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. 27
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940, as amended
[ X ] Amendment No. 26 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)
[ X] on November 29, 1999 pursuant to paragraph
(b)
[ ] 60 days after filing pursuant to paragraph
(a) (1)
[ ] on __________ 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
.As interest rates decline, the issuers of mortgage-related or callable securi-
ties 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. This is known as prepayment or call 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. This is known as extension
risk
.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 of the past 10 years.
Class B, L and Y shares would have different performance because of their dif-
ferent 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]
9.94% 10.10% 16.21% 6.11% 9.14% -1.82% 13.88% 3.62% 9.48% 5.73%
- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
89 90 91 92 93 94 95 96 97 98
Calendar years ended December 31
Quarterly returns:
Highest: 6.44% in 3rd quarter 1991; Lowest: (2.44)% in 1st quarter 1992. Year
to date: (0.57)% 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 (the "Lehman Index"), an unmanaged broad-
based index of all public debt obligations of the U.S. government and its agen-
cies 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 distributions 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 1.01% 5.07% 7.63% 8.37% 09/04/84
B 0.73% 5.32% n/a 6.19% 11/06/92
L 3.27% 5.31% n/a 5.21% 06/29/93
Y 6.08% n/a n/a 6.76% 02/07/96
Lehman Index 6.22% 6 .08% 8.09% 8.97% *
Lipper Average 9.85% 7.18% 9.17% 10.05% *
</TABLE>
* Index comparison begins on 09/30/84.
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 0.14% 0.17% 0.13% 0.05%
Total annual fund operating expenses* 1.04% 1.57% 1.48% 0.70%
</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) $551 $766 $998 $1,664
Class B (redemption at end of period) $610 $796 $955 $1,725
Class B (no redemption) $160 $496 $855 $1,725
Class L (redemption at end of period) $350 $566 $905 $1,862
Class L (no redemption) $250 $566 $905 $1,862
Class Y (with or without redemption) $ 70 $221 $384 $ 859
</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
Each time you place a request to sell shares, the fund will first sell any
shares in your account that are not subject to a deferred sales charge and then
the shares in your account that have been held the longest.
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.
Smith Barney Mutual Funds
13
<PAGE>
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
.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 If you do not provide the following information, your order
dealer will be rejected:
representative .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 .You may exchange shares only for shares of the same class of
varying needs another Smith Barney fund. Not all Smith Barney funds offer
of both large all classes.
and small .Not all Smith Barney funds may be offered in your state of
investors 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 pays dividends each month from its net investment income.
The fund generally makes capital gain distributions, if any, once a year, typi-
cally in December. The fund may pay additional distributions and dividends at
other times if necessary for the fund to avoid a federal tax. Capital gain dis-
tributions and dividends are reinvested in additional fund shares of the same
class you hold. The fund expects distributions to be primarily from income. You
do not pay a sales charge on reinvested distributions or dividends. Alterna-
tively, you can instruct your Salomon Smith Barney Financial Consultant, dealer
representative or the transfer agent to have your distributions and/or divi-
dends 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 effec-
tive 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(/1/) 1998 1997(/1/) 1996(/1/) 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $12.73 $12.84 $12.27 $12.63 $12.50
- -------------------------------------------------------------------------------
Income from operations:
Net investment income 0.65 0.75 0.80 0.81 0.81
Net realized and
unrealized gain/(loss) (0.57) (0.06) 0.59 (0.34) 0.10
- -------------------------------------------------------------------------------
Total income from
operations 0.08 0.69 1.39 0.47 0.91
- -------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.72) (0.80) (0.82) (0.82) (0.74)
Capital -- -- -- (0.01) (0.04)
- -------------------------------------------------------------------------------
Total distributions (0.72) (0.80) (0.82) (0.83) (0.78)
- -------------------------------------------------------------------------------
Net asset value, end of
year $12.09 $12.73 $12.84 $12.27 $12.63
- -------------------------------------------------------------------------------
Total return 0.58% 5.51% 11.80% 3.76% 7.67%
- -------------------------------------------------------------------------------
Net assets, end of year
(000)'s $321,860 $374,109 $414,571 $454,679 $528,533
- -------------------------------------------------------------------------------
Ratios to average net
assets:
Net investment income 5.18% 5.78% 6.43% 6.46% 6.57%
Interest expense -- 0.13 0.22 0.47 0.14
Other expenses 1.04 1.03 1.01 1.04 1.07
- -------------------------------------------------------------------------------
Portfolio turnover rate 205% 363% 121% 275% 292%
- -------------------------------------------------------------------------------
</TABLE>
(/1/)Per share amounts have been 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(/1/) 1998(/1/) 1997(/1/) 1996(/1/) 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of year $12.73 $12.84 $12.27 $12.63 $12.50
- -------------------------------------------------------------------------------
Income (loss) from
operations:
Net investment income 0.59 0.67 0.74 0.75 0.75
Net realized and
unrealized gain/(loss) (0.57) (0.05) 0.59 (0.34) 0.09
- -------------------------------------------------------------------------------
Total income from
operations 0.02 0.62 1.33 0.41 0.84
- -------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.66) (0.73) (0.76) (0.76) (0.67)
Capital -- -- -- (0.01) (0.04)
- -------------------------------------------------------------------------------
Total distributions (0.66) (0.73) (0.76) (0.77) (0.71)
- -------------------------------------------------------------------------------
Net asset value, end of
year $ 12.09 $12.73 $12.84 $12.27 $12.63
- -------------------------------------------------------------------------------
Total return 0.06% 4.99% 11.23% 3.24% 7.04%
- -------------------------------------------------------------------------------
Net assets, end of year
(000)'s $61,391 $73,905 $96,747 $110,724 $132,882
- -------------------------------------------------------------------------------
Ratios to average net
assets:
Net investment income 4.64% 5.27% 5.91% 5.94% 6.07%
Interest expense -- 0.13 0.22 0.47 0.14
Other expenses 1.57 1.56 1.53 1.56 1.57
- -------------------------------------------------------------------------------
Portfolio turnover rate 205% 363% 121% 275% 292%
- -------------------------------------------------------------------------------
</TABLE>
(/1/)Per share amounts have been calculated using the average monthly
shares method.
Smith Barney Mutual Funds
25
<PAGE>
For a Class L share of capital stock outstanding throughout each year ended
July 31:
<TABLE>
<CAPTION>
1999(/1/) 1998(/1/)(/2/) 1997(/1/) 1996(/1/) 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $12.73 $12.84 $12.27 $12.63 $12.50
- -------------------------------------------------------------------------------
Income from
operations:
Net investment income 0.61 0.67 0.74 0.75 0.76
Net realized and
unrealized gain/(loss) (0.58) (0.04) 0.59 (0.34) 0.08
- -------------------------------------------------------------------------------
Total income (loss) from
operations 0.03 0.63 1.33 0.41 0.84
- -------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.67) (0.74) (0.76) (0.76) (0.67)
Capital -- -- -- (0.01) (0.04)
- -------------------------------------------------------------------------------
Total distributions (0.67) (0.74) (0.76) (0.77) (0.71)
- -------------------------------------------------------------------------------
Net asset value, end of
year $12.09 $12.73 $12.84 $12.27 $12.63
- -------------------------------------------------------------------------------
Total return 0.15% 5.07% 11.26% 3.25% 7.04%
- -------------------------------------------------------------------------------
Net assets, end of year
(000)'s $4,505 $2,811 $1,866 $1.238 $299
- -------------------------------------------------------------------------------
Ratios to average net
assets:
Net investment income 4.76% 5.28% 6.01% 5.99% 6.12%
Interest expense -- 0.13 0.22 0.47 0.14
Other expenses 1.48 1.49 1.46 1.49 1.52
- -------------------------------------------------------------------------------
Portfolio turnover rate 205% 363% 121% 275% 292%
- -------------------------------------------------------------------------------
</TABLE>
(/1/)Per share amounts have been calculated using the monthly average shares
method.
(/2/)On June 12, 1998, Class C shares were renamed Class L shares.
Managed Governments Fund
26
<PAGE>
For a Class Y share of capital stock outstanding throughout each year ended
July 31:
<TABLE>
<CAPTION>
1999(/1/) 1998 1997(/1/) 1996(/1/)(/2/)
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
year $12.74 $12.84 $12.27 $12.86
- ------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.70 0.80 0.84 0.35
Net realized and unrealized
gain/(loss) (0.57) (0.06) 0.59 (0.49)
- ------------------------------------------------------------------------------
Total income (loss) from
operations 0.13 0.74 1.43 (0.14)
- ------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.77) (0.84) (0.86) (0.44)
Capital -- -- -- (0.01)
- ------------------------------------------------------------------------------
Total distributions (0.77) (0.84) (0.86) (0.45)
- ------------------------------------------------------------------------------
Net asset value, end of year $ 12.10 $12.74 $12.84 $12.27
- ------------------------------------------------------------------------------
Total return 0.92% 5.94% 12.16% (1.10)%++
- ------------------------------------------------------------------------------
Net assets, end of year (000)'s $118,007 $90,761 $85,194 $27,215
- ------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 5.54% 6.10% 6.82% 6.62%+
Interest expense -- 0.13 0.22 0.47+
Other expenses 0.70 0.69 0.62 0.78+
- ------------------------------------------------------------------------------
Portfolio turnover rate 205% 363% 121% 275%
- ------------------------------------------------------------------------------
</TABLE>
(/1/)Per share amounts have been calculated using the monthly average shares
method.
(/2/)For the period from February 7, 1996 (inception date) to July 31, 1996.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ 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
Information about the fund (including the SAI) can be reviewed and copied at
the Commission's Public Reference Room in Washington, D.C. In addition, infor-
mation on the operation of the Public Reference Room may be obtained by calling
the Commission at 1-202-942-8090. Reports and other information about the fund
are available on the EDGAR Database on the Commission's Internet site at
http://www.sec.gov. Copies of this information may be obtained for a duplicat-
ing fee by electronic request at the following E-mail address:
[email protected], or by writing the Commission's Public Reference Section,
Washington, D.C. 20549-0102.
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 29, 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 29, 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
Directors and Executive Officers of the
Fund..............................................2
Investment Objective and Management
Policies...........................................5
Investment Restrictions......
................................................................21
Investment Management and Other
Services..............................................23
Portfolio Transactions..............................................27
Portfolio Turnover...........................................................28
Purchase of Shares ..........................................................28
Redemption of Shares.......................................................36
Valuation of Shares.......................................................38
Exchange Privilege...........................................................39
Performance Data....................................................40
Dividends, Distributions and
Taxes..........................................................44
Additional Information...................................................50
Financial Statements ............................................51
DIRECTORS AND EXECUTIVE OFFICERS OF THE FUND
The names of the directors and executive officers of
the fund, together with information as to their
principal business occupations, 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 62). 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 69). 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 42). 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 SSB Citi and
TIA. Senior Vice President and Treasurer of 59
investment companies associated with Citigroup.
James E. Conroy (Age 48). Vice President
Investment Officer of SSB Citi; Managing Director of
Salomon Smith Barney.
Paul Brook (Age 46). 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 SSB Citi and TIA. Secretary
of 59 investment companies associated with Citigroup.
As of November 11, 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
November 11, 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
Smith Barney Concert Series, Inc.
Balanced Portfolio
PNC Bank, NA Attn: Beverly
Timson
200 Stevens Drive, Suite 440
Lester, PA 19113-1522
Y
Owned 4,317,941.460
43.97% of shares
Smith Barney Concert Series, Inc.
Conservative Port.
PNC Bank, NA Attn: Beverly
Timson
200 Stevens Drive, Suite 440
Lester, PA 19113-1522
Y
Owned 1,822,455.241
18.55% of shares
Smith Barney Concert Series, Inc.
Select Balanced Portfolio
PNC Bank, NA Attn: Beverly
Timson
200 Stevens Drive, Suite 440
Lester, PA 19113-1522
Y
Owned 1,512,391.232
15.40% of shares
Smith Barney Concert Series, Inc.
Income Portfolio
PNC Bank, NA Attn: Beverly
Timson
200 Stevens Drive, Suite 440
Lester, PA 19113-1522
Y
Owned 1,105,236.707
11.25% of shares
Smith Barney Concert Series, Inc.
Select Conservative Portfolio
PNC Bank, NA Attn: Beverly
Timson
200 Stevens Drive, Suite 440
Lester, PA 19113-1522
Y
Owned 668,142.393
6.80% of shares
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 $4,000 per annum plus $500 per
in-person meeting and $100 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 $2,000 per annum plus
$250 per in-person meeting and $50 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 **
$7,100
$0
$105,425
18
Alfred
Bianchetti * **
7,100
0
51,200
13
Martin Brody **
6,100
0
132,500
22
Dwight B. Crane
**
7,000
0
139,975
25
Burt N. Dorsett
**
7,100
0
51,200
13
Elliot S. Jaffe
**
6,100
0
47,550
13
Stephen E.
Kaufman **
7,100
0
96,400
15
Joseph J. McCann
**
7,100
0
51,200
13
Heath B.
McLendon *
0
- -
0
64
Cornelius C.
Rose, Jr. **
6,600
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
$2,000.
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 current income consistent with
liquidity and safety of capital. This objective may
not be changed without the approval of the holders of
a majority of the fund's shares. There can be no
assurance that the fund will achieve its investment
objective.
The fund invests substantially all of its assets in
U.S. government securities and, under normal
circumstances, the fund is required to invest at
least 65% of its assets in such securities. The
fund's portfolio of U.S. government securities
consists primarily of mortgage-backed securities
issued or guaranteed by the Government National
Mortgage Association ("GNMA"), the Federal National
Mortgage Association ("FNMA") and the Federal Home
Loan Mortgage Corporation ("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 SSB Citi Fund
Management LLC ("SSB Citi")( 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
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, FNMA and 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 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 SSB Citi 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
because of 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 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 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
the fund pays for the put option and any related
transaction costs. By purchasing a put option on a
security 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 a transaction 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. 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 because of
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 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
there is an active secondary market so as to
facilitate closing transactions, there is no
assurance 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 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 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 put and call
options, but there can be no assurance the fund will
succeed in an 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. 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. SSB Citi,
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, ("1940 Act") 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 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 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
the manager 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 because of
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 obligates 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
obligates 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.
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 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
SSB Citi (formerly SSBC Fund Management Inc.) serves
as investment adviser to the fund pursuant to a
written agreement (the "Investment Advisory
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 Salomon
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. SSB
Citi is a wholly owned subsidiary of Salomon Smith
Barney Holdings Inc. ("Holdings"), which in turn is a
wholly owned subsidiary of Citigroup Inc.
("Citigroup"). SSB Citi (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
$206 billion.
As compensation for SSB Citi'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 $2,421,062, $2,503,412
and $2,661,308, respectively, in investment advisory
fees.
SSB Citi also serves as administrator to the fund
pursuant to a written agreement (the "Administration
Agreement"), which has been approved by the fund's
Board of Directors, including a majority of the
independent directors of the fund. SSB Citi 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 SSB Citi will: (a) assist in
supervising all aspects of the fund's operations; (b)
supply the fund with office facilities (which may be
in SSB Citi'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 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, SSB Citi 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 $1,076,027, $1,112,627,
and $1,182,804, respectively 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 SSB Citi; 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
purposes 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 fund, handles
certain communications between shareholders and the
fund and distributes dividends and distributions
payable by the fund. For these services, the
transfer agent receives a monthly fee computed on the
basis of the number of shareholder accounts it
maintains for the fund during the month, and is
reimbursed for out-of-pocket expenses.
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 period ended July 31, 1998 through October 7,
1998, the aggregate dollar amount of commissions on
Class A shares was $31,000 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 $149,000, $134,100
of which was paid to Salomon Smith Barney.
For the period July 31, 1998 through October 7, 1998
the aggregate dollar amount of commissions on Class L
shares was $5,000, 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 $20,000, $18,000 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 $1,000, $1,000
and $11,000, 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 $173,000,
$141,000 and $73,000, 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 $1,000, $1,000
and $1,000, 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 Agreement 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%, respectively 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
$ 886,006
$ 975,661
$ 1,078,042
Class B
535,706
631,602
775,428
Class L
29,353
16,373
10,458
For the year ended July 31, 1999, Salomon Smith
Barney incurred distribution expenses totaling
$442,477, consisting of $13,069 for advertising,
$1,315 for printing and mailing of Prospectuses,
$2,786 for interest expense, $252,927 branch
expenses, $152,380 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 does not pay any brokerage commissions for
portfolio 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 July 31, 1999, 1998 and 1997,
the fund's portfolio turnover rate was 205%, 363% and
121%, 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
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.
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, and 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 such 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 option 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.
In determining the applicabilty of any Deferred Sales
Charge, it will be assumed that a redemption is made
first of shares representing capital appreciation,
next of shares representing the reinvestment of
dividends and capital gain distributions and finally
of other shares held by the shareholder for the
longest period of time. 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
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 fund 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 F unds 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
Each class's 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.
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.
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.
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
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 and Class Y shares of
the fund. These figures are based on historical
earnings and are not intended to indicate future
performance. Total return is computed for a
specified period of time assuming deduction of the
maximum sales charge, if any, from the initial amount
invested and reinvestment of all income dividends and
capital gain distributions on the reinvestment dates
at prices calculated as stated in 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 fund may quote a fund's yield
or total return in advertisements or in reports and
other communications to shareholders. The fund may
include comparative performance information in
advertising or marketing the fund's shares. Such
performance information may include 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:
(3.95)% for the one-year period ended July 31, 1999
4.83% per annum during the five-year period ended
July 31, 1999
6.73% per annum during the ten-year period ended
July 31, 1999
7.88% for the period from inception (November 6,
1991) through 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 0.58%, 5.80%, 7.21% and 8.21%,
respectively.
Class B's average annual total return was as follows
for the periods indicated:
(4.22)% for the one-year period ended July 31, 1999
5.09% per annum during the five-year period ended
July 31, 1999
5.27% 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 0.06%,
5.25% and 5.27%, respectively.
Class L's average annual total return was as follows
for the periods indicated:
(1.80)% for the one-year period ended July 31, 1999
5.08% per annum during the five-year period ended
July 31, 1999
4.29% 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 0.15%, 5.30% and 4.46%, respectively.
Class Y's average annual total return was as follows
for the period indicated:
0.92% for the one-year period ended July 31,1999
5.03% for the period from inception (February 7,
1996) through July 31,1999
Class Y shares do not incur initial sales charges or
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:
(3.95)% for the one-year period ended July 31, 1999
26.61% for the five-year period ended July 31, 1999
91.73% 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 0.58%, 32.58% and 100.7%, respectively.
Class B's aggregate total return was as follows for
the periods indicated:
(4.22)% for the one-year period ended July 31, 1999
28.17% for the five-year period ended July 31, 1999
41.29% 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
0.06 %, 29.14% and 41.29%, respectively.
Class L's aggregate total return was as follows for
the periods indicated:
(1.8)% for the one-year period ended July 31, 1999
28.11% for the five-year period ended July 31, 1999
29.18% 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 Deferred Sales
Charge had not been deducted, Class L's aggregate
total return for those same periods would have been
0.15%, 29.44% and 30.45%, respectively.
Class Y's aggregate total return was as follows for
the period indicated:
0.92% for the one-year period ended July 31, 1999
18.6% 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's 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 accounts are held
directly at First Data should notify First Data in
writing, requesting a change to this reinvestment
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
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.
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.
Alternatively, the fund may make a market-to-market
that 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 might 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.
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
Fund History.
The Fund was incorporated on June 15, 1984 under the
name Shearson Government Mortgage Income Fund Inc.
On January 20, 1988, November 4, 1992, July 30, 1993
and October 14, 1994, the Fund changed its name to
Shearson Lehman Managed Governments Inc., Shearson
Lehman Brothers Managed Governments Fund, Smith
Barney Shearson Managed Governments Fund Inc. and
Smith Barney Managed Governments Fund Inc.,
respectively.
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
September 25, 1999, Accession Number 91155-99-000663.
OTHER INFORMATION
In an industry where the average portfolio manager
has seven years of experience (source: ICI, 1998),
the portfolio managers of Smith Barney Mutual Funds
average 21 years in the industry and 15 years with
the firm.
Smith Barney Mutual Funds offers more than 60 mutual
funds. We understand that many investors prefer an
active role in allocating the mix of funds in their
portfolio, while others want the asset allocation
decisions to be made by experienced managers.
That's why we offer four "styles" of fund management
that can be tailored to suit each investor's unique
financial goals.
Style Pure Series
Our Style Pure Series funds stay fully invested
within their asset class and investment style,
enabling investors to make asset allocation
decisions in conjunction with their Salomon
Smith Barney Financial Consultant.
Classic Investor Series
Our Classic Investor Series funds offer a range
of equity and fixed income strategies that seek
to capture opportunities across asset classes
and investment styles using disciplined
investment approaches.
The Concert Allocation Series
As a fund of funds, investors can select a
Concert Portfolio that may help their
investment needs. As needs change, investors
can easily choose another long-term,
diversified investment from our Concert family.
Special Discipline Series
Our Special Discipline Series funds are
designed for investors who are looking beyond
more traditional market categories: from
natural resources to a roster of state-specific
municipal funds.
APPENDIX A
Description of S&P and Moody's ratings:
S&P Ratings for Municipal Bonds
S&P's Municipal Bond ratings cover obligations of
states and political subdivisions. Ratings are
assigned to general obligation and revenue bonds.
General obligation bonds are usually secured by all
resources available to the municipality and the
factors outlined in the rating definitions below are
weighed in determining the rating. Because revenue
bonds in general are payable from specifically
pledged revenues, the essential element in the
security for a revenue bond is the quantity and
quality of the pledged revenues available to pay debt
service.
Although an appraisal of most of the same factors
that bear on the quality of general obligation bond
credit is usually appropriate in the rating analysis
of a revenue bond, other factors are important,
including particularly the competitive position of
the municipal enterprise under review and the basic
security covenants. Although a rating reflects S&P's
judgment as to the issuer's capacity for the timely
payment of debt service, in certain instances it may
also reflect a mechanism or procedure for an assured
and prompt cure of a default, should one occur, i.e.,
an insurance program, Federal or state guarantee or
the automatic withholding and use of state aid to pay
the defaulted debt service.
AAA
Prime - These are obligations of the highest quality.
They have the strongest capacity for timely payment
of debt service.
General Obligation Bonds - In a period of economic
stress, the issuers will suffer the smallest declines
in income and will be least susceptible to autonomous
decline. Debt burden is moderate. A strong revenue
structure appears more than adequate to meet future
expenditure requirements. Quality of management
appears superior.
Revenue Bonds - Debt service coverage has been, and
is expected to remain, substantial. Stability of the
pledged revenues is also exceptionally strong, due to
the competitive position of the municipal enterprise
or to the nature of the revenues. Basic security
provisions (including rate covenant, earnings test
for issuance of additional bonds, and debt service
reserve requirements) are rigorous. There is evidence
of superior management.
AA
High Grade - The investment characteristics of
general obligation and revenue bonds in this group
are only slightly less marked than those of the prime
quality issues. Bonds rated "AA'' have the second
strongest capacity for payment of debt service.
A
Good Grade - Principal and interest payments on bonds
in this category are regarded as safe. This rating
describes the third strongest capacity for payment of
debt service. It differs from the two higher ratings
because:
General Obligation Bonds - There is some weakness,
either in the local economic base, in debt burden, in
the balance between revenues and expenditures, or in
quality of management. Under certain adverse
circumstances, any one such weakness might impair the
ability of the issuer to meet debt obligations at
some future date.
Revenue Bonds - Debt service coverage is good, but
not exceptional. Stability of the pledged revenues
could show some variations because of increased
competition or economic influences on revenues.
Basic security provisions, while satisfactory, are
less stringent. Management performance appears
adequate.
BBB
Medium Grade - Of the investment grade ratings, this
is the lowest.
General Obligation Bonds - Under certain adverse
conditions, several of the above factors could
contribute to a lesser capacity for payment of debt
service. The difference between "A'' and "BBB"
ratings is that the latter shows more than one
fundamental weakness, or one very substantial
fundamental weakness, whereas the former shows only
one deficiency among the factors considered.
Revenue Bonds - Debt coverage is only fair.
Stability of the pledged revenues could show
substantial variations, with the revenue flow
possibly being subject to erosion over time. Basic
security provisions are no more than adequate.
Management performance could be stronger.
BB, B, CCC and CC
Bonds rated BB, B, CCC and CC are regarded, on
balance, as predominately speculative with respect to
capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and CC the
highest degree of speculation. While such bonds will
likely have some quality and protective
characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse
conditions.
C
The rating C is reserved for income bonds on which no
interest is being paid.
D
Bonds rated D are in default, and payment of interest
and/or repayment of principal is in arrears.
S&P's letter ratings may be modified by the addition
of a plus or a minus sign, which is used to show
relative standing within the major rating categories,
except in the AAA-Prime Grade category.
S&P Ratings for Municipal Notes
Municipal notes with maturities of three years or
less are usually given note ratings (designated SP-1,
- -2 or -3) by S&P to distinguish more clearly the
credit quality of notes as compared to bonds. Notes
rated SP-1 have a very strong or strong capacity to
pay principal and interest. Those issues determined
to possess overwhelming safety characteristics are
given the designation of SP-1+. Notes rated SP-2
have a satisfactory capacity to pay principal and
interest.
Moody's Ratings for Municipal Bonds
Aaa
Bonds that are Aaa are judged to be of the best
quality. They carry the smallest degree of
investment risk and are generally referred to as
"gilt edge.'' Interest payments are protected by a
large or by an exceptionally stable margin and
principal is secure. While the various protective
elements are likely to change, such changes as can be
visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa
Bonds that are rated Aa are judged to be of high
quality by all standards. Together with the Aaa
group they comprise what are generally known as high
grade bonds. They are rated lower than the best
bonds because margins of protection may not be as
large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or
there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa
securities.
A
Bonds that are rated A possess many favorable
investment attributes and are to be considered as
upper medium-grade obligations. Factors giving
security to principal and interest are considered
adequate, but elements may be present which suggest a
susceptibility to impairment sometime in the future.
Baa
Bonds that are rated Baa are considered as medium-
grade obligations, i.e., they are neither highly
protected nor poorly secured; interest payments and
principal security appear adequate for the present
but certain protective elements may be lacking or may
be characteristically unreliable over any great
length of time. Such bonds lack outstanding
investment characteristics and in fact have
speculative characteristics as well.
Ba
Bonds that are rated Ba are judged to have
speculative elements; their future cannot be
considered as well assured. Often the protection of
interest and principal payments may be very moderate
and thereby not well safeguarded during both good and
bad times over the future. Uncertainty of position
characterizes bonds in this class.
B
Bonds that are rated B generally lack characteristics
of the desirable investment. Assurance of interest
and principal payments or of maintenance of other
terms of the contract over any long period of time
may be small.
Caa
Bonds that are rated Caa are of poor standing. These
issues may be in default or present elements of
danger may exist with respect to principal or
interest.
Ca
Bonds that are rated Ca represent obligations that
are speculative in a high degree. These issues are
often in default or have other marked short-comings.
C
Bonds that are rated C are the lowest rated class of
bonds, and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real
investment standing.
Moody's Ratings for Municipal Notes
Moody's ratings for state and municipal notes and
other short-term loans are designated Moody's
Investment Grade (MIG) and for variable rate demand
obligations are designated Variable Moody's
Investment Grade (VMIG). This distinction is in
recognition of the differences between short- and
long-term credit risk. Loans bearing the designation
MIG 1 or VMIG 1 are of the best quality, enjoying
strong protection by established cash flows of funds
for their servicing, from established and broad-based
access to the market for refinancing, or both. Loans
bearing the designation MIG 2 or VMIG 2 are of high
quality, with margins of protection ample although
not as large as the preceding group. Loans bearing
the designation MIG 3 or VMIG 3 are of favorable
quality, with all security elements accounted for but
lacking the undeniable strength of the preceding
grades. Liquidity and cash flow may be narrow and
market access for refinancing is likely to be less
well established.
Description of S&P A-1+ and A-1 Commercial Paper
Rating
The rating A-1+ is the highest, and A-1 the second
highest, commercial paper rating assigned by S&P.
Paper rated A-1+ must have either the direct credit
support of an issuer or guarantor that possesses
excellent long-term operating and financial strengths
combined with strong liquidity characteristics
(typically, such issuers or guarantors would display
credit quality characteristics which would warrant a
senior bond rating of "AA-'' or higher), or the
direct credit support of an issuer or guarantor that
possesses above-average long-term fundamental
operating and financing capabilities combined with
ongoing excellent liquidity characteristics. Paper
rated A-1 by S&P has the following characteristics:
liquidity ratios are adequate to meet cash
requirements; long-term senior debt is rated "A'' or
better; the issuer has access to at least two
additional channels of borrowing; basic earnings and
cash flow have an upward trend with allowance made
for unusual circumstances; typically, the issuer's
industry is well established and the issuer has a
strong position within the industry; and the
reliability and quality of management are
unquestioned.
Description of Moody's Prime-1 Commercial Paper
Rating
The rating Prime-1 is the highest commercial paper
rating assigned by Moody's. Among the factors
considered by Moody's in assigning ratings are the
following: (1) evaluation of the management of the
issuer; (2) economic evaluation of the issuer's
industry or industries and an appraisal of
speculative-type risks which may be inherent in
certain areas; (3) evaluation of the issuer's
products in relation to competition and customer
acceptance; (4) liquidity; (5) amount and quality of
long-term debt; (6) trend of earnings over a period
of ten years; (7) financial strength of a parent
company and the relationships which exist with the
issuer; and (8) recognition by the management of
obligations which may be present or may arise as a
result of public interest questions and preparations
to meet such obligations.
SMITH BARNEY
MANAGED GOVERNMENTS
FUND INC.
November 29, 1999
SMITH BARNEY MANAGED GOVERNMENTS FUND INC.
388 Greenwich Street
New York, NY 10013
SALOMON SMITH BARNEY
A Member of Citigroup
[Symbol]
1
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
incorporated by reference to
Post-Effective Amendment No. 26 as filed with the SEC
on September 29, 1999
("Post-Effective Amendment No. 26").
(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 is
filed herein.
(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 filed herein.
(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.
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 Fund certifies
that it meets all of the requirements for
effectiveness of this registration statement
under the rule 485(b) under the Securities Act and
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 November,
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
November 29, 1999
Heath B. McLendon (Chief Executive Officer)
/s/ Lewis E. Daidone Treasurer (Chief
Financial November 29, 1999
Lewis E. Daidone and Accounting Officer)
/s/ Herbert Barg* Director
November 29, 1999
Herbert Barg
/s/ Alfred Bianchetti* Director
November 29, 1999
Alfred Bianchetti
/s/ Martin Brody* Director
November 29, 1999
Martin Brody
/s/ Dwight Crane* Director
November 29, 1999
Dwight Crane
/s/ Burt N. Dorsett* Director
November 29, 1999
Burt N. Dorsett
/s/ Elliot S. Jaffe * Director
November 29, 1999
Elliot S. Jaffe
/s/ Stephen Kaufman* Director
November 29, 1999
Stephen Kaufman
/s/ Joseph McCann* Director
November 29, 1999
Joseph McCann
/s/ Cornelius C. Rose, Jr*. Director
November 29, 1999
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
(j) Consent of KPMG Peat Marwick LLP
(n) Financial Data Schedule
Independent Auditors' Consent
To the Shareholders and Board of Directors of
Smith Barney Managed Governments Fund:
We consent to the incorporation by reference, in this
Prospectus and Statement of Additional Information, of
our report dated September 14, 1999, on the statement
of assets and liabilities for the Smith Barney Managed
Governments Fund (the Fund) as of July 31, 1999 and
the related statement of operations for the year then
ended, the statements of changes in net assets for
each of the years in the two-year period then ended
and the financial highlights for each of the years in
the five-year period then ended. These financial
statements and financial highlights and our report
thereon are included in the Annual Report of the Fund
as filed on Form N-30D.
We also consent to the references to our firm under
the headings "Financial Highlights" in the Prospectus
and "Auditors" in the Statement of Additional
Information.
K
PMG
LLP
New York, New York
November 22, 1999
Page
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