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
[ ] Pre-Effective Amendment No.
[ X ] Post-Effective Amendment No. 26
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940, as amended
[ X ] Amendment No. 25 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) 816-6474
(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:
Continuous
It is proposed that this filing become effective (check
appropriate box):
[ ] Immediately upon filing pursuant to paragraph (b)
[ ] on _________ pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a) (1)
[ X ] on November 29, 1999 pursuant to paragraph (a) (1)
[ ] 75 days after filing pursuant to paragraph (a) (2)
[ ] on (date) pursuant to paragraph (a) (2) of Rule 485
If appropriate, check the following box:
[ ] This post-effective amendment designates a new
effective date for a previously filed post-effective
amendment
SMITH BARNEY MANAGED GOVERNMENTS FUND INC.
PART A-Prospectus
<PAGE>
[LOGO] Smith Barney
Mutual Funds
PROSPECTUS
Managed
Governments
Fund
Class A, B, L and Y Shares
- --------------------------------------------------------------------------------
November 29, 1999
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
Managed Governments Fund
Contents
<TABLE>
<S> <C>
Investments, risks and performance.......................................... 2
More on the fund's investments.............................................. 7
Management.................................................................. 8
Choosing a class of shares to buy........................................... 9
Comparing the fund's classes................................................ 10
Sales charges............................................................... 11
More about deferred sales charges........................................... 13
Buying shares............................................................... 14
Exchanging shares........................................................... 15
Redeeming shares............................................................ 17
Other things to know about
share transactions........................................................ 19
Smith Barney 401(k) and
ExecChoice(TM) programs................................................... 21
Dividends, distributions and taxes.......................................... 22
Share price................................................................. 23
Financial highlights........................................................ 24
</TABLE>
You should know: An investment in the fund is not a bank deposit and is not
insured or guaranteed by the FDIC or any other government agency.
Smith Barney Mutual Funds
1
<PAGE>
Investments, risks and performance
Investment objective
The fund seeks high current income consistent with liquidity and safety of cap-
ital.
Principal Investment Strategies
Key investments The fund invests primarily in debt obligations issued or guar-
anteed by the U.S. government, its agencies or instrumentalities. The fund's
portfolio 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 Corpo-
ration (FHLMC). Mortgage-backed securities represent the right to receive pay-
ments of principal and/or interest on a pool of mortgages. Some government
securities, such as GNMA certificates, are backed by the full faith and credit
of the U.S. Treasury; some, such as federal home Loan Bank obligations, are
supported by the right of the issuer to borrow from the U.S. government; and
some, such as FNMA and FHLMC certificates, are backed only by the credit of the
issuer itself.
Selection process The manager focuses on identifying undervalued sectors and
securities. Specifically, the manager:
.Determines sector and maturity weightings based on intermediate and long-term
assessments of the economic environment and relative value factors based on
interest rate outlook
.Measures the potential impact of supply/demand imbalances, yield curve shifts
and changing prepayment patterns to identify individual securities that bal-
ance potential return and risk
.Monitors the spreads between U.S. Treasury and government agency or instrumen-
tality issuers and purchases agency and instrumentality issues that it
believes will provide a yield advantage
.Uses research to uncover inefficient sectors of the government securities and
mortgage markets and adjusts portfolio positions to take advantage of new
information
Managed Governments Fund
2
<PAGE>
Principal risks of investing in the fund
Investors could lose money on their investment in the fund, or the fund may not
perform as well as other investments, if:
.Interest rates increase, causing the prices of fixed income securities to
decline which would reduce the value of the fund's portfolio
.Prepayment or call risk: As interest rates decline, the issuers of mortgage-
related or callable securities held by the fund may pay principal earlier
than scheduled or exercise a right to call the securities, forcing the fund
to reinvest in lower yielding securities
.Extension risk: As interest rates increase, slower than expected principal
payments may extend the average life of fixed income securities, locking in
below-market interest rates and reducing the value of these securities
.The manager's judgment about interest rates or the attractiveness, value or
income potential of a particular security proves incorrect
Although mortgage pools issued by certain U.S. agencies are guaranteed with
respect to payments of principal and interest, this guarantee does not apply to
losses resulting from declines in the market value of such securities.
Who may want to invest The fund may be an appropriate investment if you:
.Are seeking income consistent with preservation of capital
.Are willing to accept the interest rate risks and market risks of investing in
government bonds and mortgage-backed securities
.Prefer to invest in U.S. government securities rather than higher yielding but
more volatile corporate securities
Smith Barney Mutual Funds
3
<PAGE>
Risk return bar chart
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. Past performance does not neces-
sarily indicate how the fund will perform in the future.
This bar chart shows the performance of the fund's Class A shares for each full
calendar year since the fund's inception. Class B, L and Y shares would have
different performance because of their different expenses. The performance
information in the chart does not reflect sales charges, which would reduce
your return.
Total Return for Class A Shares
[BAR GRAPH]
9.01% 9.02% 15.25% 10.43% 0.08% 7.67% 3.76% 11.8%
- ----- ----- ------ ------ ----- ----- ----- ----- -----
90 91 92 93 94 95 96 97 98
Calendar years ended December 31
Quarterly returns:
Highest: xx% in quarter 199X; Lowest: xx% in quarter 199X. Year to date:
xx% through 9/30/99
Managed Governments Fund
4
<PAGE>
Risk return table
This table indicates the risks of investing in the fund by comparing the aver-
age annual total return of each class for the periods shown with that of the
Lehman Brothers Government Bond Index, an unmanaged broad-based index of all
public debt obligations of the U.S. government and its agencies and the Lipper
Mortgage Securities Average (the "Lipper Average"), an average composed of the
fund's peer group of mutual funds investing in U.S. mortgage-backed securities.
This table assumes imposition of the maximum sales charge applicable to the
class, redemption of shares at the end of the period, and reinvestment of dis-
tributions and dividends.
Average Annual Total Returns
Calendar Years Ended December 31, 1998
<TABLE>
<CAPTION>
Class 1 year 5 years 10 years Since Inception Inception Date
<S> <C> <C> <C> <C> <C>
A n/a / /
B n/a 07/31/93
L n/a 06/29/93
Y n/a n/a 02/07/96
Lehman Government
Bond Index * n/a
Lipper Average
</TABLE>
* Index comparison begins on .
Smith Barney Mutual Funds
5
<PAGE>
Fee Table
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
Shareholder fees
<TABLE>
<CAPTION>
(fees paid directly from your investment) Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Maximum sales charge (load) imposed on
purchases
(as a % of offering price) 4.50% None 1.00% None
Maximum deferred sales charge (load) (as a %
of the lower of net asset value at purchase or
redemption) None* 4.50% 1.00% None
</TABLE>
Annual fund operating expenses
<TABLE>
<CAPTION>
(expenses deducted from fund assets) Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Management fee 0.65% 0.65% 0.65% 0.65%
Distribution and service (12b-1) fees 0.25% 0.75% 0.70% None
Other expenses -- -- -- --
----- ----- ----- -----
Total annual fund operating expenses* -- -- -- --
</TABLE>
*You may buy Class A shares in amounts of $500,000 or more at net asset value
(without an initial sales charge) but if you redeem those shares within 12
months of their purchase, you will pay a deferred sales charge of 1.00%.
Example
This example helps you compare the costs of investing in the fund with the
costs of investing in other mutual funds. Your actual costs may be higher or
lower. The example assumes:
.You invest $10,000 in the fund for the period shown
.You redeem all of your shares at the end of the period
.Your investment has a 5% return each year
.You reinvest all distributions and dividends without a sales charge
.The fund's operating expenses remain the same
Number of years you own your shares
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Class A (with or without redemption) $ $ $ $
Class B (redemption at end of period) $ $ $ $
Class B (no redemption) $ $ $ $
Class L (redemption at end of period) $ $ $ $
Class L (no redemption) $ $ $ $
Class Y (with or without redemption) $ $ $ $
</TABLE>
Managed Governments Fund
6
<PAGE>
More on the fund's investments
Derivative contracts The fund may, but need not, use derivative contracts, such
as options on U.S. government securities, interest rate futures and options on
interest rate futures, for any of the following purposes:
.To hedge against the economic impact of adverse changes in the market value of
portfolio securities due to changes in interest rates
.As a substitute for buying or selling securities
A futures contract will obligate or entitle the fund to deliver or receive an
asset or cash payment based on the change in value of one or more securities.
Even a small investment in derivative contracts can have a big impact on a
fund's exposure to interest rates or exposure to changes in the value of indi-
vidual securities. Therefore, using derivatives can disproportionately increase
losses and reduce opportunities for gains when interest rates or the markets
for individual securities are changing. The fund may not fully benefit from or
may lose money on derivatives if changes in their value do not correspond accu-
rately to changes in the value of the fund's holdings. The other parties to
certain derivative contracts present the same types of default risk as issuers
of fixed income securities. Derivatives can also make a fund less liquid and
harder to value, especially in declining markets.
Mortgage Dollar Rolls The fund may invest up to 30% of its assets in mortgage
dollar roll transactions, where the fund sells a mortgage related security and
simultaneously agrees to repurchase, at a future date, another mortgage related
security with the same interest rate and maturity date, but generally backed by
a different pool of mortgages. The benefits from these transactions depend on
the manager's ability to forecast mortgage prepayment patterns on different
mortgage pools. The fund may lose money if the securities to be repurchased
decline in value before the date of repurchase.
Risk of high portfolio turnover The fund may engage in active and frequent
trading, resulting in high portfolio turnover. This may lead to the realization
and distribution to shareholders of higher capital gains, increasing their tax
liability. Frequent trading also increases transaction costs, which could
detract from the fund's performance.
Defensive investing The fund may depart from its principal investment strate-
gies in response to adverse market, economic or political conditions by taking
temporary defensive positions in all types of money market and short-term debt
securities. If the fund takes a temporary defensive position, it may be unable
to achieve its investment goal.
Smith Barney Mutual Funds
7
<PAGE>
Management
Manager The fund's investment adviser and administrator is SSB Citi Fund Man-
agement LLC ("SSB Citi"), an affiliate of Salomon Smith Barney Inc. The manag-
er's address is 388 Greenwich Street, New York, New York 10013. The manager
selects the fund's investments and oversees its operations. The manager and
Salomon Smith Barney are subsidiaries of Citigroup Inc. Citigroup businesses
produce a broad range of financial services--asset management, banking and con-
sumer finance, credit and charge cards, insurance, investments, investment
banking and trading--and use diverse channels to make them available to con-
sumer and corporate customers around the world.
James E. Conroy, investment officer of the manager and managing director of
Salomon Smith Barney, has been responsible for the day to day management of the
fund since 1990. Mr. Conroy has over 21 years of securities business experi-
ence.
Management fees For its services, the manager received a fee during the fund's
last fiscal year equal to 0.45% of the fund's average daily net assets. In
addition, the manager received a fee for its administrative services to the
fund equal to 0.20% of the fund's average daily net assets.
Distributor The fund has entered into an agreement with CFBDS, Inc. to distrib-
ute the fund's shares. A selling group consisting of Salomon Smith Barney and
other broker-dealers sells fund shares to the public.
Distribution plans The fund has adopted Rule 12b-1 distribution plans for its
Class A, B and L shares. Under each plan, the fund pays distribution and serv-
ice fees. These fees are an ongoing expense and, over time, may cost you more
than other types of sales charges.
Year 2000 issue Information technology experts are concerned about computer
systems' ability to process date-related information on and after January 1,
2000. This situation, commonly known as the "Year 2000" issue, could have an
adverse impact on the fund. The cost of addressing the Year 2000 issue, if sub-
stantial, could adversely affect companies and governments that issue securi-
ties held by the fund. The manager and Salomon Smith Barney are addressing the
Year 2000 issue for their systems. The fund has been informed by other service
providers that they are taking similar measures. Although the fund does not
expect the Year 2000 issue to adversely affect it, the fund cannot guarantee
that the efforts of the fund, which are limited to requesting and receiving
reports from its service providers, or the efforts of its service providers to
correct the problem will be successful.
Managed Governments Fund
8
<PAGE>
Choosing a class of shares to buy
You can choose among four classes of shares: Classes A, B, L and Y. Each class
has different sales charges and expenses, allowing you to choose the class that
best meets your needs. Which class is more beneficial to an investor depends on
the amount and intended length of the investment.
.If you plan to invest regularly or in large amounts, buying Class A shares may
help you reduce sales charges and ongoing expenses.
.For Class B shares, all of your purchase amount and, for Class L shares, more
of your purchase amount (compared to Class A shares) will be immediately
invested. This may help offset the higher expenses of Class B and Class L
shares, but only if the fund performs well.
.Class L shares have a shorter deferred sales charge period than Class B
shares. However, because Class B shares convert to Class A shares, and Class
L shares do not, Class B shares may be more attractive to long-term invest-
ors.
You may buy shares from:
.A Salomon Smith Barney Financial Consultant
.An investment dealer in the selling group or a broker that clears through Sal-
omon Smith Barney--a dealer representative
.The fund, but only if you are investing through certain qualified plans or
certain dealer representatives
Investment minimums Minimum initial and additional investment amounts vary
depending on the class of shares you buy and the nature of your investment
account.
<TABLE>
<CAPTION>
Initial Additional
Classes A, B, L Class Y All Classes
<S> <C> <C> <C>
General $1,000 $15 million $50
IRAs, Self Employed Retirement Plans,
Uniform Gift to Minor Accounts $250 $15 million $50
Qualified Retirement Plans* $25 $15 million $25
Simple IRAs $1 n/a $1
Monthly Systematic Investment Plans $25 n/a $25
Quarterly Systematic Investment Plans $50 n/a $50
</TABLE>
*Qualified Retirement Plans are retirement plans qualified under Section
403(b)(7) or Section 401(a) of the Internal Revenue Code, including 401(k)
plans
Smith Barney Mutual Funds
9
<PAGE>
Comparing the fund's classes
Your Salomon Smith Barney Financial Consultant or dealer representative can
help you decide which class meets your goals. They may receive different com-
pensation depending upon which class you choose.
<TABLE>
<CAPTION>
Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Key features .Initial .No initial .Initial .No initial
sales sales sales or
charge charge charge is deferred
.You may .Deferred lower than sales
qualify sales Class A charge
for reduc- charge .Deferred .Must
tion or declines sales invest at
waiver of over time charge for least $15
initial .Converts only 1 million
sales to Class A year .Lower
charge after 8 .Does not annual
.Lower years convert to expenses
annual .Higher Class A than the
expenses annual .Higher other
than Class expenses annual classes
B and than Class expenses
Class L A than Class
A
- ------------------------------------------------------------------------
Initial sales charge Up to None 1.00% None
4.50%;
reduced for
large pur-
chases and
waived for
certain
investors.
No charge
for pur-
chases of
$500,000 or
more
- ------------------------------------------------------------------------
Deferred sales charge 1% on pur- Up to 4.50% 1% if you None
chases of charged redeem
$500,000 or when you within 1
more if you redeem year of
redeem shares. The purchase
within 1 charge is
year of reduced
purchase over time
and there
is no
deferred
sales
charge
after 6
years
- ------------------------------------------------------------------------
Annual distribution and 0.25% of 0.75% of 0.70% of None
service fees average average average
daily net daily net daily net
assets assets assets
- ------------------------------------------------------------------------
Exchange-able into* Class A Class B Class L Class Y
shares shares shares shares
of most of most of most of most
Smith Smith Smith Smith
Barney Barney Barney Barney
funds funds funds funds
- ------------------------------------------------------------------------
</TABLE>
*Ask your Salomon Smith Barney Financial Consultant or dealer representative or
visit the web site for the Smith Barney funds available for exchange.
Managed Governments Fund
10
<PAGE>
Sales charges
Class A shares
You buy Class A shares at the offering price, which is the net asset value plus
a sales charge. You pay a lower sales charge as the size of your investment
increases to certain levels called breakpoints. You do not pay a sales charge
on the fund's distributions or dividends you reinvest in additional Class A
shares.
<TABLE>
<CAPTION>
Sales Charge as a % of
Offering Net amount
Amount of purchase price (%) invested (%)
<S> <C> <C>
Less than $25,000 4.50 4.71
$25,000 but less than $50,000 4.00 4.17
$50,000 but less than $100,000 3.50 3.63
$100,000 but less than $250,000 2.50 2.56
$250,000 but less than $500,000 1.50 1.52
$500,000 or more 0.00 0.00
</TABLE>
Investments of $500,000 or more You do not pay an initial sales charge when you
buy $500,000 or more of Class A shares. However, if you redeem these Class A
shares within one year of purchase, you will pay a deferred sales charge of 1%.
Qualifying for a reduced Class A sales charge There are several ways you can
combine multiple purchases of Class A shares of Smith Barney funds to take
advantage of the breakpoints in the sales charge schedule.
.Accumulation privilege - lets you combine the current value of Class A shares
owned
.by you, or
.by members of your immediate family,
and for which a sales charge was paid, with the amount of your next purchase
of Class A shares for purposes of calculating the initial sales charge. Cer-
tain trustees and fiduciaries may be entitled to combine accounts in deter-
mining their sales charge.
.Letter of intent - lets you purchase Class A shares of the fund and other
Smith Barney funds over a 13-month period and pay the same sales
Smith Barney Mutual Funds
11
<PAGE>
charge, if any, as if all shares had been purchased at once. You may include
purchases on which you paid a sales charge within 90 days before you sign the
letter.
Waivers for certain Class A investors Class A initial sales charges are waived
for certain types of investors, including:
.Employees of members of the NASD
.403(b) or 401(k) retirement plans, if certain conditions are met
.Clients of newly employed Salomon Smith Barney Financial Consultants, if cer-
tain conditions are met
.Investors who redeemed Class A shares of a Smith Barney fund in the past 60
days, if the investor's Salomon Smith Barney Financial Consultant or dealer
representative is notified
If you want to learn about additional waivers of Class A initial sales charges,
contact your Salomon Smith Barney Financial Consultant or dealer representative
or consult the Statement of Additional Information ("SAI").
Class B shares
You buy Class B shares at net asset value without paying an initial sales
charge. However, if you redeem your Class B shares within six years of pur-
chase, you will pay a deferred sales charge. The deferred sales charge
decreases as the number of years since your purchase increases.
<TABLE>
<CAPTION>
Year after purchase 1st 2nd 3rd 4th 5th 6th through 8th
<S> <C> <C> <C> <C> <C> <C>
Deferred sales charge 4.50% 4% 3% 2% 1% 0%
</TABLE>
Class B conversion. After 8 years, Class B shares automatically convert into
Class A shares. This helps you because Class A shares have lower annual
expenses. Your Class B shares will convert to Class A shares as follows:
<TABLE>
<CAPTION>
Shares issued: Shares issued:
Shares issued: On reinvestment of Upon exchange from
At initial dividends and another Smith Barney
purchase distributions fund
<S> <C> <C>
Eight years after the date of purchase In same proportion On the date the
as the number of shares originally
Class B shares acquired would
converting is to have converted
total Class B into Class A
shares you own shares
(excluding shares
issued as a
dividend)
</TABLE>
Managed Governments Fund
12
<PAGE>
Class L shares
You buy Class L shares at the offering price, which is the net asset value plus
a sales charge of 1% (1.01% of the net amount invested). In addition, if you
redeem your Class L shares within one year of purchase, you will pay a deferred
sales charge of 1%. If you held Class C shares of the fund and/or other Smith
Barney mutual funds on June 12, 1998, you will not pay an initial sales charge
on Class L shares you buy before June 22, 2001.
Class Y shares
You buy Class Y shares at net asset value with no initial sales charge and no
deferred sales charge when you redeem. You must meet the $15,000,000 initial
investment requirement. You can use a letter of intent to meet this requirement
by buying Class Y shares of the fund over a 13-month period. To qualify, you
must initially invest $5,000,000.
More about deferred sales charges
The deferred sales charge is based on the net asset value at the time of pur-
chase or redemption, whichever is less, and therefore you do not pay a sales
charge on amounts representing appreciation or depreciation.
In addition, you do not pay a deferred sales charge on:
.Shares exchanged for shares of another Smith Barney fund
.Shares representing reinvested distributions and dividends
.Shares no longer subject to the deferred sales charge
If you redeemed shares of a Smith Barney fund in the past 60 days and paid a
deferred sales charge, you may buy shares of the fund at the current net asset
value and be credited with the amount of the deferred sales charge, if you
notify your Salomon Smith Barney Financial Consultant or dealer representative.
Salomon Smith Barney receives deferred sales charges as partial compensation
for its expenses in selling shares, including the payment of compensation to
your Salomon Smith Barney Financial Consultant or dealer representative.
Deferred sales charge waivers
The deferred sales charge for each share class will generally be waived:
.On payments made through certain systematic withdrawal plans
.On certain distributions from a retirement plan
Smith Barney Mutual Funds
13
<PAGE>
.For involuntary redemptions of small account balances
.For 12 months following the death or disability of a shareholder
If you want to learn more about additional waivers of deferred sales charges,
contact your Salomon Smith Barney Financial Consultant or dealer representative
or consult the SAI.
Buying shares
Through a You should contact your Salomon Smith Barney Financial Con-
Salomon Smith sultant or dealer representative to open a brokerage account
Barney and make arrangements to buy shares.
Financial
Consultant or
dealer
representative
If you do not provide the following information, your order
will be rejected:
.Class of shares being bought
.Dollar amount or number of shares being bought
You should pay for your shares through your brokerage account
no later than the third business day after you place your
order. Salomon Smith Barney or your dealer representative may
charge an annual account maintenance fee.
- --------------------------------------------------------------------------------
Through the Qualified retirement plans and certain other investors who
fund's are clients of the selling group are eligible to buy shares
transfer directly from the fund.
agent
.Write the transfer agent at the following address:
Smith Barney Managed Governments Fund Inc. (Specify
class of shares) c/o First Data Investor Services Group,
Inc. P.O. Box 9699 Providence, Rhode Island 02940-9699
.Enclose a check to pay for the shares. For initial pur-
chases, complete and send an account application.
.For more information, call the transfer agent at 1-800-451-
2010.
Managed Governments Fund
14
<PAGE>
Through a You may authorize Salomon Smith Barney, your dealer represen-
systematic tative or the transfer agent to transfer funds automatically
investment from a regular bank account, cash held in a Salomon Smith
plan Barney brokerage account or Smith Barney money market fund to
buy shares on a regular basis.
.Amounts transferred should be at least: $25 monthly or $50
quarterly
.If you do not have sufficient funds in your account on a
transfer date, Salomon Smith Barney, your dealer represen-
tative or the transfer agent may charge you a fee
For more information, contact your Salomon Smith Barney
Financial Consultant, dealer representative or the transfer
agent or consult the SAI.
Exchanging shares
Smith Barney You should contact your Salomon Smith Barney Financial Con-
offers a sultant or dealer representative to exchange into other Smith
distinctive Barney funds. Be sure to read the prospectus of the Smith
family of Barney fund you are exchanging into. An exchange is a taxable
funds transaction.
tailored to
help meet the
varying needs
of both large
and small
investors
.You may exchange shares only for shares of the same class of
another Smith Barney fund. Not all Smith Barney funds offer
all classes.
.Not all Smith Barney funds may be offered in your state of
residence. Contact your Salomon Smith Barney Financial Con-
sultant, dealer representative or the transfer agent.
.You must meet the minimum investment amount for each fund.
.If you hold share certificates, the transfer agent must
receive the certificates endorsed for transfer or with
signed stock powers (documents transferring ownership of
certificates) before the exchange is effective.
.The fund may suspend or terminate your exchange privilege if
you engage in an excessive pattern of exchanges.
Smith Barney Mutual Funds
15
<PAGE>
Waiver of Your shares will not be subject to an initial sales charge at
additional the time of the exchange.
sales charges
Your deferred sales charge (if any) will continue to be mea-
sured from the date of your original purchase. If the fund
you exchange into has a higher deferred sales charge, you
will be subject to that charge. If you exchange at any time
into a fund with a lower charge, the sales charge will not be
reduced.
- --------------------------------------------------------------------------------
By telephone If you do not have a brokerage account, you may be eligible
to exchange shares through the transfer agent. You must com-
plete an authorization form to authorize telephone transfers.
If eligible, you may make telephone exchanges on any day the
New York Stock Exchange is open. Call the transfer agent at
1-800-451-2010 between 9:00 a.m. and 5:00 p.m. (Eastern
time). Requests received after the close of regular trading
on the Exchange are priced at the net asset value next deter-
mined.
You can make telephone exchanges only between accounts that
have identical registrations.
- --------------------------------------------------------------------------------
By mail If you do not have a Salomon Smith Barney brokerage account,
contact your dealer representative or write to the transfer
agent at the address on the following page.
Managed Governments Fund
16
<PAGE>
Redeeming shares
Generally Contact your Salomon Smith Barney Financial Consultant or
dealer representative to redeem shares of the fund.
If you hold share certificates, the transfer agent must
receive the certificates endorsed for transfer or with signed
stock powers before the redemption is effective.
If the shares are held by a fiduciary or corporation, other
documents may be required.
Your redemption proceeds will be sent within three business
days after your request is received in good order. However,
if you recently purchased your shares by check, your redemp-
tion proceeds will not be sent to you until your original
check clears, which may take up to 15 days.
If you have a Salomon Smith Barney brokerage account, your
redemption proceeds will be placed in your account and not
reinvested without your specific instruction. In other cases,
unless you direct otherwise, your redemption proceeds will be
paid by check mailed to your address of record.
- --------------------------------------------------------------------------------
By mail For accounts held directly at the fund, send written requests
to the transfer agent at the following address:
Smith Barney Managed Governments Fund Inc. (Specify
class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 9699
Providence, Rhode Island 02940-9699
Your written request must provide the following:
.Your account number
.The class of shares and the dollar amount or number of
shares to be redeemed
.Signatures of each owner exactly as the account is regis-
tered
Smith Barney Mutual Funds
17
<PAGE>
By telephone If you do not have a brokerage account, you may be eligible
to redeem shares (except those held in retirement plans) in
amounts up to $10,000 per day through the transfer agent. You
must complete an authorization form to authorize telephone
redemptions. If eligible, you may request redemptions by tel-
ephone on any day the New York Stock Exchange is open. Call
the transfer agent at 1-800-451-2010 between 9:00 a.m. and
5:00 p.m. (Eastern time). Requests received after the close
of regular trading on the Exchange are priced at the net
asset value next determined.
Your redemption proceeds can be sent by check to your address
of record or by wire transfer to a bank account designated on
your authorization form. You must submit a new authorization
form to change the bank account designated to receive wire
transfers and you may be asked to provide certain other docu-
ments.
- --------------------------------------------------------------------------------
Automatic You can arrange for the automatic redemption of a portion of
cash your shares on a monthly or quarterly basis. To qualify you
withdrawal must own shares of the fund with a value of at least $10,000
plans ($5,000 for retirement plans) and each automatic redemption
must be at least $50. If your shares are subject to a
deferred sales charge, the sales charge will be waived if
your automatic payments do not exceed 1% per month of the
value of your shares subject to a deferred sales charge.
The following conditions apply:
.Your shares must not be represented by certificates
.All dividends and distributions must be reinvested
For more information, contact your Salomon Smith Barney
Financial Consultant or dealer representative or consult the
SAI.
Managed Governments Fund
18
<PAGE>
Other things to know about share transactions
When you buy, exchange or redeem shares, your request must be in good order.
This means you have provided the following information, without which your
request will not be processed:
.Name of the fund
.Account number
.Class of shares being bought, exchanged or redeemed
.Dollar amount or number of shares being bought, exchanged or redeemed
.Signature of each owner exactly as the account is registered
The transfer agent will try to confirm that any telephone exchange or redemp-
tion request is genuine by recording calls, asking the caller to provide a per-
sonal identification number for the account, sending you a written confirmation
or requiring other confirmation procedures from time to time.
Signature guarantees To be in good order, your redemption request must include
a signature guarantee if you:
.Are redeeming over $10,000 of shares
.Are sending signed share certificates or stock powers to the transfer agent
.Instruct the transfer agent to mail the check to an address different from the
one on your account
.Changed your account registration
.Want the check paid to someone other than the account owner(s)
.Are transferring the redemption proceeds to an account with a different regis-
tration
You can obtain a signature guarantee from most banks, dealers, brokers, credit
unions and federal savings and loan institutions, but not from a notary public.
The fund has the right to:
.Suspend the offering of shares
.Waive or change minimum and additional investment amounts
.Reject any purchase or exchange order
.Change, revoke or suspend the exchange privilege
.Suspend telephone transactions
Smith Barney Mutual Funds
19
<PAGE>
.Suspend or postpone redemptions of shares on any day when trading on the New
York Stock Exchange is restricted, or as otherwise permitted by the Securi-
ties and Exchange Commission
.Pay redemption proceeds by giving you securities. You may pay transaction
costs to dispose of the securities
Small account balances If your account falls below $500 because of a redemption
of fund shares, the fund may ask you to bring your account up to $500. If your
account is still below $500 after 60 days, the fund may close your account and
send you the redemption proceeds.
Excessive exchange transactions The manager may determine that a pattern of
frequent exchanges is detrimental to the fund's performance and other share-
holders. If so, the fund may limit additional purchases and/or exchanges by the
shareholder.
Share certificates The fund does not issue share certificates unless a written
request signed by all registered owners is made to the transfer agent. If you
hold share certificates it will take longer to exchange or redeem shares.
Managed Governments Fund
20
<PAGE>
Smith Barney 401(k) and ExecChoice(TM) programs
You may be eligible to participate in the Smith Barney 401(k) program or the
Smith Barney ExecChoice(TM) program. The fund offers Class A and Class L shares
to participating plans as investment alternatives under the programs. You can
meet minimum investment and exchange amounts by combining the plan's invest-
ments in any of the Smith Barney mutual funds.
There are no sales charges when you buy or sell shares and the class of shares
you may purchase depends on the amount of your initial investment. Once a class
of shares is chosen, all additional purchases must be of that class.
.Class A shares may be purchased by plans investing at least $1 million.
.Class L shares may be purchased by plans investing less than $1 million. Class
L shares are eligible to exchange into Class A shares not later than 8 years
after the plan joined the program. They are eligible for exchange sooner:
If the account was opened on or after June 21, 1996 and an aggregate of $1
million is invested in Smith Barney Funds Class L shares (other than money
market funds), all Class L shares are eligible for exchange after the plan
is in the program 5 years.
If the account was opened before June 21, 1996 and $500,000 in the aggre-
gate is invested in Smith Barney Funds Class L shares (other than money
market funds), all Class L shares are eligible for exchange on each Decem-
ber 31 and the exchange will occur no later than March 31 of the following
year.
For more information, call your Salomon Smith Barney Financial Consultant or
the transfer agent, or consult the SAI.
Smith Barney Mutual Funds
21
<PAGE>
Dividends, distributions and taxes
Dividends The fund generally makes capital gain distributions and pays divi-
dends, if any, once a year, typically in December. The fund may pay additional
distributions and dividends at other times if necessary for the fund to avoid a
federal tax. The fund expects distributions to be primarily from income. Capi-
tal gain distributions and dividends are reinvested in additional fund shares
of the same class you hold. You do not pay a sales charge on reinvested distri-
butions or dividends. Alternatively, you can instruct your Salomon Smith Barney
Financial Consultant, dealer representative or the transfer agent to have your
distributions and/or dividends paid in cash. You can change your choice at any
time to be effective as of the next distribution or dividend, except that any
change given to the transfer agent less than five days before the payment date
will not be effective until the next distribution or dividend is paid.
Taxes In general, redeeming shares, exchanging shares and receiving distribu-
tions (whether in cash or additional shares) are all taxable events.
<TABLE>
<CAPTION>
Transaction Federal tax status
<S> <C>
Redemption or exchange of shares Usually capital gain or loss; long-term only
if shares owned more than one year
Long-term capital gain Long-term capital gain
distributions
Short-term capital gain Ordinary income
distributions
Dividends Ordinary income
</TABLE>
Long-term capital gain distributions are taxable to you as long-term capital
gain regardless of how long you have owned your shares. You may want to avoid
buying shares when the fund is about to declare a capital gain distribution or
a dividend, because it will be taxable to you even though it may actually be a
return of a portion of your investment.
After the end of each year, the fund will provide you with information about
the distributions and dividends you received and any redemptions of shares dur-
ing the previous year. If you do not provide the fund with your correct tax-
payer identification number and any required certifications, you may be subject
to back-up withholding of 31% of your distributions, dividends, and redemption
proceeds. Because each shareholder's circumstances are different and special
tax rules may apply, you should consult your tax adviser about your investment
in the fund.
Managed Governments Fund
22
<PAGE>
Share price
You may buy, exchange or redeem shares at their net asset value, plus any
applicable sales charge, next determined after receipt of your request in good
order. The fund's net asset value is the value of its assets minus its liabili-
ties. Net asset value is calculated separately for each class of shares. The
fund calculates its net asset value every day the New York Stock Exchange is
open. The Exchange is closed on certain holidays listed in the SAI. This calcu-
lation is done when regular trading closes on the Exchange (normally 4:00 p.m.,
Eastern time).
The fund generally values its fund securities based on market prices or quota-
tions. When reliable market prices or quotations are not readily available, or
when the value of a security has been materially affected by events occurring
after the markets on which the securities trade on closes, the fund may price
those securities at fair value. Fair value is determined in accordance with
procedures approved by the fund's board. A fund that uses fair value to price
securities may value those securities higher or lower than another fund using
market quotations to price the same securities.
In order to buy, redeem or exchange shares at that day's price, you must place
your order with your Salomon Smith Barney Financial Consultant or dealer repre-
sentative before the New York Stock Exchange closes. If the New York Stock
Exchange closes early, you must place your order prior to the actual closing
time. Otherwise, you will receive the next business day's price.
Salomon Smith Barney or members of the selling group must transmit all orders
to buy, exchange or redeem shares to the fund's agent before the agent's close
of business.
Smith Barney Mutual Funds
23
<PAGE>
Financial highlights
The financial highlights tables are intended to help you understand the perfor-
mance of each class for the past 5 years (or since inception if less than 5
years). Certain information reflects financial results for a single share.
Total return represents the rate that a shareholder would have earned (or lost)
on a fund share assuming reinvestment of all dividends and distributions. The
information in the following tables was audited by KPMG LLP, independent
accountants, whose report, along with the fund's financial statements, is
included in the annual report (available upon request).
For a Class A share of capital stock outstanding throughout each year ended
July 31:
<TABLE>
<CAPTION>
1999 1998 1997(/1/) 1996(/1/) 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year $ $12.84 $12.27 $12.63 $12.50
- ------------------------------------------------------------------------------
Income from operations:
Net investment income 0.75 0.80 0.81 0.81
Net realized and unrealized
gain/(loss) (0.06) 0.59 (0.34) 0.10
- ------------------------------------------------------------------------------
Total income from operations 0.69 1.39 0.47 0.91
- ------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.80) (0.82) (0.82) (0.74)
Net realized gain -- -- -- --
Capital -- -- (0.01) (0.04)
- ------------------------------------------------------------------------------
Total distributions (0.80) (0.82) (0.83) (0.78)
- ------------------------------------------------------------------------------
Net asset value, end of year $12.73 $12.84 $12.27 $12.63
- ------------------------------------------------------------------------------
Total return 5.51% 11.80% 3.76% 7.67%
- ------------------------------------------------------------------------------
Net assets, end of year (000)'s $374,109 $414,571 $454,679 $528,533
- ------------------------------------------------------------------------------
Ratios to average net assets:
Expenses 1.03% 1.01% 1.04% 1.07%
Net investment income 5.78 6.43 6.46 6.57
- ------------------------------------------------------------------------------
Portfolio turnover rate 363% 121% 275% 292%
- ------------------------------------------------------------------------------
</TABLE>
(/1/)Per share amounts calculated using the average monthly shares method.
Managed Governments Fund
24
<PAGE>
For a Class B share of capital stock outstanding throughout each year ended
July 31:
<TABLE>
<CAPTION>
1999 1998 1997(/1/) 1996(/1/) 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year $ $12.84 $12.27 $12.63 $12.50
- ------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.67 0.74 0.75 0.75
Net realized and unrealized
gain/(loss) (0.05) 0.59 (0.34) 0.09
- ------------------------------------------------------------------------------
Total income from operations 0.62 1.33 0.41 0.84
- ------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.73) (0.76) (0.76) (0.67)
Net realized gain -- -- -- --
Capital -- -- (0.01) (0.04)
- ------------------------------------------------------------------------------
Total distributions (0.73) (0.76) (0.77) (0.71)
- ------------------------------------------------------------------------------
Net asset value, end of year $12.73 $12.84 $12.27 $12.63
- ------------------------------------------------------------------------------
Total return 4.99% 11.23% 3.24% 7.04%
- ------------------------------------------------------------------------------
Net assets, end of year (000)'s $73,905 $96,747 $110,724 $132,882
- ------------------------------------------------------------------------------
Ratios to average net assets:
Expenses 1.56% 1.53% 1.56% 1.57%
Net investment income 5.27% 5.91 5.94 6.07
- ------------------------------------------------------------------------------
Portfolio turnover rate 363% 121% 275% 292%
- ------------------------------------------------------------------------------
</TABLE>
(/1/)Per share amounts calculated using the average monthly shares method.
Smith Barney Mutual Funds
25
<PAGE>
For a Class L(/1/) share of capital stock outstanding throughout each year
ended July 31:
<TABLE>
<CAPTION>
1999 1998(/2/) 1997(/2/) 1996(/2/) 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ $12.84 $12.27 $12.63 $12.50
- -------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.67 0.74 0.75 0.76
Net realized and unrealized
gain/(loss) (0.04) 0.59 (0.34) 0.08
- -------------------------------------------------------------------------------
Total income (loss) from
operations 0.63 1.33 0.41 0.84
- -------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.74) (0.76) (0.76) (0.67)
Net realized gain -- -- -- --
Capital -- -- (0.01) (0.04)
- -------------------------------------------------------------------------------
Total distributions (0.74) (0.76) (0.77) (0.71)
- -------------------------------------------------------------------------------
Net assets value, end of year $12.73 $12.84 $12.27 $12.63
- -------------------------------------------------------------------------------
Total return 5.07% 11.26% 3.25% 7.04%
- -------------------------------------------------------------------------------
Net assets, end of year (000)'s $2,811 $1,866 $1.238 $299
- -------------------------------------------------------------------------------
Ratios to average net assets:
Expenses 1.49% 1.46% 1.49% 1.52%
Net investment income 5.28 6.01 5.99 6.12
- -------------------------------------------------------------------------------
Portfolio turnover rate 363% 121% 275% 292%
- -------------------------------------------------------------------------------
</TABLE>
(/1/)Class L shares were called Class C shares until June 12, 1998.
(/2/)Per share amounts calculated using the average monthly shares method.
Managed Governments Fund
26
<PAGE>
For a Class Y share of capital stock outstanding throughout each year ended
July 31:
<TABLE>
<CAPTION>
1999 1998 1997(/1/) 1996(/1/)(/2/)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
year $ $12.84 $12.27 $12.86
- -------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.80 0.84 0.35
Net realized and unrealized
gain/(loss) (0.06) 0.59 (0.49)
- -------------------------------------------------------------------------------
Total income (loss) from
operations 0.74 1.43 (0.14)
- -------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.84) (0.86) (0.44)
Capital -- -- (0.01)
- -------------------------------------------------------------------------------
Total distributions (0.84) (0.86) (0.45)
- -------------------------------------------------------------------------------
Net assets value, end of year $12.74 $12.84 $12.27
- -------------------------------------------------------------------------------
Total return 5.94% 12.16% (1.10)%(/3/)
- -------------------------------------------------------------------------------
Net assets, end of year
(000)'s $90,761 $85,194 $27,215
- -------------------------------------------------------------------------------
Ratios to average net assets:
Expenses 0.69% 0.69%(/4/) 0.78%(/5/)
Net investment income (loss) 6.10 6.82 6.62(/5/)
- -------------------------------------------------------------------------------
Portfolio turnover rate 363% 121% 275%
- -------------------------------------------------------------------------------
</TABLE>
(/1/)Per share amounts calculated using the average monthly shares method.
(/2/)For the period from February 7, 1996 (inception date) to July 31, 1996.
(/3/)Not annualized.
(/4/)Amount has been restated from the July 31, 1997 Annual Report.
(/5/)Annualized.
Smith Barney Mutual Funds
27
<PAGE>
(This page is intentionally left blank.)
<PAGE>
SalomonSmithBarney
----------------------------
A member of citigroup [LOGO]
Managed
Governments
Fund
Shareholder reports Annual and semi-annual reports to shareholders provide
additional information about the fund's investments. These reports discuss the
market conditions and investment strategies that affected the fund's perfor-
mance.
The fund sends only one report to a household if more than one account has the
same address. Contact your Salomon Smith Barney Financial Consultant, dealer
representative or the transfer agent if you do not want this policy to apply to
you.
Statement of additional information The statement of additional information
provides more detailed information about the fund and is incorporated by refer-
ence into (is legally part of) this prospectus.
You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting your Salomon
Smith Barney Financial Consultant or dealer representative, by calling the fund
at 1-800-451-2010, or by writing to the fund at Smith Barney Mutual Funds, 388
Greenwich Street, MF2, New York, New York 10013.
Visit our web site Our web site is located at www.smithbarney.com
You can also review and copy the fund's shareholder reports, prospectus and
statement of additional information at the Securities and Exchange Commission's
Public Reference Room in Washington, D.C. You can get copies of these materials
for a duplicating fee by writing to the Public Reference Section of the Commis-
sion, Washington, D.C. 20549-6009. Information about the public reference room
may be obtained by calling 1-800-SEC-0330. You can get the same information
free from the Commission's Internet web site at http:www.sec.gov
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. Neither the fund nor the distributor is
offering to sell shares of the fund to any person to whom the fund may not law-
fully sell its shares.
SM Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act file no. 811-4551)
FD00212 11/99
PART B-Statement of Additional Information
November , 1999
STATEMENT OF ADDITIONAL INFORMATION
SMITH BARNEY MANAGED GOVERNMENTS FUND INC.
388 Greenwich Street
New York, New York 10013
(800) 451-2010
This Statement of Additional Information ("SAI") is not a
prospectus and is meant to be read in conjunction with the
prospectus of the Smith Barney Managed Governments Fund
Inc. (the "fund") dated November , 1999, as amended or
supplemented from time to time (the "prospectus"), and is
incorporated by reference in its entirety into the
prospectus. Additional information about the fund's
investments is available in the fund's annual and semi-
annual reports to shareholders that are incorporated herein
by reference. The prospectus and copies of the reports may
be obtained free of charge by contacting a Salomon Smith
Barney Financial Consultant, or by writing or calling
Salomon Smith Barney Inc. at the address or telephone
number above.
TABLE OF CONTENTS
Investment Objective and Management
Policies................................................
Investment Restrictions...... ............................
Directors and Executive Officers of the
Fund...................................................
Investment Management and Other Services...................
Portfolio Transactions.....................................
Portfolio Turnover...................................
Purchase of Shares .......................................
Redemption of Shares......................................
Valuation of Shares.....................................
Exchange Privilege.........................................
Performance Data........................................
Dividends, Distributions and Taxes.........................
Additional Information....................................
Financial Statements ..................................
DIRECTORS AND EXECUTIVE OFFICERS OF THE FUND
The names of the directors of the fund and executive
officers of the fund, together with information as to their
principal business occupations, are set forth below. The
executive officers of the fund are employees of
organizations that provide services to the fund. Each
director who is an "interested person" of the fund, as
defined in the 1940 Act, is indicated by an asterisk. The
address of the "non-interested" directors and executive
officers of the fund is 388 Greenwich Street, New York, New
York 10013.
Herbert Barg (Age 76). Director
Private Investor. Director or trustee of 18 investment
companies associated with Citigroup Inc. ("Citigroup") His
address is 273 Montgomery Avenue, Bala Cynwyd, Pennsylvania
19004.
*Alfred J. Bianchetti (Age 76). Director
Retired; formerly Senior Consultant to Dean Witter Reynolds
Inc. Director or trustee of 13 investment companies
associated with Citigroup. His address is 19 Circle End
Drive, Ramsey, New Jersey 07466.
Martin Brody (Age 78). Director
Consultant, HMK Associates; Retired Vice Chairman of the
Board of Restaurant Associates Corp. Director or trustee of
22 investment companies associated with Citigroup. His
address is c/o HMK Associates, 30 Columbia Turnpike,
Florham Park, New Jersey 07932.
Dwight B. Crane (Age 61). Director
Professor, Harvard Business School. Director or trustee of
25 investment companies associated with Citigroup. His
address is c/o Harvard Business School, Soldiers Field
Road, Boston, Massachusetts 02163.
Burt N. Dorsett (Age 68). Director
Managing Partner of Dorsett McCabe Management. Inc., an
investment counseling firm; Director of Research
Corporation Technologies, Inc., a nonprofit patent clearing
and licensing firm. Director or trustee of 13 investment
companies associated with Citigroup. His address is 201
East 62nd Street, New York, New York 10021.
Elliot S. Jaffe (Age 73). Director
Chairman of the Board and President of The Dress Barn, Inc.
Director or trustee of 13 investment companies associated
with Citigroup. His address is 30 Dunnigan Drive, Suffern,
New York 10901.
Stephen E. Kaufman (Age 67). Director
Attorney. Director or trustee of 15 investment companies
associated with Citigroup. His address is 277 Park Avenue,
New York, New York 10172.
Joseph J. McCann (Age 69). Director
Financial Consultant; Retired Financial Executive, Ryan
Homes, Inc. Director or trustee of 13 investment companies
associated with Citigroup. His address is 200 Oak Park
Place, Pittsburgh, Pennsylvania 15243.
*Heath B. McLendon (Age 66). Chairman of the Board,
President and Chief Executive Officer
Managing Director of Salomon Smith Barney Inc.; President
of SSB Citi Fund Management LLC ("SSB Citi" or the
"manager") and Travelers Investment Adviser, Inc. ("TIA");
Chairman or Co-Chairman of the Board and director or
trustee of 64 investment companies associated with
Citigroup. His address is 388 Greenwich Street, New York,
New York 10013.
Cornelius C. Rose, Jr. (Age 66). Director
President, Cornelius C. Rose Associates, Inc., financial
consultants, and Chairman and Director of Performance
Learning Systems, an educational consultant. Director or
trustee of 13 investment companies associated with
Citigroup. His address is Meadowbrook Village, Building 4,
Apt 6, West Lebanon, New Hampshire 03784.
Lewis E. Daidone (Age 41). Senior Vice President and
Treasurer
Managing Director of Salomon Smith Barney; Chief Financial
Officer of the Smith Barney Mutual funds; Director and
Senior Vice President of SSBC and TIA. Senior Vice
President and Treasurer of 59 investment companies
associated with Citigroup.
Joseph P. Deane (Age 51). Vice President and Investment
Officer
Investment Officer of SSBC; Managing Director of Salomon
Smith Barney.
Paul Brook (Age 45). Controller
Director of Salomon Smith Barney; from 1997-1998 Managing
Director of AMT Capital Services Inc.; prior to 1997
Partner with Ernst & Young LLP. Controller or Assistant
Treasurer of 43 investment companies associated with
Citigroup.
Christina T. Sydor (Age 48). Secretary
Managing Director of Salomon Smith Barney; General Counsel
and Secretary of SSBC and TIA. Secretary of 59 investment
companies associated with Citigroup.
As of September , 1999, the directors and officers of the
funds, as a group, owned less than 1% of the outstanding
shares of beneficial interest of the fund.
To the best knowledge of the directors, as of September
, 1999, the following shareholders or "groups" (as such
term is defined in Section 13(d) of the Securities Exchange
Act of 1934, as amended) owned beneficially or of record
more than 5% of the shares of the following classes:
Shareholder
Class
Shares Held
No officer, director or employee of Salomon Smith Barney or
any of its affiliates receives any compensation from the
fund for serving as an officer of the funds or director of
the fund. The fund pays each director who is not an
officer, director or employee of Salomon Smith Barney or
any of its affiliates a fee of $ per annum plus $ per
in-person meeting and $ per telephonic meeting. Each
director emeritus who is not an officer, director or
employee of Salomon Smith Barney or its affiliates receives
a fee of $ per annum plus $ per in-person meeting and $
per telephonic meeting. All directors are reimbursed for
travel and out-of-pocket expenses incurred to attend such
meetings.
For the fiscal year ended July 31, 1999, the directors of
the fund were paid the following compensation:
Name of Person
Aggregate
Compensati
on
from Fund
Total
Pension or
Retirement
Benefits
Accrued
As part of
Fund
Expenses
Compensati
on
From Fund
And Fund
Complex
Paid to
Directors
Number of
Funds for
Which
Directors
Serve Within
Fund Complex
Herbert Barg **
$0
$105,425
18
Alfred
Bianchetti * **
0
51,200
13
Martin Brody **
0
132,500
22
Dwight B. Crane
**
0
139,975
25
Burt N. Dorsett
**
0
51,200
13
Elliot S. Jaffe
**
0
47,550
13
Stephen E.
Kaufman **
0
96,400
15
Joseph J. McCann
**
0
51,200
13
Heath B.
McLendon *
- -
0
64
Cornelius C.
Rose, Jr. **
0
51,200
13
* Designates an "interested" director.
** Designates member of Audit Committee.
Upon attainment of age 80, fund directors are
required to change to emeritus status. Directors
emeritus are entitled to serve in emeritus status for
a maximum of 10 years. A director emeritus may
attend meetings but has no voting rights. During the
fund's last fiscal year, aggregate compensation paid
by the fund to directors achieving emeritus status
totaled $ .
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, policies and strategies.
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 securities and, under normal circumstances, the
Fund is required to invest at least 65% of its assets in
such securities. The Fund's portfolio of U.S. government
securities consists primarily of mortgage-backed securities
issued or 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 support to an
instrumentality that it sponsors, the Fund invests in
obligations issued by such an instrumentality only when the
Manager determines that the credit risk with respect to the
instrumentality does not make its securities unsuitable for
investment by the Fund.
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 when necessary to meet
redemptions, and to pledge its assets to the same extent in
connection with such borrowings. When the Manager believes
that market conditions warrant, the fund may, for temporary
defensive purposes and without limitation, invest in
short-term instruments including certificates of deposit of
domestic banks and repurchase agreements involving U.S.
government securities. Repurchase agreements also may be
used as one of the fund's normal investment techniques.
Mortgaged-Backed Government Securities
Government National Mortgage Association ("GNMA")
certificates are liquid securities and represent ownership
interests in a pool of mortgages issued by a mortgage
banker or other mortgagee. Distributions on GNMA
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 than 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 issued 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.
The GNMA certificates in which the fund will invest will be
of the "modified pass-through" type, which means that the
scheduled monthly interest and principal payments related
to mortgages in the pool backing the certificates will be
"passed-through" to investors. Timely payment of principal
and interest on GNMA certificates is guaranteed by GNMA and
backed by the full faith and credit of the United States,
but market value and yield are not guaranteed
Mortgage participation certificates issued by FHLMC and
FNMA generally represent ownership interests in a pool of
fixed-rate conventional mortgages. Timely payment of
principal and interest on these certificates is guaranteed
solely by the issuer of the certificates. FHLMC is a U.S.
government-created entity controlled by the Federal Home
Loan Banks. FNMA is a government-chartered corporation
owned entirely by private stockholders, which is subject to
general regulation by the Secretary of Housing and Urban
Development.
Mortgage-backed U.S. government securities differ from
conventional bonds in that principal is paid back to the
certificate holder over the life of the loan rather than at
maturity. As a result, the fund will receive monthly
scheduled payments of principal and interest. In addition,
the fund may receive unscheduled principal payments
representing prepayments on the underlying mortgages, which
will cause the maturity of and realized yield on specific
GNMA, FNMA and FHLMC certificates to vary based on the
prepayment experience of the underlying pool of mortgages.
The fund will reinvest all payments and unscheduled
prepayments of principal in additional GNMA, FNMA and FHLMC
certificates or other U.S. government securities (which may
have lower interest rates than the balance of the
obligations held by the fund), and will distribute the
interest to shareholders in the form of monthly dividends.
To the extent that they are purchased at par or at a
discount, GNMA certificates offer a high degree of safety
of principal investment because of the GNMA guarantee, and
other mortgage-backed U.S. government securities also are
believed to offer significant safety of principal
investment. If the fund buys mortgage-backed U.S.
government securities at a premium, however, mortgage
foreclosures and prepayments of principal by mortgagors
(which may be made at any time without penalty) may result
in some loss of the fund's principal investment to the
extent of the premium paid.
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 instrumentality that it sponsors, the fund
will invest in obligations of such an instrumentality only
if SSBC 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 Rate-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.
Forward Roll Transactions
In order to enhance current income, the fund may invest up
to 30% of its assets in forward roll transactions with
respect to mortgage-backed securities issued by GNMA, FNMA
and FHLMC. In a forward roll transaction, the fund sells a
mortgage security to a financial institution, such as a
bank or broker-dealer, and simultaneously agrees to
repurchase a similar security from the institution at a
later date at an agreed upon price. The mortgage
securities that are repurchased will bear the same interest
rate as those sold, but generally will be collateralized by
different pools of mortgages with different prepayment
histories than those sold. During the period between the
sale and repurchase, the fund will not be entitled to
receive interest and principal payments on the securities
sold. Proceeds of the sale will be invested in short-term
instruments, particularly repurchase agreements, and the
income from these investments, together with any additional
fee income received on the sale will generate income for
the fund exceeding the yield on the securities sold.
Forward roll transactions involve the risk that the market
value of the securities sold by the fund may decline below
the repurchase price of those securities. At the time that
the fund enters into a forward roll transaction, it will
place in a segregated custodial account cash and liquid
debt securities having a value equal to the repurchase
price (including accrued interest) and will subsequently
monitor the account to insure that such equivalent value is
maintained.
Forward roll transactions 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.
Writing Put and Call Options
The fund may from time to time write covered put and call
options on U.S. government securities in its portfolio. The
fund will realize a fee (referred to as a "premium") when
it writes an option. The fund will only write covered put
and call options, which means that for so long as the fund
remains obligated as the writer of the option it will, in
the case of a call option, continue to own the underlying
security and, in the case of a put option, maintain an
amount of cash or high-grade liquid debt securities in a
segregated account equal to the exercise price of the
option. A put option embodies the right of its purchaser to
compel the writer of the option to purchase from the
optionholder an underlying security at a specified price at
any time during the option period. In contrast, a call
option embodies the right of its purchaser to compel the
writer of the option to sell the option holder an
underlying security at a specified price at any time during
the option period. Thus, the purchaser of a put option has
the right to compel the fund to purchase from it the
underlying security at the agreed-upon price for a
specified time period, while the purchaser of a call option
has the right to purchase from the fund the underlying
security owned by the fund at the agreed-upon price for a
specified time period.
Upon the exercise of a put option, the fund may suffer a
loss equal to the difference between the price at which the
fund is required to purchase the underlying security and
its market value at the time of the option exercise, less
the premium received for writing the option. Upon the
exercise of a call option, the fund may suffer a loss equal
to the excess of the security's market value at the time of
the option exercise over the fund's acquisition cost of the
security, less the premium received for writing the option.
The fund ordinarily will write only covered put and call
options for which a secondary market exists on a national
securities exchange or in the over-the-counter market.
In order to realize a profit, to prevent an underlying
security from being called or to unfreeze an underlying
security (thereby permitting its sale or the writing of a
new option on the security prior to the option's
expiration), the fund may engage in a closing purchase
transaction. The fund will incur a loss if the cost of the
closing purchase transaction, plus transaction costs,
exceeds the premium received upon writing the original
option. To effect a closing purchase transaction, the fund
would purchase, prior to the exercise of an option that it
has written, an option of the same series as that on which
it desires to terminate its obligation. There can be no
assurance that the fund will be able to effect a closing
purchase transaction at a time when it wishes to do so. The
obligation of the fund to purchase or deliver securities,
respectively, upon the exercise of a covered put or call
option which it has written terminates upon the
effectuation of a closing purchase transaction.
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 the
Manager 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 the Manager
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 the Manager 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 position 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 the Manager 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 the Manager 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.
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 holds 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. The Manager 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.
Zero Coupon Securities
The fund may invest in zero coupon bonds. A zero coupon
bond pays no interest in cash to its holder during its
life, although interest is accrued during that period. Its
value to an investor consists of the difference between its
face value at the time of maturity and the price for which
it was acquired, which is generally at significantly less
than its face value (sometimes referred to as a "deep
discount" price). Because such securities usually trade at
a deep discount, they will be subject to greater
fluctuations of market value in response to changing
interest rates than debt obligations of comparable
maturities which make periodic distributions of interest.
On the other hand, because there are no periodic interest
payments to be reinvested prior to maturity, zero coupon
securities eliminate reinvestment risk and lock in a rate
of return to maturity.
Repurchase Agreements
The fund may engage in repurchase agreement transactions on
U.S. government securities with certain member banks of the
Federal Reserve System and with certain dealers on the
Federal Reserve Bank of New York's list of reporting
dealers. Under the terms of a typical repurchase agreement,
the fund would acquire an underlying debt obligation for a
relatively short period (usually not more than one week)
subject to an obligation of the seller to repurchase, and
the fund to resell, the obligation at an agreed-upon price
and time, thereby determining the yield during the fund's
holding period. Under each repurchase agreement the selling
institution will be required to maintain the value of the
securities subject to the repurchase agreement at not less
than their repurchase price.
Repurchase agreements could involve certain risks in the
event of default or insolvency of the other party,
including possible delays or restrictions upon the Fund's
ability to dispose of the underlying securities, the risk
of a possible decline in the value of the underlying
securities during the period in which the Fund seeks to
assert its rights to them, the risk of incurring expenses
associated with asserting those rights and the risk of
losing all or part of the income from the agreement. SSBC,
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.
Reverse Repurchase Agreements
The fund may enter into reverse repurchase agreements. A
reverse repurchase agreement involves the sale of a money
market instrument by the fund and its agreement to
repurchase the instrument at a specified time and price.
The fund will maintain a segregated account consisting of
U.S. government securities or cash or cash equivalents to
cover its obligations under reverse repurchase agreements
with broker-dealers and other financial institutions. The
fund will invest the proceeds in other money market
instruments or repurchase agreements maturing not later
than the expiration of the reverse repurchase agreement.
Under the Investment Company Act of 1940, as amended,
reverse repurchase agreements may be considered borrowing
by the seller.
Reverse repurchase agreements create opportunities for
increased returns to the shareholders of the fund but, at
the same time, create special risk considerations.
Although the principal or stated value of such borrowings
will be fixed, the fund's assets may change in value during
the time the borrowing is outstanding. To the extent the
income or other gain derived from securities purchased with
borrowed funds exceeds the interest or dividends the fund
will have to pay in respect thereof, the fund's net income
or other gain will be greater than if this type of leverage
had not been used. Conversely, if the income or other gain
from the incremental assets is not sufficient to cover this
cost, the net income or other gain of the fund will be less
than if the reverse repurchase agreement had not been used.
The fund currently intends to invest not more than 33% of
its net assets in reverse repurchase agreements.
When-Issued Securities and Delayed Delivery Transactions
In order to secure what the Manager considers to be an
advantageous price or yield, the fund may purchase U.S.
government securities on a when-issued basis or purchase or
sell U.S. government securities for delayed delivery. The
fund will enter into such purchase transactions for the
purpose of 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 delivery is 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 all times maintain in a segregated
account, 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
Consistent with applicable regulatory requirements the fund
may lend securities from its portfolio to brokers, dealers
and other financial organizations. The fund may not lend
its portfolio securities to Salomon Smith Barney or its
affiliates without specific authorization from the
Securities and Exchange Commission (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 Salomon 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 SSBC to be of good standing
and will not be made unless, in the judgment of the
Manager, 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 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
securities. For example, if the fund owns long-term U.S.
government securities 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
the Manager 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
because 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 portfolio of debt
securities against the risk of rising interest rates. The
fund may purchase put options on interest rate futures
contracts if the Manager 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 the
Manager 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 the Manager 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 a
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 may be 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 apply to all options
transactions, there are several special risks relating to
options on interest rate futures contracts. These risks
include the lack of assurance 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 maintained
or that closing transactions will be effected. Moreover,
the option may not be subject to daily price fluctuation
limits while the underlying futures contract is subject to
such limits, and as a result normal pricing 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 7 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 than
50% of the fund's outstanding shares. The remaining
restrictions may be changed by a vote of the fund's Board
of Directors at any time.
The fund will not:
1. Invest in a manner that would cause it to fail to be
a "diversified company" under the 1940 Act and the
rules, regulations and orders thereunder.
2. Issue "senior securities" as defined in the 1940 Act
and the rules, regulations and orders thereunder,
except as permitted under the 1940 Act and the rules,
regulations and orders thereunder
3. 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 (including its agencies and
instrumentalities) and securities of state or
municipal governments and their political
subdivisions are not considered to be issued by
members of any industry.
4. 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, and (b) the fund may, to the extent
consistent with its investment policies, enter into
reverse repurchase agreements, forward roll
transactions and similar investment strategies and
techniques. To the extent that it engages in
transactions described in (a) and (b), the fund will
be limited so that no more than 33 1/3% of the value
of its total assets (including the amount borrowed),
valued at the lesser of cost or market, less
liabilities (not including the amount borrowed)
valued at the time the borrowing is made, is derived
from such transactions.
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 objectives and
policies; (b) repurchase agreements; and (c) loans of
its portfolio securities, to the fullest extent
permitted under the 1940 Act.
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,
commodities or commodity contracts, but this
restriction shall not prevent the fund from (a)
investing in securities of issuers engaged in the real
estate business or the business of investing in real
estate (including interests in limited partnerships
owning or otherwise engaging in the real estate
business or the business of investing in real estate)
and securities which are secured by real estate or
interests therein; (b) holding or selling real estate
received in connection with securities it holds or
held; (c) trading in futures contracts and options
on futures contracts (including options on currencies
to the extent consistent with the funds' investment
objective and policies); or (d) investing in real
estate investment trust securities.
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 underlying securities and other
assets in escrow and collateral agreements with
respect to initial or maintenance margin in connection
with futures contracts and related options and options
on securities, indexes or similar items is not
considered to be the purchase of a security on margin.
9. Purchase or sell oil, gas or other mineral
exploration or development programs.
10. 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.
11. 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.)
12. Make investments for the purpose of exercising
control or management.
13. 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
SAI and any future change in those practices would require
Board approval and appropriate disclosure to investors. If
a percentage restriction is complied with at the time of an
investment, a later increase or decrease in the percentage
of assets resulting from a change in the values of
portfolio securities or in the amount of the fund's assets
will not constitute a violation of such restriction.
Diversified Classification
The fund is classified as a diversified fund under the
Investment Company Act of 1940, as amended (the "1940
Act"). In order to be classified as a diversified
investment company under the 1940 Act, the fund may not,
with respect to 75% of its assets, invest more than 5% of
its total assets in the securities of any one issuer
(except U.S. government securities) or own more than 10% of
the outstanding voting securities of any one issuer. For
the purposes of diversification under the 1940 Act, the
identification of the issuer of securities depends upon the
terms and conditions of the security. When the assets and
revenues of an agency, authority, instrumentality or other
political subdivision are separate from those of the
government creating the issuing entity and the security is
backed only by the assets and revenues of such entity, such
entity is deemed to be the sole issuer. Similarly, in the
case of a private activity bond, if that bond is backed
only by the assets and revenues of the nongovernmental
user, then such nongovernmental user is deemed to be the
sole issuer. If, however, in either case, the creating
government or some other entity guarantees a security, such
a guarantee would be considered a separate security and is
to be treated as an issue of such government or other
entity.
INVESTMENT MANAGEMENT AND OTHER SERVICES
Investment Adviser and Administrator
SSBC (formerly Mutual Management Corp) serves as investment
adviser to the Fund pursuant to a written agreement (the
"Manager Agreement"), which was approved by the Fund's
Board of directors, including a majority of the directors
who are not interested persons of the Fund or Smith Barney
(the "independent directors"). Subject to the supervision
and direction of the fund's board of directors, the manager
manages the fund's portfolio in accordance with the fund's
stated investment objective and policies, makes investment
decisions for the fund, places orders to purchase and sell
securities, and employs professional portfolio managers and
securities analysts who provide research services to the
fund. The manager pays the salary of any officer and
employee who is employed by both it and the trust. The
manager bears all expenses in connection with the
performance of its services. SSBC is a wholly owned
subsidiary of Salomon Smith Barney Holdings Inc.
("Holdings"), which in turn is a wholly owned subsidiary of
Citigroup Inc. ("Citigroup"). SSBC (through predecessor
entities) has been in the investment counseling business
since 1968 and renders investment advice to a wide variety
of individual, institutional and investment company clients
that had aggregate assets under management as of October
31, 1999 in excess of $ billion.
As compensation for SSBC's investment advisory services
rendered to the Fund, the Fund pays a fee computed daily
and paid monthly at the following annual rates of the
Fund's average daily net assets: 0.45% of the value of the
Fund's average daily net assets up to $1 billion and 0.415%
of the value of the Fund's average daily net assets in
excess of $1 billion. For the fiscal years ended July 31,
1999, 1998 and 1997, the Fund paid $ , $ and $
, respectively, in investment advisory fees.
SSBC also serves as administrator to the Fund pursuant to a
written agreement (the "Administration Agreement"), which
was most recently approved by the Fund's Board of
Directors, including a majority of the independent
directors of the Fund. SSBC pays the salary of any officer
and employee who is employed by both it and the Fund and
bears all expenses in connection with the performance of
its services.
As administrator SSBC will: (a) assist in supervising all
aspects of the Fund's operations except those performed by
the fund's investment manager under its investment advisory
agreement; b) supply the fund with office facilities (which
may be in SSBC's own offices), statistical and research
data, data processing services, clerical, accounting and
bookkeeping services, including, but not limited to, the
calculation of (i) the net asset value of shares of the
fund, (ii) applicable contingent deferred sales charges and
similar fees and charges and (iii) distribution fees,
internal auditing and legal services, internal executive
and administrative services, and stationary and office
supplies; and (c) prepare reports to shareholders of the
fund, tax returns and reports to and filings with the SEC
and state blue sky authorities.
As compensation for administrative services rendered to the
Fund, SSBC receives a fee computed daily and paid monthly
at the following annual rates: 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 Fund's average daily net assets in
excess of $1 billion. For the fiscal years ended July 31,
1999, 1998 and 1997, the Fund paid $ , $
, and $ in administration fees.
The Fund bears expenses incurred in its operation
including: taxes, interest, brokerage fees and commissions,
if any; fees of Directors who are not officers, directors,
shareholders or employees of Salomon Smith Barney or SSBC;
Securities and Exchange Commission ("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 maintaining corporate existence; investor services
(including allocated telephone and personnel expenses);
costs of preparation and printing of prospectuses and
statements of additional information for regulatory purposs
and for distribution to existing shareholders; costs of
shareholders' reports and shareholder meetings; and
meetings of the officers or Board of Directors of the Fund.
Auditors
KPMG LLP, 345 Park Avenue, New York, New York 10154, has
been selected as the Fund's independent auditor to examine
and report on the Fund's financial statements and
highlights for the fiscal year ending July 31, 2000.
Custodian and Transfer Agent.
PNC Bank, National Association ("PNC" or "custodian"),
located at 17th and Chestnut Streets, Philadelphia,
Pennsylvania, 19103, serves as the custodian of the fund.
Under its custody agreement with the fund, PNC holds the
fund's 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 Investors Services Group, Inc. ("First Data" or
"transfer agent"), located at Exchange Place, Boston,
Massachusetts 02109, serves as the fund's transfer agent.
Under the transfer agency agreement, the transfer agent
maintains the shareholder account records for the trust,
handles certain communications between shareholders and the
trust and distributes dividends and distributions payable
by the trust. For these services, the transfer agent
receives a monthly fee computed on the basis of the number
of shareholder accounts it maintains for the trust during
the month, and is reimbursed for out-of-pocket expenses.
The Fund has engaged the services of PFS Shareholder
Services as the sub-transfer agent for PFS Accounts ("sub-
transfer agent"). The sub-transfer agent is located at
3100 Breckinridge Blvd, Bldg 200, Duluth, Georgia 30099-
0062.
DISTRIBUTOR tc "DISTRIBUTOR"
CFBDS, Inc., located at 20 Milk Street, Boston,
Massachusetts 02109-5408 serves as the fund's distributor
pursuant to a written agreement dated October 8, 1998 (the
"Distribution Agreement") which was approved by the fund's
Board of Directors, including a majority of the independent
directors on July 15, 1998. Prior to the merger of
Travelers Group, Inc. and Citicorp Inc. on October 8, 1998,
Salomon Smith Barney served as the fund's distributor.
For the year ended July 31, 1999, the aggregate dollar
amount of commissions on Class A shares was $ all
of which was paid to Salomon Smith Barney. For the period
August 1, 1998 through October 7, 1998 the aggregate dollar
amount of commissions on Class A shares was $ all
of which was paid to Salomon Smith Barney. For the period
October 8, 1998 through July 31, 1999 the aggregate dollar
amount of commissions on Class A shares was $ , $ of
which was paid to Salomon Smith Barney.
For the period June 12, 1998 through October 7, 1998 the
aggregate dollar amount of commissions on Class L shares
was $ , all of which was paid to Salomon Smith Barney. For
the period October 8, 1998 through July 31, 1999 the
aggregate dollar amount of commissions on Class L shares
was $ , $ of which was paid to Salomon Smith Barney.
For the years ended July 31, 1997, July 31, 1998 and July
31, 1999, Salomon Smith Barney or its predecessor received
from shareholders $ , $ and $ ,
respectively, in deferred sales charges on the redemption
of Class A shares.
For the years ended July 31, 1997, July 31, 1998 and July
31, 1999, Salomon Smith Barney or its predecessor received
from shareholders $ , $ and $ , respectively,
in deferred sales charges on the redemption of Class B
shares.
For the years ended July 31, 1997, July 31, 1998 and July
31, 1999, Salomon Smith Barney or its predecessor received
from shareholders $ , $ and $ ,
respectively, in deferred sales charges on the redemption
of Class L shares.
When payment is made by the investor before the settlement
date, unless otherwise noted by the investor, the funds
will be held as a free credit balance in the investor's
brokerage account and Salomon Smith Barney may benefit from
the temporary use of the funds. The fund's Board of
Directors has been advised of the benefits to Salomon Smith
Barney resulting from these settlement procedures and will
take such benefits into consideration when reviewing the
Investment Advisory and Distribution Agreements for
continuance.
Distribution Arrangements. To compensate Salomon Smith
Barney for the services it provides and for the expense it
bears, 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 Salomon 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 L shares. In addition, the fund pays Salomon Smith
Barney a distribution fee with respect to the Class B and
Class L shares primarily intended to compensate Salomon
Smith Barney for its initial expense of paying financial
consultants a commission upon sales of those shares. The
Class B and Class L distribution fee is calculated at the
annual rate of 0.50% and 0.45%, repsectively of the value
of the fund's average daily net assets attributable to the
shares of the respective class.
The following service and distribution fees were incurred
during the periods indicated:
DISTRIBUTION PLAN FEES
Year
Ended 7/31/99
Year
Ended 7/31/98
Year
Ended 7/31/97
Class A
$
$
$
Class B
Class L
For the year ended July 31, 1999, Salomon Smith Barney
incurred distribution expenses totaling $ , consisting of $
for advertising, $ for printing and mailing of
Prospectuses, $ for interest expense, $
branch expenses, $ for total compensation to Salomon
Smith Barney Financial Consultants, and in accruals for
interest on the excess of Salomon Smith Barney expenses
incurred in distribution of the Fund's shares over the sum
of the distribution fees and deferred sales charges
received by Salomon Smith Barney from the Fund.
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
independent directors. The Plan may not be amended to
increase the amount of the service and distribution fees
without shareholder approval, and all 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 of the fund at any time,
without penalty, by vote of a majority of the independent
directors or by vote of a majority (as defined in the 1940
Act) of the outstanding voting securities of the class.
Pursuant to the Plan, Salomon 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.
PORTFOLIO TRANSACTIONS
Decisions to buy and sell securities for the fund are made
by the manager, subject to the overall review of the fund's
board of directors. Although investment decisions for the
fund are made independently from those of the other
accounts managed by the manager, investments of the type
the fund may make also may be made by those other accounts.
When the fund and one or more other accounts managed by the
manager 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 the
manager 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.
Allocation of transactions on behalf of the fund, including
their frequency, to various dealers is determined by the
manager in its best judgment and in a manner deemed fair
and reasonable to the fund's shareholders. The primary
considerations of the manager in allocating transactions
are 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
that provide supplemental investment research and
statistical or other services to the manager may receive
orders for portfolio transactions by the fund. Information
so received is in addition to, and not in lieu of, services
required to be performed by the manager, and the fees of
the manager are not reduced as a consequence of their
receipt of the supplemental information. The information
may be useful to the manager 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 the manager in carrying out its obligations to
the fund.
The fund will not purchase securities during the existence
of any underwriting or selling group relating to the
securities, of which the manager is a member, except to the
extent permitted by the SEC. Under certain circumstances,
the fund may be at a disadvantage because of this
limitation in comparison with other funds that have similar
investment objectives but that are not subject to a similar
limitation.
The fund has paid the following in brokerage commissions
for portfolio transactions:
Fiscal Year
Fiscal Year Fiscal Year
Ended 7/31/99 Ended
7/31/98 Ended 7/31/97
Total Brokerage Commissions $ $
$
Total Brokerage Commissions $ $
$
paid to Salomon Smith Barney
% of Total Brokerage Commissions %
% %
paid to Salomon Smith Barney
% of Total Transactions involving %
% %
Commissions paid to Salomon
Smith Barney
Portfolio securities transactions on behalf of the fund are
placed by the manager with a number of brokers and dealers,
including Salomon Smith Barney. Salomon Smith Barney has
advised the fund that in transactions with the fund,
Salomon Smith Barney charges a commission rate at least as
favorable as the rate Salomon Smith Barney charges its
comparable unaffiliated customers in similar transactions.
PORTFOLIO TURNOVER
The fund generally does not engage in short-term trading
but intends to purchase securities for long-term capital
appreciation. The fund's annual portfolio turnover rate is
not expected to exceed 100%. A portfolio turnover rate of
100% would occur if all of the securities in the fund's
portfolio were replaced once during a period of one year.
The portfolio turnover rate is calculated by dividing the
lesser of purchases or sales of portfolio securities for
the year by the monthly average value of portfolio
securities. Securities with remaining maturities of one
year or less at the date of acquisition are excluded from
the calculation. For the fiscal years ended December 31,
1998 and 1997, the fund's portfolio turnover rate was 63%
and 57%, respectively.
Future portfolio turnover rates may vary greatly from year
to year as well as within a particular year and may be
affected by cash requirements for redemptions of the fund's
shares. Portfolio turnover rates will largely depend on
the level of purchases and redemptions of fund shares.
Higher portfolio turnover rates can result in corresponding
increases in brokerage commissions. In addition, to the
extent the fund realizes net short-term capital gains as
the result of more portfolio transactions, distributions of
such gains would be taxable to shareholders as ordinary
income.
PURCHASE OF SHARES tc "PURCHASE OF SHARES"
Sales Charge Alternatives
The following classes of shares are available for purchase.
See the Prospectus for a discussion of factors to consider
in selecting which Class of shares to purchase.
Class A Shares. Class A shares are sold to investors at
the public offering price, which is the net asset value
plus an initial sales charge as follows:
Amount of
Investment
Sales Charge as a
%
of Transaction
Sales Charge as a
%
of Amount
Invested
Dealers'
Reallowance as %
of Offering Price
Less than $25,000
4.50
4.71
4.00
$ 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 of $500,000 or more will
be made at net asset value without any initial sales
charge, but will be subject to a deferred sales
charge of 1.00% on redemptions made within 12 months
of purchase. The deferred sales charge on Class A
shares is payable to Salomon Smith Barney, which
compensates Salomon Smith Barney Financial
Consultants and other dealers whose clients make
purchases of $500,000 or more. The deferred sales
charge is waived in the same circumstances in which
the deferred sales charge applicable to Class B and
Class L shares is waived. See "Deferred Sales Charge
Alternatives" and "Waivers of deferred sales charge."
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 1933 Act. 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 and his or her immediate family, or
a trustee or other fiduciary of a single trust estate or
single fiduciary account.
Class B Shares. Class B shares are sold without an initial
sales charge but are subject to a Deferred Sales Charge
payable upon certain redemptions. See "Deferred Sales
Charge Provisions" below.
Class L Shares. Class L shares are sold with an initial
sales charge of 1.00% (which is equal to 1.01% of the
amount invested) and are subject to a deferred sales charge
payable upon certain redemptions. See "Deferred Sales
Charge Provisions" below. Until June 22, 2001 purchases of
Class L shares by investors who were holders of Class C
shares of the fund on June 12, 1998 will not be subject to
the 1% initial sales charge.
Class Y Shares. Class Y shares are sold without an initial
sales charge or deferred sales charge and are available
only to investors investing a minimum of $15,000,000
(except purchases of Class Y shares by Smith Barney Concert
Allocation Series Inc., for which there is no minimum
purchase amount).
General
Investors may purchase shares from a Salomon Smith Barney
Financial Consultant or a broker that clears through
Salomon Smith Barney ("Dealer Representative"). In
addition, certain investors, including qualified retirement
plans purchasing through certain Dealer Representatives,
may purchase shares directly from the fund. When
purchasing shares of the fund, investors must specify
whether the purchase is for Class A, Class B, Class L or
Class Y shares. Salomon Smith Barney and Dealer
Representatives may charge their customers an annual
account maintenance fee in connection with a brokerage
account through which an investor purchases or holds
shares. Accounts held directly at First Data are not
subject to a maintenance fee.
Purchases of the Fund's Class Z shares must be made in
accordance with the terms of a Qualified Plan or a Salomon
Smith Barney UIT. There are no minimum investment
requirements for Class Z shares; however the Fund reserves
the right to vary this policy at any time. Shareholders
acquiring Class Z shares through a Qualified Plan or a
Salomon Smith Barney UIT should consult the terms of their
respective plans for redemption provisions.
Investors in Class A, Class B and Class L shares may open
an account in the fund by making an initial investment of
at least $1,000 for each account, or $250 for an IRA or a
Self-Employed Retirement Plan, in the fund. Investors in
Class Y shares may open an account by making an initial
investment of $15,000,000. 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(c) of the Code, the minimum initial investment
required for Class A, Class B and Class L shares and the
subsequent investment requirement for all Classes in the
fund is $25. For shareholders purchasing shares of the
fund through the Systematic Investment Plan on a monthly
basis, the minimum initial investment requirement for Class
A, Class B and Class L shares and subsequent investment
requirement for all Classes is $25. For shareholders
purchasing shares of the fund through the Systematic
Investment Plan on a quarterly basis, the minimum initial
investment required for Class A, Class B and Class L shares
and the subsequent investment requirement for all Classes
is $50. There are no minimum investment requirements for
Class A shares for employees of Citigroup and its
subsidiaries, including Salomon Smith Barney, unitholders
who invest distributions from a UIT sponsored by Salomon
Smith Barney, and Directors/Trustees of any of the Smith
Barney Mutual Funds, 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 the
offering of shares from time to time. Shares purchased will
be held in the shareholder's account by First Data. Share
certificates are issued only upon a shareholder's written
request to First Data.
Purchase orders received by the fund or a Salomon Smith
Barney Financial Consultant prior to the close of regular
trading on the NYSE, on any day the fund calculates its net
asset value, are priced according to the net asset value
determined on that day (the ''trade date''). Orders
received by a Dealer Representative prior to the close of
regular trading on the NYSE on any day the fund calculates
its net asset value, are priced according to the net asset
value determined on that day, provided the order is
received by the fund or the fund's agent prior to its close
of business. For shares purchased through Salomon Smith
Barney or a Dealer Representative purchasing through
Salomon Smith Barney, payment for shares of the fund is due
on the third business day after the trade date. In all
other cases, payment must be made with the purchase order.
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, Salomon Smith
Barney or First Data is authorized through preauthorized
transfers of at least $25 on a monthly basis or at least
$50 on a quarterly basis 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 for systematic additions to the
shareholder's fund account. A shareholder who has
insufficient funds to complete the transfer will be charged
a fee of up to $25 by Salomon Smith Barney or First Data.
The Systematic Investment Plan also authorizes Salomon
Smith Barney to apply cash held in the shareholder's
Salomon 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 Salomon Smith Barney Financial
Consultant or a Dealer Representative.
Sales Charge Waivers and Reductions
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 to (i) Board Members
and employees of Citigroup and its subsidiaries and any
Citigroup affiliated funds including the Smith Barney
Mutual Funds (including retired Board Members and
employees); the immediate families of such persons
(including the surviving spouse of a deceased Board Member
or employee); and to a pension, profit-sharing or other
benefit plan for such persons and (ii) employees of members
of the National Association of Securities Dealers, Inc.,
provided such sales are made upon the assurance of the
purchaser that the purchase is made for investment purposes
and that the securities will not be resold except through
redemption or repurchase; (b) offers of Class A shares to
any other investment company to effect the combination of
such company with the fund by merger, acquisition of assets
or otherwise; (c) purchases of Class A shares by any client
of a newly employed Salomon Smith Barney Financial
Consultant (for a period up to 90 days from the
commencement of the Financial Consultant's employment with
Salomon 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) purchases by shareholders who have
redeemed Class A shares in the fund (or Class A shares of
another Smith Barney Mutual Fund that is offered with a
sales charge) and who wish to reinvest their redemption
proceeds in the fund, provided the reinvestment is made
within 60 calendar days of the redemption; (e) purchases by
accounts managed by registered investment advisory
subsidiaries of Citigroup; (f) direct rollovers by plan
participants of distributions from a 401(k) plan offered to
employees of Citigroup or its subsidiaries or a 401(k) plan
enrolled in the Smith Barney 401(k) Program (Note:
subsequent investments will be subject to the applicable
sales charge); (g) purchases by a separate account used to
fund certain unregistered variable annuity contracts; (h)
investments of distributions from or proceeds from a sale
of a UIT sponsored by Salomon Smith Barney; (i) purchases
by investors participating in a Salomon Smith Barney fee-
based arrangement; and (j) purchases of Class A shares by
Section 403(b) or Section 401(a) or (k) accounts associated
with Copeland Retirement Programs. In order to obtain such
discounts, the purchaser must provide sufficient
information at the time of purchase to permit verification
that the purchase would qualify for the elimination of the
sales charge.
Right of Accumulation. Class A shares of the fund may be
purchased by ''any person'' (as defined above) at a reduced
sales charge or at net asset value determined by
aggregating the dollar amount of the new purchase and the
total net asset value of all Class A shares of the fund and
of other Smith Barney Mutual Funds that are offered with a
sales charge as currently listed under ''Exchange
Privilege'' then held by such person and applying the sales
charge applicable to such aggregate. In order to obtain
such discount, the purchaser must provide sufficient
information at the time of purchase to permit verification
that the purchase qualifies for the reduced sales charge.
The right of accumulation is subject to modification or
discontinuance at any time with respect to all shares
purchased thereafter.
Letter of Intent - Class A Shares. A Letter of Intent for
an amount 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 of Investment'' as
referred to in the preceding sales charge table includes
(i) all Class A shares of the fund and other Smith Barney
Mutual Funds offered with a sales charge acquired during
the term of the letter plus (ii) the value of all Class A
shares previously purchased and still owned. 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. The term of the Letter
will commence upon the date the Letter is signed, or at the
options of the investor, up to 90 days before such date.
Please contact a Salomon Smith Barney Financial Consultant
or First Data to obtain a Letter of Intent application.
Letter of Intent - Class Y Shares. A Letter of Intent may
also be used as a way for investors to meet the minimum
investment requirement for Class Y shares (except purchases
of Class Y shares by Smith Barney Concert Allocation Series
Inc., for which there is no minimum purchase amount). Such
investors must make an initial minimum purchase of
$5,000,000 in Class Y shares of the fund and agree to
purchase a total of $15,000,000 of Class Y shares of the
fund within 13 months from the date of the Letter. If a
total investment of $15,000,000 is not made within the 13-
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 Deferred Sales Charge of 1.00%. Please contact a Salomon
Smith Barney Financial Consultant or First Data for further
information.
Deferred Sales Charge Provisions
''Deferred Sales Charge Shares'' are: (a) Class B shares;
(b) Class L shares; and (c) Class A shares that were
purchased without an initial sales charge but are subject
to a Deferred Sales Charge. A Deferred Sales Charge may be
imposed on certain redemptions of these shares.
Any applicable Deferred Sales Charge 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. Deferred Sales Charge Shares that are
redeemed will not be subject to a Deferred Sales Charge 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 L shares
and Class A shares that are Deferred Sales Charge Shares,
shares redeemed more than 12 months after their purchase.
Class L shares and Class A shares that are Deferred Sales
Charge Shares are subject to a 1.00% Deferred Sales Charge
if redeemed within 12 months of purchase. In circumstances
in which the Deferred Sales Charge 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 Salomon 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 Class B shares held under the Smith Barney
401(k) Program, as described below. See ''Smith Barney
401(k) and ExecChoiceTM Programs.''
Year Since Purchase Payment Was
Made
Deferred Sales Charge
First
4.50%
Second
4.00
Third
3.00
Fourth
2.00
Fifth
1.00
Sixth through eight
0.00
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 will also be converted at that time such
proportion of Class B Dividend Shares owned by the
shareholders 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.
The length of time that Deferred Sales Charge Shares
acquired through an exchange have been held will be
calculated from the date 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
Deferred Sales Charge will reduce the gain or increase the
loss, as the case may be, on the amount realized on
redemption. The amount of any Deferred Sales Charge will be
paid to Salomon Smith Barney.
To provide an example, assume an investor purchased 100
Class B shares of the fund at $10 per share for a cost of
$1,000. Subsequently, the investor acquired 5 additional
shares of the fund 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
Deferred Sales Charge would not be applied to the amount
which represents appreciation ($200) and the value of the
reinvested dividend shares ($60). Therefore, $240 of the
$500 redemption proceeds ($500 minus $260) would be charged
at a rate of 4.00% (the applicable rate for Class B shares)
for a total Deferred Sales Charge of $9.60.
Waivers of Deferred Sales Charge
The Deferred Sales Charge will be waived on: (a) exchanges
(see ''Exchange Privilege''); (b) automatic cash
withdrawals in amounts equal to or less than 1.00% per
month of the value of the shareholder's shares at the time
the withdrawal plan commences (see ''Automatic Cash
Withdrawal Plan'') (but, 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 established prior to November 7, 1994);
(c) redemptions of shares within 12 months following the
death or disability of the shareholder; (d) redemptions of
shares made in connection with qualified distributions from
retirement plans or IRAs upon the attainment of age 591/2;
(e) involuntary redemptions; and (f) redemptions of shares
to effect 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
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 Deferred Sales
Charge imposed on the prior redemption.
Deferred Sales Charge waivers will be granted subject to
confirmation (by Salomon Smith Barney in the case of
shareholders who are also Salomon 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) and ExecChoiceTM Programs
Investors may be eligible to participate in the Smith
Barney 401(k) Program or the Smith Barney ExecChoiceTM
Program. To the extent applicable, the same terms and
conditions, which are outlined below, are offered to all
plans participating (''Participating Plans'') in these
programs.
The fund offers to Participating Plans Class A and Class L
shares as investment alternatives under the Smith Barney
401(k) and ExecChoiceTM Programs. Class A and Class L shares
acquired through the Participating Plans are subject to the
same service and/or distribution fees as the Class A and
Class L shares acquired by other investors; however, they
are not subject to any initial sales charge or Deferred
Sales Charge. Once a Participating Plan has made an initial
investment in the fund, all of its subsequent investments
in the fund must be in the same Class of shares, except as
otherwise described below.
Class A Shares. Class A shares of the fund are offered
without any sales charge or Deferred Sales Charge to any
Participating Plan that purchases $1,000,000 or more of
Class A shares of one or more funds of the Smith Barney
Mutual Funds.
Class L Shares. Class L shares of the fund are offered
without any sales charge or Deferred Sales Charge to any
Participating Plan that purchases less than $1,000,000 of
Class L shares of one or more funds of the Smith Barney
Mutual Funds.
401(k) and ExecChoiceTM Plans Opened On or After June 21,
1996. If, at the end of the fifth year after the date the
Participating Plan enrolled in the Smith Barney 401(k)
Program or the Smith Barney ExecChoiceTM Program, a
Participating Plan's total Class L holdings in all non-
money market Smith Barney Mutual Funds equal at least
$1,000,000, the Participating Plan will be offered the
opportunity to exchange all of its Class L shares for Class
A shares of the fund. For Participating Plans that were
originally established through a Salomon Smith Barney
retail brokerage account, the five-year period will be
calculated from the date the retail brokerage account was
opened. Such Participating Plans will be notified of the
pending exchange in writing within 30 days after the fifth
anniversary of the enrollment date and, unless the exchange
offer has been rejected in writing, the exchange will occur
on or about the 90th day after the fifth anniversary date.
If the Participating Plan does not qualify for the five-
year exchange to Class A shares, a review of the
Participating Plan's holdings will be performed each
quarter until either the Participating Plan qualifies or
the end of the eighth year.
401(k) Plans Opened Prior to June 21, 1996. In any year
after the date a Participating Plan enrolled in the Smith
Barney 401(k) Program, if a Participating Plan's total
Class L holdings in all non-money market Smith Barney
Mutual Funds equal at least $500,000 as of the calendar
year-end, the Participating Plan will be offered the
opportunity to exchange all of its Class L 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.
Any Participating Plan in the Smith Barney 401(k) or the
Smith Barney ExecChoiceTM Programs, whether opened before or
after June 21, 1996, that has not previously qualified for
an exchange into Class A shares will be offered the
opportunity to exchange all of its Class L shares for Class
A shares of the fund, regardless of asset size, at the end
of the eighth year after the date the Participating Plan
enrolled in the Smith Barney 401(k) Program. Such Plans
will be notified of the pending exchange in writing
approximately 60 days before the eighth anniversary of the
enrollment date and, unless the exchange has been rejected
in writing, the exchange will occur on or about the eighth
anniversary date. Once an exchange has occurred, a
Participating Plan will not be eligible to acquire
additional Class L shares of the fund, but instead may
acquire Class A shares of the fund. Any Class L shares not
converted will continue to be subject to the distribution
fee.
Participating Plans wishing to acquire shares of the fund
through the Smith Barney 401(k) Program or the Smith Barney
ExecChoiceTM Program must purchase such shares directly from
the transfer agent. For further information regarding these
Programs, investors should contact a Salomon 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 L 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
Deferred Sales Charge, however, is imposed on certain
redemptions of Class L shares, and Class A shares when
purchased in amounts exceeding $500,000. The method of
computation of the public offering price is shown in each
fund's financial statements, incorporated by reference in
their entirety into this SAI.
REDEMPTION OF SHARES tc "REDEMPTION OF SHARES"
The right of redemption of shares of the fund may be
suspended or the date of payment postponed (a) for any
periods during which the NYSE is closed (other than for
customary weekend and holiday closings), (b) when trading
in the markets the fund normally utilizes is restricted, or
an emergency exists, as determined by the SEC, so that
disposal of the fund's investments or determination of its
net asset value is not reasonably practicable or (c) for
any other periods as the SEC by order may permit for the
protection of the fund's shareholders.
If the shares to be redeemed were issued in certificate
form, the certificates must be endorsed for transfer (or be
accompanied by an endorsed stock power) and must be
submitted to First Data together with the redemption
request. Any signature appearing on a share certificate,
stock power or written redemption request in excess of
$10,000 must be guaranteed by an eligible guarantor
institution such as a domestic bank, savings and loan
institution, domestic credit union, member bank of the
Federal Reserve System or member firm of a national
securities exchange. Written redemption requests of
$10,000 or less do not require a signature guarantee unless
more than one such redemption request is made in any 10-day
period or the redemption proceeds are to be sent to an
address other than the address of record. Unless otherwise
directed, redemption proceeds will be mailed to an
investor's address of record. First Data may require
additional supporting documents for redemptions made by
corporations, executors, administrators, directors or
guardians. A redemption request will not be deemed
properly received until First Data receives all required
documents in proper form.
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 Transfer Agent receives further instructions from
Salomon Smith Barney, or if the shareholder's account is
not with Salomon Smith Barney, from the shareholder
directly. The redemption proceeds will be remitted on or
before the third business day following receipt of proper
tender, except on any days on which the NYSE is closed or
as permitted under the 1940 Act, in extraordinary
circumstances. Generally, if the redemption proceeds are
remitted to a Salomon Smith Barney brokerage account, these
funds will not be invested for the shareholder's benefit
without specific instruction and Salomon Smith Barney will
benefit from the use of temporarily uninvested funds.
Redemption proceeds for shares purchased by check, other
than a certified or official bank check, will be remitted
upon clearance of the check, which may take up to ten days
or more.
Distribution in Kind
If the board of directors of the trust determines that it
would be detrimental to the best interests of the remaining
shareholders 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. Shareholders may
incur brokerage commissions when they subsequently sell
those securities.
Automatic Cash Withdrawal Plan
An automatic cash withdrawal plan (the "Withdrawal Plan")
is available to shareholders of the fund who own shares of
the fund 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 Deferred Sales Charge 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 Deferred Sales Charge 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 withdrawals exceed dividends,
distributions and appreciation of a shareholder's
investment in a fund, 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 a 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 of a fund who wish to participate in the
Withdrawal Plan and who hold their shares of the fund in
certificate form must deposit their share certificates with
the transfer agent 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 involved. A shareholder who
purchases shares directly through the transfer agent may
continue to do so and applications for participation in the
Withdrawal Plan must be received by the transfer agent 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
Salomon Smith Barney Financial Consultant.
Waivers of Deferred Sales Charge
The Deferred Sales Charge will be waived on: (a) exchanges
(see "Exchange Privilege" in the prospectus); (b) automatic
cash withdrawals in amounts equal to or less than 1.00% per
month of the value of the shareholder's shares at the time
the withdrawal plan commences (see "Automatic Cash
Withdrawal Plan in the prospectus") (but, 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 established prior to
November 7, 1994); (c) redemptions of shares within 12
months following the death or disability of the
shareholder; (d) redemptions of shares made in connection
with qualified distributions from retirement plans or IRAs
upon the attainment of age 591/2 ; (e) involuntary
redemptions; and (f) redemptions of shares to effect 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 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 Deferred Sales Charge
imposed on the prior redemption. Deferred Sales Charge
waivers will be granted subject to confirmation (by Salomon
Smith Barney in the case of shareholders who are also
Salomon Smith Barney clients or by the transfer agent in
the case of all other shareholders) of the shareholder's
status or holdings, as the case may be.
Additional Information Regarding Telephone Redemption And
Exchange Program
Neither the fund nor its agents will be liable for
following instructions communicated by telephone that are
reasonably believed to be genuine. The fund and its agents
will employ procedures designed to verify the identity of
the caller and legitimacy of instructions (for example, a
shareholder's name and account number will be required and
phone calls may be recorded). The fund reserves the right
to suspend, modify or discontinue the telephone redemption
and exchange program or to impose a charge for this service
at any time following at least seven (7) days' prior notice
to shareholders.
VALUATION OF SHARES tc "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, Martin Luther King, Jr. Day, Presidents'
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 at the mean
between the closing bid and asked prices 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
instrument. All other securities and other assets of the
fund will be valued at fair value as determined in good
faith by the fund's board of directors.
The fund's net asset value per share is determined as of
the close of regular trading on the NYSE, on each day that
the NYSE is open, by dividing the value of the fund's net
assets attributable to each class by the total number of
shares of the class outstanding.
Generally, the fund's investments are valued at market
value or, in the absence of a market value with respect to
any securities, at fair value as 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 fund's board of directors
determines that amortized cost is the fair value of those
instruments.
EXCHANGE PRIVILEGE tc "EXCHANGE PRIVILEGE"
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, on the basis of
relative net asset value per share at the time of exchange
as follows:
A. Class A and Class Y shares of the fund may be
exchanged without a sales charge for the respective
shares of any of the Smith Barney Mutual funds.
B. 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 Smith Barney
Mutual Fund will be subject to the higher applicable
Deferred Sales Charge of the two funds and, for
purposes of calculating Deferred Sales Charge rates
and conversion periods, will be deemed to have been
held since the date the shares being exchanged were
deemed to be purchased.
C. Class L shares of any fund may be exchanged
without a sales charge. For purposes of Deferred
Sales Charge applicability, Class L shares of the
fund exchanged for Class C shares of another Smith
Barney Mutual fund will be deemed to have been owned
since the date the shares being exchanged were deemed
to be purchased.
The exchange privilege enables shareholders in any Smith
Barney Mutual fund to acquire shares of the same Class in a
fund with different investment objectives when they believe
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 should obtain and review a copy of the current
prospectus of each fund into which an exchange is being
considered. Prospectuses may be obtained from a Salomon
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 Deferred Sales Charge, the proceeds are
immediately invested, at a price as described above, in
shares of the fund being acquired. Salomon 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.
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. The manager 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, the fund may, at its
discretion, decide to limit additional purchases and/or
exchanges by a shareholder. Upon such a determination, the
fund will provide notice in writing or by telephone to the
shareholder at least 15 days prior to suspending the
exchange privilege and during the 15 day period the
shareholder will be required to (a) redeem his or her
shares in the fund or (b) remain invested in the fund or
exchange into any of the funds of the Smith Barney Mutual
funds ordinarily available, which position the shareholder
would be expected to maintain for a significant period of
time. All relevant factors will be considered in
determining what constitutes an abusive pattern of
exchanges.
PERFORMANCE DATA tc "PERFORMANCE DATA"
From time to time the fund may advertise its total return
and average annual total return in advertisements and/or
other types of sales literature. These figures are
computed separately for Class A, Class B, Class L, Class Y
and Class Z 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 the prospectus, then dividing the
value of the investment at the end of the period so
calculated by the initial amount invested and subtracting
100%. The standard average annual total return, as
prescribed by the SEC is derived from this total return,
which provides the ending redeemable value. Such standard
total return information may also be accompanied with
nonstandard total return information for differing periods
computed in the same manner but without annualizing the
total return or taking sales charges into account. The
fund may also include comparative performance information
in advertising or marketing its shares. Such performance
information may include data from Lipper Analytical
Services, Inc. and other financial publications.
From time to time, the trust may quote a fund's yield or
total return in advertisements or in reports and other
communications to shareholders. The trust may include
comparative performance information in advertising or
marketing the fund's shares. Such performance information
may include 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 Fund Values, The New York Times, USA Today and The
Wall Street Journal. To the extent any advertisement or
sales literature of the fund describes the expenses or
performance of any Class it will also disclose such
information for the other Classes.
Average Annual Total Return
A fund's "average annual total return," as described below,
is computed according to a formula prescribed by the SEC.
The formula can be expressed as follows:
P(1 + T)n = ERV
Where: P = a hypothetical
initial payment of $1,000.
T = average annual total
return.
n = number of years.
ERV = Ending Redeemable Value
of a hypothetical
$1,000 investment made
at the beginning of a
1-, 5- or 10-year
period at the end of a
1-, 5- or 10-year
period (or fractional
portion thereof),
assuming reinvestment
of all dividends and
distributions.
The ERV assumes complete redemption of the hypothetical
investment at the end of the measuring period. A fund's
net investment income changes in response to fluctuations
in interest rates and the expenses of the fund.
Class A's average annual total return was as follows for
the periods indicated:
% for the one-year period ended July 31, 1999
% per annum during the five-year period ended July 31, 1999
% per annum during the ten-year period ended July 31, 1999
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. If the maximum sales
charge had not been deducted, Class A's average annual
total return for those same periods would have been %, %,
% and % respectively.
Class B's average annual total return was as follows for
the periods indicated:
% for the one-year period ended July 31, 1999
% per annum during the five-year period ended July 31, 1999
% for the period from inception (November 6, 1992) through
July 31, 1999
The average annual total return figures assume that the
maximum applicable deferred sales charge has been deducted
from the investment at the time of redemption. If the
maximum deferred sales charge had not been deducted, Class
B's average annual total return for those same periods
would have been %, % and %, respectively.
Class L's average annual total return was as follows for
the periods indicated:
% for the one-year period ended July 31, 1999
% per annum during the five-year period ended July 31, 1999
% for the period from inception (June 29, 1993) through
July 31, 1999
The average annual total return figures assume that the
maximum applicable deferred sales charge has been deducted
from the investment at the time of redemption. If the
maximum initial and deferred sales charge had not been
deducted, Class L's average annual total return for those
same periods would have been %, % and %,
respectively.
Class Y's average annual total return was as follows for
the period indicated:
% for the one-year period ended July 31,1999
% for the period from inception (February 26, 1996) through
July 31,1999
Class Y shares do not incur initial sales charges nor
deferred sales charges.
Aggregate Total Return
The fund's "aggregate total return," as described below,
represents the cumulative change in the value of an
investment in the fund for the specified period and is
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 ERV assumes complete redemption of the hypothetical
investment at the end of the measuring period.
Class A's aggregate total return was as follows for the
periods indicated:
% for the one-year period ended July 31, 1999
% for the five-year period ended July 31, 1999
% for the ten-year period ended July 31, 1999
These aggregate total return figures assume the maximum
4.50% sales charge has been deducted from the investment at
the time of purchase. If the maximum sales charge had not
been deducted, Class A's aggregate total return for those
same periods would have been %, % and %,
respectively.
Class B's aggregate total return was as follows for the
periods indicated:
% for the one-year period ended July 31, 1999
% for the five-year period ended July 31, 1999
% for the period from inception (November 6, 1992) through
July 31, 1999.
These aggregate total return figures assume that the
maximum applicable deferred sales charge has been deducted
from the investment at the time of redemption. If the
maximum applicable deferred sales charge had not been
deducted, Class B's aggregate total return for those same
periods would have been %, % and %,
respectively.
Class L's aggregate total return was as follows for the
periods indicated:
% for the one-year period ended July 31, 1999
% for the five-year period ended July 31, 1999
% for the period from inception (June 29, 1993) through
July 31, 1999
These aggregate total return figures assume that the
maximum applicable deferred sales charge has been deducted
from the investment at the time of redemption If the
maximum applicable deferrec sales charge had not been
deducted, Class L's aggregate total return for those same
periods would have been %, % and %,
respectively.
Class Y's aggregate total return was as follows for the
period indicated:
% for the one-year period ended July 31, 1999
% for the period from inception (February 7, 1996) through
July 31,1999
Class Y shares do not incur sales charges or deferred sales charges.
Performance will vary from time to time depending upon market conditions, the
composition of the fund's portfolio and operating expenses and the expenses
exclusively attributable to the Class. Consequently, any given performance
quotation should not be considered representative of the Class's 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 a Class's 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. Each Class' net investment income changes in response to
fluctuations in interest rates and the expenses of the fund.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends and Distributions
The fund's policy is to distribute its net investment income and net realized
capital gains, if any, annually. The fund may also pay additional dividends
shortly before December 31 from certain amounts of undistributed ordinary and
capital gains realized, in order to avoid a Federal excise tax liability.
If a shareholder does not otherwise instruct, dividends and capital gains
distributions will be reinvested automatically in additional shares of the
same Class at net asset value, subject to no sales charge or deferred sales
charge. A shareholder may change the option at any time by notifying his
Salomon Smith Barney Financial Consultant or Dealer Representative.
Shareholders whose account are held directly at First Data should notify
First Data in writing, requesting a change to this reinvest option
The per share dividends on Class B and Class L shares of the fund may be
lower than the per share dividends on Class A and Class Y shares principally
as a result of the distribution fee applicable with respect to Class B and
Class L shares. The per share dividends on Class A shares of the fund may be
lower than the per share dividends on Class Y shares principally as a result
of the service fee applicable to Class A shares. Distributions of capital
gains, if any, will be in the same amount for Class A, Class B, Class L and
Class Y shares.
Taxes
tc "TAXES "
The following is a summary of the material United States federal income tax
considerations regarding the purchase, ownership and disposition of shares of
a fund. Each prospective shareholder is urged to consult his own tax adviser
with respect to the specific federal, state, local and foreign tax
consequences of investing in a fund. The summary is based on the laws in
effect on the date of this SAI, which are subject to change.
The Fund and Its Investments
The fund intends to continue to qualify to be treated as a regulated
investment company each taxable year under the Internal Revenue Code of 1986,
as amended (the "Code"). To so qualify, the fund must, among other things:
(a) derive at least 90% of its gross income in each taxable year from
dividends, interest, payments with respect to securities, loans and gains
from the sale or other disposition of stock or securities or foreign
currencies, or other income (including, but not limited to, gains from
options, futures or forward contracts) derived with respect to its business
of investing in such stock, securities or currencies; and (b) diversify its
holdings so that, at the end of each quarter of the fund's taxable year, (i)
at least 50% of the market value of the fund's assets is represented by cash,
securities of other regulated investment companies, United States government
securities and other securities, with such other securities limited, in
respect of any one issuer, to an amount not greater than 5% of the fund's
assets and not greater than 10% of the outstanding voting securities of such
issuer and (ii) not more than 25% of the value of its assets is invested in
the securities (other than United States government securities or securities
of other regulated investment companies) of any one issuer or any two or more
issuers that the fund controls and are determined to be engaged in the same
or similar trades or businesses or related trades or businesses. The fund
expects that all of its foreign currency gains will be directly related to
its principal business of investing in stocks and securities.
As a regulated investment company, the fund will not be subject to United
States federal income tax on its net investment income (i.e., income other
than its net realized long- and short-term capital gains) and its net
realized long- and short-term capital gains, if any, it distributes to its
shareholders, provided an amount equal to at least 90% of the sum of its
investment company taxable income (i.e., 90% of its taxable income minus the
excess, if any, of its net realized long-term capital gains over its net
realized short-term capital losses (including any capital loss carryovers),
plus or minus certain other adjustments as specified in the Code) and its net
tax-exempt income for the taxable year is distributed in compliance with the
Code's timing and other requirements but will be subject to tax at regular
corporate rates on any taxable income or gains it does not distribute.
Furthermore, the fund will be subject to a United States corporate income tax
with respect to such distributed amounts in any year it fails to qualify as a
regulated investment company or fails to meet this distribution requirement.
The Code imposes a 4% nondeductible excise tax on the fund to the extent it
does not distribute by the end of any calendar year at least 98% of its net
investment income for that year and 98% of the net amount of its capital
gains (both long-and short-term) for the one-year period ending, as a general
rule, on October 31 of that year. For this purpose, however, any income or
gain retained by the fund that is subject to corporate income tax will be
considered to have been distributed by year-end. In addition, the minimum
amounts that must be distributed in any year to avoid the excise tax will be
increased or decreased to reflect any underdistribution or overdistribution,
as the case may be, from the previous year. The fund anticipates it will pay
such dividends and will make such distributions as are necessary in order to
avoid the application of this tax.
If, in any taxable year, the fund fails to qualify as a regulated investment
company under the Code or fails to meet the distribution requirement, it
would be taxed in the same manner as an ordinary corporation and
distributions to its shareholders would not be deductible by the fund in
computing its taxable income. In addition, in the event of a failure to
qualify, the fund's distributions, to the extent derived from the fund's
current or accumulated earnings and profits would constitute dividends
(eligible for the corporate dividends-received deduction) which are taxable
to shareholders as ordinary income, even though those distributions might
otherwise (at least in part) have been treated in the shareholders' hands as
long-term capital gains. If the fund fails to qualify as a regulated
investment company in any year, it must pay out its earnings and profits
accumulated in that year in order to qualify again as a regulated investment
company. In addition, if the fund failed to qualify as a regulated
investment company for a period greater than one taxable year, the fund may
be required to recognize any net built-in gains (the excess of the aggregate
gains, including items of income, over aggregate losses that would have been
realized if it had been liquidated) in order to qualify as a regulated
investment company in a subsequent year.
The fund's transactions in foreign currencies, forward contracts, options and
futures contracts (including options and futures contracts on foreign
currencies) will be subject to special provisions of the Code (including
provisions relating to "hedging transactions" and "straddles") that, among
other things, may affect the character of gains and losses realized by the
fund (i.e., may affect whether gains or losses are ordinary or capital),
accelerate recognition of income to the fund and defer fund losses. These
rules could therefore affect the character, amount and timing of
distributions to shareholders. These provisions also (a) will require the
fund to mark-to-market certain types of positions in its portfolio (i.e.,
treat them as if they were closed out) and (b) may cause the fund to
recognize income without receiving cash with which to pay dividends or make
distributions in amounts necessary to satisfy the distribution requirements
for avoiding income and excise taxes. The fund will monitor its
transactions, will make the appropriate tax elections and will make the
appropriate entries in its books and records when it acquires any foreign
currency, forward contract, option, futures contract or hedged investment in
order to mitigate the effect of these rules and prevent disqualification of
the fund as a regulated investment company.
The fund's investment in Section 1256 contracts, such as regulated futures
contracts, most forward currency forward contracts traded in the interbank
market and options on most stock indices, are subject to special tax rules.
All section 1256 contracts held by the fund at the end of its taxable year
are required to be marked to their market value, and any unrealized gain or
loss on those positions will be included in the fund's income as if each
position had been sold for its fair market value at the end of the taxable
year. The resulting gain or loss will be combined with any gain or loss
realized by the fund from positions in section 1256 contracts closed during
the taxable year. Provided such positions were held as capital assets and
were not part of a "hedging transaction" nor part of a "straddle," 60% of the
resulting net gain or loss will be treated as long-term capital gain or loss,
and 40% of such net gain or loss will be treated as short-term capital gain
or loss, regardless of the period of time the positions were actually held by
the fund.
Foreign Investments. Dividends or other income (including, in some cases,
capital gains) received by the fund from investments in foreign securities
may be subject to withholding and other taxes imposed by foreign countries.
Tax conventions between certain countries and the United States may reduce or
eliminate such taxes in some cases. The fund will not be eligible to elect
to treat any foreign taxes paid by it as paid by its shareholders, who
therefore will not be entitled to credits for such taxes on their own tax
returns. Foreign taxes paid by the fund will reduce the return from the
fund's investments.
Passive Foreign Investment Companies. If the fund purchases shares in
certain foreign investment entities, called "passive foreign investment
companies" (a "PFIC"), it may be subject to United States federal income tax
on a portion of any "excess distribution" or gain from the disposition of
such shares even if such income is distributed as a taxable dividend by the
fund to its shareholders. Additional charges in the nature of interest may be
imposed on the fund in respect of deferred taxes arising from such
distributions or gains. If the fund were to invest in a PFIC and elected to
treat the PFIC as a "qualified electing fund" under the Code, in lieu of the
foregoing requirements, the fund might be required to include in income each
year a portion of the ordinary earnings and net capital gains of the
qualified electing fund, even if not distributed to the fund, and such
amounts would be subject to the 90% and excise tax distribution requirements
described above. In order to make this election, the fund would be required
to obtain certain annual information from the passive foreign investment
companies in which it invests, which may be difficult or not possible to
obtain.
Recently, legislation was enacted that provides a mark-to-market election for
regulated investment companies effective for taxable years beginning after
December 31, 1997. This election would result in the fund being treated as
if it had sold and repurchased all of the PFIC stock at the end of each year.
In this case, the fund would report gains as ordinary income and would deduct
losses as ordinary losses to the extent of previously recognized gains. The
election, once made, would be effective for all subsequent taxable years of
the fund, unless revoked with the consent of the IRS. By making the election,
the fund could potentially ameliorate the adverse tax consequences with
respect to its ownership of shares in a PFIC, but in any particular year may
be required to recognize income in excess of the distributions it receives
from PFICs and its proceeds from dispositions of PFIC company stock. The
fund may have to distribute this "phantom" income and gain to satisfy its
distribution requirement and to avoid imposition of the 4% excise tax. The
fund will make the appropriate tax elections, if possible, and take any
additional steps necessary to mitigate the effect of these rules.
Taxation of United States Shareholders
Dividends and Distributions. Any dividend declared by the fund in October,
November or December of any calendar year and payable to shareholders of
record on a specified date in such a month shall be deemed to have been
received by each shareholder on December 31 of such calendar year and to have
been paid by the fund not later than such December 31, provided such dividend
is actually paid by the fund during January of the following calendar year.
The fund intends to distribute annually to its shareholders substantially all
of its investment company taxable income, and any net realized long-term
capital gains in excess of net realized short-term capital losses (including
any capital loss carryovers). The fund currently expects to distribute any
excess annually to its shareholders. However, if the fund retains for
investment an amount equal to all or a portion of its net long-term capital
gains in excess of its net short-term capital losses and capital loss
carryovers, it will be subject to a corporate tax (currently at a rate of
35%) on the amount retained. In that event, the fund will designate such
retained amounts as undistributed capital gains in a notice to its
shareholders who (a) will be required to include in income for United Stares
federal income tax purposes, as long-term capital gains, their proportionate
shares of the undistributed amount, (b) will be entitled to credit their
proportionate shares of the 35% tax paid by the fund on the undistributed
amount against their United States federal income tax liabilities, if any,
and to claim refunds to the extent their credits exceed their liabilities, if
any, and (c) will be entitled to increase their tax basis, for United States
federal income tax purposes, in their shares by an amount equal to 65% of the
amount of undistributed capital gains included in the shareholder's income.
Organizations or persons not subject to federal income tax on such capital
gains will be entitled to a refund of their pro rata share of such taxes paid
by the fund upon filing appropriate returns or claims for refund with the
Internal Revenue Service (the "IRS").
Dividends of net investment income and distributions of net realized short-
term capital gains are taxable to a United States shareholder as ordinary
income, whether paid in cash or in shares. Distributions of net-long-term
capital gains, if any, that the fund designates as capital gains dividends
are taxable as long-term capital gains, whether paid in cash or in shares and
regardless of how long a shareholder has held shares of the fund. Dividends
and distributions paid by the fund attributable to dividends on stock of U.S.
corporations received by the fund, with respect to which the fund meets
certain holding period requirements, will be eligible for the deduction for
dividends received by corporations. Distributions in excess of the fund's
current and accumulated earnings and profits will, as to each shareholder, be
treated as a tax-free return of capital to the extent of a shareholder's
basis in his shares of the fund, and as a capital gain thereafter (if the
shareholder holds his shares of the fund as capital assets).
Shareholders receiving dividends or distributions in the form of additional
shares should be treated for United States federal income tax purposes as
receiving a distribution in the amount equal to the amount of money that the
shareholders receiving cash dividends or distributions will receive, and
should have a cost basis in the shares received equal to such amount.
Investors considering buying shares just prior to a dividend or capital gain
distribution should be aware that, although the price of shares just
purchased at that time may reflect the amount of the forthcoming
distribution, such dividend or distribution may nevertheless be taxable to
them.
If the fund is the holder of record of any stock on the record date for any
dividends payable with respect to such stock, such dividends are included in
the fund's gross income not as of the date received but as of the later of
(a) the date such stock became ex-dividend with respect to such dividends
(i.e., the date on which a buyer of the stock would not be entitled to
receive the declared, but unpaid, dividends) or (b) the date the fund
acquired such stock. Accordingly, in order to satisfy its income
distribution requirements, the fund may be required to pay dividends based on
anticipated earnings, and shareholders may receive dividends in an earlier
year than would otherwise be the case.
Sales of Shares. Upon the sale or exchange of his shares, a shareholder will
realize a taxable gain or loss equal to the difference between the amount
realized and his basis in his shares. Such gain or loss will be treated as
capital gain or loss, if the shares are capital assets in the shareholder's
hands, and will be long-term capital gain or loss if the shares are held for
more than one year and short-term capital gain or loss if the shares are held
for one year or less. Any loss realized on a sale or exchange will be
disallowed to the extent the shares disposed of are replaced, including
replacement through the reinvesting of dividends and capital gains
distributions in the fund, within a 61-day period beginning 30 days before
and ending 30 days after the disposition of the shares. In such a case, the
basis of the shares acquired will be increased to reflect the disallowed
loss. Any loss realized by a shareholder on the sale of a fund share held by
the shareholder for six months or less will be treated for United States
federal income tax purposes as a long-term capital loss to the extent of any
distributions or deemed distributions of long-term capital gains received by
the shareholder with respect to such share.
If a shareholder incurs a sales charge in acquiring shares of the fund,
disposes of those shares within 90 days and then acquires shares in a mutual
fund for which the otherwise applicable sales charge is reduced by reason of
a reinvestment right (e.g., an exchange privilege), the original sales charge
will not be taken into account in computing gain/loss on the original shares
to the extent the subsequent sales charge is reduced. Instead, the
disregarded portion of the original sales charge will be added to the tax
basis in the newly acquired shares. Furthermore, the same rule also applies
to a disposition of the newly acquired 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.
Backup Withholding. The fund may be required to withhold, for United States
federal income tax purposes, 31% of the dividends, distributions and
redemption proceeds payable to shareholders who fail to provide the fund with
their correct taxpayer identification number or to make required
certifications, or who have been notified by the IRS that they are subject to
backup withholding. Certain shareholders are exempt from backup withholding.
Backup withholding is not an additional tax and any amount withheld may be
credited against a shareholder's United States federal income tax
liabilities.
Notices. Shareholders will be notified annually by the fund as to the United
States federal income tax status of the dividends, distributions and deemed
distributions attributable to undistributed capital gains (discussed above in
"Dividends and Distributions") made by the fund to its shareholders.
Furthermore, shareholders will also receive, if appropriate, various written
notices after the close of the fund's taxable year regarding the United
States federal income tax status of certain dividends, distributions and
deemed distributions that were paid (or that are treated as having been paid)
by the fund to its shareholders during the preceding taxable year.
Class Z
Qualified plan participants should consult their plan document or tax
advisors about the tax consequences of participating in a Qualified Plan. In
addition to the considerations described below, there may be other federal,
state, local, and/or foreign tax applications to consider. Provided a
Qualified Plan has not borrowed to finance its investment in the Fund, it
will not be taxable on the receipt of dividends and distributions from the
Fund. Qualified plan participants should consult their plan document or tax
advisors about the tax consequences of participating in a Qualified Plan.
Other Taxation
Distributions also may be subject to additional state, local and foreign
taxes depending on each shareholder's particular situation.
The foregoing is only a summary of certain material tax consequences
affecting the fund and its shareholders. Shareholders are advised to consult
their own tax advisers with respect to the particular tax consequences to
them of an investment in the fund.
ADDITIONAL INFORMATION tc "ADDITIONAL INFORMATION"
Fund History.
Minimum Account Size. The fund reserves the right to liquidate involuntarily
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 the fund, each account must satisfy the minimum account
size.) The fund, however, will not redeem shares based solely on market
reductions in net asset value. Before the fund exercises such right,
shareholders will receive written notice and will be permitted 60 days to
bring accounts up to the minimum to avoid involuntary liquidation.
Voting rights. The fund does not hold annual shareholder meetings.
There normally will be no meeting of shareholders for the purpose of
electing directors unless and until such time as less than a majority
of the directors holding office have been elected by shareholders. The
directors will call a meeting for any purpose upon written request of
shareholders holding at least 10% of the fund's outstanding shares and
the fund will assist shareholders in calling such a meeting as required
by the 1940 Act. When matters are submitted for shareholder vote,
shareholders of each class will have one vote for each full share owned
and a proportionate fractional vote for any fractional share held of
that class. Generally, shares of the fund will be voted on a fund-wide
basis on all matters except matters affecting only the interests of one
or more of the classes.
Annual and semi-annual reports. The fund sends its shareholders a
semi-annual report and an audited annual report, which include listings
of the investment securities held by the fund at the end of the period
covered. In an effort to reduce the fund's printing and mailing costs,
the fund plans to consolidate the mailing of its semi-annual and annual
reports by household. This consolidation means that a household having
multiple accounts with the identical address of record will receive a
single copy of each report. Shareholders who do not want this
consolidation to apply to their accounts should contact their Salomon
Smith Barney Financial Consultant or the transfer agent.
FINANCIAL STATEMENTS
The fund's annual report for the fiscal year ended July 31, 1999 is
incorporated herein by reference in its entirety. The annual report
was filed on , 1999, Accession Number
SMITH BARNEY
MANAGED GOVERNMENTS
FUND INC.
November , 1999
SMITH BARNEY MANAGED GOVERNMENTS FUND INC.
388 Greenwich Street
New York, NY 10013
SALOMON SMITH BARNEY
A Member of Citigroup [Symbol]
PART C-Other Information
Item 23. Exhibits
All references are to the Registrant's
Registration
Statement on Form N-1A (the "Registration Statement") as
filed with the Securities and Exchange Commission ("SEC")
on June 29, 1984 (File Nos. 2-91948 and 811-4061).
(a)(1) Registrant's Articles of Incorporation
dated June 18,
1984 are incorporated by reference to the Registration
Statement.
(a)(2) Form of Articles of Amendment to Articles
of Incorporation
dated August 20, 1984, May 20, 1988, November 4, 1992,
November 19, 1992, July 30, 1993 and October 14, 1994 and
November 7, 1994, respectively, are incorporated by
reference to Post-Effective Amendment No. 20 to the
Registration Statement filed on November 7, 1994 ("Post-
Effective Amendment No. 20").
(a)(3) Articles of Amendment to Articles of
Incorporation dated
June 1, 1998, as filed with the SEC on November 27, 1998
("Post-Effective
Amendment No. 25).
(b)(1) Registrant's By-Laws are incorporated by
reference to the
Registration Statement.
(c)(1) 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").
(c)(2) 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").
(d)(1) 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")
(d)(2) Form of Transfer of Investment Advisory
Agreement dated as
of November 7, 1994, among Registrant, Mutual Management
Corp. and SBMFM is incorporated by reference to Post
Effective Amendment No. 21 dated November 30, 1995.
(e)(1) Distribution Agreement dated July 30, 1993
between the
Registrant and Smith Barney Shearson Inc. is incorporated by
reference to Post-Effective Amendment No. 16.
(e)(2) Form of Distribution Agreement dated
October 8, 1998 between
the Registrant and CFBDS, Inc. is incorporated by reference
to Post-Effective
Amendment No. 25.
(e)(3) Broker Dealer Contract is filed herein.
(f) Not Applicable.
(g) Form of Custody Agreement between the Registrant
and PNC
Bank, National Association dated as of July 12, 1995 is
incorporated by reference to Post Effective Amendment No. 21
dated November 30, 1995
(h)(1) Transfer Agency Agreement dated August 2,
1993 between
the Registrant and The Shareholder Services Group, Inc. is
incorporated by reference to Post-Effective Amendment No. 12
to the Registration Statement filed with the SEC on October
23, 1992.
(h)(2) 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.
(i) Not Applicable.
(j) Consent of Independent Accountants to be filed
by amendment.
(k) Not Applicable.
(m)(1) 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.
(m)(2) Form of Amended and Restated Services and
Distribution Plan
pursuant to Rule 12b-1 dated October 8, 1998 between the
Registrant and Salomon
Smith Barney, Inc. is incorporated by reference to Post-
Effective Amendment No. 25.
(n) Financial Data Schedule is to be filed by
amendment.
(o)(1) Form of Rule 18f-(3)d Multiple Class Plan
A Registrant is
incorporated by reference to Post Effective Amendment No. 21
dated
November 30, 1995.
(o)(2) Rule 18f-3(d) Multiple Class Plan is
incorporated by reference
to Post-Effective Amendment No. 25.
Item 24. Persons Controlled by or under Common Control
with
Registrant
None
Item 25. Indemnification
Response to this item is incorporated by
reference to Post-
Effective Amendment No. 13.
Item 26. Business and Other Connections of
Investment Adviser
Investment Adviser - - SSB Citi Fund Management LLC ("SSB
Citi") formerly known as SSBC Fund Management Inc. ("SSBC")
SSB Citi was incorporated in December 1968 under the laws of
the State of Delaware. On September 21, 1999, SSB Citi was
converted into a Delaware Limited Liability Company. SSB
Citi is a wholly owned subsidiary of Salomon Smith Barney
Holdings Inc. ("Holdings") (formerly known as Smith Barney
Holdings Inc.) which in turn is a wholly owned subsidiary of
Citigroup Inc. ("Citigroup"). SSB Citi is registered as an
investment adviser under the Investment Advisers Act of 1940
(the "Advisers Act").
The list required by this Item 26 of officers and directors
of SSB Citi together with information as to any other
business, profession, vocation or employment of a substantial
nature engaged in by such officers and directors during the
past two years, is incorporated by reference to Schedules A
and D of FORM ADV filed by SSB Citi pursuant to the Advisers
Act (SEC File No. 801-8314).
Item 27. Principal Underwriters
(a) CFBDS, Inc., ("CFBDS") the Registrant's Distributor, is
also
the distributor for the following Smith Barney funds:
Concert
Investment Series, Consulting Group Capital Markets Funds,
Greenwich
Street Series Fund, Smith Barney Adjustable Rate Government
Income
Fund, Smith Barney Aggressive Growth Fund Inc., Smith Barney
Appreciation Fund Inc., Smith Barney Arizona Municipals Fund
Inc.,
Smith Barney California Municipals Fund Inc., Smith Barney
Concert
Allocation Series Inc., Smith Barney Equity Funds, Smith
Barney
Fundamental Value Fund Inc., Smith Barney Funds, Inc., Smith
Barney
Income Funds, Smith Barney Institutional Cash Management
Fund, Inc.,
Smith Barney Investment Funds Inc., Smith Barney Investment
Trust,
Smith Barney Managed Municipals Fund Inc., Smith Barney
Massachusetts
Municipals Fund, Smith Barney Money Funds, Inc., Smith
Barney Muni Funds,
Smith Barney Municipal Money Market Fund, Inc., Smith Barney
Natural Resources Fund Inc., Smith Barney New Jersey
Municipals
Fund Inc., Smith Barney Oregon Municipals Fund Inc., Smith
Barney
Principal Return Fund, Smith Barney Small Cap Blend Fund,
Inc., Smith
Barney Telecommunications Trust, Smith Barney Variable
Account Funds,
Smith Barney World Funds, Inc., Travelers Series Fund Inc.,
and
various series of unit investment trusts.
CFBDS also serves as the distributor for the following
funds: The
Travelers Fund UL for Variable Annuities, The Travelers Fund
VA for
Variable Annuities, The Travelers Fund BD for Variable
Annuities, The
Travelers Fund BD II for Variable Annuities, The Travelers
Fund BD
III for Variable Annuities, The Travelers Fund BD IV for
Variable
Annuities, The Travelers Fund ABD for Variable Annuities,
The
Travelers Fund ABD II for Variable Annuities, The Travelers
Separate
Account PF for Variable Annuities, The Travelers Separate
Account PF
II for Variable Annuities, The Travelers Separate Account QP
for
Variable Annuities, The Travelers Separate Account TM for
Variable
Annuities, The Travelers Separate Account TM II for Variable
Annuities, The Travelers Separate Account Five for Variable
Annuities, The Travelers Separate Account Six for Variable
Annuities,
The Travelers Separate Account Seven for Variable Annuities,
The
Travelers Separate Account Eight for Variable Annuities, The
Travelers Fund UL for Variable Annuities, The Travelers Fund
UL II
for Variable Annuities, The Travelers Variable Life
Insurance
Separate Account One, The Travelers Variable Life Insurance
Separate
Account Two, The Travelers Variable Life Insurance Separate
Account
Three, The Travelers Variable Life Insurance Separate
Account Four,
The Travelers Separate Account MGA, The Travelers Separate
Account
MGA II, The Travelers Growth and Income Stock Account for
Variable
Annuities, The Travelers Quality Bond Account for Variable
Annuities,
The Travelers Money Market Account for Variable Annuities,
The
Travelers Timed Growth and Income Stock Account for Variable
Annuities, The Travelers Timed Short-Term Bond Account for
Variable
Annuities, The Travelers Timed Aggressive Stock Account for
Variable
Annuities, The Travelers Timed Bond Account for Variable
Annuities.
In addition, CFBDS, the Registrant's Distributor, is also
the
distributor for CitiFunds Multi-State Tax Free Trust,
CitiFunds
Premium Trust, CitiFunds Institutional Trust, CitiFunds Tax
Free
Reserves, CitiFunds Trust I, CitiFunds Trust II, CitiFunds
Trust III,
CitiFunds International Trust, CitiFunds Fixed Income Trust,
CitiSelect VIP Folio 200, CitiSelect VIP Folio 300,
CitiSelect VIP
Folio 400, CitiSelect VIP Folio 500, CitiFunds Small Cap
Growth VIP
Portfolio. CFBDS is also the placement agent for Large Cap
Value
Portfolio, Small Cap Value Portfolio, International
Portfolio,
Foreign Bond Portfolio, Intermediate Income Portfolio,
Short-Term
Portfolio, Growth & Income Portfolio, U.S. Fixed Income
Portfolio,
Large Cap Growth Portfolio, Small Cap Growth Portfolio,
International
Equity Portfolio, Balanced Portfolio, Government Income
Portfolio,
Tax Free Reserves Portfolio, Cash Reserves Portfolio and
U.S.
Treasury Reserves Portfolio.
In addition, CFBDS is also the distributor for the following
Salomon
Brothers funds: Salomon Brothers Opportunity Fund Inc.,
Salomon
Brothers Investors Fund Inc., Salomon Brothers Capital Fund
Inc.,
Salomon Brothers Series Funds Inc., Salomon Brothers
Institutional
Series Funds Inc., Salomon Brothers Variable Series Funds
Inc.
In addition, CFBDS is also the distributor for the Centurion
Funds,
Inc.
(b) The information required by this Item 27 with respect
to each
director and officer of CFBDS is incorporated by reference
to
Schedule A of Form BD filed by CFBDS pursuant to the
Securities and
Exchange Act of 1934 (File No. 8-32417).
(c) Not applicable.
Item 28. Location of Accounts and Records
The accounts and records of the Registrant are located, in
whole or in part, at the office of the Registrant and the
following locations:
(1) Smith Barney Managed Governments Fund Inc.
388 Greenwich Street, 22nd Floor
New York, NY 10013
(2) SSB Citi Fund Management LLC
388 Greenwich Street, 22nd Floor
New York, NY 10013
(3) CFBDS, Inc.
21 Milk Street, 5th Floor
Boston, MA 02109
(4) PNC Bank, National Association
17th and Chestnut Streets
Philadelphia, PA 19103
(5) First Data Investor Services Group Inc.
One Exchange Place
Boston, MA 02109
Item 29. Management Services
Not applicable.
Item 30. Undertakings
(a) Not applicable.
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 29th day of September,
1999.
SMITH BARNEY MANAGED GOVERNMENTS
FUND INC.
By: /s/ Heath B. McLendon
Heath B. McLendon,
Chairman of the Board
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 has
been signed
below by the following persons in the capacities and on the
dates
indicated.
Signature Title Date
/s/ Heath B. McLendon Chairman of the Board
9/29/99
Heath B. McLendon (Chief Executive Officer)
/s/ Lewis E. Daidone Treasurer (Chief
Financial 9/29/99
Lewis E. Daidone and Accounting Officer)
/s/ Herbert Barg* Director 9/29/99
Herbert Barg
/s/ Alfred Bianchetti* Director
9/29/99
Alfred Bianchetti
/s/ Martin Brody* Director 9/29/99
Martin Brody
/s/ Dwight Crane* Director 9/29/99
Dwight Crane
/s/ Burt N. Dorsett* Director
9/29/99
Burt N. Dorsett
/s/ Elliot S. Jaffe * Director
9/29/99
Elliot S. Jaffe
/s/ Stephen Kaufman* Director
9/29/99
Stephen Kaufman
/s/ Joseph McCann* Director
9/29/99
Joseph McCann
/s/ Cornelius C. Rose, Jr*. Director
9/29/99
Cornelius C. Rose, Jr.
____________________________________________________________
__
* Signed by Heath B. McLendon, their duly authorized
attorney-in-fact,
pursuant
to power of attorney dated November 27, 1996.
/s/ Heath B. McLendon
Heath B. McLendon
EXHIBIT INDEX
Exhibit No. Exhibit
(e) Broker Dealer Contract
(j) Consent of KPMG Peat Marwick LLP*
(n) Financial Data Schedule*
*to be filed by further amendment
\\AMDCVA002\GROUP\Fund Accounting\Legal\FUNDS\GOVT\PEA 26 wrap.doc
SMITH BARNEY MUTUAL FUNDS
BROKER DEALER CONTRACT
CFBDS, Inc.
21 Milk Street
Boston, Massachusetts 02109
Salomon Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
We, CFBDS, Inc. ("CFBDS"), have agreements with
certain investment companies for which SSB Citi Fund
Management LLC serves as investment adviser and/or
administrator (each a "Fund") pursuant to which we act as
nonexclusive principal underwriter and distributor for the
sale of shares of capital stock ("shares") of the various
series of such Funds, and as such have the right to
distribute shares for resale. Each Fund is an open-end
investment company registered under the Investment Company
Act of 1940, as amended (the "1940 Act") and the shares
being offered to the public are registered under the
Securities Act of 1933, as amended (the "1933 Act"). Each
series of each Fund covered by a Distribution Agreement from
time to time is referred to in this agreement as a "Series"
and collectively as the "Series." The term "Prospectus", as
used herein, refers to the prospectus and related statement
of additional information (the "Statement of Additional
Information") incorporated therein by reference (as amended
or supplemented) on file with the Securities and Exchange
Commission at the time in question. As a broker in the
capacity of principal underwriter and distributor for the
Trust, we offer to sell to you, as a broker or dealer,
shares of each Fund upon the following terms and conditions:
1. PRIVATE In all sales to the public you
shall act as broker for your customers or as dealer for your
own account, and in no transaction shall you have any
authority to act as agent for the Trust, for us or for any
other dealer. tc " In all sales to the public you shall act
as dealer for your own account, and in no transaction shall
you have any authority to act as agent for the Fund, for us
or for any other dealer."
2. PRIVATE Orders received from you will be
accepted through us only at the public offering price per
share (i.e. the net asset value per share plus the
applicable front-end sales charge, if any) applicable to
each order, and all orders for redemption of any shares
shall be executed at the net asset value per share less any
contingent deferred sales charge, if any, in each case as
set forth in the Prospectus. You will be entitled to
receive and retain any contingent deferred sales charge
amounts in partial consideration of your payment to
financial consultants of commission amounts at the time of
sale and we will obligate any other brokers with whom we
enter into similar agreements to pay such amounts directly
to you. The procedure relating to the handling of orders
shall be subject to paragraph 4 hereof and instructions
which we or the Fund shall forward from time to time to you.
All orders are subject to acceptance or rejection by the
applicable Fund or us in the sole discretion of either. The
minimum initial purchase and the minimum subsequent purchase
of any shares shall be as set forth in the Prospectus
pertaining to the relevant Series. tc " Orders received
from you will be accepted through us only at the public
offering price per share (i.e. the net asset value per share
plus the applicable sales charge, if any) applicable to
each order, and all orders for redemption of any Fund shares
shall be executed at the net asset value per share less any
contingent deferred sales charge, if any, in each case as
set forth in the Prospectus. The procedure relating to the
handling of orders shall be subject to paragraph 4 hereof
and instructions which we or the Fund shall forward from
time to time to you. All orders are subject to acceptance
or rejection by Salomon or the Fund in the sole discretion
of either. The minimum initial purchase and the minimum
subsequent purchase shall be as set forth in the Prospectus
of the Fund."
3. PRIVATE You shall not place orders for
any shares unless you have already received purchase orders
for those shares at the applicable public offering price and
subject to the terms hereof. You agree that you will not
offer or sell any shares except under circumstances that
will result in compliance with the applicable Federal and
state securities laws, the applicable rules and regulations
thereunder and the rules and regulations of applicable
regulatory agencies or authorities and that in connection
with sales and offers to sell shares you will furnish to
each person to whom any such sale or offer is made, a copy
of the Prospectus and, upon request, the Statement of
Additional Information, and will not furnish to any person
any information relating to shares which is inconsistent in
any respect with the information contained in the Prospectus
or Statement of Additional Information (as then amended or
supplemented). You shall not furnish or cause to be
furnished to any person or display or publish any
information or materials relating to the shares (including,
without limitation, promotional materials and sales
literature, advertisements, press releases, announcements,
statements, posters, signs or other similar material),
except such information and materials as may be furnished to
you by or on behalf of us or the Funds, and such other
information and materials as may be approved in writing by
or on behalf of us or the Funds. tc " You shall not place
orders for any shares unless you have already received
purchase orders for those shares at the applicable public
offering price and subject to the terms hereof and of the
Distribution Contract. You agree that you will not"
4. PRIVATE As a broker dealer, you are
hereby authorized (i) to place orders directly with the
applicable Fund or Series for shares subject to the
applicable terms and conditions governing the placement of
orders by us set forth in the Prospectus and (ii) to tender
shares directly to each Fund or its agent for redemption
subject to the applicable terms and conditions governing the
redemption of shares applicable to us set forth in the
Prospectus. tc " As a dealer, you are hereby authorized (i)
to place orders directly with the Fund for shares to be
resold by us to you subject to the applicable terms and
conditions governing the placement of orders by us set forth
in the Prospectus and the Distribution Contract and (ii) to
tender shares directly to the Fund or its agent for
redemption subject to the applicable terms and conditions
governing the redemption of shares applicable to us set
forth in the Prospectus and the Distribution Agreement."
5. PRIVATE You shall not withhold placing
orders received from your customers so as to profit yourself
as a result of such withholding, e.g., by a change in the
"net asset value" from that used in determining the offering
price to your customers. tc " You shall not withhold
placing orders received from your customers so as to profit
yourself as a result of such withholding, e.g., by a change
in the \"net asset value\" from that used in determining the
offering price to your customers."
6. PRIVATE In determining the amount of any
sales concession payable to you hereunder, we reserve the
right to exclude any sales which we reasonably determine are
not made in accordance with the terms of the Prospectus and
the provisions of this Agreement. Unless at the time of
transmitting an order we advise you or the transfer agent to
the contrary, the shares ordered will be deemed to be the
total holdings of the specified investor. tc " In
determining the amount of any sales concession payable to
you hereunder, we reserve the right to exclude any sales
which we reasonably determine are not made in accordance
with the terms of the Prospectus and the provisions of this
Agreement. Unless at the time of transmitting an order we
advise you or the transfer agent to the contrary, the shares
ordered will be deemed to be the total holdings of the
specified investor."
7. PRIVATE (a) You agree that payment for
orders from you for the purchase of shares will be made in
accordance with the terms of the Prospectus. On or before
the business day following the settlement date of each
purchase order for shares, you shall transfer same day funds
to an account designated by us with the transfer agent in an
amount equal to the public offering price on the date of
purchase of the shares being purchased less your sales
concession, if any, with respect to such purchase order
determined in accordance with the Prospectus. If payment
for any purchase order is not received in accordance with
the terms of the Prospectus, we reserve the right, without
notice, to cancel the sale and to hold you responsible for
any loss sustained as a result thereof. tc " (a) You agree
that payment for orders from you for the purchase of shares
will be made in accordance with the terms of the Prospectus.
On or before the business day following the settlement date
of each purchase order for shares, you shall transfer same
day funds to an account designated by us with the transfer
agent an amount equal to the public offering price on the
date of purchase of the shares being purchased less your
sales concession, if any, with respect to such purchase
order determined in accordance with the Prospectus. If
payment for any purchase order is not received in accordance
with the terms of the Prospectus, we reserve the right,
without notice, to cancel the sale and to hold you
responsible for any loss sustained as a result thereof."
(b) PRIVATE If any shares sold under the terms
of this Agreement are sold with a sales charge and are
redeemed or are tendered for redemption within seven (7)
business days after confirmation of your purchase order for
such shares: (i) you shall forthwith refund to us the full
sales concession received by you on the sale; and (ii) we
shall forthwith pay to the applicable Series our portion of
the sales charge on the sale which has been retained by us,
if any, and shall also pay to the applicable Series the
amount refunded by you. tc " If any shares sold under the
terms of this Agreement are sold with a sales charge and are
redeemed or are tendered for redemption within seven (7)
business days after confirmation of your purchase order for
such shares\: (i) you shall forthwith refund to us the full
sales concession received by you on the sale; and (ii) we
shall forthwith pay to the applicable Series our portion of
the sales charge on the sale which has been retained by us,
if any, and shall also pay to the Series the amount refunded
by you."
(c) PRIVATE We will not be obligated to pay or
cause to be paid to you any ongoing trail commission or
shareholder service fees with respect to shares of the
Series purchased through you and held by or for your
customers, which you shall collect directly from the
Funds. tc " We will pay you an ongoing trail commission
with respect to holdings by you of shares of the Funds at
such rates and in such manner as may be described in the
Prospectus."
(d) PRIVATE Certificates evidencing shares
shall be available only upon request. Upon payment for
shares in accordance with paragraph 7(a) above, the transfer
agent will issue and transmit to you or your customer a
confirmation statement evidencing the purchase of such
shares. Any transaction in uncertificated shares, including
purchases, transfers, redemptions and repurchases, shall be
effected and evidenced by book-entry on the records of the
transfer agent. tc " Certificates evidencing shares shall
be available only upon request. Upon payment for shares in
accordance with paragraph 7(a) above, the transfer agent
will issue and transmit to you a confirmation statement
evidencing the purchase of such shares. Any transaction in
uncertificated shares, including purchases, transfers,
redemptions and repurchases, shall be effected and evidenced
by book-entry on the records of the transfer agent."
8. PRIVATE No person is authorized to make
any representations concerning shares except those contained
in the current Prospectus and Statement of Additional
Information and in printed information subsequently issued
by us or the Funds as information supplemental to the
Prospectus and the Statement of Additional Information. In
purchasing or offering shares pursuant to this Agreement you
shall rely solely on the representations contained in the
Prospectus, the Statement of Additional Information and the
supplemental information above mentioned. tc " No person is
authorized to make any representations concerning shares
except those contained in the current Prospectus and
Statement of Additional Information and in printed
information subsequently issued by us or the Fund as
information supplemental to the Prospectus and the Statement
of Additional Information. In purchasing sor offering
shares pursuant to this Agreement you shall rely solely on
the representations contained in the Prospectus, the
Statement of Additional Information and the supplemental
information above mentioned."
9. PRIVATE You agree to deliver to each
purchaser making a purchase of shares from or through you a
copy of the Prospectus at or prior to the time of offering
or sale, and, upon request, the Statement of Additional
Information. You may instruct the transfer agent to
register shares purchased in your name and account as
nominee for your customers. You agree thereafter to deliver
to any purchaser whose shares you or your nominee are
holding as record holder copies of the annual and interim
reports and proxy solicitation materials and any other
information and materials relating to the Trust and prepared
by or on behalf of us, the Funds or the investment adviser,
custodian, transfer agent or dividend disbursing agent for
distribution to beneficial holders of shares. The Funds
shall be responsible for the costs associated with
forwarding such reports, materials and other information and
shall reimburse you in full for such costs. You further
agree to make reasonable efforts to endeavor to obtain
proxies from such purchasers whose shares you or your
nominee are holding as record holder. You further agree to
obtain from each customer to whom you sell shares any
taxpayer identification number certification required under
Section 3406 of the Internal Revenue Code of 1986, as
amended (the "Code"), and the regulations promulgated
thereunder, and to provide us or our designee with timely
written notice of any failure to obtain such taxpayer
identification number certification in order to enable the
implementation of any required backup withholding in
accordance with Section 3406 of the Code and the regulations
thereunder. Additional copies of the Prospectus, Statement
of Additional Information, annual or interim reports, proxy
solicitation materials and any such other information and
materials relating to the Trust will be supplied to you in
reasonable quantities upon request. tc " You agree to
deliver to each purchaser making a purchase of shares from
you a copy of the Prospectus at or prior to the time of
offering or sale, and, upon request, the Statement of
Additional Information. You may instruct the transfer agent
to register shares purchased in your name and account as
nominee for your customers. You agree thereafter to deliver
to any purchaser whose shares you are holding as record
holder copies of the annual and interim reports and proxy
solicitation materials and any other information and
materials relating to the Fund and prepared by or on behalf
of us, the Fund or its investment adviser, custodian,
transfer agent or dividend disbursing agent for distribution
to such customer. The Fund shall be responsible for the
costs associated with forwarding such reports, materials and
other information and shall reimburse you in full for such
costs. You further agree to make reasonable efforts to
endeavor to obtain proxies from such purchasers whose shares
you are holding as record holder. You further agree to
obtain from each customer to whom you sell shares any
taxpayer identification number certification required under
Section 3406 of the Internal Revenue Code of 1986, as
amended (the \"Code\"), and the regulations promulgated
thereunder, and to provide us or our designee with timely
written notice of any failure to obtain such taxpayer
identification number certification in order to enable the
implementation of any required backup withholding in
accordance with Section 3406 of the Code and the regulations
thereunder. Additional copies of the Prospectus, Statement
of Additional Information, annual or interim reports, proxy
solicitation materials and any such other information and
materials relating to the Fund will be supplied to you in
reasonable quantities upon request."
10. PRIVATE (a) In accordance with the terms
of the Prospectus, a reduced sales charge may be available
to customers, depending on the amount of the investment or
proposed investment. In each case where a reduced sales
charge is applicable, you agree to furnish to the transfer
agent sufficient information to permit confirmation of
qualification for a reduced sales charge, and acceptance of
the purchase order is subject to such confirmation. Reduced
sales charges may be modified or terminated at any time in
the sole discretion of each Fund. tc " (a) In accordance
with the terms of the Prospectus, a reduced sales charge may
be available to customers, depending on the amount of the
investment. In each case where a reduced sales charge is
applicable, you agree to furnish to the transfer agent
sufficient information to permit confirmation of
qualification for a reduced sales charge, and acceptance of
the purchase order is subject to such confirmation. Reduced
sales charges may be modified or terminated at any time in
the sole discretion of the Fund."
(b) PRIVATE You acknowledge that certain
classes of investors may be entitled to purchase shares at
net asset value without a sales charge as provided in the
Prospectus and Statement of Additional Information. tc "
You acknowledge that certain classes of investors may be
entitled to purchase shares at net asset value without a
sales charge as provided in the Prospectus and Statement of
Additional Information."
(c) PRIVATE You agree to advise us promptly
as to the amount of any and all sales by you qualifying for
a reduced sales charge or no sales charge. tc " You agree
to advise us promptly as to the amount of any and all sales
by you qualifying for a reduced sales charge or no sales
charge."
(d) PRIVATE Exchanges (i.e., the investment
of the proceeds from the liquidation of shares of one Series
in the shares of another Series, each of which is managed by
the same or an affiliated investment adviser) shall, where
available, be made in accordance with the terms of each
Prospectus. tc " Exchanges (i.e., the investment of the
proceeds from the liquidation of shares of one fund in the
shares of another fund, each of which is managed by the
Fund's investment adviser) shall, where available, be made
in accordance with the terms of each Prospectus."
11. PRIVATE We and each Fund reserve the
right in our discretion, without notice, to suspend sales or
withdraw the offering of any shares entirely. Each party
hereto has the right to cancel the portions of this
Agreement to which it is party upon notice to the other
parties; provided, however, that no cancellation shall
affect any party's obligations hereunder with respect to any
transactions or activities occurring prior to the effective
time of cancellation. We reserve the right to amend this
Agreement in any respect effective on notice to you. tc "
We reserve the right in our discretion, without notice, to
suspend sales or withdraw the offering of shares entirely.
Each party hereto has the right to cancel this agreement
upon notice to the other part parties; provided; however,
that no cancellation shall affect any party's obligations
hereunder with respect to any transactions or activities
occurring prior to the effective time of cancellation. We
reserve the right to amend this Agreement in any respect
effective on notice to you."
12. PRIVATE We shall have full authority to take
such action as we may deem advisable in respect of all matters
pertaining to the continuous offering of shares. We shall be
under no liability to you except for lack of good faith and for
obligations expressly assumed by us herein. Nothing contained
in this paragraph 12 is intended to operate as, and the
provisions of this paragraph 12 shall not in any way whatsoever
constitute a waiver by you of compliance with, any provisions
of the 1933 Act or of the rules and regulations of the
Securities and Exchange Commission issued thereunder. tc "
We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the
continuous offering of shares. We shall be under no liability
to you except for lack of good faith and for obligations
expressly assumed by us herein. Nothing contained in this
paragraph 12 is intended to operate as, and the provisions of
this paragraph 12 shall not in any way whatsoever constitute a
waiver by you of compliance with, any provisions of the 1933
Act or of the rules and regulations of the Securities and
Exchange Commission issued thereunder."
13. PRIVATE You agree that: (a) you shall
not effect any transactions (including, without limitation,
any purchases and tc " You agree that\: (a) you shall not
effect any transactions (including, without limitation, any
purchases and" redemptions) in any shares registered in the
name of, or beneficially owned by, any customer unless such
customer has granted you full right, power and authority to
effect such transactions on his behalf, (b) we shall have
full authority to act upon your express instructions to
sell, repurchase or exchange shares through us on behalf of
your customers under the terms and conditions provided in
the Prospectus and (c) we, the Funds, the investment
adviser, the administrator, the transfer agent and our and
their respective officers, directors or trustees, agents,
employees and affiliates shall not be liable for, and shall
be fully indemnified and held harmless by you from and
against, any and all claims, demands, liabilities and
expenses (including, without limitation, reasonable
attorneys' fees) which may be incurred by us or any of the
foregoing persons entitled to indemnification from you
hereunder arising out of or in connection with (i) the
execution of any transactions in shares registered in the
name of, or beneficially owned by, any customer in reliance
upon any oral or written instructions believed to be genuine
and to have been given by or on behalf of you, (ii) any
statements or representations that you or your employees or
representatives make concerning the Funds that are
inconsistent with the applicable Fund's Prospectus, (iii)
any written materials used by you or your employees or
representatives in connection with making offers or sales of
shares that were not furnished by us, the Funds or the
investment adviser or an affiliate thereof and (iv) any sale
of shares of a Fund where the Fund or its shares were not
properly registered or qualified for sale in any state, any
U.S. territory or the District of Columbia, when we have
indicated to you that the Fund or its shares were not
properly registered or qualified. The indemnification
agreement contained in this Paragraph 13 shall survive the
termination of this Agreement.
14. PRIVATE You represent that: (a) you are a
member in good standing of the National Association of
Securities Dealers, Inc. (the "NASD"), or, if a foreign
dealer who is not eligible for membership in the NASD, that
(i) you will not make any sales of shares in, or to
nationals of, the United States of America, its territories
or its possessions, and (ii) in making any sales of shares
you will comply with the NASD's Conduct Rules and (b) you
are a member in good standing of the Securities Investor
Protection Corporation ("SIPC"). You agree that you will
provide us with timely written notice of any change in your
NASD or SIPC status. tc " You represent that you are a
member in good standing of the National Association of
Securities Dealers, Inc. (the \"NASD\"), or, if a foreign
dealer who is not eligible for membership in the NASD, that
(a) you will not make any sales of shares in, or to
nationals of, the United States of America, its territories
or its possessions, and (b) in making any sales of shares
you will comply with the NASD's Rules of Fair Practice."
15. PRIVATE We shall inform you as to the
states or other jurisdictions in which the Fund has advised
us that shares have been qualified for sale under, or are
exempt from the requirements of, the respective securities
laws of such states, but we assume no responsibility or
obligation as to your qualification to sell shares in any
jurisdiction.
16. Any claim, controversy, dispute or deadlock
arising under this Agreement (collectively, a "Dispute")
shall be settled by arbitration administered under the rules
of the American Arbitration Association ("AAA") in New York,
New York. Any arbitration and award of the arbitrators, or a
majority of them, shall be final and the judgment upon the
award rendered may be entered in any state or federal court
having jurisdiction. No punitive damages are to be awarded.
17. PRIVATE All communications to us should
be sent, postage prepaid, to 21 Milk Street, Boston,
Massachusetts 02109 Attention: Philip Coolidge. Any notice
to you shall be duly given if mailed, telegraphed or
telecopied to you at the address specified by you below.
Communications regarding placement of orders for shares
should be sent, postage prepaid, to First Data Investor
Services Group, Inc., P.O. Box 5128, Westborough,
Massachusetts 01581-5128. tc " All communications to us
should be sent, postage prepaid, to 7 World Trade Center,
New York, New York 10048. Attention\: Robert J. Leonard.
Any notice to you shall be duly given if mailed, telegraphed
or telecopied to you at the address specified by you below.
Communications regarding placement of orders for shares
should be sent, postage prepaid, to The Shareholder Services
Group, Inc., P.O. Box 9109, Boston, Massachusetts
02205-9109."
18. PRIVATE This Agreement shall be binding
upon both parties hereto when signed by us and accepted by
you in the space provided below tc " This Agreement shall
be binding upon both parties hereto when signed by us and
accepted by you in the space provided below until July 14,
1995 or such earlier date upon negotiation of section 3 and
12 of this agreement. " .
19. PRIVATE This Agreement and the terms
and conditions set forth herein shall be governed by, and
construed in accordance with, the laws of the State of New
York. tc " This Agreement and the terms and conditions set
forth herein shall be governed by, and construed in
accordance with, the laws of the State of New York."
CFBDS, INC.
By:
(Authorized Signature)
Accepted:
Firm Name:
Address:
Accepted By (signature):
Name (print):
Title: Date:
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