information provided by Franklin Templeton regarding its business and operating structure, scale of operation, leadership and reputation, distribution capabilities, and financial condition.
The Board also reviewed the qualifications, backgrounds and responsibilities of the Managers and the Subadvisers senior personnel and the team of investment professionals
Tax Free Reserves Portfolio |
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Board approval of new management and new subadvisory agreements (unaudited) (contd)
primarily responsible for the day-to-day portfolio management of the Fund. The Board also considered the financial resources of Legg Mason and Franklin Templeton and the importance of having a Fund manager with, or with access to, significant organizational and financial resources. The Board considered the benefits to the Fund of being part of a larger combined organization with greater financial resources following the Transaction, particularly during periods of market disruptions and volatility.
The Board also considered the policies and practices of the Manager and the Subadviser regarding the selection of brokers and dealers and the execution of portfolio transactions for the Fund. In addition, the Board considered managements periodic reports to the Board on, among other things, its business plans and any organizational changes.
In considering the performance of the Fund, the Board received and considered performance information for each Feeder Fund as well as for a group of funds (the Performance Universe) selected by Broadridge Financial Solutions, Inc. (Broadridge), an independent provider of investment company data, based on classifications provided by Thomson Reuters Lipper (Lipper). The Board noted that the Feeder Funds performance was the same as the performance of the Fund (except for the effect of fees at the Feeder Fund level), and therefore was relevant to the Boards consideration of the Funds performance. The Board was provided with a description of the methodology used to determine the similarity of the Feeder Funds with the funds included in the Performance Universe. It was noted that while the Board found the Broadridge data generally useful they recognized its limitations, including that the data may vary depending on the end date selected and that the results of the performance comparisons may vary depending on the selection of the peer group and its composition over time. The Board also noted that it had received and discussed with management information throughout the year at periodic intervals comparing each Feeder Funds performance against its benchmark and against each Feeder Funds peers. In addition, the Board considered each Feeder Funds performance in light of overall financial market conditions.
| The information comparing Western Asset Tax Free Reserves performance to that of its Performance Universe, consisting of all funds (including the Feeder Fund) classified as retail tax-exempt money market funds by Lipper, showed, among other data, that the Feeder Funds performance for the 1-, 3-, and 5-year periods ended December 31, 2019 was below the median. |
| The information comparing Western Asset Select Tax Free Reserves performance to that of its Performance Universe, consisting of all funds (including the Feeder Fund) classified as retail tax-exempt money market funds by Lipper, showed, among other data, that the Feeder Funds performance for the 1-, 3-, 5- and 10-year periods ended December 31, 2019 was above the median. |
66 |
Tax Free Reserves Portfolio |
Based on their review of the materials provided and the assurances received from Franklin Templeton and Legg Mason, the Trustees determined that the Transaction was not expected to affect adversely the nature, extent and quality of services provided by each Adviser and that the Transaction was not expected to have an adverse effect on the ability of the Manager and Subadviser to provide those services, and the Board concluded that, overall, the nature, extent and quality of services expected to be provided, including performance, under the New Agreements were sufficient for approval.
Management fees and expense ratios
The Board considered that it had reviewed the Feeder Funds management fees and total expense ratios at the 2019 contract renewal meetings. The Board considered that the New Agreements would not change the Feeder Funds management fee rates or the computation method for calculating such fees, and that there is no present intention to alter expense waiver and reimbursement arrangements that are currently in effect.
The Board reviewed and considered each Feeder Funds contractual management fee (each, a Contractual Management Fee) and the actual management fees paid by each Feeder Fund to the Manager (each, an Actual Management Fee) in light of the nature, extent and quality of the management and sub-advisory services to be provided by the Manager and the Subadviser. The Board also considered that fee waiver and/or expense reimbursement arrangements are currently in place for each Feeder Fund. The Board also noted that the compensation paid to the Subadviser is the responsibility and expense of the Manager, not the Fund.
In addition, the Board received and considered information provided by Broadridge comparing the Contractual Management Fees and the Actual Management Fees and the total actual expenses of each Feeder Fund with those of funds in both the relevant expense group and a broader group of funds, each selected by Broadridge based on classifications provided by Lipper. It was noted that while the Board found the Broadridge data generally useful they recognized its limitations, including that the data may vary depending on the selection of the peer group. The Board noted that the Feeder Funds expense information reflected both management fees and total expenses payable by the Feeder Funds as well as management fees and total expenses payable by the Fund, and therefore was relevant to the Boards conclusions regarding the Funds expenses. The Board also reviewed information regarding fees charged by the Manager and/or the Subadviser to other U.S. clients investing primarily in an asset class similar to that of the Fund, including, where applicable, separate accounts.
The Manager reviewed with the Board the differences in services provided to these different types of accounts, noting that the Fund is provided with certain administrative services, office facilities, and Fund officers (including the Funds chief executive, chief financial and chief compliance officers), and that the Manager coordinates and oversees
Tax Free Reserves Portfolio |
67 |
Board approval of new management and new subadvisory agreements (unaudited) (contd)
the provision of services to the Fund by other Fund service providers. The Board considered the fee comparisons in light of the differences in management of these different types of accounts and the differences in associated risks borne by the Advisers.
The Board considered the management fee, the fees of the Subadviser and the amount of the management fee retained by the Manager after payment of the subadvisory fee in each case in light of the services rendered for those amounts. The Board also received an analysis of Legg Mason complex-wide management fees for funds with a similar strategy provided by the Manager, which, among other things, set out a framework of fees based on asset classes.
| The information comparing Western Asset Tax Free Reserves Contractual and Actual Management Fees as well as its actual total expense ratio to its expense group, consisting of a group of retail no-load tax-exempt money market funds (including the Feeder Fund) chosen by Broadridge to be comparable to the Feeder Fund, showed that the Feeder Funds Contractual Management Fee and Actual Management Fee were above the median. The Board noted that the Feeder Funds actual total expense ratio was above the median. The Board also considered that the current limitation on the Feeder Funds expenses is expected to continue through December 2020. |
| The information comparing Western Asset Select Tax Free Reserves Contractual and Actual Management Fees as well as its actual total expense ratio to its expense group, consisting of a group of retail no-load tax-exempt money market funds (including the Feeder Fund) chosen by Broadridge to be comparable to the Feeder Fund, showed that the Feeder Funds Contractual Management Fee was above the median and its Actual Management Fee was below the median. The Board noted that the Feeder Funds actual total expense ratio was below the median. The Board also considered that the current limitation on the Feeder Funds expenses is expected to continue through December 2020. |
In evaluating the costs of the services to be provided by the Manager and Subadviser under the New Agreements, the Board considered, among other things, whether management fees or other expenses would change as a result of the Transaction. Based on their review of the materials provided and the assurances they had received from Franklin Templeton and Legg Mason, the Trustees determined that the Transaction would not increase the total fees payable by the Fund for management services.
Taking all of the above into consideration, as well as the factors identified below, the Board determined that the management fee and the subadvisory fee for the Fund were reasonable in light of the nature, extent and quality of the services to be provided to the Fund under the New Agreements.
68 |
Tax Free Reserves Portfolio |
Profitability and economies of scale
The Board received and considered an analysis of the profitability of the Manager and its affiliates in providing services to the Fund and the Feeder Funds that invest in the Fund. The Board also received profitability information with respect to the Legg Mason fund complex as a whole. In addition, the Board received information with respect to the Managers allocation methodologies used in preparing this profitability data. It was noted that the allocation methodologies had been previously reviewed by an outside consultant. The profitability of the Manager and its affiliates was considered by the Board not excessive in light of the nature, extent and quality of the services provided to the Fund and the type of fund it represented.
The Board received and considered information concerning whether the Advisers realize economies of scale as the Funds assets grow. In conjunction with their most recent or prior deliberations concerning the Existing Agreements, the Board noted that:
| Fee breakpoints had been implemented for Western Asset Tax Free Reserves, as well as contractual expense limitations, and that after taking those breakpoints and expense limitations into account, the Board had determined that the total fees for management services, and administrative services for the Feeder Fund, were reasonable in light of the services provided, and that any economies of scale were being shared appropriately. |
| Fee breakpoints had been implemented for Western Asset Select Tax Free Reserves, as well as contractual expense limitations, and that after taking those breakpoints and expense limitations into account, the Board had determined that the total fees for management services, and administrative services for the Feeder Fund, were reasonable in light of the services provided, and that any economies of scale were being shared appropriately. |
The Board noted that Franklin Templeton and Legg Mason are expected to realize cost savings from the Transaction based on synergies of operations, as well as to benefit from possible growth of the Fund resulting from enhanced distribution capabilities. However, they noted that other factors could also affect profitability and potential economies of scale, and that it was not possible to predict with any degree of certainty how the Transaction would affect the Advisers profitability from their relationship with the Fund, nor to quantify at this time any possible future economies of scale. The Trustees noted they will have the opportunity to periodically re-examine such profitability and any economies of scale going forward.
The Board determined that the management fee structure for the Fund, including breakpoints at the Feeder Fund level, where applicable, was reasonable.
Tax Free Reserves Portfolio |
69 |
Board approval of new management and new subadvisory agreements (unaudited) (contd)
Other benefits to the Manager and the Subadviser
The Board considered other benefits received by the Manager, the Subadviser and their affiliates as a result of their relationship with the Fund, including the opportunity to offer additional products and services to the Feeder Funds shareholders.
In light of the costs of providing investment management and other services to the Fund and the ongoing commitment of the Manager and the Subadviser to the Fund, the Board considered that the ancillary benefits that the Manager and its affiliates received are reasonable. In evaluating the fall-out benefits to be received by the Manager and Subadviser under the New Agreements, the Board considered whether the Transaction would have an impact on the fall-out benefits received by virtue of the Existing Agreements.
The Board considered that Franklin Templeton may derive reputational and other benefits from its ability to use the Legg Mason investment affiliates names in connection with operating and marketing the Fund. The Board also considered that the Transaction would significantly increase Franklin Templetons assets under management and expand Franklin Templetons investment capabilities.
70 |
Tax Free Reserves Portfolio |
Additional shareholder information (unaudited)
Results of special meeting of investors
On July 14, 2020 a special meeting of investors was held for the following purposes: 1) to approve a new management agreement between the Portfolio and its investment manager; and 2) to approve a new subadvisory agreement with respect to the Portfolios subadviser. The following table provides the number of votes cast for or against, as well as the number of abstentions and broker non-votes as to each matter voted on at the special meeting of investors. Each item voted on was approved.
Item Voted On | Voted For |
Voted Against |
Abstentions | Broker Non-Votes | ||||||||||
To Approve a New Management Agreement with Legg Mason Partners Fund Advisor, LLC | 338,364,177.866 | 1,771,472.586 | 3,327,700.458 | 0 | ||||||||||
To Approve a New Subadvisory Agreement with Western Asset Management Company, LLC | 338,723,465.891 | 1,412,184.561 | 3,327,700.458 | 0 |
Tax Free Reserves Portfolio |
71 |
Additional information (unaudited)
Information about Trustees and Officers
The Trustees and officers of the Fund also serve as the Trustees and officers of the Portfolio. Information about the Trustees and officers of the Fund can be found on pages 31 through 37 of this report.
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Tax Free Reserves Portfolio |
Western Asset
Select Tax Free Reserves
Trustees*
Robert Abeles, Jr.
Jane F. Dasher
Anita L. DeFrantz
Susan B. Kerley
Michael Larson**
Ronald L. Olson
Avedick B. Poladian
William E.B. Siart
Chairman
Jaynie M. Studenmund
Peter J. Taylor
Jane Trust
Investment manager
Legg Mason Partners Fund Advisor, LLC
Subadviser
Western Asset Management Company, LLC
Distributor
Legg Mason Investor Services, LLC
Custodian
The Bank of New York Mellon
Transfer agent
BNY Mellon Investment
Servicing (US) Inc.
4400 Computer Drive
Westborough, MA 01581
Independent registered public accounting firm
PricewaterhouseCoopers LLP
Baltimore, MD
* | During a December 3, 2019 special meeting of shareholders, a new group of board members was elected to oversee substantially all the mutual funds within the Legg Mason fund complex that are advised by Western Asset Management Company, LLC, effective January 1, 2020. |
** | Effective March 6, 2020, Mr. Larson became a Trustee. |
Western Asset Select Tax Free Reserves
The Fund is a separate investment series of Legg Mason Partners Institutional Trust, a Maryland statutory trust.
Western Asset Select Tax Free Reserves
Legg Mason Funds
620 Eighth Avenue, 47th Floor
New York, NY 10018
The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) each month on Form N-MFP. The Funds reports on Form N-MFP are available on the SECs website at www.sec.gov. The Fund makes portfolio holdings available to shareholders on its website at www.leggmason.com/moneymarketfunds.
Information on how the Fund voted proxies relating to portfolio securities during the prior 12-month period ended June 30th of each year and a description of the policies and procedures that the Fund uses to determine how to vote proxies related to portfolio transactions are available (1) without charge, upon request, by calling the Fund at 1-877-721-1926 or 1-203-703-6002, (2) at www.leggmason.com/moneymarketfunds and (3) on the SECs website at www.sec.gov.
This report is submitted for the general information of the shareholders of Western Asset Select Tax Free Reserves. This report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by a current prospectus.
Investors should consider the Funds investment objectives, risks, charges and expenses carefully before investing. The prospectus contains this and other important information about the Fund. Please read the prospectus carefully before investing.
www.leggmason.com
© 2020 Legg Mason Investor Services, LLC
Member FINRA, SIPC
Legg Mason Funds Privacy and Security Notice
Your Privacy and the Security of Your Personal Information is Very Important to the Legg Mason Funds
This Privacy and Security Notice (the Privacy Notice) addresses the Legg Mason Funds privacy and data protection practices with respect to nonpublic personal information the Funds receive. The Legg Mason Funds include any funds sold by the Funds distributor, Legg Mason Investor Services, LLC, as well as Legg Mason-sponsored closed-end funds. The provisions of this Privacy Notice apply to your information both while you are a shareholder and after you are no longer invested with the Funds.
The Type of Nonpublic Personal Information the Funds Collect About You
The Funds collect and maintain nonpublic personal information about you in connection with your shareholder account. Such information may include, but is not limited to:
| Personal information included on applications or other forms; |
| Account balances, transactions, and mutual fund holdings and positions; |
| Bank account information, legal documents, and identity verification documentation; |
| Online account access user IDs, passwords, security challenge question responses; and |
| Information received from consumer reporting agencies regarding credit history and creditworthiness (such as the amount of an individuals total debt, payment history, etc.). |
How the Funds Use Nonpublic Personal Information About You
The Funds do not sell or share your nonpublic personal information with third parties or with affiliates for their marketing purposes, or with other financial institutions or affiliates for joint marketing purposes, unless you have authorized the Funds to do so. The Funds do not disclose any nonpublic personal information about you except as may be required to perform transactions or services you have authorized or as permitted or required by law. The Funds may disclose information about you to:
| Employees, agents, and affiliates on a need to know basis to enable the Funds to conduct ordinary business or to comply with obligations to government regulators; |
| Service providers, including the Funds affiliates, who assist the Funds as part of the ordinary course of business (such as printing, mailing services, or processing or servicing your account with us) or otherwise perform services on the Funds behalf, including companies that may perform statistical analysis, market research and marketing services solely for the Funds; |
| Permit access to transfer, whether in the United States or countries outside of the United States to such Funds employees, agents and affiliates and service providers as required to enable the Funds to conduct ordinary business, or to comply with obligations to government regulators; |
| The Funds representatives such as legal counsel, accountants and auditors to enable the Funds to conduct ordinary business, or to comply with obligations to government regulators; |
| Fiduciaries or representatives acting on your behalf, such as an IRA custodian or trustee of a grantor trust. |
NOT PART OF THE ANNUAL REPORT |
Legg Mason Funds Privacy and Security Notice (contd)
Except as otherwise permitted by applicable law, companies acting on the Funds behalf, including those outside the United States, are contractually obligated to keep nonpublic personal information the Funds provide to them confidential and to use the information the Funds share only to provide the services the Funds ask them to perform.
The Funds may disclose nonpublic personal information about you when necessary to enforce their rights or protect against fraud, or as permitted or required by applicable law, such as in connection with a law enforcement or regulatory request, subpoena, or similar legal process. In the event of a corporate action or in the event a Fund service provider changes, the Funds may be required to disclose your nonpublic personal information to third parties. While it is the Funds practice to obtain protections for disclosed information in these types of transactions, the Funds cannot guarantee their privacy policy will remain unchanged.
Keeping You Informed of the Funds Privacy and Security Practices
The Funds will notify you annually of their privacy policy as required by federal law. While the Funds reserve the right to modify this policy at any time they will notify you promptly if this privacy policy changes.
The Funds Security Practices
The Funds maintain appropriate physical, electronic and procedural safeguards designed to guard your nonpublic personal information. The Funds internal data security policies restrict access to your nonpublic personal information to authorized employees, who may use your nonpublic personal information for Fund business purposes only.
Although the Funds strive to protect your nonpublic personal information, they cannot ensure or warrant the security of any information you provide or transmit to them, and you do so at your own risk. In the event of a breach of the confidentiality or security of your nonpublic personal information, the Funds will attempt to notify you as necessary so you can take appropriate protective steps. If you have consented to the Funds using electronic communications or electronic delivery of statements, they may notify you under such circumstances using the most current email address you have on record with them.
In order for the Funds to provide effective service to you, keeping your account information accurate is very important. If you believe that your account information is incomplete, not accurate or not current, if you have questions about the Funds privacy practices, or our use of your nonpublic personal information, write the Funds using the contact information on your account statements, email the Funds by clicking on the Contact Us section of the Funds website at www.leggmason.com, or contact the Funds at 1-877-721-1926.
Revised April 2018
NOT PART OF THE ANNUAL REPORT |
www.leggmason.com
© 2020 Legg Mason Investor Services, LLC Member FINRA, SIPC
FDXX010354 10/20 SR20-3980
ITEM 2. | CODE OF ETHICS. |
The registrant has adopted a code of ethics that applies to the registrants principal executive officer, principal financial officer, principal accounting officer or controller.
ITEM 3. | AUDIT COMMITTEE FINANCIAL EXPERT. |
The Board of Trustees of the registrant has determined that Robert Abeles, Jr., possess the technical attributes identified in Instruction 2(b) of Item 3 to Form N-CSR to qualify an audit committee financial experts, and has designated Mr. Abeles, Jr. as the Audit Committees financial experts. Mr. Abeles, Jr. is an independent Trustees pursuant to paragraph (a) (2) of Item 3 to Form N-CSR.
ITEM 4. | PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
a) Audit Fees. The aggregate fees billed in the last two fiscal year ending August 31, 2019 and August 31, 2020 (the Reporting Periods) for professional services rendered by the Registrants principal accountant (the Auditor) for the audit of the Registrants annual financial statements, or services that are normally provided by the Auditor in connection with the statutory and regulatory filings or engagements for the Reporting Periods, were $93,825 in August 31, 2019 and $122,765 in August 31, 2020.
b) Audit-Related Fees. The aggregate fees billed in the Reporting Period for assurance and related services by the Auditor that are reasonably related to the performance of the Registrants financial statements were $15,000 in August 31, 2019 and $0 in August 31, 2020.
In addition, there were no Audit-Related Fees billed in the Reporting Period for assurance and related services by the Auditor to the Registrants investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the Legg Mason Partners Institutional Trust (service affiliates), that were reasonably related to the performance of the annual audit of the service affiliates. Accordingly, there were no such fees that required pre-approval by the Audit Committee for the Reporting Period.
(c) Tax Fees. The aggregate fees billed in the Reporting Periods for professional services rendered by the Auditor for tax compliance, tax advice and tax planning (Tax Services) were $0 in August 31, 2019 and $0 in August 31, 2020. These services consisted of (i) review or preparation of U.S. federal, state, local and excise tax returns; (ii) U.S. federal, state and local tax planning, advice and assistance regarding statutory, regulatory or administrative developments, and (iii) tax advice regarding tax qualification matters and/or treatment of various financial instruments held or proposed to be acquired or held. There were no fees billed for tax services by the Auditors to service affiliates during the Reporting Periods that required pre-approval by the Audit Committee.
d) All Other Fees. The aggregate fees billed in the Reporting Periods for products and services provided by the Auditor, other than the services reported in paragraphs (a) through (c) for the Item 4 for the Legg Mason Partners Institutional Trust were $0 in August 31, 2019 and $0 in August 31, 2020.
All Other Fees. There were no other non-audit services rendered by the Auditor to Legg Mason Partners Fund Advisors, LLC (LMPFA), and any entity controlling, controlled by or under
common control with LMPFA that provided ongoing services to Legg Mason Partners Institutional Trust requiring pre-approval by the Audit Committee in the Reporting Period.
(e) Audit Committees preapproval policies and procedures described in paragraph (c) (7) of Rule 2-01 of Regulation S-X.
(1) The Charter for the Audit Committee (the Committee) of the Board of each registered investment company (the Fund) advised by LMPFA or one of their affiliates (each, an Adviser) requires that the Committee shall approve (a) all audit and permissible non-audit services to be provided to the Fund and (b) all permissible non-audit services to be provided by the Funds independent auditors to the Adviser and any Covered Service Providers if the engagement relates directly to the operations and financial reporting of the Fund. The Committee may implement policies and procedures by which such services are approved other than by the full Committee.
The Committee shall not approve non-audit services that the Committee believes may impair the independence of the auditors. As of the date of the approval of this Audit Committee Charter, permissible non-audit services include any professional services (including tax services), that are not prohibited services as described below, provided to the Fund by the independent auditors, other than those provided to the Fund in connection with an audit or a review of the financial statements of the Fund. Permissible non-audit services may not include: (i) bookkeeping or other services related to the accounting records or financial statements of the Fund; (ii) financial information systems design and implementation; (iii) appraisal or valuation services, fairness opinions or contribution-in-kind reports; (iv) actuarial services; (v) internal audit outsourcing services; (vi) management functions or human resources; (vii) broker or dealer, investment adviser or investment banking services; (viii) legal services and expert services unrelated to the audit; and (ix) any other service the Public Company Accounting Oversight Board determines, by regulation, is impermissible.
Pre-approval by the Committee of any permissible non-audit services is not required so long as: (i) the aggregate amount of all such permissible non-audit services provided to the Fund, the Adviser and any service providers controlling, controlled by or under common control with the Adviser that provide ongoing services to the Fund (Covered Service Providers) constitutes not more than 5% of the total amount of revenues paid to the independent auditors during the fiscal year in which the permissible non-audit services are provided to (a) the Fund, (b) the Adviser and (c) any entity controlling, controlled by or under common control with the Adviser that provides ongoing services to the Fund during the fiscal year in which the services are provided that would have to be approved by the Committee; (ii) the permissible non-audit services were not recognized by the Fund at the time of the engagement to be non-audit services; and (iii) such services are promptly brought to the attention of the Committee and approved by the Committee (or its delegate(s)) prior to the completion of the audit.
(2) For the Legg Mason Partners Institutional Trust, the percentage of fees that were approved by the audit committee, with respect to: Audit-Related Fees were 100% and 100% for August 31, 2019 and August 31, 2020; Tax Fees were 100% and 100% for August 31, 2019 and August 31, 2020; and Other Fees were 100% and 100% for August 31, 2019 and August 31, 2020.
(f) N/A
(g) Non-audit fees billed by the Auditor for services rendered to Legg Mason Partners Institutional Trust, LMPFA and any entity controlling, controlled by, or under common control
with LMPFA that provides ongoing services to Legg Mason Partners Institutional Trust during the reporting period were $463,263 in August 31, 2019 and $457,301 in August 31, 2020.
(h) Yes. Legg Mason Partners Institutional Trusts Audit Committee has considered whether the provision of non-audit services that were rendered to Service Affiliates, which were not pre-approved (not requiring pre-approval), is compatible with maintaining the Accountants independence. All services provided by the Auditor to the Legg Mason Partners Institutional Trust or to Service Affiliates, which were required to be pre-approved, were pre-approved as required
ITEM 5. | AUDIT COMMITTEE OF LISTED REGISTRANTS. |
a) The independent board members are acting as the registrants audit committee as specified in Section 3(a)(58)(B) of the Exchange Act. The Audit Committee consists of the following Board members:
Robert Abeles, Jr.
Jane F. Dasher
Anita L. DeFrantz
Susan B. Kerley
Michael Larson**
Ronald L. Olson
Avedick B. Poladian
William E.B. Siart
Jaynie M. Studenmund
Peter J. Taylor
* | During a December 3, 2019 special meeting of shareholders, a new group of board members was elected to oversee substantially all the mutual funds within the Legg Mason fund complex that are advised by Western Asset Management Company, LLC, effective January 1, 2020. |
** | Effective March 6, 2020, Mr. Larson became a Trustee. |
(b) Not applicable.
ITEM 6. | SCHEDULE OF INVESTMENTS. |
Included herein under Item 1.
ITEM 7. | DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable.
ITEM 8. | PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable.
ITEM 9. | PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. |
Not applicable.
ITEM 10. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. |
Not applicable.
ITEM 11. | CONTROLS AND PROCEDURES. |
(a) The registrants principal executive officer and principal financial officer have concluded that the registrants disclosure controls and procedures (as defined in Rule 30a- 3(c) under the Investment Company Act of 1940, as amended (the 1940 Act)) are effective as of a date within 90 days of the filing date of this report that includes the disclosure required by this paragraph, based on their evaluation of the disclosure controls and procedures required by Rule 30a-3(b) under the 1940 Act and 15d-15(b) under the Securities Exchange Act of 1934.
(b) There were no changes in the registrants internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the second fiscal quarter of the period covered by this report that have materially affected, or are likely to materially affect the registrants internal control over financial reporting.
ITEM 12. | DISCLOSURE OF SECURITIES LENDING ACTIVITIES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable.
ITEM 13. | EXHIBITS. |
(a)(1) Code of Ethics attached hereto.
Exhibit 99.CODE ETH
(a) (2) Certifications pursuant to section 302 of the Sarbanes-Oxley Act of 2002 attached hereto.
Exhibit 99.CERT
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 attached hereto.
Exhibit 99.906CERT
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this Report to be signed on its behalf by the undersigned, there unto duly authorized.
Legg Mason Partners Institutional Trust
By: | /s/ Jane Trust | |
Jane Trust | ||
Chief Executive Officer | ||
Date: | October 28, 2020 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: | /s/Jane Trust | |
Jane Trust | ||
Chief Executive Officer | ||
Date: | October 28, 2020 | |
By: | /s/ Christopher Berarducci | |
Christopher Berarducci | ||
Principal Financial Officer | ||
Date: | October 28, 2020 |
CODE OF ETHICS
I. Introduction
A. Individuals Covered by the Code
This Code applies to all employees of Legg Mason & Co., LLC and interested directors of the Proprietary Funds who are not otherwise subject to another code of ethics adopted pursuant to either Rule 17j-1 under the Investment Company Act or Rule 204A-1 under the Investment Advisers Act (Covered Persons).
1. | Without limiting the generality of the foregoing, this Code covers all employees of Legg Mason & Co., LLC who perform services on behalf of the Proprietary Funds as part of the following regulated entities: |
a. | Legg Mason Investor Services, LLC (LMIS). |
b. | Legg Mason Partners Fund Advisor, LLC (LMPFA). |
2. | For the avoidance of doubt, each of the Legg Mason Registered Advisers (other than LMPFA) have adopted their own codes of ethics, and employees of the Legg Mason Registered Advisers who are subject to the requirements of those codes of ethics (including any who may be registered representatives of LMIS) are not subject to the requirements of this Code. |
B. Standards of Business Conduct
This Code is based on the principle that Legg Mason and its affiliates owe a fiduciary duty to Legg Masons clients, and that all Covered Persons must therefore avoid activities, interests and relationships that might (i) present a conflict of interest or the appearance of a conflict of interest, or (ii) otherwise interfere with Legg Masons ability to make decisions in the best interests of any of its clients. In particular, Covered Persons must at all times comply with the following standards of business conduct:
1. | Compliance with Applicable Law. All Covered Persons must comply with the Federal Securities Laws that apply to the business of Legg Mason. |
2. | Clients Come First. Covered Persons must scrupulously avoid serving their personal interests ahead of the interests of clients. For example, a Covered Person may not induce or cause a client to take action, or not to take action, for the Covered Persons personal benefit at the expense of the clients best interests. |
3. | Avoid Taking Advantage. Covered Persons may not use their knowledge of the Legg Mason Registered Advisers investment activities or client portfolio holdings to profit by the market effect of such activities or to engage in short-term or other abusive trading in Reportable Funds. |
4. | Avoid Other Inappropriate Relationships or Activities. Covered Persons should avoid relationships or activities that could call into question the Covered Persons ability to exercise independent judgment in the best interests of Legg Masons clients. In particular, Covered Persons should take note of the provisions of the Legg Mason Code of Conduct and the Legg Mason Employee Handbook that pertain to confidentiality, corporate opportunities, gifts and entertainment, insider trading and outside business activities. In addition, Covered Persons who are registered representatives of LMIS should also take note of LMISs policies and procedures pertaining to these activities. |
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5. | Observe the Spirit of the Code. Doubtful situations should be resolved in favor of Legg Masons clients. Technical compliance with the Codes procedures will not automatically insulate from scrutiny any personal Securities Transactions or other course of conduct that might indicate an abuse of these governing principles. |
C. Duty to Report Violations
Covered Persons must promptly report all violations of this Code to the Compliance Department.
D. Fiduciary Duty / Political Contributions
Covered Persons are prohibited from making political contributions for the purpose of obtaining or retaining any Legg Mason Registered Adviser or its affiliates as investment advisers. Covered Persons are specifically prohibited from making political contributions to any person for the purpose of influencing the selection or retention of an investment adviser by a government entity. Covered Persons will be required to certify annually that they have and will comply with this provision.
II. Personal Securities Transactions
A. Prohibited Transactions in Individual Securities
Covered Persons are subject to the following restrictions on their personal trading activities in individual securities:
1. | Fraudulent Transactions. In connection with the purchase or sale, directly or indirectly, by a Covered Person of (A) a Reportable Security which, within the most recent fifteen (15) calendar days, (i) is or has been held by a Legg Mason client, or (ii) is being or has been considered by a Legg Mason Registered Adviser for purchase by a client, or (B) an Equivalent Security thereof, Covered Persons are prohibited from: |
a. | Employing any device, scheme or artifice to defraud Legg Masons clients; |
b. | Making any untrue statement of a material fact or omitting to state a material fact necessary to make the statements made, in light of the circumstances under which they were made, not misleading; |
c. | Engaging in any act, practice or course of business that operates or would operate as a fraud or deceit on Legg Masons clients; or |
d. | Engaging in any manipulative practice with respect to Legg Masons clients. |
2. | Inside Information. Covered Persons are prohibited from engaging in any transaction in a Security (or Equivalent Security) at a time when the Covered Person is in possession of material non-public information regarding the Security or the issuer of the Security. |
3. | Market Manipulation. Covered Persons are prohibited from engaging in any transactions in a Security (or Equivalent Security) intended to raise, lower or maintain the price of that Security or to create a false appearance of active trading in that Security. |
4. | Trading on the Knowledge of Client Transactions. Covered Persons are prohibited from engaging in any transactions in a Security (or an Equivalent Security) on the basis of any information they may be in possession of to the effect that (i) a Legg Mason Registered Adviser is or may be considering an investment in or sale of such Security on behalf of its clients or (ii) has or may have an open order in such Security on behalf of its clients. |
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5. | Legg Mason, Inc. Stock. Covered Persons are prohibited from engaging in any transaction in Legg Mason securities that is not in compliance with the Legg Mason, Inc. Policies and Procedures Regarding Acquisitions and Dispositions of Legg Mason Securities, as the same may be amended from time to time. A copy of this policy is available on the Legg Mason Legal and Compliance Website. |
B. Prohibited Transactions in Reportable Funds
1. | Market Timing in Reportable Funds. No Covered Person may use his or her knowledge of the portfolio holdings or investment activities of a Reportable Fund to engage in any short-term or other abusive trading strategy involving such Fund that may conflict with the best interests of the Fund and its shareholders. |
2. | 60-Day Holding Period for Investments in Proprietary Funds. Subject to the exemptions set forth below, no Covered Person may sell (or exchange out of) shares of a Proprietary Fund in which the Covered Person has a Beneficial Interest if the Covered Person has not held the shares of the same Proprietary Fund for sixty (60) calendar days, including any individual retirement account or 401(k) participant account. |
3. | Additionally, Proprietary Funds that are sold in the LM 401(k) account are also subject to a 60-day minimum waiting period. No Covered Person may buy (or exchange into) shares of a Proprietary Fund within sixty (60) calendar days of a sell of (or exchange out of) shares of the same Proprietary Fund within the same LM 401(k) account. |
The following Securities Transactions involving Proprietary Funds are exempt from the 60-day minimum holding period requirement set forth in this Section II.B.2 and II.B.3:
a. | Money Market Funds and Other Short-Term Trading Vehicles. Purchases or redemptions of Proprietary Funds that are money market funds or that hold themselves out as short-term trading vehicles. |
b. | Managed Accounts. Transactions in Proprietary Funds held in a Managed Account in connection with which the Covered Person has no direct or indirect influence or control over the account, is neither consulted nor advised of the trade before it is executed, and has no knowledge of specific management actions taken by a trustee or investment manager. |
c. | Systematic Investment. Purchases or redemptions of Proprietary Funds pursuant to an Automatic Investment Plan where a prescribed purchase or sale is made automatically on a regular predetermined basis without affirmative action by the Covered Person or pursuant to a similar arrangement approved by the Compliance Department (for example, automated payroll deduction investments by 401(k) participants or automatic dividend reinvestment). |
C. Pre-Approval of Investments in Initial Public Offerings and Private Placements
Covered Persons are prohibited from acquiring a Beneficial Interest in a Reportable Security through an initial public offering (other than a new offering of securities issued by a registered open-end investment company) or Private Placement without the prior written approval of the Compliance Department. Requests for such approval shall be submitted to the Compliance Department through Fidelity National Information Services, Inc. (FIS)/PTA using substantially the form of Request for Approval to Invest in an Initial Public Offering or Private Placement attached hereto as Appendix A.
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D. Reporting and Trading Requirements
1. | Acknowledgement of Receipt; Initial and Periodic Disclosure of Personal Holdings; Annual Certification. |
a. | Within ten (10) calendar days of being identified as a Covered Person under this Code, each Covered Person must acknowledge that he or she has received and reviewed a copy of the Code, and has disclosed all Securities holdings in which such Covered Person has a Beneficial Interest.. |
b. | Thereafter, on an annual basis, each Covered Person shall give the same acknowledgements and, in addition, shall certify that he or she has complied with all applicable provisions of the Code. |
c. | Such acknowledgments and certifications shall be provided through FIS/PTA using substantially the form of the Acknowledgement of Receipt of Code of Ethics, Personal Holdings Report and Annual Certification attached hereto as Appendix B. |
2. | Execution of Personal Securities Transactions. |
a. | Approved Accounts. Unless one of the following exceptions applies, Covered Persons must execute their personal securities transactions involving any Reportable Securities or Reportable Funds in which they have or acquire a Beneficial Interest through one of the following two types of accounts (Approved Accounts): |
i. | Approved Securities Accounts. Securities accounts (including IRA accounts) with financial intermediaries that have been approved by the Compliance Department (an Approved Securities Account); or |
ii. | Approved Retirement Accounts. Participant accounts in retirement plans approved by the Compliance Department on the grounds that either (i) automated feeds into FIS/PTA have been established, or (ii) sufficient policies and procedures are in place to protect any Reportable Funds that may be in the plan from the types of activities prohibited by Sections A and B above (an Approved Retirement Account).1 |
b. | Exceptions. The following types of accounts are exempt from the requirements of section 2.a above, subject to compliance with the conditions set forth below: |
i. | Mutual Fund-Only and Managed Accounts. Covered Persons may have or acquire a Beneficial Interest in Mutual Fund-Only and Managed Accounts that are not Approved Securities Accounts, provided that the requirement set forth in this Code relating to a Managed Account or Mutual Fund-Only Account, as the case may be, are satisfied. To qualify for this exemption, a Covered Person must deliver to the Compliance Department through FIS/PTA a certification in substantially the form of the Certificate for Managed Accounts or Mutual Fund-Only Accounts attached hereto as Appendix D. |
ii. | Outside Retirement Accounts. Covered Persons may have or acquire a Beneficial Interest in a retirement account other than an Approved Retirement Account (an Outside Retirement Account), provided that the Covered Person complies with the certification or reporting requirements set forth in Section 3.c below, and provided further that, for purposes of this Code, an IRA account shall be treated as a securities account and not as a retirement account. |
1 | A list of the approved financial intermediaries and retirement plans may by found on the Legal and Compliance home page on LMEX. |
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iii. | Dividend Reinvestment Plans. Covered Person may have or acquire a Beneficial Interest in securities held in a dividend reinvestment plan account directly with the issuer of the securities or its transfer agent (a Dividend Reinvestment Plan), subject to compliance with the requirements of Section 3.a below. |
c. | Outside Securities Accounts. Covered Persons that have or acquire a Beneficial Interest in a securities account (including an IRA account) other than an Approved Account, Mutual Fund-Only Account, Managed Account or Outside Retirement Account (an Outside Securities Account) must obtain the prior written approval to maintain such account from the Compliance Department. |
i. | A request for such approval must be submitted to the Compliance Department through FIS/PTA using substantially the form of Request for Approval for an Outside Securities Account attached hereto as Appendix C. Such approvals will only be granted in extraordinary circumstances. |
ii. | If the Compliance Department does not approve such request, the Covered Person must arrange to transfer or convert such account into an Approved Account, Managed Account, Mutual Fund-Only Account or Outside Retirement Account as promptly as practicable. |
6. | Transaction Reporting Requirements. Covered Persons shall report all Securities Transactions in which they have a Beneficial Interest to the Compliance Department in accordance with the following provisions: |
a. | Approved Accounts, Managed Accounts, Mutual Fund Only and Dividend Reinvestment Plan Accounts. Covered Persons will not be required to arrange for the delivery of duplicate copies of confirmations or periodic statements for any Approved Accounts, Managed Accounts, Mutual Fund Only Accounts or Dividend Reinvestment Plans in which they have or acquire a Beneficial Interest. However, the existence of all such accounts must be disclosed to the Compliance Department pursuant to either Section II.D.1 above or II.D.4 below. In addition, copies of any statements for any Managed Accounts, Mutual Fund Only Accounts or Dividend Reinvestment Plans must be made available for review at the specific request of the Compliance Department. |
b. | Outside Securities Accounts. For any Outside Securities Account approved by the Compliance Department, a Covered Person must arrange for the Compliance Department to receive, directly from the applicable broker-dealer, bank or other financial intermediary, duplicate copies of each confirmation and periodic statement issued by such financial intermediary in respect of such Outside Securities Account. |
i. | Periodic statements must be received by the Compliance Department no later than thirty (30) calendar days after the close of each calendar quarter. Confirmations must be delivered to the Compliance Department contemporaneously with delivery to the applicable Covered Person. |
ii. | A form of letter that may be used to request duplicate confirmations and periodic statements from financial intermediaries is attached as Appendix E. If a Covered Person is not able to arrange for duplicate confirmations and periodic statements to be sent, the Covered Person must immediately cease trading in such account and notify the Compliance Department. |
iii. | It shall be the Covered Persons responsibility to promptly input into FIS/PTA all initially required information relating to any holdings in an Outside Securities Account. and to notify the Compliance Department on the same day of any subsequent Securities Transactions in such Outside Retirement Account. |
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d. | Outside Retirement Accounts. For any Outside Retirement Account in which a Covered Person has a Beneficial Interest, such Covered Person must either: |
i. | Certify that such account does not hold any shares of a Reportable Fund or Reportable Security and that no Securities Transactions involving a Reportable Fund or Reportable Security have been executed in such account (such certifications shall be provided to the Compliance Department through FIS/PTA using substantially the form of the Certificate for Outside Retirement Accounts attached hereto as Appendix F); or. |
ii. | If a Covered Person is unable to provide such certification with respect to an Outside Retirement Account, the Covered Person must notify the Compliance Department and provide the Compliance Department with duplicate copies of each confirmation and periodic statement issued by such financial intermediary in respect of such Outside Retirement Account. |
(a) | Periodic statements must be received by the Compliance Department no later than thirty (30) calendar days after the close of each calendar quarter. |
(b) | It shall be the Covered Persons responsibility to promptly input into FIS/PTA all initially required information relating to any holdings in an Outside Retirement Account and to notify the Compliance Department on the same day of any subsequent Securities Transactions in such Outside Retirement Account. |
7. | New Reportable Accounts. If a Covered Person opens a new reportable account that has not previously been disclosed, the Covered Person must notify the Compliance Department in writing within ten (10) calendar days of the existence of the account and make arrangements to comply with the requirements set forth in Sections II.D.2 & 3 above. |
8. | Disclaimers. Any report of a Securities Transaction for the benefit of a person other than the individual in whose account the transaction is placed may contain a statement that the report should not be construed as an admission by the person making the report that he or she has any direct or indirect beneficial ownership in the Security to which the report relates. |
9. | Availability of Reports. All information supplied pursuant to this Code may be made available for inspection to the CCO of any affected Legg Mason Registered Adviser or Reportable Fund, the board of directors of each company employing the Covered Person, the board of directors of any affected Reportable Fund, the Compliance Department, the Covered Persons department manager (or designee), any party to which any investigation is referred by any of the foregoing, the Securities and Exchange Commission, any self-regulatory organization of which Legg Mason is a member, any state securities commission, and any attorney or agent of the foregoing or of the Reportable Funds. |
10. | Outside Business Activities. No Covered Person may engage in outside business activities or serve on the board of directors of a publicly-held company absent prior written authorization of (i) the Compliance Department, and (ii) in the case of service on the board of directors of a publicly-held company, the General Counsel of Legg Mason, Inc. |
a. | A request for such approval must be submitted to the Compliance Department through FIS/PTA using substantially the form of Request for Approval of Outside Business Activities attached hereto as Appendix G. |
b. | Requests for approval to serve as a director of a publicly held company will rarely be approved. |
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III. Personal Securities Transactions
A. Surveillance
The Compliance Department shall be responsible for maintaining a surveillance program reasonably designed to monitor the personal trading activities of all Covered Persons for compliance with the provisions of this Code and for investigating any suspected violation of the Code. Upon reaching the conclusion that a violation of the Code has occurred, the Compliance Department shall report the results of such investigation to the applicable Covered Person, the Covered Persons department manager and to the CCOs of any affected Legg Mason Registered Adviser or Reportable Fund.
B. Remedies
1. | Authority. The Compliance Department has authority to determine the remedy for any violation of the Code, including appropriate disposition of any monies forfeited pursuant to this provision. Failure to promptly comply with any sanction directive may result in the imposition of additional sanctions.. |
2. | Sanctions. If the Compliance Department determines that a Covered Person has committed a violation of the Code, the Compliance Department may, in consultation with the Human Resources Department and the Covered Persons supervisor, as appropriate, impose sanctions and take other actions as it deems appropriate, including a verbal warning, a letter of caution or warning, suspension of personal trading rights, suspension of employment (with or without compensation), fine, civil referral to the Securities and Exchange Commission, criminal referral, and termination of employment of the violator for cause. The Compliance Department may also require the Covered Person to reverse the transaction in question and forfeit any profit or absorb any loss associated or derived as a result. The amount of profit shall be calculated by the Compliance Department. No member of the Compliance Department may review his or her own transaction or those of his or her supervisors. If necessary, the General Counsel of Legg Mason or the CCO of the relevant Legg Mason Registered Adviser shall review these transactions.. |
C. Exceptions to the Code
Although exceptions to the Code will rarely be granted, the Compliance Department may grant exceptions to the requirements of the Code if the Compliance Department finds that the proposed conduct involves negligible opportunity for abuse. All such exceptions must be in writing..
IV. Definitions
When used in the Code, the following terms have the meanings set forth below:
A. General Defined Terms
CCO means the Chief Compliance Officer of any Reportable Fund, Legg Mason Registered Adviser or Legg Mason entity that is a principal underwriter of a Reportable Fund.
Code means this Code of Ethics, as the same may be amended from time to time.
Compliance Department means the Legal and Compliance Department of Legg Mason.
Covered Person means any employee of Legg Mason & Co., LLC who is covered by this Code in accordance with the provisions of Section I.A above.
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Federal Securities Laws means the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, the Sarbanes-Oxley Act of 2002, the Investment Company Act, the Investment Advisers Act, Title V of the Gramm-Leach-Bliley Act, any rules adopted by the Securities and Exchange Commission under any of these statutes, the Bank Secrecy Act as it applies to Legg Mason and any Reportable Funds, and any rule adopted thereunder by the Securities and Exchange Commission or the Department of the Treasury.
Investment Advisers Act means the Investment Advisers Act of 1940, as amended.
Investment Company Act means the Investment Company Act of 1940, as amended.
Legg Mason means Legg Mason, Inc. and its subsidiaries and affiliates.
Legg Mason Registered Advisers means those subsidiaries of Legg Mason that are registered as investment advisers under the Investment Advisers Act.
FIS/PTA means FIS Personal Trading Assistant, a web browser-based automated personal trading compliance platform used by the Compliance Department to administer this Code.
B. Terms Defining the Scope of a Beneficial Interest in a Security
Beneficial Interest means the opportunity, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, to profit, or share in any profit derived from, a transaction in the subject Securities.
A Covered Person is deemed to have a Beneficial Interest in the following:
1. | Any Security owned individually by the Covered Person. |
2. | Any Security owned jointly by the Covered Person with others (for example, joint accounts, spousal accounts, partnerships, trusts and controlling interests in corporations). |
3. | Any Security in which a member of the Covered Persons Immediate Family has a Beneficial Interest if: |
a. | The Security is held in an account over which the Covered Person has decision making authority (for example, the Covered Person acts as trustee, executor, or guardian); or |
b. | The Security is held in an account for which the Covered Person acts as a broker or investment adviser representative. |
A Covered Person is presumed to have a Beneficial Interest in any Security in which a member of the Covered Persons Immediate Family has a Beneficial Interest if the Immediate Family member resides in the same household as the Covered Person.
Any uncertainty as to whether a Covered Person has a Beneficial Interest in a Security should be brought to the attention of the Compliance Department. Such questions will be resolved in accordance with, and this definition shall be subject to, the definition of beneficial owner found in Rules 16a-1(a) (2) and (5) promulgated under the Securities Exchange Act of 1934, as amended.
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Immediate Family of a Covered Person means any of the following persons:
child | grandparent | son-in-law | ||
stepchild | spouse | daughter-in-law | ||
grandchild | sibling | brother-in-law | ||
parent | mother-in-law | sister-in-law | ||
stepparent | father-in-law |
Immediate Family includes adoptive relationships, domestic partner relationships and other relationships (whether or not recognized by law) that the Compliance Department determines could lead to the possible conflicts of interest, diversions of corporate opportunity, or appearances of impropriety, which this Code is intended to prevent.
C. Terms Defining the Scope of a Reportable Transaction
Automatic Investment Plan means a program in which regular periodic purchases (or withdrawals) are made automatically in or from investment accounts in accordance with a predetermined schedule and allocation. An Automatic Investment Plan includes a dividend reinvestment plan.
Equivalent Security means any Security issued by the same entity as the issuer of a subject Security, including options, rights, stock appreciation rights, warrants, preferred stock, restricted stock, phantom stock, bonds, and other obligations of that company or Security otherwise convertible into that Security. Options on Securities are included even if, technically, they are issued by the Options Clearing Corporation or a similar entity.
Managed Account means an account where a Covered Person has no:
| Direct or indirect influence or control over the account (for example, the trustee or investment manager simply summarizes, describes, or explains account activity without the Covered Person providing directions or suggestions); |
| Knowledge of the transaction before it is completed (for example, transactions effected for a Covered Person by a trustee of a blind trust, or discretionary trades made by an investment manager retained by the Covered Person, in connection with which the Covered Person is neither consulted nor advised of the trade before it is executed); and |
| Knowledge of the specific management actions taken by a trustee or investment manager and no right to intervene in the trustees or investment managers management (for example, the Covered Person is not consulted as to the allocation of investments for the account). |
Mutual Fund-Only Account means a Securities account or account held directly with a mutual fund that holds only non-Reportable Funds and in which no other type of Securities may be held. For purposes of this Code, a Mutual Fund-Only Account includes a 529 plan or variable annuity life insurance account that holds only non-Reportable Funds and in which no other type of Securities may be held.
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Private Placement means a Securities offering that is exempt from registration pursuant to Section 4(2) or Section 4(6) of the Securities Act of 1933, as amended (the Securities Act), or pursuant to Rules 504, 505 or 506 of Regulation D under the Securities Act.
Proprietary Fund means an open-end investment company registered under the Investment Company Act (or any portfolio or series thereof, as the case may be) that is part of one of the fund families sponsored by Legg Mason or its affiliates.
Reportable Fund means (a) any fund registered under the Investment Company Act for which a Legg Mason Registered Adviser serves as an investment adviser, or (b) any fund registered under the Investment Company Act whose investment adviser or principal underwriter is controlled by or under common control with Legg Mason. For purposes of this definition, investment adviser has the same meaning as it does in section 2(a)(20) of the Investment Company Act, and control has the same meaning as it does in Section 2(a)(9) of the Investment Company Act.
Reportable Security means any Security (as defined herein) other than the following types of Securities:
1. | Direct obligations of the Government of the United States; |
2. | Bankers acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments, including repurchase agreements; and |
3. | Shares of open-end mutual funds that are not Reportable Funds. |
Securities Transaction means a purchase or sale of Securities in which a Covered Person has or acquires a Beneficial Interest.
Security includes stock, notes, bonds, debentures, and other evidences of indebtedness (including loan participations and assignments), limited partnership interests, investment contracts, closed-end investment companies, and all derivative instruments of the foregoing, such as options and warrants. Security does not include futures or options on futures, but the purchase and sale of such instruments are nevertheless subject to the reporting requirements of the Code.
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CERTIFICATIONS PURSUANT TO SECTION 302
EX-99.CERT
CERTIFICATIONS
I, Jane Trust, certify that:
1. | I have reviewed this report on Form N-CSR of Legg Mason Partners Institutional Trust Western Asset Select Tax Free Reserves; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officers and I have disclosed to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize, and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: October 28, 2020 | /s/ Jane Trust | |||||
Jane Trust | ||||||
Chief Executive Officer |
CERTIFICATIONS
I, Christopher Berarducci, certify that:
1. | I have reviewed this report on Form N-CSR of Legg Mason Partners Institutional Trust Western Asset Select Tax Free Reserves; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial information included in this report, and the financial statements on which the financial information is based, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officers and I have disclosed to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize, and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: October 28, 2020 | /s/ Christopher Berarducci | |||||
Christopher Berarducci | ||||||
Principal Financial Officer |
CERTIFICATIONS PURSUANT TO SECTION 906
EX-99.906CERT
CERTIFICATION
Jane Trust, Chief Executive Officer, and Christopher Berarducci, Principal Financial Officer of Legg Mason Partners Institutional Trust Western Asset Select Tax Free Reserves (the Registrant), each certify to the best of their knowledge that:
1. The Registrants periodic report on Form N-CSR for the period ended August 31, 2020 (the Form N-CSR) fully complies with the requirements of section 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
Chief Executive Officer | Principal Financial Officer | |||
Legg Mason Partners Institutional Trust - Western Asset Select Tax Free Reserves |
Legg Mason Partners Institutional Trust Western Asset Select Tax Free Reserves | |||
/s/ Jane Trust |
/s/ Christopher Berarducci | |||
Jane Trust | Christopher Berarducci | |||
Date: October 28, 2020 | Date: October 28, 2020 |
This certification is being furnished to the Securities and Exchange Commission solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of the Form N-CSR with the Commission.
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