Registration
No. 2-91948
811-4061
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
X
Pre-Effective Amendment No.
Post-Effective Amendment No. 20
X
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
X
Amendment No. 21
X
SMITH BARNEY MANAGED GOVERNMENTS FUND INC.
(Exact name of Registrant as Specified in Charter)
388 Greenwich Street, New York, New York 10013
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 723-9218
Christina T. Sydor
Secretary
Smith Barney Managed Governments Fund Inc.
388 Greenwich Street
New York, New York 10013
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering:
As soon as possible after this Post-Effective Amendment
becomes effective.
It is proposed that this filing will become effective:
immediately upon filing pursuant to Rule 485(b)
X on November 7, 1994 pursuant to Rule 485(b)
60 days after filing pursuant to Rule 485(a)
on pursuant to Rule 485(a)
___________________________________________________________________________
___________________
The Registrant has previously filed a declaration of indefinite
registration of its shares pursuant to Rule 24f-2 under the Investment
Company Act of 1940, as amended. Registrant's Rule 24f-2 Notice for the
fiscal year ended July 31, 1994 was filed on September 29, 1994.
SMITH BARNEY MANAGED GOVERNMENTS FUND INC.
FORM N-1A
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(a)
Part A.
Item No. Prospectus Caption
1. Cover Page Cover Page
2. Synopsis Prospectus Summary
3. Financial Highlights Financial Highlights
4. General Description of Registrant Cover Page;
Prospectus Summary ;
Investment Objective and
Management Policies;
Additional Information
5. Management of the Fund Management of the
Fund; Distributor;
Additional Information; Annual
Report
6. Capital Stock and Other Securities Investment
Objective and Management
Policies ; Dividends,
Distributions and
Taxes; Additional Information
7. Purchase of Securities Being Offered Purchase of
Shares; Redemption of Shares;
Valuation of Shares; Exchange
Privilege;
Distributor; Additional
Information; Minimum
Account Size
8. Redemption or Repurchase Purchase of Shares;
Redemption of Shares
Exchange Privilege
9. Legal Proceedings Not Applicable
Part B
Item No. Statement of Additional
Information Caption
10. Cover Page Cover Page
11. Table of Contents Contents
12. General Information and History Distributor;
Additional Information
13. Investment Objectives and Policies Investment Objective
and Management
Policies
14. Management of the Fund Management of the Fund;
Distributor
15. Control Persons and Principal Holders of Management of the
Fund
Securities
16. Investment Advisory and Other Services Management of the
Fund; Distributor;
17. Brokerage Allocation Investment Objective and
Management
Policies; Distributor
18. Capital Stock and Other Securities Investment Objective
and Management Policies;
Purchase of Shares; Redemption
of
Shares; Taxes
19. Purchase, Redemption and Pricing of Purchase of Shares;
Redemption of Shares
Securities Being Offered Distributor;
Valuation of Shares; Exchange
Privilege
20. Tax Status Taxes
21. Underwriters Distributor
22. Calculation of Performance Data Performance Data
23. Financial Statements Financial Statements
<PAGE>
SMITH BARNEY
Managed Governments
Fund Inc.
NOVEMBER 7, 1994
Prospectus begins on page one PROSPECTUS
<LOGO>
Smith Barney Mutual Funds
Investing for your future.
Every day.
<PAGE>
Smith Barney
Managed Governments Fund Inc.
Prospectus November 7, 1994
388 Greenwich Street
New York, New York 10013
(212) 723-9218
Smith Barney Managed Governments Fund Inc. (the "Fund") is a diversified
fund designed to provide investors with high current income consistent
with liquidity and safety of capital. The Fund seeks to achieve this
objective by investing in debt obligations of varying maturities issued
or guaranteed by the United States government or its agencies or
instrumentalities (with emphasis on mortgage-backed government
securities) and by writing covered put and call options against certain
of such securities. The Fund also may enter into certain other options
and futures transactions for hedging purposes.
This Prospectus sets forth concisely certain information about the Fund,
including sales charges, distribution and service fees and expenses,
that prospective investors will find helpful in making an investment
decision. Investors are encouraged to read this Prospectus carefully and
retain it for future reference.
Additional information about the Fund is contained in a Statement of
Additional Information dated November 7, 1994, as amended or
supplemented from time to time, that is available upon request and
without charge by calling or writing the Fund at the telephone number or
address set forth above or by contacting a Smith Barney Financial
Consultant. The Statement of
Additional Information has been filed with the Securities and Exchange
Commission (the "SEC") and is incorporated by reference into this
Prospectus in its entirety.
Smith Barney Inc.
Distributor
Smith Barney Mutual Funds Management Inc.
Investment Adviser and Administrator
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. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
1
<PAGE>
Smith Barney
Managed Governments Fund Inc.
Table of Contents
<TABLE>
<CAPTION>
<S> <C>
Prospectus Summary 3
Financial Highlights 12
Investment Objective and Management Policies 16
Valuation of Shares 24
Dividends, Distributions and Taxes 25
Purchase of Shares 27
Exchange Privilege 37
Redemption of Shares 41
Minimum Account Size 43
Performance 43
Management of the Fund 44
Distributor 46
Additional Information 47
</TABLE>
2
<PAGE>
Smith Barney
Managed Governments Fund Inc.
Prospectus Summary
The following summary is qualified in its entirety by detailed
information appearing elsewhere in this Prospectus and in the Statement
of Additional Information. Cross references in this summary are to
headings in the Prospectus. See "Table of Contents."
Investment Objective The Fund is an open-end, diversified management
investment company designed to provide investors with high current
income consistent with liquidity and safety of capital. The Fund seeks
to achieve its
objective by investing in debt obligations of varying maturities issued
or guaranteed by the United States government or its agencies or
instrumentalities ("U.S. government securities") and by writing covered
put and call options. The Fund's portfolio of U.S. government securities
will consist principally of mortgage-backed securities issued or
guaranteed by the Government National Mortgage Association ("GNMA"), the
Federal National Mortgage Association ("FNMA") and the Federal Home Loan
Mortgage Corporation ("FHLMC"). The Fund may seek to hedge against
changes in the value of its portfolio securities by purchasing options
on securities and by purchasing and selling interest rate futures
contracts and related options. See "Investment Objective and Management
Policies."
Alternative Purchase Arrangements The Fund offers several classes of
shares ("Classes") to investors designed to provide them with the
flexibility of selecting an investment best suited to their needs. The
general public is offered three Classes of shares: Class A shares, Class
B shares and Class C shares, which differ principally in terms of sales
charges and rate of expenses to which they are subject. A fourth Class
of shares, Class Y shares, is offered only to investors meeting an
initial investment minimum of $5,000,000. See "Purchase of Shares" and
"Redemption of Shares."
Class A Shares. Class A shares are sold at net asset value plus an
initial sales charge of up to 4.50% and are subject to an annual service
fee of 0.25% of the average daily net assets of the Class. The initial
sales charge may be reduced or waived for certain purchases. Purchases
of Class A shares, which when combined with current holdings of Class A
shares offered with a sales charge equal or exceed $500,000 in the
aggregate, will be made at net asset value with no sales charge, but
will be subject to a contingent deferred sales charge ("CDSC") of 1.00%
on redemptions made within 12 months of purchase. See "Prospectus
Summary-Reduced or No Initial Sales Charge."
3
<PAGE>
Smith Barney
Managed Governments Fund Inc.
Prospectus Summary (continued)
Class B Shares. Class B shares are offered at net asset value subject to
a maximum CDSC of 4.50% of redemption proceeds, declining by 0.50% the
first year after purchase and 1.00% each year thereafter to zero. This
CDSC may be waived for certain redemptions. Class B shares are subject
to an annual service fee of 0.25% and an annual distribution fee of
0.50% of the average daily net assets of the Class. The Class B shares'
distribution fee may cause that Class to have higher expenses and pay
lower dividends than Class A shares.
Class B Shares Conversion Feature. Class B shares will convert
automatically to Class A shares, based on relative net asset value,
eight years after the date of the original purchase. Upon conversion,
these shares will no longer
be subject to an annual distribution fee. In addition, a certain portion
of Class B shares that have been acquired through the reinvestment of
dividends and distributions ("Class B Dividend Shares") will be
converted at that time. See "Purchase of Shares-Deferred Sales Charge
Alternatives."
Class C Shares. Class C shares are sold at net asset value with no
initial sales charge. They are subject to an annual service fee of 0.25%
and an annual distribution fee of 0.45% of the average daily net assets
of the Class, and investors pay a CDSC of 1.00% if they redeem Class C
shares within 12 months of purchase. The CDSC may be waived for certain
redemptions. The Class C shares' distribution fee may cause that Class
to have higher expenses and pay lower dividends than Class A shares.
Purchases of Class C shares, which when combined with current holdings
of Class C shares of the Fund equal or exceed $500,000 in the aggregate,
should be made in Class A shares at net asset value with no sales
charge, and will be subject to a CDSC of 1.00% on redemptions made
within 12 months of purchase.
Class Y Shares. Class Y shares are available only to investors meeting
an initial investment minimum of $5,000,000. Class Y shares are sold at
net asset value with no initial sales charge or CDSC. They are not
subject to any service or distribution fees.
In deciding which Class of Fund shares to purchase, investors should
consider the following factors, as well as any other relevant facts and
circumstances:
Intended Holding Period. The decision as to which Class of shares is
more beneficial to an investor depends on the amount and intended length
of his
4
<PAGE>
Smith Barney
Managed Governments Fund Inc.
Prospectus Summary (continued)
or her investment. Shareholders who are planning to establish a program
of regular investment may wish to consider Class A shares; as the
investment accumulates shareholders may qualify for reduced sales
charges and the shares are subject to lower ongoing expenses over the
term of the investment. As an alternative, Class B and Class C shares
are sold without any initial sales charge so the entire purchase price
is immediately invested in the Fund. Any investment return on these
additional invested amounts may partially or wholly offset the higher
annual expenses of these Classes. Because the Fund's future return
cannot be predicted, however, there can be no assurance that this would
be the case.
Finally, investors should consider the effect of the CDSC period and any
conversion rights of the Classes in the context of their own investment
time frame. For example, while Class C shares have a shorter CDSC period
than Class B shares, they do not have a conversion feature, and
therefore, are
subject to an ongoing distribution fee. Thus, Class B shares may be more
attractive than Class C shares to investors with longer term investment
outlooks.
Investors investing a minimum of $5,000,000 must purchase Class Y
shares, which are not subject to an initial sales charge, CDSC or
service or distribution fees. The maximum purchase amount for Class A
shares is $4,999,999, Class B shares is $249,999 and Class C shares is
$499,999. There is no maximum purchase amount for Class Y shares.
Reduced or No Initial Sales Charge. The initial sales charge on Class A
shares may be waived for certain eligible purchasers, and the entire
purchase price will be immediately invested in the Fund. In addition,
Class A share purchases, which when combined with current holdings of
Class A shares offered with a sales charge equal or exceed $500,000 in
the aggregate, will be made at net asset value with no initial sales
charge, but will be subject to a CDSC of 1.00% on redemptions made
within 12 months of purchase. The $500,000 aggregate investment may be
met by adding the purchase to the net asset value of all Class A shares
held in funds sponsored by Smith Barney Inc. ("Smith Barney") listed
under "Exchange Privilege." Class A share purchases may also be eligible
for a reduced initial sales charge. See "Purchase of Shares." Because
the ongoing expenses of Class A shares may be lower than those for Class
B and Class C shares, purchasers eligible to purchase Class A shares at
net asset value or at a reduced sales charge should consider doing so.
Smith Barney Financial Consultants may receive different compensation
for selling each Class of shares. Investors should understand that the
purpose
5
<PAGE>
Smith Barney
Managed Governments Fund Inc.
Prospectus Summary (continued)
of the CDSC on the Class B and Class C shares is the same as that of the
initial sales charge on the Class A shares.
See "Purchase of Shares" and "Management of the Fund" for a complete
description of the sales charges and service and distribution fees for
each Class of shares and "Valuation of Shares," "Dividends,
Distributions and Taxes" and "Exchange Privilege" for other differences
between the Classes of shares.
Smith Barney 401(k) Program Investors may be eligible to participate in
the Smith Barney 401(k) Program, which is generally designed to assist
plan sponsors in the creation and operation of retirement plans under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), as well as other types of participant directed, tax-qualified
employee benefit plans (collectively, "Participating Plans"). Class A,
Class B, Class C and Class Y shares are available as investment
alternatives for Participating Plans. See "Purchase of Shares - Smith
Barney 401(k) Program."
Purchase of Shares Shares may be purchased through the Fund's
distributor, Smith Barney, a broker that clears securities transactions
through Smith Barney on a fully disclosed basis (an "Introducing
Broker") or an investment dealer in the selling group. Direct purchases
by certain retirement plans may be made through the Fund's transfer
agent, The Shareholder Services Group, Inc. ("TSSG"), a subsidiary of
First Data Corporation. See "Purchase of Shares."
Investment Minimums Investors in Class A, Class B and Class C shares may
open an account by making an initial investment of at least $1,000 for
each account, or $250 for an individual retirement account ("IRA") or a
SelfEmployed Retirement Plan. Investors in Class Y shares may open an
account for an initial investment of $5,000,000. Subsequent investments
of at least $50 may be made for all Classes. For participants in
retirement plans qualified under Section 403(b)(7) or Section 401(a) of
the Code, the minimum initial investment requirement for Class A, Class
B and Class C shares and the subsequent investment requirement for all
Classes is $25. The minimum initial investment requirement for Class A,
Class B and Class C shares and the subsequent investment requirement for
all Classes through the Systematic Investment Plan described below is
$100. There is no minimum investment requirement in Class A for
unitholders who invest distributions from a unit investment trust
("UIT") sponsored by Smith Barney. See "Purchase of Shares."
6
<PAGE>
Smith Barney
Managed Governments Fund Inc.
Prospectus Summary (continued)
Systematic Investment Plan The Fund offers shareholders a Systematic
Investment Plan under which they may authorize the automatic placement
of a purchase order each month or quarter for Fund shares in an amount
of at least $100. See "Purchase of Shares."
Redemption of Shares Shares may be redeemed on each day the New York
Stock Exchange, Inc. ("NYSE") is open for business. See "Purchase of
Shares" and "Redemption of Shares."
Management of the Fund Smith Barney Mutual Funds Management Inc.
("SBMFM")
serves as the Fund's investment adviser. SBMFM provides investment
advisory and management services to investment companies affiliated with
Smith Barney. SBMFM is a wholly owned subsidiary of Smith Barney
Holdings Inc. ("Holdings"). Holdings is a wholly owned subsidiary of The
Travelers Inc. ("Travelers"), a diversified financial services holding
company engaged, through its subsidiaries, principally in four business
segments: Investment Services, Consumer Finance Services, Life Insurance
Services and Property & Casualty Insurance Services.
SBMFM also serves as the Fund's administrator and The Boston Company
Advisors, Inc. ("Boston Advisors") serves as the Fund's sub-
administrator. Boston Advisors is an indirect wholly owned subsidiary of
The Boston Company, Inc. ("TBC"), which in turn is a wholly owned
subsidiary of Mellon Bank Corporation ("Mellon"). See "Management of the
Fund."
Exchange Privilege Shares of a Class may be exchanged for shares of the
same Class of certain other funds of the Smith Barney Mutual Funds at
the respective net asset values next determined, plus any applicable
sales charge differential. See "Exchange Privilege."
Valuation of Shares Net asset value of the Fund for the prior day
generally is quoted daily in the financial section of most newspapers
and is also available from Smith Barney Financial Consultants. See
"Valuation of Shares."
Dividends and Distributions Dividends from net investment income are
declared daily and paid on the last business day of the Smith Barney
statement month. Distributions of net realized long- and short-term
capital gains, if any, are declared and paid annually after the end of
the fiscal year in which they are earned. See "Dividends, Distributions
and Taxes."
7
<PAGE>
Smith Barney
Managed Governments Fund Inc.
Prospectus Summary (continued)
Reinvestment of Dividends Dividends and distributions paid on shares of
a Class will be reinvested automatically unless otherwise specified by
an investor, in additional shares of the same Class at current net asset
value. Shares acquired by dividend and distribution reinvestments will
not be subject to any sales charge or CDSC. Class B shares acquired
through dividend and distribution reinvestments will become eligible for
conversion to Class A shares on a pro rata basis. See "Dividends,
Distributions and Taxes."
Risk Factors and Special Considerations There can be no assurance that
the Fund's investment objective will be achieved. Historically, the
yields provided by mortgage-backed U.S. government securities have
exceeded the yields on other types of U.S. government securities of
comparable maturity. Thus, the Fund's yield may at times be higher than
that of mutual funds investing solely in other types of U.S. government
securities. However, mortgage-backed U.S. government
securities may be less effective than other such securities as a means
of "locking in" attractive long-term interest rates due to the need to
reinvest prepayments of principal generally and the possibility of
significant unscheduled prepayments resulting from declines in mortgage
interest rates. In addition, the market values of the U.S. government
securities held in the Fund's portfolio-and, accordingly, the Fund's net
asset value-generally will vary inversely with changes in market
interest rates, both declining when interest rates rise and rising when
interest rates decline. Mortgage-backed U.S. government securities,
however, may have less potential for capital appreciation than other
investments of comparable maturities due to the likelihood of increased
prepayments of mortgages as interest rates decline, while having
comparable risk of decline in value during periods of rising rates. See
"Investment Objective and Management Policies."
8
<PAGE>
Smith Barney
Managed Governments Fund Inc.
Prospectus Summary (continued)
The Fund's Expenses The following expense table lists the costs and
expenses that an investor will incur either directly or indirectly as a
shareholder of the Fund, based on the maximum sales charge or maximum
CDSC that may be incurred at the time of purchase or redemption and,
unless otherwise noted, the Fund's operating expenses for its most
recent fiscal year:
<TABLE>
<CAPTION>
Class A Class B Class C** Class
Y <S> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases
(as a percentage of offering price) 4.50% None
None None
Maximum CDSC (as a percentage of original cost or
Redemption proceeds, whichever is lower) None* 4.50%
1.00% None
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management fees 0.65% 0.65% 0.65%
0.65%
12b-1 fees*** 0.25 0.75 0.70
None
Other expenses+ 0.13 0.15 0.23
0.13
TOTAL FUND OPERATING EXPENSES 1.03% 1.55% 1.58%
0.78%
</TABLE>
* Purchases of Class A shares, which when combined with current holdings
of Class A shares offered with a sales charge, equal or exceed $500,000
in the aggregate, will be made at net asset value with no sales charge,
but will be subject to a CDSC of 1.00% on redemptions made within 12
months.
** The annual operating expenses for Class C shares have been restated
to reflect a reduction of the annual 12b-1 fee from 0.75% of average
daily net assets to 0.70% of average daily net assets.
*** Upon conversion of Class B shares to Class A shares, such shares
will no longer be subject to a
distribution fee. Class C shares do not have a conversion feature and,
therefore, are subject to an ongoing distribution fee. As a result,
long-term shareholders of Class C shares may pay more than the economic
equivalent of the maximum front-end sales charge permitted by the
National Association of Securities Dealers, Inc.
+ For Class Y shares, "Other expenses" have been estimated based on
expenses incurred by the Class A shares
because Class Y shares were not available for purchase prior
to November 7, 1994.
9
<PAGE>
Smith Barney
Managed Governments Fund Inc.
Prospectus Summary (continued)
The sales charge and CDSC set forth in the above table are the maximum
charges imposed upon purchases or redemptions of Fund shares and
investors may actually pay lower or no charges depending on the amount
purchased and, in the case of Class B, Class C shares and certain Class
A shares, the length of time the shares are held and whether the shares
are held through the Smith Barney 401(k) Program. See "Purchase of
Shares" and "Redemption of Shares." Smith Barney receives an annual 12b-
1 service fee of 0.25% of the value of average daily net assets of Class
A shares. Smith Barney also receives, with respect to Class B shares, an
annual 12b-1 service fee of 0.75% of the value of the average daily net
assets of that Class, consisting of a 0.50% distribution fee and a 0.25%
service fee. For Class C shares, Smith Barney receives an annual 12b-1
fee of 0.70% of the value of average daily net assets of this class,
consisting of a 0.45% distribution fee and a 0.25% service fee. "Other
expenses" in the above table include fees for shareholder services,
custodial fees, legal and accounting fees, printing costs and
registration fees.
10
<PAGE>
Smith Barney
Managed Governments Fund Inc.
Prospectus Summary (continued)
Example The following example is intended to assist an investor in
understanding the various costs that an investor in the Fund will bear
directly or indirectly. The example assumes payment by the Fund of
operating expenses at the levels set forth in the table above. See
"Purchase of Shares," "Redemption of Shares" and "Management of the
Fund."
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years* <S>
<C> <C> <C> <C>
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:
Class A $55 $76 $99 $165
Class B 61 79 94 170
Class C 26 50 86 188
Class Y 8 25 43 97
An investor would pay the following expenses on the same
investment, assuming the same annual return and no
redemption:
Class A 55 76 99 165
Class B 16 49 84 170
Class C 16 50 86 188
Class Y 8 25 43 97
</TABLE>
* Ten-year figures assume conversion of Class B shares to Class A
shares at the end of the eighth year
following the date of purchase.
The example also provides 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, the Fund's actual return will vary
and may be greater or less than 5.00%. This example should not be
considered a representation of past or future expenses and actual
expenses may be greater or less than those shown.
11
<PAGE>
Smith Barney
Managed Governments Fund Inc.
Financial Highlights
The following information has been audited by Coopers & Lybrand L.L.P.,
independent accountants, whose report thereon appears in the Fund's
Annual Report dated July 31, 1994. The information set out below should
be read in conjunction with the financial statements and related notes
that also appear in the Fund's Annual Report, which is incorporated by
reference into the Statement of Additional Information.Financial
Highlights
For a Class A share outstanding throughout each year:
<TABLE>
<CAPTION>
Year Year Year Year
Ended Ended Ended Ended
7/31/94 7/31/93# 7/31/92 7/31/91
<S> <C> <C> <C> <C>
Net Asset Value, beginning of year $13.29 $12.88 $12.09
$12.13
Income from investment operations:
Net investment income 0.75 0.69(#) 0.91
0.98
Net realized and unrealized gain/(loss)
on investments and futures contracts (0.74) 0.61 0.87
0.07
Total from investment operations 0.01 1.30 1.78
1.05
Less distributions:
Dividends from net investment income (0.57) (0.65)
(0.91) (0.98)
Distributions in excess of net investment income (0.04)
(0.01) - -
Distributions from net realized capital gains -
- - - -
Distributions in excess of net realized capital gains
- - (0.23) - -
Distributions from capital++
(0.19)(@) - (0.08) (0.11)
Total distributions (0.80) (0.89) (0.99)
(1.09)
Net Asset Value, end of year $12.50 $13.29
$12.88 $12.09
Total Return+++ 0.08% 10.43%
15.25% 9.02%
Ratios to average net assets/Supplemental Data:
Net assets, end of year (000's) $371,086
$462,703 $488,515 $474,305
Ratio of operating expenses to average net assets 1.03%**
0.99%** 0.82% 0.82% Ratio of net investment income to
average net assets 5.60% 5.35% 7.23%
8.12% Portfolio turnover rate 236% 436%
426% 365%
</TABLE>
* The Fund commenced operations on September 4, 1984. Any shares
outstanding prior to November 6, 1992 were designated as Class A
shares.
** The annualized operating expense ratios exclude interest expense.
The annualized ratios including interest expense were 1.22% and 1.00%
for the years ended July 31, 1994 and 1993, respectively.
+ Annualized.
++ Results from the Fund's level monthly distribution policy.
+++ Total return represents aggregate total return for the periods
indicated and does not reflect any applicable sales charge.
# Per share amounts have been calculated using the monthly average share
method, which more appropriately presents the per share data for the
year since the use of the undistributed method does not accord with
results of operations.
@ Tax basis.
12
<PAGE>
Smith Barney
Managed Governments Fund Inc.
<TABLE>
<CAPTION>
Year Year Year Year Year
Period Ended Ended Ended Ended Ended
Ended
7/31/90# 7/31/89 7/31/88 7/31/87 7/31/86
7/31/85* <S> <C> <C> <C>
<C> <C>
$12.19 $12.04 $12.62 $13.32 $13.03
$12.35 1.07 0.96 1.09 1.11 1.34 1.23
(0.03) 0.26 (0.56) (0.36) 0.38 0.71
1.04 1.22 0.53 0.75 1.72 1.94
(1.07) (0.96) (1.09) (1.11) (1.34)
(1.23) - - - - - -
- - 0.01) (0.34) (0.09)
(0.03)
- - - - - -
(0.03) (0.11) (0.01) - - -
(1.10) (1.07) (1.11) (1.45)
(1.43) (1.26) $12.13 $12.19 $12.04
$12.62 $13.32 $13.03
9.01% 10.62% 4.43% 5.69% 13.81% 16.33%
$511,867 $621,752 $871,468 $1,366,998 $1,435,923
$1,082,285
0.81% 0.81% 0.77% 0.78% 0.79% 0.87%+
8.87% 8.12% 8.98% 8.35% 9.98% 11.23%+
163% 51% 288% 241% 136% 83%
</TABLE>
13
<PAGE>
Smith Barney
Managed Governments Fund Inc.
Financial Highlights (continued)
For a Class B share outstanding throughout each period:
<TABLE>
<CAPTION>
Year Period Ended Ended
7/31/94 7/31/93*# <S>
<C> <C>
Net Asset Value, beginning of period $13.29 $12.64
Income from investment operations:
Net investment income 0.69 0.47
Net realized and unrealized gain/(loss) on investments and futures
contracts (0.75) 0.75
Total from investment operations (0.06) 1.22
Less distributions:
Dividends from net investment income (0.52) (0.40)
Distributions in excess of net investment income (0.04)
(0.01)
Distributions in excess of net realized capital gains -
(0.16)
Distributions from capital+++ (0.17)@
Total distributions (0.73) (0.57)
Net Asset Value, end of period $12.50 $13.29
Total Return+ (0.46)% 9.92%
Ratios to average net assets/Supplemental Data:
Net assets, end of period (000's)
$389,383 $474,093
Ratio of operating expenses to average net assets** 1.55%
1.62%++
Ratio of net investment income to average net assets 5.08%
4.72%++
Portfolio turnover rate 236% 436%
</TABLE>
* The Fund commenced selling Class B shares on November
6, 1992.
** The annualized operating expense ratios exclude interest expense. The
annualized ratios including
interest expense were 1.74% and 1.63% for the year ended July 31, 1994
and for the period ended July 31, 1993, respectively.
+ Total return represents aggregate total return for the periods
indicated and does not reflect any
applicable sales charge.
++ Annualized.
+++ Results from the Fund's level monthly distribution policy.
# Per share amounts have been calculated using the monthly average
shares method, which more appropriately presents the per share data for
the year since the use of the undistributed method does not accord with
results of operations.
@ Tax basis.
14
<PAGE>
Smith Barney
Managed Governments Fund Inc.
Financial Highlights (continued)
For a Class C share outstanding throughout each period:
<TABLE>
<CAPTION>
Year Period Ended Ended
7/31/94 7/31/93*# <S> <C>
<C>
Net Asset Value, beginning of period $13.29 $13.18
Income from investment operations:
Net investment income 0.69 0.07
Net realized and unrealized gain/(loss) on investments and futures
contracts (0.75) 0.09
Total from investment operations (0.06) 0.16
Less distributions:
Dividends from net investment income (0.52) (0.03)
Distributions in excess of net investment income (0.04) 0.00++
Distributions in excess of net realized capital gains
- - (0.02)
Distributions from capital+++ (0.17)@
Total distributions (0.73) (0.05)
Net Asset Value, end of period $12.50 $13.29
Total Return+ (0.46)% 1.25%
Ratios to average net assets/Supplemental Data:
Net assets, end of period (000's) $72 $12
Ratio of operating expenses to average net assets** 1.58%
1.55%***
Ratio of net investment income to average net assets 5.05%
4.80%***
Portfolio turnover rate 236% 436%
</TABLE>
* The Fund commenced selling Class C shares (previously designated as
Class D shares) on January 29, 1993
and these shares commenced operations on June 29, 1993.
** The annualized operating expense ratios exclude interest expense. The
annualized ratios including
interest expense were 1.76% and 1.56% for the year
ended July 31, 1994 and for the period ended July 31,
1993, respectively.
*** Annualized.
+ Total return represents aggregate total return for the
periods indicated.
++ Amount represents less than $0.01 per share.
+++ Results from the Fund's level monthly distribution policy.
# Per share amounts have been calculated using the monthly average share
method, which more appropriately presents the per share data for the
year since the use of the undistributed method does not accord with
results of operations.
@ Tax basis.
Prior to November 7, 1994, the Fund did not offer Class Y shares and,
accordingly, no comparable financial information is available at this
time for that Class.
15
<PAGE>
Smith Barney
Managed Governments Fund Inc.
Investment Objective and Management Policies
The investment objective of the Fund is to provide investors with high
current income consistent with liquidity and safety of capital. This
objective may not be changed without the approval of the holders of a
majority of the Fund's shares. There can be no assurance that the Fund
will achieve its investment objective.
The Fund invests substantially all of its assets in U.S. government
securities and, under normal circumstances, the Fund is required to
invest at least 65% of its assets in such securities. The Fund's
portfolio of U.S. government securities consists primarily of mortgage-
backed securities issued or guaranteed by GNMA, FNMA and FHLMC. Assets
not invested in such mortgagebacked securities are invested primarily in
direct obligations of the United States Treasury, such as Treasury
Bills, Treasury Notes and Treasury Bonds ("U.S. Treasury Securities"),
and other U.S. government securities. Obligations issued by U.S.
government agencies and instrumentalities include: obligations that are
supported by the full faith and credit of the United States, such as
GNMA certificates and obligations of the General Services Administration
and Federal Maritime Administration; securities that are supported by
the right of the issuer to borrow from the United States Treasury, such
as securities of Federal Home Loan Banks and others; and securities that
are supported only by the credit of the instrumentality, such as FNMA
and FHLMC certificates. Because the United States government is not
obligated by law to provide support to an instrumentality that it
sponsors, the Fund invests in obligations issued by such an
instrumentality only when SBMFM determines that the credit risk with
respect to the instrumentality does not make its securities unsuitable
for investment by the Fund.
The GNMA certificates in which the Fund will invest will be of the
"modified pass-through" type, which means that the scheduled monthly
interest and principal payments related to mortgages in the pool backing
the certificates will be "passed-through" to investors. Timely payment
of principal and interest on GNMA certificates is guaranteed by GNMA and
backed by the full faith and credit of the United States, but market
value and yield are not guaranteed.
Mortgage participation certificates issued by FHLMC and FNMA generally
represent ownership interests in a pool of fixed-rate conventional
mortgages. Timely payment of principal and interest on these
certificates is guaranteed solely by the issuer of the certificates.
FHLMC is a U.S. government-created entity controlled by the Federal Home
Loan Banks. FNMA is a
16
<PAGE>
Smith Barney
Managed Governments Fund Inc.
Investment Objective and Management Policies (continued)
government-chartered corporation owned entirely by private stockholders,
which is subject to general regulation by the Secretary of Housing and
Urban Development.
Mortgage-backed U.S. government securities differ from conventional
bonds in that principal is paid back to the certificate holder over the
life of the loan rather than at maturity. As a result, the Fund will
receive monthly scheduled payments of principal and interest. In
addition, the Fund may receive unscheduled principal payments
representing prepayments on the underlying mortgages, which will cause
the maturity of and realized yield on specific GNMA, FNMA and FHLMC
certificates to vary based on the prepayment experience of the
underlying pool of mortgages. The Fund will reinvest all payments and
unscheduled prepayments of principal in additional GNMA, FNMA
and FHLMC certificates or other U.S. government securities (which may
have lower interest rates than the balance of the obligations held by
the Fund), and will distribute the interest to shareholders in the form
of monthly dividends.
Investment Objective and Management Policies (continued)To the extent
that they are purchased at par or at a discount, GNMA certificates offer
a high degree of safety of principal investment because of the GNMA
guarantee, and other mortgage-backed U.S. government securities also are
believed to offer significant safety of principal investment. If the
Fund buys mortgage-backed U.S. government securities at a premium,
however, mortgage foreclosures and prepayments of principal by
mortgagors (which may be made at any time without penalty) may result in
some loss of the Fund's principal investments to the extent of the
premium paid.
The composition and weighted average maturity of the Fund's portfolio
will vary from time to time, based upon the determination of the Fund's
management of how best to further the Fund's investment objective. The
Fund may invest in U.S. government securities of all maturities: short-
term, intermediate-term and long-term. The Fund may invest without limit
in securities of any issuer of U.S. government securities, and may
invest up to an aggregate of 15% of its total assets in securities with
contractual or other restrictions on resale and other instruments that
are not readily marketable (such as repurchase agreements with
maturities in excess of seven days). The Fund may invest up to 5% of its
net assets in U.S. government securities for which the principal
repayment at maturity, while paid in U.S. dollars, is determined by
reference to the exchange rate between the U.S. dollar and the currency
of one or more foreign countries ("Exchange Rate-Related Securities").
17
<PAGE>
Smith Barney
Managed Governments Fund Inc.
Investment Objective and Management Policies (continued)
The interest payable on these securities is denominated in U.S. dollars,
is not subject to foreign currency risk and, in most cases, is paid at
rates higher than most other U.S. government securities in recognition
of the foreign currency risk component of Exchange Rate-Related
Securities. The Fund also is authorized to borrow in an amount of up to
10% of its total assets under unusual or emergency circumstances,
including when necessary to meet redemptions, and to pledge its assets
to the same extent in connection with such borrowings. When SBMFM
believes that market conditions warrant, the Fund may, for temporary
defensive purposes and without limitation, invest in short-term
instruments including certificates of deposit of domestic banks and
repurchase agreements involving U.S. government securities. Repurchase
agreements also may be used as one of the Fund's normal investment
techniques.
Additional Investments
In attempting to achieve its investment objective, the Fund may employ,
among others, the following portfolio strategies:
Writing Options. The Fund may from time to time write covered put and
call options on U.S. government securities in its portfolio. The Fund
will realize a fee (referred to as a "premium") when it writes an
option. The Fund will only write covered put and call options, which
means that for so long as the Fund remains obligated as the writer of
the option it will, in the case of a call option, continue to own the
underlying security and, in the case of a put option, maintain an amount
of cash or high-grade liquid debt securities in a segregated account
equal to the exercise price of the option. A put option embodies the
right of its purchaser to compel the writer of the option to purchase
from the optionholder an underlying security at a specified price at any
time during the option period. In contrast, a call option embodies the
right of its purchaser to compel the writer of the option to sell the
option holder an underlying security at a specified price at any time
during the option period. Thus, the purchaser of a put option has the
right to compel the Fund to purchase from it the underlying security at
the agreed- upon price for a specified time period, while the purchaser
of a call option has the right to purchase from the Fund the underlying
security owned by the Fund at the agreed-upon price for a specified time
period.
Upon the exercise of a put option, the Fund may suffer a loss equal to
the difference between the price at which the Fund is required to
purchase the
18
<PAGE>
Smith Barney
Managed Governments Fund Inc.
Investment Objective and Management Policies (continued)
underlying security and its market value at the time of the option
exercise, less the premium received for writing the option. Upon the
exercise of a call option, the Fund may suffer a loss equal to the
excess of the security's market value at the time of the option exercise
over the Fund's acquisition cost of the security, less the premium
received for writing the option. The Fund ordinarily will write only
covered put and call options for which a secondary market exists on a
national securities exchange or in the over-the-counter market.
In order to realize a profit, to prevent an underlying security from
being called or to unfreeze an underlying security (thereby permitting
its sale or the writing of a new option on the security prior to the
option's expiration), the Fund may engage in a closing purchase
transaction. The Fund will incur a loss if the cost of the closing
purchase transaction, plus transaction costs, exceeds the premium
received upon writing the original option. To effect a closing purchase
transaction, the Fund would purchase, prior to the exercise of an option
that it has written, an option of the same series as that on which it
desires to terminate its obligation. There can be no assurance that the
Fund will be able to effect a closing purchase transaction at a time
when it wishes to do so. The obligation of the Fund to purchase or
deliver securities, respectively, upon the exercise of a covered put or
call option which it has written terminates upon the effectuation of a
closing purchase transaction.
Purchasing Options. By purchasing put options on U.S. government
securities, the Fund seeks to limit the risk of loss from a decline in
the market value of the underlying securities in its investment
portfolio. For the purchase of a put option to be profitable, the market
price of the underlying security must decline sufficiently below the
exercise price to cover the premium and transaction costs, unless the
put option is sold at a profit before expiration in a closing sale
transaction.
By buying call options on U.S. government securities the Fund could
acquire the underlying securities at prices that avoid any additional
costs resulting from substantial increases in the market value of
securities at any time during the option period. At times, the net cost
of acquiring securities in this manner may be less than the cost of
acquiring the securities directly.
The Fund may (a) enter into closing transactions with respect to put and
call options that it purchases, (b) exercise the options or (c) permit
the options to expire. Profit or loss from a closing transaction will
depend on
19
<PAGE>
Smith Barney
Managed Governments Fund Inc.
Investment Objective and Management Policies (continued)
whether the amount that the Fund receives on the transaction is more or
less than the premium paid for the option plus any related transaction
costs.
Repurchase Agreements. The Fund may engage in repurchase agreement
transactions on U.S. government securities with certain member banks of
the Federal Reserve System and with certain dealers on the Federal
Reserve Bank of New York's list of reporting dealers. Under the terms of
a typical repurchase agreement, the Fund would acquire an underlying
debt obligation for a relatively short period (usually not more than one
week) subject to an obligation of the seller to repurchase, and the Fund
to resell, the obligation at an agreed-upon price and time, thereby
determining the yield during the Fund's holding period. Under each
repurchase agreement the selling institution will be required to
maintain the value of the securities subject to the repurchase agreement
at not less than their repurchase price. SBMFM or Boston Advisors,
acting under the supervision of the Fund's Board of Directors, reviews
on an ongoing basis the value of the collateral and the creditworthiness
of those banks and dealers with which the Fund may enter into repurchase
agreements to evaluate potential risks.
When-Issued Securities and Delayed-Delivery Transactions. In order to
secure yields or prices deemed advantageous at the time, the Fund may
purchase U.S. government securities on a when-issued basis or may
purchase or sell U.S. government securities for delayed delivery. In
such transactions delivery of the securities occurs beyond the normal
settlement periods, but no payment or delivery is made by the Fund prior
to the actual delivery or payment by the other party to the transaction.
The Fund will not accrue income with respect to a when-issued or
delayed-delivery security prior to its stated delivery date. The Fund
will establish a segregated account with its custodian Boston Safe
Deposit and Trust Company ("Boston Safe") consisting of cash, U.S.
government securities or other liquid securities in an amount equal to
the amount of the Fund's when-issued and delayed-delivery commitments.
Placing securities rather than cash in the segregated account may have
the effect of leveraging the Fund's net assets.
Lending of Portfolio Securities. The Fund is authorized to lend
securities that it holds to brokers, dealers and other financial
organizations. These loans, if and when made, may not exceed 33-1/3% of
the Fund's assets taken at value. The Fund's loans of securities will be
collateralized by cash, letters of credit or U.S. government securities
that are maintained at all times in a segregated account with the Fund's
custodian in an amount at least equal to
20
<PAGE>
Smith Barney
Managed Governments Fund Inc.
Investment Objective and Management Policies (continued)
100% of the current market value of the loaned securities. By lending
its portfolio securities, the Fund will seek to generate income by
continuing to receive interest on the loaned securities, by investing
the cash collateral in short-term instruments or by obtaining yield in
the form of interest paid by the borrower when U.S. government
securities are used as collateral.
Forward Roll Transactions. In order to enhance current income, the Fund
may invest up to 30% of its assets in forward roll transactions with
respect to mortgage-backed securities issued by GNMA, FNMA and FHLMC. In
a forward roll transaction, the Fund sells a mortgage security to a
financial institution, such as a bank or broker-dealer, and
simultaneously agrees to repurchase a similar security from the
institution at a later date at an agreed-upon price. The mortgage
securities that are repurchased will bear the same interest rate as
those sold, but generally will be collateralized by different pools of
mortgages with different prepayment histories than those sold. During
the period between the sale and repurchase, the Fund will not be
entitled to receive interest and principal payments on the securities
sold. Proceeds of the sale will be invested in short-term instruments,
particularly repurchase agreements, and the income from these
investments, together with any additional fee income received on the
sale will generate income for the Fund exceeding the yield on the
securities sold. Forward roll transactions involve the risk that the
market value of the securities sold by the Fund may decline below the
repurchase price of those securities. At the time that the Fund enters
into a forward roll transaction, it will place in a segregated custodial
account cash, U.S. government securities or high grade debt obligations
having a value equal to the repurchase price (including accrued
interest) and will subsequently monitor the account to insure that such
equivalent value is maintained. Forward roll transactions are considered
to be borrowings by the Fund.
Interest Rate Futures Contracts and Options on Futures. The Fund will
enter into interest rate futures contracts solely for the purpose of
hedging against changes in the value of its portfolio securities due to
anticipated changes in interest rates and market conditions and not for
purposes of speculation. An interest rate futures contract provides for
the future sale by one party and the purchase by the other party of a
certain amount of a specified financial instrument (debt security) at a
specified price, date, time and place. The Fund may enter into futures
contracts and options on futures contracts (a) without limit for bona
fide hedging purposes and (b) for other purposes, provided the aggregate
initial margin deposits and premiums do
21
<PAGE>
Smith Barney
Managed Governments Fund Inc.
Investment Objective and Management Policies (continued)
not exceed 5% of the fair market value of the Fund's assets after taking
into account unrealized profits and unrealized losses on futures
contracts into which it has entered. With respect to each long position
in a futures contract or option thereon, the underlying commodity value
of such contract always will be covered by cash and cash equivalents
equal to the market value of the underlying commodity set aside in a
segregated account with the Fund's custodian.
The Fund may purchase put options on interest rate futures contracts to
hedge its portfolio securities against the risk of rising interest
rates, and may purchase call options on interest rate futures contracts
when it believes that interest rates will decline, in anticipation of
purchases of portfolio securities at a higher price, but may not enter
into these transactions for purposes of speculation. The Fund will write
put or call options on interest rate futures contracts as part of
closing purchase transactions to terminate its option positions,
although there is no guarantee that such closing transactions can be
effected. The Fund may write put and call options on interest rate
futures contracts other than as a part of closing sale transactions, in
order to increase its ability to hedge against the effect of changes in
interest rates. The Fund will write put and call options only on
interest rate futures contracts which are traded on a domestic exchange
or board of trade. A call option gives the purchaser of such option the
right to buy (assume a long position) and obliges the Fund as its writer
to sell, a specified underlying futures contract at a stated exercise
price at any time prior to the expiration date of the option. A
purchaser of a put option has the right to sell (assume a short
position), and obliges the Fund as the writer to buy, such contract at
the exercise price during the option period.
Certain Risk Considerations
Historically, the yields provided by mortgage-backed U.S. government
securities have exceeded the yields on other types of U.S. government
securities of comparable maturity. Thus, the Fund's yield may at times
be higher than that of mutual funds investing solely in other types of
U.S. governmentsecurities. However, mortgage-backed U.S. government
securities may be less effective than other U.S. government securities
as a means of "locking in" attractive long-term interest rates due to
the need to reinvest prepayments of principal generally and the
possibility of significant unscheduled prepayments resulting from
declines in mortgage interest rates. In addition, the market values of
the U.S. government securities held in the Fund's portfolio-and,
22
<PAGE>
Smith Barney
Managed Governments Fund Inc.
Investment Objective and Management Policies (continued)
accordingly, the Fund's net asset value-generally will vary inversely
with changes in market interest rates, both declining when interest
rates rise and rising when interest rates decline. Mortgage-backed U.S.
government securities, however, may have less potential for capital
appreciation than other investments of comparable maturities due to the
likelihood of increased prepayments of mortgages as interest rates
decline, while having comparable risk of decline in value during periods
of rising rates.
The purchase of securities on a when-issued or delayed-delivery basis
involves the risk that, as a result of an increase in yields available
in the marketplace, the value of the securities purchased will decline
prior to the settlement date. The sale of securities for delayed
delivery involves the risk that the prices available in the market on
the delivery date may be
greater than those obtained in the sale transaction.
Repurchase agreements could involve certain risks in the event of
default or insolvency of the other party, including possible delays or
restrictions upon the Fund's ability to dispose of the underlying
securities, the risk of a possible decline in the value of the
underlying securities during the period in which the Fund seeks to
assert its rights to them, the risk of incurring expenses associated
with asserting those rights and the risk of losing all or part of the
income from the agreement.
The risks associated with lending portfolio securities, as with other
extentions of credit, consist of possible loss of rights in the
collateral should the borrower fail financially. Forward roll
transactions involve the risk that the market value of the securities
sold by the Fund may decline below the repurchase price of the
securities. Forward roll transactions are considered borrowings by the
Fund. Although investing the proceeds of these borrowings in repurchase
agreements or money market instruments may provide the Fund with the
opportunity for higher income, this leveraging practice will increase
the Fund's exposure to capital risk and higher current expenses. Any
income earned from the securities purchased with the proceeds of these
borrowings that exceeds the cost of the borrowings would cause the
Fund's net asset value per share to increase faster than would otherwise
be the case; any decline in the value of the securities purchased would
cause the Fund's net asset value per share to decrease faster than would
otherwise be the case.
There are several risks in connection with the use of futures contracts
and options on futures contracts as a hedging device. A decision of
whether, when and how to hedge involves the exercise of skill and
judgment, and even
23
<PAGE>
Smith Barney
Managed Governments Fund Inc.
Investment Objective and Management Policies (continued)
a well-conceived hedge may be unsuccessful to some degree because of
market behavior or unexpected trends in interest rates. There can be no
assurance that there will be a correlation between price movements in
the securities underlying the interest rate futures or options thereon,
on the one hand, and price movements in the Fund's portfolio securities
which are the subject of the hedge, on the other hand. In addition, the
Fund's transactions in futures contracts or put or call options on them
will be based upon predictions as to anticipated interest rate trends,
which could prove to be inaccurate. The potential loss related to the
purchase of an option on an interest rate futures contract is limited to
the premium paid for the option. Positions in futures contracts and
options on futures contracts may be closed out only on the exchange or
board of trade on which they were entered into, and there can be no
assurance that an active market will exist or be maintained or that
closing transactions can be effected. Losses incurred in hedging
transactions and the costs of these transactions will affect the Fund's
performance.
Portfolio Turnover
Under certain market conditions the Fund may experience high portfolio
turnover as a result of investment strategies. For example, the exercise
of a substantial number of options written by the Fund and the purchase
or sale of securities in anticipation of a rise or decline in interest
rates could result in Investment Objective and Management Policies
(continued)high portfolio turnover. Short-term gains realized from
portfolio transactions are taxable to shareholders as ordinary income.
The Fund will not consider
portfolio turnover rate a limiting factor in making investment decisions
consistent with its objective and policies.
Further information about the Fund's investment policies, including a
list of those restrictions on its investment activities that cannot be
changed without shareholder approval, appears in the Statement of
Additional Information.
Valuation of Shares
The Fund's net asset value per share is determined as of the close of
regular trading on the NYSE on each day that the NYSE is open, by
dividing the value of the Fund's net assets attributable to each Class
by the total number of shares of the Class outstanding.
Generally, the Fund's investments are valued at market value or, in the
absence of a market value with respect to any securities, at fair value
as
24
<PAGE>
Smith Barney
Managed Governments Fund Inc.
Valuation of Shares (continued)
determined by or under the direction of the Fund's Board of Directors.
Shortterm investments that mature in 60 days or less are valued at
amortized cost whenever the Directors determine that amortized cost
reflects fair value of those investments. Amortized cost valuation
involves valuing an instrument at its cost initially and, thereafter,
assuming a constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the market
value of the instrument. Further information regarding the Fund's
valuation policies is contained in the Statement of Additional
Information.
Dividends, Distributions and Taxes
Dividends and Distributions
The Fund declares dividends daily consisting of estimated daily net
investment income, and pays dividends monthly. Any net realized gains,
after utilization of capital loss carryforwards, will be distributed at
least annually, and net realized short-term capital gains (including
short-term capital gains from options transactions, if any) may be paid
more frequently, with the distribution of dividends from net investment
income.
Valuation of Shares (continued)If a shareholder does not otherwise
instruct, dividends and capital gain will be reinvested automatically in
additional
shares of the same Class at net asset value, subject to no sales charge
or CDSC. Dividends and distributions are treated the same for tax
purposes whether taken in cash or reinvested in additional shares. The
per share dividends on Class B and Class C shares may be lower than the
per share dividends on Class A and Class Y shares principally as a
result of the distribution fee applicable with respect to Class B and
Class C shares. The per share dividends on Class A shares of the Fund
may be lower than the per share dividends on Class Y shares principally
as a result of the service fee applicable to Class A shares.
Distributions of capital gains, if any, will be in the same amount for
Class A, B, C and Y shares. In addition, as determined by the Board of
Directors, distributions of the Fund may include a return of capital.
Shareholders will be notified of the amount of any distribution that
represents a return of capital. In order to comply with a calendar year
distribution requirement under the Code, it may be necessary for the
Fund to make distributions at times other than those set forth above.
25
<PAGE>
Smith Barney
Managed Governments Fund Inc.
Dividends, Distributions and Taxes (continued)
Taxes
The Fund has qualified and intends to continue to qualify each year as a
regulated investment company under the Code. Dividends paid from net
investment income and distributions of net realized short-term capital
gains are taxable to shareholders as ordinary income, regardless of how
long shareholders have held their Fund shares and whether such dividends
and distributions are received in cash or reinvested in additional Fund
shares. Distributions of net realized long-term capital gains will be
taxable to shareholders as long-term capital gains, regardless of how
long shareholders have held Fund shares and whether such distributions
are received in cash or are reinvested in additional Fund shares.
Furthermore, as a general rule, a shareholder's gain or loss on a sale
or redemption of Fund shares will be a long- term capital gain or loss
if the shareholder has held the shares for more than one year and will
be a short-term capital gain or loss if the shareholder has held the
shares for one year or less. The Fund's dividends and distributions will
not qualify for the Federal dividends-received deduction for
corporations. Some states, if certain assets and diversification
requirements are met, permit shareholders to treat their portions of a
fund's dividends that are attributable to interest on U.S. Treasury
Securities and certain U.S. government securities as income that is
exempt from state and local income taxes.
Statements as to the tax status of each shareholder's dividends and
distributions are mailed annually. These statements will, among other
things, tell shareholders the portion of their dividends that are
attributable to U.S. Treasury Securities and specific types of U.S.
government securities. Each shareholder will also receive, if
appropriate, various written notices after the close of the Fund's prior
taxable year as to the Federal income tax status of his or her dividends
and distributions which were received from the Fund during the Fund's
prior taxable year.
Shareholders should consult their tax advisors with specific reference
to their own tax situations and about the status of the Fund's dividends
and
distributions for state and local tax liabilities, particularly
regarding the consequences of investing in the Fund under state and
local laws generally, and to determine whether dividends paid by the
Fund that represent interest derived from U.S. government securities are
exempt from any otherwise applicable state or local income taxes.
26
<PAGE>
Smith Barney
Managed Governments Fund Inc.
Purchase of Shares
General
The Fund offers four Classes of shares. Class A shares are
sold to investors with an initial sales charge and Class B and Class C
shares are sold without an initial sales charge but are subject to a
CDSC payable upon certain redemptions. Class Y shares are sold without
an initial sales charge or a CDSC and are available only to investors
investing a minimum of $5,000,000. See "Prospectus Summary - Alternative
Purchase Arrangements" for a discussion of factors to consider in
selecting which Class of shares to purchase.
Purchases of Fund shares must be made through a brokerage account
maintained with Smith Barney, with an Introducing Broker or with an
investment dealer in the selling group, except for investors purchasing
shares of the Fund through a qualified retirement plan who may do so
directly through TSSG. When purchasing shares of the Fund, investors
must specify whether the purchase is for Class A, Class B, Class C or
Class Y shares. No maintenance fee will be charged by the Fund in
connection with a brokerage account through which an investor purchases
or holds shares.
Investors in Class A, Class B and Class C shares may open an account by
making an initial investment of at least $1,000 for each account, or
$250 for an IRA or a Self-Employed Retirement Plan in the Fund.
Investors in Class Y shares may open an account by making an initial
investment of $5,000,000. Subsequent investments of at least $50 may be
made for all Classes. For participants in retirement plans qualified
under Section 403(b)(7) or Section 401(a) of the Code, the minimum
initial investment requirement for Class A, Class B, Class C shares and
the subsequent investment requirement for all Classes in the Fund is
$25. For the Fund's Systematic Investment Plan, the minimum initial
investment requirement for Class A, Class B and Class C shares and the
subsequent investment requirement for all Classes is $100. There are no
minimum investment requirements for Class A shares for employees of
Travelers and its subsidiaries, including Smith Barney, unitholders who
invest distributions from a UIT sponsored by Smith Barney, and Directors
of the Fund and their spouses and children. The Fund reserves the right
to waive or change minimums, to decline any order to purchase its shares
and to suspend offering of shares from time to time. Shares purchased
will be held in the shareholder's account by the Fund's transfer agent,
TSSG. Share certificates are issued only upon a shareholder's written
request to TSSG.
Purchase orders received by Smith Barney prior to the close of regular
trading on the NYSE, on any day the Fund calculates its net asset value,
27
<PAGE>
Smith Barney
Managed Governments Fund Inc.
Purchase of Shares (continued)
are priced according to the net asset value determined on that day.
Orders received by dealers or Introducing Brokers prior to the close of
regular trading on the NYSE on any day the Fund calculates its net asset
value, are priced according to the net asset value determined on that
day, provided the order is received by Smith Barney prior to Smith
Barney's close of business (the "trade date"). Currently, payment for
Fund shares is due on the fifth business day (the "settlement date")
after the trade date. The Fund anticipates that, in accordance with
regulatory changes, beginning on or about June 1, 1995, the settlement
date will be the third business day after the trade date.Purchase of
Shares (continued)
Systematic Investment Plan
Shareholders may make additions to their accounts at any time by
purchasing shares through a service known as the Systematic Investment
Plan. Under the Systematic Investment Plan, Smith Barney or TSSG is
authorized through preauthorized transfers of $100 or more to charge the
regular bank account or other financial institution indicated by the
shareholder on a monthly or quarterly basis to provide systematic
additions to the shareholder's Fund account. A shareholder who has
insufficient funds to complete the transfer will be charged a fee of up
to $25 by Smith Barney or TSSG. The Systematic Investment Plan also
authorizes Smith Barney to apply cash held in the shareholder's Smith
Barney brokerage account or redeem the shareholder's shares of a Smith
Barney money market fund to make additions to the account. Additional
information is available from the Fund or a Smith
Barney Financial Consultant.
28
<PAGE>
Smith Barney
Managed Governments Fund Inc.
Purchase of Shares (continued)
Initial Sales Charge Alternative-Class A Shares
The sales charges applicable to purchases of Class A shares of the Fund
are as follows:
<TABLE>
<CAPTION>
Sales
Charge as % Sales Dealers
of Offering Charge as % Reallowance as %
Amount of Investment Price of Amount Invested
of Offering Price
<S> <C> <C>
<C> Less than $25,000 4.50% 4.71%
4.05% $25,000-$49,999 4.00% 4.17%
3.60% $50,000-$99,999 3.50% 3.63%
3.15% $100,000-$249,999 2.50% 2.56%
2.25% $250,000-$499,999 1.50% 1.52%
1.35% $500,000 and over * *
*
</TABLE>
*Purchases of Class A shares, which when combined with current holdings
of Class A shares offered with a sales
charge, equal or exceed $500,000 in the aggregate, will be made at net
asset value without any initial sales
charge, but will be subject to a CDSC of 1.00% on redemptions made
within 12 months of purchase. The CDSC on
Class A shares is payable to Smith Barney, which compensates Smith
Barney Financial Consultants and other
dealers whose clients make purchases of $500,000 or more. The CDSC is
waived in the same circumstances in
which the CDSC applicable to Class B and Class C shares is waived. See
"Deferred Sales Charge Alternatives"
and "Waivers of CDSC."
Members of the selling group may receive up to 90% of the sales charge
and
may be deemed to be underwriters of the Fund as defined in the
Securities Act of 1933, as amended.
The reduced sales charges shown above apply to the aggregate of
purchases of Class A shares of the Fund made at one time by "any
person," which includes an individual, his or her spouse and children or
a trustee or other fiduciary of a single trust estate or single
fiduciary account. The reduced sales charge minimums may also be met by
aggregating the purchase with the net asset value of all Class A shares
held in funds sponsored by Smith Barney that are offered with a sales
charge listed under "Exchange Privilege."
Initial Sales Charge Waivers
Purchases of Class A shares may be made at net asset value without a
sales charge in the following circumstances: (a) sales of Class A shares
to Directors of the Fund and employees of Travelers and its
subsidiaries, or to the spouses and children of such persons (including
the surviving spouse of a deceased Director or employee, and retired
Directors or employees), or sales to any
29
<PAGE>
Smith Barney
Managed Governments Fund Inc.
Purchase of Shares (continued)
trust, pension, profit-sharing or other benefit plan for such persons
provided such sales are made upon the assurance of the purchaser that
the purchase is made for investment purposes and that the securities
will not be re-sold except
through redemption or repurchase; (b) offers of Class A shares to any
other investment company in connection with the combination of such
company with
the Fund by merger, acquisition of assets or otherwise; (c) purchases of
Class A shares by any client of a newly employed Smith Barney Financial
Consultant (for a period up to 90 days from the commencement of the
Financial Consultant's employment with Smith Barney), on the condition
the purchase of Class A shares is made with the proceeds of the
redemption of shares of a mutual fund which (i) was sponsored by the
Financial Consultant's prior employer, (ii) was sold to the client by
the Financial Consultant and (iii) was subject to a sales charge; (d)
shareholders who have redeemed Class A shares in the Fund (or Class A
shares of another fund of the Smith Barney Mutual Funds that are offered
with a sales charge equal to or greater than the maximum sales charge of
the Fund) and who wish to reinvest their redemption proceeds in the
Fund, provided the reinvestment is made within 60 calendar days of the
redemption; (e) accounts managed by registered investment advisory
subsidiaries of Travelers; and (f) investments of distributions from a
UIT sponsored by Smith Barney. In order to obtain such discounts, the
purchaser must provide sufficient information at the time of purchase to
permit verification that the purchase would qualify for the elimination
of the sales charge.
Right of Accumulation
Class A shares of the Fund may be purchased by "any person" (as defined
above) at a reduced sales charge or at net asset value determined by
aggregating the dollar amount of the new purchase and the total net
asset value of all Class A shares of the Fund and of funds sponsored by
Smith Barney which are offered with a sales charge listed under
"Exchange Privilege" then held by such person and applying the sales
charge applicable to such aggregate. In order to obtain such discount,
the purchaser must provide sufficient information at the time of
purchase to permit verification that the purchase qualifies for the
reduced sales charge. The right of accumulation is subject to
modification or discontinuance at any time with respect to all shares
purchased thereafter.
Group Purchases
Upon completion of certain automated systems, a reduced sales charge or
purchase at net asset value will also be available to employees (and
partners)
30
<PAGE>
Smith Barney
Managed Governments Fund Inc.
Purchase of Shares (continued)
of the same employer purchasing as a group, provided each participant
makes the minimum initial investment required. The sales charge
applicable to purchases by each member of such a group will be
determined by the table set forth above under "Initial Sales Charge
Alternative-Class A Shares," and will be based upon the aggregate sales
of Class A shares of Smith Barney Mutual Funds offered with a charge to,
and share holdings of, all members of the group. To be eligible for such
reduced sales charges or to purchase at net asset value, all purchases
must be pursuant to an employer- or partnership-sanctioned plan meeting
certain requirements. One such requirement is that the plan must be open
to specified partners or employees of the employer and its subsidiaries,
if any. Such plan may, but is not required to, provide for payroll
deductions, IRAs or investments pursuant to retirement plans under
Sections 401 or 408 of the Code. Smith Barney may also
offer a reduced sales charge or net asset value purchase for aggregating
related fiduciary accounts under such conditions that Smith Barney will
realize economies of sales efforts and sales related expenses. An
individual who is a member of a qualified group may also purchase Class
A shares at the reduced sales charge applicable to the group as a whole.
The sales charge is based upon the aggregate dollar value of Class A
shares offered with a sales charge that have been previously purchased
and are still owned by the group, plus the amount of the current
purchase. A "qualified group" is one which (a) has been in existence for
more than six months, (b) has a purpose other than acquiring Fund shares
at a discount and (c) satisfies uniform criteria which enable Smith
Barney to realize economies of scale in its costs of distributing
shares. A qualified group must have more than 10 members, must be
available to arrange for group meetings between representatives of the
Fund and the members, and must agree to include sales and other
materials related to the Fund in its publications and mailings to
members at no cost to Smith Barney. In order to obtain such reduced
sales charge or to purchase at net asset value, the purchaser must
provide sufficient information at the time of purchase to permit
verification that the purchase qualifies for the reduced sales charge.
Approval of group purchase reduced sales charge plans is subject to the
discretion of Smith Barney.
Letter of Intent
A Letter of Intent for amounts of $50,000 or more provides an
opportunity for an investor to obtain a reduced sales charge by
aggregating investments over a 13 month period, provided that the
investor refers to such Letter when placing orders. For purposes of a
Letter of Intent, the "Amount
31
<PAGE>
Smith Barney
Managed Governments Fund Inc.
Purchase of Shares (continued)
Invested" as referred to in the preceding sales charge table includes
purchases of all Class A shares of the Fund and other funds of the Smith
Barney Mutual Funds offered with a sales charge over the 13 month period
based on the total amount of intended purchases plus the value of all
Class A shares previously purchased and still owned. An alternative is
to compute the 13 month period starting up to 90 days before the date of
execution of a Letter of Intent. Each investment made during the period
receives the reduced sales charge applicable to the total amount of the
investment goal. If the goal is not achieved within the period, the
investor must pay the difference between the sales charges applicable to
the purchases made and the charges previously paid, or an appropriate
number of escrowed shares will be redeemed. New Letters of Intent will
be accepted beginning January 1, 1995. Please contact a Smith Barney
Financial Consultant or TSSG to obtain a Letter of Intent application.
Deferred Sales Charge Alternatives
"CDSC Shares" are sold at net asset value next determined without an
initial sales charge so that the full amount of an investor's purchase
payment may be immediately invested in the Fund. A CDSC, however, may be
imposed on certain redemptions of these shares. "CDSC Shares" are: (a)
Class B shares; (b) Class
C shares; and (c) Class A shares which when combined with Class A shares
offered with a sales charge currently held by an investor equal or
exceed $500,000 in the aggregate.
Any applicable CDSC will be assessed on an amount equal to the lesser of
the cost of the shares being redeemed or their net asset value at the
time of redemption. CDSC Shares that are redeemed will not be subject to
a CDSC to the extent that the value of such shares represents: (a)
capital appreciation of Fund assets; (b) reinvestment of dividends or
capital gain distributions; (c) with respect to Class B shares, shares
redeemed more than five years after their purchase; or (d) with respect
to Class C shares and Class A shares that are CDSC Shares, shares
redeemed more than 12 months after their purchase.
Class C shares and Class A shares that are CDSC Shares are subject to a
1.00% CDSC if redeemed within 12 months of purchase. In circumstances in
which the CDSC is imposed on Class B shares, the amount of the charge
will depend on the number of years since the shareholder made the
purchase payment from which the amount is being redeemed. Solely for
purposes of determining the number of years since a purchase payment,
all purchase payments
32
<PAGE>
Smith Barney
Managed Governments Fund Inc.
Purchase of Shares (continued)
made during a month will be aggregated and deemed to have been made on
the last day of the preceding Smith Barney statement month. The
following table sets forth the rates of the charge for redemptions of
Class B shares by shareholders, except in the case of purchases by
Participating Plans, as described below. See "Purchase of Shares - Smith
Barney 401(k) Program."
<TABLE>
<CAPTION>
Year Since Purchase
Payment Was Made CDSC
<S> <C>
First 4.50%
Second 4.00%
Third 3.00%
Fourth 2.00%
Fifth 1.00%
Sixth 0.00%
Seventh 0.00%
Eighth 0.00%
</TABLE>
Class B shares will convert automatically to Class A shares eight years
after the date on which they were purchased and thereafter will no
longer be subject to any distribution fees. There also will be converted
at that time such proportion of Class B Dividend Shares owned by the
shareholder as the total number of his or her Class B shares converting
at the time bears to the
total number of outstanding Class B shares (other than Class B Dividend
Shares) owned by the shareholder. Shareholders who held Class B shares
of Smith Barney Shearson Short-Term World Income Fund (the "Short-Term
World Income Fund") on July 15, 1994 and who subsequently exchange those
shares for Class B shares of the Fund will be offered the opportunity to
exchange all such Class B shares for Class A shares of the Fund four
years after the date on which those shares were deemed to have been
purchased. Holders of such Class B shares will be notified of the
pending exchange in writing approximately 30 days before the fourth
anniversary of the purchase date and, unless the exchange has been
rejected in writing, the exchange will occur on or about the fourth
anniversary date. See "Prospectus Summary-Alternative Purchase
Arrangements-Class B Shares Conversion Feature."
The length of time that CDSC Shares acquired through an exchange have
been held will be calculated from the date that the shares exchanged
were initially acquired in one of the other Smith Barney Mutual Funds,
and Fund shares being redeemed will be considered to represent, as
applicable, capital appreciation or dividend and capital gain
distribution reinvestments in such
33
<PAGE>
Smith Barney
Managed Governments Fund Inc.
Purchase of Shares (continued)
other funds. For Federal income tax purposes, the amount of the CDSC
will reduce the gain or increase the loss, as the case may be, on the
amount realized on redemption. The amount of any CDSC will be paid to
Smith Barney.
To provide an example, assume an investor purchased 100 Class B shares
at $10 per share for a cost of $1,000. Subsequently, the investor
acquired 5 additional shares through dividend reinvestment. During the
fifteenth month after the purchase, the investor decided to redeem $500
of his or her investment. Assuming at the time of the redemption the net
asset value had appreciated to $12 per share, the value of the
investor's shares would be $1,260 (105 shares at $12 per share). The
CDSC would not be applied to the amount which represents appreciation
($200) and the value of the reinvested dividend shares ($60). Therefore,
$240 of the $500 redemption proceeds ($500 minus $260) would be charged
at a rate of 4.00% (the applicable rate for Class B shares) for a total
deferred sales charge of $9.60.
Waivers of CDSC
The CDSC will be waived on: (a) exchanges (see "Exchange Privilege");
(b) automatic cash withdrawals in amounts equal to or less than 1.00%
per month of the value of the shareholder's shares at the time the
withdrawal plan commences (see below) (provided, however, that automatic
cash withdrawals in amounts equal to or less than 2.00% per month of the
value of the shareholder's shares will be permitted for withdrawal plans
that were established prior to November 7, 1994); (c) redemptions of
shares within 12 months following the death or disability of the
shareholder; (d) redemption of shares made in connection with qualified
distributions from retirement
plans or IRAs upon the attainment of age 59-1/2; (e) involuntary
redemptions; and (f) redemptions of shares in connection with a
combination of the Fund with any investment company by merger,
acquisition of assets or otherwise. In addition, a shareholder who has
redeemed shares from other funds of the Smith Barney Mutual Funds may,
under certain circumstances, reinvest all or part of the redemption
proceeds within 60 days and receive pro rata credit for any CDSC imposed
on the prior redemption.
CDSC waivers will be granted subject to confirmation (by Smith Barney in
the case of shareholders who are also Smith Barney clients or by TSSG in
the case of all other shareholders) of the shareholder's status or
holdings, as the case may be.
34
<PAGE>
Smith Barney
Managed Governments Fund Inc.
Purchase of Shares (continued)
Smith Barney 401(k) Program
Investors may be eligible to participate in the Smith Barney 401(k)
Program, which is generally designed to assist plan sponsors in the
creation and operation of retirement plans under Section 401(a) of the
Code. To the extent applicable, the same terms and conditions are
offered to all Participating Plans in the Smith Barney 401(k) Program.
The Fund offers to Participating Plans Class A, Class B, Class C and
Class Y shares as investment alternatives under the Smith Barney 401(k)
Program. Class A, Class B and Class C shares acquired through the Smith
Barney 401(k) Program are subject to the same service and/or
distribution fees as, but different sales charge and CDSC schedules
than, the Class A, Class B and Class C shares acquired by other
investors. Similar to those available to other investors, Class Y shares
acquired through the Smith Barney 401(k) Program are not subject to any
initial sales charge, CDSC or service or distribution fee. Once a
Participating Plan has made an initial investment in the Fund, all of
its subsequent investments in the Fund must be in the same Class of
shares, except as otherwise described below.
Class A Shares. Class A shares of the Fund are offered without any
initial sales charge to any Participating Plan that purchases from
$500,000 to $4,999,999 of Class A shares of one or more funds of the
Smith Barney Mutual Funds. Class A shares acquired through the Smith
Barney 401(k) Program after November 7, 1994 are subject to a CDSC of
1.00% of redemption proceeds, if the Participating Plan terminates
within four years of the date the Participating Plan first enrolled in
the Smith Barney 401(k) Program.
Class B Shares. Class B shares of the Fund are offered to any
Participating Plan that purchases less than $250,000 of one or more
funds of the Smith Barney Mutual Funds. Class B shares acquired through
the Smith Barney 401(k) Program are subject to a CDSC of 3.00% of
redemption proceeds, if the Participating Plan terminates within eight
years of the date the Participating Plan first enrolled in the Smith
Barney 401(k) Program.
Eight years after the date the Participating Plan enrolled in the Smith
Barney 401(k) Program, it will be offered the opportunity to exchange
all of its Class B shares for Class A shares of the Fund. Such Plans
will be notified of the pending exchange in writing approximately 60
days before the eighth anniversary of the enrollment date and, unless
the exchange has been rejected in writing, the exchange will occur on or
about the eighth anniversary date.
35
<PAGE>
Smith Barney
Managed Governments Fund Inc.
Purchase of Shares (continued)
Once the exchange has occurred, a Participating Plan will not be
eligible to acquire additional Class B shares of the Fund but instead
may acquire Class A shares of the Fund. If the Participating Plan elects
not to exchange all of its Class B shares at that time, each Class B
share held by the Participating Plan will have the same conversion
feature as Class B shares held by other investors. See "Purchase of
Shares - Deferred Sales Charge Alternatives."
Class C Shares. Class C shares of the Fund are offered to any
Participating Plan that purchases from $250,000 to $499,999 of one or
more funds of the Smith Barney Mutual Funds. Class C shares acquired
through the Smith Barney 401(k) Program after November 7, 1994 are
subject to a CDSC of 1.00% of redemption proceeds, if the Participating
Plan terminates within four years of the date the Participating Plan
first enrolled in the Smith Barney 401(k) Program. In any year after the
date a Participating Plan enrolled in the Smith Barney 401(k) Program,
if its total Class C holdings equal at least $500,000 as of the calendar
year-end, the Participating Plan will be offered the opportunity to
exchange all of its Class C shares for Class A shares of the Fund. Such
Plans will be notified in writing within 30 days after the last business
day of the calendar year, and unless the exchange offer has been
rejected in writing, the exchange will occur on or about the last
business day of the following March. Once the exchange has occurred, a
Participating Plan will not be eligible to acquire Class C shares of the
Fund but instead may acquire Class A shares of the Fund. Class C shares
not converted will continue to be subject to the distribution fee.
Class Y Shares. Class Y shares of the Fund are offered without any
service or distribution fees, sales charge or CDSC to any Participating
Plan that purchases $5,000,000 or more of Class Y shares of one or more
funds of the Smith Barney Mutual Funds.
No CDSC is imposed on redemptions of CDSC Shares to the extent that the
net asset value of the shares redeemed does not exceed the current net
asset value of the shares purchased through reinvestment of dividends or
capital gain distributions, plus (a) with respect to Class A and Class C
shares, the
current net asset value of such shares purchased more than one year
prior to redemption and, with respect to Class B shares, the current net
asset value of Class B shares purchased more than eight years prior to
the redemption, plus (b) with respect to Class A and Class C shares,
increases in the net asset value of the shareholder's Class A or Class C
shares above the purchase payments made during the preceding year and,
with respect to
36
<PAGE>
Smith Barney
Managed Governments Fund Inc.
Purchase of Shares (continued)
Class B shares, increases in the net asset value of the shareholder's
Class B shares above the purchase payments made during the preceding
eight years. Whether or not the CDSC applies to a Participating Plan
depends on the number of years since the Participating Plan first became
enrolled in the Smith Barney 401(k) Program, unlike the applicability of
the CDSC to other shareholders, which depends on the number of years
since those shareholders made the purchase payment from which the amount
is being redeemed.
The CDSC will be waived on redemptions of CDSC Shares in connection with
lump-sum or other distributions made by a Participating Plan as a result
of: (a) the retirement of an employee in the Participating Plan; (b) the
termination of employment of an employee in the Participating Plan; (c)
the death or disability of an employee in the Participating Plan; (d)
the attainment of age 59-1/2 by an employee in the Participating Plan;
(e) hardship of an employee in the Participating Plan to the extent
permitted under Section 401(k) of the Code; or (f) redemptions of shares
in connection with a loan made by the Participating Plan to an employee.
Participating Plans wishing to acquire shares of the Fund through the
Smith Barney 401(k) Program must purchase such shares directly from
TSSG. For further information regarding the Smith Barney 401(k) Program,
investors should contact a Smith Barney Financial Consultant.
Exchange Privilege
Except as otherwise noted below, shares of each Class may be exchanged
at the net asset value next determined for shares of the same Class in
the following funds of the Smith Barney Mutual Funds, to the extent
shares are offered for sale in the shareholder's state of residence.
Exchanges of Class A, Class B and Class C shares are subject to minimum
investment requirements, and all shares are subject to the other
requirements of the fund into which exchanges are made, and a sales
charge differential may apply.
Fund Name
Growth Funds
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc. Smith
Barney European Fund
Smith Barney Fundamental Value Fund Inc.
Smith Barney Funds, Inc.-Capital Appreciation Portfolio
37
<PAGE>
Smith Barney
Managed Governments Fund Inc.
Exchange Privilege (continued)
Smith Barney Global Opportunities Fund
Smith Barney Precious Metals and Minerals Fund Inc.
Smith Barney Special Equities Fund
Smith Barney Telecommunications Growth Fund
Smith Barney World Funds, Inc.-European Portfolio
Smith Barney World Funds, Inc.-International Equity Portfolio
Smith Barney World Funds, Inc.-Pacific Portfolio
Growth and Income Funds
Smith Barney Convertible Fund
Smith Barney Funds, Inc.-Income and Growth Portfolio
Smith Barney Growth and Income Fund
Smith Barney Premium Total Return Fund
Smith Barney Strategic Investors Fund
Smith Barney Utilities Fund
Smith Barney World Funds, Inc.-International Balanced
Portfolio
Income Funds
**Smith Barney Adjustable Rate Government Income Fund
Smith Barney Diversified Strategic Income Fund
*Smith Barney Funds, Inc.-Income Return Account Portfolio
Smith Barney Funds, Inc.-Monthly Payment Government Portfolio
+++Smith Barney Funds, Inc.-Short-Term U.S. Treasury Securities
Portfolio Smith Barney Funds, Inc.-U.S. Government Securities Portfolio
Smith Barney Funds, Inc.-Utility Portfolio
Smith Barney Global Bond Fund
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund Smith Barney Limited
Maturity Treasury Fund
Smith Barney World Funds, Inc.-Global Government Bond Portfolio
Municipal Bond Funds
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California
Municipals Fund Inc.
Smith Barney Florida Municipals Fund
*Smith Barney Intermediate Maturity California Municipals Fund
*Smith Barney Intermediate Maturity New York Municipals Fund
*Smith Barney Limited Maturity Municipals Fund
Smith Barney Managed Municipals Fund Inc.
38
<PAGE>
Smith Barney
Managed Governments Fund Inc.
Exchange Privilege (continued)
Smith Barney Massachusetts Municipals Fund
*Smith Barney Muni Funds-California Limited Term Portfolio
Smith Barney Muni Funds-California Portfolio
*Smith Barney Muni Funds-Florida Limited Term Portfolio
Smith Barney Muni Funds-Florida Portfolio
Smith Barney Muni Funds-Georgia Portfolio
*Smith Barney Muni Funds-Limited Term Portfolio
Smith Barney Muni Funds-National Portfolio Smith
Barney Muni Funds-New Jersey Portfolio Smith
Barney Muni Funds-New York Portfolio Smith
Barney Muni Funds-Ohio Portfolio
Smith Barney Muni Funds-Pennsylvania Portfolio
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney New York Municipals Fund Inc. Smith
Barney Oregon Municipals Fund
Smith Barney Tax-Exempt Income Fund
Money Market Funds
+Smith Barney Exchange Reserve Fund
++Smith Barney Money Funds, Inc.-Cash Portfolio
++Smith Barney Money Funds, Inc.-Government Portfolio
***Smith Barney Money Funds, Inc.-Retirement Portfolio
+++Smith Barney Municipal Money Market Fund, Inc.
+++Smith Barney Muni Funds-California Money Market
Portfolio +++Smith Barney Muni Funds-New York Money Market
Portfolio
*Available for exchange with Class A, Class C and Class Y shares of the
Fund.
**Available for exchange with Class A, Class B and Class Y shares of the
Fund. In addition, shareholders who own Class C shares of the Fund
through the Smith Barney 401(k) Program may exchange those shares for
Class C shares of this fund.
***Available for exchange with Class A shares of the Fund.
+Available for exchange with Class B and Class C shares of the
Fund.
++Available for exchange with Class A and Class Y shares of the Fund.
In addition, shareholders who own Class C shares of the Fund in a Smith
Barney 401(k) Program may exchange those shares for Class C shares of
this fund.
+++Available for exchange with Class A and Class Y shares of the Fund.
Class A Exchanges. Class A shares of Smith Barney Mutual Funds sold
without a sales charge or with a maximum sales charge of less than the
maximum charged by other Smith Barney Mutual Funds will be subject to
the appropriate "sales charge differential" upon the exchange of such
shares
39
<PAGE>
Smith Barney
Managed Governments Fund Inc.
Exchange Privilege (continued)
for Class A shares of a fund sold with a higher sales charge. The "sales
charge differential" is limited to a percentage rate no greater than the
excess of the sales charge rate applicable to purchases of shares of the
mutual fund being acquired in the exchange over the sales charge rate(s)
actually paid on the mutual fund shares relinquished in the exchange and
on any predecessor of those shares. For purposes of the exchange
privilege, shares obtained through automatic reinvestment of dividends
and capital gain distributions are treated as having paid the same sales
charges applicable to the shares on which the dividends or distributions
were paid; however, except in the case of the Smith Barney 401(k)
Program, if no sales charge was imposed upon the initial purchase of the
shares, any shares obtained through automatic reinvestment will be
subject to a sales charge differential upon exchange.
Class B Exchanges. In the event a Class B shareholder (unless such
shareholder was a Class B shareholder of the Short-Term World Income
Fund on July 15, 1994) wishes to exchange all or a portion of his or her
shares in any of the funds imposing a higher CDSC than that imposed by
the Fund, the exchanged Class B shares will be subject to the higher
applicable CDSC. Upon an exchange, the new Class B shares will be deemed
to have been purchased on the same date as the Class B shares of the
Fund that have been exchanged.
Class C Exchanges. Upon an exchange, the new Class C shares will be
deemed to have been purchased on the same date as the Class C shares of
the Fund that have been exchanged.
Class Y Exchanges. Class Y shareholders of the Fund who wish to exchange
all or a portion of their Class Y shares for Class Y shares in any of
the funds identified above may do so without imposition of any charge.
Additional Information Regarding the Exchange Privilege. Although the
exchange privilege is an important benefit, excessive exchange
transactions can be detrimental to the Fund's performance and its
shareholders. SBMFM may determine that a pattern of frequent exchanges
is excessive and contrary to the best interests of the Fund's other
shareholders. In this event, SBMFM will notify Smith Barney and Smith
Barney may, at its discretion, decide to limit additional purchases
and/or exchanges by a shareholder. Upon such a determination, Smith
Barney will provide notice in writing or by telephone to the shareholder
at least 15 days prior to suspending the exchange privilege and during
the 15 day period the shareholder will be required to (a) redeem his or
her shares in the Fund or (b) remain invested in the Fund or exchange
40
<PAGE>
Smith Barney
Managed Governments Fund Inc.
Exchange Privilege (continued)
into any of the funds of the Smith Barney Mutual Funds ordinarily
available, which position the shareholder would be expected to maintain
for a significant period of time. All relevant factors will be
considered in determining what constitutes an abusive pattern of
exchanges.
Exchange Privilege (continued)Exchanges will be processed at the net
asset value next determined, plus any applicable sales charge
differential. Redemption procedures discussed below are also applicable
for exchanging shares, and exchanges will be made upon receipt of all
supporting documents in proper form. If the account registration of the
shares of the fund being acquired is identical to the registration of
the shares of the fund exchanged, no signature guarantee is required. A
capital gain or loss for tax purposes will be realized upon the
exchange, depending upon the cost or other basis of shares redeemed.
Before exchanging shares, investors should read the current prospectus
describing the shares to be acquired. The Fund reserves the right to
modify or discontinue exchange privileges upon 60 days' prior notice to
shareholders.
Redemption of Shares
The Fund is required to redeem the shares of the Fund tendered to it, as
described below, at a redemption price equal to their net asset value
per share next determined after receipt of a written request in proper
form at no charge other than any applicable CDSC. Redemption requests
received after the close of regular trading on the NYSE are priced at
the net asset value next determined.
If a shareholder holds shares in more than one Class, any request for
redemption must specify the Class being redeemed. In the event of a
failure to specify which Class, or if the investor owns fewer shares of
the Class than specified, the redemption request will be delayed until
the Fund's transfer agent receives further instructions from Smith
Barney, or if the shareholder's account is not with Smith Barney, from
the shareholder directly. The redemption proceeds will be remitted on or
before the seventh day following receipt of proper tender, except on any
days on which the NYSE is closed or as permitted under the Investment
Company Act of 1940, as amended ("1940 Act"), in extraordinary
circumstances. The Fund anticipates that, in accordance with regulatory
changes, beginning on or about June 1, 1995, payment will be made on the
third business day after a receipt of proper tender. Generally, if the
redemption proceeds are remitted to a Smith Barney brokerage account,
these funds will not be invested for the shareholder's benefit without
41
<PAGE>
Smith Barney
Managed Governments Fund Inc.
Redemption of Shares (continued)
specific instruction and Smith Barney will benefit from the use of
temporarily uninvested funds. Redemption proceeds for shares purchased
by check, other than a certified or official bank check, will be
remitted upon clearance of the check, which may take up to ten days or
more.
Redemption of Shares (continued)Shares held by Smith Barney as custodian
must be redeemed by submitting a written request to a Smith Barney
Financial Consultant. Shares other than those held by Smith Barney as
custodian may be redeemed through an investor's Financial Consultant,
Introducing Broker or dealer in the selling group or by submitting a
written request for redemption to:
Smith Barney Managed Governments Fund Inc.
Class A, B, C or Y (please specify)
c/o The Shareholder Services Group, Inc.
P.O. Box 9134
Boston, Massachusetts 02205-9134
A written redemption request must (a) state the Class and number or
dollar amount of shares to be redeemed, (b) identify the shareholder's
account number and (c) be signed by each registered owner exactly as the
shares are registered. If the shares to be redeemed were issued in
certificate form, the certificates must be endorsed for transfer (or be
accompanied by an endorsed stock power) and must be submitted to TSSG
together with the redemption request. Any signature appearing on a
redemption request, share certificate or stock power must be guaranteed
by an eligible guarantor institution such as a domestic bank, savings
and loan institution, domestic credit union, member bank of the Federal
Reserve System or member firm of a national securities exchange. TSSG
may require additional supporting documents for redemptions made by
corporations, executors, administrators, trustees or guardians. A
redemption request will not be deemed properly received until TSSG
receives all required documents in proper form.
Automatic Cash Withdrawal Plan
The Fund offers shareholders an automatic cash withdrawal plan, under
which shareholders who own shares with a value of at least $10,000 may
elect to receive cash payments of at least $100 monthly or quarterly.
Retirement plan accounts are eligible for automatic cash withdrawal
plans only where the shareholder is eligible to receive qualified
distributions and has an account value of at least $5,000. The
withdrawal plan will be carried over on exchanges between funds or
Classes of the Fund. Any applicable CDSC
42
<PAGE>
Smith Barney
Managed Governments Fund Inc.
Redemption of Shares (continued)
will not be waived on amounts withdrawn by a shareholder that exceed
1.00% per month of the value of the shareholder's shares subject to the
CDSC at the time the withdrawal plan commences. (With respect to
withdrawal plans in effect prior to November 7, 1994, any applicable
CDSC will be waived on amounts withdrawn that do not exceed 2.00% per
month of the shareholder's
shares subject to the CDSC.) For further information regarding the
automatic cash withdrawal plan, shareholders should contact a Smith
Barney Financial Consultant.
Minimum Account Size
The Fund reserves the right to involuntarily liquidate any shareholder's
account in the Fund if the aggregate net asset value of the shares held
in the Fund account is less than $500. (If a shareholder has more than
one account in this Fund, each account must satisfy the minimum account
size.) The Fund, however, will not redeem shares based solely on market
reductions in net asset value. Before the Fund exercises such right,
shareholders will receive written notice and will be permitted 60 days
to bring accounts up to the minimum to avoid automatic redemption.
Performance
Yield
From time to time, the Fund advertises the 30-day "yield" of each Class
of shares. The Fund's yield refers to the income generated by an
investment in those shares over the 30-day period identified in the
advertisement and is computed by dividing the net investment income per
share earned by the Class during the period by the maximum public
offering price per share on the last day of the period. This income is
"annualized" by assuming the amount of income is generated each month
over a one-year period and is compounded semi-annually. The annualized
income is then shown as a percentage of the net asset value.
Total Return
From time to time the Fund may include its total return, average annual
total return and current dividend return in advertisements and/or other
types of sales literature. These figures are computed separately for
Class A, Class B, Class C and Class Y shares of the Fund. These figures
are based on
43
<PAGE>
Smith Barney
Managed Governments Fund Inc.
Performance (continued)
historical earnings and are not intended to indicate future performance.
Total return is computed for a specified period of time assuming
deduction of the maximum sales charge, if any, from the initial amount
invested and
reinvestment of all income dividends and capital gain distributions on
the reinvestment dates at prices calculated as stated in this
Prospectus, then dividing the value of the investment at the end of the
period so calculated by the initial amount invested and subtracting
100%. The standard average annual total return, as prescribed by the
SEC, is derived from this total return, which provides the ending
redeemable value. Such standard total return information may also be
accompanied with nonstandard total return information for differing
periods computed in the same manner but without annualizing the total
return or taking sales charges into account. The Fund calculates current
dividend return for each Class by annualizing the most recent monthly
distribution and dividing by the net asset value of the maximum public
offering price (including sales charge) on the last day of the period
for which current dividend return is presented. The Fund's current
dividend return may vary from time to time depending on market
conditions, the composition of its investment portfolio and operating
expenses. These factors and possible differences in the methods used in
calculating current dividend return should be considered when comparing
a Class' current return to yields published for other investment
companies and other investment vehicles. The Fund may also include
comparative performance information in advertising or marketing its
shares. Such performance information may include data from Lipper
Analytical Services, Inc. or similar independent services that monitor
the performance of mutual funds, or other industry
publications.Performance (continued)The Fund will include performance
data for Class A, Class B, Class C and Class Y shares in any
advertisement or information including performance data of the Fund.
Management of the Fund
Board of Directors
Management of the Fund (continued)Overall responsibility for management
and supervision of the Fund rests with the Fund's Board of Directors.
The Directors approve all significant agreements between the Fund and
the companies that furnish services to the Fund, including agreements
with the Fund's distributor, investment adviser, administrator, sub-
administrator, custodian and transfer agent. The day-to-day operations
of the Fund are delegated to the Fund's investment adviser
44
<PAGE>
Smith Barney
Managed Governments Fund Inc.
Management of the Fund (continued)
and administrator and sub-administrator. The Statement of Additional
Information contains general background information regarding each
Director and executive officer of the Fund.
Investment Adviser and Administrator-SBMFM
SBMFM, located at 388 Greenwich Street, New York, New York 10013, serves
as the Fund's investment adviser pursuant to a transfer of the
investment advisory agreement, effective November 7, 1994, from its
affiliate, Mutual Management Corp. (Mutual Management Corp. and SBMFM
are both wholly owned subsidiaries of Holdings.) Investment advisory
services continue to be
provided to the Fund by the same portfolio manager who had provided
services under the agreement with Mutual Management Corp. SBMFM (through
its predecessor entities), has been in the investment counseling
business since 1934 and is a registered investment adviser. SBMFM
renders investment advice to investment companies that had aggregate
assets under management as of September 30, 1994 in excess of $52.4
billion.
Subject to the supervision and direction of the Fund's Board of
Directors, SBMFM manages the Fund's portfolio in accordance with the
Fund's stated investment objective and policies, makes investment
decisions for the Fund, places orders to purchase and sell securities
and employs professional portfolio managers and securities analysts who
provide research services to the Fund. Under an investment advisory
agreement, the Fund pays SBMFM a monthly fee at the annual rate of 0.45%
of the value of the Fund's average daily net assets up to $1 billion and
0.415% of the value of its average daily net assets in excess of $1
billion thereafter. For the fiscal year ended July 31, 1994, the Fund
paid investment advisory fees to SBMFM in an amount equal to 0.45% of
the value of its average daily net assets.
Portfolio Management
Management of the Fund (continued)James Conroy, Vice President of SBMFM,
has served as Vice President and Investment Officer of the Fund since
February 1990 and is responsible for managing the day-to-day operations
of the Fund, including the making of investment decisions.
Management discussion and analysis, and additional performance
information regarding the Fund during the fiscal year ended July 31,
1994, is included in the Annual Report dated July 31, 1994. A copy of
the Annual Report may be obtained upon request and without charge from a
Smith
45
<PAGE>
Smith Barney
Managed Governments Fund Inc.
Management of the Fund (continued)
Barney Financial Consultant or by writing or calling the Fund at the
address or phone number listed on page one of this Prospectus.
SBMFM also serves as the Fund's administrator and oversees all aspects
of the Fund's administration. For administration services rendered to
the Fund, the Fund pays SBMFM a fee at the annual rate of 0.20% of the
value of the Fund's average daily net assets up to $1 billion and 0.185%
of the value of the average daily net assets in excess of $1 billion.
Sub-Administrator-Boston Advisors
Boston Advisors, located at One Boston Place, Boston, Massachusetts
02108,
serves as the Fund's sub-administrator. Boston Advisors provides
investment management, investment advisory and/or administrative
services to investment companies that had aggregate assets under
management, as of September 30, 1994, in excess of $48.6 billion.
Boston Advisors calculates the net asset value of the Fund's shares and
generally assists SBMFM in all aspects of the Fund's administration and
operation. Under a sub-administration agreement dated April 20, 1994,
Boston Advisors is paid a portion of the fee paid by the Fund to SBMFM
at a rate agreed upon from time to time between Boston Advisors and
SBMFM. Prior to April 20, 1994, Boston Advisors served as the Fund's
administrator.
Distributor
Smith Barney is located at 388 Greenwich Street, New York, New York
10013. Smith Barney distributes shares of the Fund as principal
underwriter and as such conducts a continuous offering pursuant to a
"best efforts" arrangement requiring Smith Barney to take and pay for
only such securities as may be sold to the public. Pursuant to a plan of
distribution adopted by the Fund under Rule 12b-1 under the 1940 Act
(the "Plan"), Smith Barney is paid an annual service fee with respect to
Class A, Class B and Class C shares of the Fund at the annual rate of
0.25% of the average daily net assets of the respective Class. Smith
Barney is also paid an annual distribution fee with respect to Class B
and Class C shares at the annual rate of 0.50% and 0.45%, respectively,
of the average daily net assets attributable to those Classes. Class B
shares, which automatically convert to Class A shares eight years after
the date of original purchase, will no longer be subject to
46
<PAGE>
Smith Barney
Managed Governments Fund Inc.
Distributor (continued)
distribution fees. The fees are used by Smith Barney to pay its
Financial Consultants for servicing shareholder accounts and, in the
case of Class B and Class C shares, to cover expenses primarily intended
to result in the sale of those shares. These expenses include:
advertising expenses; the cost of printing and mailing prospectuses to
potential investors; payments to and expenses of Smith Barney Financial
Consultants and other persons who provide support services in connection
with the distribution of shares; interest and/or carrying charges; and
indirect and overhead costs of Smith Barney associated with the sale of
Fund shares, including lease, utility, communications and sales
promotion expenses.
The payments to Smith Barney Financial Consultants for selling shares of
a Class include a commission or fee paid by the investor or Smith Barney
at the time of sale and, with respect to Class A, Class B and Class C
shares, a continuing fee for servicing shareholder accounts for as long
as a shareholder remains a holder of that Class. Smith Barney Financial
Consultants may receive different levels of compensation for selling
different Classes of shares.
Distributor (continued)Payments under the Plan are not tied exclusively
to the distribution and shareholder service expenses actually incurred
by Smith Barney and the payments may exceed distribution expenses
actually incurred. The Fund's Board of Directors evaluates the
appropriateness of the Plan and its payment terms on a continuing basis
and in doing so will consider all relevant factors, including expenses
borne by Smith Barney, amounts received under the Plan and proceeds of
the CDSC.
Additional Information
The Fund was incorporated under the laws of the State of Maryland on
June 15, 1984 and is registered with the SEC as a diversified, open-end
management investment company. Each Class of shares of the Fund has a
par value of $.001 per share. Each Class of shares has the same rights,
privileges and preferences, except with respect to: (a) the designation
of each Class; (b) the effect of the respective sales charges for each
Class; (c) the distribution and/or service fees borne by each Class; (d)
the expenses allocable exclusively to each Class; (e) voting rights on
matters exclusively affecting a single Class; (f) the exchange
privileges of each Class; and (g) the conversion feature of the Class B
shares. The Fund's Board of Directors does not anticipate that there
will be any conflicts among the interests of the holders of the
different
47
<PAGE>
Smith Barney
Managed Governments Fund Inc.
Additional Information (continued)
Classes. The Directors, on an ongoing basis, will consider whether any
such conflict exists and, if so, take appropriate action.
Additional Information (continued)The Fund does not hold annual
shareholder meetings. There normally will be no meeting of shareholders
for the purpose of electing Directors unless and until such time as less
than a majority of the Directors holding office have been elected by
shareholders. The Directors will call a meeting for any purpose upon
written request of shareholders holding at least 10% of the Fund's
outstanding shares, and the Fund will assist shareholders in calling
such a meeting as required by the 1940 Act. When matters are submitted
for shareholder vote, shareholders of each Class will have one vote for
each full share owned and a proportionate, fractional vote for any
fractional share held of that Class. Generally, shares of the Fund will
be voted on a Fund- wide basis on all matters except matters affecting
only the interests of one or more of the Classes.
Boston Safe, an indirect wholly owned subsidiary of Mellon, is located
at One Boston Place, Boston, Massachusetts 02108, and serves as
custodian of the Fund's investments.
TSSG, is located at Exchange Place, Boston, Massachusetts 02109, and
serves as the Fund's transfer agent.
The Fund sends its shareholders a semi-annual report and an audited
annual report, which include listings of investment securities held by
the Fund at the end of the period covered. In an effort to reduce the
Fund's printing and mailing costs, the Fund plans to consolidate the
mailing of the Fund's semi-annual and annual reports by household. This
consolidation means that a household having multiple accounts with the
identical address of record will receive a single copy of each report.
Shareholders who do not want this consolidation to apply to their
accounts should contact their Smith Barney Financial Consultant, or the
Fund's transfer agent.
48
<PAGE>
Smith Barney
Managed Governments Fund Inc.
Additional Information (continued)
No person has been authorized to give any information or to make any
representations in connection with this offering other than those
contained in this Prospectus and, if given or made, such other
information or representations must not be relied upon as having been
authorized by the Fund or the distributor. This Prospectus does not
constitute an offer by the Fund or the distributor to sell or a
solicitation of an offer to buy any of the securities offered hereby in
any jurisdiction to any person to whom it is unlawful to make such offer
or solicitation in such jurisdiction.
49
<PAGE>
Date of Letter:
Date of Purchase(s): (must be within 90 days of the date of the letter):
Letter of Intent (Please check one only)
[ ] I wish to establish a new Letter of Intent. (If cumulative discount
or 90-day backdate privilege is applicable, provide the amount and
account(s) information below.)
[ ] Please apply this purchase to any existing Letter of Intent with
the account(s) listed below.
[ ] Please amend my existing Letter of Intent with the new amount
indicated below.
If establishing a Letter of Intent, you will need to purchase over a
thirteen-month period in accordance with the provisions of the
prospectus. The aggregate amount of these purchases will be at least
equal to the amount listed below:
[ ] $50,000 [ ] $100,000 [ ] $250,000 [ ] $500,000
- ---------------------------- ----------------------------
Fund Name Account Number
- ---------------------------- ----------------------------
Fund Name Account Number
- ---------------------------- ----------------------------
Fund Name Account Number
Subject to conditions specified below, each purchase of shares of the
Fund or shares of one or more of the funds within the Smith Barney Group
of Funds
during the 13-month period subsequent to the date of this Letter will be
made at the public offering price applicable to a single transaction of
the dollar amount indicated, as described in the then effective
prospectus. The offering price may be further reduced under the Rights
of Accumulation discount if the Fund is advised of any shares of this or
other Smith Barney fund(s) previously purchased and still owned. The
purchaser may at any time during the period revise upward the stated
intention by submitting a written request to this effect. Such revision
shall provide for the escrowing of addi-
50
<PAGE>
tional shares. The original period of the Letter, however, shall remain
unchanged. Each separate purchase made pursuant to the Letter is subject
to the terms and conditions contained in the prospectus in effect at the
time of that particular purchase. It is understood that the purchaser
makes no commitment to purchase additional shares, but if those shares
previously purchased at the original public offering price, under the
Rights of Accumulation discount, together with purchases so made within
thirteen months from this date do not aggregate the amount specified
when valued at the public offering price, the purchaser must pay the
difference between the sales charges applicable to the purchases made
and charges previously paid, or an appropriate number of escrowed shares
will be redeemed. The purchaser(s) or the purchaser's dealer must refer
to this Letter of Intent in placing each future order for shares while
this Letter is in effect. This cancels and supersedes any previous
instructions which the purchaser may have given inconsistent with the
above.
Client Name: -------------------------------------------------------
Client Signature: ------------------------------------------------
- -Financial Consultant: -------------------------------------------
- --
- -------------------------------------------(FC Number)
- -------------------------------------------
(Branch Location)
51
<PAGE>
Smith Barney
A Member of TravelersGroup (Logo)
Smith Barney
Managed Governments
Fund Inc.
338 Greenwich Street
New York, New York, 10013
Funds 16, 184, 241
FD 0212J4
(recycle logo)
Recycled
Recyclable
Smith Barney
MANAGED GOVERNMENTS FUND INC.
388 Greenwich Street
New York, New York 10013
(212) 723-9218
STATEMENT OF ADDITIONAL INFORMATION
NOVEMBER 7, 1994
This Statement of Additional Information expands upon and supplements
the
information contained in the current Prospectus of Smith Barney Managed
Governments Fund Inc. (the "Fund"), dated November 7, 1994, as amended
or
supplemented from time to time, and should be read in conjunction with
the
Fund's Prospectus. The Fund's Prospectus may be obtained from your Smith
Barney Financial Consultant or by writing or calling the Fund at the ad-
dress or telephone number listed above. This Statement of Additional In-
formation, although not in itself a prospectus, is incorporated by
refer-
ence into the Prospectus in its entirety.
CONTENTS
For ease of reference, the same section headings are used in both the
Pro-
spectus and the Statement of Additional Information, except where shown
below:
<TABLE>
<S>
<C>
Management of the Fund
1
Investment Objective and Management Policies
5
Purchase of Shares
17
Redemption of Shares
18
Distributor
19
Valuation of Shares
20
Exchange Privilege
21
Performance Data (See in the Prospectus "Performance")
21
Taxes (See in the Prospectus "Dividends, Distributions and Taxes")
23
Additional Information
26
Financial Statements
26
</TABLE>
MANAGEMENT OF THE FUND
The executive officers of the Fund are employees of certain of the
organi-
zations that provide services to the Fund. These organizations are as
fol-
lows:
<TABLE>
<CAPTION>
NAME SERVICE
<S> <C>
Smith Barney Inc.
("Smith Barney") Distributor
Smith Barney Mutual Funds Management Inc. Investment Adviser and
Administrator
("SBMFM")
The Boston Company Advisors, Inc.
("Boston Advisors") Sub-Administrator
Boston Safe Deposit and Trust Company
("Boston Safe") Custodian
The Shareholder Services Group, Inc. ("TSSG"),
a subsidiary of First Data Corporation Transfer Agent
</TABLE>
These organizations and the functions they perform for the Fund are dis-
cussed in the Prospectus and in this Statement of Additional
Information.
DIRECTORS AND EXECUTIVE OFFICERS OF THE FUND
The Directors and executive officers of the Fund, together with informa-
tion as to their principal business occupations during the past five
years, are shown below. Each Director who is an "interested person" of
the
Fund, as defined in the Investment Company Act of 1940, as amended (the
"1940 Act"), is indicated by an asterisk.
Burt N. Dorsett, Director. Managing Partner of Dorsett McCabe
Management,
Inc., an investment counseling firm; Director of Research Corporation
Technologies Inc., a non-profit patent-clearing and licensing firm. His
address is 201 East 62nd Street, New York, New York 10021.
Elliot S. Jaffe, Director. Chairman of the Board and President of The
Dress Barn, Inc. His address is 30 Dunnigan Drive, Suffern, NY 10901.
*Heath B. McLendon, Chairman of the Board and Investment Officer. Execu-
tive Vice President of Smith Barney and Chairman of the Board of Smith
Barney Strategy Advisers Inc. ("SBSA"); prior to July, 1993, Senior
Execu-
tive Vice President of Shearson Lehman Brothers Inc. ("Shearson Lehman
Brothers"); Vice Chairman of Shearson Asset Management; a Director of
Pa-
nAgora Asset Management, Inc. and PanAgora Asset Management Limited. His
address is 388 Greenwich Street, New York, New York 10013.
Cornelius C. Rose, Jr., Director. President, Cornelius C. Rose
Associates,
Inc., financial consultants, and Chairman and Director of Performance
Learning Systems, an educational consultant. His address is P.O. Box
335,
Fair Oaks, Enfield, New Hampshire 03748.
Stephen J. Treadway, President. Executive Vice President and Director of
Smith Barney; Director and President of Mutual Management Corp. and
SBMFM;
and Trustee of Corporate Realty Income Trust I. His address is 388
Green-
wich Street, New York, New York 10013.
Richard P. Roelofs, Executive Vice President. Managing Director of Smith
Barney; President of SBSA; prior to July 1993, Senior Vice President of
Shearson Lehman Brothers; Vice President of Shearson Lehman Investment
Strategy Advisors Inc. His address is 388 Greenwich Street, New York,
New
York 10013.
James E. Conroy, First Vice President and Investment Officer. Investment
Officer of SBMFM; prior to July, 1993, Managing Director of Shearson
Leh-
man Advisors. His address is 388 Greenwich Street, New York, New York
10013.
Lewis E. Daidone, Treasurer. Managing Director and Chief Financial
Officer
of Smith Barney; Director and Senior Vice President of SBMFM. His
address
is 388 Greenwich Street, New York, New York 10013.
Christina T. Sydor, Secretary. Managing Director of Smith Barney and
Sec-
retary of SBMFM. Her address is 388 Greenwich Street, New York, New York
10013.
Isaac B. Grainger, Director Emeritus. Director of the Fund since
commence-
ment of the Fund's operations until February 26, 1990. Director of Hart-
ford Insurance Group; Director of Safety Railway Service Corporation;
Ad-
visory Director of Union Electric Company, St. Louis, Missouri; retired
President and currently adviser to Chemical Bank. His address is
Chemical
Bank, 11 West 51st Street, 2nd Floor, New York, New York 10019.
Harry W. Knight, Director Emeritus. Mr. Knight served as a Director of
the
Fund since the Fund's commencement until June 22, 1994. Chairman of the
Board of Hillsboro Associates, Inc., a private investment and management
firm; formerly Senior Partner with Booz, Allen & Hamilton Inc.; among
the
corporations of which he has served in the past as Director are
Burlington
Industries, Inc., The Foxboro Company, The Waldorf-Astoria Hotel and
Menlo
Ventures. His address is 1230 Sharon Park Drive, Menlo Park, California
94025.
Each Director also serves as a director, trustee or general partner of
certain other mutual funds for which Smith Barney serves as distributor.
As of October 31, 1994, the Directors and officers of the Fund, as a
group, beneficially owned less than 1.00% of the outstanding common
stock
of the Fund.
A Director Emeritus may attend meetings of the Fund's Board of Directors
but has no voting rights at such meetings.
No director, officer or employee of Smith Barney or any parent or
subsid-
iary of Smith Barney receives any compensation from the Fund for serving
as an officer or Director of the Fund. The Fund pays each Director who
is
not an officer or employee of Smith Barney or any of its affiliates a
fee
of $4,000 per annum plus $500 per meeting attended and reimbursement for
travel and out-of-pocket expenses. For the Fund's fiscal year ended July
31, 1994, such fees and expenses totalled $18,754.
INVESTMENT ADVISER AND ADMINISTRATOR -- SBMFM
SUB-ADMINISTRATOR -- BOSTON ADVISORS
SBMFM serves as investment adviser to the Fund pursuant to a written
agreement dated July 30, 1993 (the "Advisory Agreement"), which was ap-
proved by the Board of Directors, including a majority of the Directors
who are not "interested persons" of the Fund or SBMFM, on April 1, 1993.
SBMFM pays the salary of any officer and employee who is employed by
both
it and the Fund. SBMFM bears all expenses in connection with the perfor-
mance of its services and pays the salary of any officer or employee who
is employed by both it and the Fund. The services provided by SBMFM
under
the Advisory Agreement are described in the Prospectus under "Management
of the Fund." SBMFM provides investment advisory and management service
to
investment companies affiliated with Smith Barney. Smith Barney is a
wholly owned subsidiary of Smith Barney Holdings Inc. ("Holdings").
Hold-
ings is in turn a wholly owned subsidiary of The Travelers Inc.
("Travel-
ers").
As compensation for SBMFM's services, the Fund pays a fee paid monthly
at
the following annual rates of average daily net assets: .45% up to $1
bil-
lion and .415% in excess of $1 billion. For the fiscal years ended July
31, 1991, 1992, 1993 and 1994 the Fund paid Mutual Management Corp., a
wholly owned subsidiary of Holdings and previously the Fund's investment
adviser and/or Shearson Lehman Advisors, the Fund's investment adviser
prior to Mutual Management Corp. $2,197,935, $2,173,422, $3,645,285 and
$3,840,009, respectively, in investment advisory fees.
SBMFM also serves as administrator to the Fund pursuant to a written
agreement dated April 20, 1994 (the "Administration Agreement"), which
was
most recently approved by the Board of Directors, including a majority
of
the Directors who are not "interested persons" of the Fund or SBMFM, on
July 20, 1994. The services provided by SBMFM under the Administration
Agreement are described in the Prospectus under "Management of the
Fund."
SBMFM pays the salary of any officer and employee who is employed by
both
it and the Fund and bears all expenses in connection with the
performance
of its services. SBMFM is a wholly owned subsidiary of Holdings.
As compensation for SBMFM's services rendered as administrator, the Fund
pays a fee computed daily and paid monthly at the annual rate of .20% of
the value of the average daily net assets of each Fund.
Prior to April 20, 1994, Boston Advisors served as administrator to the
Fund. Boston Advisors currently serves as sub-administrator to the Fund
pursuant to a written agreement (the "Sub- Administration Agreement")
which was most recently approved by the Fund's Board of Directors,
includ-
ing a majority of Directors who are not "interested persons" of the Fund
or Boston Advisors on April 20, 1994. Prior to the close of business on
May 21, 1993, Boston Advisors also acted in the capacity as the Fund's
sub-investment adviser and administrator. Boston Advisors is a wholly
owned subsidiary of The Boston Company, Inc. ("TBC"), a financial
services
holding company, which is in turn a wholly owned subsidiary of Mellon
Bank
Corporation ("Mellon").
Certain of the services provided to the Fund by SBMFM and Boston
Advisors
pursuant to the Administrator Agreement are described in the Prospectus
under "Management of the Fund." In addition to those services, SBMFM and
Boston Advisors pay the salaries of all officers and employees who are
em-
ployed by both SBMFM and Boston Advisors and the Fund, maintains office
facilities for the Fund, furnishes the Fund with statistical and
research
data, clerical help and accounting, data processing, bookkeeping,
internal
auditing and legal services and certain other services required by the
Fund, prepares reports to the Fund's shareholders and prepares tax re-
turns, reports to and filings with the Securities and Exchange
Commission
(the "SEC") and state Blue Sky authorities. SBMFM and Boston Advisors
bear
all expenses in connection with the performance of their services.
The Fund bears expenses incurred in its operation, including taxes,
inter-
est, brokerage fees and commissions, if any; fees of Directors who are
not
officers, directors, shareholders or employees of Smith Barney or Boston
Advisors; SEC fees and state Blue Sky qualification fees; charges of
cus-
todians; transfer and dividend disbursing agents' fees; certain
insurance
premiums; outside auditing and legal expenses; costs of maintenance of
corporate existence; investor services (including allocated telephone
and
personnel expenses); costs of preparation and printing of prospectuses
and
statements of additional information for regulatory purposes and for
dis-
tribution to shareholders; costs of shareholders' reports and corporate
meetings.
SBMFM and Boston Advisors have agreed that if in any fiscal year the ag-
gregate expenses of the Fund (including fees paid pursuant to the Advi-
sory, Administration and Sub-Administration Agreements, but excluding
in-
terest, taxes, brokerage and, with the prior written consent of the
neces-
sary state securities commissions, extraordinary expenses) exceed the
expense limitation of any state having jurisdiction over the Fund, SBMFM
and Boston Advisors will, to the extent required by state law, reduce
their management fees by 70% and 30%, respectively, of such excess ex-
penses. Such fee reductions, if any, will be estimated and reconciled on
a
monthly basis. The most restrictive state expense limitation applicable
to
the Fund would require SBMFM and Boston Advisors to reduce their fees in
any year that such expenses exceed 2.5% of the first $30 million of
aver-
age net assets, 2% of the next $70 million of average net assets and
1.5%
of the remaining average net assets. No such fee reduction was required
for the fiscal years ended July 31, 1992, 1993 and 1994.
COUNSEL AND AUDITORS
Willkie Farr & Gallagher serves as legal counsel to the Fund. The Direc-
tors who are not "interested persons" of the Fund have selected Stroock
&
Stroock & Lavan as their legal counsel.
KPMG Peat Marwick, independent accountants, 345 Park Avenue, New York,
New
York 10154, serve as auditors of the Fund and render an opinion on the
Fund's financial statements annually.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The Prospectus discusses the Fund's investment objective and the
policies
it employs to achieve its objective. This section contains supplemental
information concerning the types of securities and other instruments in
which the Fund may invest, the investment policies and portfolio strate-
gies that the Fund may utilize and certain risks attendant to such
invest-
ments, policies and strategies.
MORTGAGE-BACKED GOVERNMENT SECURITIES
Government National Mortgage Association ("GNMA") certificates are
liquid
securities and represent ownership interests in a pool of mortgages
issued
by a mortgage banker or other mortgagee. Distributions on GNMA certifi-
cates include principal and interest components. GNMA, a corporate
instru-
mentality of the U.S. Department of Housing and Urban Development,
guaran-
tees timely payment of principal and interest on GNMA certificates; this
guarantee is deemed a general obligation of the United States, backed by
its full faith and credit.
Each of the mortgages in a pool supporting a GNMA certificate is insured
by the Federal Housing Administration or the Farmers Home
Administration,
or is insured or guaranteed by the Veterans Administration. The
mortgages
have maximum maturities of 40 years. Government statistics indicate,
how-
ever, that the average life of the underlying mortgages is shorter, due
to
scheduled amortization and unscheduled prepayments (attributable to
volun-
tary prepayments or foreclosures). These statistics indicate that the
av-
erage life of the mortgages backing most GNMA certificates, which are
single-family mortgages with 25- to 30-year maturities, ranges from two
to
ten years depending on the mortgages' coupon rate, and yields on pools
of
single-family mortgages are often quoted on the assumption that the pre-
payment rate for any given pool will remain constant over the life of
the
pool. (The actual maturity of specific GNMA certificates will vary based
on the prepayment experience of the underlying mortgage pool.) Based on
this constant prepayment assumption, GNMA certificates have had
historical
yields at least 3/4 of 1% greater than Treasury Bonds and U.S.
government
agency bonds and 1/4 of 1% greater than the highest grade corporate
bonds.
Actual yield comparisons will vary with the prepayment experience of
spe-
cific GNMA certificates.
The Fund also may invest in pass-through securities backed by
adjustable-
rate mortgages, which have been introduced by GNMA, the Federal National
Mortgage Association ("FNMA") and the Federal Home Loan Mortgage
Corpora-
tion ("FHLMC"). These securities bear interest at a rate which is
adjusted
monthly, quarterly or annually. The prepayment experience of the
mortgages
underlying these securities may vary from that for fixed-rate mortgages.
The average maturity of FHLMC and FNMA mortgage-backed pools, like GNMA
mortgage-backed pools, varies with the maturities of the underlying
mort-
gage instruments, and a pool's stated average life also may be shortened
by unscheduled payments on the underlying mortgages. Factors affecting
mortgage prepayments include the level of interest rates, general
economic
and social conditions, the location of the mortgaged property and age of
the mortgage. Because prepayment rates of individual pools vary widely,
it
is not possible to accurately predict the average life of a particular
pool. As noted above, it is a common practice to assume that prepayments
will result in an average life ranging from two to ten years for pools
of
fixed-rate 30-year mortgages. Pools of mortgages with other maturities
or
different characteristics will have varying average life assumptions.
The
actual maturity of and realized yield on specific FHLMC and FNMA
certifi-
cates will vary based on the prepayment experience of the underlying
pool
of mortgages.
U.S. GOVERNMENT SECURITIES
Direct obligations of the United States Treasury include a variety of
se-
curities that differ in their interest rates, maturities and dates of
is-
suance. Treasury Bills have maturities of less than one year, Treasury
Notes have maturities of one to ten years and Treasury Bonds generally
have maturities of greater than ten years at the date of issuance.
In addition to direct obligations of the United States Treasury, debt
ob-
ligations of varying maturities issued or guaranteed by the United
States
government or its agencies or instrumentalities ("U.S. government
securi-
ties") include securities issued or guaranteed by the Federal Housing
Ad-
ministration, Federal Financing Bank, Export-Import Bank of the United
States, Small Business Administration, GNMA, General Services
Administra-
tion, Federal Home Loan Banks, FHLMC, FNMA, Maritime Administration,
Ten-
nessee Valley Authority, Resolution Trust Corporation, District of
Colum-
bia Armory Board, Student Loan Marketing Association and various
institu-
tions that previously were or currently are part of the Farm Credit
System
(which has been undergoing a reorganization since 1987). Because the
United States government is not obligated by law to provide support to
an
instrumentality that it sponsors, the Fund will invest in obligations of
an instrumentality to which the United States government is not
obligated
by law to provide support only if SBMFM determines that the credit risk
with respect to the instrumentality does not make its securities unsuit-
able for investment by the Fund.
The Fund may invest up to 5% of its net assets in U.S. government
securi-
ties for which the principal repayment at maturity, while paid in U.S.
dollars, is determined by reference to the exchange rate between the
U.S.
dollar and the currency of one or more foreign countries ("Exchange
Rate-
Related Securities"). Exchange Rate-Related Securities are issued in a
va-
riety of forms, depending on the structure of the principal repayment
for-
mula. The principal repayment formula may be structured so that the
secu-
rityholder will benefit if a particular foreign currency to which the
security is linked is stable or appreciates against the U.S. dollar. In
the alternative, the principal repayment formula may be structured so
that
the securityholder benefits if the U.S. dollar is stable or appreciates
against the linked foreign currency. Finally, the principal repayment
for-
mula can be a function of more than one currency and, therefore, be de-
signed in either of the aforementioned forms or a combination of those
forms.
Investments in Exchange Rate-Related Securities entail special risks.
There is the possibility of significant changes in rates of exchange be-
tween the U.S. dollar and any foreign currency to which an Exchange
Rate-
Related Security is linked. If currency exchange rates do not move in
the
direction or to the extent anticipated at the time of purchase of the
se-
curity, the amount of principal repaid at maturity might be
significantly
below the par value of the security, which might not be offset by the
in-
terest earned by the Fund over the term of the security. The rate of ex-
change between the U.S. dollar and other currencies is determined by the
forces of supply and demand in the foreign exchange markets. These
forces
are affected by the international balance of payments and other economic
and financial conditions, government intervention, speculation and other
factors. The imposition or modification of foreign exchange controls by
domestic or foreign governments or intervention by central banks also
could affect exchange rates. Finally, there is no assurance that suffi-
cient trading interest to create a liquid secondary market will exist
for
particular Exchange Rate-Related Securities due to conditions in the
debt
and foreign currency markets. Illiquidity in the forward foreign
exchange
market and the high volatility of the foreign exchange market may from
time to time combine to make it difficult to sell an Exchange Rate-
Related
Security prior to maturity without incurring a significant price loss.
WRITING PUT AND CALL OPTIONS
The principal reason for writing covered call options on securities is
to
attempt to realize, through the receipt of premiums, a greater return
than
would be realized on the securities alone. In return for a premium, the
writer of a covered call option forfeits the right to any appreciation
in
the value of the underlying security above the strike price for the life
of the option (or until a closing purchase transaction can be effected).
Nevertheless, the call writer retains the risk of a decline in the price
of the underlying security. Similarly, the principal reason for writing
covered put options is to realize income in the form of premiums. The
writer of a covered put option accepts the risk of a decline in the
price
of the underlying security. The size of the premiums that the Fund may
re-
ceive may be adversely affected as new or existing institutions,
including
other investment companies, engage in or increase their option-writing
ac-
tivities.
Options written by the Fund normally will have expiration dates between
one and nine months from the date written. The exercise price of the op-
tions may be below, equal to, or above the current market values of the
underlying securities at the times the options are written. In the case
of
call options these exercise prices are referred to as "in-the-money,"
"at-
the-money" and "out-of-the-money," respectively.
The Fund may write (a) in-the-money call options when SBMFM expects that
the price of the underlying security will remain flat or decline moder-
ately during the option period, (b) at-the-money call options when SBMFM
expects that the price of the underlying security will remain flat or
ad-
vance moderately during the option period and (c) out-of-the-money call
options when SBMFM expects that the price of the security may increase
but
not above a price equal to the sum of the exercise price plus the
premiums
received from writing the call option. In any of the preceding
situations,
if the market price of the underlying security declines and the security
is sold at this lower price, the amount of any realized loss will be
off-
set wholly or in part by the premium received. Out-of-the-money, at-the-
money and in-the-money put options (the reverse of call options as to
the
relation of exercise price to market price) may be utilized in the same
market environments that such call options are used in equivalent
transac-
tions.
So long as the obligation of the Fund as the writer of an option contin-
ues, the Fund may be assigned an exercise notice by the broker-dealer
through which the option was sold, requiring it to deliver, in the case
of
a call, or take delivery of, in the case of a put, the underlying
security
against payment of the exercise price. This obligation terminates when
the
option expires or the Fund effects a closing purchase transaction. The
Fund can no longer effect a closing purchase transaction with respect to
an option once it has been assigned an exercise notice. To secure its
ob-
ligation to deliver the underlying security when it writes a call
option,
or to pay for the underlying security when it writes a put option, the
Fund will be required to deposit in escrow the underlying security or
other assets in accordance with the rules of the Options Clearing
Corpora-
tion (the "Clearing Corporation") or similar clearing corporation and
the
securities exchange on which the option is written.
An option position may be closed out only where there exists a secondary
market for an option of the same series on a recognized securities ex-
change or in the over-the-counter market. The Fund expects to write op-
tions only on national securities exchanges or in the over-the-counter
market.
The Fund may realize a profit or loss upon entering into a closing
trans-
action. In cases in which the Fund has written an option, it will
realize
a profit if the cost of the closing purchase transaction is less than
the
premium received upon writing the original option and will incur a loss
if
the cost of the closing purchase transaction exceeds the premium
received
upon writing the original option.
PURCHASING PUT AND CALL OPTIONS
Buying a put option on a U.S. government security will give the Fund the
right to sell the security at a particular price and may act to limit,
until that right expires, the Fund's risk of loss through a decline in
the
market value of the security. Any appreciation in the value of the
under-
lying security will be offset in part by the amount of the premium that
the Fund pays for the put option and any related transaction costs. By
purchasing a put option on a security that it does not own, the Fund
would
seek to benefit from a decline in the market price of its investment
port-
folio generally. If the market price of the underlying security remains
equal to or greater than the exercise price during the life of the put
op-
tion, the Fund would lose its entire investment in the put option. For
the
purchase of a put option to be profitable, the market price of the
under-
lying security must decline sufficiently below the exercise price to
cover
the premium and transaction costs, unless the put option is sold at a
profit before expiration in a closing sale transaction. The Fund would
not
purchase a put option if, as a result of the purchase, more than 10% of
the Fund's assets would be invested in put options.
As the holder of a call option on a U.S. government security, the Fund
would have the right to purchase the underlying security at the exercise
price at any time during the option period. The Fund would purchase a
call
option to acquire the underlying security for its portfolio. Utilized in
this fashion, the purchase of call options would enable the Fund to fix
its cost of acquiring the underlying security at the exercise price of
the
call option plus the premium paid. Pending exercise of the call option,
the Fund could invest the exercise price of the call option, which would
otherwise have been used for the immediate purchase of the security, in
short-term investments providing additional current return. At times,
the
net cost of acquiring securities in this manner may be less than the
cost
of acquiring the securities directly. So long as it holds such a call
op-
tion rather than the underlying security itself, the Fund is partially
protected from any unexpected decline in the market price of the
underly-
ing security and could allow the call option to expire, incurring a loss
only to the extent of the premium paid for the option. The Fund also
could
purchase call options on U.S. government securities to increase its
return
to investors at a time when the call is expected to increase in value
due
to anticipated appreciation of the underlying security. The Fund would
not
purchase a call option if, as a result of the purchase, more than 10% of
the Fund's assets would be invested in call options.
The Fund may enter into closing transactions with respect to put and
call
options that it purchases, exercise the options, or permit the options
to
expire. Profit or loss from a closing transaction will depend on whether
the amount that the Fund received on the transaction is more or less
than
the premium paid for the option plus any related transaction costs.
Although the Fund generally will purchase or write only those options
for
which SBMFM believes that there is an active secondary market so as to
fa-
cilitate closing transactions, there is no assurance that sufficient
trad-
ing interest to create a liquid secondary market on a securities
exchange
will exist for any particular option or at any particular time, and for
some options no such secondary market may exist. A liquid secondary
market
in an option may cease to exist for a variety of reasons. In the past,
for
example, higher than anticipated trading activity or order flow, or
other
unforeseen events, have at times rendered certain of the facilities of
na-
tional securities exchanges inadequate and resulted in the institution
of
special procedures, such as trading rotations, restrictions on certain
types of orders or trading halts or suspensions in one or more options.
There can be no assurance that similar events, or events that may other-
wise interfere with the timely execution of customers' orders, will not
recur. In such event, it might not be possible to effect closing
transac-
tions in particular options. If, as a covered call option writer, the
Fund
is unable to effect a closing purchase transaction in a secondary
market,
it will not be able to sell the underlying security until the option ex-
pires or it delivers the underlying security upon exercise.
Securities exchanges generally have established limitations governing
the
maximum number of calls and puts of each class which may be held or
writ-
ten, or exercised within certain periods, by an investor or group of in-
vestors acting in concert (regardless of whether the options are written
on the same or different securities exchanges or are held, written or
ex-
ercised in one or more accounts or through one or more brokers). It is
possible that the Fund and other clients of SBMFM and certain of their
af-
filiates may be considered to be such a group. A securities exchange may
order the liquidation of positions found to be in violation of these
lim-
its, and it may impose certain other sanctions. At the date of this
State-
ment of Additional Information, the position and exercise limits for
com-
mon stocks on United States exchanges were 3,000, 5,500 or 8,000 options
per stock (i.e., options representing 300,000, 550,000 or 800,000
shares),
depending on various factors relating to the underlying security and the
Fund's combined stock and option position.
Additional risks exist with respect to certain of the U.S. government
se-
curities for which the Fund may write covered call options. If the Fund
writes covered call options on mortgage-backed securities, the
securities
that it holds as cover may, because of scheduled amortization or
unsched-
uled prepayments, cease to be sufficient cover. The Fund will compensate
for the decline in the value of the cover by purchasing an appropriate
ad-
ditional amount of those securities.
The trading market in options on U.S. government securities has varying
degrees of depth for various securities. SBMFM will attempt to take
appro-
priate measures to minimize risks relating to the Fund's writing and
pur-
chasing of put and call options, but there can be no assurance that the
Fund will succeed in its option program.
WHEN-ISSUED SECURITIES AND DELAYED DELIVERY TRANSACTIONS
In order to secure what SBMFM considers to be an advantageous price or
yield, the Fund may purchase U.S. government securities on a when-issued
basis or purchase or sell U.S. government securities for delayed
delivery.
The Fund will enter into such purchase transactions for the purpose of
ac-
quiring portfolio securities and not for the purpose of leverage.
Delivery
of the securities in such cases occurs beyond the normal settlement
peri-
ods, but no payment or delivery is made by the Fund prior to the
recipro-
cal delivery or payment by the other party to the transaction. In
entering
into a when-issued or delayed-delivery transaction, the Fund relies on
the
other party to consummate the transaction and may be disadvantaged if
the
other party fails to do so.
U.S. government securities normally are subject to changes in value
based
upon changes, real or anticipated, in the level of interest rates and,
to
a lesser extent, the public's perception of the creditworthiness of the
issuers. In general, U.S. government securities tend to appreciate when
interest rates decline and depreciate when interest rates rise.
Purchasing
U.S. government securities on a when-issued basis or delayed-delivery
basis, therefore, can involve the risk that the yields available in the
market when the delivery takes place may actually be higher than those
ob-
tained in the transaction itself. Similarly, the sale of U.S. government
securities for delayed delivery can involve the risk that the prices
available in the market when the delivery is made may actually be higher
than those obtained in the transaction itself.
The Fund will at all times maintain in a segregated account at Boston
Safe
cash or liquid securities equal to the amount of the Fund's when-issued
or
delayed-delivery commitments. For the purpose of determining the
adequacy
of the securities in the account, the deposited securities will be
valued
at market or fair value. If the market or fair value of such securities
declines, additional cash or securities will be placed in the account on
a
daily basis so that the value of the account will equal the amount of
such
commitments by the Fund. Placing securities rather than cash in the ac-
count may have a leveraging effect on the Fund's assets. That is, to the
extent that the Fund remains substantially fully invested in securities
at
the time that it has committed to purchase securities on a when-issued
basis, there will be greater fluctuation in its net asset value than if
it
had set aside cash to satisfy its purchase commitments. On the
settlement
date, the Fund will meet its obligations from then-available cash flow,
the sale of securities held in the separate account, the sale of other
se-
curities or, although it normally would not expect to do so, from the
sale
of the when-issued or delayed-delivery securities themselves (which may
have a greater or lesser value than the Fund's payment obligations).
LENDING OF PORTFOLIO SECURITIES
As stated in the Prospectus, the Fund has the ability to lend securities
from its portfolio to brokers, dealers and other financial
organizations.
Such loans, if and when made, may not exceed 33 1/3 % of the Fund's
total
assets, taken at value. The Fund may not lend its portfolio securities
to
Smith Barney or its affiliates without specific authorization from the
SEC. Loans of portfolio securities by the Fund will be collateralized by
cash, letters of credit or securities issued or guaranteed by the United
States government or its agencies which are maintained at all times in
an
amount equal to at least 100% of the current market value of the loaned
securities. From time to time, the Fund may return a part of the
interest
earned from the investment of collateral received for securities loaned
to
the borrower and/or a third party, which is unaffiliated with the Fund
or
with Smith Barney, and which is acting as a "finder."
In lending its portfolio securities, the Fund can increase its income by
continuing to receive interest on the loaned securities, as well as
either
investing the cash collateral in short-term instruments or by obtaining
yield in the form of interest paid by the borrower when U.S. government
securities are used as collateral. Requirements of the SEC, which may be
subject to further modifications, currently provide that the following
conditions must be met whenever portfolio securities are loaned: (a) the
Fund must receive at least 100% cash collateral or equivalent securities
from the borrower; (b) the borrower must increase such collateral
whenever
the market value of the securities rises above the level of such collat-
eral; (c) the Fund must be able to terminate the loan at any time; (d)
the
Fund must receive reasonable interest on the loan, as well as an amount
equal to any dividends, interest or other distributions on the loaned
se-
curities, and any increase in market value; (e) the Fund may pay only
rea-
sonable custodian fees in connection with the loan; and (f) voting
rights
on the loaned securities may pass to the borrower; however, if a
material
event adversely affecting the investment occurs, the Fund's Board of Di-
rectors must terminate the loan and regain the right to vote the securi-
ties. The risks in lending portfolio securities, as with other
extensions
of secured credit, consist of possible delay in receiving additional
col-
lateral or in the recovery of the securities or possible loss of rights
in
the collateral should the borrower fail financially. Loans will be made
to
firms deemed by SBMFM to be of good standing and will not be made
unless,
in the judgment of SBMFM the consideration to be earned from such loans
would justify the risk.
TRANSACTIONS IN INTEREST RATE FUTURES CONTRACTS AND RELATED OPTIONS
The Fund may enter into interest rate futures contracts and options on
in-
terest rate futures contracts that are traded on a U.S. exchange or
board
of trade. These investments may be made by the Fund solely for the
purpose
of hedging against changes in the value of its portfolio securities due
to
anticipated changes in interest rates and market conditions and not for
purposes of speculation. The Fund will not be permitted to enter into
fu-
tures and options contracts (other than those considered bona fide
hedging
by the Commodity Futures Trading Commission) for which aggregate initial
margin deposits and premiums exceed 5% of the fair market value of the
Fund's assets, after taking into account unrealized profits and
unrealized
losses on contracts into which it has entered.
An interest rate futures contract provides for the future sale by one
party and the purchase by the other party of a certain amount of
specified
interest rate sensitive financial instruments (debt security) at a
speci-
fied price, date, time and place.
The purpose of entering into a futures contract by the Fund is to
protect
the Fund from fluctuations in interest rates on securities without actu-
ally buying or selling the securities. For example, if the Fund owns
long-
term U.S. government securities and interest rates are expected to in-
crease, the Fund may enter into a futures contract to sell U.S. Treasury
Bonds. Such a transaction would have much the same effect as the Fund's
selling some of the long-term bonds in its portfolio. If interest rates
increase as anticipated, the value of certain long-term U.S. government
securities in the portfolio would decline, but the value of the Fund's
fu-
tures contracts would increase at approximately the same rate, thereby
keeping the net asset value of the Fund from declining as much as it may
have otherwise. Of course, because the value of portfolio securities
will
far exceed the value of the futures contracts sold by the Fund, an in-
crease in the value of the futures contracts can only mitigate-but not
to-
tally offset-the decline in the value of the portfolio. If, on the other
hand, the Fund held cash reserves and interest rates are expected to de-
cline, the Fund may enter into futures contracts for the purchase of
U.S.
government securities in anticipation of later purchases of securities.
The Fund can accomplish similar results by buying securities with long
ma-
turities and selling securities with short maturities. But by using fu-
tures contracts as an investment tool to reduce risk, given the greater
liquidity in the futures market than in the cash market, it may be
possi-
ble to accomplish the same result more easily and more quickly.
No consideration will be paid or received by the Fund upon entering into
a
futures contract. Initially, the Fund will be required to deposit with
the
broker an amount of cash or cash equivalents equal to approximately 1%
to
10% of the contract amount (this amount is subject to change by the
board
of trade on which the contract is traded and members of such board of
trade may charge a higher amount). This amount is known as "initial mar-
gin" and is in the nature of a performance bond or good faith deposit on
the contract which is returned to the Fund, upon termination of the fu-
tures contract, assuming that all contractual obligations have been
satis-
fied. Subsequent payments, known as "variation margin," to and from the
broker, will be made daily as the price of the securities underlying the
futures contract fluctuates, making the long and short positions in the
futures contract more or less valuable, a process known as "marking-to-
market." In addition, when the Fund enters into a long position in
futures
or options on futures, it must deposit and maintain in a segregated ac-
count with its custodian an amount of cash or cash equivalents equal to
the total market value of such futures contract, less the amount of ini-
tial margin for the contract and any profits on the contract that may be
held by the broker. At any time prior to the expiration of a futures
con-
tract, the Fund may elect to close the position by taking an opposite
po-
sition, which will operate to terminate the Fund's existing position in
the contract.
There are several risks in connection with the use of futures contracts
as
a hedging device. Successful use of futures contracts by the Fund is
sub-
ject to the ability of SBMFM to predict correctly movements in the
direc-
tion of interest rates. These predictions involve skills and techniques
that may be different from those involved in the management of the Fund.
In addition, there can be no assurance that there will be a perfect
corre-
lation between movements in the price of the securities underlying the
fu-
tures contract and movements in the price of the securities which are
the
subject of the hedge. A decision as to whether, when and how to hedge
in-
volves the exercise of skill and judgment, and even a well-conceived
hedge
may be unsuccessful to some degree because of market behavior or unex-
pected trends in interest rates.
Although the Fund intends to enter into futures contracts only if there
is
an active market for such contracts, there is no assurance that a liquid
market will exist for the contracts at any particular time. Most
domestic
futures exchanges and boards of trade limit the amount of fluctuation
per-
mitted in futures contract prices during a single trading day. Once the
daily limit has been reached in a particular contract, no trades may be
made that day at a price beyond that limit. It is possible that futures
contract prices could move to the daily limit for several consecutive
trading days with little or no trading, thereby preventing prompt
liquida-
tion of futures positions and subjecting some futures traders to
substan-
tial losses. In such event, and in the event of adverse price movements,
the Fund would be required to make daily cash payments of variation mar-
gin. In such circumstances, an increase in the value of the portion of
the
portfolio being hedged, if any, may partially or completely offset
losses
on the futures contract.
If the Fund has hedged against the possibility of an increase in
interest
rates adversely affecting the value of securities held in its portfolio
and rates decrease instead, the Fund will lose part or all of the
benefit
of the increased value of securities which it has hedged because it will
have offsetting losses in its futures positions. In addition, in such
sit-
uations, if the Fund has insufficient cash, it may have to sell
securities
to meet daily variation margin requirements at a time when it may be
dis-
advantageous to do so. These sales of securities may, but will not
neces-
sarily, be at increased prices which reflect the decline in interest
rates.
Purchasing Options. Options on interest rate futures contracts are simi-
lar to options on securities, except that an option on an interest rate
futures contract gives the purchaser the right, in return for the
premium
paid, to assume a position in an interest rate futures contract (rather
than to purchase securities) at a specified exercise price at any time
prior to the expiration date of the option. A call option gives the pur-
chaser of such option the right to take a long position, and obliges its
writer to take a short position in a specified underlying futures
contract
at a stated exercise price at any time prior to the expiration date of
the
option. A purchaser of a put option has the right to enter into a short
position, and the writer has the obligation to enter into a long
position
in such contract at the exercise price during the option period. If an
op-
tion is exercised on the last trading day prior to the expiration date
of
the option, the settlement will be made entirely in cash equal to the
dif-
ference between the exercise price of the option and the closing price
of
the interest rate futures contract on the expiration date. The potential
loss related to the purchase of an option on interest rate futures con-
tracts is limited to the premium paid for the option (plus transaction
costs), and there are no daily cash payments to reflect changes in the
value of the underlying contract. However, the value of the option does
change daily and that change is reflected in the net asset value of the
Fund.
The purchase of put options on interest rate futures contracts is analo-
gous to the purchase of protective puts on debt securities so as to
hedge
a portfolio of debt securities against the risk of rising interest
rates.
The Fund may purchase put options on interest rate futures contracts if
SBMFM anticipates a rise in interest rates. Because of the inverse rela-
tionship between trends in interest rates and the values of debt securi-
ties, a rise in interest rates would result in a decline in the value of
the Fund's portfolio securities. Because the value of an interest rate
fu-
tures contract moves inversely in relation to changes in interest rates,
as is the case with debt securities, a put option on such a contract be-
comes more valuable as interest rates rise. By purchasing put options on
interest rate futures contracts at a time when SBMFM expects interest
rates to rise, the Fund would seek to realize a profit to offset the
loss
in value of its portfolio securities, without the need to sell such
secu-
rities.
The Fund may purchase call options on interest rate futures contracts if
SBMFM anticipates a decline in interest rates. Historically, unscheduled
prepayments on mortgage-backed securities (such as GNMA certificates)
have
increased in periods of declining interest rates, as mortgagors have
sought to refinance at lower interest rates. As a result, if the Fund
pur-
chases such securities at a premium prior to a period of declining
inter-
est rates, the subsequent prepayments at par will reduce the yield on
such
securities by magnifying the effect of the premium in relationship to
the
principal amount of securities, and may, under extreme circumstances,
re-
sult in a loss to the Fund. This effect may not be offset by any
apprecia-
tion in value in a debt security normally attributable to the interest
rate decline. To protect itself against the possible erosion of
principal
on securities purchased at a premium, the Fund may purchase call options
on interest rate futures. The option would increase in value as interest
rates declined, thereby tending to offset any reductions of the yield on
portfolio securities purchased at a premium resulting from the effect of
prepayments on the amortization of such premiums.
Writing Options. The Fund may write put and call options on interest
rate
futures contracts other than as part of closing sale transactions, in
order to increase its ability to hedge against changes in interest
rates.
A call option gives the purchaser of such option the right to take a
long
position, and obliges the Fund as its writer to take a short position in
a
specified underlying futures contract at a stated exercise price at any
time prior to the expiration date of the option. A purchaser of a put
op-
tion has the right to take a short position, and obliges the Fund as the
writer to take a long position in such contract at the exercise price
dur-
ing the option period.
The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the debt securities which are deliver-
able upon exercise of the futures contract. If the futures price at
expi-
ration is below the exercise price, the Fund will retain the full amount
of the option premium, which provides a partial hedge against any
decline
that may have occurred in the Fund's holdings of debt securities. If a
put
option is exercised, the net cost to the Fund of the debt securities ac-
quired by it will be reduced by the amount of the option premium
received.
Of course, if market prices have declined, the Fund's purchase price
upon
exercise of the option may be greater than the price at which the debt
se-
curities might be purchased in the cash market, and, therefore, a loss
may
be realized when the difference between the exercise price and the
market
value of the debt securities is greater than the premium received for
writing the option.
As is currently the case with respect to its purchases of futures, the
Fund will write put and call options on interest rate futures contracts
only as a hedge against changes in the value of its securities that may
result from market conditions, and not for purposes of speculation.
When the Fund writes a call or a put option, it will be required to de-
posit initial margin and variation margin pursuant to brokers' require-
ments similar to those applicable to interest rate futures contracts de-
scribed above. In addition, net option premiums received for writing op-
tions will be included as initial margin deposits. At any time prior to
the expiration of the option, the Fund may elect to close the position
by
taking an opposite position, which will operate to terminate the Fund's
existing position in the option.
In addition to the risks that apply to all options transactions, there
are
several special risks relating to options on interest rate futures con-
tracts. These risks include the lack of assurance of perfect correlation
between price movements in the options on interest rate futures, on the
one hand, and price movements in the portfolio securities that are the
subject of the hedge, on the other hand. In addition, the Fund's writing
of put and call options on interest rate futures will be based upon pre-
dictions as to anticipated interest rate trends, which predictions could
prove to be inaccurate. The ability to establish and close out positions
on such options will be subject to the maintenance of a liquid market,
and
there can be no assurance that such a market will be maintained or that
closing transactions will be effected. Moreover, the option may not be
subject to daily price fluctuation limits while the underlying futures
contract is subject to such limits, and as a result normal pricing rela-
tionships between options and the underlying futures contract may not
exist when the future is trading at its price limit. In addition, there
are risks specific to writing (as compared to purchasing) such options.
While the Fund's risk of loss with respect to purchased put and call op-
tions on interest rate futures contracts is limited to the premium paid
for the option (plus transaction costs), the writer of an option who
does
not have a covering position in the underlying futures contract is
subject
to risk of loss on the futures contract less the premium received. When
the Fund writes such an option, it is obligated to a broker for the pay-
ment of initial and variation margin.
Under policies adopted by the Board of Directors, the Fund's investment
in
premiums paid for call and put options at any one time may not exceed 5%
of the value of the Fund's total assets.
INVESTMENT RESTRICTIONS
Restrictions numbered 1 through 8 below have been adopted by the Fund as
fundamental policies. These restrictions cannot be changed without ap-
proval by the holders of a majority of the outstanding shares of the
Fund,
defined as the lesser of (a) 67% or more of the shares present at a
meet-
ing if the holders of more than 50% of the outstanding shares are
present
in person or by proxy or (b) more than 50% of the Fund's outstanding
shares. The remaining restrictions may be changed by a vote of the
Fund's
Board of Directors at any time.
The Fund will not:
1. With respect to 75% of the value of its total assets, invest more
than
5% of its total assets in securities of any one issuer, except
securities
issued or guaranteed by the United States government, or purchase more
than 10% of the outstanding voting securities of such issuer.
2. Issue senior securities as defined in the 1940 Act and any rules and
orders thereunder, except insofar as the Fund may be deemed to have
issued
senior securities by reason of: (a) borrowing money or purchasing
securi-
ties on a when-issued or delayed-delivery basis; (b) purchasing or
selling
futures contracts and options on futures contracts and other similar in-
struments; and (c) issuing separate classes of shares.
3. Invest more than 25% of its total assets in securities, the issuers
of
which are in the same industry. For purposes of this limitation, U.S.
gov-
ernment securities and securities of state or municipal governments and
their political subdivisions are not considered to be issued by members
of
any industry.
4. Borrow money, except that: (a) the Fund may borrow from banks for
tem-
porary or emergency (not leveraging) purposes, including the meeting of
redemption requests which might otherwise require the untimely
disposition
of securities, in an amount not exceeding 10% of the value of the Fund's
total assets (including the amount borrowed) valued at market less
liabil-
ities (not including the amount borrowed) at the time the borrowing is
made; and (b) the Fund may enter into reverse repurchase agreements and
forward roll transactions. Whenever borrowings other than reverse repur-
chase agreements and forward roll transactions exceed 5% of the value of
the Fund's total assets, the Fund will not make any additional invest-
ments.
5. Make loans. This restriction does not apply to: (a) the purchase of
debt obligations in which the Fund may invest consistent with its
invest-
ment objective and policies; (b) repurchase agreements; and (c) loans of
its portfolio securities.
6. Engage in the business of underwriting securities issued by other
per-
sons, except to the extent that the Fund may technically be deemed to be
an underwriter under the Securities Act of 1933, as amended, in
disposing
of portfolio securities.
7. Purchase or sell real estate, real estate mortgages, real estate in-
vestment trust securities, commodities or commodity contracts, but this
shall not prevent the Fund from: (a) investing in securities of issuers
engaged in the real estate business and securities which are secured by
real estate or interests therein; (b) holding or selling real estate re-
ceived in connection with securities it holds; or (c) trading in futures
contracts and options on futures contracts.
8. Purchase any securities on margin (except for such short-term credits
as are necessary for the clearance of purchases and sales of portfolio
se-
curities) or sell any securities short (except against the box). For
pur-
poses of this restriction, the deposit or payment by the Fund of initial
or maintenance margin in connection with futures contracts and related
op-
tions and options on securities is not considered to be the purchase of
a
security on margin.
9. Purchase or sell oil, gas or other mineral exploration or development
programs.
10. Invest in securities of other investment companies, except as they
may be acquired as part of a merger, consolidation, reorganization or
ac-
quisition of assets.
11. Purchase restricted securities, illiquid securities (such as repur-
chase agreements with maturities in excess of seven days) or other
securi-
ties which are not readily marketable if more than 15% of the total
assets
of the Fund would be invested in such securities.
12. Purchase any security if as a result the Fund would then have more
than 5% of its total assets (taken at current value) invested in securi-
ties of companies (including predecessors) that have been in continuous
operation for fewer than three years.
13. Make investments for the purpose of exercising control or
management.
14. Purchase or retain securities of any company if, to the knowledge of
the Fund, any of the Fund's officers and Directors or any officer or di-
rector of either SBMFM or Boston Advisors individually owns more than
1/2
of 1% of the outstanding securities of such company and together they
own
beneficially more than 5% of the securities.
15. Engage in the purchase or sale of put, call, straddle or spread op-
tions or in the writing of such options, except that (a) the Fund may
pur-
chase and sell options on U.S. government securities, write covered put
and call options on U.S. government securities and enter into closing
transactions with respect to such options and (b) the Fund may sell
inter-
est rate futures contracts and write put and call options on interest
rate
futures contracts.
The percentage limitations contained in these restrictions apply at the
time of purchases of securities.
Certain restrictions listed above permit the Fund without shareholder
ap-
proval to engage in investment practices that the Fund does not
currently
pursue. The Fund has no present intention of altering its current
invest-
ment practices as otherwise described in the Prospectus and this
Statement
of Additional Information and any future change in those practices would
require Board approval and appropriate disclosure to investors. In order
to permit sale of the Fund's shares in certain states, the Fund may make
commitments more restrictive than the investment restrictions described
above. Should the Fund determine that any such commitment is no longer
in
the best interests of the Fund and its shareholders, it will revoke the
commitment by terminating sales of its shares in the state involved.
PORTFOLIO TURNOVER
While the Fund does not intend to trade in securities for short-term
prof-
its, securities may be sold without regard to the amount of time that
they
have been held by the Fund when warranted by the circumstances. Certain
practices which may be employed by the Fund could result in a turnover
rate in excess of 100%. A portfolio turnover rate of 100% would occur,
for
example, if all of the Fund's securities were replaced once during a pe-
riod of one year. For the 1994, 1993 and 1992 fiscal years, the Fund's
rates of portfolio turnover (the lesser of purchases or sales of
portfolio
securities, excluding short-term securities, for the year divided by the
monthly average value of portfolio securities) were 236%, 436% and 426%,
respectively.
PORTFOLIO TRANSACTIONS
Decisions to buy and sell securities for the Fund are made by SBMFM,
sub-
ject to the overall supervision and review of the Fund's Board of Direc-
tors. Portfolio securities transactions for the Fund are effected by or
under the supervision of SBMFM.
The Fund normally purchases newly issued U.S. government securities di-
rectly from the U.S. Treasury or from the agency or instrumentality that
is the issuer. Certain U.S. government securities are purchased from an
underwriter acting as principal. Other purchases and sales usually are
placed with those dealers from which it appears that the best price or
ex-
ecution will be obtained; such dealers may be acting as either agents or
principals. No brokerage commissions typically are paid by the Fund on
purchases and sales of portfolio securities. The purchase price paid by
the Fund to underwriters of newly issued securities usually includes a
concession paid by the issuer to the underwriter, and purchases of
securi-
ties from dealers in the after-market normally are executed at a price
be-
tween the bid and asked prices. The Fund paid $69,080, $176,375 and
$398,513, respectively, in brokerage commissions during the fiscal years
ended July 31, 1992, 1993 and 1994. For the fiscal years ended July 31,
1991 and 1992, the Fund paid to Shearson Lehman Brothers (the Fund's
dis-
tributor prior to Smith Barney), $56,950 and $69,080, respectively in
bro-
kerage commissions.
SBMFM selects dealers for portfolio transactions in its best judgment
and
in a manner deemed fair and reasonable to shareholders. The primary con-
siderations are the availability of the desired security and the prompt
execution of orders in an effective manner at the most favorable prices.
Subject to these considerations, dealers which provide supplemental in-
vestment research and statistical or other services to SBMFM may receive
orders for portfolio transactions by the Fund. Information so received
en-
ables SBMFM to supplement its own research and analysis with the views
and
information of other securities firms. Such information may be useful to
SBMFM in serving both the Fund and other clients, and, conversely,
supple-
mental information obtained by the placement of business of other
clients
may be useful to SBMFM in carrying out its obligations to the Fund.
While investment decisions for the Fund are made independently from
those
of the other accounts managed by SBMFM, investments of the type that the
Fund may make also may be made by such other accounts. When the Fund and
one or more other accounts managed by SBMFM are prepared to invest in,
or
desire to dispose of, the same security, available investments or
opportu-
nities for sales will be allocated in a manner believed by SBMFM to be
eq-
uitable to each. In some cases, this procedure may adversely affect the
price paid or received by the Fund or the size of the position obtained
or
disposed of by the Fund.
PURCHASE OF SHARES
VOLUME DISCOUNTS
The schedules of sales charges for Class A and Class B shares described
in
the Prospectus applies to purchases made by any "purchaser," which is
de-
fined to include the following: (a) an individual; (b) an individual's
spouse and his or her children purchasing shares for his or her own ac-
count; (c) a trustee or other fiduciary purchasing shares for a single
trust estate or single fiduciary account; (d) a pension, profit-sharing
or
other employee benefit plan qualified under Section 401(a) of the
Internal
Revenue Code of 1986, as amended (the "Code"), and qualified employee
ben-
efit plans of employers who are "affiliated persons" of each other
within
the meaning of the 1940 Act; (e) tax-exempt organizations enumerated in
Section 501(c)(3) or (13) of the Code; and (f) a trustee or other
profes-
sional fiduciary (including a bank, or an investment adviser registered
with the SEC under the Investment Advisers Act of 1940, as amended) pur-
chasing shares of the Fund for one or more trust estates or fiduciary
ac-
counts. Purchasers who wish to combine purchase orders to take advantage
of volume discounts on Class A shares should contact their Smith Barney
Financial Consultants.
COMBINED RIGHT OF ACCUMULATION
Reduced sales charges, in accordance with the schedule in the
Prospectus,
apply to any purchase of Class A shares if the aggregate investment in
Class A shares of the Fund and in Class A shares of other funds of the
Smith Barney Mutual Funds that are offered with an initial sales charge,
including the purchase being made, of any purchaser (as defined above)
is
$25,000 or more. The reduced sales charge is subject to confirmation of
the shareholder's holdings through a check of appropriate records. The
Fund reserves the right to terminate or amend the combined right of
accu-
mulation at any time after notice to shareholders. For further
information
regarding the rights of accumulation, shareholders should contact a
Smith
Barney Financial Consultant.
DETERMINATION OF PUBLIC OFFERING PRICES
The Fund offers its shares to the public on a continuous basis. The
public
offering price per Class A and Class Y shares of the Fund is equal to
the
net asset value per share at the time of purchase, plus for Class A
shares
an initial sales charge based on the aggregate amount of the investment.
The public offering price for Class B and Class C shares (and Class A
share purchases, including applicable rights of accumulation, equalling
or
exceeding $500,000), is equal to the net asset value per share at the
time
of purchase and no sales charge is imposed at the time of purchase. A
con-
tingent deferred sales charge ("CDSC"), however, is imposed on certain
re-
demptions of Class B shares, Class C shares and Class A shares when pur-
chased in amounts equalling or exceeding $500,000. The method of
computa-
tion of the public offering price is shown in the Fund's financial
statements accompanying this Statement of Additional Information.
REDEMPTION OF SHARES
The right of redemption may be suspended or the date of payment
postponed
(a) for any period during which the New York Stock Exchange, Inc.
("NYSE")
is closed (other than for customary weekend or holiday closings), (b)
when
trading in the markets the Fund normally utilizes is restricted, or an
emergency exists, as determined by the SEC, so that disposal of the
Fund's
investments or determination of net asset value is not reasonably
practi-
cable or (c) for such other periods as the SEC by order may permit for
the
protection of the Fund's shareholders.
DISTRIBUTIONS IN KIND
If the Fund's Board of Directors determines that it would be detrimental
to the best interests of the remaining shareholders of the Fund to make
a
redemption payment wholly in cash, the Fund may pay, in accordance with
rules adopted by the SEC, any portion of a redemption in excess of the
lesser of $250,000 or 1.00% of the Fund's net assets by a distribution
in
kind of portfolio securities in lieu of cash. Portfolio securities
issued
in a distribution in kind will be readily marketable, although
sharehold-
ers receiving distributions in kind may incur brokerage commissions when
subsequently selling those securities.
AUTOMATIC CASH WITHDRAWAL PLAN
An automatic cash withdrawal plan (the "Withdrawal Plan") is available
to
shareholders who own shares with a value of at least $10,000 and who
wish
to receive specific amounts of cash monthly or quarterly. Withdrawals of
at least $100 may be made under the Withdrawal Plan by redeeming as many
shares of the Fund as may be necessary to cover the stipulated
withdrawal
payment. Any applicable CDSC will not be waived on amounts withdrawn by
shareholders that exceed 1.00% per month of the value of a shareholder's
shares at the time the withdrawal plan commences (With respect to With-
drawal Plans in effect prior to November 7, 1994, any applicable CDSC
waived on amounts withdrawn that do not exceed 2.00% per month of the
value of a shareholder's shares at the time the Withdrawal Plan com-
mences.) To the extent that withdrawals exceed dividends, distributions
and appreciation of a shareholder's investment in the Fund, there will
be
a reduction in the value of the shareholder's investment and continued
withdrawal payments will reduce the shareholder's investment and may
ulti-
mately exhaust it. Withdrawal payments should not be considered as
income
from investment in the Fund. Furthermore, as it generally would not be
ad-
vantageous to a shareholder to make additional investments in the Fund
at
the same time that he or she is participating in the Withdrawal Plan,
pur-
chases by such shareholders in amounts of less than $5,000 ordinarily
will
not be permitted.
Shareholders who wish to participate in the Withdrawal Plan and who hold
their shares in certificate form must deposit their share certificates
with TSSG as agent for Withdrawal Plan members. All dividends and
distri-
butions on shares in the Withdrawal Plan are reinvested automatically at
net asset value in additional shares of the Fund. Effective November 7,
1994, Withdrawal Plans may be set up with any Smith Barney Financial
Con-
sultant. A shareholder who purchases shares directly through TSSG may
con-
tinue to do so and applications for participation in the Withdrawal Plan
must be received by TSSG no later than the eighth day of the month to be
eligible for participation beginning with that month's withdrawal. For
ad-
ditional information, shareholders should contact a Smith Barney
Financial
Consultants.
DISTRIBUTOR
Smith Barney serves as the Fund's distributor on a best efforts basis
pur-
suant to a written agreement ("the Distribution Agreement"), which was
most recently approved by the Fund's Board of Directors on July 20,
1994.
For the fiscal years ended July 31, 1992, 1993 and 1994, Smith Barney or
its predecessor Shearson Lehman Brothers received $1,153,117 and
$247,035
and $362,103, respectively, in sales charges for the sale of the Fund's
Class A shares and did not reallow any portion thereof to dealers. For
the
period from November 6, 1992 through July 31, 1993, and for the fiscal
year ended July 31, 1994, Smith Barney or Shearson Lehman Brothers re-
ceived $ and $ , respectively, representing CDSC on
redemption
of the Fund's Class B shares.
When payment is made by the investor before the settlement date, unless
otherwise directed by the investor, the funds will be held as a free
credit balance in the investor's brokerage account, and Smith Barney may
benefit from the temporary use of the funds. The investor may designate
another use for the funds prior to settlement date, such as an
investment
in a money market fund (other than the Smith Barney Exchange Reserve
Fund)
of the Smith Barney Mutual Funds. If the investor instructs Smith Barney
to invest the funds in a money market fund, the amount of the investment
will be included as part of the average daily net assets of both the
Fund
and the money market fund, and affiliates of Smith Barney which serve
the
funds in an investment advisory capacity will benefit from the fact that
they are receiving fees from both such investment companies for managing
these assets computed on the basis of their average daily net assets.
The
Fund's Board of Directors has been advised of the benefits to Smith
Barney
resulting from five-day settlement procedures and will take such
benefits
into consideration when reviewing the Advisory, Administration and
Distri-
bution Agreements for continuance.
DISTRIBUTION ARRANGEMENTS
To compensate Smith Barney for the services it provides and for the ex-
pense it bears under the Distribution Agreement, the Fund has adopted a
services and distribution plan (the "Plan") pursuant to Rule 12b-1 under
the 1940 Act. Under the Plan, the Fund pays Smith Barney a service fee,
accrued daily and paid monthly, calculated at the annual rate of 0.25%
of
the value of the Fund's average daily net assets attributable to the
Class
A, Class B and Class C shares. In addition, the Class B and Class C pays
Smith Barney a distribution fee primarily intended to compensate Smith
Barney for its initial expense of paying Financial Consultants a commis-
sion upon sales of the respective shares. The Class B distribution fee
is
calculated at the annual rate of 0.50% of the value of the Fund's
average
daily net assets attributable to the shares of the Class. The Class C
dis-
tribution fee is calculated at the annual rate of 0.45% of the value of
the Fund's average daily net assets attributable to the shares of the
Class. For the period from November 6, 1992 through July 31, 1993, the
Fund's Class A and Class B shares incurred $854,985 and $834,882,
respec-
tively, in service fees. For the same period, the Fund's Class B shares
incurred $1,669,763 in distribution fees. For the fiscal year ended July
31, 1994, the Class A and Class B shares incurred $1,047,795 and
$1,085,386, respectively, in service fees. For the same period, the
Class
B shares incurred $2,170,771 in distribution fees. For the fiscal year
ended July 31, 1994, the Fund incurred $157 and $314 in service fees and
distribution fees, respectively, for Class C shares (formerly designated
as Class D shares.)
Under its terms, the Plan continues from year to year, provided such
con-
tinuance is approved annually by vote of the Fund's Board of Directors,
including a majority of the Directors who are not interested persons of
the Fund and who have no direct or indirect financial interest in the
op-
eration of the Plan (the "Independent Directors"). The Plan may not be
amended to increase the amount to be spent for the services provided by
Smith Barney without shareholder approval, and all amendments of the
Plan
also must be approved by the Directors in the manner described above.
The
Plan may be terminated with respect to a Class at any time, without pen-
alty, by vote of a majority of the Independent Directors or by vote of a
majority of the outstanding voting securities of the Class (as defined
in
the 1940 Act) on not more than 30 days' written notice to any other
party
to the Plan. Pursuant to the Plan, Smith Barney will provide the Fund's
Board of Directors with periodic reports of amounts expended under the
Plan and the purpose for which such expenditures were made.
VALUATION OF SHARES
Each Class' net asset value per share is calculated on each day, Monday
through Friday, except days on which the NYSE is closed. The NYSE cur-
rently is scheduled to be closed on New Year's Day, President's Day,
Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas, and on the preceding Friday or subsequent Monday when one of
these holidays falls on a Saturday or Sunday, respectively. Because of
the
differences in distribution fees and Class-specific expenses, the per
share net asset value of each Class may differ. The following is a de-
scription of the procedures used by the Fund in valuing its assets.
Securities listed on a national securities exchange will be valued on
the
basis of the last sale on the date on which the valuation is made or, in
the absence of sales, at the mean between the closing bid and asked
prices. Over-the-counter securities will be valued on the basis of the
bid
price at the close of business on each day, or, if market quotations for
those securities are not readily available, at fair value, as determined
in good faith by the Fund's Board of Directors. Short-term obligations
with maturities of 60 days or less are valued at amortized costs, which
constitutes fair value as determined by the Fund's Board of Directors.
Am-
ortized cost involves valuing an instrument at its original cost to the
Fund and thereafter assuming a constant amortization to maturity of any
discount or premium, regardless of the effect of fluctuating interest
rates on the market value of the instrument. All other securities and
other assets of the Fund will be valued at fair value as determined in
good faith by the Fund's Board of Directors.
EXCHANGE PRIVILEGE
Except as noted below, shareholders of any fund of the Smith Barney
Mutual
Funds may exchange all or part of their shares for shares of the same
Class of other funds of the Smith Barney Mutual Funds, to the extent
such
shares are offered for sale in the shareholder's state of residence, on
the basis of relative net asset value per share at the time of exchange
as
follows:
A. Class A shares of any fund purchased with a sales charge may be ex-
changed for Class A shares of any of the other funds, and the sales
charge
differential, if any, will be applied. Class A shares of any fund may be
exchanged without a sales charge for shares of the funds that are
offered
without a sales charge. Class A shares of any fund purchased without a
sales charge may be exchanged for shares sold with a sales charge, and
the
appropriate sales charge differential will be applied.
B. Class A shares of any fund acquired by a previous exchange of shares
purchased with a sales charge may be exchanged for Class A shares of any
of the other funds, and the sales charge differential, if any, will be
ap-
plied.
C. Class B shares of any fund may be exchanged without a sales charge.
Class B shares of the Fund exchanged for Class B shares of another fund
will be subject to the higher applicable CDSC of the two funds and, for
purposes of calculating CDSC rates and conversion periods, will be
deemed
to have been held since the date the shares being exchanged were deemed
to
be purchased.
Dealers other than Smith Barney must notify TSSG of the investor's prior
ownership of Class A shares of Smith Barney High Income Fund and the ac-
count number in order to accomplish an exchange of shares of Smith
Barney
High Income Fund under paragraph B above.
The exchange privilege enables shareholders to acquire shares of the
same
Class in a fund with different investment objectives when they believe
that a shift between funds is an appropriate investment decision. This
privilege is available to shareholders resident in any state in which
the
fund shares being acquired may legally be sold. Prior to any exchange,
the
shareholder should obtain and review a copy of the current prospectus of
each fund into which an exchange is being considered. Prospectuses may
be
obtained from your Smith Barney Financial Consultant.
Upon receipt of proper instructions and all necessary supporting docu-
ments, shares submitted for exchange are redeemed at the then-current
net
asset value and, subject to any applicable CDSC, the proceeds
immediately
invested, at a price as described above, in shares of the fund being ac-
quired. Smith Barney reserves the right to reject any exchange request.
The exchange privilege may be modified or terminated at any time after
written notice to shareholders.
PERFORMANCE DATA
From time to time, the Fund may quote its yield or total return in
adver-
tisements or in reports and other communications to shareholders. The
Fund
may include comparative performance information in advertising or
market-
ing the Fund's shares. Such performance information may include the fol-
lowing industry and financial publications: Barron's, Business Week, CDA
Investment Technologies, Inc., Changing Times, Forbes, Fortune, Institu-
tional Investor, Investors Daily, Money, Morningstar Mutual Fund Values,
The New York Times, USA Today and The Wall Street Journal. To the extent
any advertisement or sales literature of the Fund describes the expenses
or performance of a Class, it will also describe such information for
the
other Classes.
YIELD
A Class' 30-day yield figure described below is calculated according to
a
formula prescribed by the SEC. The formula can be expressed as follows:
YIELD =2 [ ( a-bcd +1)6--1]
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursement).
c = the average daily number of shares outstanding during the
pe-
riod that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period.
For the purpose of determining the interest earned (variable "a" in the
formula) on debt obligations that were purchased by the Fund at a
discount
or premium, the formula generally calls for amortization of the discount
or premium; the amortization schedule will be adjusted monthly to
reflect
changes in the market values of the debt obligations.
Class A's yield, Class B's yield and Class C's yield for the 30-day
period
ended July 31, 1994 were 5.45%, 5.15% and 5.07%, respectively.
Investors should recognize that in periods of declining interest rates
the
Class' yield will tend to be somewhat higher than prevailing market
rates,
and in periods of rising interest rates the Class' yield will tend to be
somewhat lower. Also, when interest rates are falling, the inflow of net
new money to the Fund from the continuous sale of its shares will likely
be invested in portfolio instruments producing lower yields than the
bal-
ance of the Fund's portfolio, thereby reducing the current yield of the
Class shares. In periods of rising interest rates, the opposite can be
ex-
pected to occur.
AVERAGE ANNUAL TOTAL RETURN
A Class' "average annual total return" figures are computed according to
a
formula prescribed by the SEC. The formula can be expressed as follows:
P (1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = Ending Redeemable Value of a hypothetical $1,000
investment
made at the beginning of a 1-, 5- or 10-year period at the
end of the 1-, 5- or 10-year period (or fractional portion
thereof), assuming reinvestment of all dividends and
distri-
butions.
A Class' total return figures calculated in accordance with the above
for-
mula assume that the maximum applicable sales charge or maximum
applicable
CDSC, as the case may be, has been deducted from the hypothetical $1,000
initial investment at the time of purchase or redemption, as applicable.
AGGREGATE TOTAL RETURN
"Aggregate total return" figures represent the cumulative change in the
value of an investment in the Class for the specified period and are
com-
puted by the following formula:
ERV-P P
Where: P = a hypothetical initial payment of $10,000.
ERV = Ending Redeemable Value of a hypothetical $10,000
investment
made at the beginning of the 1-, 5- or 10-year period at
the
end of the 1-, 5- or 10-year period (or fractional portion
thereof), assuming reinvestment of all dividends and
distri-
butions.
The aggregate total return for Class B shares from commencement of
opera-
tions (November 6, 1992) through July 31, 1994 was 9.41%; and for Class
C
(formerly designated Class D) shares from commencement of operations
(Jan-
uary 29, 1993) through July 31, 1994 the aggregate total return was
0.78%.
These aggregate total return figures do not assume that the maximum
4.50%
sales charge or maximum applicable CDSC has been deducted from the
invest-
ment at the time of purchase. If the maximum applicable CDSC had been
de-
ducted at the time of redemption, Class B's aggregate total return for
the
period would have been 5.45%.
Performance will vary from time to time depending upon market
conditions,
the composition of the Fund's portfolio and operating expenses and the
ex-
penses exclusively attributable to the Class. Consequently, any given
per-
formance quotation should not be considered representative of the Class'
performance for any specified period in the future. Because performance
will vary, it may not provide a basis for comparing an investment in the
Class with certain bank deposits or other investments that pay a fixed
yield for a stated period of time. Investors comparing the Class'
perfor-
mance with that of other mutual funds should give consideration to the
quality and maturity of the respective investment companies' portfolio
se-
curities.
It is important to note that the total return figures set forth above
are
based on historical earnings and are not intended to indicate future
per-
formance.
TAXES
TAXATION OF THE FUND
The Fund has qualified and intends to continue to qualify each year as a
regulated investment company under the Code. Provided that the Fund (a)
qualifies as a regulated investment company and (b) distributes at least
90% of its net investment income (including, for this purpose, net real-
ized short-term capital gains), the Fund will not be liable for Federal
income taxes to the extent that its net investment income and its net
re-
alized long- and short-term capital gains, if any, are distributed to
its
shareholders. Interest received from U.S. government securities, and
gains
from the sale of U.S. government securities and from the Fund's options
transactions, will qualify toward this 90% limitation. The Code also re-
quires a regulated investment company to earn less than 30% of its gross
income from the sale of securities or certain financial instruments held
less than three months. This limitation may restrict the Fund's ability
to
dispose of its securities, to write or purchase options on securities
that
have been held for less than three months, to write or purchase options
that expire within three months, or to enter into closing transactions
with respect to its options positions.
TAXATION OF FUND SHAREHOLDERS
The Fund will pay dividends consisting of substantially all of its net
in-
vestment income monthly. Distributions of net realized short-term
capital
gains, if any, generally are declared and paid annually, although they
may
be declared or paid more frequently or less frequently at the discretion
of the Fund's Board of Directors. The Fund will distribute net realized
long-term capital gains, if any, at the end of the fiscal year in which
they are earned. Dividends from net investment income and distributions
of
net realized short-term capital gains are taxable to a shareholder as
or-
dinary income for Federal income tax purposes, regardless of whether the
shareholder receives the dividends or distributions in additional shares
or in cash. Distributions of net realized long-term capital gains are
tax-
able to a shareholder as long-term capital gains, regardless of how long
the shareholder has held the Fund's shares and regardless of whether the
distribution is received in additional shares or in cash. However, if a
shareholder receives a distribution taxable as long-term capital gain
with
respect to any share and if such share is held by the shareholder for
six
months or less, then any loss on the redemption or exchange of such
share,
up to the amount of the distribution, will be treated as long-term
capital
loss. Dividends and distributions paid by the Fund generally will not be
eligible for the dividends received deduction for corporations.
If a shareholder (a) incurs a sales charge in acquiring or redeeming
shares of the Fund, (b) disposes of those shares within 90 days and (c)
acquires shares in a mutual fund for which the otherwise applicable
sales
charge is reduced by reason of a reinvestment right (i.e., exchange
privi-
lege), the original sales charge increases the shareholder's tax basis
in
the original shares only to the extent that the otherwise applicable
sales
charge for the second acquisition is not reduced. The portion of the
orig-
inal sales charge that does not increase the shareholder's tax basis in
the original shares would be treated as incurred with respect to the
sec-
ond acquisition and, as a general rule, would increase the shareholder's
tax basis in the newly acquired shares. Furthermore, the same rule also
applies to a disposition of the newly acquired or redeemed shares made
within 90 days of the second acquisition. This provision prevents a
share-
holder from immediately deducting the sales charge by shifting his or
her
investment in a family of mutual funds.
Investors considering buying shares of the Fund on or just prior to a
record date for a taxable dividend or capital gain distribution should
be
aware that, regardless of whether the price of the Fund shares to be
pur-
chased reflects the amount of the forthcoming dividend or distribution
payment, any such payment will be a taxable dividend or distribution
pay-
ment.
If a shareholder fails to furnish a correct taxpayer identification num-
ber, fails to fully report dividend or interest income, or fails to cer-
tify that he or she has provided a correct taxpayer identification
number
and that he or she is not subject to "backup withholding," then the
share-
holder may be subject to a 31% backup withholding tax with respect to
(a)
dividends and distributions and (b) proceeds of any redemptions of Fund
shares. An individual's taxpayer identification number is his or her so-
cial security number. The backup withholding tax is not an additional
tax
and may be credited against a shareholder's regular Federal income tax
li-
ability.
TAXATION OF THE FUND'S INVESTMENTS
Gains or losses on the sales of securities by the Fund generally will be
long-term capital gains or losses if the securities have been held by
the
Fund for more than one year and will be short-term capital gains or
losses
if the securities have been held by the Fund for one year or less. If
the
Fund acquires a debt security at a substantial discount, a portion of
any
gain on its sale or redemption may be characterized as ordinary income,
rather than capital gain, to the extent that it reflects accrued market
discount.
When the Fund writes a covered call option on a debt security, it will
re-
ceive a premium. If an option which the Fund has written expires on its
stipulated expiration date, or if the Fund enters into a closing
purchase
transaction, the Fund will realize a gain (or loss if the cost of a
clos-
ing purchase transaction exceeds the premium received when the option
was
written) without regard to any unrealized gain or loss on the underlying
security. Subject to the "straddle rules" discussed below, any such gain
or loss is recognized as a short-term capital gain or loss for Federal
in-
come tax purposes. If a call option written by the Fund is exercised,
the
Fund will realize (subject to the straddle rules discussed below) a
capi-
tal gain or loss from the sale of the underlying security, and will
treat
the premium originally received as additional proceeds from the sale.
Such
gain or loss will be long-term or short-term depending on the holding
pe-
riod of the underlying security. If a put option written by the Fund is
exercised, the Fund will treat the premium received as an adjustment to
its purchase price of the debt security and the Fund's holding period
with
respect to the debt security that it has acquired will begin on the date
of purchase of the debt security, rather than on the date that the put
was
written.
For Federal income tax purposes, gains and losses on interest rate
futures
contracts, options on interest rate futures contracts, and certain other
options that are traded on a qualified board of trade (collectively re-
ferred to herein as "section 1256 contracts") are taxed pursuant to a
spe-
cial "mark-to-market system." Pursuant to the mark-to-market system, the
Fund may be treated as realizing a greater or lesser amount of gains or
losses than actually realized. As a general rule, gain or loss on
section
1256 contracts is treated as 60% long-term capital gain or loss and 40%
short-term capital gain or loss, and accordingly, the mark-to-market
sys-
tem generally will affect the amount of capital gains or losses taxable
to
the Fund and the amount of distributions to a shareholder. Moreover, if
the Fund invests in both section 1256 contracts and "offsetting
positions"
in such contracts, then the Fund might not be able to receive the
benefit
of certain recognized losses for an indeterminate period of time. The
Fund
expects that its activities with respect to section 1256 contracts and
offsetting positions in such contracts (a) will not cause it or its
share-
holders to be treated as receiving a materially greater amount of
capital
gains or distributions than actually realized or received and (b) will
permit it to use substantially all of its losses for the fiscal years in
which such losses actually occur.
Section 1092 of the Code provides rules, overriding the rules described
above, in the case of straddles. Straddles are defined to include
"offset-
ting positions" in actively traded personal property. It is not clear
under current law under what circumstances one investment made by the
Fund, such as in options or futures contracts, would be treated as "off-
setting" another investment also held by the Fund, such as the
underlying
debt security (or vice versa) and, therefore, whether the Fund may be
treated as having entered into a straddle. In general, investment posi-
tions may be offsetting if there is a substantial diminution in the risk
of loss from holding one position by reason of holding one or more other
positions. If two or more positions constitute a straddle, a realized
loss
from one position (including a mark-to-market loss) must be deferred to
the extent of unrecognized gain in an offsetting position. Furthermore,
with respect to such positions, the holding period rules described above
may be modified to recharacterize long-term gain as short-term gain (but
not, as a general rule, for purposes of the less than 30% requirement
de-
scribed above), or to recharacterize short-term loss as long-term loss,
in
connection with certain straddle transactions. Moreover, interest and
other carrying charges allocable to personal property that is part of a
straddle must be capitalized. Section 1092 also provides that "wash
sale"
rules are applicable to transactions in which a position is sold at a
loss
and a new offsetting position is acquired within or has been held for a
prescribed period. To the extent that the straddle rules apply to posi-
tions established by the Fund, losses realized by the Fund may be
deferred
or recharacterized as long-term losses, and long-term gains realized by
the Fund may, for certain purposes, be converted to short-term gains.
The foregoing is only a summary of certain tax considerations generally
affecting the Fund and its shareholders, and is not intended as a
substi-
tute for careful tax planning. Shareholders are urged to consult their
tax
advisors with specific reference to their own tax situations, including
state and local tax liabilities.
ADDITIONAL INFORMATION
The Fund was incorporated on June 15, 1984 under the name Shearson
Govern-
ment Mortgage Income Fund Inc. On January 20, 1988, November 4, 1992,
July
30, 1993 and October 14, 1994, the Fund changed its name to Shearson
Leh-
man Managed Governments Inc. to Shearson Lehman Brothers Managed Govern-
ments Fund Inc. to Smith Barney Shearson Managed Governments Fund Inc.
and
Smith Barney Managed Governments Fund Inc., respectively.
Boston Safe, an indirect wholly owned subsidiary of Mellon, is located
at
One Boston Place, Boston, Massachusetts 02108, and serves as the
custodian
of the Fund. Under its custody agreement with the Fund, Boston Safe
holds
the Fund's portfolio securities and keeps all necessary accounts and
records. For its services, Boston Safe receives a monthly fee based upon
the month-end market value of securities held in custody and also
receives
securities transactions charges. The assets of the Fund are held under
bank custodianship in compliance with the 1940 Act.
TSSG, a subsidiary of First Data Corporation, is located at Exchange
Place, Boston, Massachusetts 02109, and serves as the Fund's transfer
agent. Under the transfer agency agreement, TSSG maintains the
shareholder
account records for the Fund, handles certain communications between
shareholders and the Fund and distributes dividends and distributions
pay-
able by the Fund. For these services, TSSG receives a monthly fee
computed
on the basis of the number of shareholder accounts that it maintains for
the Fund during the month and is reimbursed for certain out-of-pocket
ex-
penses.
FINANCIAL STATEMENTS
The Fund's Annual Report for the fiscal year ended July 31, 1994
accompa-
nies this Statement of Additional Information and is incorporated herein
by reference in its entirety.
Smith Barney
MANAGED GOVERNMENTS FUND INC.
388 Greenwich Street
New York, New York 10013
Fund 16,184,241
Smith Barney
MANAGED
GOVERNMENTS
FUND INC.
STATEMENT OF
ADDITIONAL INFORMATION
NOVEMBER 7, 1994
SMITH BARNEY MANAGED GOVERNMENTS FUND INC.
PART C
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A:
Financial Highlights
Included in Part B:
The Registrant's Annual Report for the fiscal year
ended July 31, 1994 and Report of Independent Accountants dated
September 9, 1994 are incorporated by reference to the Definitive 30b-2
filed on October 17, 1994 as accession #0000053798-94-000492.
Included in Part C:
Consent of Independent Accountants
(b) Exhibits
All references are to the Registrant's registration statement on Form N-
1A (the "Registration Statement") as filed with the SEC on June 29, 1984
(File Nos. 2-91948 and 811-4061).
(1)(a) Registrant's Articles of Incorporation dated June 18,
1994 is incorporated by reference to the Registration Statement.
(b) Form of Articles of Amendment to Articles of
Incorporation dated August 20, 1984, May 20, 1988, November 4, 1992,
November 19, 1992, July 30, 1993 and October 14, 1994, respectively, is
filed herein.
(c) Form of Articles of Amendment dated November 7, 1994
is filed herein.
(2) Registrant's By-Laws are incorporated by reference to the
Registration Statement.
(3) Not Applicable.
(4) (a) Registrant's form of stock certificate for Class A
shares is incorporated by reference to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement as filed with the SEC on August 8,
1985 ("Pre-Effective Amendment No. 1").
(b) Registrant's form of stock certificate for Class B
shares is incorporated by reference to Post-Effective Amendment No. 13
to Registrant's Registration Statement as filed with the SEC on October
23, 1992 ("Post-Effective Amendment No. 13").
(5) Investment Advisory Agreement dated July 30, 1993 between
the Registrant and Greenwich Street Advisors is incorporated by
reference to Post-Effective Amendment No. 16.
(6) Distribution Agreement dated July 30, 1993 between
Registrant and Smith Barney Shearson Inc. is incorporated by reference
to Post Effective Amendment No. 16.
(7) Not Applicable.
(8) Custody Agreement with Boston Safe Deposit and Trust Company
is incorporated by reference to Pre-Effective Amendment No. 1.
(9)(a) Administration Agreement dated April 20, 1994 between
the Registrant and Smith, Barney Advisers, Inc. ("SBA") is filed herein.
(b) Sub-Administration Agreement dated April 20, 1994
between the Registrant, SBA and The Boston Company Advisors, Inc. is
filed herein.
(c) Transfer Agency Agreement with Boston Safe Deposit and
Trust Company is incorporated by reference to Pre-Effective Amendment
No. 1.
(10) Not Applicable.
(11)(a) Consent of Independent Accountants is filed herein.
(b) Consent of Morningstar Mutual Fund Values is
incorporated by reference to Post-Effective Amendment No. 13.
(12) Not Applicable.
(13) Not Applicable.
(14) Not Applicable.
(15) Amended Service and Distribution Plan pursuant to Rule 12b-1
between the Registrant and Smith Barney Inc. ("Smith Barney") is filed
in.
(16) Performance Data is incorporated by reference to Post-
Effective Amendment No. 7 to the Registrant's Registration Statement as
filed with the SEC on November 29, 1988.
Item 25. Persons Controlled by or Under Common Control with
Registrant
None
Item 26. Number of Holders of Securities
(1) (2)
Number of Record Holders
Title of Class as of September 23, 1994
Common Stock, par Class A 19,333
value $.001 per Class B 26,441
share Class D 6
Item 27. Indemnification
The response to this item is incorporated by
reference to Post-Effective Amendment No. 13.
Item 28(a). Business and Other Connections of Investment Adviser
Investment Adviser - - Smith Barney Mutual Funds Management Inc.,
formerly known as Smith, Barney Advisers, Inc.
("SBMFM")
SBFMF was incorporated in December 1968 under the laws of the State of
Delaware. SBFMF is a wholly owned subsidiary of Smith Barney Holdings
Inc. (formerly known as Smith Barney Shearson Holdings Inc.), which in
turn is a wholly owned subsidiary of The Travelers Inc. (formerly known
as Primerica Corporation) ("Travelers"). SBMFM is registered as an
investment adviser under the Investment Advisers Act of 1940 (the
"Advisers Act").
The list required by this Item 28 of officers and directors of SBMFM
together with information as to any other business, profession, vocation
or employment of a substantial nature engaged in by such officers and
directors during the past two years, is incorporated by reference to
Schedules A and D of FORM ADV filed by SBMFM pursuant to the Advisers
Act (SEC File No. 801-8314).
Prior to the close of business on November 7, 1994, Greenwich Street
Advisors served as investment adviser. Greenwich Street Advisors,
through its predecessors, has been in the investment counseling business
since 1934 and is a division of Mutual Management Corp. ("MMC"). MMC
was incorporated in 1978 and is a wholly owned subsidiary of Smith
Barney Holdings Inc. (formerly known as Smith Barney Shearson Holdings
Inc.) ("Holdings"), which is in turn a wholly owned subsidiary of The
Travelers Inc. (formerly known as Primerica Corporation) ("Travelers").
The list required by this Item 28 of officers and directors of MMC and
Greenwich Street Advisors, together with information as to any other
business, profession, vocation or employment of a substantial nature
engaged in by such officers and directors during the past two fiscal
years, is incorporated by reference to Schedules A and D of FORM ADV
filed by MMC on behalf of Greenwich Street Advisors pursuant to the
Advisers Act (SEC File No. 801-14437).
Prior to the close of business on July 30, 1993 (the "Closing"),
Shearson Lehman Advisors, a member of the Asset Management Group of
Shearson Lehman Brothers Inc. ("Shearson Lehman Brothers"), served as
the Registrant's investment adviser. On the Closing, Travelers and
Smith Barney Inc. (formerly known as Smith Barney Shearson Inc.)
acquired the domestic retail brokerage and asset management business of
Shearson Lehman Brothers, which included the business of the
Registrant's prior investment adviser. Shearson Lehman Brothers was a
wholly owned subsidiary of Shearson Lehman Brothers Holdings Inc.
("Shearson Holdings"). All of the issued and outstanding common stock
of Shearson Holdings (representing 92% of the voting stock) was held by
American Express Company. Information as to any past business vocation
or employment of a substantial nature engaged in by officers and
directors of Shearson Lehman Advisors can be located in Schedules A and
D of FORM ADV filed by Shearson Lehman Brothers on behalf of Shearson
Lehman Advisors prior to July 30, 1993. (SEC FILE NO. 801-3701)
11/3/94
Item 29. Principal Underwriters
Smith Barney Inc. ("Smith Barney") currently acts as distributor for
Smith Barney Managed Municipals Fund Inc., Smith Barney New York
Municipals Fund Inc., Smith Barney California Municipals Fund Inc.,
Smith Barney Massachusetts Municipals Fund, Smith Barney Global
Opportunities Fund, Smith Barney Aggressive Growth Fund Inc., Smith
Barney Appreciation Fund Inc., Smith Barney Principal Return Fund,
Smith Barney Shearson Municipal Money Market Fund Inc., Smith Barney
Daily Dividend Fund Inc., Smith Barney Government and Agencies Fund
Inc., Smith Barney Managed Governments Fund Inc., Smith Barney New York
Municipal Money Market Fund, Smith Barney California Municipal Money
Market Fund, Smith Barney Income Funds, Smith Barney Equity Funds, Smith
Barney Investment Funds Inc., Smith Barney Precious Metals and Minerals
Fund Inc., Smith Barney Telecommunications Trust, Smith Barney Arizona
Municipals Fund Inc., Smith Barney New Jersey Municipals Fund Inc., The
USA High Yield Fund N.V., Garzarelli Sector Analysis Portfolio N.V., The
Advisors Fund L.P., Smith Barney Fundamental Value Fund Inc., Smith
Barney Series Fund, Consulting Group Capital Markets Funds, Smith Barney
Income Trust, Smith Barney Adjustable Rate Government Income Fund, Smith
Barney Florida Municipals Fund, Smith Barney Oregon Municipals Fund,
Smith Barney Funds, Inc., Smith Barney Muni Funds, Smith Barney World
Funds, Inc., Smith Barney Money Funds, Inc., Smith Barney Tax Free Money
Fund, Inc., Smith Barney Variable Account Funds, Smith Barney U.S.
Dollar Reserve Fund (Cayman), Worldwide Special Fund, N.V., Worldwide
Securities Limited, (Bermuda), Smith Barney International Fund
(Luxembourg) and various series of unit investment trusts.
Smith Barney is a wholly owned subsidiary of Smith Barney Holdings
Inc. (formerly known as Smith Barney Holdings Inc.), which in turn is a
wholly owned subsidiary of The Travelers Inc. (formerly known as
Primerica Corporation) ("Travelers"). On June 1, 1994, Smith Barney
changed its name from Smith Barney Inc. to its current name. The
information required by this Item 29 with respect to each director,
officer and partner of Smith Barney is incorporated by reference to
Schedule A of FORM BD filed by Smith Barney pursuant to the Securities
Exchange Act of 1934 (SEC File No. 812-8510).
11/4/94
Item 30. Location of Accounts and Records
(1) Smith Barney Managed Governments Fund Inc.
388 Greenwich Street
New York, New York 10013
(2) Smith Barney Mutual Funds Management Inc.
388 Greenwich Street
New York, New York 10013
(3) The Boston Company Advisors, Inc.
One Boston Place
Boston, Massachusetts 02108
(4) Boston Safe Deposit and Trust Company
One Boston Place
Boston, Massachusetts 02108
(5) The Shareholder Services Group, Inc.
Exchange Place
Boston, Massachusetts 02109
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
The Registrant hereby undertakes to furnish to each person to whom
a prospectus of the Registrant is delivered, a copy of the Registrant's
latest annual report, upon request and without charge.
485(b) Certification
The Registrant hereby certifies that it meets all requirements for
effectiveness pursuant to Rule 485(b) under the Securities Act of 1933,
as amended.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, the
Registrant, SMITH BARNEY MANAGED GOVERNMENTS FUND INC., has duly
caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of
New York, State of New York on the 3rd day of November, 1994.
SMITH BARNEY MANAGED
GOVERNMENTS FUND INC.
By: /s/ Heath B. McLendon
Heath B. McLendon
Chief Executive Officer
We, the undersigned, hereby severally constitute and appoint
Heath B. McLendon, Christina T. Sydor and Lee D. Augsburger and each of
them singly, our true and lawful attorneys, with full power to them and
each of them to sign for us, and in our hands and in the capacities
indicated below, any and all Amendments to this Registration Statement
and to file the same, with all exhibits thereto, and other documents
therewith, with the Securities and Exchange Commission, granting unto
said attorneys, and each of them, acting alone, full authority and power
to do and perform each and every act and thing requisite or necessary to
be done in the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that
said attorneys or any of them may lawfully do or cause to be done by
virtue thereof.
WITNESS our hands on the date set forth below.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Amendment to the Registration Statement and the above
Power of Attorney has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/ Heath B. McLendon Chairman of the Board
11/3/94
Heath B. McLendon (Chief Executive Officer)
/s/ Lewis E. Daidone Treasurer (Chief Financial
11/3/94
Lewis E. Daidone and Accounting Officer)
Signature Title Date
/s/ Burt N. Dorsett Director
11/3/94
Burt N. Dorsett
/s/ Elliot S. Jaffe Director
11/3/94
Elliot S. Jaffe
/s/ Cornelius C. Rose, Jr. Director
11/3/94
Cornelius C. Rose, Jr.
shearson funds govt n-1a20.doc
Exhibit 1(b)
SUPPLEMENTARY
SMITH BARNEY MANAGED GOVERNMENTS FUND INC.
Smith Barney Managed Governments Fund Inc., a Maryland corporation
having its principal office in the State of Maryland in Baltimore City
(hereinafter called the "Corporation"), hereby certifies to the State
Department of Assessments and Taxation of Maryland that:
FIRST: The Corporation is authorized to issue
500,000,000 shares of capital stock, par value $.01 per share, with an
aggregate par value of $5,000,000. These Articles Supplementary do not
increase the total authorized capital stock of the Corporation or the
aggregate par value thereof. The Board of Directors hereby classifies and
reclassifies all of the unissued shares of capital stock of all classes of
the Corporation in such manner that the Corporation's capital stock will be
classified into five classes, each with a par value of $.01 per share,
designated Class A Common Stock, Class B Common Stock, Class C Common
Stock, Class Y Common Stock and Class Z Common Stock. The Corporation
shall be authorized to issue up to 500,000,000 shares of each such class of
capital stock less, at any time, the total number of shares of all other
such classes of capital stock then issued and outstanding. At no time may
the Corporation cause to be issued and outstanding more than 500,000,000
shares of its capital stock of all such classes in the aggregate unless
such number be hereafter increased in accordance with the Maryland General
Corporation Law.
SECOND: The shares of Class A Common Stock, Class B Common Stock and
Class C Common Stock classified hereby shall have the preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms and conditions of redemption as
currently set forth in the charter of the Corporation with respect to those
respective classes of capital stock. The Class Y Common Stock and the
Class Z Common Stock classified hereby shall have the preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption as set
forth in Article V of the Corporation's Articles of Incorporation and shall
be subject to all provisions of its Articles of Incorporation relating to
stock of the Corporation generally, and those set forth as follows:
(1) The assets belonging to each of the Class Y Common Stock and Class Z
Common Stock shall be invested in the same investment portfolio
<PAGE> 2
of the Corporation as the assets belonging to the Class A Common Stock, the
Class B Common Stock and the Class C Common Stock.
(2) The dividends and distributions of investment income and capital gains
with respect to each of the Class Y Common Stock and Class Z Common Stock
shall be in such amounts as may be declared from time to time by the Board
of Directors, and such dividends and distributions with respect to each
such class of capital stock may vary from dividends and distributions with
respect to each other class of capital stock to reflect differing
allocation of the expenses of the Corporation among the holders of each
such class and any resultant differences among the net asset values per
share of each such class, to such extent and for such purposes as the Board
of Directors may deem appropriate.
(3) The allocation of investment income, capital gains and losses,
expenses and liabilities of the Corporation among the Class Y Common Stock,
the Class Z Common Stock and any other class of the Corporation's stock
shall be determined conclusively by the Board of Directors in a manner that
is consistent with the order dated July 7, 1992 (Investment Company Act of
1940 Release No. 18832), as amended January 19, 1993 (Investment Company
Act Release No. 19216), and January 28, 1994 (Investment Company Act of
1940, Release No. 20042) issued by the Securities and Exchange Commission
in connection with the application for exemption filed by Smith Barney
Appreciation Fund, Inc. (formerly Shearson Lehman Brothers Appreciation
Fund Inc.) et al., and any existing or future amendment to such order or
any rule or interpretation under the Investment Company Act of 1940 that
modifies or supersedes such order.
(4) Except as may otherwise be required by law pursuant to any applicable
order, rule, or interpretation issued by the Securities and Exchange
Commission, or otherwise, the holders of each of the Class Y Common Stock
<PAGE> 3
and Class Z Common Stock shall have
(i) exclusive voting rights with respect to any matter, including any
distribution plan adopted by the Corporation pursuant to Rule 12b-1 under
the Investment Company Act of 1940 (a "Plan") which affects only holders of
such class, and (ii) no voting rights with respect to any matter, including
any Plan, which does not affect holders of such class.
THIRD: The Board of Directors of the Corporation
has classified the shares described above pursuant to authority contained
in the Corporation's charter.
FOURTH: These Articles Supplementary will become
effective at 9:01 A.M. on November 7, 1994.
The undersigned Chairman of the Board of the Corporation acknowledges
these Articles Supplementary to be the corporate act of the Corporation and
states that to the best of his knowledge, information and belief, the
matters and facts set forth in these Articles with respect to authorization
and approval are true in all material respects and that this statement is
made under penalties of perjury.
IN WITNESS WHEREOF, Smith Barney Managed Governments Fund Inc. has
caused these Articles Supplementary to be signed and filed in its name and
on its behalf by its Chairman of the Board, and witnessed by its Assistant
Secretary on , 1994.
SMITH BARNEY MANAGED
GOVERNMENTS FUND INC.
By: Heath B. McLendon, Chairman of the
Board
WITNESS:
Lee D. Augsburger,
Assistant Secretary
Exhibit 1(c)
SMITH BARNEY MANAGED GOVERNMENTS FUND INC.
ARTICLES OF AMENDMENT
Smith Barney Managed Governments Fund Inc., a Maryland
corporation having its principal office in the State of Maryland in
Baltimore City (hereinafter called the "Corporation"), hereby
certifies to the State Department of Assessments and Taxation of
Maryland that:
FIRST: The charter of the Corporation is hereby amended to
provide that the Corporation's "Class D Common Stock" is hereby
redesignated as "Class C Common Stock."
SECOND: The charter of the Corporation is hereby amended
further to provide that the class of shares of "Common Stock" of the
Corporation that has not been previously further designated is hereby
designated as "Class A Common Stock."
THIRD: The foregoing amendments to the charter of the
Corporation were approved by a majority of the entire Board of
Directors of the Corporation; the charter amendments are limited to
changes expressly permitted by Section 2-605 of Title 2 of Subtitle 6
of the Maryland General Corporation Law to be made without action by
the stockholders, and the Corporation is registered as an open-end
company under the Investment Company Act of 1940.
FOURTH: These Articles of Amendment will become
effective at 9:00 A.M. on November 7, 1994.
The undersigned Chairman of the Board of the Corporation
acknowledges these Articles of Amendment to be the corporate act of
the Corporation and states to the best of his knowledge, information
and belief that the matters and facts set forth in these Articles
with respect to authorization and approval are true in all material
respects and that this statement is made under the penalties of
perjury.
IN WITNESS WHEREOF, Smith Barney Managed Governments Fund Inc.
has caused these Articles of Amendment to be signed in its name and
on its behalf by its Chairman of the Board, and witnessed by its
Assistant Secretary on , 1994.
SMITH BARNEY MANAGED
GOVERNMENTS FUND INC.
By: Heath B. McLendon,
Chairman of the Board
WITNESS:
Lee D. Augsburger,
Assistant Secretary
SMITH BARNEY SHEARSON MANAGED GOVERNMENTS FUND INC. ARTICLES OF
AMENDMENT
Smith Barney Shearson Managed Governments Fund Inc., a Maryland
corporation having its principal office in the State of Maryland in
Baltimore City (hereinafter called the "Corporation"), hereby certifies to
the State Department of Assessments and Taxation of Maryland that:
FIRST: The Articles of Incorporation of the Corporation, as
amended, are hereby further amended by deleting Article II and inserting in
lieu thereof the following:
ARTICLE II
NAME
The name of the corporation (hereinafter called
the "Corporation") is Smith Barney Managed
Governments Fund Inc.
SECOND: The foregoing amendment to the charter of the
Corporation was approved by a majority of the entire Board of Directors of
the Corporation; the charter amendment is limited to a change expressly
permitted by Section 2-605 of Title 2 of Subtitle 6 of the Maryland General
Corporation Law to be made without action by the stockholders, and the
Corporation is registered as an open-end company under the Investment
Company Act of 1940.
The undersigned Chairman acknowledges these Articles of
Amendment to be the corporate act of the Corporation and states to the best
of his knowledge, information and belief that the matters and facts set
forth in these Articles with respect to authorization and approval are true
in all material respects and that this statement is made under the
penalties of perjury.
IN WITNESS WHEREOF, Smith Barney Shearson Managed Governments
Fund Inc. has caused these Articles of Amendment to be signed in its name
and on its behalf by its Chairman and witnessed by its Assistant Secretary
on October , 1994.
SMITH BARNEY SHEARSON MANAGED GOVERNMENTS FUND INC.
By: Heath B. McLendon, Chairman
WITNESS:
Lee D. Augsburger
Assistant Secretary
Exhibit 9(a)
SMITH BARNEY MANAGED GOVERNMENTS FUND INC.
ADMINISTRATION AGREEMENT
April 20, 1994
Smith, Barney Advisers, Inc.
1345 Avenue of the Americas
New York, New York 10105
Dear Sirs:
Smith Barney Managed Governments Fund Inc. (the "Fund"), a
corporation organized under the laws of the State of Maryland, confirms its
agreement with Smith, Barney Advisers, Inc. ("SBA") as follows:
1. Investment Description; Appointment
The Fund desires to employ its capital by investing and
reinvesting in investments of the kind and in accordance with the
limitations specified in its Articles of Incorporation dated June 15, 1984
as amended from time to time (the "Articles of Incorporation"), in its
Prospectus and Statement of Additional Information as from time to time in
effect and in such manner and to such extent as may from time to time be
approved by the Board of Directors of the Fund (the "Board"). Copies of
the Fund's Prospectus, Statement of Additional Information and Articles of
Incorporation have been or will be submitted to SBA. Greenwich Street
Advisors, a division of Mutual Management Corp. ("Greenwich Street
Advisors") serves as the Fund's investment adviser, and the Fund desires to
employ and hereby appoints SBA to act as its administrator. SBA accepts
this appointment and agrees to furnish the services to the Fund for the
compensation set forth below. SBA is hereby authorized to retain third
parties and is hereby authorized to delegate some or all of its duties and
obligations hereunder to such persons provided that such persons shall
remain under the general supervision of SBA.
2. Services as Administrator
Subject to the supervision and direction of the Board, SBA
will: (a) assist in supervising all aspects of the Fund's operations except
those performed by the Fund's investment adviser under its investment
advisory agreement; (b) supply the Fund with office facilities (which may
be in SBA's own offices), statistical and research data, data processing
services, clerical, accounting and bookkeeping services, including, but not
limited to, the calculation of (i) the net asset value of shares of the
Fund, (ii) applicable contingent deferred sales charges and similar fees
and charges and (iii) distribution fees, internal auditing and legal
services, internal executive and administrative services, and stationary
and office supplies; and (c) prepare reports to shareholders of the Fund,
tax returns and reports to and filings with the Securities and Exchange
Commission (the "SEC") and state blue sky authorities.
3. Compensation
In consideration of services rendered pursuant to this
Agreement, the Fund will pay SBA on the first business day of each month a
fee for the previous month at the following annual rate; .20 of 1.00% of
the Fund's average daily net assets up to $1 billion and .185% of average
daily net assets in excess of $1 billion. The fee for the period from the
date the Fund's initial registration statement is declared effective by the
SEC to the end of the month during which the initial registration statement
is declared effective shall be prorated according to the proportion that
such period bears to the full monthly period. Upon any termination of this
Agreement before the end of any month, the fee for such part of a month
shall be prorated according to the proportion which such period bears to
the full monthly period and shall be payable upon the date of termination
of this Agreement. For the purpose of determining fees payable to SBA, the
value of the Fund's net assets shall be computed at the times and in the
manner specified in the Fund's Prospectus and Statement of Additional
Information as from time to time in effect.
4. Expenses
SBA will bear all expenses in connection with the performance
of its services under this Agreement. The Fund will bear certain other
expenses to be incurred in its operation, including: taxes, interest,
brokerage fees and commissions, if any; fees of the members of the Board of
the Fund who are not officers, directors or employees of Smith Barney Inc.
or its affiliates or any person who is an affiliate of any person to whom
duties may be delegated hereunder; SEC fees and state blue sky
qualification fees; charges of custodians and transfer and dividend
disbursing agents; the Fund's and Board members' proportionate share of
insurance premiums, professional association dues and/or assessments;
outside auditing and legal expenses; costs of maintaining the Fund's
existence; costs attributable to investor services, including, without
limitation, telephone and personnel expenses; costs of preparing and
printing prospectuses and statements of additional information for
regulatory purposes and for distribution to existing shareholders; costs of
shareholders' reports and meetings of the officers or Board and any
extraordinary expenses. In addition, the Fund will pay all distribution
fees pursuant to a Distribution Plan adopted under Rule 12b-1 of the
Investment Company Act of 1940, as amended (the "1940 Act").
5. Reimbursement to the Fund
If in any fiscal year the aggregate expenses of the Fund
(including fees pursuant to this Agreement and the Fund's investment
advisory agreement (s), but excluding distribution fees, interest, taxes,
brokerage and, if permitted by state securities commissions, extraordinary
expenses) exceed the expense limitations of any state having jurisdiction
over the Fund, SBA will reimburse the Fund for that excess expense to the
extent required by state law in the same proportion as its respective fees
bear to the combined fees for investment advice and administration. The
expense reimbursement obligation of SBA will be limited to the amount of
its fees hereunder. Such expense reimbursement, if any, will be estimated,
reconciled and paid on a monthly basis.
6. Standard of Care
SBA shall exercise its best judgment in rendering the services
listed in paragraph 2 above, and SBA shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in
connection with the matters to which this Agreement relates, provided that
nothing herein shall be deemed to protect or purport to protect SBA against
liability to the Fund or to its shareholders to which SBA would otherwise
be subject by reason of willful misfeasance, bad faith or gross negligence
on its part in the performance of its duties or by reason of SBA's reckless
disregard of its obligations and duties under this Agreement.
7. Term of Agreement
This Agreement shall continue automatically for successive
annual periods, provided such continuance is specifically approved at least
annually by the Board.
8. Service to Other Companies or Accounts
The Fund understands that SBA now acts, will continue to act
and may act in the future as administrator to one or more other investment
companies, and the Fund has no objection to SBA so acting. In addition,
the Fund understands that the persons employed by SBA or its affiliates to
assist in the performance of its duties hereunder will not devote their
full time to such service and nothing contained herein shall be deemed to
limit or restrict the right of SBA or its affiliates to engage in and
devote time and attention to other businesses or to render services of
whatever kind or nature.
9. Indemnification
The Fund agrees to indemnify SBA and its officers, directors,
employees, affiliates, controlling persons, agents (including persons to
whom responsibilities are delegated hereunder) ("indemnitees") against any
loss, claim, expense or cost of any kind (including reasonable attorney's
fees) resulting or arising in connection with this Agreement or from the
performance or failure to perform any act hereunder, provided that no such
indemnification shall be available if the indemnitee violated the standard
of care in paragraph 6 above. This indemnification shall be limited by the
1940 Act, and relevant state law. Each indemnitee shall be entitled to
advancement of its expenses in accordance with the requirements of the 1940
Act and the rules, regulations and interpretations thereof as in effect
from time to time.
10. Limitation of Liability
The Fund, SBA and Boston Advisors agree that the obligations of
the Fund under this Agreement shall not be binding upon any of the Board
members, shareholders, nominees, officers, employees or agents, whether
past, present or future, of the Fund individually, but are binding only
upon the assets and property of the Fund, as provided in the Articles of
Incorporation. The execution and delivery of this Agreement has been duly
authorized by the Fund, SBA and
Boston Advisors, and signed by an authorized officer of each, acting as
such. Neither the authorization by the Board members of the Fund, nor the
execution and delivery by the officer of
the Fund 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
assets and property of the Fund as provided in the Articles of
Incorporation.
If the foregoing is in accordance with your understanding, kindly
indicate your acceptance hereof by signing and returning to us the enclosed
copy hereof.
Very truly yours,
Smith Barney
Managed Governments Fund Inc.
By: /s/ Heath B. McLendon
Name: Heath B. McLendon
Title: Chairman of the Board
Accepted:
Smith, Barney Advisers, Inc.
By: /s/ Christina T. Sydor
Name: Christina T. Sydor
Title: Secretary
APPENDIX A
ADMINISTRATIVE SERVICES
Fund Accounting. Fund accounting services involve comprehensive
accrual-based recordkeeping and management information. They include
maintaining a fund's books and records in accordance with the Investment
Company Act of 1940, as amended (the "1940 Act"), net asset value
calculation, daily dividend calculation, tax accounting and portfolio
accounting.
The designated fund accountants interact with the Fund's
custodian, transfer agent and investment adviser daily. As required,
the responsibilities of each fund accountant may include:
Cash Reconciliation - Reconcile prior day's ending cash
balance per custodian's records and the accounting system to the prior
day's ending cash balance per fund accounting's cash availability
report;
Cash Availability - Combine all activity affecting the
Fund's cash account and produce a net cash amount available for
investment;
Formal Reconciliations - Reconcile system generated reports
to prior day's calculations of interest, dividends, amortization,
accretion, distributions, capital stock and net assets;
Trade Processing - Upon receipt of instructions from the
investment adviser review, record and transmit buys and sells to the
custodian;
Journal Entries - Input entries to the accounting system
reflecting shareholder activity and Fund expense accruals;
Reconcile and Calculate N.O.A. (net other assets) - Compile
all activity affecting asset and liability accounts other than
investment account;
Calculate Net Income, Mil Rate and Yield for Daily
Distribution Funds - Calculate income on purchase and sales, calculate
change in income due to variable rate change, combine all daily income
less expenses to arrive at net income, calculate mil rate and yields (1
day, 7 day and 30 day);
Mini-Cycle (except for Money Market Funds) - Review intra
day trial balance and reports, review trial balance N.O.A.;
Holdings Reconciliation - Reconcile the portfolio holdings
per the system to custodian records;
Pricing - Determine N.A.V. for Fund using market value of
all securities and currencies (plus N.O.A.), divided by the shares
outstanding, and investigate securities with significant price changes
(over 5%);
Money Market Fund Pricing - Monitor valuation for compliance
with Rule 2a-7;
System Check-Back - Verify the change in market value of
securities which saw trading activity per the system;
Net Asset Value Reconciliation - Identify the impact of
current day's Fund activity on a per share basis;
Reporting of Price to NASDAQ - 5:30 P.M. is the final
deadline for Fund prices being reported to the newspaper;
Reporting of Price to Transfer Agent- N.A.V.s are reported
to transfer agent upon total completion of above activities.
In addition, fund accounting personnel: communicate corporate
actions of portfolio holdings to portfolio managers; initiate
notification to custodian procedures on outstanding income receivables;
provide information to the Fund's treasurer for reports to shareholders,
SEC, Board members, tax authorities, statistical and performance
reporting companies and the Fund's auditors; interface with the Fund's
auditors; prepare monthly reconciliation packages, including expense pro
forma; prepare amortization schedules for premium and discount bonds
based on the effective yield method; prepare vault reconciliation
reports to indicate securities currently "out-for-transfer;" and
calculate daily expenses based on expense ratios supplied by Fund's
treasurer.
Financial Administration. The financial administration services made
available to the Fund fall within three main categories: Financial
Reporting; Statistical Reporting; and Publications. The following is a
summary of the services made available to the Fund by the Financial
Administration Division:
Financial Reporting
Coordinate the preparation and review of the annual,
semi-annual and quarterly portfolio of investments and financial
statements included in the Fund's shareholder reports.
Statistical Reporting
Total return reporting;
SEC 30-day yield reporting and 7-day yield reporting
(for money market funds);
Prepare dividend summary;
Prepare quarter-end reports;
Communicate statistical data to the financial media
(Donoghue, Lipper, Morningstar, et al.)
Publications
Coordinate the printing and mailing process with
outside printers for annual and semi-annual reports, prospectuses,
statements of additional information, proxy statements and special
letters or supplements;
Provide graphics and design assistance relating to the
creation of marketing materials and shareholder reports.
Treasury. The following is a summary of the treasury services available
to the Fund:
Provide a Treasurer and Assistant Treasurer for the
Fund;
Determine expenses properly chargeable to the Fund;
Authorize payment of bills for expenses of the Fund;
Establish and monitor the rate of expense accruals;
Prepare financial materials for review by the Fund's
Board (e.g., Rule 2a-7, 10f-3, 17a-7 and 17e-1 reports, repurchase
agreement dealer lists, securities transactions);
Recommend dividends to be voted by the Fund's Board;
Monitor mark-to-market comparisons for money market
funds;
Recommend valuation to be used for securities which
are not readily saleable;
Function as a liaison with the Fund's outside auditors
and arrange for audits;
Provide accounting, financial and tax support relating
to portfolio management and any contemplated changes in the Fund's
structure or operations;
Prepare and file forms with the Internal Revenue
Service
Form 8613
Form 1120-RIC
Board Members' and Shareholders' 1099s
Mailings in connection with Section 852 and
related regulations.
Legal and Regulatory Services. The legal and regulatory services made
available to the Fund fall within four main areas: SEC and Public
Disclosure Assistance; Corporate and Secretarial Services; Compliance
Services; and Blue Sky Registration. The following is a summary of the
legal and regulatory services available to the Fund:
SEC and Public Disclosure Assistance
File annual amendments to the Fund's registration
statements, including updating the prospectus and statement of
additional information where applicable;
File annual and semi-annual shareholder reports with
the appropriate regulatory agencies;
Prepare and file proxy statements;
Review marketing material for SEC and NASD clearance;
Provide legal assistance for shareholder
communications.
Corporate and Secretarial Services
Provide a Secretary and an Assistant Secretary for the
Fund;
Maintain general corporate calendar;
Prepare agenda and background materials for Fund board
meetings, make presentations where appropriate, prepare minutes and
follow-up matters raised at Board meetings;
Organize, attend and keep minutes of shareholder
meetings;
Maintain Articles of Incorporation and By-Laws of the
Fund.
Legal Consultation and Business Planning
Provide general legal advice on matters relating to
portfolio management, Fund operations and any potential changes in the
Fund's investment policies, operations or structure;
Maintain continuing awareness of significant emerging
regulatory and legislative developments which may affect the Fund,
update the Fund's Board and the investment adviser on those developments
and provide related planning assistance where requested or appropriate;
Develop or assist in developing guidelines and
procedures to improve overall compliance by the Fund and its various
agents;
Manage Fund litigation matters and assume full
responsibility for the handling of routine Fund examinations and
investigations by regulatory agencies.
Compliance Services
The Compliance Department is responsible for preparing
compliance manuals, conducting seminars for fund accounting and advisory
personnel and performing on-going testing of the Fund's portfolio to
assist the Fund's investment adviser in complying with prospectus
guidelines and limitations, 1940 Act requirements and Internal Revenue
Code requirements. The Department may also act as liaison to the SEC
during its routine examinations of the Fund.
State Regulation
The State Regulation Department operates in a fully
automated environment using blue sky registration software developed by
Price Waterhouse. In addition to being responsible for the initial and
on-going registration of shares in each state, the Department acts as
liaison between the Fund and state regulators, and monitors and reports
on shares sold and remaining registered shares available for sale.
/s/ Heath B. McLendon
Heath B. McLendon
Chairman of the Board
Accepted:
Smith, Barney Advisers, Inc.
/s/ Christina T. Sydor
Christina T. Sydor
Secretary
shared\domestic\clients\shearson\funds\govt\admn2.
A-2
shared\domestic\clients\shearson\funds\sovt\admn2.
Exhibit 9(b)
SMITH BARNEY MANAGED GOVERNMENTS FUND INC.
SUB-ADMINISTRATION AGREEMENT
April 20, 1994
The Boston Company Advisors, Inc.
One Exchange Place
Boston, MA 02109
Dear Sirs:
Smith Barney Managed Governments Fund Inc. (the "Fund"), a
corporation organized under the laws of the State of Maryland and Smith,
Barney Advisers, Inc. ("SBA") confirm their agreement with The Boston
Company Advisors, Inc. ("Boston Advisors") as follows:
1. Investment Description; Appointment
The Fund desires to employ its capital by investing and
reinvesting in investments of the kind and in accordance with the
limitations specified in its Articles of Incorporation dated June 15, 1984
as amended from time to time (the "Articles of Incorporation"), in its
Prospectus and Statement of Additional Information as from time to time in
effect, and in such manner and to such extent as may from time to time be
approved by the Board of Directors of the Fund (the "Board"). Copies of
the Fund's Prospectus, Statement of Additional Information and Articles of
Incorporation have been or will be submitted to you. The Fund employs SBA
as its administrator, and the Fund and SBA desire to employ and hereby
appoint Boston Advisors as the Fund's sub-administrator. Boston Advisors
accepts this appointment and agrees to furnish the services to the Fund,
for the compensation set forth below, under the general supervision of SBA.
2. Services as Sub-Administrator
Subject to the supervision and direction of the Board and SBA,
Boston Advisors will: (a) assist in supervising all aspects of the Fund's
operations except those performed by the Fund's investment adviser under
the Fund's investment advisory agreement; (b) supply the Fund with office
facilities (which may be in Boston Advisor's own offices), statistical and
research data, data processing services, clerical, accounting and
bookkeeping services, including, but not limited to, the calculation of (i)
the net asset value of shares of the Fund, (ii) applicable contingent
deferred sales charges and similar fees and changes and (iii) distribution
fees, internal auditing and legal services, internal executive and
administrative services, and stationery and office supplies; and (c)
prepare reports to shareholders of the Fund, tax returns and reports to and
filings with the Securities and Exchange Commission (the "SEC") and state
blue sky authorities.
3. Compensation
In consideration of services rendered pursuant to this
Agreement, SBA will pay Boston Advisors on the first business day of each
month a fee for the previous month calculated in accordance with the terms
set forth in Appendix B, and as agreed to from time to time by the Fund,
SBA and Boston Advisors. Upon any termination of this Agreement before the
end of any month, the fee for such part of a month shall be prorated
according to the proportion which such period bears to the full monthly
period and shall be payable upon the date of termination of this Agreement.
For the purpose of determining fees payable to Boston Advisors, the value
of the Fund's net assets shall be computed at the times and in the manner
specified in the Fund's Prospectus and Statement of Additional Information
as from time to time in effect.
4. Expenses
Boston Advisors will bear all expenses in connection with the
performance of its services under this Agreement. The Fund will bear
certain other expenses to be incurred in its operation, including: taxes,
interest, brokerage fees and commissions, if any; fees of the Board members
of the Fund who are not officers, directors or employees of Smith Barney
Inc., Boston Advisors of their affiliates; SEC fees and state blue sky
qualification fees; charges of custodians and transfer and dividend
disbursing agents; the Fund's and its Board members' proportionate share of
insurance premiums, professional association dues and/or assessments;
outside auditing and legal expenses; costs of maintaining the Fund's
existence; costs attributable to investor services, including, without
limitation, telephone and personnel expenses; costs of preparing and
printing prospectuses and statements of additional information for
regulatory purposes and for distribution to existing shareholders; costs of
shareholders' reports and meetings of the officers or Board and any
extraordinary expenses. In addition, the Fund will pay all distribution
fees pursuant to a Distribution Plan adopted under Rule 12b-1 of the
Investment Company Act of 1940, as amended (the "1940 Act").
5. Reimbursement of the Fund
If in any fiscal year the aggregate expenses of the Fund
(including fees pursuant to this Agreement and the Fund's investment
advisory agreement(s) and administration agreement, but excluding
distribution fees, interest, taxes, brokerage and, if permitted by state
securities commissions, extraordinary expenses) exceed the expense
limitations of any state having jurisdiction over the Fund, Boston Advisors
will reimburse the Fund for that excess expense to the extent required by
state law in the same proportion as its respective fees bear to the
combined fees for investment advice and administration. The expense
reimbursement obligation of Boston Advisors will be limited to the amount
of its fees hereunder. Such expense reimbursement, if any, will be
estimated, reconciled and paid on a monthly basis.
6. Standard of Care
Boston Advisors shall exercise its best judgment in rendering
the services listed in paragraph 2 above. Boston Advisors shall not be
liable for any error of judgment or mistake of law or for any loss suffered
by the Fund in connection with the matters to which this Agreement
relates, provided that nothing herein shall be deemed to protect or purport
to protect Boston Advisors against liability to the Fund or to its
shareholders to which Boston Advisors would otherwise be subject by reason
of willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or by reason of Boston Advisor's reckless
disregard of its obligations and duties under this Agreement.
7. Term of Agreement
This agreement shall continue automatically for successive
annual periods, provided that it may be terminated by 90 days' written
notice to the other parties by any of the Fund, SBA or Boston Advisors.
This Agreement shall extend to and shall be binding upon the parties
hereto, and their respective successors and assigns, provided, however,
that this agreement may not be assigned, transferred or amended without the
written consent of all the parties hereto.
8. Service to Other Companies or Accounts
The Fund understands that Boston Advisors now acts, will
continue to act and may act in the future as administrator to one or more
other investment companies, and the Fund has no objection to Boston
Advisors so acting. In addition, the Fund understands that the persons
employed by Boston Advisors to assist in the performance of its duties
hereunder may or may not devote their full time to such service and nothing
contained herein shall be deemed to limit or restrict the right of Boston
Advisors or its affiliates to engage in and devote time and attention to
other businesses or to render services of whatever kind of nature.
9. Indemnification
SBA agrees to indemnify Boston Advisors and its officers,
directors, employees, affiliates, controlling persons and agents
("indemnitees") to the extent that indemnification is available from the
Fund, and Boston Advisors agrees to indemnify SBA and its indemnitees,
against any loss, claim, expenses or cost of any kind (including reasonable
attorney's fees) resulting or arising in connection with this Agreement or
from the performance or failure to perform any act hereunder, provided that
not such indemnification shall be available if the indemnitee violated the
standard of care in paragraph 6 above. This indemnification shall be
limited by the 1940 Act, and relevant state law. Each indemnitee shall be
entitled to advancement of its expenses in accordance with the requirements
of the 1940 Act and the rules, regulations and interpretations thereof as
in effect from time to time.
10. Limitations of Liability
The Fund, SBA and Boston Advisors agree that the obligations of
the Fund under this Agreement shall not be binding upon any of the Board
members, shareholders, nominees, officers, employees or agents, whether
past, present or future, of the Fund individually, but are binding only
upon the assets and property of the Fund, as provided in the Articles of
Incorporation and Bylaws.
The execution and delivery of this Agreement has been duly authorized by
the Fund, SBA and Boston Advisors, and signed by an authorized officer of
each, acting as such. Neither the authorization by the Board Members of
the Fund, nor the execution and delivery by the officer of the Fund 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 assets and
property of the Fund as provided in the Articles of Incorporation.
If the foregoing is in accordance with your understanding,
kindly indicate your acceptance hereof by signing and returning to us the
enclosed copy hereof.
Very truly yours,
Smith Barney
Managed Governments Fund Inc.
By: /s/ Heath B. McLendon
Name: Heath B. McLendon
Title: Chairman of the Board
Smith, Barney Advisers, Inc.
By: /s/ Christina T. Sydor
Name: Christina T. Sydor
Title: Secretary
Accepted:
The Boston Company Advisors, Inc.
By: _______________________
Name:
Title:
APPENDIX A
ADMINISTRATIVE SERVICES
Fund Accounting. Fund accounting services involve comprehensive accrual-
based recordkeeping and management information. They include maintaining a
fund's books and records in accordance with the Investment Company Act of
1940, as amended (the "1940 Act" ), net asset value calculation, daily
dividend calculation, tax accounting and portfolio accounting.
The designated fund accountants interact with the Fund's custodian,
transfer agent and investment adviser daily. As required, the
responsibilities of each fund accountant may include:
Cash Reconciliation - Reconcile prior day's ending cash balance
per custodian's records and the accounting system to the prior day's ending
cash balance per fund accounting's cash availability report;
Cash Availability - Combine all activity affecting the Fund's
cash account and produce a net cash amount available for investment;
Formal Reconciliation - Reconcile system generated reports to
prior day's calculations of interest, dividends, amortization, accretion,
distributions, capital stock and net assets;
Trade Processing - Upon receipt of instructions from the
investment adviser review, record and transmit buys and sells to the
custodian;
Journal Entries - Input entries to the accounting system
reflecting shareholder activity and Fund expense accruals;
Reconcile and Calculate N.O.A. (net other assets) - Compile all
activity affecting asset and liability accounts other than investment
account;
Calculate Net Income, Mil Rate and Yield for Daily Distribution
Funds - Calculate income on purchases and sales, calculate
change in income due to variable rate change; combine all daily income less
expenses to arrive at net income; calculate mil rate and yields (1 day, 7
day and 30 day);
Mini-Cycle (except for Money Market Funds) - Review intra day
trial balance and reports, review trial balance N.O.A.;
Holdings Reconciliation - Reconcile the portfolio holdings per
the system to custodian reports;
Pricing - Determine N.A.V. for the Fund using market value of
all securities and currencies (plus N.O.A.), divided by the shares
outstanding, and investigate securities with significant price changes
(over 5%);
Money Market Fund Pricing - Monitor valuation for compliance
with Rule 2a-7;
System Check-Back - Verify the change in market value of
securities which saw trading activity per the system;
Net Asset Value Reconciliation - Identify the impact of current
day's Fund activity on a per share basis;
Reporting of Price to NASDAQ - 5:30 P.M. is the final deadline
for Fund prices being reported to the newspaper;
Reporting of Price to Transfer Agent - N.A.V.s are reported to
transfer agent upon total completion of above activities.
In addition, fund accounting personnel: communicate corporate actions
of portfolio holdings to portfolio mangers; initiate notification to
custodian procedures on outstanding income receivables; provide information
to the Fund's treasurer for reports to shareholders, SEC, Board, tax
authorities, statistical and performance reporting companies and the Fund's
auditors; interface with Fund's auditors; prepare monthly reconciliation
packages, including expense pro forma; prepare amortization schedules for
premium and discount bonds based on the effective yield method; prepare
vault reconciliation reports to indicate securities currently "out-for-
transfer;" and calculate daily expenses based on expense ratios supplied by
Fund's treasurer.
Financial Administration. The financial administration services made
available to the Fund fall within three main categories: Financial
Reporting; Statistical Reporting; and Publications. The following is a
summary of the services made available to the Fund by the Financial
Administration Division:
Financial Reporting
Coordinate the preparation and review of the annual, semi-
annual and quarterly portfolio of investments and financial statements
included in the Fund's shareholder reports.
Statistical Reporting
Total return reporting;
SEC 30-day yield reporting and 7-day yield reporting (for money
market funds);
Prepare dividend summary;
Prepare quarter-end reports;
Communicate statistical data to the financial media (Donoghue,
Lipper, Morningstar, et al.).
Publications
Coordinate the printing and mailing process with outside
printers for annual and semi-annual reports, prospectuses, statements of
additional information, proxy statements and special letters or
supplements;
Treasury. The following is a summary of the treasury services available to
the Fund:
Provide an Assistant Treasurer for the Fund;
Authorize payment of bills for expenses of the Fund;
Establish and monitor the rate of expense accruals;
Prepare financial materials for review by the Fund's Board
(e.g., Rule 2a-7, 10f-3 17a-7 and 17e-1 reports, repurchase agreement
dealer lists, securities transactions);
Monitor mark-to-market comparisons for money market funds;
Recommend valuations to be used for securities which are not
readily saleable;
Function as a liaison with the Fund's outside auditors and
arrange for audits;
Provide accounting, financial and tax support relating to
portfolio management and any contemplated changes in the fund's structure
or operations;
Prepare and file forms with the Internal Revenue Service
* Form 8613
* Form 1120-RIC
* Board Members' and Shareholders' 1099s
* Mailings in connection with Section 852 and related
regulations.
Legal and Regulatory Services. The legal and regulatory services made
available to the Fund fall within four main areas: SEC and Public
Disclosure Assistance; Corporate and Secretarial Services; Compliance
Services; and Blue Sky Registration. The following is a summary of the
legal and regulatory services available to the Fund:
SEC and Public Disclosure Assistance
File annual amendments to the Fund's registration statements,
including updating the prospectus and statement of additional information
where applicable;
File annual and semi-annual shareholder reports with the
appropriate regulatory agencies;
Prepare and file proxy statements;
Provide legal assistance for shareholder communications.
Corporate and Secretarial Services
Provide an Assistant Secretary for the Fund;
Maintain general corporate calendar;
Prepare agenda and background materials for Fund board
meetings, make presentations where appropriate, prepare minutes and follow-
up matters raised at Board meetings;
Organize, attend and keep minutes of shareholder meetings;
Maintain Articles of Incorporation and By-Laws of the Fund.
Legal Consultation and Business Planning
Provide general legal advice on matters relating to portfolio
management, Fund operations and any potential changes in the Fund's
investment policies, operations or structure;
Maintain continuing awareness of significant emerging
regulatory and legislative developments which may affect the Fund, update
the Fund's Board and the investment adviser on those developments and
provide related planning assistance where requested or appropriate;
Develop or assist in developing guidelines and procedures to
improve overall compliance by the Fund and its various agents;
Manage Fund litigation matters and assume full responsibility
for the handling of routine fund examinations and investigations by
regulatory agencies.
Compliance Services
The Compliance Department is responsible for preparing compliance
manuals, conducting seminars for fund accounting and advisory personnel and
performing on-going testing of the Fund's portfolio to assist the Fund's
investment adviser in complying with prospectus guidelines and limitations,
1940 Act requirements and Internal Revenue Code requirements. The
Department may also act as liaison to the SEC during its routine
examinations of the Fund.
State Regulation
The State Regulation Department operates in a fully automated
environment using blue sky registration software development by Price
Waterhouse. In addition to being responsible for the initial and on-going
registration of shares in each state, the Department acts as liaison
between the Fund and state regulators, and monitors and reports on shares
sold and remaining registered shares available for sale.
Schedule B
Fee
shared domestic cleints shearson funds govt subadmn
A-2
shared\domestic\clients\shearson\funds\govt\subadmn
shared\domestic\clients\shearson\funds\govt\subadmn
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Smith Barney Shearson Managed Governments Fund Inc.:
We hereby consent to the following with respect to Post-Effective
Amendment
No. 17 to the Registration Statement on Form N-1A (File No. 2-91948) under
the Securities
Act of 1933, as amended, of Smith Barney Shearson Managed Governments Fund
Inc.
(formerly Shearson Lehman Brothers Managed Governments Fund):
1. The incorporation by reference of our report dated September
10, 1993,
accompanying the Annual Report dated July 31, 1993 of Smith
Barney
Shearson Managed Governments Fund Inc., in the Statement of
Additional Information.
2. The reference to our firm under the heading "Financial
Highlights" in the
Prospectus.
3. The reference to our firm under the heading "Counsel and
Auditors" in
the Statement of Additional Information.
COOPERS & LYBRAND
Boston, Massachusetts
November 29, 1993
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<NET-ASSETS> 760,540,646
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 58,156,713
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<EXPENSES-NET> 12,651,251
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<REALIZED-GAINS-CURRENT> (12,910,592)
<APPREC-INCREASE-CURRENT> (34,482,577)
<NET-CHANGE-FROM-OPS> (1,887,707)
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<DISTRIBUTIONS-OF-INCOME> 19,784,696
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<NUMBER-OF-SHARES-SOLD> 1,234,269
<NUMBER-OF-SHARES-REDEEMED> 7,728,677
<SHARES-REINVESTED> 1,364,311
<NET-CHANGE-IN-ASSETS> (176,267,046)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (1,569,028)
<OVERDIST-NET-GAINS-PRIOR> (149,558,619)
<GROSS-ADVISORY-FEES> 3,840,009
<INTEREST-EXPENSE> 1,589,418
<GROSS-EXPENSE> 12,651,251
<AVERAGE-NET-ASSETS> 853,335,275
<PER-SHARE-NAV-BEGIN> 13.29
<PER-SHARE-NII> 0.75
<PER-SHARE-GAIN-APPREC> (0.74)
<PER-SHARE-DIVIDEND> 0.61
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<AVG-DEBT-PER-SHARE> 0
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<NAME> SBS MANAGED GOVERNMENTS FUND CLASS B
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<FISCAL-YEAR-END> JUL-31-1994
<PERIOD-END> JUL-31-1994
<INVESTMENTS-AT-COST> 804,524,256
<INVESTMENTS-AT-VALUE> 784,612,062
<RECEIVABLES> 141,764,347
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 51,916,758
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<PAYABLE-FOR-SECURITIES> 159,530,641
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 58,221,880
<TOTAL-LIABILITIES> 217,752,521
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 929,166,693
<SHARES-COMMON-STOCK> 31,157,829
<SHARES-COMMON-PRIOR> 35,683,721
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (4,031,227)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (144,198,251)
<ACCUM-APPREC-OR-DEPREC> (20,396,569)
<NET-ASSETS> 760,540,646
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 58,156,713
<OTHER-INCOME> 0
<EXPENSES-NET> 12,651,251
<NET-INVESTMENT-INCOME> 45,505,462
<REALIZED-GAINS-CURRENT> (12,910,592)
<APPREC-INCREASE-CURRENT> (34,482,577)
<NET-CHANGE-FROM-OPS> (1,887,707)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 18,683,840
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 5,675,946
<NUMBER-OF-SHARES-SOLD> 2,953,503
<NUMBER-OF-SHARES-REDEEMED> 8,734,882
<SHARES-REINVESTED> 1,255,487
<NET-CHANGE-IN-ASSETS> (176,267,046)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (1,569,028)
<OVERDIST-NET-GAINS-PRIOR> (149,558,619)
<GROSS-ADVISORY-FEES> 3,840,009
<INTEREST-EXPENSE> 1,589,418
<GROSS-EXPENSE> 12,651,251
<AVERAGE-NET-ASSETS> 853,335,275
<PER-SHARE-NAV-BEGIN> 13.29
<PER-SHARE-NII> 0.69
<PER-SHARE-GAIN-APPREC> (0.75)
<PER-SHARE-DIVIDEND> 0.56
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.17
<PER-SHARE-NAV-END> 12.50
<EXPENSE-RATIO> 1.55
<AVG-DEBT-OUTSTANDING> 4931
<AVG-DEBT-PER-SHARE> 0
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<PERIOD-END> JUL-31-1994
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<RECEIVABLES> 141,764,347
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<OTHER-ITEMS-LIABILITIES> 58,221,880
<TOTAL-LIABILITIES> 217,752,521
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 929,166,693
<SHARES-COMMON-STOCK> 5,788
<SHARES-COMMON-PRIOR> 876
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<OVERDISTRIBUTION-GAINS> (144,198,251)
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</TABLE>
