u:\osunkwo\govt485b.cvr
Registration Nos. 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. 21 X
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 X
Amendment No. 22 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)
(212) 723-9218
(Registrant's telephone number, including Area Code)
Christina T. Sydor
Secretary
Smith Barney Managed Governments Fund Inc.
388 Greenwich Street
New York, New York 10013
(22nd Floor)
(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:
X immediately upon filing pursuant to Rule
485(b)
on pursuant to Rule
485(b)
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. Registrant's Rule 24f-2 Notice
for the fiscal year ended July 31, 1995 was filed on
September 29, 1995 on Accession Number 0000748826-95-000001.
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF
1933(1)
Proposed
Propose Maximum
Title of Proposed d Aggregate
Securities Maximum Maximum Offering Regist
Being Offering Aggrega Price(3) ration
Registered Amount te Fee
Being Price
Registered Per
(1) Unit
(2)
Shares of
Common Stock 11,030,140 $12.86 $141,847, $100
par value 600.40
$0.001
per share of
Smith Barney
Managed
Governments
Fund Inc.
(1) The shares being registered as set forth in this table are
in addition to the indefinite number of shares of common stock
which the Registrant has registered under the Securities Act of
1933, as amended (the "1933 Act"), pursuant to Rule 24f-2 under
the Investment Company Act of 1940, as amended (the "1940 Act").
The Registrant's Rule 24f-2 Notice for the fiscal year ended July
31, 1995 was filed on September 29, 1995.
(2) Based on the Registrant's closing price of $12.86 on
November 17, 1995 pursuant to Rule 457(d) under the 1933 Act and
Rule 24e-2(a) under the 1940 Act.
(3) In response to Rule 24e-2(b) under the 1940 Act: (1) the
calculation of the maximum aggregate offering price is made
pursuant to Rule 24e-2; (2) 31,973,062 shares of common stock
were redeemed by the Registrant during the fiscal year ended July
31, 1995; (3) 21,232,922 of such shares are being used for
reductions pursuant to Rule 24f-2 during the current fiscal year;
and (4) 10,740,140 shares are being used for reduction in this
amendment pursuant to Rule 24e-2(a).
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. Condensed Financial Information Financial Highlights;
The Fund's Performance
4. General Description of Registrant Cover Page;
Prospectus Summary;
Purchase of Shares; Investment
Objective and
Management Policies; Additional
Information
5. Management of the Fund Management of the Fund;
Distributor;
Additional Information
6. Capital Stock and Other Securities Purchase of Shares;
Dividends, Distributions
and Taxes; Additional Information
7. Purchase of Securities Purchase of Shares;
Valuation of Shares;
Redemption of Shares; Exchange
Privilege;
Distributor; Additional Information
8. Redemption or Repurchase Purchase of Shares;
Redemption of Shares
9. Legal Proceedings Not Applicable
Part B Statement of
Item No. Additional Information Caption
10. Cover Cover Page
11. Table of Contents Table of Contents
12. General Information Additional
Information ; Distributor
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 Management of the Fund
Holders of Securities
16. Investment Advisory and Other Services Management of the
Fund; Distributor
17. Brokerage Allocation Investment Objective and
Management Policies
18. Capital Stock and Other Securities Purchase of Shares;
Redemption of Share;
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 29, 1995
PROSPECTUS
BEGINS ON PAGE ONE
LOGO
P R O S P E C T U S
<PAGE>
SMITH BARNEY
Managed Governments Fund Inc.
PROSPECTUS NOVEMBER 29,
1995
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 empha-
sis 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 pro-
spective investors will find helpful in making an investment
decision. Invest-
ors are encouraged to read this Prospectus carefully and retain
it for future
reference.
Additional information about the Fund is contained in a
Statement of Addi-
tional Information dated November 29, 1995, 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 con-
tacting 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
PROSPECTUS SUMMARY 3
- -------------------------------------------------
FINANCIAL HIGHLIGHTS 11
- -------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 15
- -------------------------------------------------
VALUATION OF SHARES 23
- -------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES 24
- -------------------------------------------------
PURCHASE OF SHARES 25
- -------------------------------------------------
EXCHANGE PRIVILEGE 36
- -------------------------------------------------
REDEMPTION OF SHARES 40
- -------------------------------------------------
MINIMUM ACCOUNT SIZE 41
- -------------------------------------------------
PERFORMANCE 42
- -------------------------------------------------
MANAGEMENT OF THE FUND 43
- -------------------------------------------------
DISTRIBUTOR 44
- -------------------------------------------------
ADDITIONAL INFORMATION 45
- -------------------------------------------------
- -----------------------------------------------------------------
- ---------------
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.
- -----------------------------------------------------------------
- ---------------
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 Prospec-
tus. See "Table of Contents."
INVESTMENT OBJECTIVE The Fund is an open-end, diversified
management invest-
ment 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. gov-
ernment 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 con-
tracts and related options. See "Investment Objective and
Management Poli-
cies."
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 initial 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 serv-
ice 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 the Fund's
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 serv-
ice or distribution fees.
In deciding which Class of Fund shares to purchase, investors
should con-
sider the following factors, as well as any other relevant facts
and circum-
stances:
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 or
her investment. Shareholders who are planning to establish a
program of regu-
lar investment may wish to consider Class A shares; as the
investment accumu-
4
<PAGE>
SMITH BARNEY
Managed Governments Fund Inc.
PROSPECTUS SUMMARY (CONTINUED)
lates 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 distribu-
tion 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 pur-
chase 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 eligi-
ble 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 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.
5
<PAGE>
SMITH BARNEY
Managed Governments Fund Inc.
PROSPECTUS SUMMARY (CONTINUED)
See "Purchase of Shares" and "Management of the Fund" for a
complete descrip-
tion of the sales charges and service and distribution fees for
each Class of
shares and "Valuation of Shares," "Dividends, Distributions and
Taxes" and "Ex-
change 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 spon-
sors 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 (collec-
tively, "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, First Data Investor Services
Group, Inc.
("First Data"). 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 Self-
Employed Retire-
ment 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 invest-
ment requirement for all Classes is $25. The minimum initial
investment
requirement for Class A, Class B and Class C shares and the
subsequent invest-
ment requirement for all Classes through the Systematic
Investment Plan
described below is $50. 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."
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
$50. See "Pur-
chase of Shares."
6
<PAGE>
SMITH BARNEY
Managed Governments Fund Inc.
PROSPECTUS SUMMARY (CONTINUED)
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 and administrator. 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
Travelers Group
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. 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 respec-
tive net asset values next determined, plus any applicable sales
charge dif-
ferential. 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 paid on
the last Friday of each calendar month to shareholders of record
as of three
business days prior. Distributions of net realized long- and
short-term capi-
tal 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."
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 dis-
tribution 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 pro-
vided by mortgage-backed U.S. government securities have exceeded
the yields
on other types of U.S. government securities of comparable
maturity. Thus, the
7
<PAGE>
SMITH BARNEY
Managed Governments Fund Inc.
PROSPECTUS SUMMARY (CONTINUED)
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 like-
lihood 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+ 0.17 0.17
0.17 0.17
- -----------------------------------------------------------------
- -------------
TOTAL FUND OPERATING EXPENSES 1.07% 1.57%
1.52% 0.82%
- -----------------------------------------------------------------
- -------------
</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.
** 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 no Class Y shares had
been
purchased as of July 31, 1995.
The sales charge and CDSC set forth in the above table are the
maximum
charges imposed on 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
9
<PAGE>
SMITH BARNEY
Managed Governments Fund Inc.
PROSPECTUS SUMMARY (CONTINUED)
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 account-
ing fees, printing costs and registration fees.
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 $78
$101 $170
Class B................................. 61 80
96 173
Class C................................. 25 48
83 181
Class Y................................. 8 26
46 101
An investor would pay the following
expenses on the same investment, assuming
the same annual return and no redemption:
Class A................................. $55 $78
$101 $170
Class B................................. 16 50
86 173
Class C................................. 15 48
83 181
Class Y................................. 8 26
46 101
- -----------------------------------------------------------------
- -------------
</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 REPRESENTA-
TION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN
THOSE SHOWN.
10
<PAGE>
SMITH BARNEY
Managed Governments Fund Inc.
FINANCIAL HIGHLIGHTS
The following information for the fiscal year ended July 31, 1995
has been audited
by KPMG Peat Marwick LLP, independent auditors, whose report
thereon
appears in the Fund's Annual Report dated July 31, 1995. The
following infor-
mation for the fiscal years ending July 31, 1990 through July 31,
1994 has
been audited by Coopers & Lybrand L.L.P. The following
information for the
fiscal years ended May 31, 1985 through May 31, 1989 has been
audited by
Arthur Andersen & Co. This information 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. No information is presented for Class Y shares
because no Class Y
shares were outstanding for the periods shown.
FOR A CLASS A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH
PERIOD:
<TABLE>
<CAPTION>
YEAR YEAR YEAR
YEAR YEAR
ENDED ENDED ENDED
ENDED ENDED
7/31/95 7/31/94 7/31/93
7/31/92 7/31/91
- -----------------------------------------------------------------
- --------------
<S> <C> <C> <C> <C>
<C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 12.50 $ 13.29 $ 12.88 $
12.09 $ 12.13
- -----------------------------------------------------------------
- --------------
INCOME FROM OPERATIONS:
Net investment income 0.81 0.75 0.69
0.91 0.98
Net realized and
unrealized gain (loss)
on investments 0.10 (0.74) 0.61
0.87 0.07
- -----------------------------------------------------------------
- --------------
Total Income From
Operations 0.91 0.01 1.30
1.78 1.05
- -----------------------------------------------------------------
- --------------
Less Distributions From:
Net investment income (0.74) (0.57) (0.65)
(0.91) (0.98)
Overdistribution of net
investment income -- (0.04) (0.01)
- -- --
Net realized capital
gains -- -- --
- -- --
Overdistribution of net
realized capital gains -- -- (0.23)
- -- --
Capital (0.04) (0.19) --
(0.08) (0.11)
- -----------------------------------------------------------------
- --------------
Total Distributions (0.78) (0.80) (0.89)
(0.99) (1.09)
- -----------------------------------------------------------------
- --------------
NET ASSET VALUE, END OF
PERIOD $ 12.63 $ 12.50 $ 13.29 $
12.88 $ 12.09
- -----------------------------------------------------------------
- --------------
Total Return++ 7.67% 0.08% 10.43%
15.25% 9.02%
- -----------------------------------------------------------------
- --------------
Net Assets, End of
Period (000's) $528,533 $371,086 $462,703
$488,515 $474,305
- -----------------------------------------------------------------
- --------------
RATIOS TO AVERAGE NET
ASSETS:
Expenses 1.07% 1.03%** 0.99%**
0.82% 0.82%
Net investment income 6.57% 5.60% 5.35%
7.23% 8.12%
- -----------------------------------------------------------------
- --------------
PORTFOLIO TURNOVER RATE 292% 236% 436%
426% 365%
- -----------------------------------------------------------------
- --------------
</TABLE>
** The operating expense ratios exclude interest expense. The
operating
expense ratios including interest expense would have been
1.22% and 1.00%
for the years ended July 31, 1994 and 1993, respectively.
++ Total return represents aggregate total return for the
periods indicated
and does not reflect any applicable sales charges.
11
<PAGE>
SMITH BARNEY
Managed Governments Fund Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH
PERIOD:
<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(1)
- -----------------------------------------------------------------
- ----------------------------
<S> <C> <C> <C> <C>
<C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 12.19 $ 12.04 $ 12.62 $
13.32 $ 13.03 $ 12.35
- -----------------------------------------------------------------
- ----------------------------
INCOME FROM OPERATIONS:
Net investment income 1.07 0.96 1.09
1.11 1.34 1.23
Net realized and
unrealized gain/(loss)
on investments and
futures contracts (0.03) 0.26 (0.56)
(0.36) 0.38 0.71
- -----------------------------------------------------------------
- ----------------------------
Total Income from
Operations 1.04 1.22 0.53
0.75 1.72 1.94
- -----------------------------------------------------------------
- ----------------------------
LESS DISTRIBUTIONS FROM:
Net investment income (1.07) (0.96) (1.09)
(1.11) (1.34) (1.23)
Overdistribution of net
investment income -- -- -- --
- -- --
Net realized capital
gains -- -- (0.01)
(0.34) (0.09) (0.03)
Overdistribution of net
realized capital gains -- -- -- --
- -- --
Capital (0.03) (0.11) (0.01) --
- -- --
- -----------------------------------------------------------------
- ----------------------------
Total Distributions (1.10) (1.07) (1.11)
(1.45) (1.43) (1.26)
- -----------------------------------------------------------------
- ----------------------------
NET ASSET VALUE, END OF
PERIOD $ 12.13 $ 12.19 $ 12.04 $
12.62 $ 13.32 $ 13.03
- -----------------------------------------------------------------
- ----------------------------
TOTAL RETURN++ 9.01% 10.62% 4.43%
5.69% 13.81% 16.33%+++
Net Assets, End of
Period (000's) $511,867 $621,752 $871,468
$1,366,998 $1,435,923 $1,082,285
- -----------------------------------------------------------------
- ----------------------------
RATIOS TO AVERAGE NET
ASSETS:
Expenses 0.81% 0.81% 0.77%
0.78% 0.79% 0.87%+
Net investment income 8.87% 8.12% 8.98%
8.35% 9.98% 11.23%+
- -----------------------------------------------------------------
- ----------------------------
PORTFOLIO TURNOVER RATE 163% 51% 288%
241% 136% 83%
- -----------------------------------------------------------------
- ----------------------------
</TABLE>
(1) For the period from September 4, 1984 (commencement of
operations) to July
31, 1985.
+ Annualized.
+++ Total return is not annualized as it may not be
representative of the total
return for the year.
++ Total return represents aggregate total return for the
periods indicated and
does not reflect any applicable sales charges.
12
<PAGE>
SMITH BARNEY
Managed Governments Fund Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS B SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH
PERIOD:
<TABLE>
<CAPTION>
YEAR YEAR
PERIOD
ENDED ENDED
ENDED
7/31/95 7/31/94
7/31/93(1)
- -----------------------------------------------------------------
- --------------
<S> <C> <C>
<C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.50 $ 13.29
$ 12.64
- -----------------------------------------------------------------
- --------------
INCOME FROM OPERATIONS:
Net investment income 0.75 0.69
0.47
Net realized and unrealized gain/(loss) on
investments 0.09 (0.75)
0.75
- -----------------------------------------------------------------
- --------------
Total Income From Operations 0.84 (0.06)
1.22
- -----------------------------------------------------------------
- --------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.67) (0.52)
(0.40)
Overdistribution of net investment income -- (0.04)
(0.01)
Overdistribution of net realized capital
gains -- --
(0.16)
Capital (0.04) (0.17)
- --
- -----------------------------------------------------------------
- --------------
Total Distributions (0.71) (0.73)
(0.57)
- -----------------------------------------------------------------
- --------------
NET ASSET VALUE, END OF PERIOD $ 12.63 $ 12.50
$ 13.29
- -----------------------------------------------------------------
- --------------
TOTAL RETURN++ 7.04% (0.46)%
9.92%+++
Net Assets, End of Period (000's) $132,882 $389,383
$474,093
- -----------------------------------------------------------------
- --------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.57% 1.55%**
1.62%**+
Net investment income 6.07% 5.08%
4.72%+
- -----------------------------------------------------------------
- --------------
PORTFOLIO TURNOVER RATE 292% 236%
436%
- -----------------------------------------------------------------
- --------------
</TABLE>
(1) For the period from November 6, 1992 (inception date) to July
31, 1993.
** The operating expense ratios exclude interest expense. The
operating
expense ratios including interest expense would have been
1.74% and 1.63%
for the year ended July 31, 1994 and for the period ended
July 31, 1993,
respectively.
+ Annualized.
+++ Total return is not annualized as it may not be
representative of the total
return for the year.
++ Total return represents aggregate total return for the
periods indicated
and does not reflect any applicable sales charge.
13
<PAGE>
SMITH BARNEY
Managed Governments Fund Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS C SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH
PERIOD:
<TABLE>
<CAPTION>
YEAR YEAR
PERIOD
ENDED ENDED
ENDED
7/31/95 7/31/94
7/31/93(1)
- -----------------------------------------------------------------
- --------------
<S> <C> <C>
<C>
NET ASSET VALUE, BEGINNING OF PERIOD $12.50 $13.29
$13.18
- -----------------------------------------------------------------
- --------------
Income From Operations:
Net investment income 0.76 0.69
0.07
Net realized and unrealized gain/(loss) on
investments 0.08 (0.75)
0.09
- -----------------------------------------------------------------
- --------------
Total Income From Operations 0.84 (0.06)
0.16
- -----------------------------------------------------------------
- --------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.67) (0.52)
(0.03)
Overdistribution of net investment income -- (0.04)
- --
Overdistribution of net realized capital
gains -- --
(0.02)
Capital (0.04) (0.17)
- -----------------------------------------------------------------
- --------------
Total Distributions (0.71) (0.73)
(0.05)
- -----------------------------------------------------------------
- --------------
NET ASSET VALUE, END OF PERIOD $12.63 $12.50
$13.29
- -----------------------------------------------------------------
- --------------
TOTAL RETURN++ 7.04% (0.46)%
1.25%+++
- -----------------------------------------------------------------
- --------------
Net Assets, End of Period (000's) $ 299 $ 72
$ 12
- -----------------------------------------------------------------
- --------------
RATIOS TO AVERAGE NET ASSETS:
Ratio of operating expenses to average net
assets 1.52% 1.58%**
1.55%**+
Ratio of net investment income to average net
assets 6.12% 5.05%
4.80%+
- -----------------------------------------------------------------
- --------------
Portfolio Turnover Rate 292% 236%
436%
- -----------------------------------------------------------------
- --------------
</TABLE>
(1) For the period from June 29, 1993 (inception date) to July
31, 1993.
** The operating expense ratios exclude interest expense. The
operating
expense ratios including interest expense would have been
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 and
does not reflect any applicable sales charge.
++ Total return is not annualized as it may not be
representative of the
total return for the year.
14
<PAGE>
SMITH BARNEY
Managed Governments Fund Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The investment objective of the Fund is to provide investors
with high cur-
rent 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 securi-
ties 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 guaran-
teed by GNMA, FNMA and FHLMC. Assets not invested in such
mortgage-backed
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 sup-
port 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 unsuit-
able 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 prin-
cipal 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 rep-
resent 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
government-chart-
ered corporation owned entirely by private stockholders, which is
subject to
general regulation by the Secretary of Housing and Urban
Development.
15
<PAGE>
SMITH BARNEY
Managed Governments Fund Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
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 under-
lying mortgages, which will cause the maturity of and realized
yield on spe-
cific GNMA, FNMA and FHLMC certificates to vary based on the
prepayment expe-
rience of the underlying pool of mortgages. The Fund will
reinvest all pay-
ments 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.
To the extent that they are purchased at par or at a discount,
GNMA certifi-
cates 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
investment 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"). The
interest payable
on these securities is denominated in U.S. dollars and is not
subject to foreign
currency risk. The Fund also is authorized to borrow in an amount
of up to
10% of its total assets under unusual or emergency circumstances,
including
16
<PAGE>
SMITH BARNEY
Managed Governments Fund Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
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 securi-
ties. 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 pur-
chase 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
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 mar-
ket 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.
17
<PAGE>
SMITH BARNEY
Managed Governments Fund Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
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, respec-
tively, 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 transac-
tion 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 man-
ner 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 whether the
amount that the Fund receives on the transaction is more or less
than the pre-
mium paid for the option plus any related transaction costs.
Repurchase Agreements. The Fund may engage in repurchase
agreement transac-
tions 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 rela-
tively short period (usually not more than one week) subject to
an obligation
of
18
<PAGE>
SMITH BARNEY
Managed Governments Fund Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
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, 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. gov-
ernment 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
PNC Bank,
National Association ("PNC") 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
100% of the current market value of the loaned securities. By
lending its port-
folio 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
institu-
19
<PAGE>
SMITH BARNEY
Managed Governments Fund Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
tion, 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 agree-
ments, 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 mon-
itor 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 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
inter-
20
<PAGE>
SMITH BARNEY
Managed Governments Fund Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
est 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 con-
tracts 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 expira-
tion 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 securi-
ties 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 U.S. government securities as a means of "locking in"
attractive long-
term interest rates due to the need to reinvest prepayments of
principal gen-
erally 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 mar-
ket 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 mort-
gages 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
21
<PAGE>
SMITH BARNEY
Managed Governments Fund Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
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 pos-
sible 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 exten-
sions 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 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
22
<PAGE>
SMITH BARNEY
Managed Governments Fund Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
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 effect-
ed. Losses incurred in hedging transactions and the costs of
these transac-
tions 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 high portfolio turnover. Short-term gains realized from
portfolio transac-
tions are taxable to shareholders as ordinary income. The Fund
will not con-
sider 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 Informa-
tion.
VALUATION OF SHARES
The Fund's net asset value per share is determined as of the
close of regu-
lar 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
determined by or under the direction of the Fund's Board of
Directors. Short-
term 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 matu-
rity 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 Addi-
tional Information.
23
<PAGE>
SMITH BARNEY
Managed Governments Fund Inc.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Fund declares dividends from its net investment income
(that is, income
other than net realized long- and short-term capital gains)
monthly; dividends
ordinarily will be paid on the last Friday of each month to
shareholders of
record as of the preceding Tuesday. 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 distribu-
tion of dividends from net investment income.
If a shareholder does not otherwise instruct, dividends and
capital gain
distributions 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 fees
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. Dis-
tributions 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, dis-
tributions of the Fund may include a return of capital.
Shareholders will be
notified of the amount of any distribution that represents a
return of capi-
tal. 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.
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 invest-
ment income and distributions of net realized short-term capital
gains are
taxable to shareholders as ordinary income, regardless of how
long sharehold-
ers 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 addi-
tional Fund shares. Furthermore, as a general rule, a
shareholder's gain or
loss on a sale or redemp-
24
<PAGE>
SMITH BARNEY
Managed Governments Fund Inc.
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
tion of Fund shares will be a long-term capital gain or loss if
the share-
holder 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. Trea-
sury 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 distri-
butions 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 dis-
tributions 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 applica-
ble state or local income taxes.
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 redemp-
tions. 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 "Pro-
spectus Summary -- Alternative Purchase Arrangements" for a
discussion of fac-
tors to consider in selecting which Class of shares to purchase.
25
<PAGE>
SMITH BARNEY
Managed Governments Fund Inc.
PURCHASE OF SHARES (CONTINUED)
Purchases of Fund shares must be made through a brokerage
account maintained
with Smith Barney. Shares may also be purchased through an
Introducing Broker
or an investment dealer in the selling group. In addition,
certain investors,
including qualified retirement plans and certain other
institutional invest-
ors, may purchase shares of the Fund directly through First Data.
When pur-
chasing 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 mak-
ing an initial investment of at least $1,000 for each account, or
$250 for an
IRA or 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 invest-
ment requirement for Class A, Class B and Class C shares and the
subsequent
investment requirement for all Classes is $50. There are no
minimum investment
requirements for Class A shares for employees of Travelers and
its subsidiar-
ies, 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, First Data. Share certificates are issued
only upon a
shareholder's written request to First Data.
Purchase orders received by the Fund or Smith Barney prior to
the close of
regular trading on the NYSE, on any day the Fund calculates its
net asset val-
ue, 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 trad-
ing 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 the Fund or Smith Barney prior to Smith Barney's
close of business
(the "trade date"). Payment for Fund shares is due on the third
business day
(the "settlement date") after the trade date.
26
<PAGE>
SMITH BARNEY
Managed Governments Fund Inc.
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 First Data is
authorized through
preauthorized transfers of $50 or more to charge the
shareholder's account
held with a bank or other financial institution on a monthly or
quarterly
basis as indicated by the shareholder to provide systematic
additions to the
shareholder's Fund account. A shareholder who has insufficient
funds to com-
plete the transfer will be charged a fee of up to $25 by Smith
Barney or First
Data. 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 Bar-
ney Financial Consultant.
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
The sales charges applicable to purchases of Class A shares of
the Fund are
as follows:
SALES CHARGE
------------------------------ DEALERS'
AMOUNT OF % OF % OF REALLOWANCE
AS %
INVESTMENT OFFERING PRICE AMOUNT INVESTED OF OFFERING
PRICE
- -----------------------------------------------------------------
- -----
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 * * *
- -----------------------------------------------------------------
- -----
* 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.
27
<PAGE>
SMITH BARNEY
Managed Governments Fund Inc.
PURCHASE OF SHARES (CONTINUED)
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 Direc-
tors of the Fund, employees of Travelers and its subsidiaries and
employees of
members of the National Association of Securities Dealers, Inc.,
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 trust, pension, profit-sharing or other benefit plan for
such persons
provided such sales are made upon the assurance of the purchaser
that the pur-
chase 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 com-
pany with the Fund by merger, acquisition of assets or otherwise;
(c) pur-
chases of Class A shares by any client of a newly employed Smith
Barney Finan-
cial 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 verifi-
cation that the purchase would qualify for the elimination of the
sales
charge.
28
<PAGE>
SMITH BARNEY
Managed Governments Fund Inc.
PURCHASE OF SHARES (CONTINUED)
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 aggregat-
ing 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 informa-
tion at the time of purchase to permit verification that the
purchase quali-
fies for the reduced sales charge. The right of accumulation is
subject to
modification or discontinuance at any time with respect to all
shares pur-
chased thereafter.
GROUP PURCHASES
Upon completion of certain automated systems, a reduced sales
charge or pur-
chase at net asset value will also be available to employees (and
partners) 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 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 pur-
chases 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 by 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.
29
<PAGE>
SMITH BARNEY
Managed Governments Fund Inc.
PURCHASE OF SHARES (CONTINUED)
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 pub-
lications 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 pur-
chaser 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
Class A Shares. 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 the investor refers
to such Letter
when placing orders. For purposes of a Letter of Intent, the
"Amount Invested"
as referred to in the preceding sales charge table includes
purchases of all
Class A shares of the Fund and other Smith Barney Mutual Funds
offered with a
sales charge listed under "Exchange Privilege" over a 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. Please con-
tact a Smith Barney Financial Consultant or First Data to obtain
a Letter of
Intent application.
Class Y shares. A Letter of Intent may also be used as a way of
investors to
meet the minimum investment requirement for Class Y shares. Such
investors must
make an initial minimum purchase of $1,000,000 in Class Y shares
of the Fund
and agree to purchase a total of $5,000,000 of Class Y shares of
the Fund
within six months from the date of the Letter. If a total
investment of
$5,000,000 is not made with the six-month period, all Class Y
shares purchased
to date will be transferred to Class A shares, where they will be
subject to
all fees (including a service fee of 0.25%) and expenses
applicable to the
Fund's Class A shares, which may include a CDSC of 1%. Please
contact a Smith
Barney Financial Consultant or First Data for further
information.
30
<PAGE>
SMITH BARNEY
Managed Governments Fund Inc.
PURCHASE OF SHARES (CONTINUED)
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
original 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 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."
YEAR SINCE PURCHASE
PAYMENT WAS MADE CDSC
- ---------------------------------
First 4.50%
Second 4.00
Third 3.00
Fourth 2.00
Fifth 1.00
Sixth 0.00
Seventh 0.00
Eighth 0.00
- ---------------------------------
31
<PAGE>
SMITH BARNEY
Managed Governments Fund Inc.
PURCHASE OF SHARES (CONTINUED)
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 pro-
portion 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
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 addi-
tional 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.
32
<PAGE>
SMITH BARNEY
Managed Governments Fund Inc.
PURCHASE OF SHARES (CONTINUED)
WAIVERS OF CDSC
The CDSC will be waived on: (a) exchanges (see "Exchange
Privilege"); (b) au-
tomatic 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 "Automatic Cash Withdrawal Plan") (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
First Data in the
case of all other shareholders) of the shareholder's status or
holdings, as the
case may be.
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 opera-
tion of retirement plans under Section 401(a) of the Code. To the
extent appli-
cable, 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 Par-
ticipating Plan has made an initial investment in the Fund, all
of its subse-
quent invest-
33
<PAGE>
SMITH BARNEY
Managed Governments Fund Inc.
PURCHASE OF SHARES (CONTINUED)
ments 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 Bar-
ney Mutual Funds. Class B shares acquired through the Smith
Barney 401(k) Pro-
gram are subject to a CDSC of 3.00% of redemption proceeds, if
the Participat-
ing 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 Bar-
ney 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 anni-
versary of the enrollment date and, unless the exchange has been
rejected in
writing, the exchange will occur on or about the eighth
anniversary date.
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 the 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) Pro-
gram. 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
34
<PAGE>
SMITH BARNEY
Managed Governments Fund Inc.
PURCHASE OF SHARES (CONTINUED)
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 eligi-
ble 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 pur-
chases $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 dis-
tributions, 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 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 applica-
bility 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 termina-
tion 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;
35
<PAGE>
SMITH BARNEY
Managed Governments Fund Inc.
PURCHASE OF SHARES (CONTINUED)
or (f) redemptions of shares in connection with a loan made by
the Participat-
ing Plan to an employee.
Participating Plans wishing to acquire shares of the Fund
through the Smith
Barney 401(k) Program must purchase shares directly from First
Data. For fur-
ther 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 Fundamental Value Fund Inc.
Smith Barney Growth Opportunity Fund
Smith Barney Managed Growth Fund
Smith Barney Special Equities Fund
Smith Barney Telecommunications Growth Fund
Growth and Income Funds
Smith Barney Convertible Fund
Smith Barney Funds, Inc.--Income and Growth Portfolio
Smith Barney Funds, Inc.--Utilities Portfolio
Smith Barney Growth and Income Fund
Smith Barney Premium Total Return Fund
Smith Barney Strategic Investors Fund
Smith Barney Utilities Fund
Taxable Fixed-Income Fund
**Smith Barney Adjustable Rate Government Income Fund
36
<PAGE>
SMITH BARNEY
Managed Governments Fund Inc.
EXCHANGE PRIVILEGE (CONTINUED)
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 Port-
folio
Smith Barney Funds, Inc.--U.S. Government Securities
Portfolio
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
Tax-Exempt 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.
Smith Barney Massachusetts Municipals Funds
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
International Funds
Smith Barney World Funds, Inc.--Emerging Markets Portfolio
Smith Barney World Funds, Inc.--European Portfolio
Smith Barney World Funds, Inc.--International Balanced
Portfolio
Smith Barney World Funds, Inc.--International Equity
Portfolio
Smith Barney World Funds, Inc.--Pacific Portfolio
37
<PAGE>
SMITH BARNEY
Managed Governments Fund Inc.
EXCHANGE PRIVILEGE (CONTINUED)
Smith Barney Precious Metals and Minerals Fund Inc.
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 for Class A
shares of a
fund sold with a higher sales charge. The "sales charge
differential" is lim-
ited 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 pur-
poses of the exchange privilege, shares obtained through
automatic reinvest-
ment of dividends and capital gain distributions are treated as
having paid
the same sales charges applicable to the shares on which the
dividends or dis-
tributions 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 share-
holder 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
38
<PAGE>
SMITH BARNEY
Managed Governments Fund Inc.
EXCHANGE PRIVILEGE (CONTINUED)
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 that the Fund may, at its discretion, decide
to limit
additional purchases and/or exchanges by a shareholder. Upon such
a determina-
tion, the Fund will provide notice in writing or by telephone to
the share-
holder 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
into any of
the funds of the Smith Barney Mutual Funds ordinarily available,
which posi-
tion 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.
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 registra-
tion 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.
39
<PAGE>
SMITH BARNEY
Managed Governments Fund Inc.
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 redemp-
tion proceeds will be remitted on or before the third 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 extraor-
dinary circumstances. 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 specific instruction and Smith
Barney will bene-
fit 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.
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 First Data Investor 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 regis-
tered. If the shares to be redeemed were issued in certificate
form, the cer-
tificates must be endorsed for transfer (or be accompanied by an
endorsed
stock power) and must be submitted to First Data together with
the redemption
request. Any signa-
40
<PAGE>
SMITH BARNEY
Managed Governments Fund Inc.
REDEMPTION OF SHARES (CONTINUED)
ture 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 Fed-
eral Reserve System or member firm of a national securities
exchange. First
Data may require additional supporting documents for redemptions
made by cor-
porations, executors, administrators, trustees or guardians. A
redemption
request will not be deemed properly received until First Data
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 $50 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 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, how-
ever, 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.
41
<PAGE>
SMITH BARNEY
Managed Governments Fund Inc.
PERFORMANCE
YIELD
From time to time, the Fund may advertise 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 com-
puted by dividing the net investment income per share earned by
the Class dur-
ing 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 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 invest-
ment 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 redeem-
able 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 condi-
tions, the composition of its investment portfolio and operating
expenses.
These factors and possible differences in the methods used in
calculating cur-
rent 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
42
<PAGE>
SMITH BARNEY
Managed Governments Fund Inc.
PERFORMANCE (CONTINUED)
Lipper Analytical Services, Inc. or similar independent services
that monitor
the performance of mutual funds, or other industry publications.
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
Overall responsibility for management and supervision of the
Fund rests with
the Fund's Board of Directors. The Directors approve all
significant agree-
ments between the Fund and the companies that furnish services to
the Fund,
including agreements with the Fund's distributor, investment
adviser, adminis-
trator, custodian and transfer agent. The day-to-day operations
of the Fund
are delegated to the Fund's investment adviser and administrator.
The State-
ment of Additional Information contains general background
information regard-
ing 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 an investment advisory
agreement
most recently approved by the Fund's Board of Directors on July
19, 1995.
SBMFM is a wholly owned subsidiary of Holdings. 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, 1995
in excess of $68 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 portfo-
lio managers and securities analysts who provide research
services to the
Fund. Under the 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. For the fiscal year ended July
31, 1995, the
Fund paid investment advisory fees to SBMFM in an amount equal to
0.45% of the
value of its average daily net assets.
43
<PAGE>
SMITH BARNEY
Managed Governments Fund Inc.
MANAGEMENT OF THE FUND (CONTINUED)
PORTFOLIO MANAGEMENT
James Conroy, Vice President of SBMFM, has served as Vice
President and
Investment Officer of the Fund since February 1990 and is
responsible for man-
aging the day-to-day operations of the Fund, including the making
of invest-
ment decisions.
Management discussion and analysis, and additional performance
information
regarding the Fund during the fiscal year ended July 31, 1995, is
included in
the Annual Report dated July 31, 1995. A copy of the Annual
Report may be
obtained upon request and without charge from a Smith Barney
Financial Consul-
tant 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.
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 an 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 distribution
fees. The fees
are used by Smith Barney to pay its Financial Consultants for
servicing share-
holder 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 pro-
spectuses to potential investors; payments to and expenses of
Smith Barney
Financial Consultants and
44
<PAGE>
SMITH BARNEY
Managed Governments Fund Inc.
DISTRIBUTOR (CONTINUED)
other persons who provide support services in connection with the
distribution
of shares; interest and/or carrying charges; and indirect and
other 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 con-
tinuing 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.
Payments under the Plan are not tied exclusively to the
distribution and
shareholder service expenses actually incurred by Smith Barney
and the pay-
ments 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 man-
agement 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 distribu-
tion 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 conver-
sion 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 Classes. The Directors, on an ongoing basis,
will consider
whether any such conflict exists and, if so, take appropriate
action.
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
45
<PAGE>
[LOGO]
SMITH BARNEY
- ------------
A Member of
Travelers Group
SMITH BARNEY MANAGED
GOVERNMENTS FUND INC.
388 Greenwich Street New York,
New York 10013
FD XXXX XX
Smith Barney
Managed Governments Fund Inc.
388 Greenwich Street
New York, New York 10013
(212) 723-9218
Statement of Additional Information November 29,
1995
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 29, 1995, 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 a Smith
Barney Financial Consultant or by writing or calling the Fund at
the address or telephone number listed above. This Statement of
Additional Information, although not in itself a prospectus, is
incorporated by reference into the Prospectus in its entirety.
TABLE OF CONTENTS
For ease of reference, the same section headings are used in both
the Prospectus and this 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...........................................................
.............................. 16
Redemption of
Shares...........................................................
.......................... 17
Distributor......................................................
................................................ 17
Valuation of
Shares...........................................................
............................. 19
Exchange
Privilege........................................................
................................. 19
Performance Data (See in the Prospectus
"Performance'')................................ 20
Taxes (See in the Prospectus "Dividends, Distributions and
Taxes'')................ 23
Additional
Information......................................................
.............................. 25
Financial
Statements.......................................................
................................ 26
</TABLE>
MANAGEMENT OF THE FUND
The executive officers of the Fund are employees of certain of
the organizations that provide services to the Fund. These
organizations are as follows:
<TABLE>
<CAPTION>
Name Service
<S> <C>
Smith Barney Inc.
("Smith
Barney'')........................................................
. Distributor
Smith Barney Mutual Funds Management Inc.
("SBMFM'').......................................................
......... Investment Adviser and Administrator
PNC Bank, National Association ("PNC").....................
Custodian
First Data Investor Services Group, Inc. ("First Data'')...
Transfer Agent
</TABLE>
These organizations and the functions they perform for the Fund
are discussed in the Prospectus and in this Statement of
Additional Information.
Directors and Executive Officers of the Fund
The names of the Directors and executive officers of the Fund,
together with information 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 (Age 64). 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 (Age 69). Chairman of the Board
and President of The Dress Barn, Inc. His address is 30 Dunnigan
Drive, Suffern, New York 10901.
*Heath B. McLendon, Chairman of the Board and Investment Officer
(Age 62). Managing Director of Smith Barney, Chairman of the
Board of Smith Barney Strategy Advisers Inc. and President of
SBMFM; prior to July 1993, Senior Executive Vice President of
Shearson Lehman Brothers Inc. ("Shearson Lehman Brothers''), Vice
Chairman of Asset Management Division of Shearson Lehman
Brothers; a Director of PanAgora Asset Management, Inc. and
PanAgora Asset Management Limited. His address is 388 Greenwich
Street, New York, New York 10013.
Cornelius C. Rose, Jr., Director (Age 61). 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 355, Fair Oaks,
Enfield, New Hampshire 03748.
Jessica M. Bibliowicz, President (Age 35). Executive Vice
President of Smith Barney; prior to 1994, Director of Sales and
Marketing for Prudential Mutual Funds; prior to 1990, First Vice
President, Asset Management Division of Shearson Lehman Brothers.
Ms. Bibliowicz also serves as President of 25 other mutual funds
of the Smith Barney Mutual Funds. Her address is 388 Greenwich
Street, New York, New York 10013.
James E. Conroy, First Vice President and Investment Officer
(Age 45). Investment Officer of SBMFM; prior to July 1993,
Managing Director of Shearson Lehman Advisors. Mr. Conroy also
serves as Investment Officer of four other mutual funds of the
Smith Barney Mutual Funds. His address is 388 Greenwich Street,
New York, New York 10013.
Lewis E. Daidone, Senior Vice President and Treasurer (Age 38).
Managing Director of Smith Barney; Director and Senior Vice
President of SBMFM. Mr. Daidone also serves as Senior Vice
President and Treasurer of 41 other mutual funds of the Smith
Barney Mutual Funds. His address is 388 Greenwich Street, New
York, New York 10013.
Christina T. Sydor, Secretary (Age 44). Managing Director of
Smith Barney; General Counsel and Secretary of SBMFM. Ms. Sydor
also serves as Secretary of 41 other mutual funds of the Smith
Barney Mutual Funds. Her address is 388 Greenwich Street, New
York, New York 10013.
As of July 31, 1995, the Directors and officers of the Fund, as a
group, beneficially owned less than 1.00% of the outstanding
common stock of the Fund. As of July 31, 1995, to the knowledge
of the Fund and its Board of Directors, no single shareholder or
"group" (as the term is used in Section 13(d) of the Securities
Act of 1933) beneficially owned more than 5% of the outstanding
shares of the Fund.
No Director, officer or employee of Smith Barney or of any parent
or subsidiary receives any compensation from the Fund for serving
as a Director or officer of the Fund. The Fund pays each director
who is not an officer, director or employee of Smith Barney or
any of its affiliates a fee of $4,000 per annum plus $500 per
meeting attended and each Director emeritus who is not an
officer, director or employee of Smith Barney or any of its
affiliates a fee of $2,000 per annum plus $250 per meeting
attended. The Fund reimburses all Directors for travel and out-
of-pocket expenses. For the fiscal year ended July 31, 1995, such
fees and expenses totalled $31,400.
For the fiscal year ended July 31, 1995, the Directors of the
Fund were paid the following compensation:
<TABLE>
<S> <C> <C>
Aggregate
Compensation
Aggregate Compensation from the
Smith Barney
Director (*) from the Fund**
Mutual Funds
Burt N. Dorsett (12).............................
$10,800 $42,650
Elliot S. Jaffe (12)................................
10,300 42,150
Heath B. McLendon (29)..................... 0
0
Cornelius C. Rose (12)........................
10,300 42,150
_____________________
</TABLE>
* Number of directorships/trusteeships held with other mutual
funds in the Smith Barney Mutual Funds.
** The aggregate remuneration paid to Directors by the Fund for
the fiscal year ended July 31, 1995 amounted to
$31,400 (including reimbursement for travel and out-of-pocket
expenses).
Investment Adviser and Administrator - SBMFM
SBMFM serves as investment adviser to the Fund pursuant to an
investment advisory agreement most recently approved by the Board
of Directors, including a majority of Directors who are not
"interested persons" of the Fund or SBMFM, on July 19, 1995.
SBMFM is a wholly owned subsidiary of Smith Barney Holdings Inc.
("Holdings''), which, in turn, is a wholly owned subsidiary of
Travelers Group Inc. ("Travelers''). The Advisory Agreement is
dated July 30, 1993 and was first approved by the Board of
Directors, including a majority of the Directors who are not
"interested persons'' of the Fund or SBMFM, on April 7, 1993.
The services provided by SBMFM under the Advisory Agreement are
described in the Prospectus under "Management of the Fund.''
SBMFM pays the salary of any officer or employee who is employed
by both it and the Fund.
As compensation for investment advisory services, the Fund pays
SBMFM a fee computed daily and paid monthly at the following
annual rates of the Fund's average daily net assets: 0.45% up to
$1 billion; and 0.415% in excess of $1 billion. For the fiscal
years ended July 31, 1993, 1994, and 1995, the Fund paid SBMFM,
and/or Mutual Management Corp. (an affiliate of SBMFM) and/or
Shearson Lehman Advisors, the Fund's investment advisers prior to
SBMFM, $3,645,285, $3,840,009 and $3,107,867, 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 Fund's
Board of Directors, including a majority of Directors who are not
"interested persons'' of the Fund or SBMFM, on July 19, 1995.
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 incurred in
connection with the performance of its services. As compensation
for administration services, the Fund pays SBMFM a fee computed
daily and paid monthly at the annual rate of 0.20% of the value
of the average daily net assets of the Fund up to $1 billion and
0.185% of the value of the average daily net assets in excess of
$1 billion.
Prior to June 12, 1995, The Boston Company Advisors, Inc.
("Boston Advisors"), an indirect wholly owned subsidiary of
Mellon Bank Corporation, served as the Fund's sub-administrator.
For the 1993, 1994, and 1995 fiscal years, the Fund paid Boston
Advisors, $1,620,110, $1,706,671 and $1,380,613, respectively, in
sub-administration fees.
The Fund bears expenses incurred in its operations, including:
taxes, interest, brokerage fees and commissions, if any; fees of
Directors who are not officers, directors, shareholders or
employees of Smith Barney, SEC fees and state Blue Sky
qualification fees; charges of custodians; transfer and dividend
disbursing agent's fees; certain insurance premiums; outside
auditing and legal expenses; costs of maintenance of corporate
existence; investors services (including allocated telephone and
personnel expenses); costs of preparation and printing of
prospectuses and statements of additional information for
regulatory purposes and for distribution to existing
shareholders; costs of shareholders' reports and corporate
meetings.
SBMFM has agreed that if in any fiscal year the aggregate
expenses of the Fund (including fees paid pursuant to the
Advisory and Administration Agreements, but excluding interest,
taxes, brokerage fees paid pursuant to the Fund's services and
distribution plan, and, with the prior written consent of the
necessary state securities commissions, extraordinary expenses)
exceed the expense limitation of any state having jurisdiction
over the Fund, SBMFM will, to the extent required by state law,
reduce its management fees by such excess expenses. Such fee
reductions, if any, will be estimated and reconciled on a monthly
basis. The most restrictive state expense limitation currently
applicable to the Fund would require SBMFM to reduce its fees in
any year that such expenses exceed 2.50% of the first $30 million
of average net assets, 2.00% of the next $70 million of average
net assets and 1.50% of the remaining average net assets. No
such fee reduction was required for the fiscal years ended July
31, 1993, 1994 and 1995.
Counsel and Auditors
Willkie Farr & Gallagher serves as legal counsel to the Fund.
The Directors who are not "interested persons'' of the Fund have
selected Stroock & Stroock & Lavan as their legal counsel.
KPMG Peat Marwick LLP, independent auditors, 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 strategies that the Fund may utilize and certain risks
attendant to such investments, strategies and policies.
Mortgaged-Backed Securities
Government National Mortgage ("GNMA") certificates are liquid
securities and represent ownership interests in a pool of
mortages issued by a mortgage banker or other mortagee. Distributions
on GNMA certificates include principal
and interest components. GNMA, a corporate instrumentality of
the U.S. Department of Housing and Urban Development, guarantees
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, however, that the average
life of the underlying mortgages is shorter, due to scheduled
amortization and unscheduled prepayments (attributable to
voluntary prepayments or foreclosures). These statistics
indicate that the average 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 prepayment
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 payment 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 that the highest grade corporate bonds. Actual yield
comparisons will vary with the prepayment experience of specific
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 Corporation ("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 mortgage 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 the 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
certificates 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 securities that differ in their interest rates,
maturities and dates of issuance. 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 obligations of varying maturities issued or guaranteed by
the United States government or its agencies or instrumentalities
("U.S. government securities") include securities issued or
guaranteed by the Federal Housing Administration, Federal
Financing Bank, Export-Import Bank of the United States, Small
Business Administration, GNMA, General Services Administration,
Federal Home Loan Banks, FHLMC, FNMA, Maritime Administration,
Tennessee Valley Authority, Resolution Trust Corporation,
District of Columbia Armory Board, Student Loan Marketing
Association and various institutions 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 instrumentally that it sponsors, the Fund will invest in
obligations of an instrumentally 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 unsuitable for
investment by the Fund.
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"). Exchange
Rate-Related Securities are issued in a variety of forms,
depending on the structure of the principal repayment formula.
The principal repayment formula may be structured so that the
security-holder 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 formula can be a
function of more than one currency and, therefore, be designed in
either the aforementioned forms or a combination of those forms.
Investment in Exchange Rate-Related Securities entails special
risks. There is the possibility of significant changes in rates
of exchange between 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 security, the amount
of principal repaid at maturity might be significantly below the
par value of the security, which might not be offset by the
interest earned by the Fund over the term of the security. The
rate of exchange 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 sufficient trading interest to create a liquid secondary
market will exist for particular Exchange Rated-Related
Securities due to conditions in the debt and foreign currency
markets. Illiquidity in the forward 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 premium that the Fund may
receive may be adversely affected as new or existing
institutions, including other investment companies, engage in or
increase their option-writing activities.
Options written by the Fund normally will have expiration dates
between one and nine months from the date written. The exercise
price of the options 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 moderately during the options period, (b) at-the-
money call options when SBMFM expects that the price of the
underlying security will remain flat or advance moderately during
the option period and (c) out-of-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
declined and the security is sold at this lower price, the amount
of any realized loss will be offset wholly or in part by the
premium received. Out-of-money, at-the-money and in-the-money
put options (the reverse of call options as to the relations of
exercise price to market price) may be utilized in the same
market environments that such call options are used in equivalent
transactions.
So long as the obligation of the Fund as the writer of an option
continues, 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 obligation 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 Corporation (the "Clearing
Corporation") or similar clearing corporation and the securities
exchange on which the option is written.
An option positions may be closed out only where there exists a
secondary market for an option of the same series on a recognized
securities exchange or in the over-the-counter market. The Fund
expects to write options 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 transaction. 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 underlying 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 portfolio generally. If the market price of the
underlying security remains equal to or greater than the exercise
price during the life of the put option, 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 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.
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 costs
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 costs 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 option
rather than the underlying security itself, the Fund is partially
protected from any unexpected decline in the market price of the
underlying security and could allow the call options 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 options 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 facilitate closing transactions, there
is no assurance that sufficient trading interest to create a
liquid secondary market on a securities exchange will exist for
any particular options 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 national 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 otherwise interfere with the timely execution of
customers' orders, will not recur.
In such event, it might not be possible to effect closing
transactions 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 expires 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 written, or exercised within certain
periods, by an investor or group of investors acting in concert
(regardless of whether the options are written on the same or
different securities exchanges or are held, written or exercised
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 affiliates may be considered to be such a group. A
securities exchange may order the liquidation of positions found
to be in violations of these limits, and it may impose certain
other sanctions. At the date of this Statement of Additional
Information, the positions and exercise limited for common 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 options position.
Additional risks exist with respect to certain of the U.S.
government securities for which the Fund may write covered call
options. If the Fund writes covered call options on mortgage-
backed securities, the securities that it hold as cover may,
because of scheduled amortization or unscheduled prepayments,
cease to be sufficient cover. The Fund will compensate for the
decline in the value of the cover by purchasing an appropriate
additional amount of those securities.
The trading market in options on U.S. governments securities has
varying degrees of depth for various securities. SBMFM will
attempt to take appropriate measures to minimize risks relating
to the Fund's writing and purchasing of put and call options, but
there can be no assurance that the Fund will succeed in its
options 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 for delayed delivery. The Fund will enter into such
purchase transactions for the purpose of acquiring portfolio
securities and not for the purpose of leverage. Delivery of
the securities in such cases occurs beyond the normal settlement
periods, but no payment or deliveries made by the Fund prior to the
reciprocal 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 obtained 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 times maintain in a segregated account at
PNC 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 account 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 securities 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 collateral; (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 securities, and any increase in market value; (e) the
Fund may pay only reasonable 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 Directors
must terminate the loan and regain the right to vote the
securities. The risks in lending portfolio securities, as with
other extensions of secured credit, consist of possible delay in
receiving additional collateral 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 interest 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
futures 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
securities) at a specified 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 actually buying or selling the securiites.
For example, if the Fund owns long-term U.S. government
securitties and interest rates are expected to increase, 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 futures 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 increase
in the value of the futures contracts can only mitigate - but
not totally 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 decline, 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 maturities and selling securities with short maturities.
But by using futures contracts as an investment tool to reduce
risk, given the greater liquidity in the futures market than in
the cash market, it may be possible 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
margin" 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 futures contract, assuming that all
contractual obligations have been satisfied. 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 account with its custodian an amount
of cash or cash equivalents equal to the total market value of
such futures contract, less the amount of initial 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
contract, 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 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 subject to the ability of SBMFM to
predict correctly movements in the direction 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
correlation between movements in the price of the securities
underlying the futures 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 involves the exercise of skill and
judgment, and even a well-conceived hedge may be unsuccessful to
some degree because of market behavior or unexpected 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 permitted 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 liquidation of futures positions and subjecting
some futures traders to substantial losses. In such event, and
in the event of adverse price movements, the Fund would be
required to make daily cash payments of variation margin. 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 had 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 becasue it will have offsetting losses in its
futures positions. In addition, in such situations, 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
disadvantageous to do so. These sales of securities may, but
will not necessarily, be at increased prices which reflect the
decline in interest rates.
Purchasing Options. Options on interest rate futures contracts
are similar 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 purchaser 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 option 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 difference
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 contracts 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
analogous to the purchase of protective puts on debt securities
so as to hedge a porfolio of debt securities against the risk of
rising intest rates. The Fund may purchse put options on
interest rate futures contracts if SBMFM anticipates a rise in
interest rates. Because of the inverse relationship between
trends in interest rates and the values of debt securities, 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 futures contract moves inversely in relation to
changes in interest rates, as is the case with debt securities, a
put option on such a contract becomes 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
securities.
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
purchases such securities at a premium prior to a period of
declining interest 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, result in a
loss to the Fund. This effect may not be offset by any
appreciation 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 premium,
the Fund may purchase call options on interest rate futures. The
option would increase in value as interest rates decline, 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 option 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 during 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 deliverable upon exercise of the futures contract. If
the futures price at expiration 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 acquired 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
maybe greater than the price at which the debt securities 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 deposit initial margin and variation margin pursuant to
brokers' requirements similar to those applicable to interest
rate futures contracts described above. In addition, net option
premiums received for writing
options 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.
In addition to the risks that applt to all options transactions,
there are several special risks relating to options on interest
rate futures contracts. These risks include the lack of assuarance
of perfect correlation between price movements in the option 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
predictions 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 maintined 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 relationships 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 options 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 payment 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 approval 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 meeting if the holders of more
than 50% of the outstanding shares are present in person or by
proxy or (b) more thant 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 securities on a when-issued or
delayed-delivery basis; (b) purchasing or selling futures
contracts and options on futures contracts and other similar
instruments; 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. government 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 temporary 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 liabilities
(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 repurchase agreements and forward roll
transactions exceed 5% of the value of the Fund's total assets,
the Fund will not make additional investments.
5. Make loans. This restriction does not apply to: (a) the
purchase of debt obligations in which the Fund may invest
consistent with its investment objective and policies; (b)
repurchase agreements; and (c) loans of its portfolio securities.
6. Engage in the business of underwriting securities issued by
other persons, 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 investment 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 received 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 securities) or sell any securities short
(except against the box). For purposes of this restriction, the
deposit or payment by the Fund of initial or maintenance margin
in connection with futures contracts and related options 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 acquisition of assets.
11. Purchase restricted securities, illiquid securities (such as
repurchase agreements with maturities in excess of seven days) or
other securities 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 securities of companies that have been in continuous
operations for fewer than three years, except that this
restriction will not apply to U.S. government securities. (For
purposes of this restriction, issuers include predecessors,
sponsors, controlling persons, general partners and guarantors of
underlying assets.)
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 director of SBMFM 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 options or in the writing of such options, except that (a)
the Fund may purchase 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 interest rate futures
contracts and write put and call options on interest rate futures
contracts.
Certain restrictions listed above permit the Fund without
shareholder approval to engage in investment practices that the
Fund does not currently pursue. The Fund has no present
intention of altering its current investment 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 profits, 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 pratices which may be employed by the
Fund would result in a turnover rate in excess of 100%. A
portfolio turnover rate 100% would occur, for example, if all of
the Fund's securities were replaced once during a period of one
year. For the 1995, 1994 and 1993 fiscal years, the Fund's
rates of portfolio turnover (the lesser of purchases or sales of
portfolio securities, excluding shor-term securities, for the
year divided by the monthly average value of portfolio
securities) were 292% , 236% and 436%, respectively.
Portfolio Transactions
Decisions to buy and sell securities for the Fund are made by
SBMFM, subject to the overall supervision and review of the
Fund's Board of Directors. Portfolio securities transactions for
the Fund are effected by or under the supervision SBMFM.
The Fund normally purchases newly issued U.S. government
securities directly 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 execution 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 and dealers in the after-market normally are executed
at a price between the bid and asked prices. The Fund paid
$176,375, $0 and $0, respectively, in brokerage commissions
during the fiscal years ended July 31, 1993, 1994 and 1995.
SBMFM selects dealers for portfolio transactions in its best
judgment and in a manner deemed fair and reasonable to
shareholders. The primary considerations 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 investment
research and statistical or other services to SBMFM may receive
orders for portfolio transactions by the Fund. Information so
received enables 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, supplemental
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 opportunities for sales
will be allocated in a manner believed by SBMFM to be equitable
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 schedule of sales charges on Class A shares described in the
Prospectus applies to purchases made by any "purchaser,'' which
is defined to include the following: (a) an individual; (b) an
individual's spouse and his or her children purchasing shares for
his or her own account; (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 benefit
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 professional fiduciary (including a bank, or an
investment adviser registered with the SEC under the Investment
Advisers Act of 1940, as amended) purchasing shares of the Fund
for one or more trust estates or fiduciary accounts. Purchasers
who wish to combine purchase orders to take advantage of volume
discounts should contact a Smith Barney Financial Consultant.
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 Smith Barney Mutual Funds offered with a sales
charge, including the purchase being made, of any purchaser 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 accumulation at any time after
written notice to shareholders. For further information
regarding the right of accumulation, shareholders should contact
a Smith Barney Financial Consultant.
Determination of Public Offering Price
The Fund offers its shares to the public on a continuous basis.
The public offering price for a Class A and Class Y share 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 a Class B and Class C share (and Class A share
purchases, including applicable rights of accumulation, equaling
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 contingent deferred sales charge
("CDSC''), however, is imposed on certain redemptions of Class B
and Class C shares, and Class A shares when purchased in amounts
equalling or exceeding $500,000. The method of computation
of the public offering price is shown in the Fund's financial
statements incorporated by reference in their entirety into 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 and holiday closings), (b) when trading in 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 practicable
or (c) for such other periods as the SEC by order may permit for
the protection of the Fund's shareholders.
Distribution in Kind
If the Board of Directors of the Fund 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 SEC rules, 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. Securities issued as a distribution
in kind may incur brokerage commissions when shareholders
subsequently sell 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 $50 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 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 value of a
shareholder's shares at the time the Withdrawal Plan commences.)
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 ultimately exhaust it. Withdrawal payments
should not be considered as income from investment in the Fund.
Furthermore, as it generally would not be advantageous to a
shareholder to make additional investments in the Fund at the
same time he or she is participating in the Withdrawal Plan,
purchases 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 shares in certificate form must deposit their shares with
First Data as agent for Withdrawal Plan members. All dividends and
distributions on shares in the Withdrawal Plan are reinvested
automatically at net asset value in additional shares of the Fund.
Withdrawal Plans should be set up with a Smith Barney Financial
Consultant. A shareholder who purchases shares directly through
First Data may continue to do so
and applications for participation in the Withdrawal Plan must be
received by First Data no later than the eighth day of the
month to be eligible for participation beginning with that
month's withdrawal. For additional information, shareholders
should contact a Smith Barney Financial Consultant.
DISTRIBUTOR
Smith Barney serves as the Fund's distributor on a best efforts
basis pursuant to a written agreement (the "Distribution
Agreement"), which was most recently approved by the Fund's Board
of Directors on July 19, 1995. For the fiscal years ended July
31, 1993, 1994, and 1995, Smith Barney or its predecessor
Shearson Lehman Brothers received $247,035, $362,103, and
$1,626,500 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 years ended July 31, 1994 and 1995,
Smith Barney or Shearson Lehman Brothers received $192,923,
$449,792, and $466,900, 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 Smith Barney 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 Smith Barney money market
fund, and affiliates of Smith Barney which serve the funds in an
investment advisory or administrative 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 three-
day settlement procedures and will take such benefits into
consideration when reviewing the Advisory, Administration and
Distribution Agreements for continuance.
For the fiscal years ended July 31, 1993, 1994 and 1995, Smith
Barney incurred distribution expenses totaling approximately
$2,265,000, $3,351,000, and $2,997,330, respectively, consisting
of approximately $19,000, $39,000 and $51,000 for advertising,
$44,000, $24,000 and $56,000 for printing and mailing of
Prospectuses, $1,928,000, $1,284,000 and $796,000 for support
services, $1,245,000, $921,000, and $2,093,000 to Smith Barney
Financial Consultants, and $95,000, $17,000 and $1,330,
respectively, in accruals for interest on the excess of Smith
Barney expenses incurred in distributing the Fund's shares over
the sum of the distribution fees and CDSC received by Smith
Barney from the Fund.
Distribution Arrangements
To compensate Smith Barney for the services it provides and for
the expense 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 Fund pays Smith
Barney a distribution fee with respect to the Class B and Class C
shares primarily intended to compensate Smith Barney for its
initial expense of paying Financial Consultants a commission upon
sales of those 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 distribution 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.
The following service and distribution fees were incurred during
the periods indicated:
<TABLE>
<CAPTION>
Service Fees
<S> <C> <C> <C>
For Period
Fiscal Year Fiscal Year From 11/6/92
Ended 7/31/95 Ended 7/31/94 Through
7/31/93
Class A $1,291,642 $1,047,795 $854,985
Class B 434,551 1,085,386 834,882
Class C 329 157 0
</TABLE>
<TABLE>
<CAPTION>
Distribution Fees
<S> <C> <C> <C>
For Period
Fiscal Year Fiscal Year From 11/6/92
Ended 7/31/95 Ended 7/31/94 Through 7/31/93
Class A.......................... $ 0 $ 0
$ 0
Class B 869,103 2,170,771
1,669,763
Class C 445 314 0
</TABLE>
Under its terms, the Plan continues from year to year, provided
such continuance 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 operation of the Plan or the
Distribution Agreement (the "Independent Directors"). The Plan
may not be amended to increase the amount of the service and
distribution fees without shareholder approval, and all material
amendments of the Plan also must be approved by the Directors and
Independent Directors in the manner described above. The Plan
may be terminated with respect to a Class at any time, without
penalty, 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 currently 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
description 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 cost, which constitutes fair value as determined by the
Fund's Board of Directors. Amortized 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 instruments. 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 of the Smith Barney
Mutual Funds may exchange all or part of their shares for shares
of the same Class of other 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 exchanged 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 sales 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 applied.
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
CSDC 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 First Data of the
investor's prior ownership of Class A 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 residing in any state
in which the fund shares being acquired may legally be sold.
Prior to any exchange, the shareholder would obtain and review a
copy of the current prospectus of each fund into which an
exchange is being considered. Prospectuses may be obtained from
a Smith Barney Financial Consultant.
Upon receipt of proper instructions and all necessary supporting
documents, shares submitted for exchange are redeemed at the then-
current net asset value and, subject to any applicable CDSC, the
proceeds are immediately invested, at a price as described above,
in shares of the fund being acquired. 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 advertisements or in reports and other communications to
shareholders. The Fund may include comparative performance
information in advertising or marketing the Fund's shares. Such
performance information may include data from the following
industry and financial publications: Barron's, Business Week, CDA
Investment Technologies, Inc., Changing Times, Forbes, Fortune,
Institutional Investor, Investors Daily, Money, Morningstar
Mutual Funds Values, The New York Times, USA Today and The Wall
Street Journal.
Average Annual Total Return
"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-, 10-year
period at the end of the 1-,5- or 10-year period (or fractional
portion thereof), assuming reinvestment of all dividends and
distributions.
The Fund's average annual total returns for Class A shares were
as follows for the periods indicated:
2.83% for the one-year period beginning August 1, 1994
through July 31, 1995;
7.38% per annum during the five-year period beginning on
August 1, 1990 through July 31, 1995;
8.83% per annum during the period from commencement of
operations (September 4, 1984) though July 31, 1995.
The average annual total return figures assume that the maximum
4.50% sales charge has been deducted from the investment at the
time of purchase and have been restated to show the change in the
maximum sales charge. If the maximum sales charge of 4.50% had
not been deducted at the time of purchase, the average annual
total return for the same periods would have been 7.67%, 8.38%,
and 9.29%, respectively.
The Fund's average annual total returns for Class B shares were
as follows for the periods indicated:
2.54% for the one-year period beginning August 1, 1994
though July 31, 1995;
4.95% per annum during the period from commencement of
operations (November 6, 1992) though July 31, 1995.
The average annual total return figures assume that the maximum
applicable CDSC has been deducted from the investment at the time
of redemption and have been restated to show the change in the
maximum CDSC. If the maximum applicable CDSC had not been
deducted at the time of purchase, the average annual total return
for the same periods would have been 7.04% and 5.95%,
respectively.
The Fund's average total returns for Class C shares (formerly
designated Class D shares) were as follows for the periods
indicated:
6.04 % for the one-year period beginning August 1, 1994
through July 31, 1995;
3.70 % per annum during the period from commencement of
operations (June 29, 1993) through July 31, 1995.
The average annual total return figures assume that the maximum
applicable CDSC has been deducted from the investment at the time
of redemption and have been restated to show the change in the
maximum CDSC. If the maximum applicable CDSC had not been
deducted at the time of purchase, the average annual total return
for the same periods would have been 7.04% and 3.70%,
respectively.
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 computed 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 distributions.
The Fund's aggregate totals returns for Class A shares were as
follows for the periods indicated:
7.67% for the one-year period beginning August 1, 1994
through July 31, 1995
49.51% during the five-year period beginning on August 1,
1990 through July 31, 1995;
163.44% during the period from commencement of operations
(September 4, 1984) through July 31, 1995.
These aggregate total return figures do not assume that the
maximum 4.50% sales charge has been deducted from the investment
at the time of purchase. If the maximum sales charge had been
deducted at the time of purchase, the Class A shares' aggregate
total return for the same periods would have been 2.83%,
42.78%, and 151.79%, respectively.
The Fund's aggregate total returns for Class B shares were as
follows for the periods indicated:
7.04% for the one-year period beginning August 1, 1994
through July 31, 1995;
17.11% during the period from commencement of operations
(November 6, 1992) through July 31, 1995.
These aggregate total return figures do not assume that the
maximum applicable CDSC has been deducted from the investment at
the time of redemption. If the maximum CDSC had been deducted at
the time of redemption, the Class B shares' aggregate total
return for the same periods would have been 2.54% and
14.11%, respectively.
The Fund's aggregate total returns for Class C shares (formerly
designated Class D shares) were as follows for the periods
indicated:
7.04 % for the one-year period beginning August 1, 1994
through July 31, 1995;
7.88 % during the period from commencement of operations
(June 29, 1993) through July 31, 1995.
These aggregate total return figures do not assume that the
maximum applicable CDSC has been deducted from the investment at
the time of redemption. If the maximum CDSC had been deducted at
the time of redemption, the Class C shares' aggregate total
return for the same periods would have been 6.04 % and 7.88%,
respectively.
Performance will vary from time to time depending upon market
conditions, the composition of the Fund's portfolio, operating
expenses and the expenses exclusively attributable to the Class.
Consequently, any given performance 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' performance with that of other mutual funds should give
consideration to the quality and maturity of the respective
investment companies' portfolio securities.
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 performance
TAXES
Taxation of the Fund
The following is a summary of certain Federal income tax
considerations that may affect the Fund and its shareholders.
This summary is not intended as a substitute for individual tax
advice and investors are urged to consult their own tax advisors
as to the tax consequences of an investment in 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 realized 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 realized
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 requires 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 investment 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 ordinary 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 taxable
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 privilege), 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 original sales charge that does not increase the
shareholder's tax basis in the original shares would be treated
as incurred with respect to the second 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 shareholder 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 purchased reflects the amount of
the forthcoming distribution payment, any such payment will be a
taxable dividend or distribution payment.
If a shareholder fails to furnish a correct taxpayer
identification number, fails to fully report dividend or interest
income, or fails to certify that he or she has provided a correct
taxpayer identification number and that he or she is not subject
to "backup withholding," then the shareholder may be subject to a
31% backup withholding tax with respect to (a) dividends and
distributions and (b) proceeds of any redemption of Fund shares.
An individual's taxpayer identification number is his or her
social security number. The backup withholding tax is not an
additional tax and may be credited against a shareholder's
regular Federal income tax liability.
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 gains, to the extent that it reflects accrued
market discount.
When the Fund writes a covered call option on a debt security, it
will receive 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 closing 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 income tax purposes. If a call option written by the Fund
is exercised, the Fund will realize (subject to the straddle
rules discussed below) a capital 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 period
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 referred to herein as
"section 1256 contracts") are taxed pursuant to a special "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 system 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 shareholders 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 "offsetting 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 "offsetting" 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
positions 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 described 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 positions 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 substitute 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 Government 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 Lehman Managed Governments
Inc., Shearson Lehman Brothers Managed Governments Fund, Smith
Barney Shearson Managed Governments Fund Inc. and Smith Barney
Managed Governments Fund Inc., respectively.
PNC is located at 17th and Chestnut Streets, Philadelphia,
Pennsylvania, and serves as the custodian of the Fund. Under its
custody agreement with the Fund, PNC holds the Fund's portfolio
securities and keeps all necessary accounts and records. For its
services, PNC 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.
First Data, located at Exchange Place, Boston, Massachusetts
02109, serves as the Fund's transfer agent. Under the transfer
agency agreement, First Data maintains the shareholder account
records for the Fund, handles certain communications between
shareholders and the Fund and distributes dividends and
distributions payable by the Fund. For these services, First Data
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 expenses.
FINANCIAL STATEMENTS
The Fund's Annual Report for the fiscal year ended July 31, 1995
accompanies this Statement of Additional Information and is
incorporated herein by reference in its entirety.
Smith Barney
Managed
Governments
Fund Inc.
Statement of
Additional Information
November 29, 1995
Smith Barney
Managed Governments Fund Inc.
388 Greenwich Street
New York, NY 10013
...................................Fund ........................
SMITH BARNEY
A Member of Travelers
Group
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 year ended July 31,
1995 and the report of Independent Accountants dated September
22, 1995, are incorporated by reference to the Definitive 30b-1
filed on October 26, 1995 as Accession # 0000091155-95-000395
Included in Part C:
Consent of Independent Accountants
(b) Exhibits
Exhibit No. Description of 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
13, 1984 are 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,
October 14, 1994 and November 7, 1994, respectively,
are incorporated by reference to Post-Effective
Amendment No. 20 to the Registration Statement filed on
November 3, 1994 ("Post-Effective Amendment No. 20").
(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 the 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 the Registration Statement
as filed with the SEC on October 23, 1992 ("Post-
Effective Amendment No. 13").
(5) (a)Investment Advisory Agreement dated July 30, 1993
between the Registrant and Greenwich Street Advisors is
incorporated by reference to Post-Effective Amendment
No. 16 to the Registration Statement as filed with the
SEC on September 30, 1993 ("Post-Effective Amendment
No. 16").
(b) Form of Transfer of Investment Advisory Agreement
dated as of November 7, 1994, among Registrant, Mutual
Management Corp. and SBMFM is filed herein.
(6) Distribution Agreement dated July 30, 1993 between
the Registrant and Smith Barney Shearson Inc. is
incorporated by reference to Post-Effective Amendment
No. 16.
(7) Not Applicable.
(8) Form of Custody Agreement between the Registrant
and PNC Bank, National Association dated as of July 12,
1995 is filed herein.
(9)(a) Transfer Agency Agreement dated August 2, 1993
between the Registrant and The Shareholder Services
Group, Inc. is filed herein.
(b) Administration Agreement dated April 20, 1994
between the Registrant and Smith, Barney Advisers, Inc.
("SBA") is incorporated by reference to Post-Effective
Amendment No. 20.
(10) Opinion of Counsel is incorporated by reference to
Post-Effective Amendment No. 14 to
the Registration Statement as filed with the SEC on
January 28, 1993 ("Post-Effective
Amendment No. 14").
(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 and Restated Services and Distribution Plan
pursuant to Rule 12b-1 between the Registrant and Smith
Barney Inc. ("Smith Barney") is incorporated by
reference to Post-Effective Amendment No. 20.
(16) Performance Data is incorporated by reference to
Post-Effective Amendment No. 7 to the Registration
Statement as filed with the SEC on November 29, 1988.
(17) Rule 18f-3(d) Multiple Class Plan for Smith Barney
Mutual Funds is filed herein.
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 by Class as of November
13, 1995
Common stock, par Class A 40,540,485.499
value $.001 per share Class B
10,152,501.702
Class C 53,262.408
Class Y 0.000
Item 27. Indemnification
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 and Administrator - - Smith Barney Mutual
Funds Management Inc., formerly
known as Smith, Barney Advisers, Inc. ("SBMFM")
SBMFM, was incorporated in December 1968 under the laws of the
State of Delaware. SBMFM 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
Travelers Group Inc. (formerly known as Primerica Corporation)
("Travelers"). SBMFM is registered as an investment adviser
under the Investment Advisers Act of 1940 (the "Advisers Act")
and has, through its predecessors, been in the investment
counseling business since 1934
The list required by this Item 28 of the officer and directors of
SBMFM together with information as to any other business,
profession, vocation or employment of a substantial nature
engaged in by such officer and directors during the past two
fiscal 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).
Item 29. Principal Underwriter
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 Aggressive Growth Fund Inc., Smith Barney Appreciation
Fund Inc., Smith Barney Principal Return 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., Smith Barney Fundamental Value Fund Inc., Smith
Barney Series Fund, Consulting Group Capital Markets Funds, Smith
Barney Investment 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 Municipal Money Market 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), Smith Barney Institutional Cash Management Fund,
Inc. and various series of unit investment trusts.
Smith Barney is a wholly owned subsidiary of Holdings. On
June 1, 1994, Smith Barney changed its name from Smith Barney
Shearson 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).
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) PNC Bank, National Association
17th and Chestnut Streets
Philadelphia, Pennsylvania 19101
(4) First Data Investor Services Group, Inc .
One Boston 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.
Rule 485(b) Certification
The Registrant hereby certifies that it meets all of the
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
28th day of November, 1995.
SMITH BARNEY MANAGED GOVERNMENTS
FUND INC.
By: /s/ Heath B. McLendon
Heath B. McLendon, Chairman
of the
Board.
We, the undersigned, hereby severally constitute and appoint
Heath B. McLendon, Christina T. Sydor and Caren A. Cunningham
and each of them singly, our true and lawful attorney, 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 have 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
11/28/95
Heath B. McLendon (Chief Executive Officer)
/s/ Lewis E. Daidone Treasurer (Chief Financial
11/28/95
Lewis E. Daidone and Accounting Officer)
/s/ Burt N. Dorsett Director
11/28/95
Burt N. Dorsett
/s/ Elliot S. Jaffe Director
11/28/95
Elliot S. Jaffe
/s/ Cornelius C. Rose, Jr. Director
11/28/95
Cornelius C. Rose, Jr.
shared/domestic/clients/shearson/fund/govt
TRANSFER AND ASSUMPTION OF
INVESTMENT ADVISORY AGREEMENT
for
SMITH BARNEY MANAGED GOVERNMENTS FUND INC.
TRANSFER AND ASSUMPTION OF INVESTMENT ADVISORY
AGREEMENT, made as of the 7th day of November, 1994, by and
among Smith Barney Managed Governments Fund Inc., a Maryland
corporation (the "Company"), Mutual Management Corp., a New
York corporation ("MMC"), and Smith Barney Mutual Funds
Management Inc. ("SBMFM") a Delaware corporation.
WHEREAS, the Company is registered with the Securities
and Exchange Commission as an open-end management investment
company under the Investment Company Act of 1940, as amended
(the "Act"); and
WHEREAS, the Company, and MMC entered into an
Investment Advisory Agreement on July 30, 1993, under which
MMC serves as the investment adviser (the "Investment
Adviser") for the Company; and
WHEREAS, MMC desires that its interest, rights,
responsibilities and obligations in and under the Investment
Advisory Agreement be transferred to SBMFM and SBMFM desires
to assume MMC's interest, rights, responsibilities and
obligations in and under the Investment Advisory Agreement;
and
WHEREAS, this Agreement does not result in a change of
actual control or management of the Investment Adviser to
the Company and, therefore, is not an "assignment" as
defined in Section 2(a)(4) of the Act nor an "assignment"
for the purposes of Section 15(a)(4) of the Act.
NOW, THEREFORE, in consideration of the mutual
covenants set forth in this Agreement and other good and
valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties hereby agree as follows:
1. Assignment. Effective as of November 7, 1994 (the
"Effective Date"), MMC hereby transfers to SBMFM all of
MMC's interest, rights, responsibilities and obligations in
and under the Investment Advisory Agreement dated July 30,
1993, to which MMC is a party with the Company.
2. Assumption and Performance of Duties. As of the
Effective Date, SBMFM hereby accepts all of MMC's interest
and rights, and assumes and agrees to perform all of MMC's
responsibilities and obligations in, and under the
Investment Advisory Agreement; SBMFM agrees to subject to
all of the terms and conditions of said Agreement; and SBMFM
shall indemnify and hold harmless MMC from any claim or
demand made thereunder arising or incurred after the
Effective Date.
3. Representation of SBMFM. SBMFM represents and
warrants that: (1) it is registered as an investment adviser
under the Investment Advisers Act of 1940, as amended; and
(2) Smith Barney Holdings Inc. is its sole shareholder.
4. Consent. The Company hereby consents to this
transfer by MMC to SBMFM of MMC's interest, rights,
responsibilities and obligations in and under the Investment
Advisory Agreement and to the acceptance and assumption by
SBMFM of the same. The Company agrees, subject to the terms
and conditions of said Agreement, to look solely to SBMFM
for the performance of the Investment Adviser's
responsibilities and obligations under said Agreement from
and after the Effective Date, and to recognize as inuring
solely to SBMFM the interest and rights heretofore held by
MMC thereunder.
5. Counterparts. This Agreement may be signed in any
number of counterparts, each of which shall be an original,
with the same effect as if the signatures thereto and hereto
were upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their duly authorized officers
hereunto duly attested.
Attest:
By:
Secretary Smith Barney Managed
Governments Fund Inc.
Attest:
By:
Secretary Mutual Management Corp.
Attest:
By:
Secretary Smith Barney Mutual Funds
Management Inc.
CUSTODIAN SERVICES AGREEMENT
This Agreement is made as of July 12, 1995 by and
between SMITH BARNEY MANAGED GOVERNMENTS FUND INC., a
Maryland corporation (the "Fund") and PNC BANK, NATIONAL
ASSOCIATION, a national banking association ("PNC Bank").
The Fund is registered as an open-end investment
company under the Investment Company Act of 1940, as amended
(the "1940 Act"). The Fund wishes to retain PNC Bank to
provide custodian services and PNC Bank wishes to furnish
such services, either directly or through an affiliate or
affiliates, as more fully described herein. In
consideration of the premises and mutual covenants herein
contained, the parties agree as follows:
1. Definitions.
(a) "Authorized Person." The term "Authorized
Person" shall mean any officer of the Fund and any other
person, who is duly authorized by the Fund's Governing
Board, to give Oral and Written Instructions on behalf of
the Fund. Such persons are listed in the Certificate
attached hereto as the Authorized Persons Appendix, as such
Appendix may be amended in writing by the Fund's Governing
Board from time to time.
(b) "Book-Entry System." The term "Book-Entry
System" means Federal Reserve Treasury book-entry system for
United States and federal agency securities, its successor
or successors, and its nominee or nominees and any book-
entry system maintained by an exchange registered with the
SEC under the 1934 Act.
(c) "CFTC." The term "CFTC" shall mean the
Commodities Futures Trading Commission.
(d) "Governing Board." The term "Governing
Board" shall mean the Fund's Board of Directors if the Fund
is a corporation or the Fund's Board of Trustees if the Fund
is a trust, or, where duly authorized, a competent committee
thereof.
(e) "Oral Instructions." The term "Oral
Instructions" shall mean oral instructions received by PNC
Bank from an Authorized Person or from a person reasonably
believed by PNC Bank to be an Authorized Person.
(f) "SEC." The term "SEC" shall mean the
Securities and Exchange Commission.
(g) "Securities and Commodities Laws." The term
"Securities and Commodities Laws" shall mean the "1933 Act"
which shall mean the Securities Act of 1933, the "1934 Act"
which shall mean the Securities Exchange Act of 1934, the
1940 Act, and the "CEA" which shall mean the Commodities
Exchange Act, as amended.
(h) "Shares." The term "Shares" shall mean
the shares of stock of any series or class of the Fund, or,
where appropriate, units of beneficial interest in a trust
where the Fund is organized as a Trust.
(i) "Property." The term "Property" shall mean:
(i) any and all securities and other
investment items which the Fund may from time to time
deposit, or cause to be deposited, with PNC Bank or which
PNC Bank may from time to time hold for the Fund;
(ii) all income in respect of any of such
securities or other investment items;
(iii) all proceeds of the sale of any of
such securities or investment items; and
(iv) all proceeds of the sale of securities
issued by the Fund, which are received by PNC Bank from
time to time, from or on behalf of the Fund.
(j) "Written Instructions." The term "Written
Instructions" shall mean written instructions signed by one
Authorized Person and received by PNC Bank. The
instructions may be delivered by hand, mail, tested
telegram, cable, telex or facsimile sending device.
2. Appointment. The Fund hereby appoints PNC Bank to
provide custodian services to the Fund, and PNC Bank accepts
such appointment and agrees to furnish such services.
3. Delivery of Documents. The Fund has provided or,
where applicable, will provide PNC Bank with the following:
(a) certified or authenticated copies of the
resolutions of the Fund's Governing Board,
approving the appointment of PNC Bank or its affiliates to
provide services;
(b) a copy of the Fund's most recent effective
registration statement;
(c) a copy of the Fund's advisory agreement or
agreements;
(d) a copy of the Fund's distribution agreement
or agreements;
(e) a copy of the Fund's administration
agreements if PNC Bank is not providing the
Fund with such services;
(f) copies of any shareholder servicing
agreements made in respect of the Fund; and
(g) certified or authenticated copies of any and
all amendments or supplements to the
foregoing.
4. Compliance with Government Rules and Regulations.
PNC Bank undertakes to comply with all applicable
requirements of the Securities and Commodities Laws and any
laws, rules and regulations of governmental authorities
having jurisdiction with respect to all duties to be
performed by PNC Bank hereunder. Except as specifically set
forth herein, PNC Bank assumes no responsibility for such
compliance by the Fund.
5. Instructions. Unless otherwise provided in this
Agreement, PNC Bank shall act only upon Oral and Written
Instructions. PNC Bank shall be entitled to rely upon any
Oral and Written Instructions it receives from an Authorized
Person (or from a person reasonably believed by PNC Bank to
be an Authorized Person) pursuant to this Agreement. PNC
Bank may assume that any Oral or Written Instructions
received hereunder are not in any way inconsistent with the
provisions of organizational documents or this Agreement or
of any vote, resolution or proceeding of the Fund's
Governing Board or of the Fund's shareholders.
The Fund agrees to forward to PNC Bank Written
Instructions confirming Oral Instructions so that PNC Bank
receives the Written Instructions by the close of business
on the same day that such Oral Instructions are received.
The fact that such confirming Written Instructions are not
received by PNC Bank shall in no way invalidate the
transactions or enforceability of the transactions
authorized by the Oral Instructions.
The Fund further agrees that PNC Bank shall incur no
liability to the Fund in acting upon Oral or Written
Instructions provided such instructions reasonably appear to
have been received from an Authorized Person.
6. Right to Receive Advice.
(a) Advice of the Fund. If PNC Bank is in doubt
as to any action it should or should not take,
PNC Bank may request directions or advice, including Oral or
Written Instructions, from the Fund.
(b) Advice of Counsel. If PNC Bank shall be in
doubt as to any questions of law
pertaining to any action it should or should not take, PNC
Bank may request advice at its own cost from
such counsel of its own choosing (who may be counsel for the
Fund, the Fund's advisor or PNC Bank, at the option of PNC
Bank).
(c) Conflicting Advice. In the event of a
conflict between directions, advice or Oral or
Written Instructions PNC Bank receives from the Fund, and
the advice it receives from counsel, PNC
Bank shall be entitled to rely upon and follow the advice of
counsel.
(d) Protection of PNC Bank. PNC Bank shall be
protected in any action it takes or does not
take in reliance upon directions, advice or Oral or Written
Instructions it receives from the Fund or
from counsel and which PNC Bank believes, in good faith, to
be consistent with those directions, advice
or Oral or Written Instructions.
Nothing in this paragraph shall be construed so as to
impose an obligation upon PNC Bank (i) to seek such
directions, advice or Oral or Written Instructions, or (ii)
to act in accordance with such directions, advice or Oral or
Written Instructions unless, under the terms of other
provisions of this Agreement, the same is a condition of PNC
Bank's properly taking or not taking such action.
7. Records. The books and records pertaining to the
Fund which are in the possession of PNC Bank, shall be the
property of the Fund. Such books and records shall be
prepared and maintained as required by the 1940 Act and
other applicable securities laws, rules and regulations.
The Fund, or the Fund's Authorized Persons, shall have
access to such books and records at all time during PNC
Bank's normal business hours. Upon the reasonable request
of the Fund, copies of any such books and records shall be
provided by PNC Bank to the Fund or to an Authorized Person
of the Fund, at the Fund's expense.
8. Confidentiality. PNC Bank agrees to keep
confidential all records of the Fund and information
relative to the Fund and its shareholders (past, present and
potential), unless the release of such records or
information is otherwise consented to, in writing, by the
Fund. The Fund agrees that such consent shall not be
unreasonably withheld and may not be withheld where PNC Bank
may be exposed to civil or criminal contempt proceedings or
when required to divulge. The Fund further agrees that,
should PNC Bank be required to provide such information or
records to duly constituted authorities (who may institute
civil or criminal contempt proceedings for failure to
comply), PNC Bank shall not be required to seek the Fund's
consent prior to disclosing such information.
9. Cooperation with Accountants. PNC Bank shall
cooperate with the Fund's independent public accountants and
shall take all reasonable action in the performance of its
obligations under this Agreement to ensure that the
necessary information is made available to such accountants
for the expression of their opinion, as required by the
Fund.
10. Disaster Recovery. PNC Bank shall enter into and
shall maintain in effect with appropriate parties one or
more agreements making reasonable provision for emergency
use of electronic data processing equipment to the extent
appropriate equipment is available. In the event of
equipment failures, PNC Bank shall, at no additional expense
to the Fund, take reasonable steps to minimize service
interruptions but shall have no liability with respect
thereto.
11. Compensation. As compensation for custody
services rendered by PNC Bank during the term of this
Agreement, the Fund will pay to PNC Bank a fee or fees as
may be agreed to in writing from time to time by the Fund
and PNC Bank.
12. Indemnification. The Fund agrees to indemnify and
hold harmless PNC Bank and its nominees from all taxes,
charges, expenses, assessment, claims and liabilities
(including, without limitation, liabilities arising under
the Securities and Commodities Laws and any state and
foreign securities and blue sky laws, and amendments
thereto, and expenses, including (without limitation)
attorneys' fees and disbursements, arising directly or
indirectly from any action which PNC Bank takes or does not
take (i) at the request or on the direction of or in
reliance on the advice of the Fund or (ii) upon Oral or
Written Instructions. Neither PNC Bank, nor any of its
nominees, shall be indemnified against any liability to the
Fund or to its shareholders (or any expenses incident to
such liability) arising out of PNC Bank's own willful
misfeasance, bad faith, negligence or reckless disregard of
its duties and obligations under this Agreement.
13. Responsibility of PNC Bank. PNC Bank shall be
under no duty to take any action on behalf of the Fund
except as specifically set forth herein or as may be
specifically agreed to by PNC Bank, in writing. PNC Bank
shall be obligated to exercise care and diligence in the
performance of its duties hereunder, to act in good faith
and to use its best effort, within reasonable limits, in
performing services provided for under this Agreement. PNC
Bank shall be responsible for its own negligent failure to
perform its duties under this Agreement. Notwithstanding the
foregoing, PNC Bank shall not be responsible for losses
beyond its control, provided that PNC Bank has acted in
accordance with the standard of care set forth above; and
provided further that PNC Bank shall only be responsible for
that portion of losses or damages suffered by the Fund that
are attributable to the negligence of PNC Bank.
Without limiting the generality of the foregoing or of
any other provision of this Agreement, PNC Bank, in
connection with its duties under this Agreement, shall not
be under any duty or obligation to inquire into and shall
not be liable for (a) the validity or invalidity or
authority or lack thereof of any Oral or Written
Instruction, notice or other instrument which conforms to
the applicable requirements of this Agreement, and which PNC
Bank reasonably believes to be genuine; or (b) delays or
errors or loss of data occurring by reason of circumstances
beyond PNC Bank's control, including acts of civil or
military authority, national emergencies, labor
difficulties, fire, flood or catastrophe, acts of God,
insurrection, war, riots or failure of the mails,
transportation, communication or power supply.
Notwithstanding anything in this Agreement to the
contrary, PNC Bank shall have no liability to the Fund for
any consequential, special or indirect losses or damages
which the Fund may incur or suffer by or as a consequence of
PNC Bank's performance of the services provided hereunder,
whether or not the likelihood of such losses or damages was
known by PNC Bank.
14. Description of Services.
(a) Delivery of the Property. The Fund will
deliver or arrange for delivery to PNC Bank, all the
property owned by the Fund, including cash received as a
result of the distribution of its Shares, during the period
that is set forth in this Agreement. PNC Bank will not be
responsible for such property until actual receipt.
(b) Receipt and Disbursement of Money. PNC Bank,
acting upon Written Instructions, shall open and maintain
separate account(s) in the Fund's name using all cash
received from or for the account of the Fund, subject to the
terms of this Agreement. In addition, upon Written
Instructions, PNC Bank shall open separate custodial
accounts for each separate series, class or portfolio of the
Fund and shall hold in such account(s) all cash received
from or for the accounts of the Fund specifically designated
to each separate series, class or portfolio. PNC Bank shall
make cash payments from or for the account of the Fund only
for:
(i) purchases of securities in the name of
the Fund or PNC Bank or PNC Bank's nominee as provided in
sub-paragraph j and for which PNC Bank has received a copy
of the broker's or dealer's confirmation or payee's invoice,
as appropriate;
(ii) purchase or redemption of Shares of the
Fund delivered to PNC Bank;
(iii) payment of, subject to Written
Instructions, interest, taxes, administration, accounting,
distribution, advisory, management fees or similar expenses
which are to be borne by the Fund;
(iv) payment to, subject to receipt of
Written Instructions, the Fund's transfer agent, as agent
for the shareholders, an amount equal to the amount of
dividends and distributions stated in the Written
Instructions to be distributed in cash by the transfer agent
to shareholders, or, in lieu of paying the Fund's transfer
agent, PNC Bank may arrange for the direct payment of cash
dividends and distributions to shareholders in accordance
with procedures mutually agreed upon from time to time by
and among the Fund, PNC Bank and the Fund's transfer agent;
(v) payments, upon receipt of Written
Instructions, in connection with the conversion, exchange or
surrender of securities owned or subscribed to by the Fund
and held by or delivered to PNC Bank;
(vi) payments of the amounts of dividends
received with respect to securities sold short; payments
made to a sub-custodian pursuant to provisions in sub-
paragraph c of this Paragraph; and
(viii) payments, upon Written Instructions made
for other proper Fund purposes. PNC Bank is hereby
authorized to endorse and collect all checks, drafts or
other orders for the payment of money received as custodian
for the account of the Fund.
(c) Receipt of Securities.
(i) PNC Bank shall hold all securities
received by it for the account of the Fund in a separate
account that physically segregates such securities from
those of any other persons, firms or corporations, except
for securities held in a Book-Entry System. All such
securities shall be held or disposed of only upon Written
Instructions of the Fund pursuant to the terms of this
Agreement. PNC Bank shall have no power or authority to
assign, hypothecate, pledge or otherwise dispose of any such
securities or investment, except upon the express terms of
this Agreement and upon Written Instructions, accompanied by
a certified resolution of the Fund's Governing Board,
authorizing the transaction. In no case may any member of
the Fund's Governing Board, or any officer, employee or
agent of the Fund withdraw any securities. At PNC Bank's
own expense and for its own convenience, PNC Bank may enter
into sub-custodian agreements with other banks or trust
companies to perform duties described in this sub-paragraph
c. Such bank or trust company shall have an aggregate
capital, surplus and undivided profits, according to its
last published report, of at least one million dollars
($1,000,000), if it is a subsidiary or affiliate of PNC
Bank, or at least twenty million dollars ($20,000,000) if
such bank or trust company is not a subsidiary or
affiliate of PNC Bank. In addition, such bank or trust
company must agree to comply with the relevant provisions of
the 1940 Act and other applicable rules and regulations.
PNC Bank shall remain responsible for the performance of all
of its duties as described in this Agreement and shall hold
the Fund harmless from PNC Bank's own (or any sub-custodian
chosen by PNC Bank under the terms of this sub-paragraph c)
acts or omissions, under the standards of care provided for
herein.
(d) Transactions Requiring Instructions. Upon
receipt of Oral or Written Instructions and not otherwise,
PNC Bank, directly or through the use of the Book-Entry
System, shall:
(i) deliver any securities held for the Fund
against the receipt of payment for the sale of such
securities;
(ii) execute and deliver to such persons as
may be designated in such Oral or Written Instructions,
proxies, consents, authorizations, and any other instruments
whereby the authority of the Fund as owner of any
securities may be exercised;
(iii) deliver any securities to the issuer
thereof, or its agent, when such securities are called,
redeemed, retired or otherwise become payable; provided
that, in any such case, the cash or other consideration is
to be delivered to PNC Bank;
(iv) deliver any securities held for the Fund
against receipt of other securities or cash issued or paid
in connection with the liquidation, reorganization,
refinancing, tender offer, merger, consolidation or
recapitalization of any corporation, or the exercise of any
conversion privilege;
(v) deliver any securities held for the Fund
to any protective committee, reorganization committee or
other person in connection with the reorganization,
refinancing, merger, consolidation, recapitalization or sale
of assets of any corporation, and receive and hold under the
terms of this Agreement such certificates of deposit,
interim receipts or other instruments or documents as may be
issued to it to evidence such delivery;
(vi) make such transfer or exchanges of the
assets of the Fund and take such other steps as shall be
stated in said Oral or Written Instructions to be for the
purpose of effectuating a duly authorized plan of
liquidation, reorganization, merger, consolidation or
recapitalization of the Fund;
(vii) release securities belonging to the Fund
to any bank or trust company for the purpose of a pledge or
hypothecation to secure any loan incurred by the Fund;
provided, however, that securities shall be released only
upon payment to PNC Bank of the monies borrowed, except that
in cases where additional collateral is required to secure a
borrowing already made subject to proper prior
authorization, further securities may be released for that
purpose; and repay such loan upon redelivery to it of the
securities pledged or hypothecated therefor and upon
surrender of the note or notes evidencing the loan;
(viii) release and deliver securities owned by
the Fund in connection with any repurchase agreement entered
into on behalf of the Fund, but only on receipt of payment
therefor; and pay out moneys of the Fund in connection with
such repurchase agreements, but only upon the delivery of
the securities;
(ix) release and deliver or exchange
securities owned by the Fund in connection with any
conversion of such securities, pursuant to their terms, into
other securities;
(x) release and deliver securities owned by
the Fund for the purpose of redeeming in kind shares of the
Fund upon delivery thereof to PNC Bank; and
(xi) release and deliver or exchange
securities owned by the Fund for other corporate purposes.
PNC Bank must also receive a certified resolution describing
the nature of the corporate purpose and the name and address
of the person(s) to whom delivery shall be made when such
action is pursuant to sub-paragraph d above.
(e) Use of Book-Entry System. The Fund shall deliver
to PNC Bank certified resolutions of the Fund's Governing
Board approving, authorizing and instructing PNC Bank on a
continuous and on-going basis, to deposit in the Book-Entry
System all securities belonging to the Fund eligible for
deposit therein and to utilize the Book-Entry System to the
extent possible in connection with settlements of purchases
and sales of securities by the Fund, and deliveries and
returns of securities loaned, subject to repurchase
agreements or used as collateral in connection with
borrowings. PNC Bank shall continue to perform such duties
until it receives Written or Oral Instructions authorizing
contrary actions(s).
To administer the Book-Entry System properly, the
following provisions shall apply:
(i) With respect to securities of the Fund
which are maintained in the Book-Entry system, established
pursuant to this sub-paragraph e hereof, the records of PNC
Bank shall identify by Book-Entry or otherwise those
securities belonging to the Fund. PNC Bank shall furnish
the Fund a detailed statement of the Property held for the
Fund under this Agreement at least monthly and from time to
time and upon written request.
(ii) Securities and any cash of the Fund
deposited in the Book-Entry System will at all times be
segregated from any assets and cash controlled by PNC Bank
in other than a fiduciary or custodian capacity but may be
commingled with other assets held in such capacities. PNC
Bank and its sub-custodian, if any, will pay out money only
upon receipt of securities and will deliver securities only
upon the receipt of money.
(iii) All books and records maintained by PNC
Bank which relate to the Fund's participation in the Book-
Entry System will at all times during PNC Bank's regular
business hours be open to the inspection of the Fund's duly
authorized employees or agents, and the Fund will be
furnished with all information in respect of the services
rendered to it as it may require.
(iv) PNC Bank will provide the Fund with
copies of any report obtained by PNC Bank on the system of
internal accounting control of the Book-Entry System
promptly after receipt of such a report by PNC Bank. PNC
Bank will also provide the Fund with such reports on its own
system of internal control as the Fund may reasonably
request from time to time.
(f) Registration of Securities. All Securities
held for the Fund which are issued or issuable only in
bearer form, except such securities held in the Book-Entry
System, shall be held by PNC Bank in bearer form; all other
securities held for the Fund may be registered in the name
of the Fund; PNC Bank; the Book-Entry System; a sub-
custodian; or any duly appointed nominee(s) of the Fund, PNC
Bank, Book-Entry system or sub-custodian. The Fund reserves
the right to instruct PNC Bank as to the method of
registration and safekeeping of the securities of the Fund.
The Fund agrees to furnish to PNC Bank appropriate
instruments to enable PNC Bank to hold or deliver in proper
form for transfer, or to register its registered nominee or
in the name of the Book-Entry System, any securities which
it may hold for the account of the Fund and which may from
time to time be registered in the name of the Fund. PNC
Bank shall hold all such securities which are not held in
the Book-Entry System in a separate account for the Fund in
the name of the Fund physically segregated at all times from
those of any other person or persons.
(g) Voting and Other Action. Neither PNC Bank
nor its nominee shall vote any of the securities held
pursuant to this Agreement by or for the account of the
Fund, except in accordance with Written Instructions. PNC
Bank, directly or through the use of the Book-Entry System,
shall execute in blank and promptly deliver all notice,
proxies, and proxy soliciting materials to the registered
holder of such securities. If the registered holder is not
the Fund then Written or Oral Instructions must designate
the person(s) who owns such securities.
(h) Transactions Not Requiring Instructions. In
the absence of contrary Written Instructions, PNC Bank is
authorized to take the following actions:
(i) Collection of Income and Other Payments.
(A) collect and receive for the account
of the Fund, all income, dividends, distributions, coupons,
option premiums, other payments and similar items, included
or to be included in the Property, and, in addition,
promptly advise the Fund of such receipt and credit such
income, as collected, to the Fund's custodian account;
(B) endorse and deposit for collection,
in the name of the Fund, checks, drafts, or other orders for
the payment of money;
(C) receive and hold for the account of
the Fund all securities received as a distribution on the
Fund's portfolio securities as a result of a stock dividend,
share split-up or reorganization, recapitalization,
readjustment or other rearrangement or distribution of
rights or similar securities issued with respect to any
portfolio securities belonging to the Fund held by PNC Bank
hereunder;
(D) present for payment and collect the
amount payable upon all securities which may mature or be
called, redeemed, or retired, or otherwise become payable on
the date such securities become payable; and
(E) take any action which may be
necessary and proper in connection with the collection and
receipt of such income and other payments and the
endorsement for collection of checks, drafts, and other
negotiable instruments.
(ii) Miscellaneous Transactions.
(A) PNC Bank is authorized to deliver
or cause to be delivered Property against payment or other
consideration or written receipt therefor in the following
cases:
(1) for examination by a broker or
dealer selling for the account of the Fund in accordance
with street delivery custom;
(2) for the exchange of interim
receipts or temporary securities for definitive securities;
and
(3) for transfer of securities
into the name of the Fund or PNC Bank or nominee of either,
or for exchange of securities for a different number of
bonds,certificates, or other evidence, representing the same
aggregate face amount or number of units bearing the same
interest rate, maturity date and call provisions, if any;
provided that, in any such case, the new securities are to
be delivered to PNC Bank.
(B) Unless and until PNC Bank receives
Oral or Written Instructions to the contrary, PNC Bank
shall:
(1) pay all income items held by
it which call for payment upon presentation and hold the
cash received by it upon such payment for the account of the
Fund;
(2) collect interest and cash
dividends received, with notice to the Fund, to the Fund's
account;
(3) hold for the account of the
Fund all stock dividends, rights and similar securities
issued with respect to any securities held by PNC Bank; and
(4) execute as agent on behalf of
the Fund all necessary ownership certificates required by
the Internal Revenue Code or the Income Tax Regulations of
the United States Treasury Department or under the laws of
any State now or hereafter in effect, inserting the Fund's
name, on such certificate as the owner of the securities
covered thereby, to the extent it may lawfully do so.
(i) Segregated Accounts.
(i) PNC Bank shall upon receipt of Written
or Oral Instructions establish and maintain segregated
account(s) on its records for and on behalf of the Fund.
Such account(s) may be used to transfer cash and securities,
including securities in the Book-Entry System:
(A) for the purposes of compliance by
the Fund with the procedures required by a securities or
option exchange, providing such procedures comply with the
1940 Act and any releases of the SEC relating to the
maintenance of segregated accounts by registered investment
companies; and
(B) Upon receipt of Written
Instructions, for other proper corporate purposes.
(ii) PNC Bank may enter into separate
custodial agreements with various futures commission
merchants ("FCMs") that the Fund uses ("FCM Agreement").
Pursuant to an FCM Agreement, the Fund's margin deposits in
any transactions involving futures contracts and options on
futures contracts will be held by PNC Bank in accounts ("FCM
Account") subject to the disposition by the FCM involved in
such contracts and in accordance with the customer contract
between FCM and the Fund ("FCM Contract"), SEC rules and the
rules of the applicable commodities exchange. Such FCM
Agreements shall only be entered into upon receipt of
Written Instructions from the Fund which state that:
(A) a customer agreement between the
FCM and the Fund has been entered into; and
(B) the Fund is in compliance with all
the rules and regulations of the CFTC. Transfers of initial
margin shall be made into a FCM Account only upon Written
Instructions; transfers of premium and variation margin may
be made into a FCM Account pursuant to Oral Instructions.
Transfers of funds from a FCM
Account to the FCM for which PNC Bank holds such an account
may only occur upon certification by the FCM to PNC Bank
that pursuant to the FCM Agreement and the FCM Contract, all
conditions precedent to its right to give PNC Bank such
instructions have been satisfied.
(iii) PNC Bank shall arrange for the
establishment of IRA custodian accounts for such share-
holders holding Shares through IRA accounts, in accordance
with the Fund's prospectuses, the Internal Revenue Code
(including regulations), and with such other procedures as
are mutually agreed upon from time to time by and among the
Fund, PNC Bank and the Fund's transfer agent.
(j) Purchases of Securities. PNC Bank shall
settle purchased securities upon receipt of Oral or Written
Instructions from the Fund or its investment advisor(s) that
specify:
(i) the name of the issuer and the title of
the securities, including CUSIP number if applicable;
(ii) the number of shares or the principal
amount purchased and accrued interest, if any;
(iii) the date of purchase and settlement;
(iv) the purchase price per unit;
(v) the total amount payable upon such
purchase; and
(vi) the name of the person from whom or the
broker through whom the purchase was made. PNC Bank shall
upon receipt of securities purchased by or for the Fund pay
out of the moneys held for the account of the Fund the total
amount payable to the person from whom or the broker through
whom the purchase was made, provided that the same conforms
to the total amount payable as set forth in such Oral or
Written Instructions.
(k) Sales of Securities. PNC Bank shall settle
sold securities upon receipt of Oral or Written Instructions
from the Fund that specify:
(i) the name of the issuer and the title of
the security, including CUSIP number if applicable;
(ii) the number of shares or principal amount
sold, and accrued interest, if any;
(iii) the date of trade, settlement and sale;
(iv) the sale price per unit;
(v) the total amount payable to the Fund
upon such sale;
(vi) the name of the broker through whom or
the person to whom the sale was made; and
(vii) the location to which the security must
be delivered and delivery deadline, if any. PNC Bank shall
deliver the securities upon receipt of the total amount
payable to the Fund upon such sale, provided that the total
amount payable is the same as was set forth in the Oral or
Written Instructions. Subject to the foregoing, PNC Bank
may accept payment in such form as shall be satisfactory to
it, and may deliver securities and arrange for payment in
accordance with the customs prevailing among dealers in
securities.
(l) Reports.
(i) PNC Bank shall furnish the Fund the
following reports:
(A) such periodic and special reports
as the Fund may reasonably request;
(B) a monthly statement summarizing all
transactions and entries for the account of the Fund,
listing the portfolio securities belonging to the Fund with
the adjusted average cost of each issue and the market value
at the end of such month, and stating the cash account of
the Fund including disbursement;
(C) the reports to be furnished to the
Fund pursuant to Rule 17f-4; and
(D) such other information as may be
agreed upon from time to time between the Fund and PNC Bank.
(ii) PNC Bank shall transmit promptly to the
Fund any proxy statement, proxy material, notice of a call
or conversion or similar communication received by it as
custodian of the Property. PNC Bank shall be under no other
obligation to inform the Fund as to such actions or events.
(m) Collections. All collections of monies or
other property, in respect, or which are to become part of
the Property (but not the safekeeping thereof upon receipt
by PNC Bank) shall be at the sole risk of the Fund. If
payment is not received by PNC Bank within a reasonable time
after proper demands have been made, PNC Bank shall notify
the Fund in writing, including copies of all demand letters,
any written responses, memoranda of all oral responses and
telephonic demands thereto, and await instructions from the
Fund. PNC Bank shall not be obliged to take legal action
for collection unless and until reasonably indemnified to
its satisfaction. PNC Bank shall also notify the Fund as
soon as reasonably practicable whenever income due on
securities is not collected in due course.
15. Duration and Termination. This Agreement shall
continue until terminated by the Fund or by PNC Bank on
sixty (60) days' prior written notice to the other party.
In the event this Agreement is terminated (pending
appointment of a successor to PNC Bank or vote of the
shareholders of the Fund to dissolve or to function without
a custodian of its cash, securities or other property), PNC
Bank shall not deliver cash, securities or other property of
the Fund to the Fund. It may deliver them to a bank or
trust company of PNC Bank's choice, having an aggregate
capital, surplus and undivided profits, as shown by its last
published report, of not less than twenty million dollars
($20,000,000), as a custodian for the Fund to be held under
terms similar to those of this Agreement. PNC Bank shall
not be required to make any such delivery or payment until
full payment shall have been made to PNC Bank of all of its
fees, compensation, costs and expenses. PNC Bank shall have
a security interest in and shall have a right of setoff
against Property in the Fund's possession as security for
the payment of such fees, compensation, costs and expenses.
16. Notices. All notices and other communications,
including Written Instructions, shall be in writing or by
confirming telegram, cable, telex or facsimile sending
device. Notice shall be addressed (a) if to PNC Bank at PNC
Bank's address: Airport Business Center, International Court
2, 200 Stevens Drive, Lester, Pennsylvania 19113, marked for
the attention of the Custodian Services Department (or its
successor) (b) if to the Fund, at the address of the Fund;
or (c) if to neither of the foregoing, at such other address
as shall have been notified to the sender of any such notice
or other communication. If notice is sent by confirming
telegram, cable, telex or facsimile sending device, it shall
be deemed to have been given immediately. If notice is sent
by first-class mail, it shall be deemed to have been given
five days after it has been mailed. If notice is sent by
messenger, it shall be deemed to have been given on the day
it is delivered.
17. Amendments. This Agreement, or any term hereof,
may be changed or waived only by a written amendment, signed
by the party against whom enforcement of such change or
waiver is sought. 18. Delegation. PNC Bank may
assign its rights and delegate its duties hereunder to any
wholly-owned direct or indirect subsidiary of PNC Bank,
National Association or PNC Bank Corp., provided that (i)
PNC Bank gives the Fund thirty (30) days prior written
notice; (ii) the delegate agrees with PNC Bank to comply
with all relevant provisions of the 1940 Act; and (iii) PNC
Bank and such delegate promptly provide such information as
the Fund may request, and respond to such questions as the
Fund may ask, relative to the assignment, including (without
limitation) the capabilities of the delegate.
19. Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and
the same instrument. 20. Further Actions. Each party
agrees to perform such further acts and execute such further
documents as are necessary to effectuate the purposes
hereof.
21. Miscellaneous. This Agreement embodies the entire
agreement and understanding between the parties and
supersedes all prior agreements and understandings relating
to the subject matter hereof, provided that the parties may
embody in one or more separate documents their agreement, if
any, with respect to delegated duties and/or Oral
Instructions. The captions in this Agreement are included
for convenience of reference only and in no way define or
delimit any of the provisions hereof or otherwise affect
their construction or effect.
This Agreement shall be deemed to be a contract made in
Pennsylvania and governed by Pennsylvania law, without
regard to principles of conflicts of law. If any provision
of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby. This Agreement
shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and permitted
assigns.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their officers designated below
on the day and year first above written.
PNC BANK, NATIONAL ASSOCIATION
By:
Title:
SMITH BARNEY MANAGED
GOVRNMENTS FUND INC.
By:
Title:
AUTHORIZED PERSONS APPENDIX
NAME (Type) SIGNATURE
21
TRANSFER AGENCY AND REGISTRAR AGREEMENT
AGREEMENT, dated as of August 2, 1993, between Smith Barney
Shearson Managed Governments Fund Inc., (the "Fund"), a
corporation organized under the laws of Maryland and having its
principal place of business at Two World Trade Center, New York,
New York 10048 and THE SHAREHOLDER SERVICES GROUP, INC. (MA)
(the "Transfer Agent"), a Massachusetts corporation with
principal offices at One Exchange Place, 53 State Street, Boston,
Massachusetts 02109.
W I T N E S S E T H
That for and in consideration of the mutual covenants and
promises hereinafter set forth, the Fund and the Transfer Agent
agree as follows:
1. Definitions. Whenever used in this Agreement, the
following words and phrases, unless the context otherwise
requires, shall have the following meanings:
(a) "Articles of Incorporation" shall mean the
Articles of Incorporation, Declaration of Trust, Partnership
Agreement, or similar organizational document as the case may be,
of the Fund as the same may be amended from time to time.
(b) "Authorized Person" shall be deemed to include any
person, whether or not such person is an officer or employee of
the Fund, duly authorized to give Oral Instructions or Written
Instructions on behalf of the Fund as indicated in a certificate
furnished to the Transfer Agent pursuant to Section 4(c) hereof
as may be received by the Transfer Agent from time to time.
(c) "Board of Directors" shall mean the Board of
Directors, Board of Trustees or, if the Fund is a limited
partnership, the General Partner(s) of the Fund, as the case may
be.
(d) "Commission" shall mean the Securities and
Exchange Commission.
(e) "Custodian" refers to any custodian or
subcustodian of securities and other property which the Fund may
from time to time deposit, or cause to be deposited or held under
the name or account of such a custodian pursuant to a Custodian
Agreement.
(f) "Fund" shall mean the entity executing this
Agreement, and if it is a series fund, as such term is used in
the 1940 Act, such term shall mean each series of the Fund
hereafter created, except that appropriate documentation with
respect to each series must be presented to the Transfer Agent
before this Agreement shall become effective with respect to each
such series.
(g) "1940 Act" shall mean the Investment Company Act
of 1940.
(h) "Oral Instructions" shall mean instructions, other
than Written Instructions, actually received by the Transfer
Agent from a person reasonably believed by the Transfer Agent to
be an Authorized Person;
(i) "Prospectus" shall mean the most recently dated
Fund Prospectus and Statement of Additional Information,
including any supplements thereto if any, which has become
effective under the Securities Act of 1933 and the 1940 Act.
(j) "Shares" refers collectively to such shares of
capital stock, beneficial interest or limited partnership
interests, as the case may be, of the Fund as may be issued from
time to time and, if the Fund is a closed-end or a series fund,
as such terms are used in the 1940 Act any other classes or
series of stock, shares of beneficial interest or limited
partnership interests that may be issued from time to time.
(k) "Shareholder" shall mean a holder of shares of
capital stock, beneficial interest or any other class or series,
and also refers to partners of limited partnerships.
(l) "Written Instructions" shall mean a written
communication signed by a person reasonably believed by the
Transfer Agent to be an Authorized Person and actually received
by the Transfer Agent. Written Instructions shall include
manually executed originals and authorized electronic
transmissions, including telefacsimile of a manually executed
original or other process.
2. Appointment of the Transfer Agent. The Fund hereby
appoints and constitutes the Transfer Agent as transfer agent,
registrar and dividend disbursing agent for Shares of the Fund
and as shareholder servicing agent for the Fund. The Transfer
Agent accepts such appointments and agrees to perform the duties
hereinafter set forth.
3. Compensation.
(a) The Fund will compensate or cause the Transfer
Agent to be compensated for the performance of its obligations
hereunder in accordance with the fees set forth in the written
schedule of fees annexed hereto as Schedule A and incorporated
herein. The Transfer Agent will transmit an invoice to the Fund
as soon as practicable after the end of each calendar month which
will be detailed in accordance with Schedule A, and the Fund will
pay to the Transfer Agent the amount of such invoice within
thirty (30) days after the Fund's receipt of the invoice.
In addition, the Fund agrees to pay, and will be
billed separately for, reasonable out-of-pocket expenses incurred
by the Transfer Agent in the performance of its duties hereunder.
Out-of-pocket expenses shall include, but shall not be limited
to, the items specified in the written schedule of out-of-pocket
charges annexed hereto as Schedule B and incorporated herein.
Unspecified out-of-pocket expenses shall be limited to those out-
of-pocket expenses reasonably incurred by the Transfer Agent in
the performance of its obligations hereunder. Reimbursement by
the Fund for expenses incurred by the Transfer Agent in any month
shall be made as soon as practicable but no later than 15 days
after the receipt of an itemized bill from the Transfer Agent.
(b) Any compensation agreed to hereunder may be
adjusted from time to time by attaching to Schedule A, a revised
fee schedule executed and dated by the parties hereto.
4. Documents. In connection with the appointment of the
Transfer Agent the Fund shall deliver or caused to be delivered
to the Transfer Agent the following documents on or before the
date this Agreement goes into effect, but in any case within a
reasonable period of time for the Transfer Agent to prepare to
perform its duties hereunder:
(a) If applicable, specimens of the certificates for
Shares of the Fund;
(b) All account application forms and other documents
relating to Shareholder accounts or to any plan, program or
service offered by the Fund;
(c) A signature card bearing the signatures of any
officer of the Fund or other Authorized Person who will sign
Written Instructions or is authorized to give Oral Instructions.
(d) A certified copy of the Articles of Incorporation,
as amended;
(e) A certified copy of the By-laws of the Fund, as
amended;
(f) A copy of the resolution of the Board of Directors
authorizing the execution and delivery of this Agreement;
(g) A certified list of Shareholders of the Fund with
the name, address and taxpayer identification number of each
Shareholder, and the number of Shares of the Fund held by each,
certificate numbers and denominations (if any certificates have
been issued), lists of any accounts against which stop transfer
orders have been placed, together with the reasons therefore, and
the number of Shares redeemed by the Fund; and
(h) An opinion of counsel for the Fund with respect to
the validity of the Shares and the status of such Shares under
the Securities Act of 1933, as amended.
5. Further Documentation. The Fund will also furnish the
Transfer Agent with copies of the following documents promptly
after the same shall become available:
(a) each resolution of the Board of Directors
authorizing the issuance of Shares;
(b) any registration statements filed on behalf of the
Fund and all pre-effective and post-effective amendments thereto
filed with the Commission;
(c) a certified copy of each amendment to the Articles
of Incorporation or the By-laws of the Fund;
(d) certified copies of each resolution of the Board
of Directors or other authorization designating Authorized
Persons; and
(e) such other certificates, documents or opinions as
the Transfer Agent may reasonably request in connection with the
performance of its duties hereunder.
6. Representations of the Fund. The Fund represents to the
Transfer Agent that all outstanding Shares are validly issued,
fully paid and non-assessable. When Shares are hereafter issued
in accordance with the terms of the Fund's Articles of
Incorporation and its Prospectus, such Shares shall be validly
issued, fully paid and non-assessable.
7. Distributions Payable in Shares. In the event that the
Board of Directors of the Fund shall declare a distribution
payable in Shares, the Fund shall deliver or cause to be
delivered to the Transfer Agent written notice of such
declaration signed on behalf of the Fund by an officer thereof,
upon which the Transfer Agent shall be entitled to rely for all
purposes, certifying (i) the identity of the Shares involved,
(ii) the number of Shares involved, and (iii) that all
appropriate action has been taken.
8. Duties of the Transfer Agent. The Transfer Agent shall
be responsible for administering and/or performing those
functions typically performed by a transfer agent; for acting as
service agent in connection with dividend and distribution
functions; and for performing shareholder account and
administrative agent functions in connection with the issuance,
transfer and redemption or repurchase (including coordination
with the Custodian) of Shares in accordance with the terms of the
Prospectus and applicable law. The operating standards and
procedures to be followed shall be determined from time to time
by agreement between the Fund and the Transfer Agent and shall
initially be as described in Schedule C attached hereto. In
addition, the Fund shall deliver to the Transfer Agent all
notices issued by the Fund with respect to the Shares in
accordance with and pursuant to the Articles of Incorporation or
By-laws of the Fund or as required by law and shall perform such
other specific duties as are set forth in the Articles of
Incorporation including the giving of notice of any special or
annual meetings of shareholders and any other notices required
thereby.
9. Record Keeping and Other Information. The Transfer
Agent shall create and maintain all records required of it
pursuant to its duties hereunder and as set forth in Schedule C
in accordance with all applicable laws, rules and regulations,
including records required by Section 31(a) of the 1940 Act. All
records shall be available during regular business hours for
inspection and use by the Fund. Where applicable, such records
shall be maintained by the Transfer Agent for the periods and in
the places required by Rule 31a-2 under the 1940 Act.
Upon reasonable notice by the Fund, the Transfer Agent shall
make available during regular business hours such of its
facilities and premises employed in connection with the
performance of its duties under this Agreement for reasonable
visitation by the Fund, or any person retained by the Fund as may
be necessary for the Fund to evaluate the quality of the services
performed by the Transfer Agent pursuant hereto.
10. Other Duties. In addition to the duties set forth in
Schedule C, the Transfer Agent shall perform such other duties
and functions, and shall be paid such amounts therefor, as may
from time to time be agreed upon in writing between the Fund and
the Transfer Agent. The compensation for such other duties and
functions shall be reflected in a written amendment to Schedule A
or B and the duties and functions shall be reflected in an
amendment to Schedule C, both dated and signed by authorized
persons of the parties hereto.
11. Reliance by Transfer Agent; Instructions
(a) The Transfer Agent will have no liability when
acting upon Written or Oral Instructions believed to have been
executed or orally communicated by an Authorized Person and will
not be held to have any notice of any change of authority of any
person until receipt of a Written Instruction thereof from the
Fund pursuant to Section 4(c). The Transfer Agent will also have
no liability when processing Share certificates which it
reasonably believes to bear the proper manual or facsimile
signatures of the officers of the Fund and the proper
countersignature of the Transfer Agent.
(b) At any time, the Transfer Agent may apply to any
Authorized Person of the Fund for Written Instructions and may
seek advice from legal counsel for the Fund, or its own legal
counsel, with respect to any matter arising in connection with
this Agreement, and it shall not be liable for any action taken
or not taken or suffered by it in good faith in accordance with
such Written Instructions or in accordance with the opinion of
counsel for the Fund or for the Transfer Agent. Written
Instructions requested by the Transfer Agent will be provided by
the Fund within a reasonable period of time. In addition, the
Transfer Agent, its officers, agents or employees, shall accept
Oral Instructions or Written Instructions given to them by any
person representing or acting on behalf of the Fund only if said
representative is an Authorized Person. The Fund agrees that all
Oral Instructions shall be followed within one business day by
confirming Written Instructions, and that the Fund's failure to
so confirm shall not impair in any respect the Transfer Agent's
right to rely on Oral Instructions. The Transfer Agent shall
have no duty or obligation to inquire into, nor shall the
Transfer Agent be responsible for, the legality of any act done
by it upon the request or direction of a person reasonably
believed by the Transfer Agent to be an Authorized Person.
(c) Notwithstanding any of the foregoing provisions of
this Agreement, the Transfer Agent shall be under no duty or
obligation to inquire into, and shall not be liable for: (i) the
legality of the issuance or sale of any Shares or the sufficiency
of the amount to be received therefor; (ii) the legality of the
redemption of any Shares, or the propriety of the amount to be
paid therefor; (iii) the legality of the declaration of any
dividend by the Board of Directors, or the legality of the
issuance of any Shares in payment of any dividend; or (iv) the
legality of any recapitalization or readjustment of the Shares.
12. Acts of God, etc. The Transfer Agent will not be
liable or responsible for delays or errors by acts of God or by
reason of circumstances beyond its control, including acts of
civil or military authority, national emergencies, labor
difficulties, mechanical breakdown, insurrection, war, riots, or
failure or unavailability of transportation, communication or
power supply, fire, flood or other catastrophe.
13. Duty of Care and Indemnification. Each party hereto
(the "Indemnifying Party') will indemnify the other party (the
"Indemnified Party") against and hold it harmless from any and
all losses, claims, damages, liabilities or expenses of any sort
or kind (including reasonable counsel fees and expenses)
resulting from any claim, demand, action or suit or other
proceeding (a "Claim") unless such Claim has resulted from a
negligent failure to act or omission to act or bad faith of the
Indemnified Party in the performance of its duties hereunder. In
addition, the Fund will indemnify the Transfer Agent against and
hold it harmless from any Claim, damages, liabilities or expenses
(including reasonable counsel fees) that is a result of: (i) any
action taken in accordance with Written or Oral Instructions, or
any other instructions, or share certificates reasonably believed
by the Transfer Agent to be genuine and to be signed,
countersigned or executed, or orally communicated by an
Authorized Person; (ii) any action taken in accordance with
written or oral advice reasonably believed by the Transfer Agent
to have been given by counsel for the Fund or its own counsel; or
(iii) any action taken as a result of any error or omission in
any record (including but not limited to magnetic tapes, computer
printouts, hard copies and microfilm copies) delivered, or caused
to be delivered by the Fund to the Transfer Agent in connection
with this Agreement.
In any case in which the Indemnifying Party may be asked to
indemnify or hold the Indemnified Party harmless, the
Indemnifying Party shall be advised of all pertinent facts
concerning the situation in question. The Indemnified Party will
notify the Indemnifying Party promptly after identifying any
situation which it believes presents or appears likely to present
a claim for indemnification against the Indemnifying Party
although the failure to do so shall not prevent recovery by the
Indemnified Party. The Indemnifying Party shall have the option
to defend the Indemnified Party against any Claim which may be
the subject of this indemnification, and, in the event that the
Indemnifying Party so elects, such defense shall be conducted by
counsel chosen by the Indemnifying Party and satisfactory to the
Indemnified Party, and thereupon the Indemnifying Party shall
take over complete defense of the Claim and the Indemnified Party
shall sustain no further legal or other expenses in respect of
such Claim. The Indemnified Party will not confess any Claim or
make any compromise in any case in which the Indemnifying Party
will be asked to provide indemnification, except with the
Indemnifying Party's prior written consent. The obligations of
the parties hereto under this Section shall survive the
termination of this Agreement.
14. Consequential Damages. In no event and under no
circumstances shall either party under this Agreement be liable
to the other party for indirect loss of profits, reputation or
business or any other special damages under any provision of this
Agreement or for any act or failure to act hereunder.
15. Term and Termination.
(a) This Agreement shall be effective on the date
first written above and shall continue until August 2, 1994, and
thereafter shall automatically continue for successive annual
periods ending on the anniversary of the date first written
above, provided that it may be terminated by either party upon
written notice given at least 60 days prior to termination.
(b) In the event a termination notice is given by the
Fund, it shall be accompanied by a resolution of the Board of
Directors, certified by the Secretary of the Fund, designating a
successor transfer agent or transfer agents. Upon such
termination and at the expense of the Fund, the Transfer Agent
will deliver to such successor a certified list of shareholders
of the Fund (with names and addresses), and all other relevant
books, records, correspondence and other Fund records or data in
the possession of the Transfer Agent, and the Transfer Agent will
cooperate with the Fund and any successor transfer agent or
agents in the substitution process.
16. Confidentiality. Both parties hereto agree that any
non public information obtained hereunder concerning the other
party is confidential and may not be disclosed to any other
person without the consent of the other party, except as may be
required by applicable law or at the request of the Commission or
other governmental agency. The parties further agree that a
breach of this provision would irreparably damage the other party
and accordingly agree that each of them is entitled, without bond
or other security, to an injunction or injunctions to prevent
breaches of this provision.
17. Amendment. This Agreement may only be amended or
modified by a written instrument executed by both parties.
18. Subcontracting. The Fund agrees that the Transfer
Agent may, in its discretion, subcontract for certain of the
services described under this Agreement or the Schedules hereto;
provided that the appointment of any such Transfer Agent shall
not relieve the Transfer Agent of its responsibilities hereunder.
19. Miscellaneous.
(a) Notices. Any notice or other instrument
authorized or required by this Agreement to be given in writing
to the Fund or the Transfer Agent, shall be sufficiently given if
addressed to that party and received by it at its office set
forth below or at such other place as it may from time to time
designate in writing.
To the Fund:
Smith Barney Shearson Managed Governments Fund Inc.
Two World Trade Center, Floor 100
New York, NY 10048
Attention: Richard Roelofs
To the Transfer Agent:
The Shareholder Services Group
One Exchange Place
53 State Street
Boston, Massachusetts 02109
Attention: Robert F. Radin, President
with a copy to TSSG Counsel
(b) Successors. This Agreement shall extend to and
shall be binding upon the parties hereto, and their respective
successors and assigns, provided, however, that this Agreement
shall not be assigned to any person other than a person
controlling, controlled by or under common control with the
assignor without the written consent of the other party, which
consent shall not be unreasonably withheld.
(c) Governing Law. This Agreement shall be governed
exclusively by the laws of the State of New York without
reference to the choice of law provisions thereof. Each party
hereto hereby agrees that (i) the Supreme Court of New York
sitting in New York County shall have exclusive jurisdiction over
any and all disputes arising hereunder; (ii) hereby consents to
the personal jurisdiction of such court over the parties hereto,
hereby waiving any defense of lack of personal jurisdiction; and
(iii) appoints the person to whom notices hereunder are to be
sent as agent for service of process.
(d) Counterparts. This Agreement may be executed in
any number of counterparts, each of which shall be deemed to be
an original; but such counterparts shall, together, constitute
only one instrument.
(e) Captions. The captions of this Agreement are
included for convenience of reference only and in no way define
or delimit any of the provisions hereof or otherwise affect their
construction or effect.
(f) Use of Transfer Agent's Name. The Fund shall not
use the name of the Transfer Agent in any Prospectus, Statement
of Additional Information, shareholders' report, sales literature
or other material relating to the Fund in a manner not approved
prior thereto in writing; provided, that the Transfer Agent need
only receive notice of all reasonable uses of its name which
merely refer in accurate terms to its appointment hereunder or
which are required by any government agency or applicable law or
rule. Notwithstanding the foregoing, any reference to the
Transfer Agent shall include a statement to the effect that it is
a wholly owned subsidiary of First Data Corporation.
(g) Use of Fund's Name. The Transfer Agent shall not
use the name of the Fund or material relating to the Fund on any
documents or forms for other than internal use in a manner not
approved prior thereto in writing; provided, that the Fund need
only receive notice of all reasonable uses of its name which
merely refer in accurate terms to the appointment of the Transfer
Agent or which are required by any government agency or
applicable law or rule.
(h) Independent Contractors. The parties agree that
they are independent contractors and not partners or co-
venturers.
(i) Entire Agreement; Severability. This Agreement
and the Schedules attached hereto constitute the entire agreement
of the parties hereto relating to the matters covered hereby and
supersede any previous agreements. If any provision is held to
be illegal, unenforceable or invalid for any reason, the
remaining provisions shall not be affected or impaired thereby.
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed by their duly authorized officers,
as of the day and year first above written.
SMITH BARNEY SHEARSON MANAGED
GOVERNMENTS FUND INC.
By: /s/ Richard Roelofs
Title: President
THE SHAREHOLDER SERVICES GROUP, INC.
By: /s/ Michael McCarthy
Title: Vice President
A-1
Transfer Agent Fee
Schedule A
Class A shares
The Fund shall pay the Transfer Agent an annualized fee of $11.00
per shareholder account that is open during any monthly period.
Such fee shall be billed by the Transfer Agent monthly in arrears
on a prorated basis of 1/12 of the annualized fee for all
accounts that are open during such a month.
The Fund shall pay the Transfer Agent an additional fee of $.125
per closed account per month applicable to those shareholder
accounts which close in a given month and remain closed through
the following month-end billing cycle. Such fee shall be billed
by the Transfer Agent monthly in arrears.
Class B shares
The Fund shall pay the Transfer Agent an annualized fee of $12.50
per shareholder account that is open during any monthly period.
Such fee shall be billed by the Transfer Agent monthly in arrears
on a prorated basis of 1/12 of the annualized fee for all
accounts that are open during such a month.
The Fund shall pay the Transfer Agent an additional fee of $.125
per closed account per month applicable to those shareholder
accounts which close in a given month and remain closed through
the following month-end billing cycle. Such fee shall be billed
by the Transfer Agent monthly in arrears.
Class C shares
The Fund shall pay the Transfer Agent an annualized fee of $8.50
per shareholder account that is open during any monthly period.
Such fee shall be billed by the Transfer Agent monthly in arrears
on a prorated basis of 1/12 of the annualized fee for all
accounts that are open during such a month.
The Fund shall pay the Transfer Agent an additional fee of $.125
per closed account per month applicable to those shareholder
accounts which close in a given month and remain closed through
the following month-end billing cycle. Such fee shall be billed
by the Transfer Agent monthly in arrears.
Class D shares
The Fund shall pay the Transfer Agent an annualized fee of $9.50
per shareholder account that is open during any monthly period.
Such fee shall be billed by the Transfer Agent monthly in arrears
on a prorated basis of 1/12 of the annualized fee for all
accounts that are open during such a month.
The Fund shall pay the Transfer Agent an additional fee of $.125
per closed account per month applicable to those shareholder
accounts which close in a given month and remain closed through
the following month-end billing cycle. Such fee shall be billed
by the Transfer Agent monthly in arrears.
B-1
Schedule B
OUT-OF-POCKET EXPENSES
The Fund shall reimburse the Transfer Agent monthly for
applicable out-of-pocket expenses, including, but not limited to
the following items:
- Microfiche/microfilm production
- Magnetic media tapes and freight
- Printing costs, including certificates, envelopes,
checks and stationery
- Postage (bulk, pre-sort, ZIP+4, barcoding, first
class) direct pass through to the Fund
- Due diligence mailings
- Telephone and telecommunication costs, including all
lease, maintenance and line costs
- Proxy solicitations, mailings and tabulations
- Daily & Distribution advice mailings
- Shipping, Certified and Overnight mail and insurance
- Year-end form production and mailings
- Terminals, communication lines, printers and other
equipment and any expenses incurred in connection with
such terminals and lines
- Duplicating services
- Courier services
- Incoming and outgoing wire charges
- Federal Reserve charges for check clearance
- Record retention, retrieval and destruction costs,
including, but not limited to exit fees charged
by third party record keeping vendors
- Third party audit reviews
- Insurance
- Such other miscellaneous expenses reasonably incurred
by the Transfer Agent in performing its
duties and responsibilities under this Agreement.
The Fund agrees that postage and mailing expenses will be
paid on the day of or prior to mailing as agreed with the
Transfer Agent. In addition, the Fund will promptly reimburse
the Transfer Agent for any other unscheduled expenses incurred by
the Transfer Agent whenever the Fund and the Transfer Agent
mutually agree that such expenses are not otherwise properly
borne by the Transfer Agent as part of its duties and obligations
under the Agreement.
C-1
Schedule C
DUTIES OF THE TRANSFER AGENT
1. Shareholder Information. The Transfer Agent or its
agent shall maintain a record of the number of Shares held by
each holder of record which shall include name, address, taxpayer
identification and which shall indicate whether such Shares are
held in certificates or uncertificated form.
2. Shareholder Services. The Transfer Agent or its
agent will investigate all inquiries from shareholders of the
Fund relating to Shareholder accounts and will respond to all
communications from Shareholders and others relating to its
duties hereunder and such other correspondence as may from time
to time be mutually agreed upon between the Transfer Agent and
the Fund. The Transfer Agent shall provide the Fund with reports
concerning shareholder inquires and the responses thereto by the
Transfer Agent, in such form and at such times as are agreed to
by the Fund and the Transfer Agent.
3. Share Certificates.
(a) At the expense of the Fund, it shall supply the
Transfer Agent or its agent with an adequate supply of blank
share certificates to meet the Transfer Agent or its agent's
requirements therefor. Such Share certificates shall be properly
signed by facsimile. The Fund agrees that, notwithstanding the
death, resignation, or removal of any officer of the Fund whose
signature appears on such certificates, the Transfer Agent or its
agent may continue to countersign certificates which bear such
signatures until otherwise directed by Written Instructions.
(b) The Transfer Agent or its agent shall issue
replacement Share certificates in lieu of certificates which have
been lost, stolen or destroyed, upon receipt by the Transfer
Agent or its agent of properly executed affidavits and lost
certificate bonds, in form satisfactory to the Transfer Agent or
its agent, with the Fund and the Transfer Agent or its agent as
obligees under the bond.
(c) The Transfer Agent or its agent shall also
maintain a record of each certificate issued, the number of
Shares represented thereby and the holder of record. With
respect to Shares held in open accounts or uncertificated form,
i.e., no certificate being issued with respect thereto, the
Transfer Agent or its agent shall maintain comparable records of
the record holders thereof, including their names, addresses and
taxpayer identification. The Transfer Agent or its agent shall
further maintain a stop transfer record on lost and/or replaced
certificates.
C-2
4. Mailing Communications to Shareholders; Proxy Materials.
The Transfer Agent or its agent will address and mail to
Shareholders of the Fund, all reports to Shareholders, dividend
and distribution notices and proxy material for the Fund's
meetings of Shareholders. In connection with meetings of
Shareholders, the Transfer Agent or its Agent will prepare
Shareholder lists, mail and certify as to the mailing of proxy
materials, process and tabulate returned proxy cards, report on
proxies voted prior to meetings, act as inspector of election at
meetings and certify Shares voted at meetings.
5. Sales of Shares
(a) Suspension of Sale of Shares. The Transfer Agent
or its agent shall not be required to issue any Shares of the
Fund where it has received a Written Instruction from the Fund or
official notice from any appropriate authority that the sale of
the Shares of the Fund has been suspended or discontinued. The
existence of such Written Instructions or such official notice
shall be conclusive evidence of the right of the Transfer Agent
or its agent to rely on such Written Instructions or official
notice.
(b) Returned Checks. In the event that any check or
other order for the payment of money is returned unpaid for any
reason, the Transfer Agent or its agent will: (i) give prompt
notice of such return to the Fund or its designee; (ii) place a
stop transfer order against all Shares issued as a result of such
check or order; and (iii) take such actions as the Transfer Agent
may from time to time deem appropriate.
6. Transfer and Repurchase
(a) Requirements for Transfer or Repurchase of Shares.
The Transfer Agent or its agent shall process all requests to
transfer or redeem Shares in accordance with the transfer or
repurchase procedures set forth in the Fund's Prospectus.
The Transfer Agent or its agent will transfer or
repurchase Shares upon receipt of Oral or Written Instructions or
otherwise pursuant to the Prospectus and Share certificates, if
any, properly endorsed for transfer or redemption, accompanied by
such documents as the Transfer Agent or its agent reasonably may
deem necessary.
The Transfer Agent or its agent reserves the right to
refuse to transfer or repurchase Shares until it is satisfied
that the endorsement on the instructions is valid and genuine.
The Transfer Agent or its agent also reserves the right to refuse
to transfer or repurchase Shares until it is satisfied that the
requested transfer or repurchase is legally authorized, and it
shall incur no liability for the refusal, in good faith, to make
transfers or repurchases which the Transfer Agent or its agent,
in its good judgment, deems improper or unauthorized, or until it
is reasonably satisfied that there is no basis to any claims
adverse to such transfer or repurchase.
C-3
(b) Notice to Custodian and Fund. When Shares are
redeemed, the Transfer Agent or its agent shall, upon receipt of
the instructions and documents in proper form, deliver to the
Custodian and the Fund or its designee a notification setting
forth the number of Shares to be repurchased. Such repurchased
shares shall be reflected on appropriate accounts maintained by
the Transfer Agent or its agent reflecting outstanding Shares of
the Fund and Shares attributed to individual accounts.
(c) Payment of Repurchase Proceeds. The Transfer
Agent or its agent shall, upon receipt of the moneys paid to it
by the Custodian for the repurchase of Shares, pay such moneys as
are received from the Custodian, all in accordance with the
procedures described in the written instruction received by the
Transfer Agent or its agent from the Fund.
The Transfer Agent or its agent shall not process or
effect any repurchase with respect to Shares of the Fund after
receipt by the Transfer Agent or its agent of notification of the
suspension of the determination of the net asset value of the
Fund.
7. Dividends
(a) Notice to Agent and Custodian. Upon the
declaration of each dividend and each capital gains distribution
by the Board of Directors of the Fund with respect to Shares of
the Fund, the Fund shall furnish or cause to be furnished to the
Transfer Agent or its agent a copy of a resolution of the Fund's
Board of Directors certified by the Secretary of the Fund setting
forth the date of the declaration of such dividend or
distribution, the ex-dividend date, the date of payment thereof,
the record date as of which shareholders entitled to payment
shall be determined, the amount payable per Share to the
shareholders of record as of that date, the total amount payable
to the Transfer Agent or its agent on the payment date and
whether such dividend or distribution is to be paid in Shares of
such class at net asset value.
On or before the payment date specified in such
resolution of the Board of Directors, the Custodian of the Fund
will pay to the Transfer Agent sufficient cash to make payment to
the shareholders of record as of such payment date.
(b) Insufficient Funds for Payments. If the Transfer
Agent or its agent does not receive sufficient cash from the
Custodian to make total dividend and/or distribution payments to
all shareholders of the Fund as of the record date, the Transfer
Agent or its agent will, upon notifying the Fund, withhold
payment to all Shareholders of record as of the record date until
sufficient cash is provided to the Transfer Agent or its agent.
C-4
Exhibit 1 to Schedule C
Summary of Services
The services to be performed by the Transfer Agent or its
agent shall be as follows:
A. DAILY RECORDS
Maintain daily the following information with respect
to each Shareholder account as received:
o Name and Address (Zip Code)
o Class of Shares
o Taxpayer Identification Number
o Balance of Shares held by Agent
o Beneficial owner code: i.e., male, female, joint
tenant, etc.
o Dividend code (reinvestment)
o Number of Shares held in certificate form
B. OTHER DAILY ACTIVITY
o Answer written inquiries relating to Shareholder
accounts (matters relating to portfolio
management, distribution of Shares and other management policy
questions will be referred to the Fund).
o Process additional payments into established
Shareholder accounts in accordance with
Written Instruction from the Agent.
o Upon receipt of proper instructions and all
required documentation, process requests for
repurchase of Shares.
o Identify redemption requests made with respect to
accounts in which Shares have been purchased
within an agreed-upon period of time for determining whether
good funds have been collected with respect to such purchase and
process as agreed by the Agent in accordance
with written instructions set forth by the Fund.
o Examine and process all transfers of Shares,
ensuring that all transfer requirements
and legal documents have been supplied.
C-5
o Issue and mail replacement checks.
o Open new accounts and maintain records of
exchanges between accounts
C. DIVIDEND ACTIVITY
o Calculate and process Share dividends and
distributions as instructed by the Fund.
o Compute, prepare and mail all necessary reports to
Shareholders or various authorities as requested
by the Fund. Report to the Fund reinvestment plan share
purchases and determination of the reinvestment price.
D. MEETINGS OF SHAREHOLDERS
o Cause to be mailed proxy and related material for
all meetings of Shareholders. Tabulate
returned proxies (proxies must be adaptable to mechanical
equipment of the Agent or its agents) and supply
daily reports when sufficient proxies have been
received.
o Prepare and submit to the Fund an Affidavit of
Mailing.
o At the time of the meeting, furnish a certified
list of Shareholders, hard copy, microfilm or
microfiche and, if requested by the Fund, Inspection of Election.
E. PERIODIC ACTIVITIES
o Cause to be mailed reports, Prospectuses, and any other
enclosures requested by the Fund (material must be adaptable to
mechanical equipment of Agent or its agents).
o Receive all notices issued by the Fund with respect to
the Preferred Shares in accordance with and
pursuant to the Articles of Incorporation and the Indenture and
perform such other specific duties as are set forth
in the Articles of Incorporation including a giving of
notice of a special meeting and notice of redemption in the
circumstances and otherwise in accordance with all
relevant provisions of the Articles of Incorporation.
-17-
Independent Auditors' Consent
To the Shareholders and Directors of the
Smith Barney Managed Governments Fund Inc.:
We consent to the use of our report dated September 22, 1995
with respect to the Smith Barney Managed Governments Fund Inc.,
incorporated herein by reference, and to the references to our
Firm under the headings "Financial Highlights" in the
Prospectus and "Counsel and Auditors" in the Statement of
Additional Information.
KPMG PEAT MARWICK LLP
New York, New York
November 28, 1995
4
Rule 18f-3 (d) Multiple Class Plan
for Smith Barney Mutual Funds
Introduction
This plan (the "Plan") is adopted pursuant to Rule 18f-3 (d)
of the Investment Company Act of 1940, as amended (the "1940
Act"). The purpose of the Plan is to restate the existing
arrangements previously approved by the Boards of Directors and
Trustees of certain of the open-end investment companies set
forth on Schedule A (the "Funds" and each a "Fund") distributed
by Smith Barney Inc. ("Smith Barney") under the Funds' existing
order of exemption (Investment Company Act Release Nos. 20042
(January 28, 1994) (notice) and 20090 (February 23, 1994)).
Shares of the Funds are distributed pursuant to a system (the
"Multiple Class System") in which each class of shares (a
"Class") of a Fund represents a pro rata interest in the same
portfolio of investments of the Fund and differs only to the
extent outlined below.
I. Distribution Arrangements and Service Fees
One or more Classes of shares of the Funds are offered
for purchase by investors with the following sales load
structure. In addition, pursuant to Rule 12b-1 under the 1940
Act (the "Rule"), the Funds have each adopted a plan (the
"Services and Distribution Plan") under which shares of the
Classes are subject to the services and distribution fees
described below.
1. Class A Shares
Class A shares are offered with a front-end sales load
and under the Services and Distribution Plan are subject to a
service fee of up to 0.25% of average daily net assets. In
addition, the Funds are permitted to asses a contingent deferred
sales charge ("CDSC") on certain redemptions of Class A shares
sold pursuant to a complete waiver of front-end sales loads
applicable to large purchases, if the shares are redeemed within
one year of the date of purchase. This waiver applies to sales
of Class A shares where the amount of purchase is equal to or
exceeds $500,000 although this amount may be changed in the
future.
2. Class B Shares
Class B shares are offered without a front-end sales
load, but are subject to a five-year declining CDSC and under the
Services and Distribution Plan are subject to a service fee at an
annual rate of up to 0.25% of average daily net assets and a
distribution fee at an annual rate of up to 0.75% of average
daily net assets.
3. Class C Shares
Class C shares are offered without a front-end load,
but are subject to a one-year CDSC and under the Services and
Distribution Plan are subject to a service fee at an annual rate
of up to 0.25% of average daily net assets and a distribution fee
at an annual rate of up to 0.75% of average daily net assets.
Unlike Class B shares, Class C shares do not have the conversion
feature as discussed below and accordingly, these shares are
subject to a distribution fee for an indefinite period of time.
The Funds reserve the right to impose these fees at such higher
rates as may be determined.
4. Class Y Shares
Class Y shares are offered without impositions of
either a sales charge or a service or distribution fee for
investments where the amount of purchase is equal to or exceeds
$5 million.
5. Class Z Shares
Class Z shares are offered without imposition of either
a sales charge or a service or distribution fee for purchase (i)
by employee benefit and retirement plans of Smith Barney and its
affiliates, (ii) by certain unit investment trusts sponsored by
Smith Barney and its affiliates, and (iii) although not currently
authorized by the governing boards of the Funds, when and if
authorized, (x) by employees of Smith Barney and its affiliates
and (y) by directors, general partners or trustees of any
investment company for which Smith Barney serves as a distributor
and, for each of (x) and (y), their spouses and minor children.
6. Additional Classes of Shares
The Boards of Directors and Trustees of the Funds have
the authority to create additional classes, or change existing
Classes, from time to time, in accordance with Rule 18f-3 of the
1940 Act.
II. Expense Allocations
Under the Multiple Class System, all expenses incurred
by a Fund are allocated among the various Classes of shares based
on the net assets of the Fund attributable to each Class, except
that each Class's net assets value and expenses reflect the
expenses associated with that Class under the Fund's Services and
Distribution Plan, including any costs associated with obtaining
shareholder approval of the Services and Distribution Plan (or an
amendment thereto) and any expenses specific to that Class. Such
expenses are limited to the following:
(i) transfer agency fees as identified by the transfer
agent as being attributable to a specific Class;
(ii) printing and postage expenses related to preparing and
distributing materials such as shareholder reports,
prospectuses and proxies to current shareholders;
(iii) Blue Sky registration fees incurred by a Class of
shares;
(iv) Securities and Exchange Commission registration fees
incurred by a Class of shares;
(v) the expense of administrative personnel and services as
required to support the shareholders of a specific Class;
(vi) litigation or other legal expenses relating solely to
one Class of shares; and
(vii) fees of members of the governing boards of the
funds incurred as a result of issues relating to one Class
of shares.
Pursuant to the Multiple Class System, expenses of a
Fund allocated to a particular Class of shares of that Fund are
borne on a pro rata basis by each outstanding share of that
Class.
III. Conversion Rights of Class B Shares
All Class B shares of each Fund will automatically
convert to Class A shares after a certain holding period,
expected to be, in most cases, approximately eight years but may
be shorter. Upon the expiration of the holding period, Class B
shares (except those purchases through the reinvestment of
dividends and other distributions paid in respect of Class B
shares) will automatically convert to Class A shares of the Fund
at the relative net asset value of each of the Classes, and will,
as a result, thereafter be subject to the lower fee under the
Services and Distribution Plan. For purposes of calculating the
holding period required for conversion, newly created Class B
shares issued after the date of implementation of the Multiple
Class System are deemed to have been issued on (i) the date on
which the issuance of the Class B shares occurred or (ii) for
Class B shares obtained through an exchange, or a series of
exchanges, the date on which the issuance of the original Class B
shares occurred.
Shares purchased through the reinvestment of dividends
and other distributions paid in respect of Class B shares are
also Class B shares. However, for purposes of conversion to
Class A, all Class B shares in a shareholder's Fund account that
were purchased through the reinvestment of dividends and other
distributions paid in respect of Class B shares (and that have
not converted to Class A shares as provided in the following
sentence) are considered to be held in a separate sub-account.
Each time any Class B shares in the shareholder's Fund account
(other than those in the sub-account referred to in the preceding
sentence) convert to Class A, a pro rata portion of the Class B
shares then in the sub-account also converts to Class A. The
portion is determined by the ratio that the shareholder's Class B
shares converting to Class A bears to the shareholder's total
Class B shares not acquired through dividends and distributions.
The conversion of Class B shares to Class A shares is
subject to the continuing availability of a ruling of the
Internal Revenue Service that payment of different dividends on
Class A and Class B shares does not result in the Fund's
dividends or distributions constituting "preferential dividends"
under the Internal Revenue Code of 1986, as amended (the "Code"),
and the continuing availability of an opinion of counsel to the
effect that the conversion of shares does not constitute a
taxable event under the Code. The conversion of Class B shares
to Class A shares may be suspended if this opinion is no longer
available, In the event that conversion of Class B shares of not
occur, Class B shares would continue to be subject to the
distribution fee and any incrementally higher transfer agency
costs attending the Class B shares for an indefinite period.
IV. Exchange Privileges
Shareholders of a Fund may exchange their shares at net
asset value for shares of the same Class in certain other of the
Smith Barney Mutual Funds as set forth in the prospectus for such
Fund. Class A shareholders who wish to exchange all or part of
their shares for Class A shares of a Fund sold subject to a sales
charge equal to or lower that that assessed with respect to the
shares of the Fund being exchanged may do so without paying a
sales charge. Class A shareholders of a Fund who wish to
exchange all or part of their shares for Class A shares of a Fund
sold subject to a sales charge higher than that assessed with
respect to the shares of the Fund being exchanged are charged the
appropriate "sales charge differential." Funds only permit
exchanges into shares of money market funds having a plan under
the Rule if, as permitted by paragraph (b) (5) of Rule 11a-3
under the 1940 Act, either (i) the time period during which the
shares of the money market funds are held is included in the
calculations of the CDSC or (ii) the time period is not included
but the amount of the CDSC is reduced by the amount of any
payments made under a plan adopted pursuant to the Rule by the
money market funds with respects to those shares. Currently, the
Funds include the time period during which shares of the money
market fund are held in the CDSC period. The exchange privileges
applicable to all Classes of shares must comply with Rule 11a-3
under the 1940 Act.
Smith Barney Sponsored Investment Companies
Operating under Rule 18f-3 - Schedule A
(as of August 22, 1995)
Smith Barney Adjustable Rate Government Income Fund
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund
Smith Barney Equity Funds -
Smith Barney Strategic Investors Fund
Smith Barney Growth and Income Fund
Smith Barney Florida Municipals Fund
Smith Barney Fundamental Value Fund Inc.
Smith Barney Funds, Inc. -
Income and Growth Portfolio
Utilities Portfolio
Income Return Account Portfolio
Monthly Payment Government Portfolio
Short-Term U.S. Treasury Securities Portfolio
U.S. Government Securities Portfolio
Smith Barney Income Funds -
Smith Barney Premium Total Return Fund
Smith Barney Convertible Fund
Smith Barney Diversified Strategic Income Fund
Smith Barney High Income Fund
Smith Barney Tax-Exempt Income Fund
Smith Barney Exchange Reserve Fund
Smith Barney Utilities Fund
Smith Barney Income Trust -
Smith Barney Limited Maturity Municipals Fund
Smith Barney Limited Maturity Treasury Fund
Smith Barney Intermediate Maturity California Municipals
Fund
Smith Barney Intermediate Maturity New York Municipals Fund
Smith Barney Investment Funds Inc. -
Smith Barney Special Equities Fund
Smith Barney Government Securities Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Growth Opportunity Fund
Smith Barney Managed Growth Fund
Smith Barney Institutional Cash Management Fund Inc.
Smith Barney Managed Governments Fund Inc.
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
Smith Barney Investment Companies
Schedule A - Page Two
Smith Barney Money Funds, Inc. -
Cash Portfolio
Government Portfolio
Retirement Portfolio
Smith Barney Municipal Money Market Fund, Inc.
Smith Barney Muni Funds -
California Portfolio
California Limited Portfolio
California Money Market Portfolio
Florida Portfolio
Florida Limited Portfolio
Georgia Portfolio
Limited Term Portfolio
National Portfolio
New Jersey Portfolio
New York Portfolio
New York Money Market Portfolio
Ohio Portfolio
Pennsylvania Portfolio
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney New York Municipals Fund Inc.
Smith Barney Oregon Municipals Fund
Smith Barney Precious Metals and Minerals Fund Inc.
Smith Barney Telecommunications Trust -
Smith Barney Telecommunications Growth Fund
Smith Barney Telecommunications Income Fund
Smith Barney World Funds, Inc. -
International Equity Portfolio
International Balanced Portfolio
European Portfolio
Pacific Portfolio
Global Government Bond Portfolio
u:\legal\data\18f3plan.txt 08/25/95 2:58 PM
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK>
<NAME> SMITH BARNEY MANAGED GOVERNMENTS
FUND
<SERIES>
<NUMBER> 011
<NAME> CLASS A
<MULTIPLIER> 1
<S> <C>
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<FISCAL-YEAR-END> JULY 31, 1995
<PERIOD-START> AUGUST 1, 1994
<PERIOD-END> JULY 31, 1995
<INVESTMENTS-AT COST> 682,197,050
<INVESTMENTS-AT VALUE> 707,345,986
<RECEIVABLES> 127,485,700
<ASSETS-OTHER> 70,901
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 834,902,587
<PAYABLE-FOR-SECURITIES> 127,081,315
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 46,107,350
<TOTAL-LIABILITIES> 173,188,665
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 823,406,069
<SHARES-COMMON-STOCK> 41,849,499
<SHARES-COMMON-PRIOR> 29,693,662
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (186,841,083)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 25,148,936
<NET-ASSETS> 661,713,922
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 52,805,932
<OTHER-INCOME> 0
<EXPENSES-NET> (8,282,709)
<NET-INVESTMENT-INCOME> 44,523,223
<REALIZED-GAINS-CURRENT> (42,642,832)
<APPREC-INCREASE-CURRENT> 45,545,505
<NET-CHANGE-FROM-OPS> 47,425,896
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (40,491,996)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (1,998,735)
<NUMBER-OF-SHARES-SOLD> 19,786,976
<NUMBER-OF-SHARES-REDEEMED> (9,428,140)
<SHARES-REINVESTED> 1,797,001
<NET-CHANGE-IN-ASSETS> (98,826,724)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (4,031,227)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (3,107,867)
<INTEREST-EXPENSE> (935,457)
<GROSS-EXPENSE> (8,282,709)
<AVERAGE-NET-ASSETS> 449,809,500
<PER-SHARE-NAV-BEGIN> 12.50
<PER-SHARE-NII> 0.81
<PER-SHARE-GAIN-APPREC> 0.10
<PER-SHARE-DIVIDEND> (0.74)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> (0.04)
<PER-SHARE-NAV-END> 12.63
<EXPENSE-RATIO> 1.07
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<ARTICLE> 6
<CIK>
<NAME> SMITH BARNEY MANAGED GOVERNMENTS
FUND
<SERIES>
[NUMBER] 012
<NAME> CLASS B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> ANNUAL
<FISCAL-YEAR-END> JULY 31, 1995
<PERIOD-START> AUGUST 1, 1994
<PERIOD-END> JULY 31, 1995
<INVESTMENTS-AT COST> 682,197,050
<INVESTMENTS-AT VALUE> 707,345,986
[RECEIVABLES] 127,485,700
[ASSETS-OTHER] 70,901
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 834,902,587
[PAYABLE-FOR-SECURITIES] 127,081,315
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 46,107,350
[TOTAL-LIABILITIES] 173,188,665
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 823,406,069
[SHARES-COMMON-STOCK] 10,521,407
[SHARES-COMMON-PRIOR] 31,157,829
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (186,841,083)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 25,148,936
[NET-ASSETS] 661,713,922
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 52,805,932
[OTHER-INCOME] 0
[EXPENSES-NET] (8,282,709)
[NET-INVESTMENT-INCOME] 44,523,223
[REALIZED-GAINS-CURRENT] (42,642,832)
[APPREC-INCREASE-CURRENT] 45,545,505
[NET-CHANGE-FROM-OPS] 47,425,896
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (40,491,996)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] (1,998,735)
[NUMBER-OF-SHARES-SOLD] 1,422,270
[NUMBER-OF-SHARES-REDEEMED] (22,538,562)
[SHARES-REINVESTED] 479,870
[NET-CHANGE-IN-ASSETS] (98,826,724)
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] (4,031,227)
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] (3,107,867)
[INTEREST-EXPENSE] (935,457)
[GROSS-EXPENSE] (8,282,709)
[AVERAGE-NET-ASSETS] 261,132,500
[PER-SHARE-NAV-BEGIN] 12.50
[PER-SHARE-NII] 0.75
[PER-SHARE-GAIN-APPREC] 0.09
[PER-SHARE-DIVIDEND] (0.67)
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] (0.04)
[PER-SHARE-NAV-END] 12.63
[EXPENSE-RATIO] 1.57
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<ARTICLE> 6
<CIK>
<NAME> SMITH BARNEY MANAGED GOVERNMENTS
FUND
<SERIES>
[NUMBER] 013
<NAME> CLASS C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> ANNUAL
<FISCAL-YEAR-END> JULY 31, 1995
<PERIOD-START> AUGUST 1, 1994
<PERIOD-END> JULY 31, 1995
<INVESTMENTS-AT COST> 682,197,050
<INVESTMENTS-AT VALUE> 707,345,986
[RECEIVABLES] 127,485,700
[ASSETS-OTHER] 70,901
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 834,902,587
[PAYABLE-FOR-SECURITIES] 127,081,315
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 46,107,350
[TOTAL-LIABILITIES] 173,188,665
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 823,406,069
[SHARES-COMMON-STOCK] 23,673
[SHARES-COMMON-PRIOR] 5,788
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (186,841,083)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 25,148,936
[NET-ASSETS] 661,713,922
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 52,805,932
[OTHER-INCOME] 0
[EXPENSES-NET] (8,282,709)
[NET-INVESTMENT-INCOME] 44,523,223
[REALIZED-GAINS-CURRENT] (42,642,832)
[APPREC-INCREASE-CURRENT] 45,545,505
[NET-CHANGE-FROM-OPS] 47,425,896
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (40,491,996)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] (1,998,735)
[NUMBER-OF-SHARES-SOLD] 23,676
[NUMBER-OF-SHARES-REDEEMED] (6,360)
[SHARES-REINVESTED] 569
[NET-CHANGE-IN-ASSETS] (98,826,724)
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] (4,031,227)
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] (3,107,867)
[INTEREST-EXPENSE] (935,457)
[GROSS-EXPENSE] (8,282,709)
[AVERAGE-NET-ASSETS] 185,500
[PER-SHARE-NAV-BEGIN] 12.50
[PER-SHARE-NII] 0.76
[PER-SHARE-GAIN-APPREC] 0.08
[PER-SHARE-DIVIDEND] (0.67)
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] (0.04)
[PER-SHARE-NAV-END] 12.63
[EXPENSE-RATIO] 1.52
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
