SMITH BARNEY MUTUAL FUNDS
Investing for your future. Every day.
Dear Common Sense Trust Money Market Fund Shareholder:
The enclosed materials include a combined Prospectus/Proxy Statement
containing information you need to make an informed decision. However, we
thought it would also be helpful for you to have, at the start, answers to some
of the important questions you might have about the proposed merger. We hope you
find these explanations useful as you review your materials before voting. For
more detailed information about the merger, please refer to the combined
Prospectus/Proxy Statement.
1. Q. Why am I receiving this Proxy Statement?
A. The Board of Trustees of the Common Sense Trust approved the merger of
the Common Sense Trust Money Market Fund with Smith Barney Money
Funds, Inc. - Cash Portfolio. The proposed merger is part of an
overall acquisition by Smith Barney Mutual Funds Management Inc. of
the investment advisory contracts of the Common Sense Trust Funds. The
proposed acquisition and merger into the Smith Barney Cash Portfolio
requires your approval. Please read the proxy statement carefully.
2. Q. Why is the merger being recommended?
A. The merger is being recommended to combine the assets of the Common
Sense Trust Money Market Fund with the larger assets of the Smith
Barney Cash Portfolio. This merger will allow you to benefit from a
larger asset base and the potential for lower expenses.
3. Q. How will the proposed merger affect how my account will be managed?
A. Smith Barney Cash Portfolio is managed by Smith Barney Mutual Funds
Management Inc., an investment advisor which manages over $85 billion
in assets and has been managing money since 1968.
4. Q. Will my vote make a difference?
A. Your vote is needed to ensure that a quorum of shareholders is
represented at the shareholders' meeting so that the proposed merger
can take place. We encourage all shareholders to participate in the
affairs of their investments.
5. Q. Do the Trustees of my Fund suggest I vote in favor?
A. Yes. The Trustees have approved the merger and recommend the
shareholders vote "FOR" the proposal.
6. Q. Who is paying for the proxy solicitation and shareholder meeting?
A. Smith Barney, Inc. is paying all costs for the proxy solicitation and
shareholder meeting. Your Fund will not bear any expenses.
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7. Q. Will the merger result in a taxable event for federal income tax
reporting?
A. No. This transaction, in the opinion of counsel, will be a non-taxable
event. However, you should consult your tax advisor regarding the
effect, if any, of the merger.
8. Q. Can I continue to use my Common Sense Trust Money Market checks after the
Money Market Fund is merged into the Smith Barney Cash Portfolio?
A. Yes. You may continue to use your existing Money Market checks. You
will receive Smith Barney Cash Portfolio checks on your next reorder.
9. Q. How will share classes be affected by the merger?
A. All classes of shares will be merged into Class A shares of the Smith
Barney Cash Portfolio.
10. Q. Will the Money Market Fund expense ratio change?
A. Yes. It is anticipated that after the merger the expense ratio of the
Smith Barney Cash Portfolio will be lower than that of the Money
Market Fund.
11. Q. Will the 12b-1 fee expense change?
A. The 12b-1 fee of Class A shares of each of the Smith Barney Cash
Portfolio and the Money Market Fund is .10%. However, since Class 1
and Class B shareholders will receive Class A shares of the Cash
Portfolio, the 12b-1 fee will be .10%
12. Q. Will my account servicing features remain the same?
A. All shareholder services that are currently in effect will remain the
same.
13. Q. Will my Fund Account Number change after the merger?
A. All shareholders' account numbers will change. You will receive a
confirmation statement from PFS Shareholder Services with your new
Fund Account Number after the merger has been completed.
14. Q. What if I redeem my Common Sense Trust Money Market Fund shares before
the merger takes place?
A. If you choose to redeem your shares of Common Sense Trust Money Market
Fund before the merger takes place, the redemption will be treated as
a normal redemption of shares and will be a taxable transaction.
15. Q. How will I be notified when the Common Sense Trust Money Market Fund is
part of the Smith Barney Cash Portfolio?
A. You will receive special notification shortly after the Fund has been
merged.
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16. Q. Where do I mail my proxy card?
A. You may use the enclosed postage-paid envelope or mail your proxy card
to:
Proxy Tabulator
P.O. Box 9122
Hingham, MA 02043
17. Q. What if I have other questions?
A. We will be happy to answer your questions about this proxy
solicitation. Please call PFS Shareholder Services at 1-800-544-5445.
Our Representatives are available Monday through Friday from 9:00 a.m.
to 6:00 p.m., Eastern Time, to assist you.
Thank you for your investment in the Common Sense Trust Fund.
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COMMON SENSE TRUST - COMMON SENSE MONEY MARKET FUND
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held On December 18, 1997
------------------
Notice is hereby given that a Special Meeting of Shareholders (the
"Meeting") of Common Sense Trust - Common Sense Money Market Fund ("Common Sense
Money Market Fund") will be held at One Parkview Plaza, Oakbrook Terrace,
Illinois, 60181, on December 18, 1997, commencing at 2:30 p.m., for the
following purposes:
1. To consider and act upon the Agreement and Plan of Reorganization (the
"Plan") dated as of October 14, 1997, providing for (i) the acquisition of all
or substantially all of the assets of Common Sense Money Market Fund by Smith
Barney Money Funds, Inc. on behalf of its Cash Portfolio ("Cash Portfolio") in
exchange for Class A shares of Cash Portfolio and the assumption by Cash
Portfolio of all stated liabilities of Common Sense Money Market Fund; (ii) the
distribution of such shares of the Cash Portfolio to shareholders of Common
Sense Money Market Fund in liquidation of Common Sense Money Market Fund; and
(iii) the subsequent termination of Common Sense Money Market Fund.
2. To transact such other business as may properly come before the Meeting
or any adjournment or adjournments thereof.
The Trustees of Common Sense Money Market Fund have fixed the close of
business on November 12, 1997 as the record date for the determination of
shareholders of Common Sense Money Market Fund entitled to notice of and to vote
at this Meeting and any adjournment or adjournments thereof.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. SHAREHOLDERS WHO DO NOT
EXPECT TO ATTEND THE SPECIAL MEETING ARE URGED TO SIGN AND RETURN WITHOUT DELAY
THE ENCLOSED PROXY CARD IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE, SO
THAT THEIR SHARES MAY BE REPRESENTED AT THE MEETING. INSTRUCTIONS FOR THE PROPER
EXECUTION OF PROXY CARDS ARE SET FORTH ON THE FOLLOWING PAGE.
By Order of the Board of Trustees,
Ronald Nyberg
Secretary
November 20, 1997
YOUR PROMPT ATTENTION TO THE ENCLOSED PROXY WILL HELP TO AVOID THE EXPENSE OF
FURTHER SOLICITATION.
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INSTRUCTIONS FOR SIGNING PROXY CARDS
The following general rules for signing proxy cards may be of assistance to
you and avoid the time and expense involved in validating your vote if you fail
to sign your proxy card properly.
1. Individual Accounts: Sign your name exactly as it appears in the
registration on the proxy card.
2. Joint Accounts: Either party may sign, but the name of the party signing
should conform exactly to the name shown in the registration on the proxy card.
3. All Other Accounts: The capacity of the individual signing the proxy
card should be indicated unless it is reflected in the form of registration. For
example:
Registration Valid Signature
- ------------ ---------------
Corporate Accounts
(1) ABC Corp..................................... ABC Corp.
(2) ABC Corp..................................... John Doe, Treasurer
(3) ABC Corp.
c/o John Doe, Treasurer.................... John Doe
(4) ABC Corp. Profit Sharing Plan................ John Doe, Trustee
Trust Accounts
(1) ABC Trust.................................... Jane B. Doe, Trustee
(2) Jane B. Doe, Trustee
u/t/d 12/28/78............................. Jane B. Doe
Custodial or Estate Accounts
(1) John B. Smith, Cust.
f/b/o John B. Smith, Jr. UGMA.............. John B. Smith
(2) John B. Smith................................ John B. Smith, Jr., Executor
<PAGE>
PROSPECTUS/PROXY STATEMENT
November 20, 1997
------------------
CASH PORTFOLIO
a separate investment portfolio of
SMITH BARNEY MONEY FUNDS, INC.
388 Greenwich Street
New York, New York 10013
(800) 544-5445
--------------------
COMMON SENSE MONEY MARKET FUND
a separate investment portfolio of
COMMON SENSE TRUST
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
(800) 544-5445
This Prospectus/Proxy Statement is being furnished to shareholders of
Common Sense Money Market Fund (the "Acquired Fund"), a separate series of
Common Sense Trust (the "Trust") in connection with a proposed Agreement and
Plan of Reorganization dated October 14, 1997 (the "Plan") to be submitted to
shareholders of the Acquired Fund for consideration at a Special Meeting of
Shareholders to be held on December 18, 1997 at 2:30 p.m. at One Parkview Plaza,
Oakbrook Terrace, Illinois, 60181 (the "Meeting") or any adjournment or
adjournments thereof.
The Plan provides for all or substantially all of the assets of the
Acquired Fund to be acquired by the Cash Portfolio (the "Acquiring Fund"), a
separate series of Smith Barney Money Funds, Inc. (the "Company") in exchange
for Class A shares of the Acquiring Fund and the assumption by the Acquiring
Fund of all stated liabilities of the Acquired Fund (the Acquiring Fund and the
Acquired Fund are sometimes referred to hereinafter collectively as the "Funds"
and individually as a "Fund"). Upon completion of the reorganization, Class A
shares of the Acquiring Fund would be distributed to shareholders of the
Acquired Fund in liquidation of the Acquired Fund. As a result of the
reorganization, each shareholder of the Acquired Fund would receive that number
of shares of the Acquiring Fund having an aggregate value equal to the aggregate
value of such shareholder's shares of the Acquired Fund. All shareholders of the
Acquired Fund would receive Class A shares of the Acquiring Fund. This
transaction is structured to be tax-free for Federal income tax purposes to
shareholders and to both the Acquiring and Acquired Funds.
The Acquiring Fund and the Acquired Fund are both money market funds and
the investment objectives of both Funds are substantially similar. The Acquiring
Fund's investment objectives are maximum current income and preservation of
capital. The investment objective of the Acquired Fund is protection of capital
and a high level of current income. Certain differences in the investment
policies of the Acquiring Fund and the Acquired Fund are described under
"Comparison of Investment Objectives and Policies" in this Prospectus/Proxy
Statement. Van
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Kampen American Capital Asset Management, Inc. ("VKAC") manages the day-to-day
operations of the Acquired Fund. Smith Barney Mutual Funds Management Inc.
("SBMFM") manages the day-to-day operations of the Acquiring Fund. SBMFM is a
subsidiary of Smith Barney Holdings Inc., which is a subsidiary of Travelers
Group Inc.("Travelers"), a financial services holding company engaged, through
its subsidiaries, principally in the business of life and property and casualty
insurance services, investment services and consumer finance services.
The Acquired Fund is one of seven separate funds of the Trust (the "Common
Sense Funds"). At a meeting held on September 11, 1997, the Board of Trustees of
the Trust approved, subject to the approval of shareholders of the Common Sense
Funds, new investment advisory agreements between the Trust and SBMFM, whereby
SBMFM would become the investment manager of each of the Common Sense Funds. A
meeting of shareholders of the Trust has been scheduled to be held on December
18, 1997, for the purpose of approving the new investment advisory agreements
and it is anticipated that the new advisory agreements will become effective on
or about December 31, 1997. A more detailed discussion of the new investment
advisory agreements and SBMFM can be found under "Reasons For the
Reorganization" in this Prospectus/Proxy Statement.
This Prospectus/Proxy Statement, which should be retained for future
reference, sets forth concisely the information about the Acquiring Fund that a
prospective investor should know before investing. Certain relevant documents
listed below, which have been filed with the Securities and Exchange Commission
("SEC"), are incorporated in whole or in part by reference. A Statement of
Additional Information dated November 20, 1997, relating to this
Prospectus/Proxy Statement and the reorganization described herein, has been
filed with the SEC and is incorporated by reference into this Prospectus/Proxy
Statement. A copy of such Statement of Additional Information is available upon
request and without charge by writing to the Acquired Fund at the address listed
on the cover page of this Prospectus/Proxy Statement, by contacting a Registered
Representative of PFS Investments, Inc. ("PFS Investments"), or by calling (800)
544-5445. The Prospectus of the Acquiring Fund dated April 30, 1997 is
incorporated by reference in its entirety and a copy is included herein.
Also accompanying this Prospectus/Proxy Statement as Exhibit A is a copy of
the Plan for the proposed transaction.
The shares of the Acquiring Fund are not insured or guaranteed by the U.S.
Government. There is no assurance that the Acquiring Fund will be able to
maintain a stable net asset value of $1.00 per share.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
2
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TABLE OF CONTENTS
Page
----
Additional Materials................................................ 3
Fee Tables.......................................................... 4
Summary............................................................. 7
Risk Factors........................................................ 10
Reasons for the Reorganization...................................... 10
Information about the Reorganization................................ 12
Comparison of Investment Objectives and Policies.................... 16
Information on Shareholders' Rights................................. 22
Additional Information About the
Acquired Fund and the Acquiring Fund.............................. 24
Other Business...................................................... 25
Voting Information.................................................. 25
Financial Statements and Experts.................................... 26
Validity of Shares.................................................. 27
Exhibit A: Agreement and Plan of Reorganization..................... A-1
ADDITIONAL MATERIALS
The following additional materials, which have been incorporated by
reference into the Statement of Additional Information dated November 20, 1997
relating to this Prospectus/Proxy Statement, will be sent to all shareholders
requesting a copy of such Statement of Additional Information.
1. Statement of Additional Information of the Acquiring Fund dated April
30, 1997.
2. Statement of Additional Information of the Acquired Fund dated March
10, 1997.
3. Annual Report of the Acquiring Fund for the fiscal year ended December
31, 1996.
4. Annual Report of the Acquired Fund for the fiscal year ended October
31, 1996.
5. Semi-Annual Report of the Acquiring Fund for the six month period
ended June 30, 1997.
6. Semi-Annual Report of the Acquired Fund for the six month period ended
April 30, 1997.
3
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FEE TABLES
The following tables show the costs and expenses of the Class 1, Class A
and Class B shares of the Acquired Fund and the Class A shares of the Acquiring
Fund, and the pro forma costs and expenses expected to be incurred by the
Acquiring Fund after giving effect to the reorganization, each based on the
maximum sales charge or maximum contingent deferred sales charge ("CDSC") that
may be incurred at the time of purchase or redemption and, unless otherwise
indicated, on each Fund's operating expenses for its most recent fiscal year.
CLASS 1 SHARES ACQUIRED FUND Pro Forma*
- --------------------------------------------------------------------------------
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases
(as a percentage of offering price) None None
Maximum CDSC
(as a percentage of original cost or redemption
proceeds, whichever is lower) None None
- --------------------------------------------------------------------------------
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management fees** 0.50% 0.40%
12b-1 fees 0.00 0.10
Other expenses** 1.36 0.12
- --------------------------------------------------------------------------------
Total Fund Operating Expenses 1.86% 0.62%
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* The pro forma financial figures are intended to provide shareholders
information about the continuing impact of the reorganization as if the
reorganization had taken place as of January 1, 1997. Pro forma financial
figures are based on estimated expenses for the fiscal year ended January
1, 1997.
** As of October 31, 1996, VKAC waived its management fees and reimbursed the
Acquired Fund for certain expenses. After taking effect of the waiver and
reimbursements, total fund operating expenses were 1.00% for Class 1
shares.
CLASS A SHARES ACQUIRED FUND Pro Forma*
- --------------------------------------------------------------------------------
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases
(as a percentage of offering price) None None
Maximum CDSC
(as a percentage of original cost or redemption
proceeds, whichever is lower) None None
- --------------------------------------------------------------------------------
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management fees** 0.50% 0.40%
12b-1 fees 0.10 0.10
Other expenses** 1.36 0.12
- --------------------------------------------------------------------------------
Total Fund Operating Expenses 1.96% 0.62%
- ----------
* The pro forma financial figures are intended to provide shareholders
information about the continuing impact of the reorganization as if the
reorganization had taken place as of January 1, 1997. Pro forma financial
figures are based on estimated expenses for the fiscal year ended January
1, 1997.
** As of October 31, 1996, VKAC waived its management fees and reimbursed the
Acquired Fund for certain expenses. After taking effect of the waiver and
reimbursements, total fund operating expenses were 1.09% for Class A
shares.
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CLASS B SHARES ACQUIRED FUND Pro Forma*
- --------------------------------------------------------------------------------
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases
(as a percentage of offering price) None None
Maximum CDSC
(as a percentage of original cost or redemption
proceeds, whichever is lower) 5.00% None
- --------------------------------------------------------------------------------
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management fees** 0.50% 0.40%
12b-1 fees 0.75*** 0.10
Other expenses** 1.36 0.12
- --------------------------------------------------------------------------------
Total Fund Operating Expenses 2.61% 0.62%
- ----------
* The pro forma financial figures are intended to provide shareholders
information about the continuing impact of the reorganization as if the
reorganization had taken place as of January 1, 1997. Pro forma financial
figures are based on estimated expenses for the fiscal year ended January
1, 1997.
** As of October 31, 1996, VKAC waived its management fees and reimbursed the
Acquired Fund for certain expenses. After taking effect of the waiver and
reimbursements, total fund operating expenses were 1.75% for Class B
shares.
*** Upon conversion of Class B shares of the Acquired Fund to Class A shares,
such shares will no longer be subject to a distribution fee, but will be
subject to a service fee of 0.10%.
CLASS A SHARES ACQUIRING FUND Pro Forma*
- --------------------------------------------------------------------------------
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases
(as a percentage of offering price) None None
Maximum CDSC
(as a percentage of original cost or redemption
proceeds, whichever is lower) None None
- --------------------------------------------------------------------------------
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management fees 0.40% 0.40%
12b-1 fees 0.10 0.10
Other expenses 0.12 0.12
- --------------------------------------------------------------------------------
Total Fund Operating Expenses 0.62% 0.62%
- ----------
* The pro forma financial figures are intended to provide shareholders
information about the continuing impact of the reorganization as if the
reorganization had taken place as of January 1, 1997. Pro forma financial
figures are based on estimated expenses for the fiscal year ended January
1, 1997.
5
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Examples
The following examples are intended to assist an investor in understanding
the various costs that an investor will bear directly or indirectly. The
examples assume payment of operating expenses at the levels set forth in the
tables above.
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
An investor would pay the following
expenses on a $1,000 investment,
assuming (1) 5.00% annual return
and (2) redemption at the end of
each time period:
Acquired Fund Class 1 $19 $ 58 $101 $218
Acquired Fund Class A 20 62 106 229
Acquired Fund Class B 76 111 154 294
Acquiring Fund Class A 6 20 35 77
Pro Forma 6 20 35 77
The examples also provide a means for the investor to compare expense
levels of funds with different fee structures over varying investment periods.
To facilitate such comparison, all funds are required to utilize a 5.00% annual
return assumption. However, a fund's actual return will vary and may be greater
or less than 5.00%. These examples should not be considered representations of
past or future expenses and actual expenses may be greater or less than those
shown.
6
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SUMMARY
This summary is qualified in its entirety by reference to the additional
information contained elsewhere in this Prospectus/Proxy Statement, the
Agreement and Plan of Reorganization, a copy of which is attached to this
Prospectus/Proxy Statement as Exhibit A, the accompanying Prospectus of the
Acquiring Fund dated April 30, 1997 and the Prospectus of the Acquired Fund
dated March 10, 1997, as amended.
Proposed Reorganization. The Plan provides for the transfer of all or
substantially all of the assets of the Acquired Fund to the Acquiring Fund in
exchange for Class A shares of the Acquiring Fund and the assumption by the
Acquiring Fund of all stated liabilities of the Acquired Fund. The Plan also
calls for the distribution of Class A shares of the Acquiring Fund to the
Acquired Fund's shareholders in liquidation of the Acquired Fund. (The foregoing
proposed transaction is referred to in this Prospectus/Proxy Statement as the
"Reorganization.") As a result of the Reorganization, each shareholder of the
Acquired Fund will become the owner of that number of full and fractional Class
A shares of the Acquiring Fund having an aggregate value equal to the aggregate
value of the shareholder's shares of the Acquired Fund as of the close of
business on the date that the Acquired Fund's assets are exchanged for shares of
the Acquiring Fund. Shareholders of the Acquired Fund will receive Class A
shares of the Acquiring Fund, whether they currently own Class 1, Class A or
Class B shares of the Acquired Fund.
For the reasons set forth below under "Reasons for the Reorganization," the
Board of Trustees of the Acquired Fund, including the "Independent Trustees"
(the Board members who are not "interested persons" as that term is defined in
the Investment Company Act of 1940, as amended (the "1940 Act")), has determined
that the Reorganization would be in the best interests of the shareholders of
the Acquired Fund and that the interests of the Acquired Fund's shareholders
will not be diluted as a result of the transaction contemplated by the
Reorganization, and the Board therefore has submitted the Plan for approval by
the Acquired Fund's shareholders. The Board of Directors of the Acquiring Fund
has reached similar conclusions with respect to the Acquiring Fund and its
shareholders, and has also approved the Reorganization with respect to the
Acquiring Fund.
Approval of the Reorganization will require the vote of a majority of the
outstanding shares of the Acquired Fund at a meeting of shareholders at which a
quorum is present, by the holders of shares present in person or by proxy and
entitled to vote on such action. The presence in person or by proxy of the
holders of record of a majority of the shares of the capital stock of the
Acquired Fund issued and outstanding and entitled to vote will constitute a
quorum at the Meeting. For purposes of voting with respect to the
Reorganization, the Class 1, Class A and Class B shares of the Acquired Fund
will vote together as a single class. See "Voting Information."
The Reorganization is part of an overall transaction whereby the investment
management agreements of the Common Sense Funds will be acquired by SBMFM from
VKAC. Additionally, the Reorganization is contingent upon the approval by
shareholders of the Common Sense Funds of proposed new
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management agreements with SBMFM, which is discussed further under "Reasons For
the Reorganization". It is anticipated that a meeting of shareholders of each of
the Common Sense Funds will be held prior to or simultaneous with the Meeting to
consider the approval of such agreements. In the event that the proposed new
management agreements are not approved by shareholders of the Common Sense
Funds, the Acquiring Fund may elect to postpone or cancel the consummation of
the Reorganization until such time as satisfactory new management agreements are
approved. See "Reasons For the Reorganization" below for a discussion of the
proposed new management agreements.
Tax Consequences. Prior to completion of the Reorganization, the Acquired
Fund will have received an opinion of counsel that, upon the Reorganization and
the transfer of the assets of the Acquired Fund, no gain or loss will be
recognized by the Acquired Fund or its shareholders for federal income tax
purposes. The holding period and aggregate tax basis of the Acquiring Fund
shares that are received by an Acquired Fund shareholder will be the same as the
holding period and aggregate tax basis of the shares of the Acquired Fund
previously held by such shareholder. In addition, the holding period and tax
basis of the assets of the Acquired Fund in the hands of the Acquiring Fund as a
result of the Reorganization will be the same as in the hands of the Acquired
Fund immediately prior to the Reorganization. See "Information About the
Reorganization- Federal Income Tax Consequences."
Investment Objectives and Policies. The Acquired Fund and the Acquiring
Fund are both money market funds and have substantially similar investment
objectives, policies and restrictions. The Acquired Fund seeks protection of
capital and a high level of current income for its shareholders. The Acquiring
Fund seeks maximum current income and preservation of capital. There are,
however, certain differences in the investment policies and restrictions between
the Funds. The Acquired Fund may invest in securities which are rated in one of
the two highest rating categories by at least two nationally recognized
statistical rating organizations ("NRSRO"), while the Acquiring Fund's
investments are limited to securities that have received the highest rating from
any two NRSROs. In addition, the Acquiring Fund may invest in highly rated
corporate obligations while the Acquired Fund may not invest in such securities.
Also, the Acquired Fund may not purchase any security issued by any company
deriving more than 25% of its gross revenues from the manufacture of alcohol or
tobacco. The Acquiring Fund does not have such restriction. For a further
discussion of the differences between the investment policies of the Acquiring
Fund and the Acquired Fund, see "Comparison of Investment Objectives and
Policies."
Fees and Expenses. The Acquired Fund pays VKAC management fees calculated
daily and payable monthly at the following annual rates: 0.50% of the first $2
billion of the Fund's average daily net assets; 0.475% of the next $2 billion of
the Fund's average daily net assets; and 0.45% of the Fund's average daily net
assets over $4 billion. The Acquiring Fund pays SBMFM a management fee payable
daily at the following annual rates: 0.45% of the first $6 billion of the Fund's
net assets; 0.425% on the next $6 billion of the Fund's net assets; 0.40% of the
next $6 billion of the Fund's net assets; and 0.35% of net assets in excess of
$18 billion.
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Class A shares of both Funds and Class B shares of the Acquired Fund are
sold subject to distribution plans adopted pursuant to Rule 12b-1 under the 1940
Act. Under the plans applicable to each Fund's Class A shares, PFS Distributors,
Inc. ("PFS") is paid a service fee calculated at the annual rate of 0.10% of the
value of each Fund's average daily net assets attributable to the Class A
shares. Class B shares of the Acquired Fund are sold subject to an annual
distribution fee calculated at the annual rate of 0.75% of the Acquired Fund's
assets attributable to Class B shares.
Exchange Privileges. Shareholders of the Acquired Fund currently are
entitled to exchange their shares for shares of the same class of any of the
Common Sense Funds. Shareholders of the Acquiring Fund are entitled to exchange
their shares for shares of the same class of certain funds of the Smith Barney
Mutual Funds to the extent shares are offered for sale in the shareholder's
state of residence. As part of the Reorganization, each shareholder of the
Acquired Fund will become the owner of Class A shares of the Acquiring Fund and
will be entitled to exchange such shares for Class A shares of other Smith
Barney sponsored mutual funds distributed by PFS. Any exchange will be a taxable
event for which a shareholder may have to recognize a gain or loss under federal
income tax provisions.
Dividends. The policies of each Fund with regard to dividends and
distributions are substantially similar. Each Fund declares a dividend of
substantially all of its net investment income daily and pays income dividends
monthly. In determining net investment income, both Funds include interest
accrued and discount earned and all short-term realized gains and losses on
portfolio securities, less premium amortized and expenses accrued. Long-term
capital gains, if any, are distributed annually.
Unless a shareholder of either Fund has elected to receive dividends and
capital gains distributions in cash, dividends and capital gains distributions
are reinvested automatically in additional shares of the respective Fund.
Acquired Fund shareholders who have elected to receive dividends and
distributions in cash will continue to receive distributions in such manner from
the Acquiring Fund. See "Dividends, Automatic Reinvestment and Taxes" in the
accompanying Prospectus of the Acquiring Fund.
Purchase and Redemption Procedures. Purchases of shares of both Funds may
be made through a Registered Representative of PFS Investments. Class 1 shares
of the Acquired Fund are sold at net asset value without a sales charge or
service fee and are available only to accounts of previously established
shareholders of the Trust or members of a family unit comprising husband, wife
and minor children, and Class 1 shareholders of other Common Sense Funds
exchanging their Class 1 shares for Class 1 shares of the Acquired Fund. Class A
shares of both Funds are sold at net asset value without a sales charge and are
subject to an ongoing service fee at an annual rate of 0.10% of each Fund's
average daily net assets. Class B shares of the Acquired Fund are sold at net
asset value, subject to an ongoing distribution fee at an annual rate of 0.75%
and are available only through exchanges by Class B shareholders of another
Common Sense Fund. Class B shares of the Acquired Fund remain subject to
9
<PAGE>
the CDSC imposed by the Common Sense Fund from which a shareholder exchanged,
however, upon completion of the Reorganization, shareholders of Class B shares
of the Acquired Fund will receive Class A shares of the Acquiring Fund which are
not subject to a CDSC.
Shares of both Funds may be redeemed by submitting a written request in
proper form to PFS Shareholder Services, Inc. ("PFS Shareholder Services"), the
Acquired Fund's transfer agent and the Acquiring Fund's sub-transfer agent.
Shareholders of either Fund may redeem their shares by faxing their redemption
request to PFS Shareholder Services, provided a signature guarantee or other
documentary evidence is not required.
Shares of either Fund may be redeemed, at their respective net asset values
per share next determined, without charge on any day such Fund calculates its
net asset value. Redemption requests received before 12 noon New York City time
with respect to the Acquired Fund and Acquiring Fund, are priced at the net
asset value per share determined on that day; otherwise, redemption requests are
priced at the net asset value as next determined. See "Redemption of Shares" in
the accompanying Prospectus of the Acquiring Fund.
Shareholders' Voting Rights. Both Funds are open-end investment companies.
The Acquired Fund is a separate series of the Trust, a Massachusetts business
trust. The Acquiring Fund is a separate series of the Company, a Maryland
corporation. As permitted by both Massachusetts and Maryland law, neither the
Trust nor the Company holds meetings of shareholders annually, and there is
normally no meeting of shareholders for the purpose of electing
Trustees/Directors unless and until such time as less than a majority of the
Trustees/Directors holding office have been elected by shareholders.
Shareholders of the Acquired Fund may continue to redeem their shares at net
asset value prior to the date of the Reorganization. See "Information on
Shareholder Rights."
RISK FACTORS
Due to the similarities of investment objectives and policies of the
Acquiring Fund and the Acquired Fund, an investment in the Acquiring Fund does
not involve investment risks that are materially different from those involved
in an investment in the Acquired Fund. For a full description of the risks
involved in investing in the Acquiring Fund, refer to "Investment Objectives and
Policies" in the accompanying Prospectus of the Acquiring Fund.
REASONS FOR THE REORGANIZATION
The Board of Trustees of the Acquired Fund has determined that it is
advantageous to combine the Acquired Fund with the Acquiring Fund. In reaching
this conclusion, the Board considered a number of factors as described below.
Among the factors considered by the Board of the Acquired Fund was the
proposed transaction pursuant to which VKAC and certain of its affiliates
entered into an agreement with SBMFM and certain of its affiliates which
10
<PAGE>
provided for the sale and assignment of the current Common Sense Funds' advisory
agreements from VKAC to SBMFM. As a result of such transaction, the Board of
Trustees of the Trust has approved new investment management agreements with
SBMFM on behalf of each of the Common Sense Funds (the "new advisory
agreements") and has called a meeting of shareholders to approve the new
advisory agreements. Upon completion of the transaction and shareholder approval
of the new advisory agreements, the Common Sense Funds will become integrated
with certain funds of the Smith Barney mutual fund family and shareholders will
be able to exchange their shares for shares of other Smith Barney mutual funds
distributed through PFS. The Board considered Smith Barney Inc.'s ("Smith
Barney") recommendation that it was important and necessary to integrate the two
fund groups and that the first step in achieving that result would be to merge
the two money market funds. It was noted to the Board that, in addition to the
Acquired Fund, PFS currently offers the Acquiring Fund as a money market
alternative to investors purchasing Class A shares. Smith Barney indicated that,
upon completion of the integration of the Common Sense Funds with the other
Smith Barney funds offered through PFS and the resulting exchangeability among
those funds, PFS would like to offer only one money market option to Class A
shareholders. Smith Barney indicated that, since the Acquiring Fund does not
offer Class B shares, shareholders of Class B shares of a Common Sense Fund
wishing to exchange into a money market fund after the Reorganization will be
offered Class B shares of the Smith Barney Exchange Reserve Fund. The Board was
shown financial information which indicated that the total expense ratios for
each of Class 1, Class A and Class B shares of the Acquired Fund was higher than
the expense ratios currently in effect for Class A shares of the Acquiring Fund
and higher than the pro forma expense ratio of Class A shares of the Acquiring
Fund expected upon completion of the Reorganization. The financial information
indicated that, as of April 30, 1997, absent the fee waiver and expense
reimbursement by VKAC, total expenses for Class 1, Class A and Class B shares of
the Acquired Fund were 1.82%, 1.92% and 2.60%, respectively, while total
expenses of Class A shares of the Acquiring Fund as of June 30, 1997 were 0.63%.
The Board was shown that, even taking effect of the fee waiver and expense
reimbursement, total expense ratios of 1.00%, 1.11% and 1.77% for Class 1, Class
A and Class B shares, respectively, of the Acquired Fund were higher than the
expense ratios of Class A shares of the Acquiring Fund. The Board was also shown
that the expected total expense ratios for Class A shares of the Acquiring Fund
upon completion of the Reorganization will be approximately 0.62%.
The Board was also shown information indicating that the yield provided by
the Acquiring Fund has been higher than the yield provided by the Acquired Fund.
As of August 31, 1997, the 12-month yield on Class A shares of the Acquiring
Fund was 4.97%, while the 12-month yield on Class 1, Class A and Class B shares
of the Acquired Fund was 4.46%, 4.39% and 3.70%, respectively. As of September
30, 1997, the 7-day yield on Class A shares of the Acquiring Fund was 5.01%,
while the 7-day yield on Class 1, Class A and Class B shares of the Acquired
Fund was 4.57%, 4.44% and 3.82%, respectively.
11
<PAGE>
The Board also considered (i) the fact that as a result of the
Reorganization, Class B shares of the Acquired Fund would no longer be subject
to a CDSC or distribution fee, (ii) the advantages of eliminating duplication
inherent in marketing two funds with similar investment objectives, and (iii)
the expanded exchange privileges that would be available to shareholders as a
result of the integration of the two fund groups. In light of the foregoing, the
Board of Trustees of the Acquired Fund, including the Independent Trustees,
determined that it is in the best interest of the Acquired Fund and its
shareholders to combine the Acquired Fund with the Acquiring Fund. The Board
also determined that a combination of the Acquired Fund and the Acquiring Fund
would not result in a dilution of the interests of the Acquired Fund's
shareholders.
The Board of Directors of the Acquiring Fund also determined that it is
advantageous to the Acquiring Fund to acquire the assets of the Acquired Fund.
Among other reasons, the Board considered that: (1) the impact of the
Reorganization on the current expenses of the Acquiring Fund will be minimal,
and (2) the portfolio securities will be acquired without any cost to the
Acquiring Fund. Accordingly, the Board of the Acquiring Fund, including a
majority of the Independent Directors, determined that the Reorganization is in
the best interest of the Acquiring Fund's shareholders and that the interests of
the Acquiring Fund's shareholders will not be diluted as a result of the
Reorganization.
INFORMATION ABOUT THE REORGANIZATION
Plan of Reorganization. The following summary is qualified in its entirety
by reference to the Plan (Exhibit A hereto). The Plan provides that the
Acquiring Fund will acquire all or substantially all of the assets of the
Acquired Fund in exchange for shares of the Acquiring Fund and the assumption by
the Acquiring Fund of all stated liabilities of the Acquired Fund on January 5,
1998 or such later date as may be agreed upon by the parties (the "Closing
Date").
Prior to the Closing Date, the Acquired Fund will endeavor to discharge all
of its known liabilities and obligations. The Acquiring Fund will not assume any
liabilities or obligations other than those reflected on an unaudited statement
of assets and liabilities of the Acquired Fund prepared as of the close of
regular trading on the New York Stock Exchange ("NYSE"), currently 4:00 p.m. New
York City time, on the Closing Date. The Acquiring Fund will deliver to the
Acquired Fund for distribution to the Acquired Fund shareholders the number of
Class A shares of the Acquiring Fund, including fractional Class A shares,
determined by dividing the value of the Acquired Fund's net assets attributable
to each class of its shares by the net asset value of one Class A share of the
Acquiring Fund. The net asset value per share will be determined by dividing
assets, less liabilities, by the total number of outstanding shares and will be
computed as of 12:00 noon with respect to the Acquiring Fund and the Acquired
Fund, both on the Closing Date. As a condition to the Closing the value of each
class of shares of each Fund on the Closing Date will be $1.00 per share;
accordingly, shareholders of the Acquired Fund would receive one Acquiring Fund
share for each Acquired Fund share held on the Closing Date.
12
<PAGE>
The Acquired Fund and the Acquiring Fund will utilize the procedures set
forth in the Prospectus of the Acquiring Fund to determine the value of their
respective portfolio securities and to determine the aggregate value of each
Fund's portfolio. The method of valuation employed will be consistent with the
requirements set forth in the Prospectus of the Acquiring Fund, Rule 22c-1 under
the 1940 Act and the interpretation of such rule by the SEC's Division of
Investment Management.
At or prior to the Closing Date, the Acquired Fund will and the Acquiring
Fund may declare a dividend or dividends on their respective shares which,
together with all previous such dividends, will have the effect of distributing
to their respective shareholders all taxable income for the period ending on or
prior to the Closing Date. In addition, the Acquired Fund's dividend will
include any net capital gains realized in the period ending on or prior to the
Closing Date (after reductions for any capital loss carryforward).
As soon after the Closing Date as conveniently practicable, the Acquired
Fund will liquidate and distribute pro rata to shareholders of record as of the
close of business on the Closing Date the full and fractional shares of the
Acquiring Fund received by the Acquired Fund. Shareholders of the Acquired Fund
will receive Class A shares of the Acquiring Fund. Such liquidation and
distribution will be accomplished by the establishment of accounts in the names
of the Acquired Fund's shareholders on the share records of the Acquiring Fund's
transfer agent. Each account will represent the respective pro rata number of
full and fractional shares of the Acquiring Fund due to each of the Acquired
Fund's shareholders. After such distribution and the winding up of its affairs,
the Acquired Fund will be terminated as a series of the Trust.
The consummation of the Reorganization is subject to the conditions set
forth in the Plan. Notwithstanding approval of the Acquired Fund's shareholders,
the Plan may be terminated at any time at or prior to the Closing Date by (1)
mutual agreement of the Company and the Trust or (2) by either party to the Plan
upon a material breach by the other party of any representation, warranty or
agreement contained therein.
Approval of the Reorganization will require a vote of a majority of the
outstanding shares of the Acquired Fund.
Description of the Acquiring Fund's Shares. Full and fractional shares of
common stock of the Acquiring Fund will be issued to the Acquired Fund in
accordance with the procedures detailed in the Plan and as described in the
Acquiring Fund's Prospectus. Generally, the Acquiring Fund does not issue share
certificates to shareholders unless a specific request is submitted to the
Acquiring Fund's transfer agent. See "Information on Shareholders' Rights" and
the Prospectus of the Acquiring Fund for additional information with respect to
the shares of the Acquiring Fund.
Federal Income Tax Consequences. The exchange of assets for shares of the
Acquiring Fund is intended to qualify for Federal income tax purposes as a
tax-free reorganization under Section 368(a) of the Internal Revenue Code of
1986, as amended (the "Code"). As a condition to the closing of the
Reorganization, the Acquiring Fund and the Acquired Fund will receive an opinion
from Sullivan &
13
<PAGE>
Worcester LLP, counsel to the Acquired Fund, substantially to the effect that,
on the basis of the existing provisions of the Code, U.S. Treasury regulations
issued thereunder, current administrative rules, pronouncements and court
decisions, for Federal income tax purposes, upon consummation of the
Reorganization:
(1) the transfer of all or substantially all of the Acquired Fund's assets
in exchange for the Acquiring Fund's shares and the assumption by the
Acquiring Fund of certain scheduled liabilities of the Acquired Fund
will constitute a "reorganization" within the meaning of Section
368(a)(1)(C) of the Code, and the Acquiring Fund and the Acquired Fund
are each a "party to a reorganization" within the meaning of Section
368(b) of the Code;
(2) no gain or loss will be recognized by the Acquiring Fund upon the
receipt of the assets of the Acquired Fund in exchange for the
Acquiring Fund's shares, and the assumption by the Acquiring Fund of
certain scheduled liabilities in the Acquired Fund;
(3) no gain or loss will be recognized by the Acquired Fund upon the
transfer of the Acquired Fund's assets to the Acquiring Fund in
exchange for the Acquiring Fund shares and the assumption by the
Acquiring Fund of certain scheduled liabilities of the Acquired Fund
or upon the distribution (whether actual or constructive) of the
Acquiring Fund shares to the Acquired Fund's shareholders;
(4) no gain or loss will be recognized by shareholders of the Acquired
Fund upon the exchange of their Acquired Fund shares for the Acquiring
Fund shares and the assumption by the Acquiring Fund of certain
scheduled liabilities of the Acquired Fund;
(5) the aggregate tax basis of the Acquiring Fund shares received by each
Acquired Fund shareholder pursuant to the Reorganization will be the
same as the aggregate tax basis of the Acquired Fund shares
surrendered in exchange therefor and (provided the Acquired Fund
shares were held as capital assets on the date of the Reorganization)
the holding period of the Acquiring Fund shares to be received by each
Acquired Fund shareholder will include the period during which the
shares of the Acquired Fund which are surrendered in exchange therefor
were held by such shareholder;
(6) the tax basis of the Acquired Fund's assets acquired by the Acquiring
Fund will be the same as the tax basis of such assets to the Acquired
Fund immediately prior to the Reorganization and the holding period of
the assets of the Acquired Fund in the hands of the Acquiring Fund
will include the period during which such assets were held by the
Acquired Fund.
Shareholders of the Acquired Fund should consult their tax advisors
regarding the effect, if any, of the proposed Reorganization in light of their
individual circumstances. Since the foregoing discussion only relates to the
Federal income tax consequences of the Reorganization, shareholders of the
Acquired Fund should also consult their tax advisors as to state and local tax
consequences, if any, of the Reorganization.
14
<PAGE>
Capitalization. The following table shows the capitalization of the
Acquiring Fund and the Acquired Fund, on an unaudited basis, as of October 10,
1997, and on a pro forma unaudited basis as of that date, giving effect to the
proposed acquisition of assets at net asset value.
<TABLE>
<CAPTION>
Pro forma for
Acquiring Fund Acquired Fund Reorganization
-------------- ------------------------------------------------- --------------
Class A Class 1 Class A Class B Class A
Shares Shares Shares Shares Shares
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Assets (millions) $ 30,415.2 $ 53.23 $ 7.11 $ 0.30 $ 30,475.84
Net asset value per share 1.00 1.00 1.00 1.00 1.00
Shares outstanding 30,416,143,034 53,196,296 7,057,536 297,558 30,476,694,424
</TABLE>
As of October 10, 1997, there were 53,196,295.779 outstanding Class 1
shares, 7,057,536.180 outstanding Class A shares and 297,557.940 outstanding
Class B shares of the Acquired Fund and 30,416,143,034.049 outstanding Class A
shares of the Acquiring Fund. As of October 10, 1997, the officers and Trustees
of the Trust beneficially owned as a group less than 1% of the outstanding
shares of the Acquired Fund. Except as set forth below, to the best knowledge of
the Board of Trustees of the Acquired Fund, as of October 10, 1997, no
shareholder or "group" (as that term is used in Section 13(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) owned beneficially or of
record 5% or more of a Class of shares of the Acquired Fund. As of October 10,
1997, the officers and Directors of the Company beneficially owned as a group
less than 1% of the outstanding Class A shares of the Acquiring Fund. To the
best knowledge of the Board of Directors of the Acquiring Fund, as of October
10, 1997, no shareholder or group (as that term is used in Section 13(d) of the
Exchange Act) owned beneficially or of record more than 5% of the Acquiring
Fund.
Percentage of Class Owned
of Record or Beneficially Upon Consummation
Name and Address as of the Record Date of the Reorganization
- ---------------- --------------------- ---------------------
Acquired Fund Class 1
PFS Investments Inc. 17.2% 0.00%
Retirement Plan Custodian
Acquired Fund Class B
Steven K. Broido 6.4% 0.00%
Pamela E. Broido
60 Old Dennett Road
Kittery, ME 03904-1017
Katherine Phomphakdy 5.4% 0.00%
Peth Phomphakdy
919 Magenta Street
San Diego, CA 92113-3540
Kathleen M. Preece 5.1% 0.00%
7818 N. 16th Lane
Phoenix, AZ 85021-7006
Larry R. Grieb 5.0% 0.00%
Pamela S. Grieb
206 Deer Run Drive
Sellersburg, IN 47172-9747
15
<PAGE>
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
The following discussion comparing investment objectives, policies and
restrictions of the Acquiring Fund and the Acquired Fund is based upon and
qualified in its entirety by the respective discussions in the Prospectuses of
the Acquiring Fund and the Acquired Fund. For a full discussion of the
investment objectives, policies and restrictions of the Acquiring Fund, refer to
the Prospectus of the Acquiring Fund, which accompanies this Prospectus/Proxy
Statement, under the caption "Investment Objectives and Policies," and for a
discussion of these issues as they apply to the Acquired Fund, refer to the
Prospectus of the Acquired Fund under the captions "Goals and Investment
Policies" and "Investment Practices and Risks."
Investment Objectives. The Acquired Fund and the Acquiring Fund are both
money market funds and have substantially similar investment objectives. The
Acquired Fund seeks protection of capital and a high level of current income.
The Acquiring Fund seeks maximum current income and preservation of capital.
There can be no assurance that either Fund will be able to achieve its
investment objectives. Both the Acquiring Fund and the Acquired Fund's
investment objectives are considered fundamental policies which cannot be
changed without the affirmative vote of a majority of the outstanding voting
securities, as defined in the 1940 Act, of the respective Fund, which is the
lesser of: (i) 67% of the voting securities of the Fund present at a meeting of
shareholders, if the holders of more than 50% of the outstanding voting
securities of such Fund are present or represented by proxy; or (ii) more than
50% of the outstanding voting securities of such Fund.
Primary Investments. The Acquiring Fund seeks to achieve its objectives by
investing in U.S. Government obligations and related repurchase agreements, bank
obligations and high quality commercial paper, corporate obligations and
municipal obligations (as such instruments are described below). The Acquiring
Fund's investments are limited to United States dollar-denominated instruments
that have received the highest rating from (a) any two NRSROs that have issued a
rating with respect to a security or class of debt obligations of an issuer or
(b) one NRSRO, if only one NRSRO has issued a rating at the time that the Fund
acquires a security.
The Acquired Fund attempts to achieve its investment objective by investing
in money market securities, including securities of the U.S. Government, its
agencies and instrumentalities, bank obligations, commercial paper and
repurchase agreements secured by obligations of the U.S. Government, its
agencies and instrumentalities. The Acquired Fund will only invest in United
States dollar-denominated securities which are rated in one of the two highest
rating categories for debt obligations by at least two NRSROs (or one NRSRO if
the intrument was rated by only one such organization) or, if unrated, are of
comparable quality as determined in accordance with procedures established by
the Trustees.
Both Funds have adopted certain investment policies to assure that, to the
extent reasonably possible, the Fund's price per share will not change from
$1.00, although no assurance can be given that this goal will be achieved on a
16
<PAGE>
continuous basis. In order to minimize fluctuations in market price, neither
Fund will purchase a security with a remaining maturity of greater than 13
months or maintain a dollar weighted average portfolio maturity in excess of 90
days.
The following is a description of the types of money market instruments in
which the Funds may invest:
U.S. Government Obligations. Both Funds may invest in U. S. Government
Obligations. The Acquiring Fund may invest in obligations issued or guaranteed
as to payment of principal and interest by the U.S. Government (including
Treasury bills, notes and bonds) or by its agencies and instrumentalities (such
as the Government National Mortgage Association Bank for Cooperatives ("GNMA"),
Federal Land Banks, Federal Intermediate Credit Banks and the Federal National
Mortgage Association ("FNMA")). Some of these securities (such as Treasury
bills) are supported by the full faith and credit of the U.S. Treasury; others
(such as obligations of the Federal Home Loan Bank) are supported by the right
of the issuer to borrow from the Treasury; while still others (such as
obligations of the Student Loan Marketing Association) are supported only by the
credit of the instrumentality. Similarly, the Acquired Fund invests in
obligations issued or guaranteed as to principal and interest by the U.S.
Government, its agencies and instrumentalities which are supported by any of the
following: (a) the full faith and credit of the U.S. Government, (b) the right
of the issuer to borrow an amount limited to a specific line of credit from the
U.S. Government, (c) discretionary authority of the U.S. Government agency or
instrumentality, or (d) the credit of the instrumentality. Such agencies or
instrumentalities include, but are not limited to, FNMA, GNMA, Federal Land
Banks and the Farmer's Home Administration.
Repurchase Agreements. Both Funds may enter into repurchase agreement
transactions (which are typically the acquisition of an underlying security for
a relatively short period of time (usually not more than one week) subject to an
obligation of the seller to repurchase, and the Fund to resell, the security at
an agreed upon price and future date (normally the next business day)) with a
broker/dealer or domestic bank or, in the case of the Acquiring Fund, other
financial institutions, including the Fund's custodian. The Acquiring Fund, as a
matter of fundamental policy, may not enter into a repurchase agreement if, as a
result thereof, more than 10% of its total assets at that time would be invested
in repurchase agreements maturing in more than seven days. The Acquired Fund has
a similar fundamental restriction limiting investment in repurchase agreements
maturing in more than seven days (unless subject to a demand feature) if any
such investment, together with any illiquid securities (including securities
which are subject to legal or contractual restrictions on resale) held by the
Fund, exceeds 10% of the market or other fair value of the Fund's total net
assets.
Commercial Paper. Both Funds may invest in commercial paper. Because the
Funds are money market funds, the Board of each Fund must determine that there
is limited credit risk in order for the Fund to invest in commercial paper. The
Acquiring Fund may invest in promissory notes that have received the highest
rating from the requisite NRSRO for short-term debt securities or
17
<PAGE>
comparable unrated securities and in the commercial paper of foreign issuers.
The Acquired Fund may invest in short-term obligations of companies which at the
time of investment are (a) rated in the two highest categories by Standard &
Poor's Corporation ("S&P") (A-1 and A-2) or by Moody's Investors Service, Inc.
("Moody's") (Prime-1 and Prime-2), or (b) if not rated, are in the opinion of
VKAC, of comparable quality. The Acquired Fund's current policy is to limit
investments in commercial paper to obligations rated A-1 or Prime-1.
Corporate Obligations. The Acquiring Fund may invest in obligations of
corporations (1) rated AA or better by the requisite NRSRO or (2) issued by an
issuer that has a class of short-term debt obligations that are comparable in
priority and security with the obligation and that have been rated in one of the
two highest rating categories for short-term debt obligations. The Acquiring
Fund may invest only in corporate obligations with remaining maturities of 13
months or less. The Acquired Fund does not invest in corporate obligations.
Bank Obligations. Both Funds may invest in bank obligations. The Acquiring
Fund may invest in obligations (including certificates of deposit ("CDs"),
bankers' acceptances and fixed time deposits ("TDs")) and securities backed by
letters of credit of U.S. banks or other U.S. financial institutions that are
members of the Federal Reserve System or the Federal Deposit Insurance
Corporation ("FDIC") (including obligations of foreign branches of such members)
if either: (a) the principal amount of the obligation is insured in full by the
FDIC or (b) the issuer of such obligation has capital, surplus and undivided
profits in excess of $100 million or total assets of $l billion (as reported in
its most recently published financial statements prior to the date of
investment). The Acquiring Fund intends to maintain at least 25% of its total
assets in obligations of domestic and foreign banks, subject to the foregoing
criteria. The Acquiring Fund will not purchase a fixed TD with an ultimate
maturity of more than six months and intends to limit its investment in fixed
TDs maturing from two business days to seven calendar days to 10% of its total
assets. The Acquired Fund may invest in TDs, CDs and bankers' acceptances of
domestic banks having total assets in excess of $1 billion as of the date of
their most recently published financial statements. The Acquired Fund is also
authorized to invest up to 5% of its total assets in CDs issued by domestic
banks having total assets of less than $1 billion, provided that the principal
amount of the CD acquired by the Fund is insured in full by the FDIC.
Loans of Portfolio Securities. The Acquired Fund may lend portfolio
securities to unaffiliated brokers, dealers and financial institutions provided
that (a) immediately after any such loan, the value of the securities loaned
does not exceed 10% of the total value of the Fund's assets and (b) any
securities loan is collateralized in accordance with applicable regulatory
requirements. The Acquiring Fund may not loan its portfolio securities.
Restricted and Illiquid Securities. The Acquired Fund may invest up to 5%
of its net assets in restricted securities and other illiquid assets. Restricted
securities are those that have been sold in the U.S without registration under
the Securities Act of 1933, as amended (the "1933 Act"). Excluded from this
restriction, however, are any restricted securities which are eligible for
resale pursuant to Rule 144A of the 1933 Act and which have been determined to
be
18
<PAGE>
liquid by the Trustees or by VKAC pursuant to guidelines established by the
Board of Trustees. The Acquiring Fund may invest up to 10% of its total assets
in illiquid securities or other securities that are not readily marketable.
High Quality Municipal Obligations. The Acquiring Fund may invest in debt
obligations of states, cities, counties, municipalities, municipal agencies and
regional districts rated SP-1+ or A-1 or AA or better by S&P or MIG 2, VMIG 2 or
Prime-l or Aa or better by Moody's or, if not rated, determined by SBMFM to be
of comparable quality. At certain times, supply/demand imbalances in the
tax-exempt market cause municipal obligations to yield more than taxable
obligations of equivalent credit quality and maturity length. The purchase of
these securities could enhance the Acquiring Fund's yield. The Acquiring Fund
will not invest more than 10% of its total assets in municipal obligations. The
Acquired Fund does not invest in municipal obligations.
Securities of Alcohol and Tobacco Manufacturers. The Acquired Fund is
restricted from purchasing the security issued by any company deriving more than
25% of its gross revenues from the manufacture of alcohol or tobacco. The
Acquiring Fund does not have such a restriction.
Notwithstanding the permitted investments described above, the Acquired
Fund and the Acquiring Fund are money market funds and, as such, are subject to
the requirements of Rule 2a-7 under the 1940 Act ("Rule 2a-7"). Under Rule 2a-7,
money market funds (other than tax-exempt money market funds which have separate
guidelines) are also required to meet certain diversification tests. Investments
in the securities of any one issuer (other than U.S. Government securities)
generally may not exceed 5% of such fund's total assets.
Investment Restrictions. The Funds have adopted the following investment
restrictions for the protection of shareholders. These restrictions may not be
changed without the approval of the holders of "a majority of the outstanding
voting securities," as defined in the 1940 Act, of the respective Fund.
The Acquired Fund may not:
1. Lend money except by the purchase of bonds or other debt obligations
of types commonly offered publicly or privately and purchased by
financial institutions, including investments in repurchase
agreements. The Acquired Fund will not invest in repurchase agreements
maturing in more than seven days (unless subject to a demand feature)
if any such investment, together with any illiquid securities
(including securities which are subject to legal or contractual
restrictions on resale) held by the Fund, exceeds 10% of the market or
other fair value of its total net assets.
2. Underwrite securities of other companies, except insofar as the
Acquired Fund might be deemed to be an underwriter for purposes of the
1933 Act in the resale of any securities owned by the Fund.
3. Lend its portfolio securities in excess of 10% of its total assets,
taken at market value, provided that any loans shall be in accordance
with the guidelines established for such loans by the Trustees,
including the maintenance of collateral from the borrower equal at all
times to the
19
<PAGE>
current market value of the securities loaned.
4. With respect to 75% of its assets, invest more than 5% of its assets
in the securities of any one issuer (except obligation of the U.S.
Government, its agencies or instrumentalities and repurchase
agreements secured thereby) or purchase more than 10% of the
outstanding voting securities of any one issuer. In compliance with
Rule 2a-7, the Acquired Fund will not purchase securities, other than
obligations of the U.S. Government or its agencies and
instrumentalities, if, immediately after such purchase, more than 5%
of the value of the Fund's total assets would be invested in
securities of any one issuer.
5. Invest more than 25% of the value of its total assets in securities of
issuers in any particular industry. (This does not restrict the Fund
from investing in obligations of the U.S. Government and repurchase
agreements secured thereby).
6. Borrow in excess of 10% of the market or other fair value of its total
assets, or pledge its assets to an extent greater than 5% of the
market or other fair value of its total assets, provided that so long
as any borrowing exceeds 5% of the value of the Fund's total assets,
the Fund shall not purchase portfolio securities Any such borrowings
shall be from banks and shall be undertaken only as a temporary
measure for extraordinary or emergency purposes.
7. Make investment in real estate, commodities or commodities contracts,
or warrants.
8. Purchase securities on margin, except that the Fund may obtain such
short-term credits as may be necessary for the clearance of purchases
and sales of securities.
9. Invest in securities of any company if any officer or trustee of the
Trust or of VKAC owns more than 1/2 of 1% of the outstanding
securities of such company, and such officers and trustees own more
than 5% of the outstanding securities of such issuer.
10. Invest in oil or other mineral leases, rights or royalty contracts or
exploration or development programs.
11. Invest in companies for the purpose of acquiring control or management
thereof.
12. Invest in the securities of other open-end investment companies, or
invest in the securities of closed-end investment companies except
through purchase in the open market in a transaction involving no
commission or profit to a sponsor or dealer (other than the customary
brokers commission) or as part of a merger, consolidation or other
acquisition.
13. Purchase a restricted security or a security for which market
quotations are not readily available if as a result of such purchase
more than 5% of the Fund's assets would be invested in such
securities. Illiquid securities include securities subject to legal or
contractual restrictions on resale, which include repurchase
agreements which have a maturity
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of longer than seven days. This policy does not apply to restricted
securities eligible for resale pursuant to Rule 144A under the 1933
Act which the Trustees or VKAC under Board approved guidelines, may
determine are liquid nor does it apply to other securities for which,
notwithstanding legal or contractual restrictions on resale, a liquid
market exists.
14. Invest more than 5% of its assets in companies having a record
together with predecessors, of less than three years' continuous
operation.
15. Engage in option writing for speculative purposes or purchase call or
put options on securities if, as a result, more than 5% of the net
assets of the Fund would be invested in premiums on such options.
16. Purchase any security issued by any company deriving more than 25% of
its gross revenues from the manufacture of alcohol or tobacco.
The Acquiring Fund may not:
1. Borrow money except from banks for temporary purposes in an amount up
to 10% of the value of its total assets and may pledge its assets in
an amount up to 10% of the value of its total assets only to secure
such borrowings. The Acquiring Fund will borrow money only to
accommodate requests for the redemption of shares while effecting an
orderly liquidation of portfolio securities or to clear securities
transactions and not for leveraging purposes. Whenever borrowings
exceed 5% of the value of the Fund's total assets, the Fund will not
make any additional investments. This restriction shall not be deemed
to prohibit the Fund from obtaining letters of credit solely for
purposes of participating in a captive insurance company sponsored by
the Investment Company Institute to provide fidelity and directors and
officers liability insurance.
2. With respect to 75% of the Acquiring Fund's assets, invest more than
5% of its assets in the securities of any one issuer, except
securities issued or guaranteed as to principal and interest by the
U.S. Government, its agencies or instrumentalities or U.S. bank
obligations. In compliance with Rule 2a-7, the Acquiring Fund will not
purchase securities, other than obligations of the U.S. Government or
its agencies and instrumentalities, if, immediately after such
purchase, more than 5% of the value of the Fund's total assets would
be invested in securities of any one issuer. The Acquiring Fund's
fundamental policy would give the Fund the ability to invest, with
respect to 25% of the Fund's assets, more than 5% of its assets in any
one issuer only in the event that Rule 2a-7 is amended in the future.
3. Invest less than 25% if its assets in bank obligations (including both
domestic and foreign bank obligations) and the Acquiring Fund reserves
the freedom of action to concentrate in securities issued or
guaranteed as to principal and interest by the U.S. Government, its
agencies or instrumentalities.
4. Sell securities short.
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5. Write or purchase put or call options.
6. Purchase illiquid securities (such as repurchase agreements with
maturities in excess of seven days) or other securities that are not
readily marketable if more than 10% of the total assets of the Fund
would be invested in such securities.
7. Purchase or sell real estate, real estate investment trust securities,
commodities, or oil and gas interests.
8. Make loans to others, (except through the purchase of debt obligations
referred to under "Investment Objectives and Policies" in the
Acquiring Fund's Prospectus, except that the Fund may purchase and
simultaneously resell for later delivery, obligations issued or
guaranteed as to principal and interest by the U.S. Government or its
agencies or instrumentalities; provided, however, that the Fund will
not enter into such a repurchase agreement if, as a result thereof,
more than 10% of the Fund's total assets (taken at current value) at
that time would be subject to repurchase agreements maturing in more
than seven days.
9. Invest in companies for the purpose of exercising control.
10. The Acquiring Fund may not invest in securities of other investment
companies, except as they may be acquired as part of a merger,
consolidation or acquisition of assets.
INFORMATION ON SHAREHOLDERS' RIGHTS
General. The Acquired Fund is a series of the Trust, which is organized
under the laws of Massachusetts and is a business entity commonly referred to as
a business trust. The Trust is governed by its Agreement and Declaration of
Trust and its By-laws. The Acquiring Fund is a series of the Company, a Maryland
corporation governed by its Articles of Incorporation and By-laws.
Voting Rights. Neither the Trust nor the Company holds meetings of
shareholders annually, and there normally is no meeting of shareholders for the
purpose of electing trustees/directors unless and until such time as less than a
majority of the trustees/directors holding office have been elected by
shareholders. A meeting of shareholders of the Company, for any purpose, must be
called upon the written request of shareholders holding at least 25% of the
Company's outstanding shares. A meeting of shareholders of the Acquired Fund
must be called for the purpose of voting upon the removal of any trustee, upon
the written request of shareholders holding at least 10% of the Trust's
outstanding shares. On each matter submitted to a vote of the shareholders of
either the Trust or the Company, each shareholder is entitled to one vote for
each whole share owned and a proportionate, fractional vote for each fractional
share outstanding in the shareholder's name on the respective Fund's books. On
any matter which affects only the interests of a Fund, only the holders of
shares of such Fund are entitled to vote. Similarly, holders of shares of a Fund
will not be entitled to vote on matters not affecting their interests (for
example, those affecting only the interest of other series of the Trust or the
Company).
Trustees/Directors. The Trust's Agreement and Declaration of Trust
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<PAGE>
provides that the term of office of any trustee shall continue until the
termination of the Trust or the earlier of his or her death, resignation,
retirement, bankruptcy, adjudicated incompetency or other incapacity or removal,
or if not so terminated, until the election of such trustee's successor in
office has become effective. The By-laws of the Company provide that each
director of the Company shall hold office until a successor is elected and
qualified. Vacancies in the Board of either the Trust or the Company may be
filled by the respective Board. Trustees of the Trust may be removed with or
without cause at any time (1) by written instrument signed by at least
two-thirds of the number of trustees prior to such removal, or (2) by vote of
shareholders holding not less than two-thirds of the shares of each series of
the Trust then outstanding, cast in person or by proxy at any meeting called for
the purpose or (3) by a written declaration signed by shareholders of the Trust
holding not less than two-thirds of the shares of each series of the Trust then
outstanding and filed with the Trust's custodian.
Liquidation. In the event of a liquidation of the Acquired Fund or
Acquiring Fund, shareholders of such liquidating Fund are entitled to receive,
when and as declared by the Board, the excess of the assets belonging to such
liquidating Fund over the liabilities belonging to such liquidating Fund. In
such a case, the assets so distributed to shareholders will be distributed among
the shareholders in proportion to the number of shares held by them and recorded
in the books of the Fund.
Shareholder Liability. Under Maryland law, the Company's shareholders do
not have personal liability for the Company's corporate acts and obligations.
Shares of the Acquiring Fund issued to the shareholders of the Acquired Fund in
the Reorganization will be fully paid and nonassessable when issued with no
personal liability attaching to the ownership thereof and transferable without
restrictions and will have no preemptive or conversion rights. Under
Massachusetts law, shareholders of the Acquired Fund may, under certain
circumstances, be held personally liable for the obligations of the Acquired
Fund. The Trust's Agreement and Declaration of Trust disclaims shareholder
liability for acts or obligations of the Acquired Fund. The Agreement and
Declaration of Trust further provides indemnification out of the property of the
Trust against all loss and expense of any shareholder held personally liable for
the obligations of the Trust, solely by reason of such person being a
shareholder of the Trust and not because of such shareholder's acts or omissions
or for some other reason.
Liability of Trustees/Directors. The Agreement and Declaration of Trust of
the Trust and the Articles of Incorporation of the Company each provide that the
Trust or the Company, as the case may be, will indemnify its trustees/directors
and officers against liabilities and expenses incurred in connection with
litigation in which they may be involved because of their positions with the
Trust or Company. The Agreement and Declaration of Trust provides that such
indemnification is not available where it has been determined that the trustee
or officer (i) did not act in good faith in the reasonable belief that such
person's action was in or not opposed to the best interests of the Trust or (ii)
had acted with willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her office. Nothing in
the Articles of
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Incorporation or the By-laws of the Company protects or indemnifies a Director
or officer of the Company against any liability to which such 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 such
person's office.
Rights of Inspection. Maryland law permits any shareholder of the Acquiring
Fund or any agent of such shareholder to inspect and copy during the Fund's
usual business hours the Company's By-laws, minutes of shareholder proceedings,
annual statements of the Company's affairs and voting trust agreements on file
at its principal office. Shareholders of the Acquired Fund have the same
inspection rights as are permitted shareholders of a Massachusetts corporation
under Massachusetts corporate law. Currently, each shareholder of a
Massachusetts corporation is permitted to inspect the records, accounts and
books of a corporation for any legitimate business purpose.
The foregoing is only a summary of certain characteristics of the
operations of the Trust and the Company. The foregoing is not a complete
description of the documents cited. Shareholders should refer to the provisions
of the corporate documents and state laws governing each Fund for a more
thorough description.
ADDITIONAL INFORMATION ABOUT
THE ACQUIRED FUND AND THE ACQUIRING FUND
The Acquired Fund. Information about the Acquired Fund is included in its
current Prospectus and Statement of Additional Information, each dated March 10,
1997, as may be amended, that have been filed with the SEC, both of which are
incorporated herein by reference. A copy of the Prospectus and the Statement of
Additional Information is available upon request and without charge by writing
the Acquired Fund at the address listed on the cover page of this
Prospectus/Proxy Statement or by calling toll-free 1-800-544-5445.
The Acquiring Fund. Information about the Acquiring Fund is incorporated
herein by reference from its current Prospectus and Statement of Additional
Information, each dated April 30, 1997, as may be amended. A copy of such
Statement of Additional Information has been filed with the SEC and is available
upon request and without charge by writing the Acquiring Fund at the address
listed on the cover page of this Prospectus/Proxy Statement or by calling
toll-free 1-800-544-5445.
Both the Acquiring Fund and the Acquired Fund are subject to the
informational requirements of the Exchange Act and in accordance therewith file
reports and other information including proxy material, reports and charter
documents with the SEC. These materials can be inspected and copies obtained at
the Public Reference Facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such material can also be obtained from the
Public Reference Branch, Office of Consumer Affairs and Information Services,
SEC, Washington, D.C. 20549 at prescribed rates or on the world wide web at
www.sec.gov.
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OTHER BUSINESS
The Board of Trustees of the Acquired Fund does not intend to present any
other business at the Meeting. If, however, any other matters are properly
brought before the Meeting, the persons named in the accompanying form of proxy
will vote thereon in accordance with their judgment.
VOTING INFORMATION
This Prospectus/Proxy Statement is furnished in connection with a
solicitation of proxies by the Board of Trustees of the Acquired Fund to be used
at the Special Meeting of Shareholders to be held at 2:30 p.m. on December 18,
1997, at One Parkview Plaza, Oakbrook Terrace, Illinois, 60181, and at any
adjournment thereof. This Prospectus/Proxy Statement, along with a Notice of the
Meeting and a proxy card, is first being mailed to shareholders of the Acquired
Fund on or about November 20, 1997. Only shareholders of record as of the close
of business on November 12, 1997 will be entitled to notice of, and to vote at,
the Meeting or any adjournment thereof. For purposes of determining a quorum for
transacting business at the Meeting, abstentions and broker "non-votes" (that
is, proxies from brokers or nominees indicating that such persons have not
received instructions from the beneficial owner or other persons entitled to
vote shares on a particular matter with respect to which the brokers or nominees
do not have discretionary power) will be treated as shares that are present but
which have not been voted. For this reason, abstentions and broker non-votes
will have the effect of "no" votes for purposes of obtaining the requisite
approval of the Plan. If the enclosed form of proxy is properly executed and
returned in time to be voted at the Meeting, the proxies named therein will vote
the shares represented by the proxy in accordance with the instructions marked
thereon. Unmarked proxies will be voted FOR the proposed Reorganization and FOR
any other matters deemed appropriate. A shareholder who has executed a proxy may
revoke it at any time before it is voted by filing with the Trust a written
notice of revocation, by delivering a duly executed proxy bearing a later date
or by attending the Meeting and voting in person. Unless revoked, all valid
proxies will be voted in accordance with the specifications thereon or, in the
absence of such specifications, for approval of the Plan and the Reorganization
contemplated thereby.
Approval of the Plan will require the vote of a majority of the outstanding
shares of the Acquired Fund. Shareholders of the Acquired Fund are entitled to
one vote for each share. Fractional shares are entitled to proportional voting
rights.
Smith Barney will use the services of First Data Investor Services, Inc.
("First Data") to solicit proxies. Proxy solicitations will be made primarily by
mail, but proxy solicitations also may be made by telephone, telegraph or
personal interviews conducted by officers and employees of First Data, Smith
Barney and/or PFS Shareholder Services. The aggregate cost of solicitation of
the shareholders of the Acquired Fund is expected to be approximately $47,000.
Expenses of the Reorganization, including the costs of the proxy solicitation
and the preparation of enclosures to the Prospectus/Proxy Statement,
reimbursement
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<PAGE>
of expenses of forwarding solicitation material to beneficial owners of shares
of the Acquired Fund and expenses incurred in connection with the preparation of
this Prospectus/Proxy Statement will be borne by Smith Barney.
In the event that sufficient votes to approve the Reorganization are not
received by the date of the Meeting, the persons named as proxies may propose
one or more adjournments of the Meeting to permit further solicitation of
proxies. In determining whether to adjourn the Meeting, the following factors
may be considered: the percentage of votes actually cast, the percentage of
negative votes actually cast, the nature of any further solicitation and the
information to be provided to shareholders with respect to the reasons for the
solicitation. Any such adjournment will require an affirmative vote by the
holders of a majority of the shares present in person or by proxy and entitled
to vote at the Meeting. The persons named as proxies will vote upon a decision
to adjourn the Meeting.
The votes of the shareholders of the Acquiring Fund are not being solicited
by this, or any other Prospectus/Proxy Statement.
FINANCIAL STATEMENTS AND EXPERTS
Ernst & Young LLP has rendered an opinion on the statements of assets and
liabilities, including the schedules of investments, of the Acquired Fund as of
October 31, 1996, and the related statements of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended and the financial highlights for each of the years in the
nine-year period then ended. These financial statements have been incorporated
by reference herein and into the Statement of Additional Information dated
November 20, 1997 relating to this Prospectus/Proxy Statement in reliance upon
the report of Ernst & Young LLP, independent auditors, incorporated by reference
herein, and upon the authority of such firm as experts in accounting and
auditing. KPMG Peat Marwick LLP has rendered an opinion on the statement of
assets and liabilities, including the schedule of investments, of the Acquiring
Fund as of December 31, 1996, and the related statement of operations for the
year then ended, the statements of changes in net assets for each of the years
in the two-year period then ended, and the financial highlights for each of the
years in the ten-year period then ended. These financial statements have been
incorporated by reference herein and into the Statement of Additional
Information dated November 20, 1997 relating to this Prospectus/ Proxy Statement
in reliance upon the report of KPMG Peat Marwick LLP, independent certified
public accountants, incorporated by reference herein, and upon the authority of
such firm as experts in accounting and auditing.
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VALIDITY OF SHARES
The validity of shares of the Acquiring Fund will be passed upon by
Sullivan & Cromwell, 125 Broad Street, New York, New York, 10004. In rendering
such opinion, Sullivan & Cromwell may rely on an opinion of Maryland counsel.
THE BOARD OF TRUSTEES OF THE ACQUIRED FUND, INCLUDING THE INDEPENDENT TRUSTEES,
UNANIMOUSLY RECOMMENDS APPROVAL OF THE PLAN, AND ANY UNMARKED PROXIES WITHOUT
INSTRUCTIONS TO THE CONTRARY WILL BE VOTED IN FAVOR OF APPROVAL OF THE PLAN.
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EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this 14th day of October, 1997, by and between SMITH BARNEY MONEY FUNDS, INC.
("Smith Barney Money Funds"), a Maryland corporation with its principal place of
business at 388 Greenwich Street, New York, New York 10013, on behalf of the
CASH PORTFOLIO (the "Acquiring Fund"), and COMMON SENSE TRUST ("Common Sense
Trust"), a Massachusetts business trust with its principal place of business at
One Parkview Plaza, Oakbrook Terrace, Illinois, 60181, on behalf of the COMMON
SENSE MONEY MARKET FUND (the "Acquired Fund"). The reorganization (the
"Reorganization") will consist of the transfer of all or substantially all of
the assets of the Acquired Fund in exchange for Class A shares of common stock
of the Acquiring Fund (collectively, the "Acquiring Fund Shares" and each, an
"Acquiring Fund Share") and the assumption by the Acquiring Fund of certain
liabilities of the Acquired Fund and the distribution, after the Closing Date
herein referred to, of Acquiring Fund Shares to the shareholders of the Acquired
Fund in liquidation of the Acquired Fund and the liquidation of the Acquired
Fund, all upon the terms and conditions hereinafter set forth in this Agreement.
WHEREAS, Smith Barney Money Funds and Common Sense Trust are registered
investment companies of the management type, and the Acquired Fund owns
securities that generally are assets of the character in which the Acquiring
Fund is permitted to invest;
WHEREAS, Smith Barney Money Funds is authorized to issue shares of common
stock and Common Sense Trust is authorized to issue shares of beneficial
interest;
WHEREAS, the Board of Trustees of Common Sense Trust has determined that
the exchange of all or substantially all of the assets and certain of the
liabilities of the Acquired Fund for Acquiring Fund Shares and the assumption of
such liabilities by Smith Barney Money Funds on behalf of the Acquiring Fund is
in the best interests of the Acquired Fund's shareholders and that the interests
of the existing shareholders of the Acquired Fund would not be diluted as a
result of this transaction;
WHEREAS, the Board of Directors of Smith Barney Money Funds has determined
that the exchange of all or substantially all of the assets of the Acquired Fund
for Acquiring Fund Shares is in the best interests of the Acquiring Fund's
shareholders and that the interests of the existing shareholders of the
Acquiring Fund would not be diluted as a result of this transaction.
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
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1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR THE ACQUIRING
FUND SHARES AND ASSUMPTION OF THE ACQUIRED FUND'S SCHEDULED LIABILITIES AND
LIQUIDATION OF THE ACQUIRED FUND
1.1. Subject to the terms and conditions herein set forth and on the basis
of the representations and warranties contained herein, the Acquired Fund agrees
to transfer the Acquired Fund's assets as set forth in paragraph 1.2 to Smith
Barney Money Funds on behalf of the Acquiring Fund, and Smith Barney Money Funds
on behalf of the Acquiring Fund agrees in exchange therefor: (i) to deliver to
the Acquired Fund the number of Class A Acquiring Fund Shares, including
fractional Class A Acquiring Fund Shares, determined by dividing the value of
the Acquired Fund's net assets attributable to its Class 1, computed in the
manner and as of the time and date set forth in paragraph 2.1, by the net asset
value of one Class A Acquiring Fund Share, computed in the manner and as of the
time and date set forth in paragraph 2.2; (ii) to deliver to the Acquired Fund
the number of Class A Acquiring Fund Shares, including fractional Class A
Acquiring Fund Shares, determined by dividing the value of the Acquired Fund's
net assets attributable to Class A shares, computed in the manner and as of the
time and date set forth in paragraph 2.1, by the net asset value of one Class A
Acquiring Fund Share, computed in the manner and as of the time and date set
forth in paragraph 2.2; (iii) to deliver to the Acquired Fund the number of
Class A Acquiring Fund Shares, including fractional Class A Acquiring Fund
Shares, determined by dividing the value of the Acquired Fund's net assets
attributable to Class B shares, computed in the manner and as of the time and
date set forth in paragraph 2.1, by the net asset value of one Class A Acquiring
Fund Share, computed in the manner and as of the time and date set forth in
paragraph 2.2; and (iii) to assume certain liabilities of the Acquired Fund, as
set forth in paragraph 1.3. Such transactions shall take place at the closing
provided for in paragraph 3.1 (the "Closing").
1.2. (a) The assets of the Acquired Fund to be acquired by Smith Barney
Money Funds on behalf of the Acquiring Fund shall consist of all or
substantially all of its property, including, without limitation, all cash,
securities and dividends or interest receivables which are owned by the Acquired
Fund and any deferred or prepaid expenses shown as an asset on the books of the
Acquired Fund on the closing date provided in paragraph 3.1 (the "Closing
Date").
(b) The Acquired Fund has provided the Acquiring Fund with a list of
all of the Acquired Fund's assets as of the date of execution of this Agreement.
The Acquired Fund reserves the right to sell any of these securities but will
not, without the prior approval of the Acquiring Fund, acquire any additional
securities other than securities of the type in which the Acquiring Fund is
permitted to invest. The Acquiring Fund will, within a reasonable time prior to
the Closing Date, furnish the Acquired Fund with a statement of the Acquiring
Fund's investment objectives, policies and restrictions and a list of the
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securities, if any, on the Acquired Fund's list referred to in the first
sentence of this paragraph which do not conform to the Acquiring Fund's
investment objectives, policies and restrictions. In the event that the Acquired
Fund holds any investments which the Acquiring Fund may not hold, the Acquired
Fund will dispose of such securities prior to the Closing Date. In addition, if
it is determined that the portfolios of the Acquired Fund and the Acquiring
Fund, when aggregated, would contain investments exceeding certain percentage
limitations imposed upon the Acquiring Fund with respect to such investments,
the Acquired Fund, if requested by the Acquiring Fund, will dispose of and/or
reinvest a sufficient amount of such investments as may be necessary to avoid
violating such limitations as of the Closing Date.
1.3. The Acquired Fund will endeavor to discharge all the Acquired Fund's
known liabilities and obligations prior to the Closing Date. Smith Barney Money
Funds on behalf of the Acquiring Fund shall assume all liabilities, expenses,
costs, charges and reserves reflected on an unaudited Statement of Assets and
Liabilities of the Acquired Fund prepared by Van Kampen American Capital Asset
Management, Inc. ("VKACAM"), as of the Valuation Date (as defined in paragraph
2.1), in accordance with generally accepted accounting principles consistently
applied from the prior audited period. Smith Barney Money Funds on behalf of the
Acquiring Fund shall assume only those liabilities of the Acquired Fund
reflected in that unaudited Statement of Assets and Liabilities and shall not
assume any other liabilities, whether absolute or contingent, not reflected
thereon.
1.4. As provided in paragraph 3.4, as soon after the Closing Date as is
conveniently practicable (the "Liquidation Date"), the Acquired Fund will
liquidate and distribute pro rata to the Acquired Fund's shareholders of record
determined as of the close of business on the Closing Date (the "Acquired Fund
Shareholders"), the Acquiring Fund Shares it receives pursuant to paragraph 1.1.
Shareholders of Class 1 and Class A shares of the Acquired Fund shall receive
Class A Acquiring Fund Shares. Such liquidation and distribution will be
accomplished by the transfer of the Acquiring Fund Shares then credited to the
account of the Acquired Fund on the books of the Acquiring Fund to open accounts
on the share records of the Acquiring Fund in the name of the Acquired Fund's
shareholders and representing the respective pro rata number of the Acquiring
Fund Shares due such shareholders. All issued and outstanding shares of the
Acquired Fund will simultaneously be canceled on the books of Common Sense
Trust, although share certificates representing interests in the Acquired Fund
will represent a number of Acquiring Fund Shares after the Closing Date as
determined in accordance with paragraph 1.1. Common Sense Trust shall not issue
certificates representing the Acquiring Fund Shares in connection with such
exchange.
1.5. Ownership of Acquiring Fund Shares will be shown on the books of the
Acquiring Fund's transfer agent. Acquiring Fund Shares will be issued in
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the manner described in the Acquiring Fund's current prospectus and statement of
additional information.
1.6. Any transfer taxes payable upon issuance of the Acquiring Fund Shares
in a name other than the registered holder of the Acquired Fund shares on the
books of Smith Barney Funds as of that time shall, as a condition of such
issuance and transfer, be paid by the person to whom such Acquiring Fund Shares
are to be issued and transferred.
1.7. Any reporting responsibility of the Acquired Fund is and shall remain
the responsibility of Common Sense Trust up to and including the Closing Date.
2. VALUATION
2.1. The value of the Acquired Fund's assets to be acquired by the
Acquiring Fund hereunder shall be the value of such assets computed as of 12:00
noon on the Closing Date (such time and date being hereinafter called the
"Valuation Date"), using the valuation procedures set forth in the Acquiring
Fund's then current prospectus or statement of additional information.
2.2. The net asset value of Acquiring Fund Shares shall be the net asset
value per share computed as of 12:00 noon on the Closing Date, using the
valuation procedures set forth in the Acquiring Fund's then current prospectus
or statement of additional information.
2.3. All computations of value shall be made by VKACAM and SBMFM in
accordance with their regular practices as pricing agent for the Acquired Fund
and the Acquiring Fund, respectively.
3. CLOSING AND CLOSING DATE
3.1. The Closing Date shall be January 5, 1998, or such later date as the
parties may agree to in writing. All acts taking place at the Closing shall be
deemed to take place simultaneously as of the close of business on the Closing
Date unless otherwise provided. The Closing shall be held as of 5:00 p.m. at the
offices of Smith Barney Inc., 388 Greenwich Street, New York, New York 10013, or
at such other time and/or place as the parties may agree.
3.2. The custodian for the Acquiring Fund (the "Custodian") shall deliver
at the Closing a certificate of an authorized officer stating that: (a) the
Acquired Fund's portfolio securities, cash and any other assets shall have been
delivered in proper form to the Acquiring Fund within two business days prior to
or on the Closing Date and (b) all necessary transfer taxes including all
applicable federal and state stock transfer stamps, if any, shall have been
paid, or provision for payment shall have been made, in conjunction with the
delivery of portfolio securities.
3.3. In the event that on the Valuation Date (a) the New York Stock
Exchange ("NYSE") or another primary trading market for portfolio securities of
the Acquiring Fund or the Acquired Fund shall be closed to trading or trading
thereon shall be restricted, (b) trading or the reporting of trading on the NYSE
or
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elsewhere shall be disrupted so that accurate appraisal of the value of the net
assets of the Acquiring Fund or the Acquired Fund is impracticable or (c) the
net asset value of Class A shares of the Acquiring Fund or any class of the
Acquired Fund is other than $1.00, the Closing Date shall be postponed until the
first business day after the day when trading shall have been fully resumed and
reporting shall have been restored or such net asset value is $1.00, as the case
may be.
3.4. The Acquired Fund shall deliver at the Closing a list of the names and
addresses of the Acquired Fund's shareholders and the number and percentage
ownership of outstanding shares owned by each such shareholder immediately prior
to the Closing, certified on behalf of the Acquired Fund by its President. The
Acquiring Fund shall issue and deliver a confirmation evidencing the Acquiring
Fund Shares to be credited to the Acquired Fund's account on the Closing Date to
the Secretary of Common Sense Trust, or provide evidence satisfactory to the
Acquired Fund that such Acquiring Fund Shares have been credited to the Acquired
Fund's account on the books of the Acquiring Fund. At the Closing, each party
shall deliver to the other such bills of sale, checks, assignments, share
certificates, if any, receipts or other documents as such other party or its
counsel may reasonably request.The Acquired Fund shall deliver at the Closing a
list of the names and addresses of the Acquired Fund's shareholders and the
number and percentage ownership of outstanding shares owned by each such
shareholder immediately prior to the Closing. The Acquiring Fund shall issue and
deliver a confirmation evidencing the Acquiring Fund Shares to be credited to
the Acquired Fund's account on the Closing Date.
4. REPRESENTATIONS AND WARRANTIES
4.1. Common Sense Trust represents and warrants to Smith Barney Money Funds
as follows:
(a) The Acquired Fund is a portfolio of Common Sense Trust, which is
business trust, duly organized, validly existing and in good standing under the
laws of The Commonwealth of Massachusetts;
(b) Common Sense Trust is a registered investment company classified
as a management company of the open-end type, and its registration with the
Securities and Exchange Commission (the "Commission") as an investment company
under the Investment Company Act of 1940, as amended (the "1940 Act") is in full
force and effect;
(c) Common Sense Trust is not, and the execution, delivery and
performance of this Agreement on behalf of the Acquired Fund will not result, in
a material violation of its Agreement and Declaration of Trust or By-laws or of
any agreement, indenture, instrument, contract, lease or other undertaking to
which Common Sense Trust is a party or by which it is bound;
(d) Common Sense Trust has no material contracts or other commitments
(other than this Agreement) which will be terminated with liability to Common
Sense Trust prior to the Closing Date;
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(e) No material litigation or administrative proceeding or
investigation of or before any court or governmental body is presently pending
or to its knowledge threatened against Common Sense Trust with respect to the
Acquired Fund or any of the Acquired Fund's properties or assets, except as
previously disclosed to the Acquiring Fund. Common Sense Trust knows of no facts
which might form the basis for the institution of such proceedings and neither
Common Sense Trust nor the Acquired Fund is a party to or subject to the
provisions of any order, decree or judgment of any court or governmental body
which materially and adversely affects the Acquired Fund's business or Common
Sense Trust' ability on behalf of the Acquired Fund to consummate the
transactions herein contemplated;
(f) The Statement of Assets and Liabilities of the Acquired Fund for
the fiscal year ended October 31, 1996 has been audited by Ernst & Young LLP,
independent auditors, and is in accordance with generally accepted accounting
principles consistently applied, and such statement (copies of which have been
furnished to the Acquiring Fund) fairly reflects the financial condition of the
Acquired Fund as of such dates, and there are no known contingent liabilities of
the Acquired Fund as of such dates not disclosed therein;
(g) At the Closing Date, all federal and other tax returns and reports
of the Acquired Fund required by law then to have been filed by such dates shall
have been filed, and all federal and other taxes shown as due on such returns
shall have been paid so far as due, or provision shall have been made for the
payment thereof and, to the best of the Acquired Fund's knowledge, no such
return is currently under audit and no assessment has been asserted with respect
to such returns;
(h) For the most recent fiscal year of its operation, the Acquired
Fund has met the requirements of Subchapter M of the Code for qualification and
treatment as a regulated investment company;
(i) All issued and outstanding shares of the Acquired Fund are, and at
the Closing Date will be, duly and validly issued and outstanding, fully paid
and non-assessable. All of the issued and outstanding shares of the Acquired
Fund will, at the time of Closing, be held by the persons and in the amounts set
forth in the records of the transfer agent as provided in paragraph 3.4. The
Acquired Fund does not have outstanding any options, warrants or other rights to
subscribe for or purchase any shares of the Acquired Fund, nor is there
outstanding any security convertible into any shares of the Acquired Fund;
(j) At the Closing Date, the Acquired Fund will have good and
marketable title to its assets to be transferred to the Acquiring Fund pursuant
to paragraph 1.2 and full right, power and authority to sell, assign, transfer
and deliver such assets hereunder and, upon delivery and payment for such
assets, the Acquiring Fund will acquire good and marketable title thereto,
subject to no restrictions on the full transfer thereof, including such
restrictions as might arise
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under the Securities Act of 1933, as amended (the "1933 Act"), other than as
disclosed to the Acquiring Fund;
(k) The execution, delivery and performance of this Agreement has been
duly authorized by all necessary action on the part of Common Sense Trust's
Board of Trustees and, subject to the approval of the Acquired Fund's
shareholders, assuming due authorization, execution and delivery by the
Acquiring Fund, this Agreement will constitute a valid and binding obligation of
Common Sense Trust on behalf of the Acquired Fund, enforceable in accordance
with its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium and other laws relating to or affecting creditors'
rights and to general equity principles;
(l) The information to be furnished by the Acquired Fund for use in
no-action letters, applications for exemptive orders, registration statements,
proxy materials and other documents which may be necessary in connection with
the transactions contemplated hereby shall be accurate and complete in all
material respects and shall comply in all material respects with federal
securities and other laws and regulations thereunder applicable thereof;
(m) The proxy statement of Common Sense Trust on behalf of the
Acquired Fund (the "Proxy Statement") to be included in the Registration
Statement referred to in paragraph 5.7 (other than information therein that
relates to the Acquiring Fund) will, on the effective date of the Registration
Statement and on the Closing Date, not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which such statements were made, not materially misleading.
4.2. Smith Barney Money Funds represents and warrants to Common Sense Trust
as follows:
(a) The Acquiring Fund is a portfolio of Smith Barney Money Funds,
which is a corporation, duly organized, validly existing and in good standing
under the laws of the State of Maryland;
(b) Smith Barney Money Funds is a registered investment company
classified as a management company of the open-end type and its registration
with the Commission as an investment company under the 1940 Act is in full force
and effect;
(c) The current prospectus of and statement of additional information
of Smith Barney Money Funds conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and regulations of
the Commission thereunder and do not include any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not materially misleading;
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(d) At the Closing Date, Smith Barney Money Funds will have good and
marketable title to the Acquiring Fund's assets;
(e) Smith Barney Money Funds is not, and the execution, delivery and
performance of this Agreement on behalf of the Acquiring Fund will not result,
in a material violation of its Articles of Incorporation or By-laws or of any
agreement, indenture, instrument, contract, lease or other undertaking with
respect to the Acquiring Fund to which Smith Barney Money Funds is a party or by
which it is bound;
(f) No material litigation or administrative proceeding or
investigation of or before any court or governmental body is presently pending
or to its knowledge threatened against Smith Barney Money Funds with respect to
the Acquiring Fund or any of the Acquiring Fund's properties or assets, except
as previously disclosed in writing to Common Sense Trust. Smith Barney Money
Funds and the Acquiring Fund know of no facts which might form the basis for the
institution of such proceedings and neither Smith Barney Money Funds nor the
Acquiring Fund is a party to or subject to the provisions of any order, decree
or judgment of any court or governmental body which materially and adversely
affects the Acquiring Fund's business or Smith Barney Money Funds' ability on
behalf of the Acquiring Fund to consummate the transactions contemplated herein;
(g) The Statement of Assets and Liabilities of the Acquiring Fund for
the fiscal year ended December 31, 1996 has been audited by KPMG Peat Marwick
LLP, independent certified public accountants, and is in accordance with
generally accepted accounting principles consistently applied, and such
statement (copies of which have been furnished to the Acquired Fund) fairly
reflects the financial condition of the Acquiring Fund as of such dates, and
there are no known contingent liabilities of the Acquiring Fund as of such dates
not disclosed therein;
(h) At the Closing Date, all federal and other tax returns and reports
of the Acquiring Fund required by law then to have been filed by such dates
shall have been filed, and all federal and other taxes shown as due on said
returns and reports shall have been paid so far as due, or provision shall have
been made for the payment thereof and, to the best of the Acquiring Fund's
knowledge, no such return is currently under audit and no assessment has been
asserted with respect to such returns;
(i) For the most recent fiscal year of its operation, the Acquiring
Fund has met the requirements of Subchapter M of the Code for qualification and
treatment as a regulated investment company and the Acquiring Fund intends to do
so in the future;
(j) At the date hereof, all issued and outstanding shares of the
Acquiring Fund are, and at the Closing Date will be, duly and validly issued and
outstanding, fully paid and non-assessable, with no personal liability attaching
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to the ownership thereof. The Acquiring Fund does not have outstanding any
options, warrants or other rights to subscribe for or purchase any shares of the
Acquiring Fund, nor is there outstanding any security convertible into shares of
the Acquiring Fund;
(k) The execution, delivery and performance of this Agreement has been
duly authorized by all necessary action, if any, on the part of Smith Barney
Money Funds' Board of Directors and, assuming due authorization, execution and
delivery by the Acquired Fund, this Agreement constitutes a valid and binding
obligation of Smith Barney Money Funds on behalf of the Acquiring Fund,
enforceable in accordance with its terms, subject as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium and other laws relating to or
affecting creditors' rights and to general equity principles;
(l) The Acquiring Fund Shares to be issued and delivered to Common
Sense Trust for the account of the Acquired Fund Shareholders, pursuant to the
terms of this Agreement, will at the Closing Date have been duly authorized and,
when so issued and delivered, will be duly and validly issued Acquiring Fund
Shares, and will be fully paid and non-assessable with no personal liability
attaching to the ownership thereof;
(m) The information to be furnished by the Acquiring Fund for use in
no-action letters, applications for exemptive orders, registration statements,
proxy materials and other documents which may be necessary in connection with
the transactions contemplated hereby shall be accurate and complete in all
material respects and shall comply in all material respects with federal
securities and other laws and regulations applicable thereto;
(n) The Proxy Statement to be included in the Registration Statement
(only insofar as it relates to the Acquiring Fund and Smith Barney Money Funds)
will, on the effective date of the Registration Statement and on the Closing
Date, not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which such statements were made,
not materially misleading; and
(o) Smith Barney Money Funds, on behalf of the Acquiring Fund, agrees
to use all reasonable efforts to obtain the approvals and authorizations
required by the 1933 Act and the 1940 Act, and to file notices with state
securities commissions as it may deem appropriate in order to continue the
Acquiring Fund's operations after the Closing Date.
5. COVENANTS OF THEACQUIRED FUND, COMMON SENSE TRUST, THE ACQUIRING FUND
AND SMITH BARNEY MONEY FUNDS
5.1. Smith Barney Money Funds on behalf of the Acquiring Fund and Common
Sense Trust on behalf of the Acquired Fund each will operate its business in the
ordinary course between the date hereof and the Closing Date. It is understood
that such ordinary course of business will include the declaration
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and payment of customary dividends and distributions and any other dividends and
distributions deemed advisable, in each case payable either in cash or in
additional shares.
5.2. Common Sense Trust will call a meeting of Acquired Fund shareholders
to consider and act upon this Agreement and to take all other action necessary
to obtain approval of the transactions contemplated herein.
5.3. Common Sense Trust covenants that the Acquiring Fund Shares to be
issued hereunder are not being acquired for the purpose of making any
distribution thereof other than in accordance with the terms of this Agreement.
5.4. Common Sense Trust will assist the Acquiring Fund in obtaining such
information as the Acquiring Fund reasonably requests concerning the beneficial
ownership of the Acquired Fund's shares.
5.5. Subject to the provisions of this Agreement, Common Sense Trust on
behalf the Acquired Fund and Smith Barney Money Funds on behalf of the Acquiring
Fund each will take, or cause to be taken, all action, and do or cause to be
done, all things reasonably necessary, proper or advisable to consummate and
make effective the transactions contemplated by this Agreement.
5.6. As promptly as practicable, but in any case within sixty days after
the Closing Date, Common Sense Trust shall furnish the Acquiring Fund, in such
form as is reasonably satisfactory to the Acquiring Fund, a statement of the
earnings and profits of the Acquired Fund for federal income tax purposes which
will be carried over to the Acquiring Fund as a result of Section 381 of the
Code, and which will be certified by the Chairman and Treasurer or Assistant
Treasurer of the Acquired Fund.
5.7. Common Sense Trust will provide the Acquiring Fund with information
reasonably necessary for the preparation of a prospectus (the "Prospectus")
which will include the Proxy Statement, referred to in paragraph 4.1(m), all to
be included in a Registration Statement on Form N-14 of the Acquiring Fund (the
"Registration Statement"), in compliance with the 1933 Act, the Securities
Exchange Act of 1934 (the "1934 Act") and the 1940 Act in connection with the
meeting of the Acquired Fund's shareholders to consider approval of this
Agreement and the transactions contemplated herein.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF COMMON SENSE TRUST IN RESPECT OF
THE ACQUIRED FUND
The obligations of Common Sense Trust to consummate the transactions
provided for herein shall be subject, at its election, to the performance by
Smith Barney Money Funds and the Acquiring Fund of all of the obligations to be
performed by them hereunder on or before the Closing Date and, in addition
thereto, the following further conditions:
6.1. All representations and warranties of Smith Barney Money Funds and the
Acquiring Fund contained in this Agreement shall be true and correct in all
material respects as of the date hereof and, except as they may be affected by
the transactions contemplated by this Agreement, as of the Closing Date with the
same force and effect as if made on and as of the Closing Date;
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6.2. Smith Barney Money Funds on behalf of the Acquiring Fund shall have
delivered to the Acquired Fund a certificate executed in its name by its
Chairman and its Treasurer or Assistant Treasurer, in a form reasonably
satisfactory to the Acquired Fund and dated as of the Closing Date, to the
effect that the representations and warranties of Smith Barney Money Funds and
the Acquiring Fund made in this Agreement are true and correct at and as of the
Closing Date, except as they may be affected by the transactions contemplated by
this Agreement; and
6.3. Common Sense Trust shall have received on the Closing Date a favorable
opinion from Sullivan & Cromwell, counsel to Smith Barney Money Funds, dated as
of the Closing Date, in a form reasonably satisfactory to Ronald A. Nyberg,
Esq., Secretary of the Acquired Fund, covering the following points:
That (a) Smith Barney Money Funds is duly organized and validly existing
under the laws of the State of Maryland; (b) Smith Barney Money Funds is an
open-end management investment company registered under the 1940 Act; (c) this
Agreement, the Reorganization provided for hereunder and the execution of this
Agreement have been duly authorized and approved by all requisite action of
Smith Barney Money Funds, and this Agreement has been duly executed and
delivered by Smith Barney Money Funds and is a valid and binding obligation of
Smith Barney Money Funds with respect to the Acquiring Fund enforceable in
accordance with its terms against the assets of the Acquiring Fund, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
and to general equity principles; and (d) the Class A Acquiring Fund Shares to
be issued to the Acquired Fund for distribution to its shareholders pursuant to
this Agreement have been duly authorized and, subject to the receipt by Smith
Barney Money Funds on behalf of the Acquiring Fund of consideration equal to the
net asset value thereof (but in no event less than the par value thereof), such
Class A Acquiring Fund Shares, when issued in accordance with this Agreement,
will be validly issued, fully paid and nonassessable.
Such opinion may state that it is solely for the benefit of Common Sense
Trust, its trustees and its officers. Such counsel may rely, as to matters
governed by the laws of the State of Maryland, on an opinion of Maryland
counsel.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF SMITH BARNEY MONEY FUNDS IN
RESPECT OF THE ACQUIRING FUND
The obligations of Smith Barney Money Funds on behalf of the Acquiring Fund
to complete the transactions provided for herein shall be subject, at its
election, to the performance by Common Sense Trust of all the obligations to be
performed by it hereunder on or before the Closing Date and, in addition
thereto, the following conditions:
7.1. All representations and warranties of Common Sense Trust contained in
this Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated by
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this Agreement, as of the Closing Date with the same force and effect as if made
on and as of the Closing Date;
7.2. Common Sense Trust on behalf of the Acquired Fund shall have delivered
to the Acquiring Fund a statement of the Acquired Fund's assets and liabilities,
together with a list of the Acquired Fund's portfolio securities showing the tax
costs of such securities by lot and the holding periods of such securities, as
of the Closing Date, certified by the Treasurer or Assistant Treasurer of the
Acquired Fund;
7.3. Common Sense Trust shall have delivered to the Acquiring Fund on the
Closing Date a certificate executed in its name by its Chairman and its
Treasurer or Assistant Treasurer, in form and substance satisfactory to the
Acquiring Fund and dated as of the Closing Date, to the effect that the
representations and warranties of the Common Sense Trust and the Acquired Fund
made in this Agreement are true and correct at and as of the Closing Date,
except as they may be affected by the transactions contemplated by this
Agreement; and
7.4. The Acquiring Fund shall have received on the Closing Date a favorable
opinion of Sullivan & Worcester,LLP, counsel to the Common Sense Trust, in a
form satisfactory to Christina T. Sydor, Esq., Secretary of Smith Barney Money
Funds, covering the following points:
That (a) the Common Sense Trust is duly organized and validly existing
under the laws of The Commonwealth of Massachusetts; (b) Common Sense Trust is
an open-end management investment company registered under the 1940 Act; and (c)
this Agreement, the Reorganization provided for hereunder and the execution of
this Agreement have been duly authorized and approved by all requisite action of
Common Sense Trust , and this Agreement has been duly executed and delivered by
Common Sense Trust and is a valid and binding obligation of Common Sense Trust
enforceable in accordance with its terms against the assets of the Acquired
Fund, subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles.
Such opinion may state that it is solely for the benefit of Smith Barney
Money Funds, its directors and its officers. Such counsel may rely, as to
matters governed by the laws of the State of Massachusetts, on an opinion of
Massachusetts counsel.
7.5 The Acquiring Fund shall have received on the Closing Date a favorable
opinion of Sullivan & Worcester, LLP, counsel to the Common Sense Trust, in a
form satisfactory to Christina T. Sydor, Esq., Secretary of Smith Barney Money
Funds, substantially to the effect that, on the basis of the existing provisions
of the Internal Revenue Code of 1986, as amended (the "Code"), U.S. Treasury
regulations issued thereunder, current administrative rules, pronouncements and
court decisions, for Federal income tax purposes, upon consummation of the
Reorganization:
(1) the transfer of all or substantially all of the Acquired Fund's assets
in exchange for the Acquiring Fund's shares and the assumption by the
Acquiring Fund of certain scheduled liabilities of the Acquired Fund
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will constitute a "reorganization" within the meaning of Section 368
(a)(1)(C) of the Code, and the Acquiring Fund and the Acquired Fund
are each a "party to a reorganization" within the meaning of Section
368(b) of the Code;
(2) no gain or loss will be recognized by the Acquiring Fund upon the
receipt of the assets of the Acquired Fund in exchange for the
Acquiring Fund's shares, and the assumption by the Acquiring Fund of
certain scheduled liabilities in the Acquired Fund;
(3) no gain or loss will be recognized by the Acquired Fund upon the
transfer of the Acquired Fund's assets to the Acquiring Fund in
exchange for the Acquiring Fund shares and the assumption by the
Acquiring Fund of certain scheduled liabilities of the Acquired Fund
or upon the distribution (whether actual or constructive) of the
Acquiring Fund shares to the Acquired Fund's shareholders;
(4) no gain or loss will be recognized by shareholders of the Acquired
Fund upon the exchange of their Acquired Fund shares for the Acquiring
Fund shares and the assumption by the Acquiring Fund of certain
scheduled liabilities of the Acquired Fund;
(5) the aggregate tax basis of the Acquiring Fund shares received by each
Acquired Fund shareholder pursuant to the Reorganization will be the
same as the aggregate tax basis of the Acquired Fund shares
surrendered in exchange therefor and, (provided the Acquired Fund
shares were held as capital assets on the date of the Reorganization),
the holding period of the Acquiring Fund shares to be received by each
Acquired Fund shareholder will include the period during which the
shares of the Acquired Fund which are surrendered in exchange therefor
were held by such shareholder;
(6) the tax basis of the Acquired Fund's assets acquired by the Acquiring
Fund will be the same as the tax basis of such assets to the Acquired
Fund immediately prior to the Reorganization and the holding period of
the assets of the Acquired Fund in the hands of the Acquiring Fund
will include the period during which such assets were held by the
Acquired Fund.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND, COMMON
SENSE TRUST, THE ACQUIRING FUND AND SMITH BARNEY MONEY FUNDS
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to Smith Barney Money Funds on behalf of the Acquiring
Fund, or the Acquired Fund, the other party to this Agreement shall, at its
option, not be required to consummate the transactions contemplated by this
Agreement:
8.1. This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding shares of
the Acquired Fund in accordance with the provisions of Common Sense Trust's
Agreement and Declaration of Trust and by-laws and certified copies of the
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votes evidencing such approval shall have been delivered to the Acquiring Fund.
Notwithstanding anything herein to the contrary, neither Smith Barney Money
Funds on behalf of the Acquiring Fund nor Common Sense Trust on behalf of the
Acquired Fund may waive the conditions set forth in this paragraph 8.1;
8.2. On the Closing Date, no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with, this
Agreement or the transactions contemplated herein;
8.3. All consents of other parties and all other consents, orders and
permits of federal and if applicable state and local, regulatory authorities
(including those of the Commission and of state Blue Sky and securities
authorities, including "no-action" positions of and exemptive orders from such
federal and state authorities) deemed necessary by the Acquiring Fund or the
Acquired Fund to permit consummation, in all material respects, of the
transactions contemplated hereby shall have been obtained, except where failure
to obtain any such consent, order or permit would not involve a risk of a
material adverse effect on the assets or properties of the Acquiring Fund or the
Acquired Fund, provided that either party hereto may for itself waive any of
such conditions;
8.4. The Registration Statement shall have become effective under the 1933
Act and no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending, threatened
or contemplated under the 1933 Act;
8.5. The Acquired Fund shall have declared and paid a dividend or dividends
on the outstanding shares of the Acquired Fund, which, together with all
previous such dividends, shall have the effect of distributing to the
shareholders of the Acquired Fund all of the investment company taxable income
of the Acquired Fund for all taxable years ending on or prior to the Closing
Date. The dividend declared and paid by the Acquired Fund shall also include all
of such fund's net capital gain realized in all taxable years ending on or prior
to the Closing Date (after reduction for any capital loss carry forward);
9. BROKERAGE FEES AND EXPENSES
9.1. Smith Barney Money Funds on behalf of the Acquiring Fund represents
and warrants to the Acquired Fund, and Common Sense Trust on behalf of the
Acquired Fund hereby represents and warrants to Smith Barney Money Funds on
behalf of the Acquiring Fund, that there are no brokers or finders entitled to
receive any payments in connection with the transactions provided for herein.
9.2. (a) Except as may be otherwise provided herein, Smith Barney Inc.
shall be liable for the expenses incurred in connection with entering into and
carrying out the provisions of this Agreement, including the expenses of: (i)
counsel and independent accountants associated with the Reorganization; (ii)
printing and mailing the Prospectus/Proxy Statement and soliciting proxies
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in connection with the meeting of shareholders of the Acquired Fund referred to
in paragraph 5.2 hereof; (iii) any special pricing fees associated with the
valuation of the Acquired Funds or the Acquiring Funds portfolio on the Closing
Date; (iv) expenses associated with preparing this Agreement and preparing and
filing the Registration Statement under the 1933 Act covering the Acquiring Fund
Shares to be issued in the Reorganization; (v) registration or qualification
fees and expenses of preparing and filing such forms, if any, necessary under
applicable state securities laws to qualify the Acquiring Fund Shares to be
issued in connection with the Reorganization. The Acquired Fund shall be liable
for: (i) all fees and expenses related to the liquidation of the Acquired Fund;
and (ii) fees and expenses of the Acquired Fund's custodian and transfer agent
incurred in connection with the Reorganization. The Acquiring Fund shall be
liable for any fees and expenses of the Acquiring Fund's transfer agent incurred
in connection with the Reorganization.
(b) Consistent with the provisions of paragraph 1.3, the Acquired
Fund, prior to the Closing, shall pay for or include in the unaudited Statement
of Assets and Liabilities prepared pursuant to paragraph 1.3 all of its known
and reasonably estimated expenses associated with the transactions contemplated
by this Agreement.No brokers or finders will be entitled to receive any payments
in connection with the transactions provided for herein.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1. The parties hereto agree that no party has made any representation,
warranty or covenant not set forth herein and that this Agreement constitutes
the entire agreement between the parties.
10.2. The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection herewith
shall survive the consummation of the transactions contemplated hereunder.
11. TERMINATION
11.1. This Agreement may be terminated at any time prior to the Closing
Date by: (1) the mutual agreement of Common Sense Trust on behalf of the
Acquired Fund and Smith Barney Money Funds on behalf of the Acquiring Fund; (2)
Common Sense Trust in respect of the Acquired Fund in the event that Smith
Barney Money Funds in respect of the Acquiring Fund shall, or Smith Barney Money
Funds in respect of the Acquiring Fund in the event that Common Sense Trust in
respect of the Acquired Fund shall, materially breach any representation,
warranty or agreement contained herein to be performed at or prior to the
Closing Date; or (3) a condition herein expressed to be precedent to the
obligations of the terminating party has not been met and it reasonably appears
that it will not or cannot be met.
11.2. In the event of any such termination, there shall be no liability for
damages on the part of either Common Sense Trust on behalf of the Acquired
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Fund or Smith Barney Money Funds on behalf of the Acquiring Fund or their
respective directors or officers to the other party, but each shall bear the
expenses incurred by it incidental to the preparation and carrying out of this
Agreement as provided in paragraph 9.2.
12. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the authorized officers of Common
Sense Trust and Smith Barney Money Funds; provided, however, that following the
meeting of the Acquired Fund shareholders called by Common Sense Trust pursuant
to paragraph 5.2 of this Agreement, no such amendment may have the effect of
changing the provisions for determining the number of the Acquiring Fund Shares
to be issued to the Acquired Fund's shareholders under this Agreement to the
detriment of such shareholders without their further approval.
13. NOTICES
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be given by prepaid
telegraph, telecopy or certified mail addressed to Common Sense Trust, 2800 Post
Oak Blvd. Houston, Texas 77056, Attention: Secretary; or to Smith Barney Money
Funds, 388 Greenwich Street, New York, New York 10013, Attention: Secretary.
14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT; LIMITATION OF
LIABILITY
14.1 The article and paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
14.2 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
14.3 This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
14.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm, corporation or other entity, other than the parties hereto and their
respective successors and assigns, any rights or remedies under or by reason of
this Agreement.
14.5 It is expressly agreed that the obligations of Common Sense Trust in
respect of the Acquired Fund shall not be binding upon any of its Trustees,
shareholders, nominees, officers, agents or employees personally, but bind only
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<PAGE>
the trust property of the Acquired Fund as provided in the trust instruments of
Common Sense Trust. The execution and delivery of this Agreement has been
authorized by the trustees of Common Sense Trust and this Agreement has been
executed by authorized officers of Common Sense Trust, acting as such, and
neither such authorization by such trustees nor such execution and delivery by
such officers shall be deemed to have been made by any of them individually or
to impose any liability on any of them personally, but shall bind only the trust
property of the Acquired Fund as provided in Common Sense Trust's Agreement and
Declaration of Trust.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by its Chairman of the Board, President or Vice President and
attested by its Secretary or Assistant Secretary.
Attest: SMITH BARNEY
MONEY FUNDS, INC.
on behalf of the
CASH PORTFOLIO
/s/ Christina T. Sydor By: /s/ Heath B. McLendon
- -------------------------- --------------------------------------
Name: Christina T. Sydor Name: Heath B. McLendon
Title: Secretary Title: Chairman of the Board and
Chief Executive Officer
Attest: COMMON SENSE TRUST
on behalf of the
COMMON SENSE MONEY MARKET FUND
/s/ Ronald A. Nyberg By: /s/ Don G. Powell
- -------------------------- --------------------------------------
Name: Ronald A. Nyberg Name: Don G. Powell
Title: Secretary Title: Chairman of the Board
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