<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 3, 1999
REGISTRATION NOS.
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 [x]
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. [ ]
AND/OR
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 [x]
AMENDMENT NO. [ ]
------------------------
SSBCITI FUNDS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
------------------------
7 WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (800) 725-6666
ROBERT A. VEGLIANTE
SALOMON BROTHERS ASSET MANAGEMENT INC
7 WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(NAME AND ADDRESS OF AGENT FOR SERVICE)
------------------------
COPIES TO:
GARY SCHPERO, ESQ.
SIMPSON THACHER & BARTLETT
425 LEXINGTON AVENUE
NEW YORK, NY 10017
------------------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
this Registration Statement becomes effective.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SECTION 8(a), MAY DETERMINE.
PURSUANT TO RULE 24F-2 UNDER THE INVESTMENT COMPANY ACT OF 1940, AS
AMENDED, REGISTRANT HEREBY ELECTS TO REGISTER AN INDEFINITE NUMBER OF SHARES OF
REGISTRANT AND ANY SERIES THEREOF.
________________________________________________________________________________
<PAGE>
THE HUMANE EQUITY FUND
PROSPECTUS & APPLICATION
OCTOBER , 1999
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
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CONTENTS
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Investments, risks and expenses............................. 2
More on the fund's investments.............................. 4
More on the fund's animal friendly criteria................. 4
Management.................................................. 5
Buying shares and exchanging shares......................... 7
Redeeming shares............................................ 8
Other things to know about share transactions............... 10
Dividends, distributions and taxes.......................... 11
</TABLE>
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YOU SHOULD KNOW
An investment in the fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government agency.
The Humane Equity Fund - 1
<PAGE>
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INVESTMENTS, RISKS AND EXPENSES
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INVESTMENT The fund seeks long-term growth of capital. The fund follows
OBJECTIVE a policy of investing in companies that meet a screening
process regarding the humane treatment of animals as defined
by The Humane Society of the United States ('animal friendly
investing').
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PRINCIPAL INVESTMENT KEY INVESTMENTS: The fund invests primarily in common stocks
STRATEGIES and other equity securities of U.S. companies. Equity
securities include exchange traded and over-the-counter
common stocks and preferred shares, debt securities
convertible into equity securities, and warrants and rights
relating to equity securities. The fund also may invest a
portion of its assets in equity securities of foreign
issuers.
SELECTION PROCESS: The fund invests in a broad range of
companies, industries and sectors, without regard to market
capitalization. The manager selects investments for their
capital appreciation potential; any ordinary income is incidental.
The investment philosophy of the fund is predicated on two broad
market based assumptions:
First, the manager believes it is difficult to time the
market so the equity selection discipline is designed to be
indifferent to the price and valuation level of the stock
market -- the manager can always find individual stocks
that represent good value.
Second, the manager believes among individual securities,
market inefficiencies exist and can be identified through a
disciplined analysis process using quantitative and
qualitative techniques.
The manager evaluates stocks within a framework that
incorporates four stages of analysis:
The identification of long-term, risk-adjusted value based
on expected growth in earnings and or cash flow and yield
characteristics.
The identification of short-term, or tactical,
attractiveness based on earnings cycle analysis.
Earnings estimate revision analysis -- a volatility adjusted
analysis of changes in earnings estimates.
This style of stock selection is commonly known as 'growth
at a reasonable price.' The fund will hold a combination of
growth and value stocks with the common characteristic being
good, timely investment opportunity based on a company's
earnings growth, dividend and risk characteristics. The
benefit of this type of approach is the avoidance of
dramatic style cycle volatility.
Animal Friendly Criteria. As a component of the selection
process, the manager avoids companies that directly harm
animals and their habitats.
The manager will screen all investments made by the fund
using guidelines established by The Humane Society of the
United States.
The fund will not invest in drug related companies
The fund will not invest in cosmetic related companies if
there is a question regarding the use of animals for product
studies and/or testing
The fund will not invest in companies that use animals in an
end product, e.g., meat packing
The fund will not invest in companies producing products
adverse to the humane treatment of animals, especially as
such would apply to hunting and trapping
The fund will seek to invest in companies that are
positively biased to the humane treatment of animals, or at
least value neutral, provided these investments meet the
fund's stock selection criteria.
</TABLE>
The Humane Equity Fund - 2
<PAGE>
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PRINCIPAL RISKS Investors could lose money on their investment in the fund,
OF INVESTING IN or the fund may not perform as well as other investments,
THE FUND if:
Stock prices decline generally
Animal friendly companies fail to perform as well as
companies that do not fit the fund's animal friendly
criteria
The manager's judgment about the attractiveness, value or
potential appreciation of a particular security proves to be
incorrect
The company does not meet earnings expectations or other
events depress the value of the company's stock.
Because the manager uses animal friendly criteria as a
component of its selection process, the fund's universe of
investments may be smaller than that of other funds. In some
circumstances, this could cause the fund's investment
performance to be better or worse than funds with
similar investment objectives that do not have the fund's
screening policies.
- -------------------------------------------------------------------------------------
WHO MAY WANT TO INVEST The fund may be an appropriate investment if you:
Are seeking to invest in a portfolio with an animal friendly
component
Are seeking to participate in the long term growth potential
of the stock market
Are willing to accept the risks of the stock market
The fund does not have a sufficient operating history to
depict its performance in the graphic and table form which
other funds use.
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Fee table SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum sales charge (load) imposed on purchases (as a % of None
offering price)
Maximum deferred sales charge (load) (as a % of the lower None
of net asset value at purchase or redemption)
--------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND
ASSETS)
Management fee %
--------------------------------------------------------------------
Distribution and service (12b-1) fees 0.25
Other expenses
--------------------------------------------------------------------
Total annual fund operating expenses %
This table sets forth
the fees and expenses
you will pay if you
invest in fund shares.
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Example NUMBER OF YEARS YOU OWN YOUR SHARES 1 YEAR 3 YEARS
Your costs would be $ $
The example assumes: You invest $10,000 in the fund for the period
shown
Your investment has a 5% return each year
You reinvest all distributions and dividends
without a sales charge
The fund's operating expenses remain the same
This example helps you
compare the costs of
investing in the fund
with the costs of
investing in other
mutual funds. Your
actual costs may be
higher or lower.
</TABLE>
The Humane Equity Fund - 3
<PAGE>
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MORE ON THE FUND'S INVESTMENTS
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DERIVATIVE The fund may, but need not, use derivative contracts, such
CONTRACTS as futures and options on securities or securities indices,
options on these futures, and interest rate futures, for any
of the following purposes:
To hedge against the economic impact of adverse changes in
the market value of portfolio securities, because of changes
in stock prices
As a substitute for buying or selling securities
A derivative contract will obligate or entitle a fund to
deliver or receive an asset or cash payment based on the
change in value of one or more securities or indices. Even a
small investment in derivative contracts can have a big
impact on a fund's interest rate or stock market exposure.
Therefore, using derivatives can disproportionately increase
losses and reduce opportunities for gains. The fund may not
fully benefit from or may lose money on derivatives if
changes in their value do not correspond accurately to
changes in the value of the fund's holdings. The other
parties to certain derivative contracts present the same
types of default risk as issuers of fixed income securities.
Derivatives can also make a fund less liquid and harder to
value, especially in declining markets.
- ----------------------------------------------------------------------------------
FOREIGN The fund may invest a portion of its assets, generally under
SECURITIES 15% (but not more than 25%), in securities of foreign
issuers. These securities generally include American
Depositary Receipts (ADRs), Yankee Bonds and other
securities quoted in U.S. dollars, but may also include
non-U.S. dollar denominated securities. Because the fund may
invest in securities of foreign issuers, the fund carries
additional risks. The value of your investment may decline
if the U.S. and/or foreign stock markets decline, currency
rates adversely affect the value of foreign currencies
relative to the U.S. dollar, or an adverse event, such as an
unfavorable earnings report, depresses the value of a
particular company's stock. Prices of foreign securities may
go down because of foreign government actions, political
instability or the more limited availability of accurate
information about foreign companies. These risks are greater
for issuers in emerging markets.
- ----------------------------------------------------------------------------------
DEFENSIVE The fund may depart from its principal investment strategies
INVESTING in response to adverse market, economic or political
conditions by taking temporary defensive positions in all
types of money market and short-term debt securities. If the
fund takes a temporary defensive position, it may be unable
to achieve its investment goal.
- ----------------------------------------------------------------------------------
MASTER/FEEDER The fund may in the future seek to achieve its investment
OPTION objective by investing all of its net assets in another
investment company having the same investment objective and
substantially the same investment policies and restrictions
as those applicable to the fund. Shareholders of the fund
will be given at least 30 days prior notice of any such
investment.
</TABLE>
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MORE ON THE FUND'S ANIMAL FRIENDLY CRITERIA
The fund is designed to combine both financial and animal friendly criteria in
all of its investment decisions.
The manager will use its best efforts to assess a company's animal friendly
performance. This analysis will be based on present activities, and will not
preclude securities solely because of past activities. The manager will monitor
the animal friendly progress or deterioration of each company
The Humane Equity Fund - 4
<PAGE>
in which the fund invests. The fund will not knowingly invest in a company that
does not pass the screening process.
If securities held by the fund no longer satisfy the fund's screening policies,
the fund will seek to dispose the securities as soon as is economically
practicable, which may cause the fund to sell the securities at a time not
desirable from a purely financial standpoint.
- --------------------------------------------------------------------------------
MANAGEMENT
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THE MANAGER The fund's investment adviser (the manager) is Salomon
AND ADMINISTRATOR Brothers Asset Management Inc (SBAM). The manager selects
the fund's investments and oversees its operations. The
manager's address is 7 World Trade Center, New York, New
York 10048. The fund's administrator is SSBC Fund Management
Inc. SSBC's address is 388 Greenwich Street, New York, New
York 10013. SBAM and SSBC are affiliates of Salomon Smith
Barney Inc. The manager, administrator and Salomon Smith
Barney are subsidiaries of Citigroup Inc. Citigroup
businesses produce a broad range of financial
services -- asset management, banking and consumer finance,
credit and charge cards, insurance, investments, investment
banking and trading -- and use diverse channels to make them
available to consumer and corporate customers around the
world.
Chad Graves, an investment officer of the manager and a
managing director of Salomon Smith Barney, is responsible
for the day-to-day management of the fund's portfolio.
- ----------------------------------------------------------------------------------
MANAGEMENT AND For its services, the manager receives a fee equal to %
ADMINISTRATION FEES of the fund's average daily net assets. The administrator
receives a fee for its administrative services to the fund
equal to % of the fund's average daily net assets.
- ----------------------------------------------------------------------------------
CONSULTANT To insure that investments meet the fund's animal friendly
criteria, the manager has a consulting agreement with The
Humane Society of the United States (HSUS). From the fee
paid the manager, The HSUS is paid an annual fee equal to
0.07% of the fund's average daily net assets.
The HSUS is the largest animal protection organization in
the nation with a staff of more than 250 coast to coast and a
constituency of more than 6 million. The mission of The HSUS
is to create a humane and sustainable world for all animals,
including people. Through education, advocacy and
empowerment, The HSUS seeks to forge a lasting and
comprehensive change in humane consciousness and behavior;
to relieve animal suffering; to prevent cruelty, abuse,
neglect, and exploitation; and to protect wild animals and
their environments. The HSUS has made an investment of $5
million of the fund. It will maintain its investment at
least until such time as the fund's assets reach $50
million.
- ----------------------------------------------------------------------------------
DISTRIBUTOR The fund has entered into an agreement with CFBDS, Inc. to
distribute the fund's shares.
- ----------------------------------------------------------------------------------
DISTRIBUTION PLAN The fund has adopted a Rule 12b-1 distribution plan for its
shares. Under the plan, the fund pays service fees. These
fees are an ongoing expense and, over time, may cost you
more than other types of sales charges.
- ----------------------------------------------------------------------------------
</TABLE>
The Humane Equity Fund - 5
<PAGE>
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YEAR 2000 ISSUE Information technology experts are concerned about computer
systems' ability to process date-related information on and
after January 1, 2000. This situation, commonly known as the
'Year 2000' issue, could have an adverse impact on the fund.
The cost of addressing the Year 2000 issue, if substantial,
could adversely affect companies and governments that issue
securities held by the fund. The manager and Salomon Smith
Barney are addressing the Year 2000 issue for their systems.
The fund has been informed by other service providers that
they are taking similar measures. Although the fund does not
expect the Year 2000 issue to adversely affect it, the fund
cannot guarantee the efforts of the fund, which are limited
to requesting and receiving reports from its service
providers, or the efforts of its service providers to
correct the problem will be successful.
</TABLE>
The Humane Equity Fund - 6
<PAGE>
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BUYING SHARES AND EXCHANGING SHARES
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BUYING SHARES Shares of the fund may be initially purchased through First Data
BY MAIL Investor Services Group, Inc. ('FDISG' or the 'transfer agent')
You may make by completing a Purchase Application and forwarding it to the
subsequent transfer agent.
purchases Subsequent investments may be made by mailing a check to the
by mail or, transfer agent, along with the detachable stub from your
if you elect, Statement of Account (or a letter providing the account number).
by telephone If an investor's purchase check is not collected, the purchase
will be cancelled and the transfer agent will charge a $10 fee
to the shareholder's account. There is a ten day hold on all
checks and no redemptions are allowed until the proceeds from
the check clears.
Write the transfer agent at the following address:
The Humane Equity Fund
c/o FDISG
P.O. Box 9764
Providence, RI 02940-9764
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BUYING SHARES Subsequent investments may also be made by wiring funds to the
BY WIRE transfer agent. Prior notification by telephone is not
required. You should instruct the wiring bank to transmit the
specified amount in federal funds to:
Boston Safe Deposit and Trust Company
Boston, MA
ABA No. 011-001-234
Account #142743
Attn: The Humane Equity Fund
Name of Account:
Account # (as assigned):
To ensure prompt credit to their accounts, investors should
call (800) 446-1013 with a reference number for the wire.
Shareholders should note that their bank may charge a fee in
connection with transferring money by bank wire.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PURCHASE IS EFFECTIVE
- ---------------------------------------------------------------------------------
If order and federal funds or On that day
check is received by fund or its
agent before 4:00 p.m. Eastern
time:
Payment wired in federal
funds or check received If order and federal funds or
check is received by fund or its
agent after the close of New On the business day following
York Stock Exchange: receipt
SYSTEMATIC You may authorize the transfer agent to automatically transfer
INVESTMENT funds on a periodic basis (monthly, alternative months,
PLAN quarterly) from a regular bank account or other financial
institution to buy shares of the fund. On or about the 10th
of the month, the fund will debit the bank account in the
specified amount (minimum of $25 per draft) and the proceeds
will be invested at the applicable offering price determined
on the date of the debit. In order to set up a plan, your bank
must be a member of the Automated Clearing House.
Amounts transferred should be at least $25 monthly.
If you do not have sufficient funds in your bank account on a
transfer date, the transfer agent may charge you a fee.
For more information, consult the SAI.
</TABLE>
The Humane Equity Fund - 7
<PAGE>
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REDEEMING SHARES
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You may redeem some or all of your shares by sending your REDEMPTIONS BY MAIL
redemption request in proper form to:
First Data Investor Services Group, Inc.
c/o FDISG
P.O. Box 9764
Providence, RI 02940-9764.
The written request for redemption must be in good order. Generally, a properly
This means that you have provided the following completed Redemption
information. Your request will not be processed without Form with any required
this information. signature guarantee is
Name of the fund all that is required
Account number for a redemption. In
Dollar amount or number of shares to redeem some cases, however,
Signature of each owner exactly as account is registered other documents may be
Other documentation required by the transfer agent necessary.
To be in good order, your request must include a signature
guarantee if:
The proceeds of the redemption exceed $50,000
The proceeds are not paid to the record owner(s) at the
record address
The shareholder(s) has had an address change in the past
45 days
The shareholder(s) is a corporation, sole proprietor,
partnership, trust or fiduciary
You can obtain a signature guarantee from most banks,
dealers, brokers, credit unions and federal savings and
loans, but not from a notary public.
- -------------------------------------------------------------------------------------
You may redeem shares by fax only if a signature guarantee REDEMPTIONS BY FAX
or other documentary evidence is not required. Redemption
requests should be properly signed by all owners of the
account and faxed to the transfer agent at (508) 871-9503.
If fax redemptions are not available for any reason, you
may use the fund's redemption by mail procedure described
above.
- -------------------------------------------------------------------------------------
In all cases, your redemption price is the net asset value REDEMPTION PAYMENTS
next determined after your request is received in good Any request that your
order. Redemption proceeds normally will be sent within redemption proceeds be
seven days. However, if you recently purchased your shares sent to a destination
by check, your redemption proceeds will not be sent to you other than your bank
until your original check clears. Your redemption proceeds account or address of
can be sent by check to your address of record or by wire record must be in
transfer to a bank account designated on your application. writing and must
include signature
guarantees
- -------------------------------------------------------------------------------------
You may redeem shares by wire in amounts of $500 or more if REDEMPTIONS BY WIRE
redemption by wire has been elected on your Purchase
Application. A signature guarantee is not required on this
type of redemption request. To elect this service after
opening your account, call the transfer agent at (800)
446-1013 for more information. To redeem by wire, you may
either:
Telephone the redemption request to the transfer agent at
(800) 446-1013
Mail the request to the transfer agent at the address
listed above
Proceeds of wire redemptions of $500 or more will be wired
to the bank which is indicated on your Purchase Application
or by letter which has been properly guaranteed. Checks for
redemption proceeds of less than $500 will be mailed to
your address of record. You should note that your bank may
charge you a fee in connection with money by wire.
</TABLE>
The Humane Equity Fund - 8
<PAGE>
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You may redeem shares by telephone if you elect the REDEMPTIONS BY
telephone redemption option on your Purchase Application, TELEPHONE
and the proceeds must be mailed to your address of record.
In addition, you must be able to provide proper
identification information. You may not redeem by telephone
if your address has changed within the past 45 days or if
your shares are in certificate form. Telephone redemption
requests may be made by calling the transfer agent at (800)
446-1013 between 9:00 a.m. and 4:00 p.m. eastern time on
any day the New York Stock Exchange is open. If telephone
redemptions are not available for any reason, you may use
the fund's regular redemption procedure described above.
- -------------------------------------------------------------------------------------
You can arrange for the automatic redemption of a portion AUTOMATIC CASH
of your shares on a monthly or quarterly basis. To qualify, WITHDRAWAL PLAN
you must own shares of the fund with a value of at least
$10,000 for monthly withdrawals and $5,000 for quarterly
withdrawals and each automatic redemption must be at least
$250 if made monthly.
</TABLE>
The Humane Equity Fund - 9
<PAGE>
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OTHER THINGS TO KNOW ABOUT SHARE TRANSACTIONS
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Small account balances If your account falls below $500 ($250 in the case of an IRA
or self-employed retirement plan) due to redemption of fund
shares, the fund may ask you to bring your account up to the
minimum requirement. If your account is still below $500
after 30 days, the fund may close your account and send you
the redemption proceeds.
- -------------------------------------------------------------------------------------
Share price You may buy, exchange or redeem fund shares at their net
asset value, next determined after receipt of your request
in good order. The fund's net asset value is the value of
its assets minus its liabilities. The fund calculates its
net asset value every day the New York Stock Exchange is
open. This calculation is when regular trading closes on the
Exchange (normally 4:00 p.m., Eastern time).
The fund generally values its securities based on market
prices or quotations. When market prices are not available,
or when the manager believes they are unreliable or that the
value of a security has been materially affected by events
occurring after a foreign exchange closes, the fund may
price those securities at fair value. Fair value is
determined in accordance with procedures approved by the
fund's board. A fund that uses fair value to price
securities may value those securities higher or lower than
another fund that uses market quotations to price the same
securities.
In order to buy, redeem or exchange shares at that day's
price, you must place your order with the transfer agent
before the New York Stock Exchange closes. If the New York
Stock Exchange closes early, you must place your order prior
to the actual closing time. Otherwise, you will receive the
next business day's price.
- -------------------------------------------------------------------------------------
The fund has the right to:
Suspend the offering of shares
Waive or change minimum and additional investment amounts
Reject any purchase or exchange order
Change, revoke or suspend the exchange privilege
Suspend telephone transactions
Suspend or postpone redemptions of shares on any day when
trading on the New York Stock Exchange is restricted, or as
otherwise permitted by the Securities and Exchange
Commission
- -------------------------------------------------------------------------------------
Redemptions in kind The fund may make payment for fund shares wholly or in part
by distributing portfolio securities to the shareholders.
The redeeming shareholder must pay transaction costs to sell
these securities.
</TABLE>
The Humane Equity Fund - 10
<PAGE>
- --------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
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DIVIDENDS AND The fund generally makes capital gain distributions and pays
DISTRIBUTIONS dividends, if any, once a year, typically in December. The
fund may pay additional distributions and dividends at other
times if necessary for the fund to avoid a federal tax.
Capital gains distributions and dividends are reinvested in
additional fund shares. Alternatively, you can instruct the
transfer agent to have your distributions and/or dividends
paid in cash. You can change your choice at any time to be
effective as of the next distribution or dividend, except that
any change given to the transfer agent less than five days
before the payment date will not be effective until the next
distribution or dividend is made.
- --------------------------------------------------------------------------------
TAXES In general, redeeming shares, exchanging shares and receiving
distributions (whether in cash or additional shares) are all
taxable events.
- ---------------------------------------------------------------------------------------
TRANSACTION FEDERAL INCOME TAX STATUS
- ---------------------------------------------------------------------------------------
Redemption or exchange of shares Usually capital gain or loss; long-term only if
shares owned more than one year
- ---------------------------------------------------------------------------------------
Long-term capital gain distributions Long-term capital gain
- ---------------------------------------------------------------------------------------
Short-term capital gain distributions Ordinary income
- ---------------------------------------------------------------------------------------
Dividends Ordinary income
- ---------------------------------------------------------------------------------------
</TABLE>
Long-term capital gain distributions are taxable to you as
long-term capital gain regardless of how long you have
owned your shares. You may want to avoid buying shares when
the fund is about to declare a capital gain distribution or
a taxable dividend, because it will be taxable to you even
though it may actually be a return of a portion of your
investment.
After the end of each year, the fund will provide you with
information about the distributions and dividends that you
received and any redemptions of shares during the previous
year. If you do not provide the fund with your correct
taxpayer identification number and any required
certifications, you may be subject to back-up withholding
of 31% of your distributions, dividends and redemption
proceeds. Because each shareholder's circumstances are
different and special tax rules may apply, you should
consult your tax adviser about your investment in the fund.
The Humane Equity Fund - 11
<PAGE>
ADDITIONAL INFORMATION ABOUT THE FUND
SHAREHOLDER REPORTS. Annual and semi-annual reports to shareholders provide
additional information about the fund's investments. These reports discuss the
market conditions and investment strategies that significantly affected the
fund's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION. The statement of additional information
provides more detailed information about the fund. It is incorporated by
reference into (is legally a part of) this prospectus.
The fund sends only one report to a household if more than one account has the
same address. Contact the transfer agent if you do not want this policy to apply
to you.
HOW TO OBTAIN ADDITIONAL INFORMATION.
You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting the
transfer agent, by calling 1-800-446-1013 or writing the funds at Seven
World Trade Center, New York, NY, 10048.
You can also review the fund's shareholder reports, prospectus and statement
of additional information at the Securities and Exchange Commission's Public
Reference Room in Washington, D.C. You can get copies of these materials for a
fee by writing to the Public Reference section of the Commission, Washington,
D.C. 20549-6009. Information about the public reference room may be obtained
by calling 1-800-SEC-0330. You can get the same reports and information free
from the Commission's Internet web site -- http://www.sec.gov
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. Neither the fund nor the distributor is
offering to sell shares of the fund to any person to whom the fund may not
lawfully sell its shares.
(Investment Company Act file no. )
- --------------------
SALOMON BROTHERS
--------------------
Asset Management
SEVEN WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
1-800-SALOMON
WWW. SBAM.COM
SBISPRO 10/99
<PAGE>
, 1999
STATEMENT OF ADDITIONAL INFORMATION
SSBCITI FUNDS INC
7 WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
888-777-1012
SSB Citi Funds Inc (the 'Company') consists of The Humane Equity Fund (the
'Fund'). The Fund is an investment portfolio of the Company, an open-end
investment company incorporated in Maryland on July , 1999.
The Fund is classified as a diversified fund under the Investment Company Act of
1940, as amended (the '1940 Act').
The Prospectus indicates the extent to which the Fund may purchase the
instruments or engage in the investment activities described below. References
herein to the investment manager means Salomon Brothers Asset Management Inc
('SBAM').
This Statement of Additional Information ('SAI') is not a prospectus and is
authorized for distribution only when preceded or accompanied by the Company's
current Prospectus, dated September , 1999. This SAI supplements and should be
read in conjunction with the Prospectus, a copy of which may be obtained without
charge by writing the Company at the address, or by calling the toll-free
telephone number, listed above.
CONTENTS
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Directors and Executive Officers of the Company............. 2
Investment Objectives and Investment Policies............... 3
Risk Factors................................................
Investment Restrictions..................................... 23
Portfolio Turnover.......................................... 24
Portfolio Transactions...................................... 24
Taxes....................................................... 25
Performance Data............................................ 26
Net Asset Value............................................. 27
Additional Redemption Information........................... 28
Investment Manager.......................................... 28
Administrator............................................... 29
Distributor................................................. 30
Expenses.................................................... 30
Custodian and Transfer Agent................................ 30
Independent Accountants..................................... 30
Counsel..................................................... 30
Capital Stock............................................... 31
Financial Statements........................................
Appendix -- Ratings of Debt Obligations.....................
</TABLE>
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DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Overall responsibility for management and supervision of the Company rests
with the Company's Board of Directors. The Directors approve all significant
agreements between the Company and the companies that furnish services to the
Fund, including agreements with the Company's distributor, administrator,
investment manager, custodian and transfer agent. The day-to-day operations of
the Company are delegated to the Company's investment manager.
The directors and executive officers of the Company are listed below. The
address of each, unless otherwise indicated, is Seven World Trade Center, New
York, New York 10048. Certain of the directors and officers are also directors
and officers of one or more other investment companies for which SBAM, the
funds' investment manager, acts as investment adviser. 'Interested persons' of
the Company (as defined in the 1940 Act) are indicated by an asterisk.
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE POSITION(S) PRINCIPAL OCCUPATION(S) HELD PAST 5 YEARS
- --------------------- ---------- ------------------------------------------
<S> <C> <C>
TO BE INSERTED
</TABLE>
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<PAGE>
DIRECTORS COMPENSATION
It is estimated that each Director of the Company, except those deemed
'interested persons' under the 1940 Act will receive $ per year plus $ for
each meeting attended as compensation for serving as director. The Company does
not provide any pension or retirement benefits to directors. No remuneration
will be paid by the Company to Directors who are employees of SBAM or its
affiliates, and may therefore be considered interested persons under the 1940
Act.
As of the date hereof directors and officers of the Company, individually and as
a group, beneficially owned less than 1% of the outstanding shares of the Fund.
INVESTMENT OBJECTIVES AND INVESTMENT POLICIES
The Fund seeks long-term growth of capital. The Fund follows a policy of
investing in companies that meet a screening process regarding the humane
treatment of animals as defined by the Humane Society of the United States
('animal friendly investing').
The Fund will seek to achieve its objective by investing primarily in common
stocks and other equity securities of U.S. companies. The Fund may also invest
up to 25% of its assets in securities of foreign issuers. The Fund may also
employ, among others, one or more of the strategies set forth below.
EQUITY SECURITIES
COMMON STOCK. Common stock is an interest in a company, limited liability
company, or similar entity that entitles the holder to a share in the profits of
the company, in the form of dividends, and the proceeds from a sale or
liquidation of the company. The interests of common shareholders are the most
junior in a corporate structure. This means that in the event of the bankruptcy
of the company its creditors and any holders of a preferred class of equity
securities are paid before the common stockholders are entitled to receive
anything. However, any assets of the company in excess of amount owed to
creditors or preferred shareholders are shared pro-rata among the common
stockholders. Common stockholders normally have voting control of the company
and are entitled to vote on the election of directors and certain fundamental
corporate actions.
PREFERRED STOCK. Preferred stocks are equity securities, but they have many
characteristics of fixed income securities. Their similarities to fixed income
securities generally cause preferred stocks to trade more like debt instruments
than common stocks. Thus, the value of preferred stocks reflects the credit risk
of the company and the dividend yield on the preferred stocks compared to
prevailing interest rates. Preferred shares are entitled to receive dividends
before any dividend is paid to the holders of common stock. The dividend may be
at a fixed or variable dividend payment rate, may be payable on fixed dates or
at times determined by the company and may be payable in cash, additional shares
of preferred stock or other securities. Many preferred stocks are redeemable at
the option of the company after a certain date. Holders of preferred stock are
also entitled to receive a payment upon the sale or liquidation of a company
before any payment is made to the company's common stockholders. However,
preferred stock is an equity security and, therefore, is junior in priority of
payment in the event of a bankruptcy to the company's creditors, including
holders of the company's debt securities. This junior ranking to creditors makes
preferred stock riskier in some respects than fixed income securities.
CONVERTIBLE SECURITIES. Convertible securities are preferred stocks or fixed
income securities that are convertible at the option of the holder, or in some
circumstances at the option of the issuing company, at a stated exchange rate or
formula into the company's common stock or other equity securities. At the time
a company sells the convertible securities, the conversion price is normally
higher than the market price of the common stock. A holder of convertible
securities will generally receive interest or dividends at a rate lower than
comparable debt securities, but the holder has the potential for additional gain
if the market value of the common stock exceeds the
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conversion price. When the market price of the common stock is below the
conversion price, convertible securities tend to trade like fixed income
securities. If the market price of the common stock is higher than the
conversion price, convertible securities tend to trade like the common stock.
Convertible securities rank senior to common stocks in an issuer's capital
structure and consequently may be of higher quality and entail less risk than
the issuer's common stock.
WARRANTS AND STOCK PURCHASE RIGHTS. Warrants and stock purchase rights are
securities permitting, but not obligating, their holder to purchase other
securities, normally the issuer's common stock. Stock purchase rights are
frequently issued as a dividend to a company's stockholders and represent the
right to purchase a fixed number of shares at a fixed or formula price. The
price may reflect a discount to the market price. Warrants are generally sold by
a company or issuer together with fixed income securities and represent the
right to a fixed number of shares of common stock or other securities at a fixed
or formula price. The exercise price is normally higher than the market price at
the time the company sells the warrant.
Warrants and stock purchase rights do not carry with them the right to receive
dividends on or to vote the securities that they entitle their holders to
purchase. They also do not entitle the holder to share in the assets of the
company in a liquidation. The rights to purchase common stock or other
securities conferred by a warrant or stock purchase right can only be exercised
on specific dates or for a specific period. Trading in these instruments is
affected both by the relationship of the exercise price to the current market
price of the common stock or other securities and also by the period remaining
until the right or warrant expires. An investment in warrants and stock purchase
rights may be considered more speculative than other types of equity
investments. A warrant or stock purchase right expires worthless if it is not
exercised on or prior to its expiration date.
REAL ESTATE INVESTMENT TRUSTS (REITS). REITs are pooled investment vehicles that
invest primarily in income producing real estate or real estate related loans or
interests. REITs are generally classified as equity REITs, mortgage REITs or a
combination of equity and mortgage REITs. Equity REITs invest most of their
assets directly in real property and derive income primarily from the collection
of rents. Equity REITs can also realize capital gains by selling properties that
have appreciated in value. Mortgage REITs invest most of their assets in real
estate mortgages and derive income primarily from the collection of interest
payments. REITs are not taxed on income distributed to shareholders if they
comply with the applicable requirements of the Internal Revenue Code of 1986, as
amended (the 'Code'). The Fund will indirectly bear its proportionate share of
any management and other expenses paid by REITs in which it invests in addition
to the expenses paid by the fund.
Investing in REITs involves certain unique risks in addition to those risks
associated with investing in the real estate industry in general. An equity REIT
may be affected by changes in the value of the underlying properties owned by
the REIT. A mortgage REIT may be affected by changes in interest rates and the
ability of the issuers of its portfolio mortgages to prepay their obligations.
REITs are dependent upon the skills of the REITs' managers and are not
diversified. REITs are generally dependent upon maintaining cash flow to repay
borrowings and to make distributions to shareholders and are subject to the risk
of default by lessees or borrowers. REITs whose underlying assets are
concentrated in properties used by a particular industry, such as health care,
are also subject to risks associated with that industry.
REITs (especially mortgage REITs) are also subject to interest rate risks. When
interest rates decline, the value of a REIT's investment in fixed rate
obligations can be expected to rise. Conversely, when interest rates rise, the
value of a REIT's investment in fixed rate obligations can be expected to
decline. If the REIT invests in adjustable rate mortgage loans, yields on a
REIT's investments in such loans will gradually align themselves to reflect
changes in market interest rates. This causes the value of these investments to
fluctuate less dramatically in response to interest rate fluctuations than would
investments in fixed rate obligations.
REITs may have limited financial resources, may trade less frequently and in a
limited volume and may be subject to more abrupt or erratic price movements than
larger company securities.
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<PAGE>
Historically, REITs have been more volatile in price than the larger
capitalization stocks included in the S&P 500.
OTHER INVESTMENT COMPANIES. The Fund may invest in securities of other
investment companies, to the extent permitted by the fund's investment
restrictions and the Investment Company Act of 1940. The return on these
investments will be reduced by the operating expenses, including investment
advisory and administration fees, of these investment companies, which are in
addition to the Fund's own expenses.
INVESTING IN SMALL AND MEDIUM CAPITALIZATION COMPANIES. Investing in the equity
securities of small and medium capitalization companies involve additional risks
compared to investing in large capitalization companies. Compared to large
companies, these companies may:
Have more limited product lines and capital resources
Have less established markets for their products
Have earnings that are more sensitive to changes in the economy,
competition and technology
Be more dependent upon key members of management.
The market value of the common stock of small and medium capitalization
companies may:
Be more volatile, particularly in response to company announcements or
industry events
Have less active trading markets
Be harder to sell at the time and prices that the investment manager
considers appropriate.
INDUSTRY CONCENTRATION. The more the Fund concentrates its investments in the
same industry or group of industries, the more the value of the Fund's portfolio
will be affected by developments related to that industry or group. You should
review the policies under 'Investment Restrictions for the concentration policy
that applies to the Fund.
FIXED INCOME SECURITIES
Although the Fund invests primarily in equity securities, it may, to a limited
extent, from time to time hold and/or invest in any of the fixed income
securities described below.
MATURITY AND DURATION OF FIXED INCOME SECURITIES. Unless otherwise indicated,
the Fund may invest in individual fixed income securities of any maturity or
duration. Maturity means the date at which a fixed rate security is due and
payable, the next interest rate reset date for a short-term floating or variable
rate security or the period until principal on a long-term floating or variable
rate security can be recovered by exercising a demand feature. Duration means
the weighted-average term to maturity of a fixed income security's cash flows,
based on their present values. Duration is a measure of the expected volatility
of a debt security that was developed as a more precise alternative to the
concept of 'term to maturity.' Duration incorporates a debt security's yield,
coupon interest payments, final maturity and call features into one measure.
Traditionally, a debt security's term to maturity has been used as a proxy for
the sensitivity of the security's price to changes in interest rates. However,
term to maturity measures only the time the final payment on a debt security is
due and does not take into account the pattern of payments of interest or
principal prior to maturity. Duration measures the interval between the present
and the time when the interest and principal payments are scheduled to be
received (or in the case of a callable bond, expected to be received), weighing
them by the present value of the cash to be received at each future point in
time. In general, the lower the coupon rate of interest, the longer the maturity
or the lower the yield-to-maturity of a debt security, the longer its duration;
conversely, the higher the coupon rate of interest, the shorter the maturity or
the higher the yield-to-maturity of a debt security, the shorter its duration. A
standard duration calculation may not always properly reflect the interest rate
exposure of a security. In these situations, the manager may use more
sophisticated analytical techniques that incorporate the economic life of a
security into the determination of its interest rate exposure.
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<PAGE>
CREDIT RATINGS. The credit quality of debt securities in which the Fund invests
may be rated by one or more nationally recognized statistical rating
organizations. These ratings reflect the perceived creditworthiness of the
issuer of a debt security. In general, debt securities with higher ratings will
have less market volatility than those with lower ratings. An upgrade in a
security's credit rating generally will have a positive impact, and a credit
rating downgrade generally will have a negative impact, on the market value of
the security. Debt securities with the same maturity, coupon and rating may be
priced differently by the market, while debt securities with the same maturity
and coupon but different ratings may have identical prices.
Credit ratings represent the opinions of rating organizations as to the quality
of the securities which they rate. These ratings are subjective and are not
absolute standards of quality.
INVESTMENT GRADE SECURITIES. Fixed income securities are considered 'investment
grade if they are:
rated BBB or higher by Standard & Poor's Ratings Group (S&P);
rated Baa or higher by Moody's Investors Service, Inc. (Moody's);
rated an equivalent rating by any other nationally recognized statistical
rating organization; or,
if unrated, judged by the manager to be of equivalent credit quality.
Fixed income securities rated BBB by S&P or Baa by Moody's generally are
regarded as having adequate capacity to pay interest and repay principal, but
may have some speculative characteristics. Adverse economic conditions or
changing circumstances may weaken the issuer's ability to pay interest and repay
principal. If the rating of an investment grade debt security falls below
investment grade, the investment manager will consider whether or not to dispose
of the security, consistent with the fund's investment objective and policies.
BELOW INVESTMENT GRADE SECURITIES. Below investment grade securities are
commonly known as 'high yield bonds' or 'junk bonds.' These securities may have
speculative characteristics, including the possibility of default or bankruptcy
of the issuers of these securities, market price volatility based upon interest
rate sensitivity and relative illiquidity in the secondary trading market.
Businesses and projects financed through the issuance of below investment grade
bonds are often highly leveraged. The issuer's ability to service its debt
obligations may be adversely affected by an economic downturn, a period of
rising interest rates, the issuer's inability to meet projected revenue
forecasts or a lack of needed additional financing. Therefore, an economic
downturn could disrupt the market for below investment grade securities and
adversely affect the value of outstanding securities and the ability of issuer
to repay principal and interest.
In a declining interest rate market, issuers of below investment grade
securities may exercise redemption or call provisions, which may force the Fund
to replace those securities with lower yielding securities. This could result in
a decreased return. The market for below investment grade bonds tends to be
concentrated among a smaller number of dealers and may be less liquid than the
market for investment grade bonds.
CORPORATE DEBT OBLIGATIONS. Corporate debt obligations are fixed income
securities issued by financial institutions, corporations, trusts, partnerships
and other companies. Corporate debt obligations are subject to the risk of an
issuer's inability to meet principal and interest payments on the obligations
and also may be subject to price volatility due to factors such as market
interest rates, market perception of the creditworthiness of the issuer and
general market liquidity.
COMMERCIAL PAPER. Commercial paper (including variable amount master demand
notes and funding agreements) consists of short-term, unsecured promissory notes
issued by corporations, partnerships, trusts, municipalities and other entities
to finance their short-term credit needs.
COMMERCIAL BANK OBLIGATIONS. Commercial bank obligations include certificates of
deposit, time deposits, bankers' acceptances and other instruments issued by
commercial banks. Certificates of deposit are negotiable obligations of
commercial banks. Time deposits are non-negotiable deposits maintained in
banking institutions for specified periods of time at stated interest rates.
Bankers' acceptances are time drafts drawn on commercial banks by borrowers,
usually in connection with international transactions. Commercial bank
obligations are subject to risk of loss in the case of
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<PAGE>
default or insolvency of the bank issuing the obligation. Banks organized under
federal law (and most banks organized under state law) are subject to federal
examination and to a substantial body of federal law and regulation.
Accordingly, commercial bank obligations, especially those subordinated to the
interests of bank depositors, may be subject to heightened risk of default in
the event of regulatory intervention.
Commercial bank obligations include obligations of foreign branches of U.S.
banks and of foreign banks, and may be general obligations of the parent bank in
addition to the issuing bank. These obligations may be limited by their terms
and by government regulation. As with foreign securities in general, the
obligations of foreign branches of U.S. banks and of foreign banks may involve
risks that are different from those of investments in obligations of domestic
banks. [Although the fund[s] typically will acquire obligations issued and
supported by the credit of U.S. or foreign banks having total assets at the time
of purchase in excess of U.S. $1 billion (or the equivalent thereof), this U.S.
$1 billion minimum is not a fundamental investment policy or restriction of the
fund[s]. For purposes of calculating compliance with the U.S. $1 billion
minimum, the assets of a bank will be deemed to include the assets of its U.S.
and foreign branches.]
U.S. GOVERNMENT SECURITIES. U.S. government securities include: bills,
certificates of indebtedness, notes, bonds, mortgage-backed securities and other
debt obligations issued by the U.S. Treasury or by agencies or instrumentalities
of the U.S. government. These agencies and instrumentalities include the Central
Bank for Cooperatives, District of Columbia Armory Board, Export-Import Bank,
Farmers Home Administration, Federal Farm Credit Banks, Federal Financing Bank,
Federal Home Loan Banks, Federal Home Loan Mortgage Corporation (FHLMC), Federal
Housing Administration, Federal National Mortgage Association (FNMA), General
Services Administration, Government National Mortgage Association (GNMA),
Maritime Administration, Resolution Trust Corporation, Small Business
Administration, Student Loan Marketing Association, Tennessee Valley Authority
and various institutions that previously were or currently are part of the Farm
Credit System (which has been undergoing reorganization since 1987).
U.S. Treasury bills, notes and bonds differ only in their interest rates,
maturities and times of issuance. Treasury securities and some other U.S.
government securities are supported by the full faith and credit of the United
States. Others are supported by:
the right of the issuer to borrow from the U.S. Treasury, such as
securities of the Federal Home Loan Banks;
the discretionary authority of the U.S. Government to purchase the
agency's obligations, such as securities of FNMA; or
only the credit of the issuer, such as securities of the Student Loan
Marketing Association.
There is no guarantee that the U.S. government will provide financial support in
the future to U.S. government agencies, authorities or instrumentalities that
are not supported by the full faith and credit of the United States.
U.S. government securities may include zero coupon securities that may be
purchased when yields are attractive and/or to enhance portfolio liquidity. Zero
coupon U.S. government securities include STRIPS and CUBES, which are issued by
the U.S. Treasury as component parts of U.S. Treasury bonds and represent
scheduled interest and principal payments on the bonds.
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities are either issued by U.S.
government agencies or instrumentalities or, if privately issued, collateralized
by mortgages that are insured, guaranteed or otherwise backed by the U.S.
government or its agencies or instrumentalities. These agencies and
instrumentalities include GNMA, FNMA and FHLMC. Privately-issued mortgage
securities are typically issued by private originators of, or investors in,
mortgage loans, including mortgage bankers, commercial banks, investment banks,
savings and loan associations and special purpose subsidiaries of the above
institutions.
Mortgage-backed securities represent participation interests in pools of
adjustable and fixed rate mortgage loans. Unlike conventional debt obligations,
mortgage-backed securities provide monthly
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payments derived from the monthly interest and principal payments (including any
prepayments) made by the individual borrowers on the pooled mortgage loans.
The mortgage loans underlying mortgage-backed securities are generally subject
to a greater rate of principal prepayments in a declining interest rate
environment and to a lesser rate of principal prepayments in an increasing
interest rate environment. Faster or slower than expected prepayments may reduce
the value of mortgage-backed securities in a fund's portfolio. Therefore, under
certain interest and prepayment rate scenarios, a fund may fail to recover the
full amount of its investment in mortgage-backed securities, notwithstanding any
direct or indirect governmental or agency guarantee.
Since faster than expected prepayments must usually be invested in lower
yielding securities, mortgage-backed securities are less effective than
conventional bonds at 'locking in' a specified interest rate. Conversely, in a
rising interest rate environment, a declining prepayment rate will extend the
average life of many mortgage-backed securities. This possibility is often
referred to as extension risk. Extending the average life of a mortgage-backed
security increases the risk of depreciation due to future increases in market
interest rates.
The Fund's investments in mortgage-backed securities may include conventional
mortgage passthrough securities, stripped mortgage-backed securities (SMBS) and
certain classes of multiple class collateralized mortgage obligations (CMOs).
Examples of SMBS include interest only and principal only securities. Senior CMO
classes will typically have priority over residual CMO classes as to the receipt
of principal and/or interest payments on the underlying mortgages.
The CMO classes in which the Fund may invest include sequential and parallel pay
CMOs, including planned amortization class (PAC) and target amortization class
(TAC) securities. The Fund may also invest in the floating rate mortgage-backed
securities listed under 'Structured Mortgage-Backed Securities.'
Structured Mortgage-Backed Securities. The Fund may invest in structured
mortgage-backed securities. The interest rate or, in some cases, the principal
payable at the maturity of a structured security may change positively or
inversely in relation to one or more interest rates, financial indices or other
financial indicators ('reference prices'). A structured security may be
leveraged to the extent that the magnitude of any change in the interest rate or
principal payable on a structured security is a multiple of the change in the
reference price. Thus, structured securities may decline in value due to adverse
market changes in reference prices.
The structured securities purchased by the Fud may include interest only (IO)
and principal only (PO) securities, floating rate securities linked to the Cost
of Funds Index (COFI floaters), other 'lagging rate' floating rate securities,
floating rate securities that are subject to a maximum interest rate ('capped
floaters'), leveraged floating rate securities ('super floaters'), leveraged
inverse floating rate securities ('inverse floaters'), leveraged or super IOs
and POs, inverse IOs, dual index floaters and range floaters.
Risks of Mortgage-Backed Securities. Many mortgage-backed and structured
securities are considered to be derivative instruments. Different types of
derivative securities are subject to different combinations of prepayment,
extension, interest rate and/or other market risks. Conventional mortgage
pass-through securities and sequential pay CMOs are subject to all of these
risks, but are typically not leveraged. PACs, TACs and other senior classes of
sequential and parallel pay CMOs involve less exposure to prepayment, extension
and interest rate risk than other mortgage-backed securities, provided that
prepayment rates remain within expected prepayment ranges or 'collars.'
The risk of early prepayments is the primary risk associated with mortgage IOs,
super floaters and other leveraged floating rate mortgage-backed securities. The
primary risks associated with COFI floaters, other 'lagging rate' floaters,
capped floaters, inverse floaters, POs and leveraged inverse IOs are the
potential extension of average life and/or depreciation due to rising interest
rates. The residual classes of CMOs are subject to both prepayment and extension
risk.
Other types of floating rate derivative debt securities present more complex
types of interest rate risks. For example, range floaters are subject to the
risk that the coupon will be reduced to below
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market rates if a designated interest rate floats outside of a specified
interest rate band or collar. Dual index or yield curve floaters are subject to
depreciation in the event of an unfavorable change in the spread between two
designated interest rates.
In addition to the interest rate, prepayment and extension risks described
above, the risks associated with transactions in these securities may include:
(1) leverage and volatility risk and (2) liquidity and valuation risk.
Derivative securities may sometimes increase or leverage the Fund's exposure to
a particular market risk. Leverage enhances the price volatility of derivative
securities held by the Fund.
Some derivative securities are not readily marketable or may become illiquid
under adverse market conditions. For thinly traded derivative securities, the
only source of price quotations may be the selling dealer.
ASSET-BACKED SECURITIES. Asset-backed securities may be structured as undivided
fractional ownership interests in an underlying pool of assets or as debt
instruments issued by a special purpose entity organized solely for the purpose
of owning these assets and issuing such debt. Examples of assets used to back
asset-backed securities include motor vehicle installment sales contracts,
installment loans secured by motor vehicles, receivables representing amounts
owed by businesses to vendors or other trade creditors and receivables from
revolving credit (credit card) agreements.
Asset-backed securities present certain risks. Some asset-backed securities may
be subject to the prepayment and extension risks described under
'Mortgage-Backed Securities.' Credit card receivables are generally unsecured
and the debtors are entitled to the protection of a number of state and federal
consumer credit laws, many of which give such debtors the right to set off
certain amounts owed on the credit cards, thereby reducing the balance due.
Trade receivables may also be unsecured.
Most issuers of automobile receivables permit the servicers to retain possession
of the underlying obligations. If the servicer were to sell these obligations to
another party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the related automobile receivables. In
addition, because of the large number of vehicles involved in a typical issuance
and technical requirements under state laws, the trustee for the holders of the
automobile receivables may not have a proper security interest in all of the
obligations backing these receivables. Therefore, it is possible that recoveries
on repossessed collateral may not, in some cases, be available to support
payments on these securities.
Other types of asset-backed securities will be subject to the risks associated
with the underlying assets. If a letter of credit or other form of credit
enhancement is exhausted or otherwise unavailable, holders of asset-backed
securities may also experience delays in payments or losses if the full amounts
due on underlying assets are not realized.
LOAN PARTICIPATION INTERESTS AND OTHER DIRECT DEBT INSTRUMENTS. The Fund may
purchase interests in debts owed by a corporate, governmental, or other borrower
to another party. These interests may represent amounts owed to lenders or
lending syndicates (loans and loan participations), to suppliers of goods or
services (trade claims or other receivables), or to other parties. Direct debt
instruments involve the risk of loss in case of default or insolvency of the
borrower and may offer less legal protection to the fund in the event of fraud
or misrepresentation. In addition, loan participations involve a risk of
insolvency of the lending bank or other financial intermediary. Direct debt
instruments may also include standby financing commitments that obligate the
Fund to supply additional cash to the borrower on demand. Certain direct debt
instruments may be subject to the Fund's limitation on investments in illiquid
securities.
PAYMENT-IN-KIND SECURITIES, DELAYED INTEREST AND ZERO COUPON BONDS.
Payment-in-kind, delayed interest and zero coupon bonds are securities issued at
a discount from their face value because interest payments are typically
postponed until maturity. The amount of the discount varies depending on factors
including the time remaining until maturity, prevailing interest rates, the
security's liquidity and the issuer's credit quality. These securities also may
take the form of debt securities that have been stripped of their interest
payments. A portion of the discount with
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respect to stripped tax-exempt securities or their coupons may be taxable. The
market prices in payment-in-kind, delayed interest and zero coupon bonds
generally are more volatile and sensitive to interest rate changes than the
market prices of interest-bearing securities having similar maturities and
credit quality. The Fund's investments in payment-in-kind, delayed interest and
zero coupon bonds may require the fund to sell portfolio securities to generate
sufficient cash to satisfy certain income distribution requirements.
FLOATING AND VARIABLE RATE INCOME SECURITIES. Floating and variable rate
securities and other similar securities pay interest at a rate that fluctuates
based on changes in market rates. The interest rates payable on variable rate
securities are adjusted at designated intervals (e.g., daily, weekly, monthly,
quarterly, semi-annually). The interest rates payable on floating rate
securities are adjusted whenever there is a change in a designated benchmark
interest rate or index. The value of floating and variable rate securities
generally is more stable than that of fixed rate securities in response to
interest rate changes. The Fund may consider the maturity of a variable or
floating rate security to be shorter than its final stated maturity.
STRUCTURED OR HYBRID NOTES. The amount of interest and/or principal payable on a
structured or hybrid note is based on the performance of a benchmark asset or
market index. Examples of these benchmarks include stock prices, currency
exchange rates and physical commodity prices. Investing in a structured note
allows the Fund to gain exposure to the benchmark market while fixing the
maximum loss that the fund may experience if the market does not perform as
expected. Depending on the terms of the note, the Fund may forego all or part of
the interest and principal that would be payable on a comparable conventional
fixed income security. The Fund's loss cannot exceed the amount of this foregone
interest and/or principal.
In addition to the risks associated with a direct investment in the benchmark
asset, investments in structured and hybrid notes involve the risk that the
issuer or counterparty to the obligation will fail to perform its contractual
obligations. Certain structured or hybrid notes also may be leveraged, in that
any change in the interest rate or principal payable on the benchmark asset may
be set as a multiple of changes in the benchmark price or level. Leverage
enhances the price volatility of the security and, therefore, the volatility of
the Fund's net asset value per share. Further, certain structured or hybrid
notes may be illiquid for purposes of the Fund's limitation on investments in
illiquid securities.
FOREIGN SECURITIES
FOREIGN CURRENCY DENOMINATED SECURITIES. For purposes of the Fund's percentage
limitation on investments in foreign securities, 'foreign securities' means all
securities denominated in a foreign currency. As described below, the Fund also
may invest in U.S. dollar denominated securities of foreign issuers that involve
many of the same risks as the foreign securities in which the Fund may invest.
Depositary Receipts. American Depositary Receipts (ADRs), Global Depositary
Receipts (GDRs) and other similar instruments represent an indirect ownership
interest in other securities, normally the common stock of a foreign issuer.
Depositary receipts may be a more convenient way to own foreign securities
because the holder does not need to convert between U.S. dollars and foreign
currency in connection with settlement of transactions or dividend payments and
does not need to settle transactions in the local markets. Generally, ADRs in
registered form are designed for use in U.S. securities markets, and GDRs and
other similar global instruments in bearer form are designed for use in foreign
securities markets.
ADRs are quoted in U.S. dollars and represent an interest in the right to
receive securities of foreign issuers deposited in a U.S. bank or a
corresponding bank. ADRs do not eliminate all the risk inherent in investing in
the securities of foreign issuers. However, by investing in ADRs rather than
directly in the stock of foreign issuers, the Fund will avoid currency risks
during the settlement period for either purchases or sales. GDRs are not
necessarily quoted in the same currency as the securities for which they may be
exchanged. Since depositary receipts are obligations of the issuing bank,
depositary receipts involve risk of loss or delay in obtaining the
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underlying securities in the event of a bankruptcy or liquidation of the issuing
bank. Unsponsored ADRs and depositary receipts also involve the risk that the
Fund or its custodian will not be able to receive timely information about
corporate actions or other events affecting the company that issued the
underlying securities.
DEBT OBLIGATIONS OF FOREIGN GOVERNMENTS. An investment in debt obligations of
foreign governments and their political subdivisions (sovereign debt) involves
special risks that are not present in corporate debt obligations. The foreign
issuer of the sovereign debt or the foreign governmental authorities that
control the repayment of the debt may be unable or unwilling to repay principal
or interest when due, and the Fund may have limited legal recourse in the event
of a default. During periods of economic uncertainty, the market prices of
sovereign debt may be more volatile than market prices of debt obligations of
U.S. issuers. In the past, certain foreign countries have encountered
difficulties in making their debt payments and declared moratoria on the payment
of principal and interest on their sovereign debt.
A sovereign debtor's willingness or ability to repay principal and pay interest
in a timely manner may be affected by, among other factors, its cash flow
situation, the extent of its foreign currency reserves, the availability of
sufficient foreign exchange, the relative size of its debt payment burden, the
sovereign debtor's policy toward its principal international lenders and local
political constraints. Sovereign debtors may also be dependent on expected
disbursements from other foreign governments, multilateral agencies and other
entities to reduce principal and interest arrearages on their debt. The failure
of a sovereign debtor to implement economic reforms, achieve specified levels of
economic performance or repay principal or interest when due may result in the
cancellation of third-party commitments to lend funds to the sovereign debtor,
which may further impair such debtor's ability or willingness to service its
debts.
BRADY BONDS. Brady Bonds are debt securities, generally denominated in U.S.
dollars, issued under the framework of the Brady Plan. The Brady Plan is an
initiative announced by former U.S. Treasury Secretary Nicholas F. Brady in 1989
as a mechanism for debtor nations to restructure their outstanding external
indebtedness to commercial banks. In restructuring its external debt under the
Brady Plan framework, a debtor nation negotiates with its existing bank lenders
as well as multilateral institutions such as the International Bank for
Reconstruction and Development (also known as the 'World Bank) and the
International Monetary Fund. The Brady Plan framework, as it has developed,
contemplates the exchange of external commercial bank debt for newly issued
bonds, known as Brady Bonds. Brady Bonds may also be issued in respect of new
money being advanced by existing lenders in connection with the debt
restructuring.
Brady Bonds have been issued only recently, and accordingly do not have a long
payment history. They are subject to the credit and other risks associated with
investing in below investment grade debt securities, debt securities of foreign
governments and emerging market countries.
EURODOLLAR INSTRUMENTS AND YANKEE BONDS. Eurodollar instruments are bonds of
corporate and government issuers that pay interest and principal in U.S. dollars
but are issued in markets outside the United States, primarily in Europe. Yankee
bonds are bonds of foreign governments and their agencies and foreign banks and
corporations that pay interest in U.S. dollars and are typically issued in the
U.S. The Fund may also invest in Eurodollar Certificates of Deposit (ECDs),
Eurodollar Time Deposits (ETDs) and Yankee Certificates of Deposit (Yankee CDs).
ECDs are U.S. dollar-denominated certificates of deposit issued by foreign
branches of domestic banks; ETDs are U.S. dollar-denominated deposits in a
foreign branch of a U.S. bank or in a foreign bank; and Yankee CDs are U.S.
dollar-denominated certificates of deposit issued by a U.S. branch of a foreign
bank and held in the U.S.
RISKS OF FOREIGN INVESTMENTS. Foreign investments involve considerations and
risks not typically associated with investing in the securities of U.S. issuers.
These risks are greater for investments in countries with emerging markets and
economies. The risks of investing in securities of foreign issuers or issuers
with significant exposure to foreign markets may be related, among other things,
to:
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differences in size, liquidity and volatility of, and the degree and
manner of regulation of, the securities markets of certain foreign markets
compared to the securities markets in the U.S.;
economic, political and social factors; and
foreign exchange matters, such as restrictions on the repatriation of
capital, fluctuations in exchange rates between the U.S. dollar and the
currencies in which the Fund's portfolio securities are quoted or
denominated, exchange control regulations and costs associated with
currency exchange.
The political and economic structures in certain foreign countries, particularly
emerging markets, are expected to undergo significant evolution and rapid
development, and these countries may lack the social, political and economic
stability characteristic of more developed countries. Unanticipated political or
social developments may adversely affect the values of the Fund's investments in
these countries.
Economies in individual foreign countries may differ favorably or unfavorably
from the U.S. economy in growth of gross domestic product, rates of inflation,
currency valuation, capital reinvestment, resource self-sufficiency and balance
of payments positions. Many foreign countries have experienced substantial, and
in some cases extremely high, rates of inflation for many years. Inflation and
rapid fluctuations in inflation rates have had, and may continue to have, very
negative effects on the economies and securities markets of certain emerging
countries.
There may be less publicly available information about foreign markets and
issuers than is available with respect to U.S. securities and issuers. Foreign
companies generally are not subject to accounting, auditing and financial
reporting standards, practices and requirements comparable to those applicable
to U.S. companies.
The trading markets for many foreign securities are less liquid and subject to
greater price volatility than the markets for comparable securities in the U.S.
Even the markets for relatively widely traded securities in certain foreign
markets may not be able to absorb, without price disruptions, a significant
increase in trading volume or trades of a size customarily undertaken by
institutional investors in the U.S. Additionally, market making and arbitrage
activities are generally less extensive in such markets, which may contribute to
increased volatility and reduced liquidity. The less liquid a market, the more
difficult it may be for the Fund to accurately price its portfolio securities or
to dispose of its securities at the times determined by the manager to be
appropriate. The risks associated with reduced liquidity may be particularly
acute when the fund's operations require cash, such as in order to meet
redemptions and to pay its expenses.
In addition, foreign securities markets have settlement and clearance procedures
that differ from those in the U.S. In certain markets, settlements have at times
been unable to keep pace with the volume of securities transactions, making it
difficult to conduct these transactions. The inability of the Fund to make
intended securities purchases due to settlement problems could cause the Fund to
miss attractive investment opportunities. Inability to dispose of a portfolio
security caused by settlement problems either could result in losses to the Fund
due to a subsequent decline in value of the portfolio security or could result
in possible liability to the Fund. In addition, security settlement and
clearance procedures in some foreign countries may not fully protect the Fund
against the loss or theft of its assets.
Investing in certain foreign countries also involves the risk of expropriation,
nationalization, confiscation of assets and property or the imposition of
restrictions on foreign investments and on repatriation of capital invested. In
the event that expropriation, nationalization or other confiscation occurs, the
Fund could lose its entire investment in that country.
CURRENCY RISKS. The value of the securities quoted or denominated in
international currencies may be adversely affected by fluctuations in relative
currency exchange rates and by exchange control regulations. The Fund's
investment performance may be negatively affected by a devaluation of a currency
in which the Fund's investments are quoted or denominated. In general, the
Fund's investment performance may be affected, either positively or negatively,
by currency exchange rates because the U.S. dollar value of securities quoted or
denominated in another currency will increase
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or decrease in response to changes in the value of such currency in relation to
the U.S. dollar. Exchange rates are generally affected by the forces of supply
and demand in the international currency markets, the relative merits of
investing in different countries and the degree of intervention by U.S. or
foreign governments and central banks in the currency markets.
CUSTODIAN SERVICES AND RELATED INVESTMENT COSTS. Custodial and similar services
needed to invest in international securities markets generally are more
expensive than in the U.S.
WITHHOLDING AND OTHER TAXES. The Fund will be subject to taxes, including
withholding taxes, on income (possibly including, in some cases, capital gains)
that are or may be imposed by certain foreign countries with respect to the
fund's investments in such countries. These taxes will reduce the return
achieved by the Fund. Treaties between the U.S. and such countries may not be
available to reduce the otherwise applicable tax rates.
ECONOMIC AND MONETARY UNION (EMU). EMU occurred on January 1, 1999, when 11
European countries adopted a single currency -- the euro. For participating
countries, EMU means sharing a single currency and single official interest rate
and adhering to agreed upon limits on government borrowing. Budgetary decisions
remain in the hands of each participating country, but are now subject to each
country's commitment to avoid 'excessive deficits' and other more specific
budgetary criteria. A European Central Bank is responsible for setting the
official interest rate to maintain price stability within the euro zone.
EMU is driven by the expectation of a number of economic benefits, including
lower transaction costs, reduced exchange risk, greater competition, and a
broadening and deepening of European financial markets. However, there are
several significant risks associated with EMU. Monetary and economic union on
this scale has never been attempted before. There is a significant degree of
uncertainty as to whether participating countries will remain committed to EMU
in the face of changing economic conditions. This uncertainty may increase the
volatility of European markets and may adversely affect the prices of securities
of European issuers in the Fund's portfolio.
INVESTING IN EMERGING MARKETS. Investing in securities of issuers in emerging
markets involves exposure to significantly higher risks than investing in
foreign countries with developed markets. Certain emerging market countries may
be subject to a greater degree of economic, political and social instability
than is present in the U.S. and Western European countries. This instability may
result from, among other things:
authoritarian governments or military involvement in political and
economic decision making;
popular unrest associated with demands for improved economic, political
and social conditions;
internal insurgencies;
hostile relations with neighboring countries; and
ethnic, religious and racial disaffection and conflict.
Such economic, political and social instability could significantly disrupt the
financial markets in such countries and the ability of the issuers in those
countries to repay their obligations.
There is also a greater risk of expropriation, nationalization or other
confiscation of assets and property in emerging market countries. Certain
emerging market countries restrict or control investment in their securities
markets. These restrictions may limit the Fund's ability to invest in those
markets and may increase the expenses of the Fund. In addition, the repatriation
of both investment income and capital from certain emerging market countries is
subject to restrictions such as the need for governmental consents. These
restrictions may affect the market price, liquidity and rights of securities
held by the Fund. Even where there is no outright restriction on repatriation of
capital, the mechanics of repatriation may adversely affect the Fund's
operations.
In addition, existing laws and regulations are often inconsistently applied. As
legal systems in emerging market countries develop, foreign investors may be
adversely affected by new or amended laws and regulations. Even where adequate
laws exist, it may not be possible to obtain swift and equitable enforcement of
the law.
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Economies in emerging market countries generally are heavily dependent upon
international trade and, accordingly, have been and may continue to be affected
adversely by trade barriers, exchange controls, managed adjustments in relative
currency values and other protectionist measures imposed or negotiated by the
countries with which they trade. These economies also have been, and may
continue to be, affected adversely by economic conditions in the countries with
which they trade. Settlement procedures in emerging market countries are less
developed and reliable than those in the United States and in other developed
markets. Significant delays are common in registering transfers of securities,
and the Fund may be unable to sell these securities until the registration
process is completed and may experience delays in receipt of dividends and other
entitlements. There is also less government supervision and regulation of
foreign securities exchanges, brokers and listed companies in emerging market
countries than exists in the United States and other developed foreign markets.
Brokers in emerging market countries may not be as well capitalized as those in
the United States, and are more susceptible to financial failure in times of
market, political or economic stress.
LENDING AND BORROWING TRANSACTIONS
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
broker-dealers, member banks of the Federal Reserve System and other financial
institutions. Repurchase agreements are arrangements under which the Fund
purchases securities and the seller agrees to repurchase the securities within a
specific time and at a specific price. The repurchase price is generally higher
than the fund's purchase price, with the difference being income to the fund.
The counterparty's obligations under the repurchase agreement are collateralized
with U.S. government securities with a market value of not less than 100% of the
counterparty's obligations, valued daily. Collateral is held by the Fund's
custodian for the benefit of the Fund.
Repurchase agreements afford the Fund an opportunity to earn income on
temporarily available cash at low risk. If bankruptcy or insolvency proceedings
are commenced with respect to the counterparty before repurchase of the security
under a repurchase agreement, the Fund may encounter delay and incur costs
before being able to sell the security. Such a delay may involve loss of
interest or a decline in price of the security. If the court characterizes the
transaction as a loan and the Fund has not perfected a security interest in the
security, the Fund may be required to return the security to the seller's estate
and be treated as an unsecured creditor of the seller. As an unsecured creditor,
the Fund would be at risk of losing some or all of the principal and interest
involved in the transaction.
To minimize the risk of counterparty default, the Board of Directors reviews and
monitors the creditworthiness of any institution which enters into a repurchase
agreement with the Fund.
PORTFOLIO SECURITIES LOANS. The Fund may lend portfolio securities to
unaffiliated brokers, dealers and financial institutions, provided that the
borrower must deposit with the Fund collateral, in the form of cash, equal to at
least 100% of the market value of the loaned securities, marked to market daily.
While the securities are on loan, the borrower must pay the Fund any income
accruing thereon. The borrower also compensates the Fund by paying a loan fee or
by allowing the Fund to retain any income earned on the investment of the cash
collateral in portfolio securities. Although investment of the collateral may
increase the Fund's potential return, it will also increase the Fund's potential
for loss.
The Fund normally will lend securities subject to termination by the Fund in the
normal settlement time or by the borrower on one day's notice. The borrower must
return the securities, and the Fund must return the collateral, when the loan is
terminated. Any gain or loss in the market price of the borrowed securities that
occurs during the term of the loan is borne by the Fund and its shareholders,
except that gains cannot be realized if the borrower defaults on its obligation
to return the borrowed securities. The Fund may pay reasonable finders',
administrative and custodial fees in connection with a loan of securities.
SHORT SALES 'AGAINST THE BOX'. The Fund may from time to time make short sales
against the box. In a short sale, the Fund borrows from a broker or bank
securities identical to those being
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sold and delivers the borrowed securities to the buying party. The Fund is said
to have a short position in the securities sold until it replaces the borrowed
securities, at which time it receives the proceeds of the sale. A short sale is
'against the box' if the Fund owns or has the right to acquire at no added cost
securities identical to those sold short.
LEVERAGE. The Fund may engage in 'leverage' by entering into reverse repurchase
agreements or by borrowing from banks, on a secured or unsecured basis and using
the proceeds of the borrowings to make additional investments. Leverage, which
involves interest costs to the Fund, creates an opportunity for increased
returns, but also creates a risk of greater losses. The Fund's use of leverage
to make additional investments for its portfolio will improve the fund's
performance only if the amount of income and appreciation from these additional
investments exceeds the Fund's leverage-related costs. These investments will
reduce the Fund's performance if the Fund's leverage-related costs exceed the
amount of the income and appreciation from the securities. If these investments
lose value, the resulting losses to the Fund will be greater than if the Fund
did not use leverage because the Fund will be obligated to repay principal and
interest on the borrowed money in addition to having investment losses. Further,
the Fund might have to liquidate securities to cover its leverage-related costs
or repay principal. Depending on market or other conditions, these liquidations
could be disadvantageous to the Fund. Therefore, leverage may exaggerate changes
in the Fund's net asset value or yield.
REVERSE REPURCHASE AGREEMENTS. Reverse repurchase agreements are arrangements
under which the Fund sells securities and agrees to repurchase the securities
within a specific time and at a specified price. The repurchase price is
generally higher than the Fund's sale price, with the difference representing
the cost to the Fund of borrowing the cash received on the sale. Reverse
repurchase agreements involve the risk that the market value of the securities
which the Fund is obligated to repurchase may decline below the repurchase price
or that the counterparty may default on its obligation to resell the securities.
Repurchase agreements are considered to be a form of, and are subject to the
Fund's restrictions on, borrowing.
SHORT-TERM BORROWING. The Fund may borrow cash on a short-term basis to
facilitate the settlement of securities transactions or to satisfy redemption
requests. The Fund is limited as to the amount of money it can borrow on a
short-term or temporary basis by its restriction on borrowing. See 'Fundamental
Restrictions'.
DERIVATIVE TRANSACTIONS
OPTIONS ON SECURITIES, SECURITIES INDICES AND CURRENCY. The Fund may purchase
and sell call and put options on any security, securities index or currency that
the Fund may invest in. (The sale of an option is also known as writing an
option.) Options may be listed on U.S. or foreign exchanges or entered into
directly with a broker, dealer or other counterparty. The Fund may enter into
options transactions to seek to increase total return, as a substitute for the
purchase or sale of securities or currency, or to protect against declines in
the value of portfolio securities and against increases in the cost of
securities to be acquired. The Fund may enter into straddles, which involves
combining the writing and purchase of options on the same underlying asset or
index.
Writing Covered Options. A call option on securities or currency written by the
Fund obligates the Fund to sell specified securities or currency to the holder
of the option at a specified price if the option is exercised at any time before
the expiration date. A put option on securities or currency written by the Fund
obligates the Fund to purchase specified securities or currency from the option
holder at a specified price if the option is exercised at any time before the
expiration date. A securities index call or put option written by the Fund
obligates the Fund, upon exercise, to make a cash payment to the holder based on
the increase or decrease in the price of a group of securities or segment of the
securities market. Writing call options may deprive the Fund of the opportunity
to profit from an increase in the market price of the securities or foreign
currency assets in its portfolio. Writing put options may deprive the Fund of
the opportunity to profit from a decrease in the market price of the securities
or foreign currency assets to be acquired for its portfolio.
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All call and put options written by the Fund are covered. A written call option
or put option may be covered by (1) maintaining cash or liquid securities,
either of which may be quoted or denominated in any currency, in a segregated
account with a value at least equal to the Fund's obligation under the option,
(2) entering into an offsetting forward commitment and/or (3) purchasing an
offsetting option or any other option which, by virtue of its exercise price or
otherwise, reduces the Fund's net exposure on its written option position. A
written call option on securities is typically covered by maintaining the
securities that are subject to the option in a segregated account. The Fund may
cover call options on a securities index by owning securities whose price
changes are expected to be similar to those of the underlying index.
The Fund may terminate its obligations under an exchange traded option that it
has written by purchasing an identical option. Obligations under an
over-the-counter option may be terminated only by entering into an offsetting
transaction with the counterparty to the option. These purchases are referred to
as 'closing purchase transactions.'
Purchasing Options. The Fund would normally purchase call options in
anticipation of an increase, or put options in anticipation of a decrease
('protective puts'), in the market value of securities or currencies of the type
in which it may invest. The Fund may also sell call and put options to close out
its purchased options.
The purchase of a call option entitles the Fund, in return for the premium paid,
to purchase specified securities or currency at a specified price during the
option period. A securities index call purchased by the Fund entitles the Fund,
upon exercise, to receive a cash payment from the other party based on an
increase in the level of the index. The Fund would realize a gain on the
purchase of a call option only if the Fund exercises or sells the option at a
time when the value of the underlying securities or currency subject to the
option exceeds the sum of the exercise price, the premium paid and transaction
costs. If the option expires unexercised, the Fund will lose the premium paid
for the option and any transaction costs.
The purchase of a put option entitles the Fund, in exchange for the premium
paid, to sell specified securities or currency at a specified price during the
option period. A securities index put option purchased by the Fund entitles the
fund, upon exercise, to receive a cash payment based on a decrease in the level
of the index. The purchase of protective puts is designed to offset or hedge
against a decline in the U.S. dollar market value of the Fund's portfolio
securities. Put options may also be purchased by the Fund for the purpose of
affirmatively benefiting from a decline in the price of securities or currencies
which it does not own. The Fund would realize a gain only if the Fund exercises
or sells the option at a time when the value of the underlying securities or
currency subject to the option declines below the exercise price sufficiently to
cover the premium and transaction costs. Gains and losses on the purchase of put
options may be offset by countervailing changes in the value of the Fund's
portfolio securities. If the option expires unexercised, the Fund will lose the
premium paid for the option and any transaction costs.
Yield Curve Options. The Fund may also enter into 'yield curve' options, which
are based on the 'spread,' or yield differential, between two fixed income
securities. In contrast to other types of options, a yield curve option is based
on the difference between the yields of designated securities, rather than the
prices of the individual securities, and is settled through cash payments.
Accordingly, a yield curve option is profitable to the holder if this
differential widens (in the case of a call) or narrows (in the case of a put),
regardless of whether the yields of the underlying securities increase or
decrease.
Risks Associated with Options Transactions. There is no assurance that a liquid
secondary market on a domestic or foreign options exchange will exist for any
particular exchange-traded option or at any particular time. If the Fund is
unable to effect a closing purchase transaction with respect to covered options
it has written, the Fund will not be able to sell the underlying securities or
currencies or dispose of assets held in a segregated account until the options
expire or are exercised. Similarly, if the Fund is unable to effect a closing
sale transaction with respect to options it has purchased, it will have to
exercise the options in order to realize any profit and will incur transaction
costs upon the purchase or sale of underlying securities or currencies.
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Reasons for the absence of a liquid secondary market on an exchange may include
one or more of the following:
Insufficient trading interest in certain options.
Trading halts, suspensions or other restrictions imposed by an exchange.
Unusual or unforeseen interruptions in the normal operations on an
exchange.
The facilities of an exchange or the Options Clearing Corporation may not
at all times be adequate to handle current trading volume.
An exchange discontinues the trading of options (or a particular class or
series of options).
The Fund's options transactions will be subject to limitations established by
each of the exchanges, boards of trade or other trading facilities on which
these options are traded. These limitations govern the maximum number of options
in each class which may be written or purchased by a single investor or group of
investors acting in concert, regardless of whether the options are written or
purchased on the same or different exchanges, boards of trade or other trading
facilities or are held or written in one or more accounts or through one or more
brokers. Thus, the number of options which the Fund may write or purchase may be
affected by options written or purchased by other investment advisory clients of
the investment manager. An exchange, board of trade or other trading facility
may order the liquidation of positions found to exceed these limits, and it may
impose certain other sanctions.
The Fund's ability to terminate over-the-counter options is more limited than
with exchange-traded options. The investment manager determines the liquidity of
the Fund's over-the-counter options in accordance with guidelines adopted by the
Board. The Fund would lose the benefit of an over-the-counter option if the
counterparty is unable to fulfill its obligations.
The writing and purchase of options is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. The successful use of options
depends in part on the ability of the investment manager to predict future price
fluctuations and, for hedging transactions, the degree of correlation between
the options and securities or currency markets.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. To seek to increase total
return or hedge against changes in interest rates, securities prices or currency
exchange rates, the Fund may purchase and sell various kinds of futures
contracts, and purchase and write call and put options on these futures
contracts. The Fund may also enter into closing purchase and sale transactions
with respect to any of these contracts and options. The futures contracts may be
based on various securities (such as U.S. government securities), securities
indices, currencies and any other financial instruments and indices. All futures
contracts and options on futures entered into by the Fund are traded on U.S. or
foreign exchanges or boards of trade that are licensed, regulated or approved by
the Commodity Futures Trading Commission (CFTC).
Futures Contracts. A futures contract is an agreement between two parties to buy
and sell particular financial instruments or currencies for an agreed price
during a designated month (or to deliver the final cash settlement price, in the
case of a contract relating to an index or otherwise not calling for physical
delivery at the end of trading in the contract).
Positions taken in the futures markets are not normally held to maturity but are
instead liquidated through offsetting transactions which may result in a profit
or a loss. While futures contracts on securities or currency will usually be
liquidated in this manner, the Fund may instead make, or take, delivery of the
underlying securities or currency whenever it appears economically advantageous
to do so. A clearing corporation associated with the exchange on which futures
contracts are traded guarantees that, if still open, the sale or purchase will
be performed on the settlement date.
Hedging and Other Strategies. Hedging is an attempt to establish the effective
price or rate of return on portfolio securities or securities that the Fund
proposes to acquire or the exchange rate of currencies in which portfolio
securities are quoted or denominated. When interest rates are rising or
securities prices are falling, the Fund can seek to offset a decline in the
value of its
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current portfolio securities through the sale of futures contracts. When
interest rates are falling or securities prices are rising, the Fund, through
the purchase of futures contracts, can attempt to secure better rates or prices
than might later be available in the market when it effects anticipated
purchases. Similarly, the Fund may seek to offset anticipated changes in the
value of a currency in which its portfolio securities, or securities that it
intends to purchase, are quoted or denominated by purchasing and selling futures
contracts on these currencies.
The Fund may, for example, take a 'short' position in the futures market by
selling futures contracts in an attempt to hedge against an anticipated rise in
interest rates or a decline in market prices or foreign currency rates that
would adversely affect the dollar value of the Fund's portfolio securities.
These futures contracts may include contracts for the future delivery of
securities held by the Fund or securities with characteristics similar to those
of the Fund's portfolio securities. Similarly, the Fund may sell futures
contracts on any currencies in which its portfolio securities are quoted or
denominated or in one currency to hedge against fluctuations in the value of
securities denominated in a different currency if there is an established
historical pattern of correlation between the two currencies.
If, in the opinion of the investment manager, there is a sufficient degree of
correlation between price trends for the Fund's portfolio securities and futures
contracts based on other financial instruments, securities indices or other
indices, the Fund may also enter into these futures contracts as part of its
hedging strategy. Although under some circumstances prices of securities in the
Fund's portfolio may be more or less volatile than prices of these futures
contracts, the investment manager will attempt to estimate the extent of this
volatility difference based on historical patterns and compensate for any
differential by having the Fund enter into a greater or lesser number of futures
contracts or by attempting to achieve only a partial hedge against price changes
affecting the Fund's portfolio securities.
When a short hedging position is successful, any depreciation in the value of
portfolio securities will be substantially offset by appreciation in the value
of the futures position. On the other hand, any unanticipated appreciation in
the value of the Fund's portfolio securities will be substantially offset by a
decline in the value of the futures position.
On other occasions, the Fund may take a 'long' position by purchasing futures
contracts. This would be done, for example, when the Fund anticipates the
subsequent purchase of particular securities when it has the necessary cash, but
expects the prices or currency exchange rates then available in the applicable
market to be less favorable than prices that are currently available. The Fund
may also purchase futures contracts as a substitute for transactions in
securities or foreign currency, to alter the investment characteristics of or
currency exposure associated with portfolio securities or to gain or increase
its exposure to a particular securities market or currency.
Options on Futures Contracts. The Fund may purchase and write options on futures
for the same purposes as its transactions in futures contracts. The purchase of
put and call options on futures contracts will give the Fund the right (but not
the obligation) for a specified price to sell or to purchase, respectively, the
underlying futures contract at any time during the option period. As the
purchaser of an option on a futures contract, the Fund obtains the benefit of
the futures position if prices move in a favorable direction but limits its risk
of loss in the event of an unfavorable price movement to the loss of the premium
and transaction costs.
The writing of a call option on a futures contract generates a premium which may
partially offset a decline in the value of the Fund's assets. By writing a call
option, the Fund becomes obligated, in exchange for the premium (upon exercise
of the option), to sell a futures contract if the option is exercised, which may
have a value higher than the exercise price. Conversely, the writing of a put
option on a futures contract generates a premium which may partially offset an
increase in the price of securities that the Fund intends to purchase. However,
the Fund becomes obligated (upon exercise of the option) to purchase a futures
contract if the option is exercised, which may have a value lower than the
exercise price. The loss incurred by the Fund in writing options on futures is
potentially unlimited and may exceed the amount of the premium received.
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The holder or writer of an option on a futures contract may terminate its
position by selling or purchasing an offsetting option of the same series. There
is no guarantee that these closing transactions can be effected. The Fund's
ability to establish and close out positions in these options will be subject to
the development and maintenance of a liquid market.
Regulatory Restrictions. The Fund will engage in futures and related options
transactions either for bona fide hedging purposes or to seek to increase total
return as permitted by the CFTC. To the extent that the Fund is using futures
and related options for hedging purposes, futures contracts will be sold to
protect against a decline in the price of securities (or the currency in which
they are quoted or denominated) that the Fund owns or futures contracts will be
purchased to protect the Fund against an increase in the price of securities (or
the currency in which they are quoted or denominated) it intends to purchase.
The Fund will determine that the price fluctuations in the futures contracts and
options on futures used for hedging purposes are substantially related to price
fluctuations in securities held by the Fund or securities or instruments which
it expects to purchase. As evidence of the Fund's hedging intent, on 75% or more
of the occasions on which it takes a long futures or option position (involving
the purchase of futures contracts), the Fund must have purchased, or be in the
process of purchasing, equivalent amounts of related securities (or assets
denominated in the related currency) in the cash market at the time when the
futures or option position is closed out. However, in particular cases, when it
is economically advantageous for the Fund to do so, a long futures position may
be terminated or an option may expire without the corresponding purchase of
securities or other assets.
To the extent that the Fund engages in nonhedging transactions in futures
contracts and options on futures, the aggregate initial margin and premiums
required to establish these nonhedging positions may not exceed 5% of the net
asset value of the Fund's portfolio, after taking into account unrealized
profits and losses on any such positions and excluding the amount by which these
options were in-the-money at the time of purchase.
Transactions in futures contracts and options on futures involve brokerage
costs, require margin deposits and, in the case of contracts and options
obligating the Fund to purchase securities or currencies, require the fund to
maintain a segregated account consisting of cash or liquid securities in an
amount equal to the underlying value of these contracts and options. This
account must be adjusted daily to compensate for any decline in the value of the
segregated assets.
Risks. While transactions in futures contracts and options on futures may reduce
certain risks, these transactions themselves entail other risks. For example,
unanticipated changes in interest rates, securities prices or currency exchange
rates may result in a poorer overall performance for the Fund than if it had not
entered into any futures contracts or options transactions.
Perfect correlation between the Fund's futures positions and portfolio positions
will be impossible to achieve. In the event of an imperfect correlation between
a futures position and the portfolio position to be hedged, the desired
protection may not be obtained and the Fund may be exposed to risk of loss. In
addition, it is not possible to hedge fully or protect against currency
fluctuations affecting the value of securities denominated in foreign currencies
because the value of these securities is likely to fluctuate as a result of
independent factors not related to currency fluctuations.
Some futures contracts or options on futures may become illiquid under adverse
market conditions. In addition, during periods of market volatility, a commodity
exchange may suspend or limit trading in a futures contract or related option,
which may make the instrument temporarily illiquid and difficult to price.
Commodity exchanges may also establish daily limits on the amount that the price
of a futures contract or related option can vary from the previous day's
settlement price. Once the daily limit is reached, no trades may be made that
day at a price beyond the limit. This may prevent the Fund from closing out
positions and limiting its losses.
FORWARD CURRENCY TRANSACTIONS. The Fund may also enter into forward currency
exchange contracts. These contracts provide for the purchase or sale of a
specified currency at a specified settlement date. A forward contract may
provide for the exchange of two foreign currencies or the exchange or the U.S.
dollar for a foreign currency.
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<PAGE>
The Fund may enter into forward contracts to purchase foreign currencies to
offset an anticipated rise in the U.S. dollar price of securities it intends to
purchase. In addition, the Fund may enter into forward contracts to sell foreign
currencies to protect against a decline in the dollar value of its foreign
currency quoted or denominated portfolio securities, or a decline in the dollar
value of anticipated dividends from these securities. The Fund may also enter
into forward contracts as a substitute for currency transactions, to alter the
currency exposure associated with a particular investment or to gain or increase
its exposure to a particular currency.
The Fund may engage in proxy or cross hedging. This involves entering into a
contract for a different currency than the one being hedged, based on a
historical or expected correlation between price changes in the contract
currency and price changes in the hedged currency. Proxy hedging involves a risk
that this correlation will suddenly disappear, which would increase the Fund's
foreign currency risk instead of reducing it.
If the Fund enters into a forward currency exchange contract to buy currency,
the Fund will be required to maintain cash or liquid securities in a segregated
account in an amount equal to the value of the currency to be delivered by the
Fund under the forward contract. The assets in this account must be adjusted
daily to compensate for any decline in the value of the segregated assets or
increase in the value of the currency to be delivered by the Fund.
Forward currency exchange contracts are subject to the same market and
correlation risks as currency futures contracts. Contracts to purchase currency
could deprive the Fund of the benefit of a decline in the dollar value of
foreign securities that it intends to acquire. Contracts to sell currency could
limit any potential gain which might be realized by the fund if the value of the
hedged currency increased.
Forward contracts are traded over-the-counter, which provides less protection
against counterparty defaults than is available for currency futures and options
traded on an exchange. For example, a forward currency exchange contract is not
guaranteed by an exchange or clearing corporation. If a counterparty failed to
meet its obligations under a forward contract, the contract would not provide an
effective hedge against currency losses and the Fund would be deprived of any
profits on the contract. In addition, the Fund's ability to terminate forward
contracts is more limited than with exchange-traded futures and options.
INTEREST RATE, EQUITY AND CURRENCY SWAPS, CAPS, FLOORS AND COLLARS. The Fund may
enter into interest rate, equity and currency swaps, caps, floors and collars to
hedge assets or liabilities or to seek to increase total return. Interest rate,
equity and currency swaps involve the exchange by the Fund with another party of
their respective commitments to make or receive payments based on a notional
principal amount. The purchase of an interest rate, equity or currency cap
entitles the purchaser, to the extent that a specified benchmark rate or index
exceeds a predetermined level, to receive payments on a contractually-based
principal amount from the party selling the cap. The purchase of an interest
rate, equity or currency floor entitles the purchaser, to the extent that a
specified benchmark rate or index falls below a predetermined level, to receive
payments on a contractually-based principal amount from the party selling the
floor. A collar is a combination of a cap and a floor that preserves a certain
rate of return within a predetermined range of values.
Most interest rate and equity swaps are entered into on a net basis (i.e., the
two payment streams are netted out), with the fund receiving or paying only the
net amount of the two payments. Most currency swaps do not provide for the
netting of payment streams but instead require each party to deliver the entire
(gross) payment stream to the other party.
There is no limit on the amount of swap, cap, floor and collar transactions that
the Fund may enter into. These transactions do not involve the delivery of the
underlying notional assets. Accordingly, the Fund's risk of loss is limited to
the net or gross amount of payments that the Fund is contractually obligated to
make, if any.
The Fund will maintain a segregated account consisting of cash and liquid
securities in an amount equal to the net amount of the excess, if any, of the
Fund's obligations over its entitlements under each swap entered into on a net
basis. If the Fund enters into a swap on a gross basis or sells a cap, floor or
collar, the amount of assets in the segregated account will equal the gross
amount of
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the Fund's delivery obligations under the swap, cap, floor or collar. The assets
in this account must be adjusted daily to compensate for any decline in the
value of the segregated assets or increase in the value of the payment stream to
be delivered by the Fund.
The Fund will enter into interest rate and equity swap, cap, floor or collar
transactions only with counterparties that meet credit quality standards
established by the Board. The investment manager will monitor the
creditworthiness of these counterparties on an ongoing basis. However, there is
a risk that a counterparty may default on its obligations under a swap, cap,
floor or collar. A counterparty default would eliminate any hedging effect of,
and the Fund would be deprived of any profits on, the swap, cap, floor or
collar.
The use of swaps, caps, floors and collars is a highly specialized activity
which involves investment techniques and risks different from those associated
with ordinary portfolio securities transactions. If the investment manager
incorrectly forecasts market values, interest rates or currency exchange rates,
the Fund will perform less well than if it had not engaged in these
transactions. There is a risk that changes in the value of a swap, cap, floor or
collar may correlate imperfectly with changes in the price of the asset or
liability being hedged.
Swaps, caps, floors and collars are not traded on exchanges but instead are
entered into directly with counterparties. This may limit the Fund's ability to
dispose of or terminate these instruments, which would prevent the Fund from
avoiding future losses or locking in profits on its positions in swaps, caps,
floors and collars. The investment manager will determine the liquidity of the
Fund's positions in swaps, caps, floors and collars in accordance with
guidelines adopted by the Board.
OTHER TRANSACTIONS, POLICIES AND RISKS
'WHEN-ISSUED', 'DELAYED DELIVERY' AND 'FORWARD COMMITMENT' SECURITIES. The Fund
may purchase or sell securities in a transaction where the payment obligation
and interest rate on the securities are fixed at the time the Fund enters into
the commitment, but interest will not accrue to the Fund until delivery of and
payment for the securities. Securities purchased or sold in this way,
alternatively referred to as 'when issued', 'delayed delivery' or 'forward
commitment' securities, may have a market value on delivery which is less than
the amount paid by the Fund. Although the Fund will only make commitments to
purchase securities on a forward commitment basis with the intention of actually
acquiring the securities, the Fund may sell the securities before the settlement
date if deemed advisable by the investment manager. Unless the Fund has entered
into an offsetting agreement to sell the securities purchased on a forward
commitment basis, it will maintain a segregated account consisting of cash or
liquid securities with a value equal to the Fund's purchase commitment. The
assets in this account must be adjusted daily to compensate for any decline in
the value of the segregated assets.
TEMPORARY INVESTMENTS. Under unusual economic or market conditions as determined
by the investment manager, the Fund may depart from its investment goal and
invest without limitation in all types of money market instruments and
short-term debt securities, including U.S. government securities; certificates
of deposit, time deposits and bankers' acceptances issued by domestic banks
(including their branches located outside the United States and subsidiaries
located in Canada), domestic branches of foreign banks, savings and loan
associations and similar institutions; high grade commercial paper; and
repurchase agreements. To the extent the Fund is investing in short-term
investments as a temporary defensive strategy, the Fund's investment objective
may not be achieved.
PORTFOLIO TURNOVER AND SHORT TERM TRADING. The Fund may purchase or sell
securities without regard to the length of time the security has been held and
thus may experience a high rate of portfolio turnover. A 100% turnover rate
would occur, for example, if all the securities in a portfolio were replaced in
a period of one year. High portfolio turnover may involve correspondingly
greater transaction costs, including any brokerage commissions, which are borne
directly by the Fund. These costs may increase the recognition of short-term,
rather than long-term, capital gains if securities are held for one year or
less, and may thus subject the Fund to greater tax liability.
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<PAGE>
Restricted and Illiquid Securities. The Fund may purchase securities that are
not registered under the Securities Act of 1933 (1933 Act) or that are subject
to other restrictions on their resale ('restricted securities'). These
securities may be resold only in privately negotiated transactions and may not
be publicly offered and sold until they are registered under the 1933 Act.
Restricted securities tend to sell at a lower price than would be available if
they were not restricted. Although it may be possible to eliminate restrictions
on resale by registering securities under the 1933 Act, this would involve an
extra cost to the Fund and the possibility that the securities might go down in
value before the Fund was able to sell them. Restricted securities can also be
difficult to value accurately.
Restricted securities are subject to the Fund's investment restriction on
illiquid investments, unless they are commercial paper offered in accordance
with Section 4(2) of the 1933 Act or securities eligible for resale in reliance
on Rule 144A under the 1933 Act. Section 4(2) commercial paper and Rule 144A
securities will not be subject to the Fund's investment restriction on illiquid
investments if the investment manager determines, in accordance with policies
and procedures adopted by the Board, that these securities are in fact liquid.
These policies and procedures require the manager to consider, among other
things, (1) the frequency of trades and quotes for the security, (2) the number
of dealers willing to sell the security, (3) the number of potential purchasers,
(4) dealer undertakings to make a market in the security, (5) the nature of the
security and (6) the time needed to dispose of the security. The Board
periodically reviews purchases and sales of Section 4(2) commercial paper and
Rule 144A securities by the Fund. To the extent that liquid Section 4(2)
commercial paper or Rule 144A securities held by the Fund become temporarily
illiquid, due to the lack of sufficient qualified institutional buyers or market
or other conditions, the percentage of assets invested in illiquid assets would
increase.
Any security that was liquid when acquired by a Fund may later become illiquid,
especially during adverse market conditions for that type of security. A
perceived loss of liquidity may further reduce the value of securities in
declining markets. The Fund may be forced to sell less liquid securities at a
substantial loss if it receives a high volume of redemption requests.
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<PAGE>
INVESTMENT RESTRICTIONS
The Company has adopted investment restrictions 1 through 7 below as fundamental
policies with respect to the Fund. Under the terms of the 1940 Act, these
fundamental policies may not be changed with respect to the Fund without the
vote of a majority of the outstanding voting securities of the Fund. A
'majority' is defined in the 1940 Act as the lesser of (a) 67% or more of the
shares present at a shareholder meeting, if the holders of more than 50% of the
outstanding shares of the Fund are present or represented by proxy, or (b) more
than 50% of the outstanding shares. Set forth below are the investment policies
of the Company.
The investment policies adopted by the Company prohibit the Company from:
1. Investing in a manner that would cause it to fail to be a 'diversified
company' under the 1940 Act and the rules, regulations and orders
thereunder.
2. Issuing 'senior securities' as defined in the 1940 Act and the rules,
regulations and orders thereunder except as permitted under the 1940
Act and the rules, regulations and orders thereunder.
3. Investing more than 25% of its total assets in securities, the issuers
of which conduct their principal business activities in the same
industry. For purposes of this limitation, securities of the U.S.
government (including its agencies and instrumentalities) and
securities of state or municipal governments and their political
subdivisions are not considered to be issued by members of any
industry.
4. Borrowing money, except that (a) the Fund may borrow from banks for
temporary or emergency (not leveraging) purposes, including the meeting
of redemption requests which might otherwise require the untimely
disposition of securities, and (b) the Fund may to the extent
consistent with its investment policies, enter into reverse purchase
agreements, forward roll transactions and similar investment strategies
and techniques. To the extent that it engages in transactions described
in (a) and (b), the Fund will be limited so that no more than 33 1/3%
of the value of its total assets (including the amount borrowed),
valued at the lesser of cost or market, less liabilities (not including
the amount borrowed), is derived from such transactions.
5. Making Loans. This restriction does not apply to: (a) the purchase of
debt obligations in which the Fund may invest consistent with its
investment objective and policies; (b) repurchase agreements; and
(c) loans of its portfolio securities, to the fullest extent permitted
under the 1940 Act.
6. Underwriting securities issued by other persons, except to the extent
that the Fund may technically be deemed an underwriter under the
Securities Act of 1933, as amended, in disposing of portfolio
securities.
7. Purchasing or selling real estate, real estate mortgages, commodities
or commodity contracts, but this restriction shall not prevent the Fund
from (a) investing in securities of issuers engaged in the real estate
business or the business of investing in real estate (including
interests in limited partnerships owning or otherwise engaging in the
real estate business or the business of investment in real estate) and
securities which are secured by real estate or interests therein;
(b) holding or selling real estate received in connection with
securities it holds or held; (c) trading in futures contracts and
options on futures contracts (including options on currencies to the
extent consistent with the Fund's investment objective and policies) or
(d) investing in real estate investment trust securities.
8. Purchasing securities on margin (except for such short-term credits as
are necessary for the clearance of purchases and sales of portfolio
securities) or sell any securities short (except 'against the box').
For purposes of this restriction the deposit or payment by the Fund of
underlying securities and other assets in escrow and collateral
agreements with respect to initial or maintenance margin in connection
with futures contracts and related options and options on securities,
indexes or similar items is not considered to be the purchase of a
security on margin.
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9. Investing in oil, gas or other mineral exploration or development
programs, except that the Fund may invest in the securities of
companies that invest in or sponsor those programs.
10. Investing in securities of other investment companies registered or
required to be registered under the 1940 Act, except as they may be
acquired as part of a merger, consolidation, reorganization,
acquisition of assets or an offer of exchange.
11. Purchasing or otherwise acquiring any security if, as a result, more
than 15% of its net assets would be invested in securities that are
illiquid.
12. Making investments for the purposes of exercising control or
management.
PORTFOLIO TURNOVER
Purchases and sales of portfolio securities may be made as considered advisable
by the investment manager in the best interests of the shareholders. The Fund
intends to limit portfolio trading to the extent practicable and consistent with
its investment objectives. The Fund's portfolio turnover rate may vary from year
to year, as well as within a year. Short-term gains realized from portfolio
transactions are taxable to shareholders as ordinary income. In addition, higher
portfolio turnover rates can result in corresponding increases in portfolio
transaction costs for a fund. See 'Portfolio Transactions.'
PORTFOLIO TRANSACTIONS
Subject to policy established by the Board of Directors, the investment manager
is primarily responsible for the Fund's portfolio decisions and the placing of
the Fund's portfolio transactions.
Fixed-income, certain short-term securities and certain equities normally will
be purchased or sold from or to issuers directly or to dealers serving as market
makers for the securities at a net price, which may include dealer spreads and
underwriting commissions. Equity securities may also be purchased or sold
through brokers who will be paid a commission.
The general policy of the Fund in selecting brokers and dealers is to obtain the
best results taking into account factors such as the general execution and
operational facilities of the broker or dealer, the type and size of the
transaction involved, the creditworthiness of the broker or dealer, the
stability of the broker or dealer, execution and settlement capabilities, time
required to negotiate and execute the trade, research services and the
investment manager's arrangements related thereto (as described below), overall
performance, the dealer's risk in positioning the securities involved, and the
broker's commissions and dealer's spread or mark-up. While the investment
manager generally seeks the best price in placing its orders, the Fund may not
necessarily be paying the lowest price available.
Notwithstanding the above, in compliance with Section 28(e) of the Securities
Exchange Act of 1934, the investment manager may select brokers who charge a
commission in excess of that charged by other brokers, if the investment manager
determines in good faith that the commission to be charged is reasonable in
relation to the brokerage and research services provided to the investment
manager by such brokers. Research services generally consist of research or
statistical reports or oral advice from brokers and dealers regarding particular
companies, industries or general economic conditions. The investment manager may
also have arrangements with brokers pursuant to which such brokers provide
research services to the investment manager in exchange for a certain volume of
brokerage transactions to be executed by such broker. While the payment of
higher commissions increases the Fund's costs, the investment manager does not
believe that the receipt of such brokerage and research services significantly
reduces its expenses as the Fund's investment manager. Arrangements for the
receipt of research services from brokers may create conflicts of interest.
Research services furnished to the investment manager by brokers who effect
securities transactions for the Fund may be used by the investment manager in
servicing other investment companies and accounts which it manages. Similarly,
research services furnished to the investment manager by brokers who effect
securities transactions for other investment companies and accounts
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which the investment manager manages may be used by the investment manager in
servicing a fund. Not all of these research services are used by the investment
manager in managing any particular account, including the Fund.
Under the 1940 Act, 'affiliated persons' of a fund are prohibited from dealing
with it as a principal in the purchase and sale of securities unless an
exemptive order allowing such transactions is obtained from the SEC. However,
the Fund may purchase securities from underwriting syndicates of which the
investment manager or any of its affiliates as defined in the 1940 Act, is a
member under certain conditions, in accordance with Rule 10f-3 promulgated under
the 1940 Act.
The Fund contemplates that, consistent with the policy of obtaining the best net
results, brokerage transactions may be conducted through 'affiliated
broker/dealers,' as defined in the 1940 Act. The Board of Directors has adopted
procedures in accordance with Rule 17e-1 promulgated under the 1940 Act to
ensure that all brokerage commissions paid to such affiliates are reasonable and
fair in the context of the market in which such affiliates operate. Any such
compensation will be paid in accordance with applicable SEC regulations.
TAXES
TAXATION OF THE FUND
The following discussion is a brief summary of certain additional tax
considerations affecting the Fund and its shareholders. No attempt is made to
present a detailed explanation of all federal, state, local and foreign tax
concerns, and the discussions set forth here and in the Prospectus do not
constitute tax advice. Investors are urged to consult their own tax advisers
with specific questions relating to federal, state, local or foreign taxes.
The Fund intends to elect to be treated as a regulated investment company (a
'RIC') under Subchapter M of the Internal Revenue Code of 1986, as amended (the
'Code'). Qualification as a RIC requires, among other things, that the Fund:
(a) derive at least 90% of its gross income in each taxable year from dividends,
interest, payments with respect to securities loans and gains from the sale or
other disposition of stock or securities, foreign currencies or other income
(including gains from options, futures or forward contracts) derived with
respect to its business of investing in such stock, securities or currencies;
and (b) diversify its holdings so that, at the end of each quarter of each
taxable year: (i) at least 50% of the market value of the Fund's assets is
represented by cash, cash items, U.S. government securities, securities of other
RICs and other securities with such other securities limited, in respect of any
one issuer, to an amount not greater than 5% of the value of the Fund's assets
and 10% of the outstanding voting securities of such issuer; and (ii) not more
than 25% of the value of its assets is invested in the securities of any one
issuer (other than U.S. government securities or the securities of other RICs).
As a RIC, the Fund will not be subject to federal income tax on its 'net
investment income' (i.e., its investment company taxable income, as that term is
defined in the Code, determined without regard to the deduction for dividends
paid) and 'net capital gain' (the excess of the Fund's net realized long-term
capital gain over net realized short-term capital loss), if any, that it
distributes in each taxable year to its shareholders, provided that it
distributes 90% of its net investment income for such taxable year. However, the
Fund would be subject to corporate income tax (currently at a maximum rate of
35%) on any undistributed net investment income and net capital gain.
The Fund will be subject to a non-deductible 4% excise tax to the extent that
the Fund does not distribute by the end of each calendar year: (a) at least 98%
of its ordinary income for such calendar year; (b) at least 98% of its capital
gain net income for the one-year period ending, as a general rule, on
October 31 of each year; and (c) 100% of the undistributed ordinary income and
capital gain net income from the preceding calendar years (if any) pursuant to
the calculations in (a) and (b). For this purpose, any income or gain retained
by the Fund that is subject to corporate tax will be considered to have been
distributed by year-end. The Fund intends to make sufficient distributions to
avoid imposition of both the corporate level tax and the excise tax.
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The Fund may make investments that produce income that is not matched by a
corresponding cash distribution to the Fund, such as investments in pay-in-kind
bonds or in obligations such as certain Brady Bonds or zero-coupon securities
having original issue discount (i.e., an amount equal to the excess of the
stated redemption price of the security at maturity over its issue price), or
market discount (i.e., an amount equal to the excess of the stated redemption
price of the security over the basis of such bond immediately after it was
acquired) if the Fund elects to accrue market discount on a current basis. The
Fund may engage in hedging or derivatives transactions involving foreign
currencies, forward contracts, options and futures contracts (including options,
futures and forward contracts on foreign currencies) and short sales that may
require the inclusion of income in advance of cash receipts. In addition, income
may continue to accrue for federal income tax purposes with respect to a
non-performing investment. Any such income would be treated as income earned by
the Fund and therefore would be subject to the distribution requirements of the
Code. Because such income may not be matched by a corresponding cash
distribution to the Fund, such Fund may be required to borrow money or dispose
of other securities to be able to make distributions to its investors. In
addition, if an election is not made to currently accrue market discount with
respect to a market discount bond, all or a portion of any deduction for any
interest expense incurred to purchase or hold such bond may be deferred until
such bond is sold or otherwise disposed.
If the Fund purchases shares in a 'passive foreign investment company' (a
'PFIC'), the Fund may be subject to U.S. federal income tax on a portion of any
'excess distribution' or gain from the disposition of such shares even if such
income is distributed as a taxable dividend by the Fund to its shareholders.
Additional charges in the nature of interest may be imposed on the Fund in
respect of deferred taxes arising from such distributions or gains. If the Fund
were to invest in a PFIC and elected to treat the PFIC as a 'qualified electing
fund' under the Code (a 'QEF'), in lieu of the foregoing requirements, the Fund
would be required to include in income each year a portion of the ordinary
earnings and net capital gain of the QEF, even if not distributed to the fund.
Alternatively, under recently enacted legislation, the Fund can elect to
mark-to-market at the end of each taxable year its shares in a PFIC; in this
case, the Fund would recognize as ordinary income any increase in the value of
such shares, and as ordinary loss any decrease in such value to the extent it
did not exceed prior increases included in income. Under either election, the
Fund might be required to recognize in a year income in excess of its
distributions from PFICs and its proceeds from dispositions of PFIC stock during
that year, and such income would nevertheless be subject to the 90% distribution
requirement and would be taken into account for purposes of the 4% excise tax.
PERFORMANCE DATA
As indicated in the Prospectus, from time to time, the Fund may quote its
'yield,' 'tax-equivalent yield,' 'effective yield,' 'average annual total
return' and/or 'aggregate total return' in advertisements or in reports and
other communications to shareholders and compare its performance figures to
those of other funds or accounts with similar objectives and to relevant
indices.
AVERAGE ANNUAL TOTAL RETURN
The Fund's 'average annual total return' figures, as described and shown in each
Prospectus, are computed according to a formula prescribed by the Commission.
The formula can be expressed as follows:
P(1+T)'pp'n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
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ERV = Ending Redeemable Value of a hypothetical $1,000 payment made at the
beginning of a 1-5 or 10-year period at the end of such period (or
fractional portion thereof), assuming reinvestment of all dividends
and distributions.
AGGREGATE TOTAL RETURN
The 'aggregate total return' figures for the Fund, as described in the
Prospectus, represent the cumulative change in the value of an investment in
Fund shares of the Fund for the specified period and are computed by the
following formula:
AGGREGATE TOTAL RETURN = ERV-P
----
P
Where: P = a hypothetical initial payment of $10,000.
ERV = Ending Redeemable Value of a hypothetical $10,000 investment made
at the beginning of a 1-, 5-, or 10-year period at the end of such
period (or fractional portion thereof), assuming reinvestment of
all dividends and distributions.
THIRTY DAY YIELD
The Fund may advertise the yields for such funds based on a 30-day (or one
month) period according to the following formula:
a-b
----
Yield = 2[(cd + 1)'pp'6 - 1]
Any quotation of performance stated in terms of yield (whether or not based on a
30-day period) will be given no greater prominence than the information
prescribed under Commission rules. In addition, all advertisements containing
performance data of any kind will include a legend disclosing that such
performance data represents past performance and that the investment return and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
Advertisements and communications may compare the Fund's performance with that
of other mutual funds, as reported by Lipper Analytical Services, Inc. or
similar independent services or financial publications. From time to time,
advertisements and other Fund materials and communications may cite statistics
to reflect the Fund's performance over time utilizing, comparisons to indices.
The Fund's performance will vary from time to time depending upon market
conditions, the composition of its portfolio and operating expenses.
Consequently, any given performance quotation should not be considered
representative of the performance of Fund shares for any specified period in the
future. Because performance will vary, it may not provide a basis for comparing
an investment in Fund shares with certain bank deposits or other investments
that pay a fixed return for a stated period of time. Investors comparing the
Fund's performance with that of other mutual funds should give consideration to
the nature, quality and maturity of the respective investment companies'
portfolio securities and market conditions. An investor's principal is not
guaranteed by any Fund.
NET ASSET VALUE
In calculating net asset value, portfolio securities listed or traded on
national securities exchanges, or reported by the National Association of
Securities Dealers Automated Quotation System ('Nasdaq') National Market
reporting system, are valued at the last sale price, or, if there have been no
sales on that day, at the mean of the current bid and ask price which represents
the current value of the security. Over-the-counter securities are valued at the
mean of the current bid and ask price.
Securities that are primarily traded on foreign exchanges generally are valued
at the closing price of such securities on their respective exchanges, except
that if the investment manager is of the
27
<PAGE>
opinion that such price would result in an inappropriate value for a security,
including as a result of an occurrence subsequent to the time a value was so
established then the fair value of those securities may be determined by
consideration of other factors by or under the direction of the Board of
Directors or its delegates. In valuing assets, prices denominated in foreign
currencies are converted to U.S. dollar equivalents at the current exchange
rate. Securities may be valued by independent pricing services which use prices
provided by market-makers or estimates of market values obtained from yield data
relating to instruments or securities with similar characteristics. Short-term
obligations with maturities of 60 days or less are valued at amortized cost,
which constitutes fair value as determined by the Board of Directors. Amortized
cost involves valuing an instrument at its original cost to a fund and
thereafter assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. All other securities and other assets of the Fund will
be valued at fair value as determined in good faith pursuant to procedures
adopted by the Board of Directors of each fund.
ADDITIONAL REDEMPTION INFORMATION
If the Board of Directors shall determine that it is in the best interests of
the remaining shareholders of the Fund, such fund may pay the redemption price
in whole, or in part, by a distribution in kind from the portfolio of the Fund,
in lieu of cash, taking such securities at their value employed for determining
such redemption price, and selecting the securities in such manner as the Board
of Directors may deem fair and equitable.
Under the 1940 Act, the Fund may suspend the right of redemption or postpone the
date of payment upon redemption for any period during which the NYSE is closed,
other than customary weekend and holiday closings, or during which trading on
said Exchange is restricted, or during which (as determined by the SEC by rule
or regulation) an emergency exists as a result of which disposal or valuation of
portfolio securities is not reasonably practicable, or for such other periods as
the SEC may permit. (The Fund may also suspend or postpone the recordation of
the transfer of its shares upon the occurrence of any of the foregoing
conditions.)
INVESTMENT MANAGER
The Fund retains SBAM to act as its investment manager. SBAM, a wholly-owned
subsidiary of Salomon Brothers Holding Company Inc, which is wholly-owned by
Salomon Smith Barney Holdings Inc, which is in turn wholly-owned by Citigroup
Inc. ('Citigroup'), SBAM serves as the investment manager to numerous
individuals and institutions and other investment companies.
The management contract between SBAM and the Fund provides that SBAM shall
manage the operations of the Fund, subject to policy established by the Board of
Directors. Pursuant to the applicable management contract, SBAM manages the
Fund's investment portfolio, directs purchases and sales of portfolio securities
and reports thereon to the Fund's officers and directors regularly. SBAM also
provides the office space, facilities, equipment and personnel necessary to
perform the following services for the Fund: Commission compliance, including
record keeping, reporting requirements and registration statements and proxies;
supervision of Fund operations, including coordination of functions of
administrator, transfer agent, custodian, accountants, counsel and other parties
performing services or operational functions for the Fund; certain
administrative and clerical services, including certain accounting services,
facilitation of redemption requests, exchange privileges, and account
adjustments, development of new shareholder services and maintenance of certain
books and records; and certain services to the Fund's shareholders, including
assuring that investments and redemptions are completed efficiently, responding
to shareholder inquiries and maintaining a flow of information to shareholders.
Investment decisions for the Fund are made independently from those of other
funds or accounts managed by SBAM. Such other funds or accounts may also invest
in the same securities as the Fund. If those funds or accounts are prepared to
invest in, or desire to dispose of, the same security at the same time as the
Fund, however, transactions in such securities will be made,
28
<PAGE>
insofar as feasible, for the respective funds and accounts in a manner deemed
equitable to all. In some cases, this procedure may adversely affect the size of
the position obtained for or disposed of by the Fund or the price paid or
received by the Fund. In addition, because of different investment objectives, a
particular security may be purchased for one or more funds or accounts when one
or more funds or accounts are selling the same security.
As compensation for its services, SBAM receives, on behalf of the Fund, as
described below, a monthly management fee, at an annual rate based upon the
average daily net assets of the Fund %.
The management contract for the Fund provides that it will continue for an
initial two year period and thereafter for successive annual periods; provided
that such continuance is specifically approved at least annually: (a) by the
vote of a majority of the directors not parties to the management contract or
'interested persons' of such parties, as defined in the 1940 Act, cast in person
at a meeting called for the specific purpose of voting on such management
contract and (b) either by the Board of Directors or a majority of the
outstanding voting securities. The management contract may be terminated on 60
days' written notice by either party and will terminate automatically if
assigned.
Under the terms of the management contract between the Fund and SBAM, neither
SBAM nor its affiliates shall be liable for losses or damages incurred by the
Fund, unless such losses or damages are attributable to the willful misfeasance,
bad faith or gross negligence on either the part of SBAM or its affiliate or
from reckless disregard by it of its obligations and duties under the Management
Contract ('disabling conduct').
Rule 17j-1 under the 1940 Act requires all registered investment companies and
their investment advisers and principal underwriters to adopt written codes of
ethics and institute procedures designed to prevent 'access persons' (as defined
in Rule 17j-1) from engaging in any fraudulent, deceptive or manipulative
trading practices. The Board of Directors for the Company has adopted a code of
ethics (the 'Fund Code') that incorporates personal trading policies and
procedures applicable to access persons of the Fund, which includes officers,
directors and other specified persons who may make, participate in or otherwise
obtain information concerning the purchase or sale of securities by the fund. In
addition, the Fund Code attaches and incorporates personal trading policies and
procedures applicable to access persons of the investment manager, which
policies serve as investment manager's code of ethics (the 'Adviser Code'). The
Fund and Adviser Codes have been designed to address potential conflict of
interests that can arise in connection with the personal trading activities of
investment company and investment advisory personnel.
Pursuant to the Fund and Adviser Codes, access persons are generally permitted
to engage in personal securities transactions, provided that a transaction does
not involve securities that are being purchased or sold, are being considered
for purchase or sale, or are being recommended for purchase or sale by or for
the Fund. In addition, the adviser code contains specified prohibitions and
blackout periods for certain categories of securities and transactions,
including a prohibition on short-term trading and purchasing securities during
an initial public offering. The Adviser Code, with certain exceptions, also
requires that access persons obtain preclearance to engage in personal
securities transactions. Finally, the Fund and Adviser Codes require access
persons to report all personal securities transactions periodically.
ADMINISTRATOR
SBAM (in such capacity, the 'Administrator') provides certain administrative
services to the Fund. The services provided by the Administrator under the
applicable administration agreement include certain accounting, clerical and
bookkeeping services, Blue Sky compliance, corporate secretarial services and
assistance in the preparation and filing of tax returns and reports to
shareholders and the Commission. The Fund pays the Administrator a fee,
calculated daily and payable monthly, at an annual rate of .05% of the Fund's
average daily net assets. The Administrator has delegated its responsibilities
under the administration agreements to one of its affiliates.
29
<PAGE>
DISTRIBUTOR
CFBDS, located at 21 Milk Street, Boston, Massachusetts 02109, serves as the
Fund's distributor pursuant to a distribution contract. CFBDS is a wholly owned
subsidiary of Signature Financial Group, Inc.
EXPENSES
The Fund's expenses include taxes, interest, fees and salaries of directors and
officers who are not directors, officers or employees of the Fund's service
contractors, Commission fees, state securities qualification fees, costs of
preparing and printing prospectuses for regulatory purposes and for distribution
to existing shareholders, advisory and administration fees, charges of the
custodian and of the transfer and dividend disbursing agent, certain insurance
premiums, outside auditing and legal expenses, costs of shareholder reports and
shareholder meetings and any extraordinary expenses. The Fund also pays for
brokerage fees and commissions (if any) in connection with the purchase and sale
of portfolio securities.
CUSTODIAN AND TRANSFER AGENT
Custodian. PNC Bank, N.A. (the 'Custodian'), located at Airport Business Center,
International Court 2, 200 Stevens Drive, Lester, Pennsylvania 19113, serves as
the Fund's custodian. The Custodian, among other things: maintains a custody
account or accounts in the name of the Fund; receives and delivers all assets
for the Fund upon purchase and upon sale or maturity; collects and receives all
income and other payments and distributions on account of the assets of the
Fund; and makes disbursements on behalf of the Fund. The Custodian neither
determines the Fund's investment policies, nor decides which securities the Fund
will buy or sell. For its services, the Custodian receives a monthly fee based
upon the daily average market value of securities held in custody and also
receives securities transaction charges, including out-of-pocket expenses. The
Fund may also periodically enter into arrangements with other qualified
custodians with respect to certain types of securities or other transactions
such as repurchase agreements or derivatives transactions.
Transfer Agent. First Data Investors Services Group, Inc. (the 'Transfer
Agent'), located at P.O. Box 5127, Westborough, Massachusetts 01581-5127, serves
as the Fund's transfer agent. The transfer agent registers and processes
transfers of the Fund's stock, processes purchase and redemption orders, acts as
dividend disbursing agent for the Fund and maintains records and handles
correspondence with respect to shareholder accounts, pursuant to a transfer
agency agreement. For these services, the transfer agent receives a monthly fee
computed separately for the Fund and is reimbursed for out-of-pocket expenses.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP ('PricewaterhouseCoopers') provides audit services,
tax return preparation and assistance and consultation in connection with review
of Commission filings. PricewaterhouseCoopers' address is 1177 Avenue of the
Americas, New York, New York 10036.
COUNSEL
Simpson Thacher & Bartlett (a partnership which includes professional
corporations) serves as counsel to the Fund, and is located at 425 Lexington
Avenue, New York, New York 10017-3954.
Piper & Marbury L.L.P. of Baltimore, Maryland has issued an opinion regarding
the valid issuance of shares being offered for sale pursuant to the Fund's
Prospectus.
30
<PAGE>
CAPITAL STOCK
The Company was incorporated in Maryland on July , 1999. The authorized
capital stock of the Company consists of shares having a par
value of $.001 per share. Pursuant to the Company Articles of Incorporation and
Articles Supplementary, the Directors have authorized the issuance of one series
of shares, representing shares in a separate Fund; namely, Humane Society Equity
Fund. The Company's Board of Directors may, in the future, authorize the
issuance of additional classes of capital stock representing shares of
additional investment portfolios.
Each shareholder is entitled to cast, at all meetings of shareholders, such
number of votes as is equal to the number of full and fractional shares held by
such shareholder. All shares of the Fund will, when issued, be fully paid and
nonassessable. Under the corporate law of Maryland, the state of incorporation
of the Company, the Investors, and the By-Laws of the Company, is not required
and does not currently intend to hold annual meetings of shareholders for the
election of directors except as required under the 1940 Act.
In the event of the liquidation or dissolution of the Company, shares of the
Fund are entitled to receive the assets attributable to it that are available
for distribution, and a proportionate distribution, based upon the relative net
assets of the Fund, of any general assets not attributable to a portfolio that
are available for distribution. Shareholders are not entitled to any preemptive
rights. All shares, when issued, will be fully paid, non-assessable, fully
transferable and redeemable at the option of the holder.
Subject to the provisions of the applicable Company's charter, determinations by
the Board of Directors as to the direct and allocable liabilities and the
allocable portion of any general assets of the Company, with respect to the Fund
are conclusive.
31
<PAGE>
ITEM 22. FINANCIAL STATEMENTS.
PART C. OTHER INFORMATION
ITEM 23. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
a -- Articles of Incorporation of Registrant*
b -- Registrant's By-Laws*
c -- None.
d -- Management Contract between Registrant and Salomon
Brothers Asset Management Inc ('SBAM') relating to Humane
Society Fund*
(e) -- Distribution Agreement between Registrant and CFBDS, Inc*
f -- None.
g -- Form of Custodian Agreement between Registrant and PNC
Bank, National Association**
h(1) -- Form of Administration Agreement between Registrant and
SBAM relating to the Humane Society Fund*
h(2) -- Form of Transfer Agency Agreement between Registrant and
First Data Investor Services Group, Inc***
i -- Opinion and Consent of Counsel of Piper & Marbury, LLP as
to the Legality of Securities Being Registered**
j -- Consent of Independent Accountants**
k -- None.
l -- Share Purchase Agreement**
m -- None.
n -- Not applicable.
o -- None.
</TABLE>
- ------------
* Filed herewith
** To be filed by amendment
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Salomon Smith Barney Holdings Inc. owns 100% of the outstanding shares of
the Humane Society Equity Fund.
ITEM 25. INDEMNIFICATION.
Reference is made to Article Eighth of Registrant's Articles of
Incorporation, Article V of Registrant's By-Laws and Section 4 of the
Distribution Agreements between the Registrant and CFBDS, Inc.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the 'Securities Act'), may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant understands that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such
C-1
<PAGE>
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
The list required by this Item 26 of officers and directors of SBAM
together with information as to any other business, profession, vocation or
employment of a substantial nature engaged in by such officers and directors
during the past two years, is incorporated by reference to Schedules A and D of
its FORM ADV filed by SBAM pursuant to the Advisers Act (SEC File No.
801-32046).
ITEM 27. PRINCIPAL UNDERWRITER.
(a) CFBDS, Inc., ('CFBDS') the Registrant's Distributor, is also the
distributor for the following Smith Barney funds: Concert Investment Series,
Consulting Group Capital Markets Funds, Greenwich Street Series Fund, Smith
Barney Adjustable Rate Government Income Fund, Smith Barney Aggressive Growth
Fund Inc., Smith Barney Appreciation Fund, Inc., Smith Barney Arizona Municipals
Fund Inc., Smith Barney California Municipals Fund Inc., Smith Barney Concert
Allocation Series Inc., Smith Barney Equity Funds, Smith Barney Fundamental
Value Fund Inc., Smith Barney Funds, Inc., Smith Barney Income Funds, Smith
Barney Institutional Cash Management Fund, Inc., Smith Barney Investment Funds
Inc., Smith Barney Investment Trust, Smith Barney Managed Governments Fund Inc.,
Smith Barney Managed Municipals Fund Inc., Smith Barney Massachusetts Municipals
Fund, Smith Barney Money Funds, Inc., Smith Barney Muni Funds, Smith Barney
Municipal Money Market Fund, Inc., Smith Barney Natural Resources Fund Inc.,
Smith Barney New Jersey Municipals Fund Inc., Smith Barney Oregon Municipals
Fund Inc., Smith Barney Principal Return Fund, Smith Barney Small Cap Blend
Fund, Inc., Smith Barney Telecommunications Trust, Smith Barney Variable Account
Funds, Smith Barney World Funds, Inc., Travelers Series Fund Inc., and various
series of unit investment trusts.
CFBDS also serves as the distributor for the following funds: The Travelers
Fund UL for Variable Annuities, The Travelers Fund VA for Variable Annuities,
The Travelers Fund BD for Variable Annuities, The Travelers Fund BD II for
Variable Annuities, The Travelers Fund BD III for Variable Annuities, The
Travelers Fund BD IV for Variable Annuities, The Travelers Fund ABD for Variable
Annuities, The Travelers Fund ABD II for Variable Annuities, The Travelers
Separate Account PF for Variable Annuities, The Travelers Separate Account PF II
for Variable Annuities, The Travelers Separate Account QP for Variable
Annuities, The Travelers Separate Account TM for Variable Annuities, The
Travelers Separate Account TM II for Variable Annuities, The Travelers Separate
Account Five for Variable Annuities, The Travelers Separate Account Six for
Variable Annuities, The Travelers Separate Account Seven for Variable Annuities,
The Travelers Separate Account Eight for Variable Annuities, The Travelers Fund
UL for Variable Annuities, The Travelers Fund UL II for Variable Annuities, The
Travelers Variable Life Insurance Separate Account One, The Travelers Variable
Life Insurance Separate Account Two, The Travelers Variable Life Insurance
Separate Account Three, The Travelers Variable Life Insurance Separate Account
Four, The Travelers Separate Account MGA, The Travelers Separate Account
MGA II, The Travelers Growth and Income Stock Account for Variable Annuities,
The Travelers Quality Bond Account for Variable Annuities, The Travelers Money
Market Account for Variable Annuities, The Travelers Timed Growth and Income
Stock Account for Variable Annuities, The Travelers Timed Short-Term Bond
Account for Variable Annuities, The Travelers Timed Aggressive Stock Account for
Variable Annuities, The Travelers Timed Bond Account for Variable Annuities.
In addition, CFBDS, the Registrant's Distributor, is also the distributor
for CitiFunds Multi-State Tax Free Trust, CitiFunds Premium Trust, CitiFunds
Institutional Trust, CitiFunds Tax Free Reserves, CitiFunds Trust I, CitiFunds
Trust II, CitiFunds Trust III, CitiFunds International Trust, CitiFunds Fixed
Income Trust, CitiSelect VIP Folio 200, CitiSelect VIP Folio 300, CitiSelect VIP
Folio 400, CitiSelect VIP Folio 500, CitiFunds Small Cap Growth VIP Portfolio.
CFBDS is also the placement agent for Large Cap Value Portfolio, Small Cap Value
Portfolio, International Portfolio, Foreign Bond Portfolio, Intermediate Income
Portfolio, Short-Term Portfolio, Growth & Income Portfolio, U.S. Fixed Income
Portfolio, Large Cap Growth Portfolio, Small Cap Growth Portfolio, International
Equity Portfolio,
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<PAGE>
Balanced Portfolio, Government Income Portfolio, Tax Free Reserves Portfolio,
Cash Reserves Portfolio and U.S. Treasury Reserves Portfolio.
In addition, CFBDS is also the distributor for the following Salomon
Brothers funds: Salomon Brothers Opportunity Fund Inc, Salomon Brothers
Investors Fund Inc, Salomon Brothers Capital Fund Inc, Salomon Brothers Series
Funds Inc, Salomon Brothers Institutional Series Funds Inc, Salomon Brothers
Variable Series Funds Inc.
In addition, CFBDS is also the distributor for the Centurion Funds, Inc.
(b) The information required by this Item 27 with respect to each director
and officer of CFBDS is incorporated by reference to Schedule A of Form BD filed
by CFBDS pursuant to the Securities and Exchange Act of 1934 (File
No. 8-32417).
(c) Not applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
(1) SBAM
7 World Trade Center
New York, New York 10048
(2) First Data Investor Services Group, Inc.
P.O. Box 9764
Providence, RI 02940-9764
(3) PNC Bank, N.A.
Airport Business Center
International Court 2
200 Stevens Drive
Lester, Pennsylvania 19113
ITEM 29. MANAGEMENT SERVICES.
Not applicable.
ITEM 30. UNDERTAKINGS.
Registrant undertakes to furnish to each person to whom a prospectus is
delivered a copy of Registrant's latest annual report to shareholders, upon
request and without charge.
C-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, the Registrant has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, and State of New York, on
the 3rd day of August, 1999.
SSBCITI FUNDS INC.
(Registrant)
By /s/ HEATH B. MCLENDON
...................................
HEATH B. MCLENDON
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ HEATH B. MCLENDON Director and President (Principal August 3, 1999
...................................... Executive Officer)
(HEATH B. MCLENDON)
ROBERT A. VEGLIANTE Director August 3, 1999
......................................
(ROBERT A. VEGLIANTE)
/s/ LEWIS E. DAIDONE Executive Vice President and August 3, 1999
...................................... Treasurer (Principal Financial and
(LEWIS E. DAIDONE) Accounting Officer)
</TABLE>
C-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
(a) Articles of Incorporation
(b) By-laws
(d) Management Contract
(e) Distribution Agreement
(h) Administration Agreement
</TABLE>
STATEMENT OF DIFFERENCES
------------------------
Characters normally expressed as superscript shall be preceded by...... 'pp'
<PAGE>
SSBCiti FUNDS INC.
ARTICLES OF INCORPORATION
FIRST: The undersigned, Robert A. Vegliante, whose address is
7 World Trade Center, New York, New York 10048, being at least eighteen years of
age, acting as incorporator, does hereby form a corporation under the General
Laws of the State of Maryland.
SECOND: The name of the corporation (which is hereinafter
called the "Corporation") is:
SSBCiti Funds Inc.
THIRD: (a) The purposes for which the Corporation is formed
and the business and objects to be carried on and promoted by it are:
(1) To engage primarily in the business of investing,
reinvesting or trading in securities as an investment company
classified under the Investment Company Act of 1940 as an open-end,
management company.
(2) To engage in any one or more businesses or transactions,
or to acquire all or any portion of any entity engaged in any one or
more businesses or transactions, which the Board of Directors may from
time to time authorize or approve, whether or not related to the
business described elsewhere in this article or to any other business
at the time or theretofore engaged in by the Corporation.
(b) The foregoing enumerated purposes and objects shall be in
no way limited or restricted by reference to, or inference from, the terms of
any other clause of this or any other Article of these Articles of
Incorporation, and each shall be regarded as independent; and they are intended
to be and shall be construed as powers as well as purposes and objects of the
Corporation and shall be in addition to and not in limitation of the general
powers of corporations under the General Laws of the State of Maryland.
FOURTH: The present address of the principal office of the
Corporation in this State is c/o The Corporation Trust Incorporated, 300 East
Lombard Street, Baltimore, Maryland 21202.
<PAGE>
2
FIFTH: The name and address of the resident agent of the
Corporation in this State are The Corporation Trust Incorporated, 300 East
Lombard Street, Baltimore, Maryland 21202. Said resident agent is a Maryland
corporation.
SIXTH: (a) The total number of shares of stock of all classes
and series which the Corporation initially has authority to issue is five
hundred million (500,000,000) shares of capital stock (par value $.001 per
share), amounting in aggregate par value to Five Hundred Thousand Dollars
($500,000). All of the authorized shares of capital stock of the Corporation are
initially classified as "Common Stock," of which three hundred million
(300,000,000) shares are further initially classified as a series of Common
Stock designated "Humane Society Fund". The remaining two hundred million
(200,000,000) shares of authorized but unissued Common Stock remain undesignated
as to series or class. The Board of Directors may classify and reclassify any
unissued shares of capital stock by setting or changing in any one or more
respects the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications, or terms or
conditions of redemption of such shares of stock.
(b) Unless otherwise prohibited by law, so long as the
Corporation is registered as an open-end company under the Investment Company
Act of 1940, the Board of Directors shall have the power and authority, without
the approval of the holders of any outstanding shares, to increase or decrease
the number of shares of capital stock, or the number of shares of capital stock
of any class or series, that the Corporation has authority to issue.
(c) The following is a description of the preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption of the Humane
Society Fund and any additional series of Common Stock of the Corporation
(unless otherwise provided in the articles supplementary or other charter
document classifying or reclassifying such series):
(1) All consideration received by the Corporation from the
issue or sale of shares of a particular series of Common Stock,
together with all assets in which such consideration is invested or
reinvested, all income, earnings, profits and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation
of such assets, and any funds or payments derived from any investment
or reinvestment of
<PAGE>
3
such proceeds in whatever form the same may be, shall irrevocably
belong to that series for all purposes and shall be so recorded upon
the books of account of the Corporation. Such consideration, assets,
income, earnings, profits and proceeds, together with any items
allocated as provided in the following sentence, are hereinafter
referred to collectively as the "assets belonging to" that series. In
the event that there are any assets, income, earnings, profits or
proceeds which are not identifiable as belonging to a particular series
of Common Stock, such items shall be allocated by or under the
supervision of the Board of Directors to and among one or more of the
series of Common Stock from time to time classified or reclassified, in
such manner and on such basis as the Board of Directors, in its sole
discretion, deems fair and equitable. Each such allocation shall be
conclusive and binding for all purposes. No holder of a particular
series of Common Stock shall have any right or claim against the assets
belonging to any other series, except as a holder of the shares of such
other series.
(2) The assets belonging to each series of Common Stock shall
be charged with the liabilities of the Corporation in respect of that
series and all expenses, costs, charges and reserves attributable to
that series. Any liabilities, expenses, costs, charges or reserves of
the Corporation which are attributable to more than one series of
Common Stock, or are not identifiable as pertaining to any series,
shall be allocated and charged by or under the supervision of the Board
of Directors to and among one or more of the series of Common Stock
from time to time classified or reclassified, in such manner and on
such basis as the Board of Directors, in its sole discretion, deems
fair and equitable. Each such allocation shall be conclusive and
binding for all purposes. The liabilities, expenses, costs, charges and
reserves charged to a series of Common Stock are hereinafter referred
to collectively as the "liabilities of" that series. All persons who
have extended credit with respect to, or who have a claim or contract
in respect of, a particular series of Common Stock shall look only to
the assets belonging to that series for payment or satisfaction of such
credit, claim or contract.
(3) The net asset value per share of a particular series of
Common Stock shall be the quotient obtained by dividing the value of
the net assets of that series (being the value of the assets belonging
to that series less the liabilities of that series) by the total number
of shares of
<PAGE>
4
that series outstanding, all as determined by or under the direction of
the Board of Directors in accordance with generally accepted accounting
principles and the Investment Company Act of 1940. Subject to the
applicable provisions of the Investment Company Act of 1940, the Board
of Directors, in its sole discretion, may prescribe and shall set forth
in the by-laws of the Corporation, or in a duly adopted resolution of
the Board of Directors, such bases and times for determining the
current net asset value per share of each series of Common Stock, and
the net income attributable to such series, as the Board of Directors
deems necessary or desirable. The Board of Directors shall have full
discretion, to the extent not inconsistent with the Maryland General
Corporation Law and the Investment Company Act of 1940, to determine
whether any moneys or other assets received by the Corporation shall be
treated as income or capital and whether any item of expense shall be
charged to income or capital, and each such determination shall be
conclusive and binding for all purposes.
(4) Subject to the provisions of law and any preferences of
any class or series of stock from time to time classified or
reclassified, dividends, including dividends payable in shares of
another class or series of the Corporation's stock, may be paid on a
particular class or series of Common Stock of the Corporation at such
time and in such amounts as the Board of Directors may deem advisable.
Dividends and other distributions on the shares of a particular series
of Common Stock shall be paid only out of the assets belonging to that
series after providing for the liabilities of that series.
(5) Each share of Common Stock shall have one vote,
irrespective of the class or series thereof, and the exclusive voting
power for all purposes shall be vested in the holders of the Common
Stock. All classes and series of Common Stock shall vote together as a
single class; provided, however, that as to any matter with respect to
which a separate vote of a particular class or series is required by
the Investment Company Act of 1940 or the Maryland General Corporation
Law, such requirement shall apply and, in that event, the other classes
and series entitled to vote on the matter shall vote together as a
single class; and provided, further, that the holders of a particular
class or series of Common Stock shall not be entitled to vote on any
matter which does not affect any interest of that class or series,
including liquidation of another class or series, except as otherwise
required by the
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5
Investment Company Act of 1940 or the Maryland General Corporation Law.
(6) Each holder of Common Stock shall have the right to
require the Corporation to redeem all or any part of his shares of any
class or series at a redemption price equal to the current net asset
value per share of that class or series which is next computed after
receipt of a tender of such shares for redemption, less such redemption
fee or deferred sales charge, if any, as the Board of Directors may
from time to time establish in accordance with the Investment Company
Act of 1940 and the Rules of Fair Practice adopted by the National
Association of Securities Dealers, Inc. Payment of the redemption price
shall be made by the Corporation only from the assets belonging to the
series whose shares are being redeemed. The redemption price shall be
paid in cash; provided, however, that if the Board of Directors
determines, which determination shall be conclusive, that conditions
exist which make payment wholly in cash unwise or undesirable, the
Corporation may, to the extent and in the manner permitted by law, make
payment wholly or partly in securities or other assets, at the value of
such securities or other assets used in such determination of current
net asset value. Notwithstanding the foregoing, the Corporation may
suspend the right of holders of any series of Common Stock to require
the Corporation to redeem their shares, or postpone the date of payment
or satisfaction upon such redemption for more than seven days after
tender of such shares for redemption, during any period or at any time
when and to the extent permitted under the Investment Company Act of
1940.
(7) To the extent and in the manner permitted by the
Investment Company Act of 1940 and the Maryland General Corporation
Law, the Board of Directors may cause the Corporation to redeem, at
their current net asset value, the shares of any series of Common Stock
held in the account of any stockholder having, because of redemptions
or exchanges, an aggregate net asset value which is less than the
minimum initial investment in that series specified by the Board of
Directors from time to time in its sole discretion.
(8) In the event of any liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, or of the
liquidation of a particular series of Common Stock, the holders of each
series that is being liquidated shall be entitled, after payment or
provision for payment of the liabilities of that series, as a class, to
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6
share ratably in the remaining assets belonging to the series. The
holders of shares of any particular series shall not be entitled
thereby to any distribution upon the liquidation of any other series.
The liquidation of any series of Common Stock of which there are shares
then outstanding shall be approved by the vote of a majority (as
defined in the Investment Company Act of 1940) of the outstanding
shares of that series, and without the vote of the holders of shares of
any other series of Common Stock.
(9) Subject to compliance with the Investment Company Act of
1940, the Board of Directors shall have authority to provide that
holders of any series of Common Stock shall have the right to exchange
their shares for shares of one or more other series in accordance with
such requirements and procedures as may be established by the Board of
Directors.
d) Subject to the foregoing and to the Investment Company Act
of 1940, the power of the Board of Directors to classify and reclassify any of
the shares of capital stock shall include, without limitation, subject to the
provisions of the charter of the Corporation, authority to classify or
reclassify any unissued shares of such stock into one or more classes or series
of preferred stock, preference stock, special stock or other stock, and to
divide and classify shares of any class or series into one or more classes or
series of such class or series by determining, fixing or altering one or more of
the following:
(1) The distinctive designation of such class or series and
the number of shares to constitute such class or series; provided that,
unless otherwise prohibited by the terms of such or any other class or
series, the number of shares of any class or series may be decreased by
the Board of Directors in connection with any classification or
reclassification of unissued shares and the number of shares of such
class or series may be increased by the Board of Directors in
connection with any such classification or reclassification, and any
shares of any class or series which have been redeemed, purchased,
otherwise acquired or converted into shares of any other class or
series shall become part of the authorized capital stock and be subject
to classification and reclassification as herein provided.
(2) Whether or not and, if so, the rates, amounts and times at
which, and the conditions under which, dividends shall be payable on
shares of such class or series, whether any such dividends shall rank
senior or junior to or on a parity with the dividends payable on any
other class or
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7
series of stock, and the status of any such dividends as cumulative,
cumulative to a limited extent or noncumulative and as participating or
non-participating.
(3) Whether or not shares of such class or series shall have
voting rights, in addition to any voting rights provided by law and, if
so, the terms of such voting rights.
(4) Whether or not shares of such class or series shall have
conversion or exchange privileges and, if so, the terms and conditions
thereof, including provision for adjustment of the conversion or
exchange rate in such events or at such times as the Board of Directors
shall determine.
(5) Whether or not shares of such class or series shall be
subject to redemption and, if so, the terms and conditions of such
redemption, including the date or dates upon or after which they shall
be redeemable and the amount per share payable in case of redemption,
which amount may vary under different conditions and at different
redemption dates; and whether or not there shall be any sinking fund or
purchase account in respect thereof and, if so, the terms thereof.
(6) The rights of the holders of shares of such class or
series upon the liquidation, dissolution or winding up of the affairs
of, or upon any distribution of the assets of, the Corporation, which
rights may vary depending upon whether such liquidation, dissolution or
winding up is voluntary or involuntary and, if voluntary, may vary at
different dates, and whether such rights shall rank senior or junior to
or on a parity with such rights of any other class or series of stock.
(7) Whether or not there shall be any limitations applicable,
while shares of such class or series are outstanding, upon the payment
of dividends or making of distributions on, or the acquisition of, or
the use of monies for purchase or redemption of, any stock of the
Corporation, or upon any other action of the Corporation, including
action under this paragraph and, if so, the terms and conditions
thereof.
(8) Any other preferences, rights, restrictions, including
restrictions on transferability, and qualifications of shares of such
class or series, not inconsistent with law and the charter of the
Corporation.
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8
(e) For the purposes hereof and of any articles supplementary
to the charter providing for the classification or reclassification of any
shares of capital stock or of any other charter document of the Corporation
(unless otherwise provided in any such articles or document), any class or
series of stock of the Corporation shall be deemed to rank:
(1) prior to another class or series either as to dividends or
upon liquidation, if the holders of such class or series shall be
entitled to the receipt of dividends or of amounts distributable on
liquidation, dissolution or winding up, as the case may be, in
preference or priority to holders of such other class or series;
(2) on a parity with another class or series either as to
dividends or upon liquidation, whether or not the dividend rates,
dividend payment dates or redemption or liquidation price per share
thereof be different from those of such others, if the holders of such
class or series of stock shall be entitled to receipt of dividends or
amounts distributable upon liquidation, dissolution or winding up, as
the case may be, in proportion to their respective dividend rates or
redemption or liquidation prices, without preference or priority over
the holders of such other class or series; and
(3) junior to another class or series either as to dividends
or upon liquidation, if the rights of the holders of such class or
series shall be subject or subordinate to the rights of the holders of
such other class or series in respect of the receipt of dividends or
the amounts distributable upon liquidation, dissolution or winding up,
as the case may be.
(f) The Corporation may issue and sell fractions of shares of
capital stock having pro rata all the rights of full shares, including, without
limitation, the right to vote and to receive dividends, and wherever the words
"share" or "shares" are used in the charter or By-laws of the Corporation, they
shall be deemed to include fractions of shares where the context does not
clearly indicate that only full shares are intended.
(g) The Corporation shall not be obligated to issue
certificates representing shares of capital stock of any class or series. At the
time of issue or transfer of shares without certificates, the Corporation shall
provide the stockholder with such information as may be required under the
Maryland General Corporation Law.
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9
(h) Subject to compliance with the Investment Company Act of
1940, the Board of Directors shall have authority to provide that holders of the
Common Stock of any series and class shall have the right to exchange their
shares for shares of one or more other series and classes of SSBCiti Funds Inc.
or shares of another investment company in accordance with such requirements and
procedures as may be established by the Board of Directors.
SEVENTH: The number of directors of the Corporation shall be
two, which number may be increased or decreased pursuant to the by-laws of the
Corporation, but shall never be less than the minimum number permitted by the
General Laws of the State of Maryland now or hereafter in force. The names of
the directors who will serve until the first annual meeting and until their
successors are elected and qualified are as follows:
Heath B. McLendon
Robert A. Vegliante
EIGHTH: (a) The following provisions are hereby adopted for
the purpose of defining, limiting and regulating the powers of the Corporation
and of the directors and stockholders:
(1) The Board of Directors is hereby empowered to authorize
the issuance from time to time of shares of its stock of any class or
series, whether now or hereafter authorized, or securities convertible
into shares of its stock of any class or series, whether now or
hereafter authorized, for such consideration as may be deemed advisable
by the Board of Directors and without any action by the stockholders.
(2) No holder of any stock or any other securities of the
Corporation, whether now or hereafter authorized, shall have any
preemptive right to subscribe for or purchase any stock or any other
securities of the Corporation other than such, if any, as the Board of
Directors, in its sole discretion, may determine and at such price or
prices and upon such other terms as the Board of Directors, in its sole
discretion, may fix; and any stock or other securities which the Board
of Directors may determine to offer for subscription may, as the Board
of Directors in its sole discretion shall determine, be offered to the
holders of any
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10
class, series or type of stock or other securities at the time
outstanding to the exclusion of the holders of any or all other
classes, series or types of stock or other securities at the time
outstanding.
<PAGE>
11
(3) The Board of Directors of the Corporation shall,
consistent with applicable law, have power in its sole discretion to
determine from time to time in accordance with sound accounting
practice or other reasonable valuation methods what constitutes annual
or other net profits, earnings, surplus or net assets in excess of
capital; to determine that retained earnings or surplus shall remain in
the hands of the Corporation; to set apart out of any funds of the
Corporation such reserve or reserves in such amount or amounts and for
such proper purpose or purposes as it shall determine and to abolish
any such reserve or any part thereof; to distribute and pay
distributions or dividends in stock, cash or other securities or
property, out of surplus or any other funds or amounts legally
available therefor, at such times and to the stockholders of record on
such dates as it may, from time to time, determine; and to determine
whether and to what extent and at what times and places and under what
conditions and regulations the books, accounts and documents of the
Corporation, or any of them, shall be open to the inspection of
stockholders, except as otherwise provided by statute or the by-laws of
the Corporation, and, except as so provided, no stockholder shall have
any right to inspect any book, account or document of the Corporation
unless authorized to do so by resolution of the Board of Directors.
(4) Notwithstanding any provision of law requiring the
authorization of any action by a greater proportion than a majority of
the total number of shares of capital stock or of any class or series
of capital stock, such action shall be valid and effective if
authorized by the affirmative vote of the holders of a majority of the
total number of shares of capital stock or of such class or series, as
the case may be, outstanding and entitled to vote thereon; provided,
however, that the election of the Directors of the Corporation shall be
by plurality vote. At a meeting of stockholders the presence in person
or by proxy of stockholders entitled to cast a majority of all the
votes entitled to be cast on any matter with respect to which one or
more classes or series of capital stock are entitled to vote as a
separate class shall constitute a quorum of such separate class for
action on that matter. Whether or not a quorum of such a separate class
for action on any such matter is present, a meeting of stockholders
convened on the date for which it was called may be adjourned as to
that matter from time to time without further notice by a majority vote
of the stockholders of the separate class present in person or by proxy
to a date not more than 120
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12
days after the original record date.
(5) The Corporation shall indemnify (i) its directors and
officers, whether serving the Corporation or at its request any other
entity, to the full extent required or permitted by the General Laws of
the State of Maryland now or hereafter in force, including the advance
of expenses under the procedures and to the full extent permitted by
law, and (ii) other employees and agents to such extent as shall be
authorized by the Board of Directors or the by-laws of the Corporation
and as permitted by law. The foregoing rights of indemnification shall
not be exclusive of any other rights to which those seeking
indemnification may be entitled. The Board of Directors may take such
action as is necessary to carry out these indemnification provisions
and is expressly empowered to adopt, approve and amend from time to
time such by-laws, resolutions or contracts implementing such
provisions or such further indemnification arrangements as may be
permitted by law. The right of indemnification provided hereunder shall
not be construed to protect any director or officer of the Corporation
against any liability to the Corporation or its security holders to
which he would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office. No amendment, modification or
repeal of this provision shall adversely affect any right or protection
provided hereunder that exists at the time of such amendment,
modification or repeal.
(6) To the fullest extent permitted by Maryland statutory or
decisional law, as amended or interpreted, no director or officer of
the Corporation shall be personally liable to the Corporation or its
stockholders for money damages; provided, however, that this provision
shall not be construed to protect any director or officer against any
liability to the Corporation or its security holders to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct
of his office. No amendment, modification or repeal of this provision
shall adversely affect any right or protection provided hereunder that
exists at the time of such amendment, modification or repeal.
(7) The Corporation reserves the right from time to time to
make any amendments of its charter which may now or hereafter be
authorized by law, including any amendments
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13
changing the terms or contract rights, as expressly set forth in its
charter, of any of its outstanding stock by classification,
reclassification or otherwise.
(b) The enumeration and definition of particular powers of the
Board of Directors included in the foregoing shall in no way be limited or
restricted by reference to or inference from the terms of any other clause of
this or any other article of the Articles of Incorporation of the Corporation,
or construed as or deemed by inference or otherwise in any manner to exclude or
limit any powers conferred upon the Board of Directors under the General Laws of
the State of Maryland now or hereafter in force.
NINTH: The duration of the Corporation shall be perpetual.
IN WITNESS WHEREOF, I have signed these Articles of
Incorporation, acknowledging the same to be my act, on this 26th day of July,
1999.
/s/ Meredith Hlafter
Witness:____________________________
Meredith Hlafter
/s/ Robert A. Vegliante
______________________________________
Name: Robert A. Vegliante
Title: Sole Incorporator
<PAGE>
SSBCITI FUNDS, INC.
BY-LAWS
ARTICLE I.
STOCKHOLDERS
1.01 Annual Meetings. The Corporation is not required to hold
an annual meeting of its stockholders in any year in which the election of
directors is not required to be acted upon under the Investment Company Act of
1940. If the Corporation is required by the Investment Company Act of 1940 to
hold a meeting of stockholders to elect directors, such meeting shall be held at
a date and time set by the Board of Directors in accordance with the Investment
Company Act of 1940 and no later than 120 days after the occurrence of the event
requiring the meeting. Any stockholders' meeting held in accordance with the
preceding sentence shall for all purposes constitute the annual meeting of
stockholders for the fiscal year of the Corporation in which the meeting is
held. Except as the charter or statute provides otherwise, any business may be
considered at an annual meeting without the purpose of the meeting having been
specified in the notice. Failure to hold an annual meeting does not invalidate
the Corporation's existence or affect any otherwise valid corporate acts.
1.02 Special Meetings. At any time in the interval between
annual meetings, a special meeting of stockholders may be called by the Chairman
of the Board or the President or by a majority of the Board of Directors by vote
at a meeting or in writing (addressed to the Secretary of the Corporation) with
or without a meeting. Special meetings of the stockholders shall be called as
may be required by law. The Secretary of the Corporation shall call a special
meeting of stockholders on the written request of stockholders entitled to cast
at least a majority of all the votes entitled to be cast at the meeting. A
request for a special meeting shall state the purpose of the meeting and the
matters proposed to be acted on at it. The Secretary shall inform the
stockholders who make the request of the reasonably estimated costs of preparing
and mailing a notice of the meeting and, on payment of these costs to the
Corporation, notify each stockholder entitled to notice of the meeting. Unless
requested by stockholders entitled to cast a majority of all the votes entitled
to be cast at the meeting, a special meeting need not be called to consider any
matter which is substantially the same as a matter voted on at any special
meeting of stockholders held in the preceding twelve months.
1.03 Place of Meetings. Meetings of stockholders shall be held
at such place in the United States as is set from time to time by the Board of
Directors.
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2
1.04 Notice of Meetings; Waiver of Notice. Not less than ten
nor more than 90 days before each stockholders' meeting, the Secretary shall
give written notice of the meeting to each stockholder entitled to vote at the
meeting and each other stockholder entitled to notice of the meeting. The notice
shall state the time and place of the meeting and, if the meeting is a special
meeting or notice of the purpose is required by statute, the purpose of the
meeting. Notice is given to a stockholder when it is personally delivered to
him, left at his residence or usual place of business, or mailed to him at his
address as it appears on the records of the Corporation. Notwithstanding the
foregoing provisions, each person who is entitled to notice waives notice if he
before or after the meeting signs a waiver of the notice which is filed with the
records of stockholders' meetings, or is present at the meeting in person or by
proxy.
1.05 Quorum; Voting. Unless statute or the charter provides
otherwise, at a meeting of stockholders the presence in person or by proxy of
stockholders entitled to cast a majority of all the votes entitled to be cast at
the meeting constitutes a quorum, except that where the holders of any series of
shares are entitled to vote as a separate class (such series being referred to
as a "Separate Class") or where the holders of two or more (but not all) series
of shares are required to vote as a single class (such series being referred to
as a "Combined Class"), the presence in person or by proxy of the holders of a
majority of the shares of that Separate Class or Combined Class, as the case may
be, issued and outstanding and entitled to vote thereat shall constitute a
quorum for such vote. A majority of all the votes cast at a meeting at which a
quorum is present is sufficient to approve any matter which properly comes
before the meeting, except that a plurality of all the votes cast at a meeting
at which a quorum is present is sufficient to elect a director.
1.06 Adjournments. Whether or not a quorum is present, a
meeting of stockholders convened on the date for which it was called may be
adjourned from time to time without further notice by a majority vote of the
stockholders present in person or by proxy to a date not more than 120 days
after the original record date. If a quorum with respect to a Separate Class or
a Combined Class, as the case may be, shall not be present or represented at any
meeting of stockholders, the holders of a majority of the shares of such
Separate Class or such Combined Class, as the case may be, present in person or
by proxy and entitled to vote shall have power to adjourn the meeting from time
to time as to such Separate Class or such Combined Class, as the case may be,
without notice other then announcement at the meeting, until the requisite
number of shares entitled to vote at such meeting shall be present. Any business
which might have been transacted at the meeting as originally notified may be
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3
deferred and transacted at any such adjourned meeting at which a quorum shall be
present.
1.07 General Right to Vote; Proxies. Unless the charter
provides for a greater or lesser number of votes per share or limits or denies
voting rights, each outstanding share of stock, regardless of class or series,
is entitled to one vote on each matter submitted to a vote at a meeting of
stockholders; however, a share is not entitled to be voted if any installment
payable on it is overdue and unpaid. In all elections for directors, each share
of stock may be voted for as many individuals as there are directors to be
elected and for whose election the share is entitled to be voted. A stockholder
may vote the stock he owns of record either in person or by proxy as provided by
statute. A stockholder may sign a writing authorizing another person to act as
proxy. Signing may be accomplished by the stockholder or the stockholder's
authorized agent signing the writing or causing the stockholder's signature to
be affixed to the writing by any reasonable means, including facsimile
signature. A stockholder may authorize another person to act as proxy by
transmitting, or authorizing the transmission of, a telegram, cablegram,
datagram, or other means of electronic transmission to the person authorized to
act as proxy or to a proxy solicitation firm, proxy support service
organization, or other person authorized by the person who will act as proxy to
receive the transmission. Unless a proxy provides otherwise, it shall not be
valid for more than eleven months after its date. A proxy is revocable by a
stockholder at any time without condition or qualification unless the proxy
states that it is irrevocable and the proxy is coupled with an interest. A proxy
may be made irrevocable for so long as it is coupled with an interest. The
interest with which a proxy may be coupled includes an interest in the stock to
be voted under the proxy or another general interest in the Corporation or its
assets and liabilities.
1.08 List of Stockholders. At each meeting of stockholders, a
full, true and complete list of all stockholders entitled to vote at such
meeting, showing the number and class or series of shares held by each and
certified by the transfer agent for such class or series or by the Secretary,
shall be furnished by the Secretary.
1.09 Conduct of Business and Voting. At all meetings of
stockholders, unless the voting is conducted by inspectors, the proxies and
ballots shall be received, and all questions touching the qualification of
voters and the validity of proxies, the acceptance or rejection of votes and
procedures for the conduct of business not otherwise specified by these By-Laws,
the charter or law, shall be decided or determined by the chairman of the
meeting. If demanded by stockholders, present in person or by proxy, entitled to
cast ten percent in number of votes
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4
entitled to be cast, or if ordered by the chairman, the vote upon any election
or question shall be taken by ballot and, upon like demand or order, the voting
shall be conducted by one or more inspectors, in which event the proxies and
ballots shall be received, and all questions touching the qualification of
voters and the validity of proxies and the acceptance or rejection of votes
shall be decided, by such inspectors. Unless so demanded or ordered, no vote
need be by ballot and voting need not be conducted by inspectors. The
stockholders at any meeting may choose an inspector or inspectors to act at such
meeting, and in default of such election the chairman of the meeting may appoint
an inspector or inspectors. No candidate for election as a director at a meeting
shall serve as an inspector thereat.
1.10 Action by Written Consent. Any action required or
permitted to be taken at a meeting of stockholders may be taken without a
meeting if there is filed with the records of stockholders' meetings an
unanimous written consent which sets forth the action and is signed by each
stockholder entitled to vote on the matter and a written waiver of any right to
dissent signed by each stockholder entitled to notice of the meeting but not
entitled to vote at it.
ARTICLE II.
BOARD OF DIRECTORS
2.01 Function of Directors. The business and affairs of the
Corporation shall be managed under the direction of its Board of Directors. All
powers of the Corporation may be exercised by or under authority of the Board of
Directors, except as conferred on or reserved to the stockholders by statute or
by the charter or By-Laws. The Board may delegate the duty of management of the
assets and the administration of the day-to-day operations of the Corporation to
one or more entities or individuals pursuant to a written contract or contracts
which have obtained the approvals, including the approval of renewals thereof,
required by the Investment Company Act of 1940.
2.02 Number of Directors. The Corporation shall have at least
three directors; provided that, if there is no stock outstanding, the number of
directors may be less than three but not less than one, and, if there is stock
outstanding and so long as there are fewer than three stockholders, the number
of directors may be less than three but not less than the number of
stockholders. The Corporation shall have the number of directors provided in its
charter until changed as herein provided. Unless statute or the charter provides
otherwise, a majority of the entire Board of Directors may alter the number of
directors set by the charter to a number not exceeding 25 nor less than the
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5
minimum number then permitted herein, but the action may not affect the tenure
of office of any director.
2.03 Election and Tenure of Directors. At each annual meeting,
the stockholders shall elect directors to hold office until the next annual
meeting and until their successors are elected and qualify.
2.04 Removal of Directors. Unless the charter of the
Corporation provides otherwise, the stockholders of the Corporation may remove
any director, with or without cause, by the affirmative vote of a majority of
all the votes entitled to be cast for the election of directors. The Board of
Directors shall promptly call a meeting of stockholders for the purpose of
voting upon the question of removal of any director or directors when requested
in writing to do so by the record holders of not less than ten percent of the
outstanding shares. Whenever ten or more stockholders of record who have been
such for at least six months preceding the date of application, and who hold in
the aggregate either shares having a net asset value of at least $25,000 or at
least one percent of the outstanding shares, whichever is less, shall apply to
the Board of Directors in writing, stating that they wish to communicate with
other stockholders with a view to obtaining signatures to a request for a
meeting to vote on the removal of any director and accompanied by a form of
communication and request which they wish to transmit, the Board shall within
five business days after receipt of such application either (i) afford to such
applicants access to a list of the names and addresses of all stockholders as
recorded on the books of the Corporation; or (ii) inform such applicants as to
the approximate number of stockholders of record, and the approximate cost of
mailing to them the proposed communication and form of request. If the Board
elects to follow the course specified in clause (ii) above, the Board, upon the
written request of such applicants accompanied by a tender of the material to be
mailed and of the reasonable expenses of mailing, shall, with reasonable
promptness, mail such material to all stockholders of record at their addresses
as recorded on the books, unless within five business days after such tender the
Board shall mail to such applicants and file with the Securities and Exchange
Commission, together with a copy of the material to be mailed, a written
statement signed by a least a majority of the directors to the effect that in
their opinion either such material contains untrue statements of fact or omits
to state facts necessary to make the statements contained therein not
misleading, or would be in violation of applicable law, and specifying the basis
of such opinion. If the Securities and Exchange Commission shall enter an order
refusing to sustain any of such objections, or if, after the entry of an order
sustaining one or more of such objections, the Commission shall find, after
notice and opportunity for hearing, that all objections so
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6
sustained have been met end shall enter an order so declaring, the Board shall
mail copies of such material to all stockholders with reasonable promptness
after the entry of such order and the renewal of such tender.
2.05 Vacancy on Board. The stockholders may elect a successor
to fill a vacancy on the Board of Directors which results from the removal of a
director by the stockholders. A director elected by the stockholders to fill a
vacancy which results from the removal of a director serves for the balance of
the term of the removed director. Unless otherwise provided by statute or the
charter, a majority of the remaining directors, whether or not sufficient to
constitute a quorum, may fill a vacancy on the Board of Directors which results
from any cause except an increase in the number of directors and a majority of
the entire Board of Directors may fill a vacancy which results from an increase
in the number of directors. A director elected by the Board of Directors to fill
a vacancy serves until the next annual meeting of stockholders and until his
successor is elected and qualifies.
2.06 Regular Meetings. After each meeting of stockholders at
which directors shall have been elected, the Board of Directors shall meet as
soon as practicable for the purpose of organization and the transaction of other
business. In the event that no other time and place are specified by resolution
of the Board, the President or Chairman with notice in accordance with Section
2.08, the Board of Directors shall meet immediately following the close of, and
at the place of, such stockholders meeting. Any other regular meeting of the
Board of Directors shall be held on such date and at any place as may be
designated from time to time by the Board of Directors. No notice of meeting
following a stockholders meeting or any other regular meeting shall be necessary
if held as hereinabove provided.
2.07 Special Meetings. Special meetings of the Board of
Directors may be called at any time by the Chairman of the Board or the
President or by a majority of the Board of Directors by vote at a meeting, or in
writing with or without a meeting. A special meeting of the Board of Directors
shall be held on such date and at any place as may be designated from time to
time by the Board of Directors. In the absence of designation such meeting shall
be held at such place as may be designated in the call.
2.08 Notice of Meetings; Waiver of Notice. Except as provided
in Section 2.06, the Secretary shall give notice to each director of each
regular and special meeting of the Board of Directors. The notice shall state
the time and place of the meeting. Notice is given to a director when it is
delivered
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7
personally to him, left at his residence or usual place of business, or sent by
telegraph, facsimile transmission or telephone, at least 24 hours before the
time of the meeting or, in the alternative, by mail to his address as it shall
appear on the records of the Corporation at least 72 hours before the time of
the meeting. Unless statute, the By-Laws or a resolution of the Board of
Directors provides otherwise, the notice need not state the business to be
transacted at or the purposes of any regular or special meeting of the Board of
Directors. No notice of any meeting of the Board of Directors need be given to
any director who attends except where a director attends a meeting for the
express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened, or to any director who, in a writing
executed and filed with the records of the meeting either before or after the
holding thereof, waives such notice. Any meeting of the Board of Directors,
regular or special, may adjourn from time to time to reconvene at the same or
some other place, and no notice need be given of any such adjourned meeting
other than by announcement.
2.09 Action by Directors. Unless statute or the charter or the
By-Laws requires a greater proportion, the action of a majority of the directors
present at a meeting at which a quorum is present is action of the Board of
Directors. A majority of the entire Board of Directors shall constitute a quorum
for the transaction of business. In the absence of a quorum, the directors
present by majority vote and without notice other than by announcement may
adjourn the meeting from time to time until a quorum shall attend. At any such
adjourned meeting at which a quorum shall be present, any business may be
transacted which might have been transacted at the meeting as originally
notified. Unless otherwise provided by statute or regulation, any action
required or permitted to be taken at a meeting of the Board of Directors may be
taken without a meeting, if an unanimous written consent which sets forth the
action is signed by each member of the Board and filed with the minutes of
proceedings of the Board.
2.10 Participation by Telephone. Members of the Board of
Directors may participate in a meeting by means of a conference telephone or
similar communications equipment allowing all persons participating in the
meeting to hear each other at the same time. Unless provided otherwise by
statute or regulation, participation in a meeting by these means constitutes
presence in person at the meeting, but shall not constitute attendance for the
purpose of compensation pursuant to Section 2.11.
2.11 Compensation. By resolution of the Board of Directors a
fixed sum and expenses, if any, for attendance at each regular or special
meeting of the Board of Directors or of
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8
committees thereof, and other compensation for their services as such or on
committees of the Board of Directors, may be paid to directors. A director who
serves the Corporation in any other capacity also may receive compensation for
such other services, pursuant to a resolution of the Board of Directors.
ARTICLE III.
COMMITTEES
3.01 Committees. The Board of Directors may appoint from among
its members an Executive Committee and other committees comprised of one or more
directors and delegate to these committees any of the powers of the Board of
Directors, except the power to declare dividends or other distributions on
stock, elect directors, issue stock other than as provided in the next sentence,
recommend to the stockholders any action which requires stockholder approval,
amend the By-Laws, or approve any merger or share exchange which does not
require stockholder approval. If the Board of Directors has given general
authorization for the issuance of stock, a committee of the Board, in accordance
with a general formula or method for determining the maximum number of shares to
be issued specified by the Board by resolution or by adoption of a stock option
or other plan, may fix the terms of stock subject to classification or
reclassification and the terms on which any stock may be issued, including all
terms and conditions required or permitted to be established or authorized by
the Board of Directors.
3.02 Committee Procedure. Each committee may fix rules of
procedure for its business. A majority of the members of a committee shall
constitute a quorum for the transaction of business and the action of a majority
of those present at a meeting at which a quorum is present shall be action of
the committee. The members of a committee present at any meeting, whether or not
they constitute a quorum, may appoint a director to act in the place of an
absent member. Any action required or permitted to be taken at a meeting of a
committee may be taken without a meeting, if an unanimous written consent which
sets forth the action is signed by each member of the committee and filed with
the minutes of the committee. The members of a committee may conduct any meeting
thereof by telephone in accordance with the provisions of Section 2.10.
3.03 Emergency. In the event of a state of disaster of
sufficient severity to prevent the conduct and management of the affairs and
business of the Corporation by its directors and officers as contemplated by the
charter and these By-Laws. Any two or more available members of the then
incumbent Executive Committee shall constitute a quorum of that Committee for
the full conduct and management of the affairs and business of the
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9
Corporation in accordance with the provisions of Section 3.01. In the event of
the unavailability, at such time, of a minimum of two members of the then
incumbent Executive Committee, the available directors shall elect an Executive
Committee comprised of any two members of the Board of Directors, whether or not
they be officers of the Corporation, which two members shall constitute the
Executive Committee for the full conduct and management of the affairs of the
Corporation in accordance with the foregoing provisions of this Section 3.03.
This Section 3.03 shall be subject to implementation by resolution of the Board
of Directors passed from time to time for that purpose and any provisions of the
By-Laws (other then this Section) and any resolutions which are contrary to the
provisions of this Section or to the provisions of any such implementing
resolutions shall be suspended until it shall be determined by any interim
Executive Committee acting under this Section that it shall be to the advantage
of the Corporation to resume the conduct and management of its affairs and
business under all the other provisions of these By-Laws.
ARTICLE IV.
OFFICERS
4.01 Executive and Other Officers. The Corporation shall have
a President, a Secretary and a Treasurer. It may also have a Chairman of the
Board. The Board of Directors shall designate who shall serve as chief executive
officer, who shall have general supervision of the business and affairs of the
Corporation, and may designate a chief operating officer, who shall have
supervision of the operations of the Corporation. In the absence of any
designation the Chairman of the Board, if there be one, shall serve as chief
executive officer and the President shall serve as chief operating officer. In
the absence of the Chairman of the Board, or if there be none, the President
shall be the chief executive officer. The same person may hold both offices. The
Corporation may also have one or more Vice-Presidents, assistant officers and
subordinate officers as may be established by the Board of Directors. A person
may hold more than one office in the Corporation except that no person may serve
concurrently as both President and Vice-President of the Corporation. The
Chairman of the Board shall be a director. The other officers may be directors.
4.02 Chairman of the Board. The Chairman of the Board, if one
be elected, shall preside at all meetings of the Board of Directors and of the
stockholders at which he shall be present. Unless otherwise specified by the
Board of Directors, he shall be the chief executive officer of the Corporation
and perform the duties customarily performed by chief executive officers, and
may perform any duties of the President. In
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10
general, he shall perform all such duties as are from time to time assigned to
him by the Board of Directors.
4.03 President. Unless otherwise provided by resolution of the
Board of Directors, the President, in the absence of the Chairman of the Board,
shall preside at all meetings of the Board of Directors and of the stockholders
at which he shall be present. Unless otherwise specified by the Board of
Directors, the President shall be the chief operating officer of the Corporation
and perform the duties customarily performed by chief operating officers. He may
sign and execute, in the name of the Corporation, all authorized deeds,
mortgages, bonds, contracts or other instruments, except in cases in which the
signing and execution thereof shall have been expressly delegated to some other
officer or agent of the Corporation. In general, he shall perform all duties
usually performed by a president of a corporation and such other duties as are
from time to time assigned to him by the Board of Directors or the chief
executive officer of the Corporation.
4.04 Vice-Presidents. The Vice-President or Vice-Presidents,
at the request of the chief executive officer or the President, or in the
President's absence or during his inability to act, shall perform the duties and
exercise the functions of the President, and when so acting shall have the
powers of the President. If there be more than one Vice-President, the Board of
Directors may determine which one or more of the Vice-Presidents shall perform
any of such duties or exercise any of such functions, or if such determination
is not made by the Board of Directors, the chief executive officer or the
President may make such determination; otherwise any of the Vice-Presidents may
perform any of such duties or exercise any of such functions. The Vice-President
or Vice-Presidents shall have such other powers and perform such other duties,
and have such additional descriptive designations in their titles (if any), as
are from time to time assigned to them by the Board of Directors, the chief
executive officer, or the President.
4.05 Secretary. The Secretary shall keep the minutes of the
meetings of the stockholders, of the Board of Directors and of any committees,
in books provided for that purpose; he shall see that all notices are duly given
in accordance with the provisions of the By-Laws or as required by law; he shall
be custodian of the records of the Corporation; he may witness any document on
behalf of the Corporation, the execution of which is duly authorized, see that
the corporate seal is affixed where such document is required or desired to be
under its seal, and, when so affixed, may attest the same; and, in general, he
shall perform all duties incident to the office of a secretary of a corporation,
and such other duties as are from time to time
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11
assigned to him by the Board of Directors, the chief executive officer, or the
President.
4.06 Treasurer. The Treasurer shall have charge of and be
responsible for all funds, securities, receipts and disbursements of the
Corporation, and shall deposit, or cause to be deposited, in the name of the
Corporation, all moneys or other valuable effects in such banks, trust companies
or other depositories as shall, from time to time, be selected by the Board of
Directors; he shall render to the President and to the Board of Directors,
whenever requested, an account of the financial condition of the Corporation;
and, in general, he shall perform all the duties incident to the office of a
treasurer of a corporation, and such other duties as are from time to time
assigned to him by the Board of Directors, the chief executive officer, or the
President.
4.07 Assistant and Subordinate Officers. The assistant and
subordinate officers of the Corporation are all officers below the office of
Vice-President, Secretary or Treasurer. The assistant or subordinate officers
shall have such duties as are from time to time assigned to them by the Board of
Directors, the chief executive officer, or the President.
4.08 Election, Tenure and Removal of Officers. The Board of
Directors shall elect the officers of the Corporation. The Board of Directors
may from time to time authorize any committee or officer to appoint assistant
and subordinate officers. Election or appointment of an officer, employee or
agent shall not of itself create contract rights. All officers shall be elected
or appointed to hold their offices, respectively, during the pleasure of the
Board of Directors. The Board of Directors (or, as to any assistant or
subordinate officer, any committee or officer authorized by the Board of
Directors) may remove an officer at any time. The removal of an officer does not
prejudice any of his contract rights. The Board of Directors (or, as to any
assistant or subordinate officer, any committee or officer authorized by the
Board of Directors) may fill a vacancy which occurs in any office.
4.09 Compensation. The Board of Directors shall have power to
fix the salaries and other compensation and remuneration, of whatever kind, of
all officers of the Corporation. It may authorize any committee or officer, upon
whom the power of appointing assistant and subordinate officers may have been
conferred, to fix the salaries, compensation and remuneration of such assistant
and subordinate officers. No officer shall be prevented from receiving such
salary by reason of the fact that he is also a director of the Corporation.
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12
ARTICLE V.
INDEMNIFICATION
5.01 Indemnification of Directors and Officers. The
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
a proceeding by or in the right of the Corporation in which such person shall
have been adjudged to be liable to the Corporation), by reason of being or
having been a director or officer of the Corporation, or serving or having
served at the request of the Corporation as a director, officer, partner,
trustee, employee or agent of another entity in which the Corporation has an
interest as a shareholder, creditor or otherwise (a "Covered Person", against
all liabilities, including but not limited to amounts paid in satisfaction of
judgments, in compromise or as fines and penalties, and reasonable expenses
(including attorney's fees) actually incurred by the Covered Person in
connection with such action, suit or proceeding, except (i) liability in
connection with any proceeding in which it is determined that (A) the act or
omission of the Covered Person was material to the matter giving rise to the
proceeding, and was committed in bad faith or was the result of active and
deliberate dishonesty, or (B) the Covered Person actually received an improper
personal benefit in money, property or services, or (C) in the case of any
criminal proceeding, the Covered Person had reasonable cause to believe that the
act or omission was unlawful, and (ii) liability to the Corporation or its
security holders to which the Covered Person would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office (any or all of the conduct
referred to in clauses(i) and (ii) being hereinafter referred to as "Disabling
Conduct".
5.02 Procedure For Indemnification. Any indemnification under
Section 5.01 shall (unless ordered by a court) be made by the Corporation only
as authorized for a specific proceeding by (i) a final decision on the merits by
a court or other body before whom the proceeding was brought that the Covered
Person to be indemnified was not liable by reason of Disabling Conduct, (ii)
dismissal of the proceeding against the Covered Person for insufficiency of
evidence of any Disabling Conduct, or (iii) a reasonable determination, based
upon a review of the facts, by a majority of a quorum of the directors who are
neither "interested persons" of the Corporation as defined in the Investment
Company Act of 1940 nor parties to the proceeding ("Disinterested, Non-Party
Directors"), or an independent legal counsel in a written opinion, that the
Covered Person was not liable by reason of Disabling Conduct. The termination of
any
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13
proceeding by judgment, order or settlement shall not create a presumption that
the Covered Person did not meet the required standard of conduct; the
termination of any proceeding by conviction, or a plea of nolo contendere or its
equivalent, or an entry of an order of probation prior to judgment, shall create
a rebuttable presumption that the Covered Person did not meet the required
standard of conduct. Any determination pursuant to this Section 5.02 shall not
prevent recovery from any Covered Person of any amount paid to be in accordance
with this By-Law as indemnification if such Covered Person is subsequently
adjudicated by a court of competent jurisdiction to be liable by reason of
Disabling Conduct.
5.03 Advance Payment of Expenses. Reasonable expenses
(including attorney's fees) incurred by a Covered Person may be paid or
reimbursed by the Corporation in advance of the final disposition of an action,
suit or proceeding upon receipt by the Corporation of (i) a written affirmation
by the Covered Person of his good faith belief that the standard of conduct
necessary for indemnification under this By-Law has been met and (ii) a written
undertaking by or on behalf of the Covered Person to repay the amount if it is
ultimately determined that such standard of conduct has not been met, so long as
either (A) the Covered Person has provided a security for his undertaking, (B)
the Corporation is insured against losses arising by reason of any lawful
advances, or (C) a majority of a quorum of the Disinterested, Non-Party
Directors, or an independent legal counsel in a written opinion, has determined,
based on a review of readily available facts (as opposed to a full trial-type
inquiry), that there is reason to believe that the Covered Person ultimately
will be found entitled to indemnification.
5.04 Exclusivity, Etc. The indemnification and advance of
expenses provided by this By-Law shall not be deemed exclusive of any other
rights to which a Covered Person seeking indemnification or advance of expenses
may be entitled under any law (common or statutory), or any agreement, vote of
stockholders or disinterested directors, or other provision that is consistent
with law, both as to action in an official capacity and as to action in another
capacity while holding office or while employed by or acting as agent for the
Corporation, shall continue in respect of all events occurring while the Covered
Person was a director or officer after such Covered Person has ceased to be a
director or officer, and shall inure to the benefit of the estate, heirs,
executors and administrators of such Covered Person. The Corporation shall not
be liable for any payment under this By-Law in connection with a claim made by a
director or officer to the extent such director or officer has otherwise
actually received payment under an insurance policy, agreement, vote or
otherwise. All rights to indemnification and advance of expenses under the
charter and hereunder shall be deemed to be a
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14
contract between the Corporation and each director or officer of the Corporation
who serves or served in such capacity at any time while this By-Law is in
effect. Nothing herein shall prevent the amendment of this By-Law, provided that
no such amendment shall diminish the rights of any Covered Person hereunder with
respect to events occurring or claims made before its adoption or as to claims
made after its adoption in respect of events occurring before its adoption. Any
repeal or modification of this By-Law shall not in any way diminish any rights
to indemnification or advance of expenses of a Covered Person or the obligations
of the Corporation arising hereunder with respect to events occurring, or claims
made, while this By-Law or any provision hereof is in force.
5.05 Insurance. The Corporation may purchase and maintain
insurance on behalf of any Covered Person against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such; provided, however, that the Corporation shall not purchase insurance to
indemnify any Covered Person against liability for Disabling Conduct.
5.06 Severability; Definitions. The invalidity or
unenforceability of any provision of this Article V shall not affect the
validity or enforceability of any other provision hereof. The phrase "this
By-Law" in this Article V means this Article V in its entirety.
ARTICLE VI.
STOCK
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15
6.01 Certificates for Stock. The Board of Directors may
determine to issue certificated or uncertificated shares of capital stock and
other securities of the Corporation. For certificated stock, each stockholder is
entitled to certificates which represent and certify the shares of stock he
holds in the Corporation. Each stock certificate shall include on its face the
name of the Corporation, the name of the stockholder or other person to whom it
is issued, and the class or series of stock and number of shares it represents.
It shall also include (a) a statement of any restrictions on transferability and
(b) a statement which provides in substance that the Corporation will furnish to
any stockholder on request and without charge a full statement of the
designations and any preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption of the stock of each class which the Corporation is
authorized to issue, of the differences in the relative rights and preferences
between the shares of each series of a preferred or special class in series
which the Corporation is authorized to issue, to the extent they have been set,
and of the authority of the Board of Directors to set the relative rights and
preferences of subsequent series of a preferred or special class of stock and
any restrictions on transferability. Such request may be made to the Secretary
or to its transfer agent. Upon the issuance of uncertificated shares of capital
stock, the Corporation shall send the stockholder a written statement of the
same information required on the certificate and by the Maryland Uniform
Commercial Code - Investment Securities. It shall be in such form, not
inconsistent with law or with the charter, as shall be approved by the Board of
Directors or any officer or officers designated for such purpose by resolution
of the Board of Directors. Each stock certificate shall be signed by the
Chairman of the Board, the President, or a Vice-President, and countersigned by
the Secretary, an Assistant Secretary, the Treasurer, or an Assistant Treasurer.
Each certificate may be sealed with the actual corporate seal or a facsimile of
it or in any other form and the signatures may be either manual or facsimile
signatures. A certificate is valid and may be issued whether or not an officer
who signed it is still an officer when it is issued. A certificate may not be
issued until the stock represented by it is fully paid.
6.02 Transfers. The Board of Directors shall have power and
authority to make such rules and regulations as it may deem expedient concerning
the issue, transfer and registration of shares of stock; and may appoint
transfer agents and registrars thereof. The duties of transfer agent and
registrar may be combined.
6.03 Record Date and Closing of Transfer Books. The Board of
Directors may set a record date or direct that the stock
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16
transfer books be closed for a stated period for the purpose of making any
proper determination with respect to stockholders, including which stockholders
are entitled to notice of a meeting, vote at a meeting, receive a dividend, or
be allotted other rights. The record date may not be prior to the close of
business on the day the record date is fixed nor, subject to Section 1.06, more
than 90 days before the date on which the action requiring the determination
will be taken; the transfer books may not be closed for a period longer than
twenty days; and, in the case of a meeting of stockholders, the record date or
the closing of the transfer books shall be at least ten days before the date of
the meeting.
6.04 Stock Ledger. The Corporation shall maintain a stock
ledger which contains the name and address of each stockholder and the number of
shares of stock of each class or series which the stockholder holds. The stock
ledger may be in written form or in any other form which can be converted within
a reasonable time into written form for visual inspection. The original or a
duplicate of the stock ledger shall be kept at the offices of the transfer agent
for a particular class or series of stock, or, if none, at the principal office
in the State of Maryland or the principal executive office of the Corporation.
6.05 Certification of Beneficial Owners. The Board of
Directors may adopt by resolution a procedure by which a stockholder of the
Corporation may certify in writing to the Corporation that any shares of stock
registered in the name of the stockholder are held for the account of a
specified person other than the stockholder. The resolution shall set forth the
class of stockholders who may certify; the purpose for which the certification
may be made; the form of certification and the information to be contained in
it; if the certification is with respect to a record date or closing of the
stock transfer books, the time after the record date or closing of the stock
transfer books within which the certification must be received by the
Corporation; and any other provisions with respect to the procedure which the
Board considers necessary or desirable. On receipt of a certification which
complies with the procedure adopted by the Board in accordance with this
Section, the person specified in the certification is, for the purpose set forth
in the certification, the holder of record of the specified stock in place of
the stockholder who makes the certification.
6.06 Lost Stock Certificates. The Board of Directors of the
Corporation may determine the conditions for issuing a new stock certificate in
place of one which is alleged to have been lost, stolen or destroyed, including
the requirement that the owner furnish a bond as indemnity against any claim
that may be made against the Corporation in respect of the lost, stolen or
destroyed certificate, or the Board of Directors may delegate
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17
such power to any officer or officers of the Corporation. In their discretion,
the Board of Directors or such officer or officers may refuse to issue such new
certificate save upon the order of some court having jurisdiction in the
premises.
ARTICLE VII.
FINANCE
7.01 Checks, Drafts, Etc. All checks, drafts and orders for
the payment of money, notes and other evidences of indebtedness, issued in the
name of the Corporation, shall, unless otherwise provided by resolution of the
Board of Directors, be signed by the Chairman of the Board, President, a
Vice-President or an Assistant Vice-President and countersigned by the
Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary.
7.02 Annual Statement of Affairs. The President or chief
accounting officer shall prepare annually a full and correct statement of the
affairs of the Corporation, to include a statement of net assets and a financial
statement of operations for the preceding fiscal year. The statement of affairs
shall be placed on file at the Corporation's principal office within 120 days
after the end of the fiscal year.
7.03 Fiscal Year. The fiscal year of the Corporation shall be
the twelve-calendar-month period ending December 31 in each year, unless
otherwise provided by the Board of Directors.
7.04 Dividends. If declared by the Board of Directors at any
meeting thereof, the Corporation may pay dividends on its shares in cash,
property, or in shares of the capital stock of the Corporation, unless such
dividend is contrary to law or to a restriction contained in the charter of the
Corporation.
7.05 Net Asset Value. Except in the event of emergency
conditions or as otherwise permitted by the Investment Company Act of 1940, the
net asset value per share of each class or series of stock shall be determined
no less frequently than once daily, Monday through Friday, at such time or times
as the Board of Directors sets. In valuing portfolio investments for the
determination of the current net asset value per share of any class or series,
securities for which market quotations are readily available shall be valued at
prices which, in the opinion of the Board of Directors or the person designated
by the Board of Directors to make the determination, most nearly represent the
current market value of such securities, and other securities and assets shall
be valued on the basis of their fair value as determined by or under the
direction of the Board of Directors.
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7.06 Employment of Custodian. The Corporation shall place and
maintain its securities and similar investments in the custody of one or more
custodians meeting the requirements of the Investment Company Act of 1940, or
may serve as its own custodian in accordance with such rules and regulations or
orders as the Securities and Exchange Commission may from time to time prescribe
for the protection of investors. Securities held by a custodian may be
registered in the name of the Corporation, including the designation of the
particular class or series to which such assets belong, or any such custodian,
or the nominee of either of them. Subject to such rules, regulations, and orders
as the Commission may adopt as necessary or appropriate for the protection of
investors, the Corporation or any custodian, with the consent of the
Corporation, may deposit all or any part of the securities owned by the
Corporation in a system for the central handling of securities, pursuant to
which system all securities of a particular class or series of any issuer
deposited within the system are treated as fungible and may be transferred or
pledged by bookkeeping entry without physical delivery of such securities.
ARTICLE VIII.
SUNDRY PROVISIONS
8.01 Books and Records. The Corporation shall keep correct and
complete books and records of its accounts and transactions and minutes of the
proceedings of its stockholders and Board of Directors and of any executive or
other committee when exercising any of the powers of the Board of Directors. The
books and records of the Corporation may be in written form or in any other form
which can be converted within a reasonable time into written form for visual
inspection. Minutes shall be recorded in written form but may be maintained in
the form of a reproduction. The original or a certified copy of these By-Laws
shall be kept at the principal office of the Corporation.
8.02 Corporate Seal. The Board of Directors shall provide a
suitable seal, bearing the name of the Corporation, which shall be in the charge
of the Secretary. The Board of Directors may authorize one or more duplicate
seals and provide for the custody thereof. If the Corporation is required to
place its corporate seal to a document, it is sufficient to meet the requirement
of any law, rule or regulation relating to a corporate seal to place the word
"Seal" adjacent to the signature of the person authorized to sign the document
on behalf of the Corporation.
8.03 Bonds. The Board of Directors may require any officer,
agent or employee of the Corporation to give a bond to the Corporation,
conditioned upon the faithful discharge of his
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19
duties, with one or more sureties and in such amount as may be satisfactory to
the Board of Directors.
8.04 Voting Shares in Other Corporations. Shares of other
corporations or associations, registered in the name of the Corporation, may be
voted by the President, a Vice-President, or a proxy appointed by either of
them. The Board of Directors, however, may by resolution appoint some other
person to vote such shares, in which case such person shall be entitled to vote
such shares upon the production of a certified copy of such resolution.
8.05 Mail. Any notice or other document which is required by
these By-Laws to be mailed shall be deposited in the United States mails,
postage prepaid.
8.06 Execution of Documents. A person who holds more than one
office in the Corporation may not act in more than one capacity to execute,
acknowledge or verify an instrument required by law to be executed, acknowledged
or verified by more than one officer.
8.07 Amendments. Subject to the special provisions of Section
2.02, (i) any and all provisions of these By-Laws may be altered or repealed and
new by-laws may be adopted at any annual meeting of the stockholders, or at any
special meeting called for that purpose, and (ii) the Board of Directors shall
have the power, at any regular or special meeting thereof, to make and adopt new
by-laws, or to amend, alter or repeal any of the By-Laws of the Corporation.
<PAGE>
MANAGEMENT CONTRACT
SSBCITI FUNDS INC.
7 World Trade Center
New York, New York 10048
[Date]
Salomon Brothers Asset Management Inc
7 World Trade Center
New York, New York 10048
Dear Sirs:
This will confirm the agreement between the undersigned (the
"Company") and you (the "Investment Manager") as follows:
1. The Company is an open-end investment company which
currently has one investment portfolio. The Company proposes to engage in the
business of investing and reinvesting the assets of the [NAME OF FUND] (the
"Fund") in the manner and in accordance with the investment objective and
limitations specified in the Company's Articles of Incorporation, (the
"Articles") and the currently effective prospectus, including the documents
incorporated by reference therein (the "Prospectus"), relating to the Company
and the Fund, included in the Company's Registration Statement, as amended from
time to time (the "Registration Statement"), filed by the Company under the
Investment Company Act of 1940, as amended (the "1940 Act"), and the Securities
Act of 1933, as amended. Copies of the documents referred to in the preceding
sentence have been furnished to the Investment Manager. Any amendments to these
documents shall be furnished to the Investment Manager.
2. The Company employs the Investment Manager to (a) make
investment strategy decisions for the Fund, (b) manage the investing and
reinvesting of the Fund's assets as specified in paragraph 1, (c) place purchase
and sale orders on behalf of the Fund and (d) provide continuous supervision of
the Fund's investment portfolios. At the Investment Manager's own expense and
subject to its supervision, the Investment Manager may delegate the performance
of all or a part of its services under this agreement to others.
3. (a) The Investment Manager shall, at its expense, (i)
provide the Fund with office space, office facilities and personnel reasonably
necessary for performance of the services to be provided by the Investment
Manager pursuant to this Agreement, (ii) provide the Fund with persons
satisfactory to the Company's Board of Directors to serve as officers and
employees of the Fund and (iii) provide the office space, facilities, equipment
and personnel necessary to perform the following services for the Fund: (A)
review purchases and sales of portfolio instruments and review the Fund's
portfolios to assess compliance with the Fund's stated investment objectives and
limitations and compliance with the 1940 Act and other applicable laws and
regulations, (B) record keeping, reporting, and maintaining registration
statements and
<PAGE>
2
proxy statements to the extent such records, reports and documents are not
maintained or furnished by the Fund's transfer agent, custodian, administrative
and accounting services agent, or other agents employed by the Fund, (C)
supervision of Fund operations, including coordination of functions of transfer
agent, custodian, administrative and accounting services agent, accountants,
counsel and other parties performing services or operational functions for the
Fund; and (D) certain administrative and clerical services not otherwise
provided by the Fund's transfer agent, custodian, administrative and accounting
services agent, or other agents employed by the Fund.
(b) Except as provided in subparagraph (a), the Company shall
be responsible for all of the Fund's expenses and liabilities, including
organizational expenses; taxes; interest; fees (including fees paid to its
directors who are not affiliated with the Investment Manager or any of its
affiliates); fees payable to the Securities and Exchange Commission; state
securities qualification fees; costs of preparing and printing prospectuses for
regulatory purposes and for distribution to existing shareholders; advisory and
administration fees; charges of the custodian, transfer agent, administrative
and accounting services agent and any other agent employed by the Fund;
insurance premiums; auditing and legal expenses; costs of shareholders' reports
and shareholders' meetings; charges and expenses of any entity used for pricing
the Fund's portfolio securities and calculating the net asset value of the
Fund's shares; any extraordinary expenses; brokerage fees and commissions, if
any, in connection with the purchase or sale of portfolio securities; and
payments to the Fund's distributor for activities intended to result in the sale
of Fund shares.
4. As manager of the Fund's assets, the Investment Manager
shall make investments for the Fund's accounts in accordance with the investment
objectives and limitations set forth in the Articles, the Prospectus, the 1940
Act, the provisions of the Internal Revenue Code of 1986, as amended, relating
to regulated investment companies, applicable banking laws and regulations, and
policy decisions adopted by the Company's Board of Directors from time to time.
The Investment Manager shall advise the Company's officers and Board of
Directors, at such times as the Company's Board of Directors may specify, of
investments made for the Fund's account and shall, when requested by the
Company's officers or Board of Directors, supply the reasons for making such
investments.
5. The Investment Manager is authorized on behalf of the
Company, from time to time when deemed to be in the best interests of the
Company and to the extent permitted by applicable law, to purchase and/or sell
securities in which the Investment Manager or any of its affiliates underwrites,
deals in and/or makes a market and/or may perform or seek to perform investment
banking services for issuers of such securities. The Investment Manager is
further authorized, to the extent permitted by applicable law, to select brokers
for the execution of trades for the Company, which broker may be an affiliate of
the Investment Manager, provided that the affiliated broker's charge for the
transaction is reasonable and fair compared to the usual and customary levels
charged by other brokers in connection with comparable transactions involving
similar securities.
<PAGE>
3
6. In consideration of the Investment Manager's undertaking to
render the services described in this agreement, the Company agrees that the
Investment Manager shall not be liable under this agreement for any error of
judgment or mistake of law or for any loss suffered by the Company (including
any Hong Kong taxes or related expenses imposed on the Fund in relation to
matters contemplated by this agreement) in connection with the performance of
this agreement, provided that nothing in this agreement shall be deemed to
protect or purport to protect the Investment Manager against any liability to
the Company or its stockholders to which the Investment Manager would otherwise
be subject by reason of willful misfeasance, bad faith or gross negligence in
the performance of its duties under this agreement or by reason of its reckless
disregard of its obligations and duties hereunder ("disabling conduct"). The
Fund will indemnify the Investment Manager against, and hold it harmless from,
any and all losses, claims, damages, liabilities or expenses, (including any
Hong Kong taxes or related expenses imposed on the Asia Growth Fund in relation
to matters contemplated by this agreement) including reasonable counsel fees and
expenses and any amounts paid in satisfaction of judgments, in compromise or as
fines or penalties, not resulting from disabling conduct by the Investment
Manager. Indemnification shall be made only following: (i) a final decision on
the merits by a court or other body before whom the proceeding was brought that
the Investment Manager was not liable by reason of disabling conduct, or (ii) in
the absence of such a decision, a reasonable determination, based upon a review
of the facts, that the Investment Manager was not liable by reason of disabling
conduct by (a) the vote of a majority of a quorum of directors of the Company
who are neither "interested persons" of the Company nor parties to the
proceeding ("disinterested non-party directors"), or (b) an independent legal
counsel in a written opinion. The Investment Manager shall be entitled to
advances from the Fund for payment of the reasonable expenses incurred by it in
connection with the matter as to which it is seeking indemnification in the
manner and to the fullest extent permissible under law. The Investment Manager
shall provide to the Fund a written affirmation of its good faith belief that
the standard of conduct necessary for indemnification by the Fund has been met
and a written undertaking to repay any such advance if it should ultimately be
determined that the standard of conduct has not been met. In addition, at least
one of the following additional conditions shall be met: (a) the Investment
Manager shall provide security in form and amount acceptable to the Fund for its
undertaking; (b) the Fund is insured against losses arising by reason of the
advance; or (c) a majority of a quorum of disinterested non-party directors, or
independent legal counsel, in a written opinion, shall have determined, based on
a review of facts readily available to the Fund at the time the advance is
proposed to be made, that there is reason to believe that the Investment Manager
will ultimately be found to be entitled to indemnification. For purposes of this
paragraph 6 only, the term "Investment Manager" shall be deemed to include
affiliates of the Investment Manager to whom the Investment Manager has
delegated the exercise of all or any of its powers, discretion and duties under
this agreement.
7. In consideration of the services to be rendered by the
Investment Manager under this agreement, each Fund shall pay the Investment
Manager a monthly fee on the first business day of each month at an annual rate
1.00% of the average daily value (as determined on the days and at the time set
forth in the Prospectus for determining net asset value per share) of the Fund's
net assets during the preceding month. If the fee payable to the Investment
Manager pursuant to this paragraph 7 begins to accrue before the end of any
month or if this agreement terminates before the end of any month, the fee for
the period from such date to the end of such
<PAGE>
4
month or from the beginning of such month to the date of termination, as the
case may be, shall be prorated according to the proportion which such period
bears to the full month in which such effectiveness or termination occurs. For
purposes of calculating each such monthly fee, the value of the Fund's net
assets shall be computed in the manner specified in the Prospectus and the
Articles for the computation of the value of the Fund's net assets in connection
with the determination of the net asset value of shares of the Fund's capital
stock.
8. This agreement shall continue in effect until two years
from the date hereof and thereafter for successive annual periods, provided that
such continuance is specifically approved at least annually (a) by the vote of a
majority of the Fund's outstanding voting securities (as defined in the 1940
Act) or by the Company's Board of Directors and (b) by the vote, cast in person
at a meeting called for the purpose, of a majority of the Company's directors
who are not parties to this agreement or "interested persons" (as defined in the
1940 Act) of any such party. This agreement may be terminated at any time,
without the payment of any penalty, by a vote of a majority of the Fund's
outstanding voting securities (as defined in the 1940 Act) or by a vote of a
majority of the Company's entire Board of Directors on 60 days' written notice
to the Investment Manager or by the Investment Manager on 60 days' written
notice to the Company. This agreement shall terminate automatically in the event
of its assignment (as defined in the 1940 Act). The respective agreements,
covenants, indemnities and other statements set forth in Section 6 hereof shall
remain in full force and effect regardless of any termination or cancellation of
this agreement. All property of the Fund shall be returned to the Fund as soon
as reasonably practicable after the termination of this agreement.
9. Upon expiration or earlier termination of this agreement,
the Company shall, if reference to "Salomon Brothers" is made in the corporate
name of the Company or in the name of the Fund and if the Investment Manager
requests in writing, as promptly as practicable change its corporate name and
the name of the Fund so as to eliminate all reference to "Salomon Brothers", and
thereafter the Company and the Fund shall cease transacting business in any
corporate name using the words "Salomon Brothers" or any other reference to the
Investment Manager or "Salomon Brothers". The foregoing rights of the Investment
Manager and obligations of the Company shall not deprive the Investment Manager,
or any affiliate thereof which has "Salomon Brothers" in its name, of, but shall
be in addition to, any other rights or remedies to which the Investment Manager
and any such affiliate may be entitled in law or equity by reason of any breach
of this agreement by the Company, and the failure or omission of the Investment
Manager to request a change of the Company's or the Fund's name or a cessation
of the use of the name of "Salomon Brothers" as described in this paragraph 10
shall not under any circumstances be deemed a waiver of the right to require
such change or cessation at any time thereafter for the same or any subsequent
breach.
10. Except to the extent necessary to perform the Investment
Manager's obligations under this agreement, nothing herein shall be deemed to
limit or restrict the right of the Investment Manager, or any affiliate of the
Investment Manager, or any employee of the Investment Manager, to engage in any
other business or to devote time and attention to the management or other
aspects of any other business, whether of a similar or dissimilar nature, or to
render services of any kind to any other corporation, firm, individual or
association.
<PAGE>
5
11. This agreement shall be governed by the laws of the State
of New York.
<PAGE>
6
If the foregoing correctly sets forth the agreement between
the Company and the Investment Manager, please so indicate by signing and
returning to the Company the enclosed copy hereof.
Very truly yours,
SSBCITI FUNDS INC
By: ____________________________________
Name: _____________________________
Title: _____________________________
ACCEPTED:
SALOMON BROTHERS ASSET
MANAGEMENT INC
By: ____________________________________
Name: _____________________________
Title: _____________________________
<PAGE>
DISTRIBUTION AGREEMENT
[Date]
CFBDS, Inc.
21 Milk Street
Boston, MA 02109
Dear Sirs:
This is to confirm that, in consideration of the agreements hereinafter
contained, the above-named investment company (the "Fund") has agreed that you
shall be, for the period of this Agreement, the non-exclusive principal
underwriter and distributor of shares of the Fund and each Series of the Fund
set forth on Exhibit A hereto, as such Exhibit may be revised from time to time
(each, including any shares of the Fund not designated by series, a "Series").
For purposes of this Agreement, the term "Shares" shall mean shares of the each
Series, or one or more Series, as the context may require.
1. Services as Principal Underwriter and Distributor
1.1 You will act as agent for the distribution of Shares
covered by, and in accordance with, the registration statement, prospectus and
statement of additional information then in effect under the Securities Act of
1933, as amended (the "1933 Act"), and the Investment Company Act of 1940, as
amended (the "1940 Act"), and will transmit or cause to be transmitted promptly
any orders received by you or those with whom you have sales or servicing
agreements for purchase or redemption of Shares to the Transfer and Dividend
Disbursing Agent for the Fund of which the Fund has notified you in writing.
1.2 You agree to use your best efforts to solicit orders for
the sale of Shares. It is contemplated that you will enter into sales or
servicing agreements with registered securities brokers and banks and into
servicing agreements with financial institutions and other industry
professionals, such as investment advisers, accountants and estate planning
firms. In entering into such agreements, you will act only on your own behalf as
principal underwriter and distributor. You will not be responsible for making
any distribution plan or service fee payments pursuant to any plans the Fund may
adopt or agreements it may enter into.
1.3 You shall act as the non-exclusive principal underwriter
and distributor of Shares in compliance with all applicable laws, rules, and
regulations, including, without limitation, all rules and regulations made or
adopted from time to time by the Securities and Exchange Commission (the "SEC")
pursuant to the 1933 Act or the 1940 Act or by any securities association
registered under the Securities Exchange Act of 1934, as amended.
<PAGE>
1.4 Whenever in their judgment such action is warranted for
any reason, including, without limitation, market, economic or political
conditions, the Fund's officers may decline to accept any orders for, or make
any sales of, any Shares until such time as those officers deem it advisable to
accept such orders and to make such sales and the Fund shall advise you promptly
of such determination.
2. Duties of the Fund
2.1 The Fund agrees to pay all costs and expenses in
connection with the registration of Shares under the 1933 Act, and all expenses
in connection with maintaining facilities for the issue and transfer of Shares
and for supplying information, prices and other data to be furnished by the Fund
hereunder, and all expenses in connection with the preparation and printing of
the Fund's prospectuses and statements of additional information for regulatory
purposes and for distribution to shareholders; provided however, that nothing
contained herein shall be deemed to require the Fund to pay any costs of
advertising or marketing the sale of Shares.
2.2 The Fund agrees to execute any and all documents and to
furnish any and all information and otherwise to take any other actions that may
be reasonably necessary in the discretion of the Fund's officers in connection
with the qualification of Shares for sale in such states and other U.S.
jurisdictions as the Fund may approve and designate to you from time to time,
and the Fund agrees to pay all expenses that may be incurred in connection with
such qualification. You shall pay all expenses connected with your own
qualification as a securities broker or dealer under state or Federal laws and,
except as otherwise specifically provided in this Agreement, all other expenses
incurred by you in connection with the sale of Shares as contemplated in this
Agreement.
2.3 The Fund shall furnish you from time to time, for use in
connection with the sale of Shares, such information reports with respect to the
Fund or any relevant Series and the Shares as you may reasonably request, all of
which shall be signed by one or more of the Fund's duly authorized officers; and
the Fund warrants that the statements contained in any such reports, when so
signed by the Fund's officers, shall be true and correct. The Fund also shall
furnish you upon request with (a) the reports of the annual audits of the
financial statements of the Fund for each Series made by independent certified
public accountants retained by the Fund for such purpose; (b) semi-annual
unaudited financial statements pertaining to each Series; (c) quarterly earnings
statements prepared by the Fund for any Series; (d) a monthly itemized list of
the securities in each Series' portfolio; (e) monthly balance sheets as soon as
practicable after the end of each month; (f) the current net asset value and
offering price per share for each Series on each day such net asset value is
computed; and (g) from time to time such additional information regarding the
financial condition of each Series of the Fund as you may reasonably request.
3. Representations and Warranties
The Fund represents to you that all registration statements,
prospectuses and statements of additional information filed by the Fund with the
SEC under the 1933 Act and the 1940 Act with respect to the Shares have been
prepared in conformity with the requirements of said Acts and the rules and
regulations of the SEC thereunder. As used in this Agreement, the terms
"registration statement", "prospectus" and "statement of additional information"
shall mean any registration statement, prospectus and statement of additional
information filed by the Fund with the SEC and any amendments and supplements
thereto filed by the Fund with the SEC. The Fund represents
<PAGE>
and warrants to you that any such registration statement, prospectus and
statement of additional information, when such registration statement becomes
effective and as such prospectus and statement of additional information are
amended and supplemented, includes at the time of such effectiveness, amendment
or supplement all statements required to be contained therein in conformance
with the 1933 Act, the 1940 Act and the rules and regulations of the SEC; that
all statements of material fact contained in any registration statement,
prospectus or statement of additional information will be true and correct when
such registration statement becomes effective; and that neither any registration
statement nor any prospectus or statement of additional information when such
registration statement becomes effective will include an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading to a purchaser of the
Fund's Shares. The Fund may, but shall not be obligated to, propose from time to
time such amendment or amendments to any registration statement and such
supplement or supplements to any prospectus or statement of additional
information as, in the light of future developments, may, in the opinion of the
Fund, be necessary or advisable. If the Fund shall not propose such amendment or
amendments and/or supplement or supplements within fifteen days after receipt by
the Fund of a written request from you to do so, you may, at your option,
terminate this Agreement or decline to make offers of the Fund's Shares until
such amendments are made. The Fund shall not file any amendment to any
registration statement or supplement to any prospectus or statement of
additional information without giving you reasonable notice thereof in advance;
provided, however, that nothing contained in this Agreement shall in any way
limit the Fund's right to file at any time such amendments to any registration
statement and/or supplements to any prospectus or statement of additional
information, of whatever character, as the Fund may deem advisable, such right
being in all respects absolute and unconditional.
4. Indemnification
4.1 The Fund authorizes you to use any prospectus or statement
of additional information furnished by the Fund from time to time, in connection
with the sale of Shares. The Fund agrees to indemnify, defend and hold you, your
several officers and directors, and any person who controls you within the
meaning of Section 15 of the 1933 Act, free and harmless from and against any
and all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any such
counsel fees incurred in connection therewith) which you, your officers and
directors, or any such controlling person, may incur under the 1933 Act or under
common law or otherwise, arising out of or based upon any untrue statement, or
alleged untrue statement, of a material fact contained in any registration
statement, any prospectus or any statement of additional information or arising
out of or based upon any omission, or alleged omission, to state a material fact
required to be stated in any registration statement, any prospectus or any
statement of additional information or necessary to make the statements in any
of them not misleading; provided, however, that the Fund's agreement to
indemnify you, your officers or directors, and any such controlling person shall
not be deemed to cover any claims, demands, liabilities or expenses arising out
of any statements or representations made by you or your representatives or
agents other than such statements and representations as are contained in any
prospectus or statement of additional information and in such financial and
other statements as are furnished to you pursuant to paragraph 2.3 of this
Agreement; and further provided that the Fund's agreement to indemnify you and
the Fund's representations and warranties herein before set forth in paragraph 3
of this Agreement shall not be deemed to cover any liability to the Fund or its
shareholders to which you would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of your duties, or
by reason of your
<PAGE>
reckless disregard of your obligations and duties under this Agreement. The
Fund's agreement to indemnify you, your officers and directors, and any such
controlling person, as aforesaid, is expressly conditioned upon the Fund's being
notified of any action brought against you, your officers or directors, or any
such controlling person, such notification to be given by letter or by telegram
addressed to the Fund at its principal office in New York, New York and sent to
the Fund by the person against whom such action is brought, within ten days
after the summons or other first legal process shall have been served. The
failure so to notify the Fund of any such action shall not relieve the Fund from
any liability that the Fund may have to the person against whom such action is
brought by reason of any such untrue, or alleged untrue, statement or omission,
or alleged omission, otherwise than on account of the Fund's indemnity agreement
contained in this paragraph 4.1. The Fund will be entitled to assume the defense
of any suit brought to enforce any such claim, demand or liability, but, in such
case, such defense shall be conducted by counsel of good standing chosen by the
Fund. In the event the Fund elects to assume the defense of any such suit and
retains counsel of good standing, the defendant or defendants in such suit shall
bear the fees and expenses of any additional counsel retained by any of them;
but if the Fund does not elect to assume the defense of any such suit, the Fund
will reimburse you, your officers and directors, or the controlling person or
persons named as defendant or defendants in such suit, for the reasonable fees
and expenses of any counsel retained by you or them. The Fund's indemnification
agreement contained in this paragraph 4.1 and the Fund's representations and
warranties in this Agreement shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of you, your officers and
directors, or any controlling person, and shall survive the delivery of any of
the Fund's Shares. This agreement of indemnity will inure exclusively to your
benefit, to the benefit of your several officers and directors, and their
respective estates, and to the benefit of the controlling persons and their
successors. The Fund agrees to notify you promptly of the commencement of any
litigation or proceedings against the Fund or any of its officers or Board
members in connection with the issuance and sale of any of the Fund's Shares.
4.2 You agree to indemnify, defend and hold the Fund, its
several officers and Board members, and any person who controls the Fund within
the meaning of Section 15 of the 1933 Act, free and harmless from and against
any and all claims, demands, liabilities and expenses (including the costs of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) that the Fund, its officers or Board
members or any such controlling person may incur under the 1933 Act, or under
common law or otherwise, but only to the extent that such liability or expense
incurred by the Fund, its officers or Board members, or such controlling person
resulting from such claims or demands shall arise out of or be based upon any
untrue, or alleged untrue, statement of a material fact contained in information
furnished in writing by you to the Fund and used in the answers to any of the
items of the registration statement or in the corresponding statements made in
the prospectus or statement of additional information, or shall arise out of or
be based upon any omission, or alleged omission, to state a material fact in
connection with such information furnished in writing by you to the Fund and
required to be stated in such answers or necessary to make such information not
misleading. Your agreement to indemnify the Fund, its officers or Board members,
and any such controlling person, as aforesaid, is expressly conditioned upon
your being notified of any action brought against the Fund, its officers or
Board members, or any such controlling person, such notification to be given by
letter or telegram addressed to you at your principal office in Boston,
Massachusetts and sent to you by the person against whom such action is brought,
within ten days after the summons or other first legal process shall have been
served. You shall have the right to control the defense of such action, with
counsel of your own choosing, satisfactory to the Fund, if such action is based
solely upon such alleged misstatement or omission on your part or with the
Fund's
<PAGE>
consent, and in any other event the Fund, its officers or Board members or such
controlling person shall each have the right to participate in the defense or
preparation of the defense of any such action with counsel of its own choosing
reasonably acceptable to you but shall not have the right to settle any such
action without your consent, which will not be unreasonably withheld. The
failure to so notify you of any such action shall not relieve you from any
liability that you may have to the Fund, its officers or Board members, or to
such controlling person by reason of any such untrue, or alleged untrue,
statement or omission, or alleged omission, otherwise than on account of your
indemnity agreement contained in this paragraph 4.2. You agree to notify the
Fund promptly of the commencement of any litigation or proceedings against you
or any of your officers or directors in connection with the issuance and sale of
any of the Fund's Shares.
5. Effectiveness of Registration
No Shares shall be offered by either you or the Fund under any of the
provisions of this Agreement and no orders for the purchase or sale of such
Shares under this Agreement shall be accepted by the Fund if and so long as the
effectiveness of the registration statement then in effect or any necessary
amendments thereto shall be suspended under any of the provisions of the 1933
Act, or if and so long as a current prospectus as required by Section 5(b) (2)
of the 1933 Act is not on file with the SEC; provided, however, that nothing
contained in this paragraph 5 shall in any way restrict or have any application
to or bearing upon the Fund's obligation to repurchase its Shares from any
shareholder in accordance with the provisions of the Fund's prospectus,
statement of additional information or charter documents, as amended from time
to time.
6. Offering Price
Shares of any class of any Series of the Fund offered for sale by you
shall be offered for sale at a price per share (the "offering price") equal to
(a) their net asset value (determined in the manner set forth in the Fund's
charter documents and the then-current prospectus and statement of additional
information) plus (b) a sales charge, if applicable, which shall be the
percentage of the offering price of such Shares as set forth in the Fund's
then-current prospectus relating to such Series. In addition to or in lieu of
any sales charge applicable at the time of sale, Shares of any class of any
Series of the Fund offered for sale by you may be subject to a contingent
deferred sales charge as set forth in the Fund's then-current prospectus and
statement of additional information. You shall be entitled to receive any sales
charge levied at the time of sale in respect of the Shares without remitting any
portion to the Fund. Any payments to a broker or dealer through whom you sell
Shares shall be governed by a separate agreement between you and such broker or
dealer and the Fund's then-current prospectus and statement of additional
information. Any payments to any provider of services to you shall be governed
by a separate agreement between you and such service provider.
7. Notice to You
The Fund agrees to advise you immediately in writing:
(a) of any request by the SEC for amendments to the
registration statement, prospectus or statement of additional
information then in effect or for additional information;
<PAGE>
(b) in the event of the issuance by the SEC of any stop order
suspending the effectiveness of the registration statement, prospectus
or statement of additional information then in effect or the initiation
of any proceeding for that purpose;
(c) of the happening of any event that makes untrue any
statement of a material fact made in the registration statement,
prospectus or statement of additional information then in effect or
that requires the making of a change in such registration statement,
prospectus or statement of additional information in order to make the
statements therein not misleading; and
(d) of all actions of the SEC with respect to any amendment to
the registration statement, or any supplement to the prospectus or
statement of additional information which may from time to time be
filed with the SEC.
8. Term of the Agreement
This Agreement shall become effective on the date hereof, shall have an
initial term of one year from the date hereof, and shall continue for successive
annual periods thereafter so long as such continuance is specifically approved
at least annually by (a) the Fund's Board or (b) by a vote of a majority (as
defined in the 1940 Act) of the Fund's outstanding voting securities, provided
that in either event the continuance is also approved by a majority of the Board
members of the Fund who are not interested persons (as defined in the 1940 Act)
of any party to this Agreement, by vote cast in person at a meeting called for
the purpose of voting on such approval. This Agreement is terminable with or
without cause, without penalty, on 60 days' notice by the Fund's Board or by
vote of holders of a majority of the relevant Series outstanding voting
securities, or on 90 days' notice by you. This Agreement will also terminate
automatically, as to the relevant Series, in the event of its assignment (as
defined in the 1940 Act and the rules and regulations thereunder).
9. Arbitration
Any claim, controversy, dispute or deadlock arising under this
Agreement (collectively, a "Dispute") shall be settled by arbitration
administered under the rules of the American Arbitration Association ("AAA") in
New York, New York. Any arbitration and award of the arbitrators, or a majority
of them, shall be final and the judgment upon the award rendered may be entered
in any state or federal court having jurisdiction. No punitive damages are to be
awarded.
10. Miscellaneous
So long as you act as a principal underwriter and distributor of
Shares, you shall not perform any services for any entity other than investment
companies advised or administered by Citigroup Inc. or its subsidiaries. The
Fund recognizes that the persons employed by you to assist in the performance of
your duties under this Agreement may not devote their full time to such service
and nothing contained in this Agreement shall be deemed to limit or restrict the
persons employed by you or any of your affiliates right to engage in and devote
time and attention to other businesses or to render services of whatever kind or
nature, provided, however, that in conducting such business or rendering such
services your employees and affiliates would take reasonable steps to assure
that the other parties involved are put on notice as to the legal entity with
which they are dealing. This Agreement and the terms and conditions set forth
herein shall be governed by, and
<PAGE>
construed in accordance with, the laws of the State of New York without giving
effect to its conflict of interest principles.
If the foregoing is in accordance with your understanding, kindly
indicate your acceptance of this Agreement by signing and returning to us the
enclosed copy, whereupon this Agreement will become binding on you.
Very truly yours,
[Name of Fund]
By: _________________________
Accepted:
CFBDS, INC.
By: _________________________
Authorized Officer
<PAGE>
ADMINISTRATION AGREEMENT
[Date]
SALOMON BROTHERS ASSET MANAGEMENT INC
7 WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
Dear Sirs:
SSBCiti Funds Inc. (the "Company") a corporation organized under the
laws of the state of Maryland, confirms its agreement with Salomon Brothers
Asset Management Inc ("SBAM") with respect to the portfolios listed on Exhibit A
attached hereto (each a "Fund" and collectively the "Funds") as follows:
1. INVESTMENT DESCRIPTION; APPOINTMENT
The Funds desire to employ their capital by investing and reinvesting
in investments of the kind and in accordance with the limitations specified in
the Company's Articles of Incorporation, as amended from time to time, in the
Company's Prospectus(es) and Statement(s) of Additional Information as from time
to time in effect, and in such manner and to the extent as may from time to time
be approved by the Board of Directors of the Company. Copies of the Company's
Prospectus, Statement of Additional Information and the Articles of
Incorporation have been submitted to SBAM. The Funds employ SBAM (in such
capacity, the "Adviser") as its investment adviser and desires to employ and
hereby appoints SBAM as its administrator. SBAM accepts this appointment and
agrees to furnish services for the compensation set forth below. SBAM is hereby
authorized to retain third parties and is hereby authorized to delegate some or
all of its duties and obligations hereunder to such persons provided that such
persons shall remain under the general supervision of SBAM.
2. SERVICES AS ADMINISTRATOR
Subject to the supervision and direction of the Board of Directors of
the Company, SBAM will (a) assist in supervising all aspects of the Funds'
operations except those performed by the Funds' Adviser under their investment
advisory agreements; (b) supply the Funds with office facilities (which may be
SBAM's own offices) for providing its services under this agreement, statistical
and research data, data processing services, clerical, accounting and
bookkeeping services, including but not limited to, the calculation of the net
asset value of shares of the Funds, the calculation of applicable contingent
deferred sales charges and similar
<PAGE>
2
fees and charges, the calculation of distribution fees, internal auditing and
legal services, internal executive and administrative services, and stationary
and office supplies; and (c) prepare Board materials reports to the shareholders
of the Funds, tax returns and reports to and filings with the Securities and
Exchange Commission and state blue sky authorities.
3. COMPENSATION
In consideration of services rendered pursuant to this Agreement, the
Funds will pay SBAM on the first business day of each month a fee for the
previous month at an annual rate of [ %] of the Funds' average daily net assets.
Upon any termination of this Agreement before the end of any month, the fee for
such part of the month shall be prorated according to the proportion which such
period bears to the full monthly period and shall be payable upon the date of
termination of this Agreement. For the purpose of determining fees payable to
SBAM, the value of the Funds' net assets shall be computed at the times and in
the manner specified in the Prospectus and Statement of Additional Information
as from time to time in effect.
4. EXPENSES
SBAM will bear all expenses in connection with the performance of its
services under this Agreement. The Funds will bear certain other expenses to be
incurred in its operation, including: taxes, interest, brokerage fees and
commissions, if any; fees of Directors of the Company who are not officers,
directors, or employees of Salomon Smith Barney Inc. or SBAM; Securities and
Exchange Commission fees and state blue sky qualification fees; charges of
custodians and transfer and dividend disbursing agents; the Funds' and Board
members' proportionate share of insurance premiums, professional association
dues and/or assessments; outside auditing and legal expenses; costs of
maintenance of corporate existence; costs attributable to investor services,
including without limitation, telephone and personnel expenses; costs of
preparing and printing prospectuses and statements of additional information for
regulatory purposes and for distribution to existing shareholders; costs of
shareholders' reports and meetings, and meetings of the officers or Board of
Directors of the Company; and any extraordinary expenses.
5. STANDARD OF CARE
SBAM shall exercise its best judgment in rendering the services listed
in paragraph 2 above. SBAM shall not be liable for any error of judgment or
mistake of law or for any loss suffered by the Fund in connection with the
matters to which this Agreement relates provided that nothing in this Agreement
shall be deemed to protect or purport to protect SBAM against liability to the
Fund or to its shareholders to which SBAM would otherwise be subject by reason
of willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or by reason of SBAM's reckless disregard of its
obligations and duties under this Agreement.
<PAGE>
3
6. TERM OF AGREEMENT
This Agreement shall continue automatically (unless terminated as
provided herein)for two years from the date hereof for successive annual periods
provided that such continuance is specifically approved at least annually by the
Board of Directors of the Company. This Agreement is terminable, without
penalty, on 60 days' written notice, by the Board of Directors of the Company
or, with respect to any Fund, by vote of holders of a majority of such Fund's
shares, or upon 90 days' written notice, by SBAM.
7. SERVICE TO OTHER COMPANIES OR ACCOUNTS
The Company understands that SBAM now acts, will continue to act and
may act in the future as administrator to one or more other investment
companies, and the Company has no objection to SBAM's so acting. The Company
understands that the persons employed by SBAM to assist in the performance of
SBAM's duties hereunder will not devote their full time to such service and
nothing contained herein shall be deemed to limit or restrict the right of SBAM
or any affiliate of SBAM to engage in and devote time and attention to other
businesses or to render services of whatever kind or nature.
If the foregoing is in accordance with your understanding, kindly
indicate your acceptance hereof by signing and returning to us the enclosed copy
hereof.
Very truly yours,
SSBCiti Funds Inc.
By: ______________________________
Title:____________________________
Accepted:
Salomon Brothers Asset Management Inc
By: ______________________________
Title:____________________________
