Securities Act File No. 333-25499
Investment Company Act File No.811-5928
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
/X/
(Check appropriate box or boxes)
/X/ Pre-Effective Amendment No. 1
SMITH BARNEY DISCIPLINED SMALL CAP FUND, INC.
(Exact Name of Registrant as Specified in Charter)
388 Greenwich Street
New York, New York
10013
Address of Principal Executive Offices
(Zip Code)
Registrant's Telephone Number, including Area Code: (212) 816-6474
Christina T. Sydor
Smith Barney Mutual Funds Management Inc.
388 Greenwich Street
22nd Floor
New York, New York 10013
(Name and Address of Agent for Service)
Rule 24f-2(a)(1) Declaration:
Registrant is registering an indefinite number of shares of capital stock by
this Registration Statement pursuant to Rule 24f-2 under the Investment
Company Act of 1940, as amended.
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of the Registration Statement.
Registrant amends this Registration Statement on such date or dates as may be
necessary to delay its effective date until Registrant files a further
amendment that specifically states that this Registration Statement will
thereafter become effective in accordance with Section 8(a) of the Securities
Act of 1933, as
amended, or until this Registration Statement becomes effective on such date
as the Commission, acting pursuant to Section 8(a) of the Securities Act of
1933, as amended, may determine.
Part A
Item No.
Prospectus Heading
1. Cover Page
Cover Page
2. Synopsis
Fee Table
3. Condensed Financial
Information
Not Applicable
4. General Description
of Registrant
Cover Page; Investment Objectives
and Policies; Yield Information;
Additional Information
5. Management of the
Fund
Fee Table; Management of the Fund;
Distributor
6. Capital Stock and
Other Securities
Dividends, Automatic Reinvestment
and Taxes; Additional Information
7. Purchase of
Securities Being
Offered
Purchase of Shares; Valuation of
Shares
8. Redemption or
Repurchase
Redemption of Shares
9. Pending Legal
Proceedings
Not Applicable
Part B
Item No.
Additional Information
10. Cover Page
Cover Page
11. Table of Contents
Table of Contents
12. General Information
and History
Management Agreement, Plan of
Distribution and Other Services;
See Prospectus Cover Page, and
Additional Information
13. Investment Objectives
and Policies
Investment Objectives
14. Management of the
Fund
Management Agreement, Plan of
Distribution and Other Services;
See Prospectus Management of the
Fund
15. Control Persons and
Principal Holders of
Securities
Management Agreement, Plan of
Distribution and Other Services;
See Prospectus Management of the
Fund
16. Investment Advisory
and Other Services
Management Agreement Plan of
Distribution and Other Services;
Custodian, Transfer Agent and
Dividend Disbursing Agent; See
Prospectus Management of the
Fund and Distributor;
Additional Information"
17. Brokerage Allocation
and Other Practices
Investment Objectives; Management
Agreement, Plan Of Distribution
and Other Services.
18. Capital Stock and
Other Securities
See Prospectus Purchase of
Shares, Redemption of Shares,
Dividends, Automatic Reinvestment
and Taxes
19. Purchase, Redemption
and Pricing of
Securities Being
Offered
Determination of Net Asset Value.
See Prospectus Purchase of
Shares, Redemption of Shares,
Valuation of Shares
20. Tax Status
See Prospectus Dividends,
Automatic Reinvestment and Taxes"
21. Underwriters
See Prospectus Purchase of
Shares
22. Calculation of
Performance Data
Yield Information; See Prospectus
Yield Information
23. Financial Statements
Not Applicable
PART A
PROSPECTUS
PROSPECTUS
SMITH BARNEY
Disciplined
Small Cap
Fund, Inc.
JUNE 23, 1997
Prospectus begins on page one
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day.
<PAGE>
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Prospectus June 23, 1997
- --------------------------------------------------------------------
Smith Barney Disciplined
Small Cap Fund, Inc.
388 Greenwich Street
New York, New York 10013
1-800-451-2010
Smith Barney Disciplined Small Cap Fund, Inc. (formerly The
Inefficient-Market Fund, Inc.) (the "Fund") is an open-end diversified
management investment company that seeks long term capital appreciation by
investing primarily in the common stocks of companies with relatively small
market capitalizations. In order to provide consistent relative performance,
the
Fund will hold a portfolio that is comparable to the Russell 2500
Stock Index, a
broad based index of the smaller cap segment of the U.S.
stock market in terms
of overall risk, economic sector weightings and market capitalization. By
linking its investment strategy to the Russell 2500 Stock Index,
the Fund will
provide diversified exposure to the universe of stocks that
comprise the lowest
25% of market capitalization of publicly traded companies in
the U.S. with
market values greater than $100 million. The adviser to the Fund
will select
stocks based on a disciplined quantitative screening process
that seeks a
combination of attractive relative value and earnings growth.
This Prospectus sets forth concisely certain information about the Fund
including sales charges, distribution and service fees and expenses, that
prospective investors will find helpful in making an investment decision.
Investors are encouraged to read this Prospectus carefully and retain it for
future reference.
Additional information about the Fund is contained in a Statement of
Additional Information dated June 23, 1997, as amended or supplemented
from time
to time, that is available upon request and without charge by
calling or writing
the Fund at the telephone number or address set forth above or
by contacting a
Smith Barney Financial Consultant. The Statement of Additional
Information
("SAI") has been filed with the Securities and Exchange Commission
(the "SEC")
and is incorporated by reference into this Prospectus in its entirety.
SMITH BARNEY INC.
Distributor
TRAVELERS INVESTMENT MANAGEMENT COMPANY
Investment Adviser
SMITH BARNEY MUTUAL FUNDS MANAGEMENT INC.
Administrator
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A
CRIMINAL OFFENSE.
1
<PAGE>
---------------------------------------------------
Table of Contents-
Prospectus Summary 3
- ---------------------------------------------------
Financial Highlights 9
- -----------------------------------------------
Investment Objective and Management Policies 10
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Valuation of Shares 13
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Dividends, Distributions and Taxes 14
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Purchase of Shares 15
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Exchange Privilege 24
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Redemption of Shares 28
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Minimum Account Size 30
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Performance 30
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Management of the Fund 31
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Distributor 32
- --------------------------------------------------------------
Additional Information 33
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==============================================================
==
No person has been authorized to give any information or to make any
representation in connection with this offering other than those contained in
this Prospectus and, if given or made, such other information and
representations must not be relied upon as having been authorized
by the Fund or the Distributor. This Prospectus does not constitute
an offer by the Fund or the Distributor to sell or a solicitation
of an offer to buy any of the securities
offered hereby in any jurisdiction to any person to whom it is
unlawful to make
such offer or solicitation in such jurisdiction.
========================================================================
========
2
<PAGE>
Prospectus Summary
The following summary is qualified in its entirety by detailed information
appearing elsewhere in this Prospectus and in the Statement of Additional
Information. Cross references in this summary are to headings in the
Prospectus.
See "Table of Contents."
INVESTMENT OBJECTIVE The Fund is an open-end, management
investment company that seeks long term capital appreciation
by investing primarily in the common
stocks of companies with relatively small market capitalizations.
In order to provide consistent relative performance, the Fund
will hold a portfolio that is comparable to the Russell 2500 Stock Index,
aa broad based index of the smaller cap segment of the U. S. stock market
in terms of overall risk, economic sector
weightings and market capitalization. By linking its investment
strategy to the
Russell 2500 Stock Index, the Fund will provide diversified exposure to the
universe of stocks that comprise the lowest 25% of market capitalization of
publicly traded companies in the U.S. with market values greater than $100
million. The adviser to the Fund will select stocks based on a disciplined
quantitative screening process that seeks a combination of attractive relative
value and earnings growth. See "Investment Objective and Management Policies."
ALTERNATIVE PURCHASE ARRANGEMENTS The Fund offers several classes of
shares
("Classes") to investors designed to provide them with the flexibility of
selecting an investment best suited to their needs. The general public is
offered three Classes of shares: Class A shares, Class B shares and Class C
shares, which differ principally in terms of sales charges and rate of expenses
to which they are subject. A fourth Class of shares, Class Y shares, is offered
only to investors meeting an initial investment minimum of $5,000,000. See
"Purchase of Shares" and "Redemption of Shares."
Class A Shares. Upon the conversion of the Fund to open-end status, the
Fund's outstanding shares were designated Class A shares. No sales charge was
due as a result of the conversion. However, if such shares are redeemed
prior to
January 1, 1998, they will be subject to a 2% redemption fee payable to the
Fund. Class A shares are sold at net asset value plus an initial sales
charge of
up to 5.00% and are subject to an annual service fee of 0.25% of the average
daily net assets of the Class. The initial sales charge may be reduced or
waived for certain purchases. Purchases of Class A shares
of $500,000 or more will be
made at net asset value with no initial sales charge, but will be subject to a
contingent deferred sales charge ("CDSC") of 1.00% on redemptions made
within 12
months of purchase. See "Prospectus Summary -- Reduced or No Initial Sales
Charge."
Class B Shares. Class B shares are offered at net asset value subject to a
maximum CDSC of 5.00% of redemption proceeds, declining by 1.00%
each year after
the date of purchase to zero. This CDSC may be waived for certain redemptions.
Class B shares are subject to an annual service fee of 0.25% and an annual
distribution fee of 0.75% of the average daily net assets of the Class. The
Class B
3
<PAGE>
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Prospectus Summary (continued)
- --------------------------------------------------------------
shares' distribution fee may cause that Class to have higher expenses
and pay
lower dividends than Class A shares.
Class B Shares Conversion Feature. Class B shares will convert
automatically to Class A shares, based on relative net asset value, eight years
after the date of the original purchase. Upon conversion, these shares will no
longer be subject to an annual distribution fee. In addition, a certain portion
of Class B shares that have been acquired through the reinvestment of dividends
and distributions ("Class B Dividend Shares") will be converted at that time.
See "Purchase of Shares -- Deferred Sales Change Alternatives."
Class C Shares. Class C shares are sold at net asset value with no initial
sales charge. They are subject to an annual service fee of 0.25% and an annual
distribution fee of 0.75% of the average daily net assets
of the Class C shares,
and investors pay a CDSC of 1.00% if they redeem Class C shares
within 12 months
of purchase. The CDSC may be waived for certain redemptions.
The Class C shares'
distribution fee may cause that Class to have higher expenses and pay lower
dividends than Class A shares. Purchases of Fund shares, which when combined
with current holdings of Class C shares of the Fund equal or exceed $500,000 in
the aggregate, should be made in Class A shares at net asset value with
no sales
charge, and will be subject to a CDSC of 1.00% on redemptions made within 12
months of purchase.
Class Y Shares. Class Y shares are available only to investors meeting an
initial investment minimum of $5,000,000. Class Y shares are sold at net asset
value with no initial sales charge or CDSC. They are not subject to any service
or distribution fees.
In deciding which Class of Fund shares to purchase, investors should
consider the following factors, as well as any other relevant facts and
circumstances:
Intended Holding Period. The decision as to which Class of shares is more
beneficial to an investor depends on the amount and intended length of his or
her investment. Shareholders who are planning to establish a program of
regular
investment may wish to consider Class A shares; as the investment accumulates
shareholders may qualify for reduced sales charges and the
shares are subject to
lower ongoing expenses over the term of the investment. As an alternative,
Class
B and Class C shares are sold without any initial sales charge so the entire
purchase price is immediately invested in the Fund. Any investment return on
these additional invested amounts may partially or wholly offset the higher
annual expenses of these Classes. Because the Fund's future return cannot be
predicted, however, there can be no assurance that this would be the case.
Finally, investors should consider the effect of the CDSC period and any
conversion rights of the Classes in the context of their own investment time
frame. For example, while Class C shares have a shorter CDSC period than
Class B
shares, they do not have a conversion feature, and therefore,
are subject to an
ongoing distribution fee. Thus, Class B shares may be more attractive
than Class
C shares to investors with longer term investment outlooks.
4
<PAGE>
- --------------------------------------------------------------
Prospectus Summary (continued)
- ---------------------------------------------------------------
Reduced or No Initial Sales Charge. The initial sales charge on Class A
shares may be waived for certain eligible purchasers, and the entire purchase
price will be immediately invested in the Fund. In addition, Class A share
purchases of $500,000 or more, will be made at net asset value with no initial
sales charge, but will be subject to a CDSC of 1.00% on redemptions
made within
12 months of purchase. The $500,000 investment may be met by adding
the purchase
to the net asset value of all Class A shares offered with a sales charge
held in
funds sponsored by Smith Barney listed under "Exchange Privilege." Class A
share
purchases also may be eligible for a reduced initial sales charge.
See "Purchase
of Shares." Because the ongoing expenses of Class A shares may be lower than
those for Class B and Class C shares, purchasers eligible to purchase Class A
shares at net asset value or at a reduced sales charge should consider
doing so.
Smith Barney Financial Consultants may receive different compensation for
selling different Classes of shares. Investors should understand that the
purpose of the CDSC on the Class B and Class C shares is the same as that
of the
initial sales charge on the Class A shares.
See "Purchase of Shares" and "Management of the Fund" for a complete
description of the sales charges and service and distribution fees for each
Class of shares and "Valuation of Shares," "Dividends, Distributions and Taxes"
and "Exchange Privilege" for other differences between the Classes of shares.
SMITH BARNEY 401(k) AND EXECCHOICE(TM) PROGRAMS Investors may be eligible
to participate in the Smith Barney 401(k) Program, which is generally designed
to assist plan sponsors in the creation and operation of retirement plans under
Section 401(a) of the Internal Revenue Code of 1986, as amended
(the "Code"), as
well as other types of participant directed, tax-qualified employee benefit
plans. Investors may also be eligible to participate in the Smith Barney
ExecChoice(TM) Program. Class A and Class C shares are available without sales
charge as investment alternatives under both of these programs.
See "Purchase of
Shares -- Smith Barney 401(k) and ExecChoice(TM) Programs."
PURCHASE OF SHARES Shares may be purchased through a brokerage account
maintained by Smith Barney. Shares may also be purchased through a broker that
clears securities transactions through Smith Barney on a fully disclosed basis
(an "Introducing Broker") or an investment dealer in the selling group. In
addition, certain investors, including qualified retirement plans and certain
other institutional investors, may purchase shares directly from the Fund
through the Fund's transfer agent, First Data Investor Services Group, Inc.
("First Data"). See "Purchase of Shares."
INVESTMENT MINIMUMS Investors in Class A, Class B and Class C shares may
open an account by making an initial investment of at least $1,000 for each
account, or $250 for an individual retirement account ("IRA") or a
Self-Employed
Retirement Plan. Investors in Class Y shares may open an account for an initial
investment of $5,000,000. Subsequent investments of at least $50
may be made for
5
<PAGE>
- -------------------------------------------------------------
Prospectus Summary (continued)
- -------------------------------------------------------
all Classes. For participants in retirement plans qualified under Section
403(b)(7) or Section 401(a) of the Code, the minimum initial investment
requirement for Class A, Class B and Class C shares and the subsequent
investment requirement for all Classes of shares is $25. The minimum investment
requirements for purchases of Fund shares through the Systematic
Investment Plan
are described below. See "Purchase of Shares."
SYSTEMATIC INVESTMENT PLAN The Fund offers shareholders a Systematic
Investment Plan under which they may authorize the automatic placement of a
purchase order each month or quarter for Fund shares. The minimum initial
investment requirement for Class A, Class B and Class C shares and the
subsequent investment requirement for all Classes for shareholders purchasing
shares through the Systematic Investment Plan on a monthly basis is $25
and on a
quarterly basis is $50. See "Purchase of Shares."
REDEMPTION OF SHARES Shares may be redeemed on each day the
New York Stock
Exchange, Inc. ("NYSE") is open for business. See "Purchase of Shares" and
"Redemption of Shares."
MANAGEMENT OF THE FUND The Travelers Investment Management Company (the
"Manager") serves as the Fund's investment adviser. The Manager provides
advisory and management services to certain investment companies affiliated
with
Smith Barney. The Manager is a wholly owned subsidiary of Smith Barney Holdings
Inc. ("Holdings"). Holdings is a wholly owned subsidiary of Travelers Group
Inc.
("Travelers"), a diversified financial services holding company engaged,
through
its subsidiaries, principally in four business segments: Investment Services,
Consumer Finance Services, Life Insurance Services and Property & Casualty
Insurance Services. See "Management of the Fund."
Smith Barney Mutual Funds Management Inc. ("SBMFM") serves as the Fund's
administrator. SBMFM is a wholly owned subsidiary of Holdings which is a wholly
owned subsidiary of Travelers. SBMFM provides investment advisory and
administration services to investment companies affiliated with Smith Barney.
See "Management of the Fund".
EXCHANGE PRIVILEGE Shares of a Class may be exchanged for shares of the
same Class of certain other funds of the Smith Barney Mutual Funds at the
respective net asset values next determined. See "Exchange Privilege."
VALUATION OF SHARES Net asset value of the Fund for the prior day
generally
is quoted daily in the financial section of most newspapers and is also
available from a Smith Barney Financial Consultant. See "Valuation of Shares."
DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income and
distributions of net realized capital gains, if any, are declared and paid
annually. See "Dividends, Distributions and Taxes."
REINVESTMENT OF DIVIDENDS Dividends and distributions paid on shares of a
Class will be reinvested automatically, unless otherwise specified by an
6
<PAGE>
- -----------------------------------------------------------
Prospectus Summary (continued)
- -----------------------------------------------------------
investor, in additional shares of the same Class at current net asset value.
Shares acquired by dividend and distribution reinvestments will not be subject
to any sales charge or CDSC. Class B shares acquired through dividend and
distribution reinvestments will become eligible for conversion to Class A
shares
on a pro rata basis. See "Dividends, Distributions and Taxes."
RISK FACTORS AND SPECIAL CONSIDERATIONS There can be no assurance that the
Fund's investment objective will be achieved. The value of the Fund's
investments, and thus the net asset value of the Fund's shares, will fluctuate
in response to changes in market and economic conditions, as well as the
financial condition and prospects of issuers in which the Fund invests. See
"Investment Objective and Management Policies."
THE FUND'S EXPENSES The following expense table lists the costs and
expenses an investor will incur either directly or indirectly as a shareholder
of the Fund, based on the maximum sales charge or maximum CDSC that may be
incurred at the time of purchase or redemption and the Fund's estimated
operating expenses for the fiscal year ending December 31, 1997:
<TABLE>
<CAPTION>
Class A Class B Class C Class Y
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases
(as a percentage of offering price) ......5.00% None None None
Maximum Redemption Fee or CDSC (as a percentage
of original cost or redemption proceeds, whichever
is lower) ..............................5.00%+* 5.00% 1.00% None
Annual Portfolio Operating Expenses
(as a percentage of average net assets)
Management fees ......................... 0.75% 0.75% 0.75% 0.75%
12b-1 fees** ............................ 0.25 1.00 1.00 --
Other expenses*** ....................... 0.26 0.26 0.26 0.26
Total Portfolio Operating Expenses ......... 1.26% 2.01% 2.01% 1.01%
- -------------------------------------------------------------------
</TABLE>
+ Shareholders at the time of conversion to open-end status will receive
Class A shares and will be required to pay a 2% redemption fee upon redemption
of those Class A shares from the date the Securities and Exchange Commission
declares the Fund's conversion to be effective through the end of 1997.
*Purchases of Class A shares of $500,000 or more will be made at net asset
value with no sales charge, but will be subject to a CDSC of 1.00% on
redemptions made within 12 months of purchase.
**Upon conversion of Class B shares to Class A shares, such shares will no
longer be subject to a distribution fee. Class C shares do not have a
conversion
feature and, therefore, are subject to an ongoing distribution fee.
As a result,
long-term shareholders of Class C shares may pay more than the economic
equivalent of the maximum front-end sales charge permitted by the National
Association of Securities Dealers, Inc.
***Estimated through the end of the Fund's first fiscal year as
an open-end
investment company on an annualized basis.
Class A shares of the Fund purchased through the Smith Barney AssetOneSM
Program will be subject to an annual asset-based fee, payable quarterly,
in lieu
of the initial sales charge. The fee will vary to a maximum of 1.50%, depending
on the amount of assets held through the Program. For more information, please
call your Smith Barney Financial Consultant.
7
<PAGE>
- -----------------------------------------------------------------
Prospectus Summary (continued)
- ------------------------------------------------------------------
The sales charge and CDSC set forth in the above table are the maximum
charges imposed on purchases or redemptions of Fund shares and investors may
actually pay lower or no charges, depending on the amount purchased and, in the
case of Class B, Class C and certain Class A shares, the length of time the
shares are held and whether the shares are held through the Smith Barney 401(k)
or ExecChoice(TM) Programs. See "Purchase of Shares" and "Redemption of
Shares."
Smith Barney receives an annual 12b-1 service fee of 0.25% of the value of
average daily net assets of Class A shares. Smith Barney also receives with
respect to Class B and Class C shares an annual 12b-1 fee of 1.00% of the value
of average daily net assets of the respective Classes, consisting of a 0.75%
distribution fee and a 0.25% service fee. "Other expenses" in the above table
include fees for shareholder services, custodial fees, legal and accounting
fees, printing costs and registration fees.
Example
The following example is intended to assist an investor in understanding
the various costs that an investor in the Fund will bear directly or
indirectly.
The example assumes payment by the Fund of operating expenses at the levels set
forth in the table above. See "Purchase of Shares," "Redemption of Shares" and
"Management of the Fund."
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years*
<S> <C> <C> <C> <C>
An investor would pay the foll. expenses on a $1,000
an investment, assuming(1)5.00% annual return and
(2) redemption at the end of each time period:
Class A................................. $62 $88 $116 $195
Class B............................... 70 93 118 215
Class C............................... 30 63 108 234
Class Y............................... 10 32 56 124
An investor would pay the following expenses on
the same investment, assuming the same
annual return and no redemption:
Class A................................ $62 $88 $116 $195
Class B................................ 20 63 108 215
Class C................................ 20 63 108 234
Class Y................................ 10 32 56 124
- -----------------------------------------------
</TABLE>
* Ten-year figures assume conversion of Class B shares to Class A shares at the
end of the eighth year following the date of purchase.
The example also provides a means for the investor to compare expense
levels of funds with different fee structures over varying investment periods.
To facilitate such comparison, all funds are required to utilize a 5.00% annual
return assumption. However, the Fund's actual return will vary and may be
greater or less than 5.00%. This example should not be considered a
representation of past or future expenses and actual expenses may be greater or
less than those shown.
8
<PAGE>
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Financial Highlights
- ------------------------------------------------------------------
The following information since inception until December 31, 1996 has been
audited by KPMG Peat Marwick LLP, independent auditors, whose report thereon
appears in the Fund's annual report dated December 31, 1996.
The figures set out
below pertain to the closed-end predecessor to the Fund. Closed-end funds are
not subject to the same legal requirements as open-end funds, especially with
respect to liquidity requirements. The total returns noted for each year may
have been different if the Fund had been an open-end from inception. The
information set out below should be read in conjunction with the financial
statements and related notes that also appear in the Fund's Annual Report to
Shareholders, which is incorporated by reference into the Statement of
Additional Information. Financial information is not presented for Class B,
Class Cand Class Y shares since no shares of those classes were publicly issued
as of the date of this Prospectus.
For a Class A share of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992 1991 1990(a)
========================================================================
=============================
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset $ 12.15 $11.78 $12.50 $ 11.49 $10.34 $ 9.32 $11.12
value
Beg.of Year
- --------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net invest
income 0.05 0.11 0.05 0.01 0.05 0.13 0.37
Net realized
and unrealized
gain (loss) 2.14 2.31 (0.63) 1.01 1.15 1.82 (1.80)
- ---------------------------------------------------------------------------
Total Income (Loss)
From Operations 2.19 2.42 (0.58) 1.02 1.20 1.95 (1.43)
Less Distributions From:
Net invest. income (0.04) (0.11) (0.05) (0.01) (0.05) (0.14) (0.37)
Net realized gains(1)(2.00)(1.94) (0.09) -- -- (0.79) --
- -----------------------------------------------------------------
Total Distributions (2.04) (2.05) (0.14) (0.01) (0.05) (0.93) (0.37)
- ----------------------------------------------------------------
Net Asset Value, End
of Year $12.30 $12.15 $11.78 $12.50 $11.49 $10.34 $9.32
- ------------------------------------------------------------------
Total Return,
Based on Market Value 39.57% 24.18% (8.46)% 6.44% 11.86% 17.21% (27.27%
- --------------------------------------------------------------
Total Return,
Based on Net
Asset Value 20.56% 18.90% (4.36)% 8.90% 11.71% 22.69% (12.66)%++
- ----------------------------------------------------------------
Net Assets,End of Year
(in millns) $53 $53 $52 $55 $50 $ 45 $ 41
- ----------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.21% 1.22% 1.22% 1.24% 1.36% 1.28% 1.32%+
Net invest income 0.43 0.84 0.43 0.08 0.45 1.26 3.90+
- ---------------------------------------------------------------
Portfolio Turnover
Rate 151% 177% 45% 87% 46% 47% 27%
- ---------------------------------------------------------
Market Price,
End of Year $11.500 $9.813 $9.500 $10.500 $9.875 $8.875 $8.375
- -------------------------------------------------
Average commissions
per share paid on
equity transactions(2) $0.05 $0.05 -- -- -- -- --
========================================================================
======================================
</TABLE>
(1) Includes short-term realized gains distributions which are considered
ordinary income for Federal income tax purposes.
(2) As of September 1995, the SEC instituted new guidelines requiring the
disclosure of average commissions per share.
(a) For the period from January 23, 1990 (commencement of operations)to
December 31, 1990.
+ Annualized.
++ Total return is not annualized as it may not be representative of
the totalreturn for that period.
9
<PAGE>
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Investment Objective and Management Policies
- -----------------------------------------------------------
Smith Barney Disciplined Small Cap Fund, Inc. (the "Fund") is an open-end
diversified management investment company that seeks long term capital
appreciation by investing primarily (at least 65% of its total assets) in the
common stocks of U.S. companies with relatively small market capitalizations at
the time of investment. Companies with relatively small market capitalization
are defined as those which fall in the lowest 20% of market capitalization of
publicly traded companies in the U.S. with market values above $100 million.
The
adviser to the Fund will select stocks based on a disciplined quantitative
screening process that seeks a combination of attractive relative value and
earnings growth.
In order to provide consistent relative performance, the Fund will hold a
portfolio that is comparable to the Russell 2500 Stock Index in terms of
overall
risk, economic sector weightings, and market capitalization.
The Russell 2500 is
a broad based index of the smaller cap segment of the U.S. stock market. By
linking its investment strategy to the Russell 2500 Stock Index, the Fund will
provide diversified exposure to the universe of stocks that comprise the lowest
25% of market capitalization of publicly traded companies in the U.S. with
market values of greater than $100 million. However, the Fund is not an index
fund and is not limited to investing in the stocks that comprise the Russell
2500 Stock Index. Over time, the Fund is expected to exhibit performance
volatility that is similar to that of the Russell 2500 Stock Index. Of course,
there can be no assurance that the Fund's total return, before or after
expenses, will match or exceed that of the Russell 2500 Stock Index.
The Fund will employ an active investment strategy that focuses primarily
on individual stock selection. In selecting individual holdings for the Fund's
portfolio, the investment adviser will apply a number of computerized
investment
models to identify stocks that have a high probability of outperforming their
respective industry/sector peer groups within the Russell 2500. These
investment
models incorporate a diverse set of valuation, earnings and relative price
variables to produce a comprehensive appraisal profile on every stock in the
universe of securities described above. Stocks that are determined to be
attractive based on a combination of quantitative and fundamental criteria will
be overweighted relative to the benchmark index. In general, the discipline
will
favor stocks that demonstrate an improving trend of earnings and also appear
attractive based on measures of fundamental value. While these securities have
the potential to outperform the securities represented in the Russell 2500,
they
may in fact be more volatile or have a lower return than the benchmark index.
Although equity securities have historically demonstrated long-term growth in
value, their prices fluctuate based on changes in a company's financial
condition and general economic conditions. This is especially true in the case
of smaller companies.
Under normal circumstances the Fund will seek to maintain full exposure to
the stock market. In order to provide normal liquidity the Fund may invest in
certain short-term money market instruments and may establish a position in
10
<PAGE>
- ----------------------------------------------------------------------
Investment Objective and Management Policies (continued)
- ----------------------------------------------------------------------
exchange-traded stock index futures contracts for the purpose of gaining
short-term equity exposure.
Further information about the Fund's investment policies, including a list
of those restrictions on its investment activities that cannot be changed
without shareholder approval, appears in the SAI.
INVESTMENT POLICIES AND STRATEGIES
Short-Term Investments. The short-term money market instruments in which
the Fund may invest include: U.S. government securities, certificates of
deposit, time deposits, and bankers' acceptances issued by domestic banks
(including their branches located outside the United States and subsidiaries
located in Canada), domestic branches of foreign banks, savings and loan
associations and similar institutions, high-grade commercial paper, and
repurchase agreements with respect to such instruments.
Repurchase Agreements. The Fund may enter into repurchase agreements with
banks which are the issuers of instruments acceptable for purchase by the Fund
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 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. This arrangement
results
in a fixed rate of return that is not subject to market fluctuations during the
Fund's holding period.
Stock Index Futures Contracts. The Fund will use exchange-related stock
index futures contracts as a hedge to protect against changes in stock
prices. A
stock index futures contract is a contractual obligation to buy or sell a
specified index of stocks at a future date for a fixed price. Stock index
futures may also be used to hedge cash inflows to gain market exposure
until the
cash is invested in specific common stocks. The Fund will not purchase or sell
futures contracts for which the aggregate initial margin exceeds five percent
(5%) of the fair market value of assets, after taking into account unrealized
profits and losses an any such contracts which it is entered into. When a
futures contract is purchased, the Fund will set aside, in an identifiable
manner, an amount of cash and cash equivalents equal to the total market value
of the futures contract, less the amount of the initial margin.
All stock index futures will be traded on exchanges that are licenced and
regulated by the Commodity Futures Trading Commission ("CFTC"). To ensure that
its futures transactions meet CFTC standards, the Fund will enter into futures
contracts for hedging purposes only. The Fund expects that risk management
transactions involving futures contracts will not impact more than twenty
percent (20%) of its assets at any one time.
Real Estate Investment Trust Securities. The Fund may invest in Real
Estate
Investment Trusts ("REITs"). REITs are pooled investment vehicles that invest
11
<PAGE>
- ---------------------------------------------------------------------------
Investment Objective and Management Policies (continued)
- -------------------------------------------------------------------------
primarily in either real estate or real estate related loans. The value of a
REIT is affected by changes in the value of the properties owned by the REIT or
securing mortgage loans held by the REIT. REITs are dependent upon cash flow
from its investments to repay financing costs and the ability of the REIT's
manager. REITs are also subject to risks generally associated with investments
in real estate.
Lending of Portfolio Securities. From time to time, the Fund may lend its
portfolio securities to brokers, dealers and other financial organizations.
These loans may not exceed 331 1/43% of the Fund's total assets taken at value.
Loans of portfolio securities by the Fund will be collateralized by cash,
letters of credit or obligations of the United States government or it
s agencies
and instrumentalities ("U.S. government securities") which are maintained at
all
times in an amount equal to at least 100% of the current market value of the
loaned securities. By lending its portfolio securities, the Fund will seek to
generate income by continuing to receive interest on loaned securities, by
investing the cash collateral in short-term instruments or by
obtaining yield in
the form of interest paid by the borrower when U.S. government securities are
used as collateral. The risks in lending portfolio securities, as with other
extensions of secured credit, consist of possible delays in receiving
additional
collateral or in the recovery of the securities or possible loss of rights in
the collateral should the borrower fail financially.
Leveraging. The Fund may from time to time leverage its investments by
purchasing securities with borrowed money. The Fund may borrow money only from
banks and in an amount not to exceed 331 1/43% of the total value of its assets
less its liabilities. Borrowed money creates an opportunity for greater capital
gain but at the same time increases exposure to capital risk, as any gain
in the
value of securities purchased with borrowed money that exceeds the interest
paid
on the amount borrowed would cause the Fund's net asset value to increase more
rapidly than otherwise, while any decline in the value of securities purchased
would cause the Fund's net asset value to decrease more rapidly than otherwise.
Restricted Securities. Restricted securities are those that may not be
sold
publicly without first being registered under the Securities Act of 1933, as
amended. For that reason, the Fund may not be able to dispose of restricted
securities at a time when, or at a price at which, it desires to do so and may
have to bear expenses associated with registering the securities. At any one
time, the Fund's aggregate holdings of restricted securities, repurchase
agreements having a duration of more than five business days, and securities
lacking readily available market quotations will not exceed 15% of the Fund's
total assets.
Certain Risk Considerations. There can be no assurance that the Fund's
investment objective will be achieved. The Fund is expected to remain fully
invested in common stocks to the extent practicable, and is therefore
subject to
the general risk of the stock market. The Fund will invest in stocks of smaller
companies that may individually exhibit more price volatility than the broad
market averages. Moreover,
12
<PAGE>
- ------------------------------------------------------------------------
Investment Objective and Management Policies (continued)
- ----------------------------------------------------------------------
the Fund will invest in stocks of growth-oriented companies that tend to
reinvest earnings rather than pay dividends. As a result, dividend income is
not
expected to be a significant component of the Fund's total return.
The Fund will
make investments in stocks that may at times have limited market liquidity and
whose purchase or sale would result in above average transaction costs. Another
factor which would increase the fundamental risk of investing in smaller
companies is the lack of publicly available information due to their relatively
short operating record as public companies. The Fund is suitable for investors
who have a long term investment horizon and wish to broaden their common stock
investments through an actively managed fund that specializes in stocks with
smaller market capitalizations. The Fund may not be appropriate for all
investors.
Portfolio Transactions. Portfolio securities transactions on behalf of the
Fund are placed by the Manager with a number of brokers and dealers, including
Smith Barney. Smith Barney has advised the Fund that in transactions with the
Fund, Smith Barney charges a commission rate at least as favorable as the rate
Smith Barney charges its comparable unaffiliated customers in similar
transactions.
The Fund intends generally to purchase securities for long-term capital
appreciation. The Fund's annual portfolio turnover rate is not expected to
exceed 150%. The Fund's portfolio turnover rate will vary from year to year.
Short-term gains realized from portfolio transactions are taxable to
shareholders as ordinary income. In addition, higher portfolio turnover rates
may result in corresponding increases in brokerage commissions. The Manager
considers these effects when evaluating the anticipated benefits of short-term
investing.
- --------------------------------------------------------------------
Valuation of Shares
- --------------------------------------------------------------------
The Fund's net asset value per share is determined as of the close of
regular trading on the NYSE on each day that the NYSE is open, by dividing the
value of the Fund's net assets attributable to each Class by the
total number of
shares of the Class outstanding.
Generally, the Fund's investments are valued at market value, or in the
absence of market value with respect to any securities, at fair value as
determined by or under the direction of the Fund's Board of Directors.
Short-term investments that mature in 60 days or less are valued at amortized
cost whenever the Directors determine that amortized cost reflects
fair value of
those investments.
13
<PAGE>
- ---------------------------------------------------------------------
Dividends, Distributions and Taxes
- --------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
The Fund declares and pays income dividends at least annually on shares of
the Fund and makes annual distributions of capital gains, if any, on such
shares.
If a shareholder does not otherwise instruct, dividends and capital gain
distributions will be reinvested automatically in additional shares of the same
Class at net asset value, subject to no sales charge or CDSC.
Income dividends and capital gain distributions that are invested are
credited to shareholders' accounts in additional shares at the net asset value
as of the close of business on the payment date. A shareholder may change the
option at any time by notifying his or her Smith Barney Financial Consultant.
Accounts held directly by First Data should notify First Data in writing at
least five business days prior to the payment date to permit the change to be
entered in the shareholder's account.
The per share dividends on Class B and Class C 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 C
shares. The per share dividends on Class A shares of the Fund may be lower than
the per share dividends on Class Y shares principally as a result of the
service
fee applicable to Class A shares. Distributions of capital gains, if any, will
be in the same amount for Class A, Class B, Class C and Class Y shares.
TAXES
The Fund has qualified and intends to qualify each year as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986 as
amended to be relieved of Federal income tax on that part of its net investment
income and realized capital gains which it pays out to its shareholders. To
continue to qualify, the Fund must meet certain tests, including
distributing at
least 90% of its investment company taxable income, and deriving less than 30%
of its gross income from the sale or other disposition of certain investments
held for less than three months.
Dividends from net investment income and distributions of realized
short-term capital gains on the sale of securities, whether paid in cash or
automatically invested in additional shares of the Fund, are taxable to
shareholders as ordinary income. A portion of the Fund's dividends from
investment income may qualify for the dividends deduction for corporations.
Dividends and distributions declared by the Fund may also be subject to state
and local taxes. Distributions out of net long-term capital gains (i.e., net
long-term capital gains in excess of net short-term capital losses) are taxable
to shareholders as long-term capital gains. Information as to the tax status of
dividends paid or deemed paid in each calendar year will be mailed to
shareholders as early in the succeeding year as practical but not later than
January 31.
In determining gain or loss, a shareholder who redeems or exchanges shares
in the Fund within 90 days of the acquisition of such shares will not be
entitled to include in tax basis the sales charges incurred in acquiring such
shares to the extent of any
14
<PAGE>
- -------------------------------------------------------------------------
Dividends, Distributions and Taxes (continued)
- -------------------------------------------------------------------------
subsequent reduction in sales charges for investing in the Fund, such as
pursuant to the rights discussed in "Exchange Privilege."
The Fund is required to withhold and remit to the U.S. Treasury 31% of
dividends, distributions and redemption proceeds to shareholders who fail to
provide a correct taxpayer identification number (the Social Security number in
the case of an individual) or to make the required certifications, or who have
been notified by the Internal Revenue Service that they are subject to backup
withholding and who are not otherwise exempt. The 31% withholding tax is not an
additional tax, but is creditable against a shareholder's federal income tax
liability.
Prior to investing in shares of the Fund, investors should consult with
their tax advisors concerning the federal, state and local tax consequences of
such an investment.
- -------------------------------------------------------------------------
Purchase of Shares
- ------------------------------------------------------------------------
GENERAL
The Fund offers four Classes of shares. Class A shares are sold to
investors with an initial sales charge and Class B and Class C shares are sold
without an initial sales charge but are subject to a CDSC payable upon certain
redemptions. Fund shareholders at the time of conversion to open-end status
receive Class A shares without an initial sales charge. Class Y shares are sold
without an initial sales charge or CDSC and are available only to investors
investing a minimum of $5,000,000 (except for purchases of Class Y shares by
Smith Barney Concert Allocation Series Inc., for which there is no minimum
purchase amount). See "Prospectus Summary -- Alternative Purchase Arrangements"
for a discussion of factors to consider in selecting which Class of shares to
purchase.
Purchases of Fund shares must be made through a brokerage account
maintained with Smith Barney, an Introducing Broker or an investment dealer in
the selling group. In addition, certain investors, including qualified
retirement plans and certain other institutional investors, may purchase shares
directly from the Fund through First Data. When purchasing shares of the Fund,
investors must specify whether the purchase is for Class A, Class B, Class C or
Class Y shares. Smith Barney and other broker/dealers 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 C shares may open an account by
making an initial investment of at least $1,000 for each account
, or $250 for an
IRA or a Self-Employed Retirement Plan, in the Fund. Investors in Class Y
shares
may open an account by making an initial investment of $5,000,000. Subsequent
investments of at
15
<PAGE>
- -----------------------------------------------------------------
Purchase of Shares (continued)
- -----------------------------------------------------------------
least $50 may be made for all Classes. For participants in
retirement plans qualified under Section 403(b)(7) or Section 401(a) of the
Code, the minimum initial investment requirement for Class A, Class B and Class
C shares and the subsequent investment requirement for all Classes in the Fund
is $25. For shareholders purchasing shares of the Fund through the Systematic
Investment Plan on a monthly basis, the minimum initial investment requirement
for Class A, Class B and Class C shares and the subsequent investment
requirement for all Classes is $25. For shareholders purchasing shares of the
Fund through the Systematic Investment Plan on a quarterly basis, the minimum
initial investment requirement for Class A, Class B and Class C shares and the
subsequent investment requirement for all Classes is $50. There are no minimum
investment requirements in Class A shares for employees of Travelers and its
subsidiaries, including Smith Barney, Directors or Trustees, of any of the
Smith
Barney Mutual Funds, and their immediate family. 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 the Fund's transfer agent, First Data. Share
certificates are issued only upon a shareholder's written request to
First Data.
Purchase orders received by the Fund or Smith Barney prior to the close of
regular trading on the NYSE, on any day the Fund calculates its net asset
value,
are priced according to the net asset value determined on that day (the "trade
date"). Orders received by dealers or introducing brokers prior to the close of
regular trading on the NYSE on any day the Fund calculates its net asset value,
are priced according to the net asset value determined on that day,
provided the
order is received by the Fund or Smith Barney prior to Smith Barney's close of
business. For shares purchased through Smith Barney or Introducing Brokers
purchasing through Smith Barney, payment for Fund shares is due on the third
business day (the "settlement date") 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, 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 regular bank account or other financial
institution indicated by the shareholder to provide systematic additions to the
shareholder's Fund account. A shareholder who has insufficient funds to
complete
the transfer will be charged a fee of up to $25 by Smith Barney or First Data.
The Systematic Investment Plan also authorizes Smith Barney to apply cash held
in the shareholder's Smith Barney brokerage account or redeem the shareholder's
shares of a Smith Barney money market fund to make additions to the account.
Additional information is available from the Fund or a Smith Barney Financial
Consultant.
16
<PAGE>
- ------------------------------------------------------------------------
Purchase of Shares (continued)
- ------------------------------------------------------------------------
INITIAL SALES CHARGE ALTERNATIVE - CLASS A SHARES
The sales charges applicable to purchases of Class A shares of the
Fund are
as follows:
Dealers'
Sales Charge Sales Charge Reallowance
% of as % of as % of
Amount of Investment Offering Price Amount Invested Offering Price
- ----------------------------------------------------------------------------
Less than $ 25,000 5.00% 5.26% 4.50%
$ 25,000 - 49,999 4.00 4.17 3.60
50,000 - 99,999 3.50 3.63 3.15
100,000 - 249,999 3.00 3.09 2.70
250,000 - 499,999 2.00 2.04 1.80
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 CDSC of 1.00%
on redemptions made within 12 months of purchase. The CDSC on Class A shares is
payable to Smith Barney, which compensates Smith Barney Financial Consultants
and other dealers whose clients make purchases of $500,000 or more. The CDSC is
waived in the same circumstances in which the CDSC applicable to Class B and
Class C shares is waived. See "Deferred Sales Charge Alternatives" and "Waivers
of CDSC."
Members of the selling group may receive up to 90% of the sales charge and
may be deemed to be underwriters of the Fund as defined in the
Securities Act of
1933, as amended.
The reduced sales charges shown above apply to the aggregate of purchases
of Class A shares of the Fund made at one time by "any person," which includes
an individual and his or her immediate family, or a trustee or other fiduciary
of a single trust estate or single fiduciary account.
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 Travelers and its subsidiaries and any of 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 Smith Barney Financial
Consultant (for a period up to 90 days from the commencement of the Financial
Consultant's employment with Smith Barney), on the condition the pur-
17
<PAGE>
- ------------------------------------------------------------------------
Purchase of Shares (continued)
- -----------------------------------------------------------------------
chase 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 fund of the Smith Barney
Mutual Funds that are sold with a maximum 5.00% 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 Travelers; (f)
purchases of Class A shares by Section 403(b) or Section 401(a) or (k) accounts
associated with Copeland Retirement Programs; (g) direct rollovers by plan
participants of distributions from a 401(k) plan offered to employees of
Travelers 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); (h) purchases by separate accounts used to fund certain
unregistered variable annuity contracts; and (i) purchases by investors
participating in a Smith Barney fee-based arrangement. In order to obtain such
discounts, the purchaser must provide sufficient information at the time of
purchase to permit verification that the purchase would qualify for the
elimination of the sales charge.
RIGHT OF ACCUMULATION
Class A shares of the Fund may be purchased by "any person" (as defined
above) at a reduced sales charge or at net asset value determined by
aggregating
the dollar amount of the new purchase and the total net asset value of all
Class
A shares of the Fund and of funds sponsored by Smith Barney which are offered
with a sales charge listed under "Exchange Privilege" then held by such person
and applying the sales charge applicable to such aggregate. In order to obtain
such discount, the purchaser must provide sufficient information at the time of
purchase to permit verification that the purchase qualifies for the reduced
sales charge. The right of accumulation is subject to modification or
discontinuance at any time with respect to all shares purchased thereafter.
GROUP PURCHASES
Upon completion of certain automated systems, a reduced sales charge or
purchase at net asset value will also be available to employees (and partners)
of the same employer purchasing as a group, provided each participant makes the
minimum initial investment required. The sales charge applicable
to purchases by
each member of such a group will be determined by the table set forth above
under "Initial Sales Charge Alternative --Class A Shares," and will be based
upon the aggregate sales of Class A shares of Smith Barney Mutual Funds offered
with a sales charge to, and share holdings of, all members of the group. To be
eligible for such reduced sales charges or to purchase at net asset value, all
purchases must be pursuant to an employer- or partnership-sanctioned plan
meeting certain require-
<PAGE>
- -----------------------------------------------------------
Purchase of Shares (continued)
- ------------------------------------------------------------------------
ments. One such requirement is that the plan must be open to specified partners
or employees of the employer and its subsidiaries, if any. Such plan may,
but is
not required to, provide for payroll deductions, IRAs or investments
pursuant to
retirement plans under Sections 401 or 408 of the Code. Smith Barney may also
offer a reduced sales charge or net asset value purchase for aggregating
related
fiduciary accounts under such conditions that Smith Barney will realize
economies of sales efforts and sales related expenses. An individual who is a
member of a qualified group may also purchase Class A shares at the reduced
sales charge applicable to the group as a whole. The sales charge is based upon
the aggregate dollar value of Class A shares offered with a sales charge that
have been previously purchased and are still owned by the group, plus the
amount
of the current purchase. A "qualified group" is one which (a) has been in
existence for more than six months, (b) has a purpose other than acquiring Fund
shares at a discount and (c) satisfies uniform criteria which enable Smith
Barney to realize economies of scale in its costs of distributing shares. A
qualified group must have more than 10 members, must be available to arrange
for
group meetings between representatives of the Fund and the members, and must
agree to include sales and other materials related to the Fund in its
publications and mailings to members at no cost to Smith Barney. In order to
obtain such reduced sales charge or to purchase at net asset value, the
purchaser must provide sufficient information at the time of purchase to permit
verification that the purchase qualifies for the reduced sales charge. Approval
of group purchase reduced sales charge plans is subject to the discretion of
Smith Barney.
LETTER OF INTENT
Class A Shares. A Letter of Intent for amounts of $50,000 or more provides
an opportunity for an investor to obtain a reduced sales charge by aggregating
investments over a 13 month period, provided that 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
purchases of all Class A shares of the Fund and other funds of the Smith Barney
Mutual Funds offered with a sales charge over the 13 month period based on the
total amount of intended purchases plus the value of all Class A shares
previously purchased and still owned. An alternative is to compute the 13 month
period starting up to 90 days before the date of execution of a Letter of
Intent. Each investment made during the period receives the reduced sales
charge
applicable to the total amount of the investment goal. If the goal is not
achieved within the period, the investor must pay the difference between the
sales charges applicable to the purchases made and the charges previously paid,
or an appropriate number of escrowed shares will be redeemed. Please contact a
Smith Barney Financial Consultant or First Data to obtain a Letter of Intent
application.
Class Y Shares. A Letter of Intent may also be used as a way for investors
to
19
<PAGE>
- ---------------------------------------------------------------------------
Purchase of Shares (continued)
- -------------------------------------------------------------------------
meet the minimum investment requirement for Class Y shares. Such investors
must make an initial minimum purchase of $1,000,000 in Class Y shares of the
Fund and agree to purchase a total of $5,000,000 of Class Y shares of the same
Fund within six months from the date of the Letter. If a total investment of
$5,000,000 is not made within the six-month period, all Class Y shares
purchased
to date will be transferred to Class A shares, where they will be subject
to all
fees (including a service fee of 0.25%) and expenses applicable to the Fund's
Class A shares, which may include a CDSC of 1.00%. Please contact a
Smith Barney
Financial Consultant or First Data for further information.
DEFERRED SALES CHARGE ALTERNATIVES
CDSC Shares are sold at net asset value next determined without an initial
sales charge so that the full amount of an investor's purchase payment may be
immediately invested in the Fund. A CDSC, however, may be imposed on certain
redemptions of these shares. "CDSC Shares" are: (a) Class B shares; (b) Class C
shares; and (c) Class A shares that were purchased without an initial sales
charge but subject to a CDSC.
Any applicable CDSC will be assessed on an amount equal to the lesser of
the original cost of the shares being redeemed or their net asset value at the
time of redemption. CDSC Shares that are redeemed will not be subject to a CDSC
to the extent that the value of such shares represents: (a) capital
appreciation
of Fund assets; (b) reinvestment of dividends or capital gain distributions;
(c)
with respect to Class B shares, shares redeemed more than five years after
their
purchase; or (d) with respect to Class C shares and Class A shares that
are CDSC
Shares, shares redeemed more than 12 months after their purchase.
Class C shares and Class A shares that are CDSC Shares are subject to a
1.00% CDSC if redeemed within 12 months of purchase. In circumstances in which
the CDSC is imposed on Class B shares, the amount of the charge will depend on
the number of years since the shareholder made the purchase payment from which
the amount is being redeemed. Solely for purposes of determining the number of
years since a purchase payment, all purchase payments made during a month will
be aggregated and deemed to have been made on the last day of the preceding
Smith Barney statement month. The following table sets forth the rates of the
charge for redemptions of Class B shares by shareholders, except in the case of
Class B shares held under the Smith Barney 401(k) Program, as described below.
See "Purchase of Shares --Smith Barney 401(k) and ExecChoice(TM) Programs."
20
<PAGE>
- --------------------------------------------------------------------------
Purchase of Shares (continued)
- -------------------------------------------------------------------------
Year Since Purchase
Payment Was Made CDSC
- -------------------------------------------------------------------------
First 5.00%
Second 4.00
Third 3.00
Fourth 2.00
Fifth 1.00
Sixth and thereafter 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 shareholder as the total
number of his or her Class B shares converting at the time bears to the total
number of outstanding Class B shares (other than Class B Dividend Shares) owned
by the shareholder. See "Prospectus Summary -- Alternative Purchase
Arrangements
- -- Class B Shares Conversion Feature."
In determining the applicability of any CDSC, 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 CDSC Shares acquired through an exchange
have been
held will be calculated from the date that the shares exchanged were initially
acquired in one of the other Smith Barney Mutual Funds, and Fund shares being
redeemed will be considered to represent, as applicable, capital
appreciation or
dividend and capital gain distribution reinvestments in such other funds. For
Federal income tax purposes, the amount of the CDSC will reduce the gain or
increase the loss, as the case may be, on the amount realized on redemption.
The
amount of any CDSC will be paid to Smith Barney.
To provide an example, assume an investor purchased 100 Class B shares at
$10 per share for a cost of $1,000. Subsequently, the investor acquired 5
additional shares through dividend reinvestment. During the fifteenth month
after the purchase, the investor decided to redeem $500 of his or her
investment. Assuming at the time of the redemption the net asset value had
appreciated to $12 per share, the value of the investor's shares would
be $1,260
(105 shares at $12 per share). The CDSC would not be applied to the amount
which
represents appreciation ($200) and the value of the reinvested dividend shares
($60). Therefore, $240 of the $500 redemption proceeds ($500 minus $260) would
be charged at a rate of 4.00% (the applicable rate for Class B shares) for a
total deferred sales charge of $9.60.
WAIVERS OF CDSC
The CDSC will be waived on: (a) exchanges (see "Exchange Privilege"); (b)
automatic cash withdrawals in amounts equal to or less than 1.00% per month
21
<PAGE>
- --------------------------------------------------------------------------
Purchase of Shares (continued)
- --------------------------------------------------------------------------
of the value of the shareholder's shares at the time the withdrawal plan
commences (see "Automatic Cash Withdrawal Plan") (provided, however, that
automatic cash withdrawals in amounts equal to or less than 2.00% per month of
the value of the shareholder's shares will be permitted for withdrawal plans
that were established prior to November 7, 1994); (c) redemptions of shares
within twelve months following the death or disability of the shareholder; (d)
redemption of shares made in connection with qualified distributions from
retirement plans or IRAs upon the attainment of age 59 1/2; (e) involuntary
redemptions; and (f) redemptions of shares 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 funds of the Smith
Barney Mutual Funds may, under certain circumstances, reinvest all or part of
the redemption proceeds within 60 days and receive pro rata credit for any CDSC
imposed on the prior redemption.
CDSC waivers will be granted subject to confirmation (by Smith Barney in
the case of shareholders who are also Smith Barney clients or by First Data in
the case of all other shareholders) of the shareholder's status or holdings, as
the case may be.
SMITH BARNEY 401(K) AND EXECCHOICE(TM) PROGRAMS
Investors may be eligible to participate in the Smith Barney 401(k) Program
or the Smith Barney ExecChoice(TM) 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 C shares as
investment alternatives under the Smith Barney 401(k) and ExecChoice(TM)
Programs. Class A and Class C shares acquired through the Participating Plans
are subject to the same service and/or distribution fees as the Class A and
Class C shares acquired by other investors; however, they are not
subject to any
initial sales charge or CDSC. 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 CDSC 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 C Shares. Class C shares of the Fund are offered without any sales
charge or CDSC to any Participating Plan that purchases less than $1,000,000 of
Class C shares of one or more funds of the Smith Barney Mutual Funds.
401(k) and ExecChoice(TM) 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 ExecChoice(TM) Program, a
Participating Plan's total Class C holdings in all non-money market
Smith Barney
22
<PAGE>
- -------------------------------------------------------------------
Purchase of Shares (continued)
- -------------------------------------------------------------------
Mutual Funds equal at least $1,000,000, the Participating Plan will be offered
the opportunity to exchange all of its Class C shares for Class A shares of the
Fund. (For Participating Plans that were originally established through a 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 its total
Class C 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 C shares for Class A
shares
of the Fund. Such Plans will be notified in writing within 30 days after the
last business day of the calendar year and, unless the exchange offer has been
rejected in writing, the exchange will occur on or about the last business day
of the following March.
Any Participating Plan in the Smith Barney 401(k) or ExecChoice(TM)
Program, 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 C 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) or ExecChoice(TM) 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 C shares of the Fund but instead may
acquire Class A
shares of the Fund. Any Class C 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 ExecChoice(TM) Program must purchase
such shares directly from the Transfer Agent. For further information regarding
these Programs, investors should contact a Smith Barney Financial Consultant.
Existing 401(k) Plans Investing in Class B Shares. Class B shares of the
Fund are not available for purchase by Participating Plans opened on or after
June 21, 1996, but may continue to be purchased by any Participating Plan
in the
Smith Barney 401(k) Program opened prior to such date and originally investing
in such Class. Class B shares acquired are subject to a CDSC of 3.00% of
redemption proceeds if the Participating Plan terminates within eight years of
the date the
23
<PAGE>
- ----------------------------------------------------------------------------
Purchase of Shares (continued)
- ----------------------------------------------------------------------------
Participating Plan first enrolled in the Smith Barney 401(k) Program.
At the end of the eighth year after the date the Participating Plan
enrolled in the Smith Barney 401(k) Program, the Participating Plan will be
offered the opportunity to exchange all of its Class B shares for Class A
shares
of the Fund. Such Participating Plan 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 the exchange has occurred, a
Participating Plan will not be eligible to acquire additional Class B shares of
the Fund but instead may acquire Class A shares of the Fund. If the
Participating Plan elects not to exchange all of its Class B shares at that
time, each Class B share held by the Participating Plan will have the same
conversion feature as Class B shares held by other investors. See "Purchase of
Shares -- Deferred Sales Charge Alternatives."
No CDSC is imposed on redemptions of Class B shares to the extent that the
net asset value of the shares redeemed does not exceed the current net asset
value of the shares purchased through reinvestment of dividends or capital gain
distributions, plus the current net asset value of Class B shares purchased
more
than eight years prior to the redemption, plus increases in the net asset value
of the shareholder's Class B shares above the purchase payments made during the
preceding eight years. Whether or not the CDSC applies to the redemption by a
Participating Plan depends on the number of years since the Participating Plan
first became enrolled in the Smith Barney 401(k) Program, unlike the
applicability of the CDSC to redemptions by other shareholders, which
depends on
the number of years since those shareholders made the purchase payment from
which the amount is being redeemed.
The CDSC will be waived on redemptions of Class B shares in connection with
lump-sum or other distributions made by a Participating Plan as a
result of: (a)
the retirement of an employee in the Participating Plan; (b) the termination of
employment of an employee in the Participating Plan; (c) the death or
disability
of an employee in the Participating Plan; (d) the attainment of age 591 1/42 by
an employee in the Participating Plan; (e) hardship of an employee in the
Participating Plan to the extent permitted under Section 401(k) of the Code; or
(f) redemptions of shares in connection with a loan made by the Participating
Plan to an employee.
- -----------------------------------------------------------------------------
Exchange Privilege
- -----------------------------------------------------------------------------
Except for Fund shareholders at the time of conversion of the Fund to
open-end status who will not be able to exchange their A shares for Class A
shares of any other Fund in the Smith Barney family of mutual funds until
January 1, 1998 and as otherwise noted below, shares of each Class may be
exchanged for shares of the same Class in the following funds of the Smith
Barney Mutual Funds, to the extent
24
<PAGE>
- ----------------------------------------------------------------------------
Exchange Privilege (continued)
- ----------------------------------------------------------------------------
shares are offered for sale in the shareholder's state of residence. Exchanges
of Class A, Class B and Class C shares are subject to minimum investment
requirements and all shares are subject to the other requirements of the fund
into which exchanges are made.
FUND NAME
- ------------------------------------------------------------------------------
Growth Funds
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Fundamental Value Fund Inc.
Smith Barney Growth Opportunity Fund
Smith Barney Managed Growth Fund
Smith Barney Natural Resources Fund Inc.
Smith Barney Special Equities Fund
Growth and Income Funds
Concert Social Awareness Fund
Smith Barney Convertible Fund
Smith Barney Funds, Inc. -- Equity Income Portfolio
Smith Barney Growth and Income Fund
Smith Barney Premium Total Return Fund
Smith Barney Utilities Fund
Taxable Fixed-Income Funds
** Smith Barney Adjustable Rate Government Income Fund
Smith Barney Diversified Strategic Income Fund
+++ Smith Barney Funds, Inc. -- Short-Term U.S. Treasury Securities Portfolio
Smith Barney Funds, Inc. -- U.S. Government Securities Portfolio
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Managed Governments Fund Inc.
Tax-Exempt Funds
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund Inc.
* Smith Barney Intermediate Maturity California Municipals Fund
* Smith Barney Intermediate Maturity New York Municipals Fund
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
25
<PAGE>
- ----------------------------------------------------------------------------
Exchange Privilege (continued)
- -----------------------------------------------------------------------------
Smith Barney Muni Funds -- Florida Portfolio
Smith Barney Muni Funds -- Georgia Portfolio
* Smith Barney Muni Funds -- Limited Term Portfolio
Smith Barney Muni Funds -- National Portfolio
Smith Barney Muni Funds -- New York Portfolio
Smith Barney Muni Funds -- Pennsylvania Portfolio
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney Oregon Municipals Fund
Smith Barney Tax-Exempt Income Fund
International Funds
Smith Barney World Funds, Inc. -- Emerging Markets Portfolio
Smith Barney World Funds, Inc. -- European Portfolio
Smith Barney World Funds, Inc. -- Global Government Bond Portfolio
Smith Barney World Funds, Inc. -- International Balanced Portfolio
Smith Barney World Funds, Inc. -- International Equity Portfolio
Smith Barney World Funds, Inc. -- Pacific Portfolio
Smith Barney Concert Allocation Series Inc.
Smith Barney Concert Allocation Series Inc. -- Balanced Portfolio
Smith Barney Concert Allocation Series Inc. -- Conservative Portfolio
Smith Barney Concert Allocation Series Inc. -- Growth Portfolio
Smith Barney Concert Allocation Series Inc. -- High Growth Portfolio
Smith Barney Concert Allocation Series Inc. -- Income Portfolio
Money Market Funds
+ Smith Barney Exchange Reserve Fund
++ Smith Barney Money Funds, Inc. -- Cash Portfolio
++ Smith Barney Money Funds, Inc. -- Government Portfolio
*** Smith Barney Money Funds, Inc. -- Retirement Portfolio
+++ Smith Barney Municipal Money Market Fund, Inc.
+++ Smith Barney Muni Funds -- California Money Market Portfolio
+++ Smith Barney Muni Funds -- New York Money Market Portfolio
========================================================================
========
* Available for exchange with Class A, Class C and Class Y shares of the
Fund.
** Available for exchange with Class A and Class B shares of the Fund. In
addition, shareholders who own Class C shares of the Fund through the
Smith Barney 401(k) Program may exchange those shares for Class C shares
of this fund.
*** Available for exchange with Class A shares of the Fund.
+ Available for exchange with Class B and Class C shares of the Fund.
++ Available for exchange with Class A and Class Y shares of the Fund. In
addition, participating plans opened prior to June 21, 1996 and investing
in Class C shares may exchange Fund shares for Class C shares of this
fund.
+++ Available for exchange with Class A and Class Y shares of the Fund.
26
<PAGE>
- -----------------------------------------------------------------------------
Exchange Privilege (continued)
- -----------------------------------------------------------------------------
Class B Exchanges. In the event a Class B shareholder wishes to exchange
all or a portion of his or her shares in any of the funds imposing a CDSC
higher
than that imposed by the Fund, the exchanged Class B shares will be subject to
the higher applicable CDSC. Upon an exchange, the new Class B shares will be
deemed to have been purchased on the same date as the Class B shares of
the Fund
that have been exchanged.
Class C Exchanges. Upon an exchange, the new Class C shares will be deemed
to have been purchased on the same date as the Class C shares of the Fund that
have been exchanged.
Class A and Class Y Exchanges. Class A and Class Y shareholders of the Fund
who wish to exchange all or a portion of their shares for shares of the
respective Class in any of the funds identified above may do so without
imposition of any charge.
Additional Information Regarding the Exchange Privilege. Although the
exchange privilege is an important benefit, excessive exchange transactions can
be detrimental to the Fund's performance and its shareholders. 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 the
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.
Certain shareholders may be able to exchange shares by telephone. See
"Redemption of Shares -- Telephone Redemption and Exchange Program." Exchanges
will be processed at the net asset value next determined. Redemption procedures
discussed below are also applicable for exchanging shares, and exchanges
will be
made upon receipt of all supporting documents in proper form. If the account
registration of the shares of the fund being acquired is identical to the
registration of the shares of the fund exchanged, no signature guarantee is
required. A capital gain or loss for tax purposes will be realized upon the
exchange, depending upon the cost or other basis of shares redeemed. Before
exchanging shares, investors should read the current prospectus describing the
shares to be acquired. The Fund reserves the right to modify or discontinue
exchange privileges upon 60 days' prior notice to shareholders.
27
<PAGE>
- -----------------------------------------------------------------------------
Redemption of Shares
- -----------------------------------------------------------------------------
The Fund is required to redeem the shares of the Fund tendered to it, as
described below, at a redemption price equal to their net asset value per share
next determined after receipt of a written request in proper form at no charge
other than any applicable CDSC. Redemption requests received after the close of
regular trading on the NYSE are priced at the net asset value next determined.
If a shareholder holds shares in more than one Class, any request for
redemption
must specify the Class being redeemed. In the event of a failure to specify
which Class, or if the investor owns fewer shares of the Class than specified,
the redemption request will be delayed until the Fund's transfer agent receives
further instructions from Smith Barney, or if the shareholder's account is not
with Smith Barney, from the shareholder directly. The redemption proceeds will
be remitted on or before the 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 Smith Barney brokerage account, these funds will not be
invested for the shareholder's benefit without specific instruction and Smith
Barney will benefit from the use of temporarily uninvested funds. Redemption
proceeds for shares purchased by check, other than a certified or official bank
check, will be remitted upon clearance of the check, which may take up to ten
days or more.
Shares held by Smith Barney as custodian must be redeemed by submitting a
written request to a Smith Barney Financial Consultant. Shares other than those
held by Smith Barney as custodian may be redeemed through an investor's
Financial Consultant, Introducing Broker or dealer in the selling group or by
submitting a written request for redemption to:
Smith Barney Disciplined Small Cap Fund, Inc.
Class A, B, C or Y (please specify)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
A written redemption request must (a) state the Class and number or dollar
amount of shares to be redeemed, (b) identify the shareholder's account number
and (c) be signed by each registered owner exactly as the shares are
registered.
If the shares to be redeemed were issued in certificate form, the certificates
must be endorsed for transfer (or be accompanied by an endorsed stock power)
and
must be submitted to First Data together with the redemption request. Any
signature appearing on a share certificate, stock power or written redemption
request in excess of $2,000 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 $2,000 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.
28
<PAGE>
- -------------------------------------------------------------------------
Redemption of Shares (continued)
- -----------------------------------------------------------------------------
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, trustees or
guardians. A redemption request will not be deemed properly received until
First
Data receives all required documents in proper form.
AUTOMATIC CASH WITHDRAWAL PLAN
The Fund offers shareholders an automatic cash withdrawal plan, under which
shareholders who own shares with a value of at least $10,000 may elect to
receive cash payments of at least $50 monthly or quarterly. Retirement plan
accounts are eligible for automatic cash withdrawal plans only where the
shareholder is eligible to receive qualified distributions and has an account
value of at least $5,000. The withdrawal plan will be carried over on exchanges
between funds or Classes of the Fund. Any applicable CDSC will not be waived on
amounts withdrawn by a shareholder that exceed 1.00% per month of the value of
the shareholder's shares subject to the CDSC at the time the withdrawal plan
commences. (With respect to withdrawal plans in effect prior to November 7,
1994, any applicable CDSC will be waived on amounts withdrawn
that do not exceed
2.00% per month of the value of the shareholder's shares subject to the CDSC.)
For further information regarding the automatic cash withdrawal plan,
shareholders should contact a Smith Barney Financial Consultant.
TELEPHONE REDEMPTION AND EXCHANGE PROGRAM
Shareholders who do not have a Smith Barney brokerage account may be
eligible to redeem and exchange Fund shares by telephone. To determine if a
shareholder is entitled to participate in this program, he or she should
contact
First Data at 1-800-451-2010. Once eligibility is confirmed, the shareholder
must complete and return a Telephone/Wire Authorization Form, along with a
signature guarantee, that will be provided by First Data upon request.
(Alternatively, an investor may authorize telephone redemptions on the new
account application with the applicant's signature guarantee when
making his/her
initial investment in the Fund.)
Redemptions. Redemption requests of up to $10,000 of any class or classes
of the Fund's shares, may be made by eligible shareholders by calling
First Data
at 1-800-451-2010. Such requests may be made between 9:00 a.m. and 5:00 p.m.
(New York City time) on any day the NYSE is open. Redemption requests received
after the close of regular trading on the NYSE are priced at the net asset
value
next determined. Redemptions of shares (i) by retirement plans or (ii) for
which
certificates have been issued are not permitted under this program.
A shareholder will have the option of having the redemption proceeds mailed
to his/her address of record or wired to a bank account predesignated by the
shareholder. Generally, redemption proceeds will be mailed or wired,
as the case
may be, on the next business day following the redemption request. In order to
use
29
<PAGE>
- -----------------------------------------------------------------------------
Redemption of Shares (continued)
- -----------------------------------------------------------------------------
the wire procedures, the bank receiving the proceeds must be a member of the
Federal Reserve System or have a correspondent relationship with a member bank.
The Fund reserves the right to charge shareholders a nominal fee for each wire
redemption. Such charges, if any, will be assessed against the shareholder's
account from which shares were redeemed. In order to change the bank account
designated to receive redemption proceeds, a shareholder must complete a new
Telephone/Wire Authorization Form and, for the protection of the shareholder's
assets, will be required to provide a signature guarantee and certain other
documentation.
Exchanges. Eligible shareholders may make exchanges by telephone if the
account registration of the shares of the fund being acquired is identical to
the registration of the shares of the fund exchanged.
Such exchange requests may
be made by calling First Data at 1-800-451-2010 between 9:00 a.m. and 5:00 p.m.
(New York City time) on any day on which the NYSE is open.
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.
- ----------------------------------------------------------------------------
Minimum Account Size
- ----------------------------------------------------------------------------
The Fund reserves the right to involuntarily liquidate any shareholder's
account in the Fund if the aggregate net asset value of the shares held in the
Fund account is less than $500. (If a shareholder has more than one account in
this Fund, each account must satisfy the minimum account size.) The Fund,
however, will not redeem shares based solely on market reductions in net asset
value. Before the Fund exercises such right, shareholders will receive written
notice and will be permitted 60 days to bring accounts up to the minimum to
avoid involuntary liquidation.
- -----------------------------------------------------------------------------
Performance
- -----------------------------------------------------------------------------
From time to time the Fund may advertise the Portfolio's total return and
average annual total return in advertisements. In addition, in other types of
sales literature the Fund may include the Portfolio's current dividend return.
These figures are computed separately for Class A, Class B, Class C and Class Y
shares of the Fund. These figures are based on historical earnings and are not
intended to indicate future
30
<PAGE>
- ------------------------------------------------------------------------------
Performance (continued)
- ----------------------------------------------------------------------------
performance. Total return is computed for a specified period of time assuming
deduction of the maximum sales charge from the initial amount invested and
reinvestment of all income dividends and capital gain distributions on the
reinvestment dates at prices calculated as stated in this Prospectus, then
dividing the value of the investment at the end of the period so calculated by
the initial amount invested and subtracting 100%. The standard average annual
total return, as prescribed by the SEC is derived from this total return, which
provides the ending redeemable value.
Such standard total return information may
also be accompanied with nonstandard total return information for differing
periods computed in the same manner but without annualizing the total return or
taking sales charges into account. The Fund calculates current dividend return
for each Class by dividing the current dividend by the net asset value or the
maximum public offering price (including sales charge) on the last day of the
period for which current dividend return is presented. The current dividend
return for each Class may vary from time to time depending on market
conditions,
the composition of the investment portfolio and operating expenses. These
factors and possible differences in the methods used in calculating current
dividend return should be considered when comparing a Class' current return to
yields published for other investment companies and other investment vehicles.
The Fund may also include comparative performance information in advertising or
marketing its shares. Such performance information may include data from Lipper
Analytical Services, Inc. and other financial publications.
- -----------------------------------------------------------------------------
Management of the Fund
- -----------------------------------------------------------------------------
BOARD OF DIRECTORS
Overall responsibility for management and supervision of the Fund rests
with the Fund's Board of Directors. The Directors approve all significant
agreements between the Fund and the companies that furnish services to the Fund
and the Fund, including agreements with the Fund's distributor, investment
manager, custodian and transfer agent. The day-to-day operations of the
Fund are
delegated to the Fund's investment adviser and administator. The Statement of
Additional Information contains background information regarding each Director
and executive officer of the Fund.
MANAGER
The Manager, located at One Tower Square, Hartford, CT 06183-2030
serves as
the Fund's investment adviser and manages the day-to-day operations of the Fund
pursuant to a management agreement entered into by the Manager and the Fund.
The
Manager, a registered investment adviser since 1971, has been in the investment
counseling business since 1967 and renders investment advice to a
31
<PAGE>
- ------------------------------------------------------------------------------
Management of the Fund (continued)
- ------------------------------------------------------------------------------
number of institutional accounts as well as various registered investment
companies and insurance company separate accounts that had total assets under
management as of December 31, 1996 in excess of $1.3 billion. Subject to the
supervision and direction of the Fund's Board of Directors, the Manager manages
the Fund 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.
Investment advisory fees are computed daily and paid monthly at the annual
rate of 0.65% of the Fund's average daily net assets.
PORTFOLIO MANAGEMENT
The investment management team of the Fund's Manager is headed by Sandip
Bhagat and Kent Kelley, president and chief executive officer, respectively, of
the Manager. Messrs. Bhagat and Kelley are primarily responsible for the
day-to-day operations of the Fund, including making all investment decisions.
Management's discussion and analysis, and additional performance
information regarding the Fund during the fiscal year ended December 31. 1996
were included in the Annual Report dated December 31, 1996.
A copy of the Annual
Report may be obtained upon request and without charge from a Smith Barney
Financial Consultant or by writing or calling the Fund at the address or phone
number listed on page one of this Prospectus.
ADMINISTRATOR
SBMFM, located at 388 Greenwich Street, New York, New York 10013,
serves as
the Fund's administrator and oversees all aspects of the Fund's administration
and operation. Administration fees are computed daily and paid monthly at the
annual rate of 0.10% of the Fund's average daily net assets.
- ------------------------------------------------------------------------------
Distributor
- ------------------------------------------------------------------------------
Smith Barney Inc. ("Smith Barney") distributes shares of the Fund as
principal underwriter and as such conducts a continuous offering pursuant to a
"best efforts" arrangement requiring Smith Barney to take and pay for only such
securities as may be sold to the public. Pursuant to a plan of distribution
adopted by the Fund under Rule 12b-1 under the 1940 Act (the "Plan"), Smith
Barney is paid a service fee with respect to Class A, Class B and Class C
shares
of the Fund at the annual rate of 0.25% of the average daily net assets
attributable to these Classes. Smith Barney is also paid a distribution fee
with
respect to Class B and Class C shares at the annual rate of
32
<PAGE>
- ------------------------------------------------------------------------------
Distributor (continued)
- ------------------------------------------------------------------------------
0.75% of the average daily net assets attributable to these Classes. Class B
shares that automatically convert to Class A shares eight years after the date
of original purchase will no longer be subject to a distribution fee. The fees
are used by Smith Barney to pay its Financial Consultants for servicing
shareholder accounts and, in the case of Class B and Class C shares, to cover
expenses primarily intended to result in the sale of those shares. These
expenses include: advertising expenses; the cost of printing and mailing
prospectuses to potential investors; payments to and expenses of Smith Barney
Financial Consultants and other persons who provide support services in
connection with the distribution of shares; interest and/or carrying charges;
and indirect and overhead costs of Smith Barney associated with the sale
of Fund
shares, including lease, utility, communications and sales promotion expenses.
The payments to Smith Barney Financial Consultants for selling shares of a
Class include a commission or fee paid by the investor or Smith Barney at the
time of sale and, with respect to Class A, Class B and Class C shares, a
continuing fee for servicing shareholder accounts for as long as a shareholder
remains a holder of that Class. Smith Barney Financial Consultants may receive
different levels of compensation for selling different Classes of shares.
Payments under the Plan are not tied exclusively to the distribution and
shareholder services expenses actually incurred by Smith Barney and the
payments
may exceed distribution expenses actually incurred. The Fund's Board of
Directors will evaluate the appropriateness of the Plan and its payment
terms on
a continuing basis and in so doing will consider all relevant factors,
including
expenses borne by Smith Barney, amounts received under the Plan and proceeds of
the CDSC.
- ------------------------------------------------------------------------------
Additional Information
- ------------------------------------------------------------------------------
The Fund, an open-end management investment company, was incorporated in
Maryland on October 4, 1989 as a non-diversified, closed-end company and
converted to open-end diversified status on June 20, 1997 pursuant to
shareholder approval on April 18, 1997 and Securities and Exchange Commission
Declaration of Effectiveness on June 20, 1997. The Fund has an authorized
capital stock of 100,000,000 shares per class with a par value of $.001 per
share. The Board of Directors has authorized the issuance of four classes of
shares, and may authorize the issuance of additional classes of shares in the
future. Class A, Class B, Class C and Class Y shares of the Fund represent
interests in the assets of the Fund and have identical voting, dividend,
liquidation and other rights on the same terms and conditions except that
expenses related to the distribution of each Class of shares are borne
solely by
each class and each Class of shares has exclusive voting rights with respect to
provisions of the Fund's Rule 12b-1 distribution plan which pertains to a
particular Class. As described under "Voting" in the Statement of Additional
Information, the Fund ordinarily will not hold meetings of shareholders
annually; however,
33
<PAGE>
- ------------------------------------------------------------------------------
Additional Information (continued)
- ------------------------------------------------------------------------------
shareholders have the right to call a meeting upon a vote of 10% of the Fund's
outstanding shares for the purpose of voting to remove directors, and the Fund
will assist shareholders in calling such a meeting as required by the 1940 Act.
Shares do not have cumulative voting rights or preemptive rights and are fully
paid, transferable and nonassessable when issued for payment as described in
this Prospectus.
The PNC Bank, N.A. located at 17th and Chestnut Streets, Philadelphia,
Pennsylvania 19103, serves as custodian of the Fund's investments.
First Data, located at Exchange Place, Boston, Massachusetts 02109, serves
as the Fund's transfer agent.
The Fund sends its shareholders a semi-annual report and an audited annual
report, which include listings of 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 account should contact their Smith Barney Financial Consultant or the
Fund's transfer agent.
34
<PAGE>
Smith Barney
A Member of TravelersGroup[LOGO]
Smith Barney
Disciplined
Small Cap
Fund, Inc.
388 Greenwich Street
New York, New York 10013
FD 0000 4/97
PART B
STATEMENT OF ADDDITIONAL INFORMATION
Smith Barney
DISCIPLINED SMALL CAP GROWTH FUND, INC.
388 Greenwich Street
New York, New York 10013
(800)-451-2010
Statement of Additional
Information
June 23,
1997
This Statement of Additional Information expands upon and supplements
the information contained in the current Prospectus of Smith Barney
Disciplined Small Cap Growth Fund, Inc. (formerly The Inefficient-Market Fund,
Inc. (the "Fund"), dated June 23, 1997, as amended or supplemented from
time to time, and should be read in conjunction with the Fund's Prospectus.
The Fund's Prospectus may be obtained from any Smith Barney Financial
Consultant, or by writing or calling the Fund at the address or telephone
number set forth above. This Statement of Additional Information, although not
in itself a prospectus, is incorporated by reference into the Prospectus in
its entirety.
TABLE OF CONTENTS
For ease of reference, the same section headings are used in both the
Prospectus and this Statement of Additional Information, except where shown
below:
Management of the
Fund.......................................................................2
.........
Administration of the
Fund.......................................................................3
...
Investment Objective and Management
Policies.............................................. 4
Purchase of
Shares.......................................................................9
.
.................
Redemption of
Shares........................................................................
9
.............
Distributor................................................................10
......................................
Valuation of
Shares........................................................................
11
................
Exchange
Privilege.....................................................................
11
....................
Performance Data (See in the Prospectus
"Performance'')................................ 12
Taxes (See in the Prospectus "Dividends, Distributions and
Taxes'')................ 14
Additional
Information...............................................................15.
....................
Financial
Statements.................................................................15
......................
MANAGEMENT OF THE FUND
The executive officers of the Fund are employees of certain of the
organizations that provide services to the Fund. These organizations are as
follows:
Name Service
Smith Barney Inc.
("Smith
Barney'')..................
...........................
............... Distributor
Travelers Investment Management Company
("TIMCO')..................
...........................
.......................
Investment Adviser
Smith Barney Funds Management Inc.
...............
...........................
......................
Administrator
PNC Bank, National Association ("PNC").......................
Custodian
First Data Investor Services Group, Inc. ("First Data").....
Transfer Agent
These organizations and the functions they perform for the Fund are
discussed in the Prospectus and in this Statement of Additional Information.
Directors and Executive Officers of the Fund
The Directors and executive officers of the Fund, together with
information
as to their principal business occupations during the past five years, are
shown below. Each Director who is an "interested person" of the Fund, as
defined in the Investment Company Act of 1940, as amended (the "1940 Act"), is
indicated by an asterisk.
Jessica
Bibliowicz*
Executive Vice President of Smith Barney Inc., Chairman
of the Board of Smith Barney Mutual Funds Management
(SBMFM"); President of forty two investment companies
and Director of twelve investment companies associated
with Smith Barney. Prior to January 1994, Director of
Sales and Marketing for Prudential Mutual Funds; 37.
Joseph H. Fleiss
Retired; Director of ten investment companies
associated with Smith Barney. Formerly Senior Vice
President of Citibank, Manager of Citibank's Bond
Investment Portfolio and Money Desk, and a Director of
Citicorp Securities Co., Inc.; 79.
Donald R. Foley
Retired; Director of ten investment companies
associated with Smith Barney. Formerly Vice President
of Edwin Bird Wilson, Incorporated(advertising);74
Paul Hardin
Interim President of University of Alabama at
Birmingham; Professor of Law at the University of North
Carolina at Chapel Hill; Director of twelve investment
companies associated with Smith Barney and a Director
of The Summit Bancorporation. Formerly, Chancellor of
the University of North Carolina at Chapel Hill; 65.
Francis P.
Martin
Practicing physician; Director of ten investment
companies associated with Smith Barney; formerly
President of the Nassau Physicians' Fund, Inc.; 72
Heath B.
McLendon*
Managing Director of Smith Barney; Director of forty
two investment companies associated with Smith Barney;
Chairman of the Board of Smith Barney Strategy Advisers
Inc.: and President of SBMFM and Director of TIMCO.
Prior to July 1993, Senior Executive Vice President of
Shearson Lehman Brothers Inc.; Vice Chairman of
Shearson Asset Management; 63
John P. Toolan
Retired; Director of ten investment companies
associated with Smith Barney. Director of John Hancock
Funds. Formerly Director and Chairman of the Smith
Barney Trust Company, Director of Smith Barney Inc. and
the Manager. Prior to 1992, Senior Executive Vice
President, Director and Member of the Executive
Committee of Smith Barney; 66
Roderick C.
Rasmussen
Investment Counselor; Director of ten investment
companies associated with Smith Barney. Formerly Vice
President of Dresdner and Company Inc. (investment
counselors); 70
Bruce D.
Sargent*
Managing Director of Smith Barney, and Vice President
and Director of SBMFM, Smith Barney Funds, Inc., and
Smith Barney World Funds, Inc.; 53
Christina T.
Sydor
Secretary. Managing Director of Smith Barney; General
Counsel and Secretary of SBMFM and Secretary of the
other investment companies associated with Smith
Barney; 46.
.
Lewis Daidone
Senior Vice President and Treasurer. Managing Director
of Smith Barney; Director and Senior Vice President of
SBMFM; Senior Vice President and Treasurer of the other
investment companies associated with Smith Barney; 38
Thomas M.
Reynolds
Controller and Assistant Secretary. Director of Smith
Barney in the Asset Management Division and Controller
of and Assistant Controller of certain other investment
companies associated with Smith Barney.
As of February 10, 1997, the Directors and Officers of the Fund owned in
the aggregate less than 1% of the outstanding shares of the Fund. No officer,
director or employee of Smith Barney or any parent or subsidiary receives any
compensation from the Fund for serving as an officer or Director of the Fund.
The Fund pays each Director who is not an officer, director or employee of
Smith Barney or any of its affiliates a fee of $42,000 per annum plus $100 per
meeting attended and reimburses them for travel and out-of-pocket expenses.
For the Fund's fiscal year ended December 31, 1996, such fees and expenses
totaled $5,000.
For the fiscal year ended December 31, 1996, the Directors of the Fund were
paid the following compensation:
Compensation Table
Name of Person
Aggregate
Compensat
ion
from Fund
Pension or
Retirement
Benefits Accrued
as part
of Fund Expenses
Total
Compensation
from Fund and
Fund Complex
Paid to
Directors
Number of
Funds for Which
Director Serves
Within Fund
Complex
Jessica
Bibliowicz*
$ 0
$ 0
$ 0
12
Joseph H.
Fleiss+
828
0
58,500
10
Donald R.
Foley+
828
0
58,300
10
Paul Hardin+
956
0
76,850
12
Heath B.
McLendon*
0
0
0
42
Francis P.
Martin
856
0
58,300
10
Roderick C.
Rasmussen
856
0
58,500
10
Bruce D.
Sargent*
0
0
0
3
John P.
Toolan+
856
0
58,500
10
C. Richard
Youngdahl
856
0
58,500
10
* Designates an interested director".
+ Pursuant to the Fund's deferred compensation plan, the indicated Directors
have elected to defer the following payment of some or all of their
compensation: Joseph H. Fleiss: $828, Donald P. Foley : $828, Paul Hardin:
$956 and John P. Toolan: $856.
Investment Adviser -TIMCO
Travelers Investment Management Company (TIMCO") serves as investment
adviser to the Fund pursuant to a written agreement (the "Advisory
Agreement"). The services provided by TIMCO under the Advisory Agreement are
described in the Prospectus under "Management of the Fund." TIMCO bears all
of its expenses of its employees and overhead in connection with its duties
under the Advisory Agreement. TIMCO is a wholly owned subsidiary of Smith
Barney Holdings Inc. ("Holdings"), which is in turn a wholly owned subsidiary
of Travelers Group Inc. ("Travelers").
As compensation for investment advisory services, the Fund pays TIMCO a
fee
computed daily and paid monthly at the annual rate of 0.65% of the value of
the Fund's average daily net assets. For the 1996, 1995 and 1994 fiscal years,
the Fund paid $416,000, $418,000 and $402,000, respectively, in investment
advisory fees.
Administrator - SBMFM serves as administrator to the Fund pursuant to a
written agreement (the "Administration Agreement"). The services provided by
SBMFM under the Administration Agreement are described in the Prospectus under
"Management of the Fund." SBMFM pays the salary of any officer and employee
who is employed by both it and the Fund and bears all expenses in connection
with the performance of its services.
As compensation for administration services rendered to the Fund, SBMFM
receives a fee at the annual rate of 0.10% of the value of the Fund's average
daily net assets. For the 1996, 1995 and 1994 fiscal period, the Fund paid
SBMFM $138,000 , $139,000 and $134,000 in administration fees.
The Investment Advisory Agreement provides that except for the expenses
specifically assumed by TIMCO, the Fund bears expenses incurred in its
operation, including: fees of the directors not affiliated with the Adviser or
its affiliates and board meeting expenses; fees of the Adviser and of Smith
Barney Mutual Funds Management Inc. (or any successor) as the Administrator;
interest charges; taxes; charges and expenses of the Funds legal counsel and
independent accountants, and of the transfer agent, registrar and dividend
disbursing agent of the Fund; expenses of issue, repurchase or redemption of
Shares; expenses of printing and mailing stockholder reports, notices, proxy
statements and reports to governmental offices; brokerage and other expenses
connected with the execution, recording and settlement of portfolio security
transactions; expenses connected with negotiating, effecting purchases or
sales or registering privately issued portfolio securities; fees and expenses
of the Funds custodians for all services to the Fund, including safekeeping of
funds and securities and maintaining required books and accounts; expenses of
fidelity bonding and other insurance premiums; expenses of stockholders
meetings; filing fees and expenses related to the registration and
qualification of the Funds shares and the Fund under Federal of State
Securities laws and maintaining such registrations and qualifications
(including the printing of the Funds registration statements and
prospectuses); fees payable to the National Association of Securities Dealers,
Inc. in connection with this offering; and its other business and operating
expenses.
TIMCO has agreed that if in any fiscal year the aggregate expenses of
the
Fund (including fees paid pursuant to the Advisory and Agreements, but
excluding interest, taxes, brokerage, fees paid pursuant to the Fund's
services and distribution plan, and, with the prior written consent of the
necessary state securities commissions, extraordinary expenses) exceed the
expense limitation of any state having jurisdiction over the Fund, TIMCO will,
to the extent required by state law, reduce its management fee by such excess
expense. Such a fee reduction, if any, will be reconciled on a monthly basis.
The most restrictive state limitation applicable to the Fund would require
TIMCO to reduce its fees in any year that such excess expenses exceed 2.5% of
the first $30 million of average net assets, 2% of the next $70 million of
average net assets and 1.5% of the remaining average net assets.
Counsel and Auditors
Sullivan & Cromwell serves as counsel to the Fund. The Directors who are
not "interested persons" of the Fund have selected Sullivan & Cromwell as
their legal counsel.
KPMG Peat Marwick LLP, 345 Park Avenue, New York, New York 10154, has
been
selected as the Funds independent auditor to examine and report on the Funds
financial statements and highlights for the fiscal year ending December 31,
1997.
Investment Objective and Management Policies
The Prospectus discusses the Fund's investment objective and the
policies
it employs to achieve its objective. The following discussion supplements the
description of the Fund's investment objective and management policies in the
Prospectus.
Leveraging
The Fund may from time to time leverage its investments by purchasing
securities with borrowed money. The Fund may borrow money only from banks and
in an amount not to exceed 33 1/3% of the total value of its assets less its
liabilities. The amount of the Fund's borrowings also may be limited by the
availability and cost of credit and by restrictions imposed by the Federal
Reserve Board.
The Fund is required under the 1940 Act to maintain at all times an
asset
coverage of 300% of the amount of its borrowings. If, as a result of market
fluctuations or for any other reason, the Fund's asset coverage drops below
300%, the Fund must reduce its outstanding bank debt within three business
days so as to restore its asset coverage to the 300% level.
Any gain in the value of securities purchased with borrowed money that
exceeds the interest paid on the amount borrowed would cause the net asset
value of the Fund's shares to increase more rapidly than otherwise would be
the case. Conversely, any decline in the value of securities purchased would
cause the net asset value of the Fund's shares to decrease more rapidly than
otherwise would be the case. Borrowed money thus creates an opportunity for
greater capital gain but at the same time increases exposure to capital risk.
The net cost of any borrowed money would be an expense that otherwise would
not be incurred, and this expense could restrict or eliminate the Fund's net
investment income in any given period.
Lending of Portfolio Securities
As stated in the Prospectus, the Fund has the ability to lend securities
from its portfolio to brokers, dealers and other financial organizations. The
Fund may not lend its portfolio securities to Smith Barney or its affiliates
unless it has applied for and received specific authority from the SEC. Loans
of portfolio securities by the Fund will be collateralized by cash, letters of
credit or securities issued or guaranteed by the United States government, its
agencies or instrumentalitys ("U.S. government securities") which will be
maintained at all times in an amount equal to at least 100% of the current
market value of the loaned securities. From time to time, the Fund may return
a part of the interest earned from the investment of collateral received for
securities loaned to the borrower and/or a third party, which is unaffiliated
with the Fund or with Smith Barney, and which is acting as a "finder."
In lending its portfolio securities, the Fund can increase its income by
continuing to receive interest on the loaned securities as well as by either
investing the cash collateral in short-term instruments or obtaining yield in
the form of interest paid by the borrower when government securities are used
as collateral. Requirements of the SEC, which may be subject to future
modifications, currently provide that the following conditions must be met
whenever portfolio securities are loaned: (a) the Fund must receive at least
100% cash collateral or equivalent securities from the borrower; (b) the
borrower must increase such collateral whenever the market value of the
securities rises above the level of such collateral; (c) the Fund must be able
to terminate the loan at any time; (d) the Fund must receive reasonable
interest on the loan, as well as an amount equal to any dividends, interest or
other distributions on the loaned securities, and any increase in market
value; (e) the Fund may pay only reasonable custodian fees in connection with
the loan; and (f) voting rights on the loaned securities may pass to the
borrower; however, if a material event adversely affecting the investment
occurs, the Fund's Board of Directors must terminate the loan and regain the
right to vote the securities. The risks in lending portfolio securities, as
with other extensions of secured credit, consist of possible delay in
receiving additional collateral or in the recovery of the securities or
possible loss of rights in the collateral should the borrower fail
financially.
Short Term Instruments
As stated in the Prospectus, the Fund may invest in short term and money
market instruments. Money market instruments in which the Fund may invest
include: U.S. government securities; certificates of deposit, time deposits
and bankers' acceptances issued by domestic banks (including their branches
located outside the United States and subsidiaries located in Canada),
domestic branches of foreign banks, savings and loan associations and similar
institutions; high grade commercial paper; and repurchase agreements with
respect to the foregoing types of instruments. The following is a more
detailed description of such money market instruments.
Bank Obligations. Certificates of deposits ("CDs") are short-term,
negotiable obligations of commercial banks. Time deposits ("TDs") are non-
negotiable deposits maintained in banking institutions for specified periods
of time at stated interest rates. Bankers' acceptances are time drafts drawn
on commercial banks by borrowers, usually in connection with international
transactions.
Domestic commercial banks organized under Federal law are supervised and
examined by the Comptroller of the Currency and are required to be members of
the Federal Reserve System and to be insured by the Federal Deposit Insurance
Corporation (the "FDIC"). Domestic banks organized under state law are
supervised and examined by state banking authorities but are members of the
Federal Reserve System only if they elect to join. Most state banks are
insured by the FDIC (although such insurance may not be of material benefit to
the Fund, depending upon the principal amount of CDs of each bank held by the
Fund) and are subject to Federal examination and to a substantial body of
Federal law and regulation. As a result of governmental regulations, domestic
branches of domestic banks are, among other things, generally required to
maintain specified levels of reserves, and are subject to other supervision
and regulation designed to promote financial soundness.
Obligations of foreign branches of domestic banks, such as CDs and TDs,
may
be general obligations of the parent bank in addition to the issuing branch,
or may be limited by the terms of a specific obligation and governmental
regulation. Such obligations are subject to different risks than are those of
domestic banks or domestic branches of foreign banks. These risks include
foreign economic and political developments, foreign governmental restrictions
that may adversely affect payment of principal and interest on the
obligations, foreign exchange controls and foreign withholding and other taxes
on interest income. Foreign branches of domestic banks are not necessarily
subject to the same or similar regulatory requirements that apply to domestic
banks, such as mandatory reserve requirements, loan limitations, and
accounting, auditing and financial recordkeeping requirements. In addition,
less information may be publicly available about a foreign branch of a
domestic bank than about a domestic bank. CDs issued by wholly owned Canadian
subsidiaries of domestic banks are guaranteed as to repayment of principal and
interest (but not as to sovereign risk) by the domestic parent bank.
Obligations of domestic branches of foreign banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and by governmental regulation
as well as governmental action in the country in which the foreign bank has
its head office. A domestic branch of a foreign bank with assets in excess of
$1 billion may or may not be subject to reserve requirements imposed by the
Federal Reserve System or by the state in which the branch is located if the
branch is licensed in that state. In addition, branches licensed by the
Comptroller of the Currency and branches licensed by certain states ("State
Branches") may or may not be required to: (a) pledge to the regulator by
depositing assets with a designated bank within the state, an amount of its
assets equal to 5% of its total liabilities; and (b) maintain assets within
the state in an amount equal to a specified percentage of the aggregate amount
of liabilities of the foreign bank payable at or through all of its agencies
or branches within the state. The deposits of State Branches may not
necessarily be insured by the FDIC. In addition, there may be less publicly
available information about a domestic branch of a foreign bank than about a
domestic bank.
In view of the foregoing factors associated with the purchase of CDs and
TDs issued by foreign branches of domestic banks or by domestic branches of
foreign banks, TIMCO will carefully evaluate such investments on a case-by-
case basis.
Savings and loans associations whose CDs may be purchased by the Fund
are
supervised by the Office of Thrift Supervision and are insured by the Savings
Association Insurance Fund which is administered by the FDIC and is backed by
the full faith and credit of the United States government. As a result, such
savings and loan associations are subject to regulation and examination.
Investment Restrictions
The Fund has adopted the following restrictions and fundamental
policies that cannot be changed without approval by the holders of a majority
of the Fund's outstanding shares defined as the lesser of (a) more than
50% of the outstanding shares of the Fund or (b) 67% or more of the
Fund's shares present at a meeting, if the holders of more than 50% of
the outstanding shares are present in porson or proxy.
1. Invest 25% or more of the value of its total assets in any one
industry;
2. Borrow money (including borrowing through entering into reverse
repurchase agreements) in excess of 31/3% of its total assets (including
the amount of borrowed but excluding any liabilities and indebtedness
constituting senior securities) except that the Fund may borrow up to an
additional 5% of its total assets for temporary purposes; or pledge its
assets other than to secure such borrowings or in connection with
Hedging Transactions, short sales, when-issued and forward commitment
transaction and similar investment strategies.
3. Issue any senior security if such issuance is specifically
prohibited by
the 1940 Act or the rules and regulations thereunder (for the purpose of
this restriction, collateral arrangements with respect to options,
futures contracts and options on futures contracts and collateral
arrangements with respect to initial and variation margin are not deemed
to be the issuance of a senior security);
4. Make loans, except the Fund may purchase debt obligations, may
enter
into repurchase agreements and may lend its securities;
5. Underwrite the securities of other issuers, except to the extent
that in
connection with the he disposition of portfolio securities the Fund may
be deemed to be an underwriter;
6. Invest for the purpose of exercising control over management of
any
company;
7. Purchase real estate or interests therein other than securities
secured
by real estate, participation therein or real estate investment trusts
and similar instruments;
8. Purchase or sell commodities or commodities contracts except for
hedging
purposes; or
9. Make any short sale of securities except in conformity with
applicable
laws, rules and regulations and unless, giving effect to such sale, the
market value of all securities sold short does not exceed 25% of the
value of the Fund's total assets and the Fund's aggregate short sales of
a particular class of an issuer's securities do not exceed 25% of the
then outstanding securities of that class of the issuer's securities.
10. Purchase any security (other than U.S. obligations) such that (a)
more
than 25% of the Fund's total assets would be invested in securities of a
single issuer or (b) as to 75% of the Fund's total assets (I) more than
5% of the Fund's total assets would then be invested in securities of a
single issuer or (ii) the Fund would own more than 10% of the voting
securities of a single issuer.
Certain restrictions listed above permit the Fund without shareholder
approval to engage in investment practices that the Fund does not currently
pursue. The Fund has no present intention of altering its current investment
practices as otherwise described in the Prospectus and this Statement of
Additional Information and any future change in these practices would require
Board approval. If any percentage restriction described above is complied with
at the time of an investment, a later increase or decrease in percentage
resulting from a change in values or assets will not constitute a violation of
such restriction. The Fund may make commitments more restrictive than the
restrictions listed above so as to permit the sale of Fund shares in certain
states. Should the Fund determine that any such commitment is no longer in the
best interests of the Fund and its shareholders, it will revoke the commitment
by terminating sales of its shares in the state involved.
Portfolio Turnover
The Fund's investment policies may result in its experiencing a greater
portfolio turnover rate than those of investment companies that seek to
produce income or to maintain a balanced investment position. Although the
Fund's portfolio turnover rate cannot be predicted and will vary from year to
year, TIMCO expects that the Fund's annual portfolio turnover rate may exceed
100%, but will not exceed [150]%. A 100% portfolio turnover rate would occur,
for instance, if all securities in the Fund's portfolio were replaced once
during a period of one year. A high rate of portfolio turnover in any year
will increase brokerage commissions paid and could result in high amounts of
realized investment gain subject to the payment of taxes by shareholders. Any
realized short-term investment gain will be taxed to shareholders as ordinary
income. For the 1996, 1995 and 1994 fiscal years, the Fund's portfolio
turnover rates were 151%, 177% and 45% respectively.
Portfolio Transactions and Brokerage
Decisions to buy and sell securities for the Fund are made by TIMCO,
subject to the overall supervision and review of the Fund's Board of
Directors. Portfolio securities transactions for the Fund are effected by or
under the supervision of TIMCO.
Transactions on stock exchanges involve the payment of negotiated
brokerage
commissions. There is generally no stated commission in the case of securities
traded in the over-the-counter markets, but the price of those securities
includes an undisclosed commission or mark-up. The cost of securities
purchased from underwriters includes an underwriting commission or concession,
and the prices at which securities are purchased from and sold to dealers
include a dealer's mark-up or mark-down. For the 1996, 1995 and 1994 fiscal
years, the Fund paid $176,000, $155,000 and $190,000 respectively, in
brokerage commissions.
In executing portfolio transactions and selecting brokers or dealers, it
is
the Fund's policy to seek the best overall terms available. The Advisory
Agreement between the Fund and TIMCO provides that, in assessing the best
overall terms available for any transaction, TIMCO shall consider the factors
it deems relevant, including the breadth of the market in the security, the
price of the security, the financial condition and execution capability of the
broker or dealer, and the reasonableness of the commission, if any, for the
specific transaction and on a continuing basis. In addition, the Advisory
Agreement authorizes TIMCO, in selecting brokers or dealers to execute a
particular transaction and in evaluating the best overall terms available, to
consider the brokerage and research services (as those terms are defined in
Section 28(e) of the Securities Exchange Act of 1934) provided to the Fund
and/or other accounts over which TIMCO or an affiliate exercises investment
discretion.
The Fund's Board of Directors will periodically review the commissions
paid
by the Fund to determine if the commissions paid over representative periods
of time were reasonable in relation to the benefits inuring to the Fund. It is
possible that certain of the services received will primarily benefit one or
more other accounts for which investment discretion is exercised. Conversely,
the Fund may be the primary beneficiary of services received as a result of
portfolio transactions effected for other accounts. TIMCO's fee under the
Advisory Agreement is not reduced by reason of TIMCO's receiving such
brokerage and research services.
The Fund's Board of Directors has determined that any portfolio
transaction
for the Fund may be executed through Smith Barney if, in TIMCO's judgment, the
use of Smith Barney is likely to result in price and execution at least as
favorable as those of other qualified brokers, and if, in the transaction,
Smith Barney charges the Fund a commission rate consistent with that charged
by Smith Barney to comparable unaffiliated customers in similar transactions.
In addition, under SEC rules, Smith Barney may directly execute such
transactions for the Fund on the floor of any national securities exchange,
provided (a) the Board of Directors has expressly authorized Smith Barney to
effect such transactions and (b) Smith Barney annually advises the Fund of the
aggregate compensation it earned on such transactions. Smith Barney will not
participate in commissions from brokerage given by the Fund to other brokers
or dealers and will not receive any reciprocal brokerage business resulting
therefrom. Over-the-counter purchases and sales are transacted directly with
principal market makers except in those cases in which better prices and
executions may be obtained elsewhere. For the 1996, 1995 and 1994 fiscal
years, the Fund paid $7,375, $32,635 and $5,400, respectively, in brokerage
commissions to Smith Barney. For the 1996 fiscal year, Smith Barney received
4.2% of the brokerage commissions paid by the Fund and effected 29% of the
total dollar amount of transactions for the Fund involving the payment of
brokerage commissions.
Even though investment decisions for the Fund are made independently
from
those of the other accounts managed by TIMCO, investments of the kind made by
the Fund also may be made by those other accounts. When the Fund and one or
more accounts managed by TIMCO 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 TIMCO to be equitable. In some cases,
this procedure may adversely affect the price paid or received by the Fund or
the size of the position obtained for or disposed of by the Fund.
Purchase of Shares
Volume Discounts
The schedule of sales charges on Class A shares described in the
Prospectus
applies to purchases made by any "purchaser," which is defined to include the
following: (a) an individual; (b) an individual's spouse and his or her
children purchasing shares for his or her own account; (c) a trustee or other
fiduciary purchasing shares for a single trust estate or single fiduciary
account; (d) a pension, profit-sharing or other employee benefit plan
qualified under Section 401(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), and qualified employee benefit plans of employers who
are "affiliated persons" of each other within the meaning of the 1940 Act; (e)
tax-exempt organizations enumerated in Section 501(c)(3) or (13) of the Code;
and (f) a trustee or other professional fiduciary (including a bank, or an
investment adviser registered with the SEC under the Investment Advisers Act
of 1940, as amended) purchasing shares of the Fund for one or more trust
estates or fiduciary accounts. Purchasers who wish to combine purchase orders
to take advantage of volume discounts should contact a Smith Barney Financial
Consultant.
Combined Right of Accumulation
Reduced sales charges, in accordance with the schedule in the Prospectus,
apply to any purchase of Class A shares if the aggregate investment in Class A
shares of the Fund and in Class A shares of other funds of the Smith Barney
Mutual Funds that are offered with a sales charge, including the purchase
being made, of any purchaser is $25,000 or more. The reduced sales charge is
subject to confirmation of the shareholder's holdings through a check of
appropriate records. The Fund reserves the right to terminate or amend the
combined rights of accumulation at any time after written notice to
shareholders. For further information regarding the right of accumulation,
shareholders should contact a Smith Barney Financial Consultant.
Determination of Public Offering Price
The Fund offers its shares to the public on a continuous basis. The
public
offering price for a Class A and Class Y share of the Fund is equal to the net
asset value per share at the time of purchase, plus for Class A shares an
initial sales charge based on the aggregate amount of the investment. The
public offering price for a Class B and Class C share (and Class A share
purchases, including applicable rights of accumulation, equaling or exceeding
$500,000), is equal to the net asset value per share at the time of purchase
and no sales charge is imposed at the time of purchase. A contingent deferred
sales charge ("CDSC"), however, is imposed on certain redemptions of Class B
and Class C shares, and of Class A shares when purchased in amounts equaling
or exceeding $500,000. The method of computation of the public offering price
is shown in the Fund's financial statements incorporated by reference in their
entirety into this Statement of Additional Information.
Redemption of Shares
The right of redemption may be suspended or the date of payment
postponed
(a) for any period during which the NYSE is closed (other than for customary
weekend or holiday closings), (b) when trading in markets the Fund normally
utilizes is restricted, or an emergency exists, as determined by the SEC, so
that disposal of the Fund's investments or determination of net asset value is
not reasonably practicable or (c) for such other periods as the SEC by order
may permit for the protection of the Fund's shareholders.
Distributions in Kind
If the Board of Directors of the Fund determines that it would be detrimental
to the best interests of the remaining shareholders of the Fund to make a
redemption payment wholly in cash, the Fund may pay, in accordance with SEC
rules, any portion of a redemption in excess of the lesser of $250,000 or 1%
of the Fund's net assets by distribution in kind of portfolio securities in
lieu of cash. Securities issued as a distribution in kind may incur brokerage
commissions when shareholders subsequently sell those securities.
Automatic Cash Withdrawal Plan
An automatic cash withdrawal plan (the "Withdrawal Plan") is available to
shareholders who own shares with a value of at least $10,000 ($5,000 for
retirement plan accounts) and who wish to receive specific amounts of cash
monthly or quarterly. Withdrawals of at least $100 may be made under the
Withdrawal Plan by redeeming as many shares of the Fund as may be necessary to
cover the stipulated withdrawal payment. Any applicable CDSC will not be
waived on amounts withdrawn by shareholders that exceed 1.00% per month of the
value of a shareholder's shares at the time the Withdrawal Plan commences.
(With respect to Withdrawal Plans in effect prior to November 7, 1994 any
applicable CDSC will be waived on amounts withdrawn that do not exceed 2.00%
per month of the value of a shareholder's shares at the time the Withdrawal
Plan commences.) To the extent withdrawals exceed dividends, distributions and
appreciation of a shareholder's investment in the Fund, there will be a
reduction in the value of the shareholder's investment and continued
withdrawal payments will reduce the shareholder's investment and ultimately
may exhaust it. Withdrawal payments should not be considered as income from
investment in the Fund. Furthermore, as it generally would not be advantageous
to a shareholder to make additional investments in the Fund at the same time
that he or she is participating in the Withdrawal Plan, purchases by such
shareholders in amounts of less than $5,000 ordinarily will not be permitted.
Shareholders who wish to participate in the Withdrawal Plan and who hold
their shares in certificate form must deposit their share certificates with
First Data as agent for Withdrawal Plan members. All dividends and
distributions on shares in the Withdrawal Plan are reinvested automatically at
net asset value in additional shares of the Fund. A shareholder who purchases
shares directly through First Data may continue to do so and applications for
participation in the Withdrawal Plan must be received by First Data no later
than the eighth day of the month to be eligible for participation beginning
with that month's withdrawal. For additional information, shareholders should
contact a Smith Barney Financial Consultant.
Distribution
To compensate Smith Barney for the services it provides and for the
expense
it bears under the Distribution Agreement, the Fund has adopted a services and
distribution plan (the "Plan") pursuant to Rule 12b-1 under the 1940 Act. See
Distribution" in the Prospectus. Under the Plan, the Fund pays Smith Barney a
service fee, accrued daily and paid monthly, calculated at the annual rate of
0.25% of the value of the Fund's average daily net assets attributable to the
Class A, Class B and Class C shares. In addition, the Fund pays Smith Barney a
distribution fee with respect to Class B and Class C shares primarily intended
to compensate Smith Barney for its initial expense of paying Financial
Consultants a commission upon sales of those shares. The Class B and Class C
distribution fee is calculated at the annual rate of 0.75% of the value of the
Fund's average net assets attributable to the shares of the respective Class.
Under its terms, the Plan continues from year to year, provided such
continuance is approved annually by vote of the Board of Directors, including
a majority of the Directors who are not interested persons of the Fund and who
have no direct or indirect financial interest in the operation of the Plan or
in the Distribution Agreement (the "Independent Directors"). The Plan may not
be amended to increase the amount of the service and distribution fees without
shareholder approval, and all material amendments of the Plan also must be
approved by the Directors and Independent Directors in the manner described
above. The Plan may be terminated with respect to a Class of the Fund at any
time, without penalty, by vote of a majority of the Independent Directors or
by vote of a majority of the outstanding voting securities of the Class (as
defined in the 1940 Act). Pursuant to the Plan, Smith Barney will provide the
Fund's Board of Directors with periodic reports of amounts expended under the
Plan and the purpose for which such expenditures were made.
Valuation of Shares
Each Class' net asset value per share is calculated on each day, Monday
through Friday, except days on which the NYSE is closed. The NYSE currently is
scheduled to be closed on New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas, and on
the preceding Friday or subsequent Monday when one of these holidays falls on
a Saturday or Sunday, respectively. Because of the differences in distribution
fees and Class-specific expenses, the per share net asset value of each Class
may differ. The following is a description of the procedures used by the Fund
in valuing its assets.
Securities listed on a national securities exchange will be valued on
the
basis of the last sale on the date on which the valuation is made or, in the
absence of sales, at the mean between the closing bid and asked prices. Over-
the-counter securities will be valued on the basis of the bid price at the
close of business on each day, or, if market quotations for those securities
are not readily available, at fair value, as determined in good faith by the
Fund's Board of Directors. Short-term obligations with maturities of 60 days
or less are valued at amortized cost, which constitutes fair value as
determined by the Fund's Board of Directors. Amortized cost involves valuing
an instrument at its original cost to the Fund and thereafter assuming a
constant amortization to maturity of any discount or premium, regardless of
the effect of fluctuating interest rates on the market value of the
instrument. All other securities and other assets of the Fund will be valued
at fair value as determined in good faith by the Fund's Board of Directors.
Exchange Privilege
Shareholders of any fund of the Smith Barney Mutual Funds may exchange all
or part of their shares for shares of the same class of other funds of the
Smith Barney Mutual Funds, to the extent such shares are offered for sale in
the shareholder's state of residence, on the basis of relative net asset value
per share at the time of exchange, except that Class B shares of the Fund
exchanged for Class B shares of another fund will be subject to the higher
applicable CDSC of the two funds and, for purposes of calculating CDSC rates
and conversion periods, will be deemed to have been held since the date the
shares being exchanged were deemed to be purchased.
Dealers other than Smith Barney must notify First Data of the investor's
prior ownership of Class A shares of Smith Barney High Income Fund and the
account number in order to accomplish an exchange of shares of Smith Barney
High Income Fund under paragraph B above.
The exchange privilege enables shareholders to acquire shares of the
same
Class in a fund with different investment objectives when they believe that a
shift between funds is an appropriate investment decision. This privilege is
available to shareholders 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 Smith Barney
Financial Consultant.
Upon receipt of proper instructions and all necessary supporting
documents,
shares submitted for exchange are redeemed at the then-current net asset value
and, subject to any applicable CDSC, the proceeds are immediately invested, at
a price as described above, in shares of the fund being acquired. Smith Barney
reserves the right to reject any exchange request. The exchange privilege may
be modified or terminated at any time after written notice to shareholders.
IRA AND OTHER PROTOTYPE RETIREMENT PLANS
Copies of the following plans with custody or trust agreements have been
approved by the Internal Revenue Service and are available from the Fund or
Smith Barney; investors should consult with their own tax or retirement
planning advisors prior to the establishment of a plan.
IRA, Rollover IRA and Simplified Employee Pension - IRA
The Small Business Job Protection Act of 1996 changed the eligibility
requirements for participants in Individual Retirement Accounts ("IRAs").
Under these new provisions, if you or your spouse have earned income, each of
you may establish an IRA and make maximum annual contributions equal to the
lesser of earned income or $2,000. As a result of this legislation, married
couples where one spouse is non-working may now contribute a total of $4,000
annually to their IRAs.
If you or your spouse is an active participant in an employer-sponsored
retirement plan, a deduction for contributions to an IRA might still be
allowed in full or in part, depending on your combined adjusted gross income.
For married couples filing jointly, a full deduction for contributions to an
IRA will be allowed where the couples' adjusted gross income is below $40,001
($25,001 for an unmarried individual); a partial deduction will be allowed
when adjusted gross income is between $40,001 - $50,000 ($25,001-$35,000 for
an unmarried individual); and no deduction when adjusted gross income is
$50,000 ($35,000 for an unmarried individual).
A Rollover IRA is available to defer taxes on lump sum payments and
other qualifying rollover amounts (no maximum) received from another
retirement plan.
An employer who has established a Simplified Employee Pension - IRA
("SEP-
IRA") on behalf of eligible employees may make a maximum annual contribution
to each participant's account of 15% (up to $24,000) of each participant's
compensation. Compensation is capped at $160,000 for 1997.
Performance Data
From time to time, the Fund may quote total return of the Classes in
advertisements or in reports and other communications to shareholders. The
Fund may include comparative performance information in advertising or
marketing the Fund's shares. Such performance information may include data
from the following industry and financial publications: Barron's, Business
Week, CDA Investment Technologies, Inc., Changing Times, Forbes, Fortune,
Institutional Investor, Investors Daily, Money, Morningstar Mutual 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 Class A, Class B, Class C or Class Y, it will also
disclose such information for the other Classes.
Average Annual Total Return
"Average annual total return" figures are computed according to a
formula
prescribed by the SEC. The formula can be expressed as follows:
P(1 + T)n = ERV
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = Ending Redeemable Value of a hypothetical $1,000
investment
made at the beginning of a 1-, 5-, 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.
Average annual total return was as follows for the periods indicated:
20.56% for the one-year period beginning on January 1, 1996 through
December
31, 1996;
11.64% per annum during the five-year period beginning on January 1, 1992
through December 31, 1996; and
since August 1, 1995 when TIMCO became investment adviser to the Fund
through December 31, 1996 the Funds Aggregate Annual Total Return was 22.74%.
Aggregate Total Return
"Aggregate total return" figures represent the cumulative change in the
value of an investment in the Class for the specified period and are computed
by the following formula:
ERV-P
AGGREGATE TOTAL RETURN = 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.
Aggregate total return was as follows for the periods indicated:
20.56% for the one-year period from January 1, 1996 through December 31,
1996.
73.42% for the five-year period from January 1, 1992 through December
31,1996; and
since August 1, 1995 when TIMCO became the Fund's investment adviser
through December 31, 1996 the Fund's Aggregate Annual Total Return was 33.83%.
Performance will vary from time to time depending upon market
conditions,
the composition of the Fund's portfolio, operating expenses and the expenses
exclusively attributable to the Class. Consequently, any given performance
quotation should not be considered representative of the Class' performance
for any specified period in the future. Because performance will vary, it may
not provide a basis for comparing an investment in the Class with certain bank
deposits or other investments that pay a fixed yield for a stated period of
time. Investors comparing the Class' performance with that of other mutual
funds should give consideration to the quality and maturity of the respective
investment companies' portfolio securities.
It is important to note that the total return figures set forth above
are
based on historical earnings and are not intended to indicate future
performance.
Taxes
The following is a summary of certain Federal income tax considerations
that may affect the Fund and its shareholders. The summary is not intended as
a substitute for individual tax advice and investors are urged to consult
their own tax advisors as to the tax consequences of an investment in the
Fund.
The Fund has qualified and intends to continue to qualify each year as a
regulated investment company under the Code. Provided that the Fund (a) is a
regulated investment company and (b) distributes at least 90% of its net
investment income (including, for this purpose, net realized short-term
capital gains), the Fund will not be liable for Federal income taxes to the
extent its net investment income and its net realized long- and short-term
capital gains, if any, are distributed to its shareholders. Although the Fund
expects to be relieved of all or substantially all Federal, state, and local
income or franchise taxes, depending upon the extent of its activities in
states and localities in which its offices are maintained, in which its agents
or independent contractors are located, or in which it is otherwise deemed to
be conducting business, that portion of the Fund's income which is treated as
earned in any such state or locality could be subject to state and local
taxes. Any such taxes paid by the Fund would reduce the amount of income and
gains available for distribution to shareholders. All net investment income
and net capital gains earned by the Fund will be reinvested automatically in
additional shares of the same Class of the Fund at net asset value, unless the
shareholder elects to receive dividends and distributions in cash.
Gains or losses on the sales of securities by the Fund generally will be
long-term capital gains or losses if the Fund has held the securities for more
than one year. Gains or losses on the sales of securities held for not more
than one year generally will be short-term capital gains or losses. If the
Fund acquires a debt security at a substantial discount, a portion of any gain
upon the sale or redemption will be taxed as ordinary income, rather than
capital gain to the extent it reflects accrued market discount.
Dividends of net investment income and distributions of net realized
short-
term capital gains will be taxable to shareholders as ordinary income for
Federal income tax purposes, whether received in cash or reinvested in
additional shares. Dividends received by corporate shareholders will qualify
for the dividends-received deduction only to the extent that the Fund
designates the amount distributed as a dividend and the amount so designated
does not exceed the aggregate amount of dividends received by the Fund from
domestic corporations for the taxable year. The Federal dividends-received
deduction for corporate shareholders may be further reduced or disallowed if
the shares with respect to which dividends are received are treated as debt
financed or are deemed to have been held for less than 46 days.
Distributions of long-term capital gains will be taxable to shareholders
as
such, whether paid in cash or reinvested in additional shares and regardless
of the length of time that the shareholder has held his or her interest in the
Fund. If a shareholder receives a distribution taxable as long-term capital
gain with respect to his or her investment in the Fund and redeems or
exchanges the shares before he or she has held them for more than six months,
any loss on the redemption or exchange that is less than or equal to the
amount of the distribution will be treated as a long-term capital loss.
If a shareholder (a) incurs a sales charge in acquiring or redeeming
shares
of the Fund, (b) disposes of those shares within 90 days and (c) acquires
shares in a mutual fund for which the otherwise applicable sales charge is
reduced by reason of a reinvestment right (i.e., exchange privilege), the
original sales charge increases the shareholder's tax basis in the original
shares only to the extent the otherwise applicable sales charge for the second
acquisition is not reduced. The portion of the original sales charge that does
not increase the shareholder's tax basis in the original shares would be
treated as incurred with respect to the second acquisition and, as a general
rule, would increase the shareholder's tax basis in the newly acquired shares.
Furthermore, the same rule also applies to a disposition of the newly acquired
or redeemed shares made within 90 days of the second acquisition. This
provision prevents a shareholder from immediately deducting the sales charge
by shifting his or her investment in a family of mutual funds.
Investors considering buying shares of the Fund on or just prior to a
record date for a taxable dividend or capital gain distribution should be
aware that, regardless of whether the price of the Fund shares to be purchased
reflects the amount of the forthcoming dividend or distribution payment, any
such payment will be a taxable dividend or distribution payment.
If a shareholder fails to furnish a correct taxpayer identification
number,
fails to report dividend and interest income in full, or fails to certify that
he or she has provided a correct taxpayer identification number and that he or
she is not subject to such withholding, the shareholder may be subject to a
31% "backup withholding" tax with respect to (a) any taxable dividends and
distributions and (b) any proceeds of any redemption of Fund shares. An
individual's taxpayer identification number is his or her social security
number. The backup withholding tax is not an additional tax and may be
credited against a shareholder's regular Federal income tax liability.
The foregoing is only a summary of certain tax considerations generally
affecting the Fund and its shareholders and is not intended as a substitute
for careful tax planning. Shareholders are urged to consult their tax advisors
with specific reference to their own tax situations, including their state and
local tax liabilities.
Additional Information
The Fund, an open end management investment company, was incorporated on
October 4 1989 in Maryland under the name The Inefficient-Market Fund Inc.
(the "Fund") as a non-diversified closed end company and converted to open-end
diversified status on June 20, 1997 pursuant to shareholder approval on April
18, 1997 and Securities and Exchange Declaration of Effectiveness on June 20,
1997.
PNC Bank is located at 17th Chestnut Street, Philadelphia, PA 19103,
and
serves as the custodian of the Fund. Under its agreement with the Fund, PNC
Bank holds the Fund's portfolio securities and keeps all necessary accounts
and records. For its services, PNC Bank receives a monthly fee based upon the
month-end market value of securities held in custody and also receives
securities transaction charges. PNC Bank is authorized to establish separate
accounts for foreign securities owned by the Fund to be held with foreign
branches of other domestic banks as well as with certain foreign banks and
securities depositories. The assets of the Fund are held under bank
custodianship in compliance with the 1940 Act.
First Data is located at Exchange Place, Boston, Massachusetts 02109,
and
serves as the Fund's transfer agent. Under the transfer agency agreement,
First Data maintains the shareholder account records for the Fund, handles
certain communications between shareholders and the Fund and distributes
dividends and distributions payable by the Fund. For these services, First
Data receives a monthly fee computed on the basis of the number of shareholder
accounts it maintains for the Fund during the month and is reimbursed for out-
of-pocket expenses.
Financial Statements
The Fund's Annual Report for the fiscal year ended December 31, 1996,
(accession #91155-97-000137 filed on March 10, 1997) accompanies this
Statement of Additional Information and is incorporated
herein by reference in its entirety..
Smith Barney
Disciplined Small
Cap Fund, Inc.
Statement of
Additional
Information
June 23, 1997
Smith Barney
Disciplined Small Cap Fund, Inc.
388 Greenwich Street
New York, NY 10013
...................................Fund ........................
SMITH BARNEY
A Member of Travelers Group
PART C
OTHER INFORMATION
Item 24.
Financial Statements and Exhibits
(a) Financial Statements:
(b) Exhibits:
Exhibit No.
Description of Exhibits
1
Registrant's
Articles Of
Incorporation
Filed herewith
2
Registrant's
By-Laws
Filed herewith
3
Not applicable
Not applicable
4
Registrant's
form of Stock
Certificate
Filed herewith
5
Form of
Investment
Advisory
Agreement
Filed herewith
6
Form of
Distribution
Agreement
Filed herewith
7.
Not applicable
Not applicable
8.
Custodian
Agreement
Filed herewith
9(a)
Transfer Agency
Agreement
Filed herewith
(b)
Administration
Agreement
Filed herewith
10
Opinion of
Counsel
Filed herewith
11
Consent of
Independent
Accountants
Filed herewith
12
Inapplicable
Inapplicable
13
Not applicable
Not applicable
14
Not applicable
Not applicable
15
Services and
Distribution
plan pursuant
to Rule 12b-1
Filed herewith
16
Performance
Data
Incorporated by reference to the Fund's Registration Statement
on Form N-1A EL filed on April 21, 1997
17
Financial Data
Schedule
Incorporated by reference to to the Fund's Registration Statement
on Form N-1A EL filed on April 21, 1997
18
Form of Rule
18f-3
Filed herewith
Item 25. Persons Controlled by or Under Common Control with Registrant
The Registrant is not controlled directly or indirectly by any person.
Information regarding the Registrant's institutional manager is set forth
under the caption Management of the Fund" in the prospectus included in Part A
of this Registration Statement on Form N-1A.
Item 26. Number of Holders of Securities
Not Applicable
Item 27. Indemnification
Reference is made to Article IX of Registrant's Articles of
Incorporation for a complete statement of its terms.
Item 28. Business and other Connections of the Investment Advisers
Travelers Investment Management Company. (TIMCO") serves as the
investment adviser for the Fund pursuant to a written agreement (the"Advisory
Agreement"). TIMCO was incorporated on August 31, 1967 under the laws of the
State of Connecticut. TIMCO is a wholly owned subsidiary of Smith Barney
Holdings Inc., which in turn is a wholly owned subsidiary of Travelers Group
Inc. TIMCO is registered as an investment adviser under the Investment
Advisers Act of 1940 (the "Advisers Act") since 1971 and has, through its
predecessors, been in the investment counseling business since 1967. The list
required by this Item 28 of officers and directors of TIMCO together with
information as to any other business, profession, vocation or employment of a
substantial nature engaged in by such officers and directors during the past
two fiscal years, is incorporated by reference to Schedules A and D of FORM
ADV filed by SBA pursuant to the Advisers Act (SEC File No.801-07212).
Item 29. Principal Underwriter
(a) Smith Barney Inc., ("Smith Barney") currently acts as distributor
for Smith Barney Money Funds, Inc.; Smith Barney Municipal Money Market Fund,
Inc.; Smith Barney Muni Funds; Smith Barney Funds, Inc.; Smith Barney Variable
Account Funds; Smith Barney Oregon Municipals Fund, Smith Barney Global
Opportunities Fund, Smith Barney Adjustable Rate Government Income Fund; Smith
Barney Equity Funds; Smith Barney Income Funds; Smith Barney Massachusetts
Municipals Fund; Smith Barney Arizona Municipals Fund Inc.; Smith Barney
Investment Trust; Smith Barney Aggressive Growth Fund Inc.; Smith Barney
Appreciation Fund Inc.; Smith Barney California Municipals Fund Inc.; Smith
Barney Fundamental Value Fund Inc.; Smith Barney Managed Governments Fund
Inc.; Smith Barney Tax Free Money Fund, Inc.Smith Barney Managed Municipals
Fund Inc.; Smith Barney New Jersey Municipals Fund Inc.; Smith Barney World
Funds Inc.; Smith Barney Natural Resources Fund Inc.; Smith Barney Investment
Funds Inc.; Smith Barney Telecommunications Trust; Smith Barney Principal
Return Fund Smith Barney Series Fund Consulting Group Capital Markets Funds,
Smith Barney U.S. Dollar Reserve Fund (Cayman), Worldwide Special Fund, N.V.,
Worldwide Securities Limited, (Bermuda), Smith Barney International Fund
(Luxembourg ), Smith Barney Institutional Cash Management Fund, Inc., Smith
Barney Concert Allocation Series Inc. and various series of unit investment
trusts.
Smith Barney, is a wholly owned subsidiary of Smith Barney Holdings Inc.
(formerly known as Smith Barney Shearson Holdings Inc.), which in turn is a
wholly owned subsidiary of Travelers Group Inc.(formerly known as Primerica
Corporation) ("Travelers"). On June 1, 1994, Smith Barney changed its name
from Smith Barney Shearson Inc. to its current name.
(b) The information required by this Item 29 with respect to each
director and officer of Smith Barney is incorporated by reference to Schedule
A of Form BD filed by Smith Barney pursuant to the Securities Exchange Act of
1934 (SEC File No. 8-8177)
(c) Not applicable.
Item 30. Location of Accounts and Records
All accounts, books and other documents of Registrant are maintained at
the offices of:
(1) TIMCO
One Tower Square
Hartford, Connecticut 06183
(Records relating to its function as Registrant's investment
adviser)
(2) PNC Bank, National Association
17th and Chestnut Streets
Philadelphia, Pennsylvania 19103
(Records relating to its function as Registrant's custodian)
(3) First Data Investor Services Group, Inc.
Exchange Place
Boston, Massachusetts 02109
(Records relating to its function as Registrant's transfer agent)
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a) Registrant undertakes to call a meeting of its shareholders for
the purpose of voting upon the question of removal of a director or directors
of Registrant when requested in writing to do so by the holders of at least
10% of Registrant's outstanding shares and, in connection with the meeting, to
comply with the provisions of Section 16(c) of the 1940 Act relating to
communications with the shareholders of certain.
(b) Registrant undertakes to file a post-effective amendment, with
respect to the Funds, containing reasonably current financial statements that
need not be certified, within four to six months from the effective date of
this Registration Statement.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant, Smith
Barney Disciplined Small Cap Fund, Inc., has duly caused this
Pre-effective Amendment No.1 to theRegistration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, the State of New York on the 16th day of
June, 1997.
SMITH BARNEY DISCIPLINED SMALL CAP FUND, INC.
By:___________________________________
/s/ Heath B. McLendon
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Heath B. McLendon, Christina T. Sydor and
Robert M. Nelson, and each and any one of them, his true and lawful attorneys-
in-fact and agents, with full power of substitution and resubstitution, for
him and in his name, place and stead, in any and all capacities, to sign any
or all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done about the premises, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
As required by the Securities Act of 1933, as amended, this Registration
Statement has been signed by the following persons in the capacities and on
the dates indicated.
Signature
Title
Date
Heath B. McLendon*
Heath B. McLendon
Chairman of the Board
(Chief Executive Officer)
6/16/97
/s/ Jessica Bibliowicz *
Jessica Bibliowicz
President and Director
6/16/97
/s/Lewis E. Daidone*
Lewis E. Daidone
Senior Vice President and Treasurer
Principal Financial and Account Officer
/s/ Bruce D. Sargent*
Bruce D. Sargent
Director
6/16/97
/s/Joseph H. Fleiss*
Joseph H. Fleiss
Director
6/16/97
/s/ Donald R. Foley*
Donal R. Foley
Director
6/16/97
/s/ Dr. Paul Hardin*
Dr. Paul Hardin
Director
6/16/97
/s/ Francis P. Martin, M.D.*
Francis P. Martin, M.D.
Director
6/16/97
/s/ Roderick C. Rasmussen*
Roderick C. Rasmussen
Director
6/16/97
/s/ John P. Toolan*
John P. Tool
Director
6/16/97
*By : /s/ Robert M. Nelson
Robert M. Nelson
Attorney-in-Fact
SMALLCAP.DOC.12
Page 1 of ___ Pages
Exhibit Index at Page ___
SMITH BARNEY DISCIPLINED SMALL CAP FUND, INC.
FORM N-1A
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(a)
SMITH BARNEY DISCIPLINED SMALL CAP FUND, INC.
ARTICLES OF AMENDMENT AND RESTATEMENT
SMITH BARNEY DISCIPLINED SMALL CAP FUND, INC., a Maryland Corporation
(the "Corporation"), does hereby certify to the State Department of
Assessments and Taxation of Maryland that:
FIRST: The name of the Corporation is SMITH BARNEY DISCIPLINED SMALL
CAP FUND, INC. The Corporation desires to amend and restate its Articles of
Incorporation as currently in effect. The original Articles of Incorporation
were filed with the State of Maryland on September 19, 1989.
SECOND: Pursuant to Section 2-609 of the Maryland Corporations and
Associations Code, these Articles of Amendment and Restatement restate and
amend the provisions of the Articles of Incorporation of the Corporation.
THIRD: The text of the Articles of Incorporation of the Corporation is
hereby amended and restated to read in its entirety as follows:
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
SMITH BARNEY DISCIPLINED SMALL CAP FUND, INC.
ARTICLE I
NAME
The name of the corporation is SMITH BARNEY DISCIPLINED SMALL CAP FUND,
INC.
ARTICLE II
PURPOSES AND POWERS
The purpose for which the Corporation is formed is to act as an
investment company of the open-end management type registered as such with the
Securities and Exchange Commission pursuant to the Investment Company Act of
1940 (the "1940 Act") and to exercise and generally to enjoy all of the
powers, rights and privileges granted to, or conferred upon, corporations by
the General Laws of the State of Maryland now or hereafter in force.
ARTICLE III
PRINCIPAL OFFICE AND RESIDENT AGENT
The post office address of the place at which the principal office of
the Corporation in the State of Maryland is located at c/o The Corporation
Trust Incorporated, 32 South Street, Baltimore, Maryland 21201.
The name of the Corporation's resident agent is The Corporation Trust
Incorporated, and its post office address is 32 South Street, Baltimore,
Maryland 21201. Said resident agent is a corporation of the State of
Maryland.
ARTICLE IV
CAPITAL STOCK
SECTION 1. The total number of shares of capital stock that the
Corporation has authority to issue is 400,000,000 shares, of the par value of
.001 per share, and of the aggregate par value of $400,000. 100,000,000 of
the authorized shares of Common Stock of the Corporation are designated as
Class A Common stock, 100,000,000 of such shares are designated as Class B
Common Stock, 100,000,000 of such shares are designated as Class C Common
Stock and 100,000,000 of such shares are designated as Class Y Common Stock.
Each share of Common Stock previously issued and outstanding on the date these
amendments become effective shall be changed into a share of Class A Common
Stock.
SECTION 2. The Board of Directors may classify and reclassify any
unissued shares of capital stock into one or more additional or other classes
or series as may be established from time to time, whether now or hereafter
authorized, by setting or changing in any one or more respects the
designations, preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications or terms or
conditions of redemption of such shares of stock and pursuant to such
classification or reclassification to increase or decrease the number of
authorized shares of any existing class or series.
SECTION 3. The Board of Directors of the Corporation is hereby
empowered to authorize the issuance from time to time of shares or fractions
thereof of the Corporation's capital stock of any class, whether now or
hereafter authorized, or securities convertible into shares of its capital
stock of any class or classes, whether now or hereafter authorized. The Board
of Directors may classify and reclassify any issued shares of capital stock
into one or more additional or other classes or series as may be established
from time to time by setting or changing in any one or more respects the
designations, preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications or terms or
conditions of redemption of such shares of stock and pursuant to such
classification or reclassification to increase or decrease the number of
authorized shares of any existing class or series; provided, however, that any
such classification or reclassification shall not substantially adversely
affect the rights of holders of such issued shares. The Board's authority
pursuant to this paragraph shall include, but not be limited to, the power to
vary among all of the holders of a particular class or series (a) the length
of time shares must be held prior to reclassification to shares of another
class or series (the "Holding Period(s)"), (b) the manner in which the time
for such Holding Period(s) is determined and (c) the class or series into
which the particular class or series is being reclassified; provided, however,
that, subject to the first sentence of this section, with respect to holders
of the Corporation's shares issued on or after the date of the Corporation's
first effective prospectus which sets forth Holding Period(s), the Holding
Period(s), the manner in which the time for such Holding Period(s) is
determined and the class or series into which the particular class or series
is being reclassified shall be disclosed in the Corporation's prospectus or
statement of additional information in effect at the time such shares, which
are the subject of the reclassification, were issued.
SECTION 4. Unless otherwise expressly provided in the Articles of
Incorporation of the Corporation, including any Articles Supplementary
creating any class or series of capital stock, the holders of each class or
series of capital stock shall be entitled to dividends and distributions in
such amounts and at such times as may be determined by the Board of Directors,
and the dividends and distributions paid with respect to the various classes
or series of capital stock may vary among such classes and series. Dividends
on a class or series may be declared or paid only out of the net assets of
that class or series. Expenses related to the distribution of, and other
identified expenses that should properly be allocated to, the shares of a
particular class or series of capital stock may be charged to and borne solely
by such class or series and the bearing of expenses solely by a class or
series of capital stock may be appropriately reflected (in a manner determined
by the Board of Directors) and cause differences in the net asset value
attributable to, and the dividend, redemption and liquidation rights of, the
shares of each class or series of capital stock.
SECTION 5. Unless otherwise expressly provided in these Articles of
Incorporation and including any Articles Supplementary creating any class or
series of capital stock, on each matter submitted to a vote of stockholders,
each holder of a share of capital stock of the Corporation shall be entitled
to one vote for each share or fraction thereof standing in such holder's name
on the books of the Corporation, irrespective of the class or series thereof,
and all shares of all classes and series shall vote together as a single
class; provided, however, that (a) as to any matter with respect to which a
separate vote of any class or series is required by the Investment Company Act
of 1940, as amended, and in effect from time to time, or any rules,
regulations or orders issued thereunder, or by the Maryland General
Corporation Law, such requirement as to a separate vote by that class or
series shall apply in lieu of a general vote of all classes and series as
described above, (b) in the event that the separate vote requirements referred
to in (a) above apply with respect to one or more classes or series, then,
subject to paragraph (c) below, the shares of all other classes and series not
entitled to a separate class vote shall vote as a single class and (c) as to
any matter which does not affect the interest of a particular class or series,
such class or series shall not be entitled to any vote and only the holders of
shares of the affected classes and series, if any, shall be entitled to vote.
SECTION 6. The presence in person or by proxy of the holders of record
of one-third of all shares of all classes of capital stock of the Corporation
issued and outstanding and entitled to vote thereat shall constitute a quorum
for the transaction of any business at all meetings of the stockholders,
except as otherwise provided by law or in these Articles of Incorporation with
respect to any matter which requires approval by a separate vote of one or
more classes of stock, in which case the presence in person or by proxy of the
holders of shares entitled to cast one-third of the votes entitled to be cast
by each class entitled to vote as a separate class shall constitute a quorum.
SECTION 7. Except as provided in Section 8 of this Article IV, Section
3 of Article V and the penultimate sentence of Article X of these Articles of
Incorporation and notwithstanding any provision of the Maryland General
Corporation Law requiring a greater proportion than a majority of the votes of
all classes or series of capital stock of the Corporation (or of any class or
series entitled to vote thereon as a separate class or series) to take or
authorize any action (subject to the requirements of the Investment Company
Act of 1940, as amended, and in effect from time to time, and any rules,
regulations and orders issued thereunder), such action shall be valid and
effective if taken or authorized by the affirmative vote of a majority of the
aggregate number of shares of capital stock of the Corporation outstanding and
entitled to vote thereon (or a majority of the votes entitled to be cast by
holders of a class or series entitled to vote thereon as a separate class or
series).
SECTION 8. (1) Except as otherwise provided in subsection (2) of this
Section 8 of this Article V, the affirmative vote of at least 75% of the
shares of each class of capital stock of the Corporation outstanding and
entitled to vote thereupon shall be necessary to authorize any of the
following actions:
(a) {RESERVED};
(b) any merger or consolidation or share exchange of the Corporation
with or into any other company (including, without limitation, a
partnership, corporation, joint venture, business trust, common law
trust or any other business organization);
(c) the dissolution or liquidation of the Corporation notwithstanding
any other provision in these Articles of Incorporation;
(d) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) of all
or substantially all of the assets of the Corporation other than in
the ordinary course of the Corporation's business;
(e) a change in the nature of the business of the Corporation so that it
would cease to be an investment company registered under the
Investment Company Act of 1940; or
(f) the issuance or transfer by the Corporation (in one transaction or
a series of transactions) of any securities of the Corporation to any
other person in exchange for cash, securities or other property
having an aggregate fair market value of $1,000,000 or more excluding
(i) sales of any securities of the Corporation in connection with a
public offering thereof, (ii) issuance of any securities of the
Corporation pursuant to a dividend reinvestment plan adopted by the
Corporation or pursuant to a stock dividend and (iii) issuances of
any securities of the Corporation upon the exercise of any stock
subscription rights distributed by the Corporation.
(2) If the Board of Directors approves, by a vote of at least 70% of the
entire Board of Directors, any action listed in paragraph (1) of this Section
8 of Article V other than the action described in clause (1)(f), the
affirmative vote of only a majority of the shares of capital stock of the
Corporation outstanding and entitled to vote thereupon shall be necessary to
authorize such action. If the Board of Directors approves by a vote of at
least 70% of the entire Board of Directors an action described in clause
(1)(f) of this Section 8 of this Article V, no shareholder vote shall be
required to authorize such action.
(3) The provisions of this Section 8 of this Article V may not be
amended, altered or repealed except by the approval of at least 75% of the
shares of each class of capital stock of the Corporation outstanding and
entitled to vote thereupon.
SECTION 9. No holder of shares of capital stock of the Corporation
shall, as such holder, have any preemptive right to purchase or subscribe for
any part of any new or additional issue of stock of any class, or of rights or
options to purchase any stock, or of securities convertible into, or carrying
rights or options to purchase, stock of any class, whether now or hereafter
authorized or whether issued for money, for a consideration other than money
or by way of a dividend or otherwise, and all such rights are hereby waived by
each holder of capital stock and of any other class of stock or securities of
the Corporation that may hereafter be created.
SECTION 10. All persons who shall acquire stock in the Corporation
shall acquire the same subject to the provisions of the Articles of
Incorporation and By-Laws of the Corporation. The term "Articles of
Incorporation" as used herein and in the Bylaws shall be deemed to mean these
Articles of Incorporation of the Corporation as from time to time amended and
restated, or supplemented.
ARTICLE V
DIRECTORS
SECTION 1. The number of directors of the Corporation shall be nine,
and the Bylaws of the Corporation may fix the number of Directors and may
authorize the Board of Directors, by the vote of a majority of the entire
Board of Directors, to increase or decrease the number of Directors up to a
maximum of 12 directors, provided that in no case shall such reduction cause
the removal of any director already sitting as such, nor shall the number of
Directors be less than two, and to fill any vacancies whether created by any
such increase in the number of directors or otherwise.
SECTION 2. The Bylaws of the Corporation may divide the Directors of
the Corporation into classes and prescribe the tenure of the office of the
several classes, except that the term of office of a director may not be
longer than five years, or except in the case of a substitute director,
shorter than the period between annual meetings, and the term of office of at
least one class shall expire each year.
SECTION 3. A director may be removed only with cause, and any such
removal may be made only by the affirmative vote of the holders of at least
75% of the shares of the class of the capital stock of the Corporation then
entitled to vote for such director in an election of Directors.
ARTICLE VI
MANAGEMENT OF THE AFFAIRS OF THE CORPORATION
SECTION 1. All corporate powers and authority of the Corporation
(except at the time otherwise provided by statute, by these Articles of
Incorporation or by the Bylaws) shall be vested in and exercised by the Board
of Directors.
SECTION 2. The Board of Directors shall have exclusive authority to
make, alter or repeal from time to time any of the Bylaws of the Corporation
except to the extent that the Bylaws otherwise provide.
SECTION 3. The Board of Directors shall have the power from time to
time to determine whether and to what extent, and at what times and places and
under what conditions and regulations, the accounts and books of the
Corporation or any of them shall be open to the inspection of stockholders,
and no stockholder shall have any right to inspect any account, book or
document of the Corporation except to the extent required by statute or
permitted by the Bylaws.
SECTION 4. To the extent permitted under applicable law, the
Corporation may purchase shares of its capital stock upon such terms and
conditions and for such consideration as the Board of Directors shall deem
advisable.
ARTICLE VII
REDEMPTION
Each holder of shares of capital stock of the Corporation shall be
entitled to require the Corporation to redeem all or any part of the shares of
capital stock of the Corporation standing in the name of such holder on the
books of the Corporation, and all shares of capital stock issued by the
Corporation shall be subject to redemption by the Corporation, at the
redemption price of such shares as in effect from time to time as may be
determined by the Board of Directors of the Corporation in accordance with the
provisions hereof, subject to the right of the Board of Directors of the
Corporation to suspend the right of redemption of shares of capital stock of
the Corporation or postpone the date of payment of such redemption price in
accordance with provisions of applicable law. The redemption price of shares
of capital stock of the Corporation shall be the net asset value thereof as
determined by the Board of Directors of the Corporation from time to time in
accordance with the provisions of applicable law, less such redemption fee or
other charge, if any, as may be fixed by resolution of the Board of Directors
of the Corporation. Payment of the redemption price shall be made in cash by
the Corporation at such time and in such manner as may be determined from time
to time by the Board of Directors of the Corporation.
ARTICLE VIII
DETERMINATION BINDING
Any determination made in good faith, so far as accounting matters are
involved, in accordance with generally accepted accounting principles by or
pursuant to the direction of the Board of Directors, as to the amount of
assets, obligations or liabilities of the Corporation, as to the amount of net
income of the Corporation from dividends and interest for any period or
amounts at any time legally available for the payment of dividends, as to the
amount of any reserves or charges set up and the propriety thereof, as to the
time of or purpose for creating reserves or as to the use, alteration or
cancellation of any reserves or charges (whether or not any obligation or
liability for which such reserves or charges shall have been created, shall
have been paid or discharged or shall be then or thereafter required to be
paid or discharged), as to the price of any security owned by the Corporation
or as to any other matters relating to the issuance, sale, redemption or other
acquisition or disposition of securities or shares of capital stock of the
Corporation, and any reasonable determination made in good faith by the Board
of Directors, including a determination as to whether any transaction
constitutes a purchase of securities on "margin," a sale of securities
"short," or an underwriting or the sale of, or a participation in any
underwriting or selling group in connection with the public distribution of,
any securities, shall be final and conclusive, and shall be binding upon the
Corporation and all holders of its capital stock, past, present and future,
and shares of the capital stock of the Corporation are issued and sold on the
condition and understanding, evidenced by the purchase of shares of capital
stock or acceptance of share certificates, that any and all such
determinations shall be binding as aforesaid. No provision of these Articles
of Incorporation shall be effective to (a) require a waiver of compliance with
any provision of the Securities Act of 1933, as amended, or the Investment
Company Act of 1940, as amended, or of any valid rule, regulation or order of
the Securities and Exchange Commission thereunder or (b) protect or purport to
protect any director or officer of the Corporation against any liability to
the Corporation or its security holders to which he would otherwise be subject
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office.
ARTICLE IX
LIABILITY AND INDEMNIFICATION
A director or officer of the Corporation shall not be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director of officer, except to the extent such exemption from
liability or limitation thereof is not permitted by law (including the 1940
Act) as currently in effect or as the same may hereafter be amended.
Each director and each officer of the Corporation shall be indemnified
by the Corporation to the fullest extent permitted by Maryland General
Corporation law, including the advancing of expenses, subject to any
limitations imposed by the 1940 Act and the rules and regulations promulgated
thereunder.
No amendment, modification or repeal of this Article IX shall adversely
affect any right or protection of a director or officer that exists at the
time of such amendment, modification or repeal.
ARTICLE X
AMENDMENTS
From time to time any of the provisions of these Articles of
Incorporation may be amended, altered or repealed (including any amendment
that changes the terms of any of the outstanding stock by classification,
reclassification or otherwise), and other provisions that may, under the
statutes of the State of Maryland, at the time in force, be lawfully contained
in articles of incorporation may be added or inserted upon vote of a majority
of the shares of capital stock of the Corporation outstanding and entitled to
vote thereon, including a majority of any class entitled to vote thereon. If
these Articles of Incorporation specifically so provide, however, any such
amendment, alteration, repeal, addition or insertion may be effected only upon
the vote of 75% of the shares of capital stock of the Corporation outstanding
and entitled to vote thereon, including 75% of any class entitled to vote
thereon. The provisions of the prior sentence may not be amended, altered or
repealed except by vote of 75% of the shares of the capital stock of the
Corporation outstanding and entitled to vote thereon. All rights at any time
conferred upon the stockholders of the Corporation of these Articles of
Incorporation are subject to the provisions of this Article X.
FOURTH: These Articles of Amendment and Restatement have been effected
in the manner and by the vote required by the Corporation's Articles of
Incorporation and the laws of the State of Maryland. Pursuant to Section 2-
604 of the Maryland Corporations and Associations Code, these Articles of
Amendment and Restatement were advised by the Board of Directors of the
Corporation and approved by the stockholders
FIFTH: These Articles of Amendment and Restatement shall become
effective upon the latter to occur of (1) 12:01 a.m. on June 23, 1997 or (2)
the effectiveness of the Corporation's Registration Statement on Form N-1A
(file no. 333-25499), as conclusively determined by the U.S. Securities and
Exchange Commission (the "Commission"); provided, however, that these Articles
of Amendment and Restatement may be abandoned by a majority vote of the
Corporation's Board of Directors on or before July 3, 1997 if such
Registration Statement shall not have been declared effective by the
Commission by the time such abandonment is approved.
IN WITNESS THEREOF, SMITH BARNEY DISCIPLINED SMALL CAP FUND, INC. has
caused these presents to be signed in its name and on behalf of its Chairman
and Chief Executive Officer and attested by its Secretary as of the16th day
of June, 1997.
SMITH BARNEY DISCIPLINED
SMALL CAP FUND, INC.
(a Maryland Corporation)
By:/s/Heath MsLendon
Heath B. McLendon
Chairman and Chief Executive
Officer
Attest:
/s/Christina T. Sydor
Christina T. Sydor
Secretary
8
u:\legal\users\rmn\EXHIA
RESTATED BY-LAWS
OF
SMITH BARNEY DISCIPLINED SMALL CAP FUND, INC.
A Maryland Corporation
ARTICLE I
STOCKHOLDERS
SECTION 1. Annual Meetings. No annual meeting of the stockholders of the
Corporation shall be held unless required by applicable law or otherwise
determined by the Board of Directors. An annual meeting may be held at any
place within the United States as may be determined by the Board of Directors
and as shall be designated in the notice of the meeting, and at the time
specified by the Board of Directors. Any business of the Corporation may be
transacted at an annual meeting without being specifically designated in the
notice unless otherwise provided by statute, the Corporation's Articles, as
amended or supplemented (the "Articles"), or these By-Laws.
SECTION 2. Special Meetings. Special meetings of the stockholders for
any purpose or purposes, unless otherwise prescribed by statute or by the
Corporation's Articles, may be held at any place within the United States, and
may be called at any time by the Board of Directors or by the President, and
shall be called by the Secretary at the request in writing of a majority of
the Board of Directors or at the request in writing of stockholders entitled
to cast at least 10 (ten) percent of the votes entitled to be cast at the
meeting upon payment by such stockholders to the Corporation of the reasonably
estimated cost of preparing and mailing a notice of the meeting (which
estimated cost shall be provided to such stockholders by the Secretary of the
Corporation). Notwithstanding the foregoing, unless requested by stockholders
entitled to cast a majority of the votes entitled to be cast at the meeting, a
special meeting of the stockholders need not be called at the request of
stockholders to consider any matter which is substantially the same as a
matter voted on at any special meeting of the stockholders held during the
preceding 12 (twelve) months. A written request shall state the purpose or
purposes of the proposed meeting.
SECTION 3. Notice of Meetings. Written or printed notice of the purpose
or purposes and of the time and place of every meeting of the stockholders
shall be given by the Secretary of the Corporation to each stockholder of
record entitled to vote at the meeting, by placing the notice in the mail at
least 10 (ten) days, but not more than 90 (ninety) days, prior to the date
designated for the meeting addressed to each stockholder at his address
appearing on the books of the Corporation or supplied by the stockholder to
the Corporation for the purpose of notice. Notice by mail shall be deemed to
be duly given when deposited in the U.S. mail addressed to the shareholder at
the shareholders address as it appears on the records of the corporation ,
with postage thereon prepaid. The notice of any meeting of stockholders may be
accompanied by a form of proxy approved by the Board of Directors in favor of
the actions or persons as the Board of Directors may select. Notice of any
meeting of stockholders shall be deemed waived by any stockholder who attends
the meeting in person or by proxy, or who before or after the meeting submits
a signed waiver of notice that is filed with the records of the meeting.
SECTION 4. Quorum. Except as otherwise provided by law or by the
Corporation's Articles, the presence in person or by proxy of stockholders of
the Corporation entitled to cast at least one-third of the votes entitled to
be cast shall constitute a quorum at each meeting of the stockholders;
provided, however, that where any provision of law or the Articles permits or
requires that stockholders of any series or class of capital stock of the
Corporation shall vote as a series or class, stockholders of one-third of the
aggregate number of shares of capital stock of that series or class
outstanding and entitled to vote shall constitute a quorum at such meeting.
Except as otherwise required by law, all questions shall be decided by a
majority of the votes cast on such questions, except for the election of
directors. A plurality of all the votes cast at a meeting at which a quorum is
present is sufficient to elect a director. In the absence of a quorum, the
stockholders present in person or by proxy, by majority vote and without
notice other than by announcement at the meeting, may adjourn the meeting from
time to time as provided in Section 5 of this Article I until a quorum shall
attend. The stockholders present at any duly organized meeting may continue to
do business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum. The absence from any meeting in
person or by proxy of holders of the number of shares of stock of the
Corporation in excess of one-third that may be required by the laws of the
State of Maryland, the Investment Company Act of 1940, as amended, or other
applicable statute, the Corporation's Articles or these By-Laws, for action
upon any given matter shall not prevent action at the meeting on any other
matter or matters that may properly come before the meeting, so long as there
are present, in person or by proxy, holders of the number of shares of stock
of the Corporation required for action upon the other matter or matters.
SECTION 5. Adjournment. Any meeting of the stockholders may be adjourned
from time to time, without notice other than by announcement at the meeting at
which the adjournment is taken to a date not more than 120 (one hundred
twenty) days after the original record date. At any adjourned meeting at which
a quorum shall be present any action may be taken that could have been taken
at the meeting originally called.
SECTION 6. Organization. At every meeting of the stockholders, the
Chairman of the Board, or in his absence or inability to act, the President,
or in the absence or inability to act of the Chairman of the Board and the
President, a Vice President, shall act as chairman of the meeting. The
Secretary, or in the Secretarys absence or inability to act, any person
appointed by the chairman of the meeting, shall act as secretary of the
meeting and keep the minutes of the meeting.
SECTION 7. Order of Business. The order of business at all meetings of
the stockholders shall be as determined by the chairman of the meeting.
SECTION 8. Voting. Except as otherwise provided by statute or the
Corporation's Articles, each holder of record of shares of stock of the
Corporation having voting power shall be entitled at each meeting of the
stockholders to one vote for every share of stock standing in his name on the
records of the Corporation as of the record date determined pursuant to
Section 9 of this Article I; provided, however, that when required by the
Corporation's Articles, the Investment Company Act of 1940, as amended, or the
laws of the State of Maryland or when the Board of Directors has determined
that the matter affects only the interest of one series or class of stock,
matters may be submitted only to a vote of the stockholders of that particular
series or class, and each stockholder thereof shall be entitled to votes equal
to the shares of stock of that series or class registered in his name on the
books of the Corporation.
Each stockholder entitled to vote at any meeting of stockholders may
authorize another person or persons to act for him by a proxy signed by the
stockholder or his attorney-in-fact. No proxy shall be valid after the
expiration of eleven months from the date thereof, unless otherwise provided
in the proxy. Every proxy shall be revocable at the pleasure of the
stockholder executing it, except in those cases in which the proxy states that
it is irrevocable and in which an irrevocable proxy is permitted by law.
If a vote shall be taken on any question then unless required by statute
or these By-Laws, or determined by the Chairman of the meeting to be
advisable, any such vote need not be by ballot. On a vote by ballot, each
ballot shall be signed by the stockholder voting, or by his proxy, and shall
state the number of shares voted.
SECTION 9. Fixing of Record Date. The Board of Directors may set a
record date for the purpose of determining stockholders entitled to vote at
any meeting of the stockholders. The record date for a particular meeting
shall be not more than 90 ninety) nor fewer than 10 (ten) days before the date
of the meeting. All persons who were holders of record of shares as of the
record date of a meeting, and no others, shall be entitled to receive notice
of and to vote at such meeting and any adjournment thereof.
SECTION 10. Inspectors. The Board of Directors may, in advance of any
meeting of stockholders, appoint one or more inspectors to act at the meeting
or at any adjournment of the meeting. If the inspectors shall not be so
appointed or if any of them shall fail to appear or act, the chairman of the
meeting may appoint inspectors. Each inspector, before entering upon the
discharge of his duties, shall take and sign an oath to execute faithfully the
duties of inspector at the meeting with strict impartiality and according to
the best of his ability. The inspectors shall determine the number of shares
outstanding and the voting power of each share, the number of shares
represented at the meeting, the existence of a quorum and the validity and
effect of proxies, and shall receive votes, ballots or consents, hear and
determine all challenges and questions arising in connection with the right to
vote, count and tabulate all votes, ballots or consents, determine the result,
and do those acts as are proper to conduct the election or vote with fairness
to all stockholders. On request of the chairman of the meeting or any
stockholder entitled to vote at the meeting, the inspectors shall make a
report in writing of any challenge, request or matter determined by them and
shall execute a certificate of any fact found by them. No Director or
candidate for the office of Director shall act as inspector of an election of
Directors. Inspectors need not be stockholders of the Corporation.
SECTION 11. Consent of Stockholders in Lieu of Meeting. Except as
otherwise provided by statute, any action required to be taken at any meeting
of stockholders, or any action that may be taken at any meeting of the
stockholder, may be taken without a meeting, without prior notice and without
a vote, if the following are filed with the records of stockholders' meetings:
(i) a unanimous written consent that sets forth the action and is signed by
each stockholder entitled to vote on the matter and (ii) a written waiver of
any right to dissent signed by each stockholder entitled to notice of the
meeting but not entitled to vote at the meeting.
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. General Powers. The business and affairs of the Corporation
shall be managed under the direction of the Board of Directors. All powers of
the Corporation may be exercised by or under authority of the Board of
Directors except as conferred on or reserved to the stockholder by law, by the
Corporation's Articles or by these By-Laws.
SECTION 2. Number of Directors. The number of Directors initially shall
be nine, and thereafter shall be fixed from time to time by resolution of the
Board of Directors adopted by a majority of the entire Board of Directors;
provided, however, that the number of Directors shall in no event be fewer
than the number required by the Maryland General Corporation Law nor more than
twelve. Any vacancy created by an increase in Directors may be filled in
accordance with Section 5 of this Article II. No reduction in the number of
Directors shall have the effect of removing any Director from office prior to
the expiration of his term unless the Director is specifically removed
pursuant to Section 6 of this Article II at the time of the decrease. A
Director need not be a stockholder of the Corporation, a citizen of the United
States or a resident of the State of Maryland.
SECTION 3. Election and Term Directors. Directors shall be elected by
written ballot at any meeting of stockholders held for that purpose. The term
of office of each director, including any director elected to fill a vacancy,
shall be from the time of his election and qualification until his successor
shall have been elected and shall have qualified, or until his death,
resignation or removal, or as otherwise provided by statute or the
Corporation's Articles of Incorporation.
SECTION 4. Removal of Directors. Any Director of the Corporation may be
removed only for cause, and not without cause, and only by action of the
shareholders taken by the holders of at least 75% of the shares of the class
of capital stock then entitled to vote for such director in an election of
directors.
SECTION 5. Vacancies. Any vacancies in the Board of Directors, arising
from any cause except an increase in the number of Directors, shall be filled
by a vote of the majority of the Board of Directors then in office even though
that majority is less than a quorum, provided that no vacancy or vacancies
shall be filled by action of the remaining Directors if, after the filling of
the vacancy or vacancies, fewer than two-thirds of the Directors then holding
office shall have been elected by the stockholders of the Corporation. A
majority of the entire Board in office at the time of increase may fill a
vacancy which results from an increase in the number of Directors. In the
event that at any time a vacancy exists in any office of a Director that may
not be filled by the remaining Directors, a special meeting of the
stockholders shall be held as promptly as possible, and in any event within 60
(sixty) days, for the purpose of filling the vacancy or vacancies. Any
Director elected or appointed to fill a vacancy shall hold office until a
successor has been chosen and qualifies or until his earlier resignation or
removal.
SECTION 6. Place of Meetings. Meetings of the Board may be held at any
place that the Board of Directors may from time to time determine or that is
specified in the notice of the meeting.
SECTION 7. Regular Meetings. Regular meetings of the Board of Directors
may be held without notice at the time and place determined by the Board of
Directors.
SECTION 8. Special Meetings. Special meetings of the Board of Directors
may be called by two or more Directors of the Corporation or by the Chairman
of the Board or the President.
SECTION 9. Notice of Special Meetings. Notice of the place and time of
every special meeting of the Board of Directors shall be given to each
Director at least 2 days before the date of the meeting. Notice to a director
may be given by mail, which shall be deemed given when mailed, by telephone
or telegram or by leaving the same at the directors residence or usual place
of business.
SECTION 10. Waiver of Notice of Meetings. Notice of any special meeting
need not be given to any Director who shall, either before or after the
meeting, sign a written waiver of notice that is filed with the records of the
meeting or who shall attend the meeting.
SECTION 11. Quorum and Voting. At all meetings of the Board of
Directors a majority shall constitute a quorum for the transaction of business
at the meeting and except as otherwise expressly required by statute, the
Corporation's Articles, these By-Laws, the Investment Company Act of 1940, as
amended, or any other applicable statute, the act of a majority of the
Directors present at any meeting at which a quorum is present shall be the act
of the Board. In the absence of a quorum at any meeting of the Board, a
majority of the Directors present may adjourn the meeting to another time and
place until a quorum shall be present. Notice of the time and place of any
adjourned meeting shall be given to all Directors. At any adjourned meeting at
which a quorum is present, any business may be transacted that might have been
transacted at the meeting as originally called.
SECTION 12. Organization. The Board of Directors may designate a
Chairman of the Board, who shall preside at each meeting of the Board. In the
absence or inability of the Chairman of the Board to act, the President, or,
in his absence or inability to act, another Director chosen by a majority of
the Directors present, shall act as chairman of the meeting and preside at the
meeting. The Secretary, or, in his absence or inability to act, any person
appointed by the chairman, shall act as secretary of the meeting and keep the
minutes thereof.
SECTION 13. Committees. The Board of Directors may appoint from among
its members an Executive Committee and other committees, each composed of two
or more directors, and may delegate to such committees any or all of the
powers of the Board in the management of the business and affairs of the
Corporation except the power to declare dividends or distributions on stock,
to issue stock, to recommend to stockholders any action that requires
stockholders approval. In the absence of any member of any such committee, the
members thereof present at any meeting , whether or not they constitute a
quorum, may appoint a member of the Board to act in the place of such absent
member. Committees shall keep minutes of the meetings and report the same
to the Board of Directors at the meeting next succeeding, and any action by
the Committee shall be subject to revision and alteration by the Board,
provided that no right s of third persons shall be affected by any such
revision or alteration..
SECTION 14. Written Consent of Directors in Lieu of a Meeting. Subject
to the provisions of the Investment Company Act of 1940, as amended, any
action required or permitted to be taken at any meeting of the Board of
Directors or of any committee of the Board may be taken without a meeting if
all members of the Board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of the
proceedings of the Board or committee.
SECTION 15. Compensation. Each Director may receive compensation for
services to the Corporation in their capacities as directors or otherwise in
such manner and in such amounts as may from time to time be fixed by the Board
of Directors.
ARTICLE III
OFFICERS
SECTION 1. Number and Qualifications. The officers of the Corporation
shall be a President, one or more Vice Presidents, a Secretary and a
Treasurer, each of whom shall be elected by the Board of Directors. The Board
of Directors may elect or appoint one or more Vice Presidents and may also
appoint any other officers, agents and employees it deems necessary or proper.
Any two or more offices may be held by the same person, except the offices of
President and Vice President, but no officer shall execute, acknowledge or
verify any instrument in more than one capacity. Officers shall be elected by
the Board of Directors each year and shall serve for one year and until
their successors shall have been duly elected and shall have qualified.
Officers shall serve at the pleasure of the Board of Directors.. Such other
officers and agents as it shall deem necessary shall exercise such powers and
perform such duties and shall hold their offices for such terms as may be
determined from time to time by the Board.
SECTION 2. Compensation. The compensation of the officers of the
Corporation shall be fixed by the Board of Directors.
SECTION 3. Bonds or Other Security. If required by the Board, any
officer, agent or employee of the Corporation shall give a bond or other
security for the faithful performance of his duties, in an amount and with any
surety or sureties as the Board may require.
SECTION 4. The President; The President shall be the principal executive
officer of the Corporation. Subject to the control of the Board of Directors,
the President shall have general charge of the business and affairs of the
Corporation, except as other wise provided in procedures with respect to the
trading activities adopted or amended from time to time by the Board, and
shall see that all orders and resolutions of the Board are carried into effect
in the absence of the Chairman of the Board (or if there is none), the
President shall preside at all meetings of the stockholders and directors.
SECTION 5. Vice President. Each Vice President shall have the powers and
perform the duties that the Board of Directors or the President may from time
to time prescribe.
SECTION 6. Treasurer. the Treasurer shall have charge and custody of and
be responsible for, all the funds and securities of the Corporation , except
those which the Corporation has placed in the custody of a bank or trust
company or member of a national securities exchange (as that term is defined
in the 1934 Act) pursuant to written agreement designating such bank or trust
company or member of a national securities exchange as custodian of the
property of the Corporation and; shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation; and, in
general, he shall perform all duties incident to the office of Treasurer and
such other duties as may from time to time be assigned by the Board of
Directors or the President.
SECTION 7. The Secretary And Assistant Secretaries. The Secretary shall
attend all meetings of the Board and all meeting s of the shareholders and
record the proceedings of the meetings of the Corporation and the Board in a
book to be kept for that purpose and shall perform like duties for committees
when required. The Secretary shall give, or cause to be given, notice of all
meetings of the shareholders and special meetings of the Board and shall
perform such other duties as may be prescribed by, and under the supervision
of, the Board. the Secretary shall keep in safe custody the seal of the
Corporation and affix and attest the seal to all documents to be executed on
behalf of the Corporation under its seal. Each Assistant Secretary, if any,
shall assist the secretary perform such duties and exercise such power of the
Secretary as the Board or the President may from time to time prescribe.
ARTICLE IV
CERTIFICATES OF STOCK
SECTION 1. Stock Certificates. Each holder of stock of the Corporation
shall be entitled upon request to have a certificate or certificates, in such
form approved by the Board, representing the number of shares of stock of the
Corporation owned by such shareholder . The certificates representing shares
of stock shall be signed by or in the name of the Corporation by the President
or a Vice President and by the Secretary or an Assistant Secretary or the
Treasurer and sealed with the seal of the Corporation. Any or all of the
signatures or the seal on the certificate may by facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate shall be issued,
it may be issued by the Corporation with the same effect as if such officer,
transfer agent or registrar were still in the office at the date of issue.
SECTION 2. Regulations. The Board of Directors may make any additional
rules and regulations, not inconsistent with these By-Laws, as it may deem
expedient concerning the issue, transfer and registration of certificates for
shares of stock of the Corporation. It may appoint, or authorize any officer
or officers to appoint, one or more transfer agents or one or more transfer
clerks and one or more registrars and may require all certificates for shares
of stock to bear the signature or signatures of any of them.
SECTION 3. Lost. Destroyed or Mutilated Certificates. The holder of any
certificate representing shares of stock of the Corporation shall immediately
notify the Corporation of any loss, destruction or mutilation of such
certificate and the Corporation may issue a new certificate of stock in the
place of any certificate therefore issued by it which the owner thereof shall
allege to have been stolen, lost or destroyed or that shall have been
mutilated, and the Board may, in its discretion, require such owner or such
owners legal representatives to give to the Corporation a bond in such sum,
limited or unlimited, and in such form and with any surety or sureties, as the
Board in its absolute discretion shall determine, to indemnify the Corporation
against any claim that may be made against it on account of the alleged , loss
or destruction of any such certificate, or issuance of a new certificate.
Anything herein to the contrary notwithstanding, the Board of Directors, in
its absolute discretion, may refuse to issue any such new certificate, except
pursuant to legal proceedings under the laws of the State of Maryland.
SECTION4. Information to Stockholders and Others. Any stockholder of the
Corporation or his agent may inspect and copy during the Corporation's usual
business hours the Corporations' By-Laws, minutes of the proceedings of its
stockholders, annual statements of its affairs and voting trust agreements on
file at its principal office.
ARTICLE V
STOCK LEDGER AND TRANSFER OF STOCK
The Corporation shall maintain at the offices of the Transfer Agent an
original stock ledger containing the names and addresses of all shareholders
and the number of shares of each class held by each shareholder. Such stock
ledger may be in written form or any other form capable of being converted
into written form within a reasonable period of time for visual inspection .
The Corporation shall be entitled to recognize the exclusive right of
a person registered on its books as owner of shares entitled to receive
dividends and to vote as such owner, and shall not be bound to recognize any
equitable or other claim or interest in such shares on the part of any other
person, whether or not it shall have received express or other notice thereof,
except as otherwise provided by the laws of Maryland.
Transfers of shares of the Corporation shall be made on the stock
records of the Corporation only by the registered holder thereof, or by his
attorney thereunto authorized by power of attorney duly executed and filed
with the Secretary or with the transfer agent or transfer clerk, and on
surrender of the certificate or certificates, if issued, for such shares
properly endorsed or accompanied by a duly executed stock transfer power and
the payment of all taxes thereon.
ARTICLE VI
SEAL
The seal of the Corporation shall be circular in form and shall bear the
name of the Corporation, the year of its incorporation, the words "Corporate
Seal" and "Maryland" and any emblem or device approved by the Board of
Directors. The seal may be used by causing it or a facsimile to be impressed
or affixed or in any other manner reproduced, or by placing the word "(seal)"
adjacent to the signature of the authorized officer of the Corporation.
ARTICLE VII
FISCAL YEAR
The Corporation's fiscal year shall be fixed by resolution of the
Board of Directors.
ARTICLE VIII
EXECUTION OF INSTRUMENTS
Checks, drafts, orders for payment of money, notes and other evidences
of indebtedness, and any other instruments shall be signed by the President or
such other officers as the Board by resolution shall from time to time
designate.
ARTICLE IX
AMENDMENTS
The Board shall have the power at any regular meeting, or at any special
meeting if notice thereof be included in the notice of such special meeting,
to alter or repeal any bylaw of the corporation and to make new bylaws.
U:\legal\funds\imf\orgdocs\bylaws.doc 8 06/13/97 10:28 PM
SMITH BARNEY DISCIPLINED SMALL CAP FUND, INC.
INVESTMENT ADVISORY AGREEMENT
AGREEMENT, made as of the 23rd day of June 1997 between SMITH BARNEY
DISCIPLINED SMALL CAP FUND, INC., a Maryland Corporation, (the "Fund") and
Travelers Investment Management Company (the "Adviser").
W I T N E S S E T H:
WHEREAS, the Fund is a diversified open-end management investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Fund has been organized for the purpose of investing its
funds and desires to avail itself of the experience, sources of information,
advice, assistance and facilities available to the Adviser and to have the
Adviser perform for it various investment management services; and the Adviser
is willing to furnish such advice and services on the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed as follows:
1. The Fund hereby appoints the Adviser to act as investment adviser to
the Fund on the terms set forth in this Agreement. The Adviser accepts such
appointment and agrees to render the services herein described, for the
compensation herein provided.
2. Subject to the supervision of the Board of Directors of the Fund
(the "Board"), the Adviser shall manage the investment of the Fund assets and
provide investment research advice and supervision of the Fund's portfolio in
accordance with the Fund's investment objective, policies and restrictions as
stated in the Fund's Registration Statement under the 1940 Act as it may be
amended from time to time (the Fund's "Registration Statement") and subject to
the following understandings:
(a) The Adviser shall provide supervision of the Fund's investments and
determine from time to time the investments or securities that will be
purchased, retained, sold or loaned by the Fund, and the portion of the
assets that will be invested in securities or otherwise.
In determining the securities to be purchased or sold by the Fund,
the Adviser shall place orders with respect to portfolio securities
either directly with the issuer or with or through such persons, brokers
(including Smith Barney Inc.) or dealers in conformity with the policy
with respect to brokerage as set forth in the Fund's Registration
Statement or as the Board may direct from time to time. It is understood
that it may be desirable for the Fund that the Adviser have access to
supplemental investment and market research and security and economic
analysis provided by brokers who may execute brokerage transactions at a
higher cost to the Fund than may result when allocating brokerage to
other brokers on the basis of seeking the best price and best execution.
Therefore, the Adviser is authorized to place orders for the purchase and
sale of securities for the Fund with such brokers, subject to review by
the Fund's Board from time to time with respect to the extent and
continuation of this practice. It is understood that the services
provided by such brokers may be useful to the Adviser or its affiliates
in connection with their services to other clients.
(b) The Adviser shall use its best judgment in the performance of its
duties under this Agreement.
(c) The Adviser undertakes to perform its duties and obligations under
this Agreement in conformity with the Prospectus of the Fund, with the
requirements of the 1940 Act and all other applicable Federal and state
laws and regulations and with the instructions and directions of the
Board.
(d) The Adviser shall maintain such books and records with respect to
the Fund's portfolio transactions and such books and records required to
be maintained by the Adviser pursuant to the Rules of the Commission
under the 1940 Act and the Adviser shall render to the Fund's Board such
periodic and special reports as the Board may reasonably request. The
Adviser agrees that all records that it maintains for the Fund are the
property of the Fund and it will surrender promptly to the Fund any of
such records upon the Fund's request.
(e) The Adviser shall provide the Fund's Administrator on each business
day with information relating to all transactions concerning the Fund's
portfolio.
3. The Adviser will bear all of its expenses of its employees and
overhead in connection with its duties under this Agreement. It will also pay
all directors' fees and salaries of the Fund's directors and officers who are
affiliated persons (as such term is defined in the 1940 Act) of the Adviser.
Except for the expenses specifically assumed by the Adviser, the Fund
will pay all of its expenses, including, without limitation, fees of the
directors not affiliated with the Adviser or its affiliates and board meeting
expenses; fees of the Adviser and of Smith Barney Mutual Funds Management Inc.
(or any successor) as the Administrator; interest charges; taxes; charges and
expenses of the Fund's legal counsel and independent accountants, and of the
transfer agent, registrar and dividend disbursing agent of the Fund; expenses
of issue, repurchase or redemption of Shares; expenses of printing and mailing
share certificates, shareholder reports, notices, proxy statements and reports
to governmental offices; brokerage and other expenses connected with the
execution, recording and settlement of portfolio security transactions; fees
and expenses of the Fund's custodians for all services to the Fund, including
safekeeping of funds and securities and maintaining required books and
accounts; expenses of calculating and publishing the net asset value of the
Fund's Shares; expenses of membership in associations; expenses of fidelity
bonding and other insurance premiums; expenses of shareholders' meetings;
filing fees and expenses related to the registration and qualification of the
Funds shares and the Fund under Federal or state securities laws and
maintaining such registrations and qualifications (including the printing of
the Funds registration statements and prospectuses); fees payable to the
National Association of Securities Dealers, Inc. in connection with this
offering; and its other business and operating expenses.
4. For the services provided and the expenses assumed pursuant to this
Agreement, the Fund will pay to the Adviser a monthly fee in arrears equal to
.65% per annum of the Fund's average daily net assets during the month.
5. The Adviser shall authorize and permit any of its directors,
officers and employees who may be elected as directors or officers of the Fund
to serve in the capacities in which they are elected.
6. The Adviser shall not be liable for any error of judgment or for any
loss suffered by the Fund in connection with the matters to which this
Agreement relates, except a loss resulting from a breach of fiduciary duty
with respect to the receipt of compensation for services (in which case any
award of damages shall be limited to the period and the amount set forth in
Section 36(b)(3) of the 1940 Act) or a loss resulting from willful
misfeasance, bad faith or gross negligence on its part in the performance of
its duties or from reckless disregard by it of its obligations and duties
under this Agreement.
7. This Agreement shall continue in effect for a period of two years
from its effective date, and if not sooner terminated, will continue in effect
for successive periods of 12 months thereafter, provided that each continuance
is specifically approved at least annually in conformity with the requirements
of the 1940 Act. This Agreement may be terminated as a whole at any time by
the Fund, without the payment of any penalty, upon the vote of a majority of
the Fund's Board of Directors or the vote of a majority of the outstanding
voting securities (as defined in the 1940 Act) of the Fund, or by the Adviser,
on 60 days' written notice by either party to the other. This Agreement shall
terminate automatically in the event of its assignment (as such term is
defined in the 1940 Act and the rules thereunder).
8. Nothing in this Agreement shall limit or restrict the right of any
of the Adviser's directors, officers, or employees who may also be a director,
officer or employee of the Fund to engage in any other business or to devote
his time and attention in part to the management or other aspects of any
business, whether of a similar or a dissimilar nature, nor limit or restrict
the Adviser's right to engage in any other business or to render services of
any kind to any other corporation, firm, individual or association. The
investment advisory services provided by the Adviser hereunder are not to be
deemed exclusive, and the Adviser shall be free to render similar services to
others.
9. Any notice or other communication required to be given pursuant to
this Agreement shall be deemed duly given if delivered or mailed by registered
mail, postage prepaid, (i) to the Adviser at One Tower Square, Hartford,
Connecticut 06183, Attention: Chief Executive Officer; or (ii) to the Fund at
388 Greenwich Street, New York, New York 10013, Attention: Secretary.
10. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
SMITH BARNEY DISCIPLINED SMALL CAP FUND, INC.
Attest:
By: By:
TRAVELERS INVESTMENT MANAGEMENT COMPANY
Attest:
By: By:
1
u:funds\sbfi\misc\manage\sbd
[FORM OF]
DISTRIBUTION AGREEMENT
AGREEMENT, made this [date] between, SMITH BARNEY DISCIPLINED SMALL CAP
FUND, INC., a Maryland corporation (the "Investment Company"), and SMITH
BARNEY INC., a Delaware corporation (the "Distributor" or "Smith Barney
").
1. The Investment Company hereby appoints the Distributor its agent
to sell and to arrange for the sale of shares of the Investment Company
("Shares") at such time or times as set forth in the then current
prospectus(es) and the Distributor hereby accepts such appointment. The
Distributor agrees to act hereunder and the Investment Company agrees to sell
and deliver Shares upon the terms hereinafter set forth as long as it has
Shares available for sale.
The offering price of Shares shall be as set forth in the
Prospectus of the Investment Company or as may otherwise be permitted by Rule
or Order of the Securities and Exchange Commission. The Investment Company
hereby authorizes the Distributor, subject to law and the Articles of
Incorporation of the Investment Company, to accept for the account of the
Investment Company orders for the purchase of Shares satisfactory to the
Distributor and the Distributor shall be entitled to compensation as set forth
in the Prospectus.
2. The Investment Company agrees to register or qualify as
necessary, additional Shares with the Securities and Exchange Commission,
state and other regulatory bodies and to pay the related fees therefor and to
file from time to time such amendments, reports and other documents as may be
necessary in order that there may be no untrue statement of a material fact in
the Registration Statement or Prospectus or necessary in order that there may
be no omission to state a material fact therein which omission would make the
statements therein, in the light of the circumstances under which they were
made, misleading. As used in this Agreement, the term "Registration
Statement" shall mean from time to time the Registration Statement most
recently filed by the Investment Company with the Securities and Exchange
Commission and effective under the Securities Act of 1933 and the Investment
Company Act of 1940, as such Registration Statement is amended by any
amendments thereto at the time in effect, and the term "Prospectus" shall mean
from time to time the form of prospectus authorized by the Investment Company
for use by the Distributor.
All sales literature and advertisements used by the Distributor
in connection with the offering or sale of Shares shall be subject to the
approval of the Investment Company. The Investment Company authorizes the
Distributor in connection with the offering or sale of Shares to give only
such information and to make only such statements or representations as are
contained in the Prospectus or in sales literature or advertisements approved
by the Investment Company or in such financial and other statements as are
furnished to the Distributor pursuant to paragraph 5 below. The Investment
Company shall not be responsible in any way for any information, statements or
representations given or made by the Distributor or its representatives or
agents other than such information, statements and representations.
3. The Distributor, as agent of the Investment Company and for its
account and risk, is authorized, subject to the direction of the Investment
Company, to repurchase Shares at the redemption price in effect at the close
of business on the New York Stock Exchange on any business day, provided the
offer to sell such Shares to the Investment Company is received and accepted
at the office of the Distributor prior to the close of business on that day.
The Distributor shall not be entitled to any commission or other compensation
in respect to such repurchases. The Distributor shall report all such repur-
chases promptly to the Investment Company.
4. The Distributor is authorized to purchase Shares for the
Distributor's own account from time to time. Such purchases, if made from the
Investment Company, shall be made with notice to the Investment Company that
they are for the account of the Distributor, but if made in the open market or
otherwise may be made without such notice. All Shares so purchased by the
Distributor for its own account shall be resold by the Distributor only
through the exercise of its right, as a stockholder, to have such Shares
redeemed or repurchased by the Investment Company pursuant to Article [ ] of
the Articles of Incorporation of the Investment Company.
5. The Investment Company shall keep the Distributor fully informed
with regard to its affairs, shall furnish the Distributor with a copy of all
financial statements of the Investment Company, with a signed copy of each
report prepared by the independent accountants and with such reasonable number
of printed copies of each periodic and annual report of the Investment Company
as the Distributor may request, and shall cooperate fully in the efforts of
the Distributor under this Agreement.
6. The Distributor shall bear: (a) the costs and expenses of
preparing, printing and distributing any materials not prepared by the
Investment Company and other materials used by the Distributor in connection
with its offering of Shares for sale to the public, including the additional
cost of printing copies, at printer's over-run cost, of the Prospectus and of
annual and interim reports to shareholders other than copies thereof for
distribution to shareholders or for filing with any Federal and state
securities authorities; (b) any expenses of advertising incurred by the
Distributor in connection with such offering; and (c) the expenses of
registration or qualification of the Distributor as a dealer or broker under
Federal or state laws and the expenses of continuing such registration or
qualification. The Distributor shall also pay all its own costs and expenses;
however, it is understood and agreed that, if the Fund adopts a Plan of
Distribution pursuant to Rule 12b-1 on behalf of a Portfolio and for so long
as such Plan continues in effect, any expenses incurred by the Distributor on
behalf of the Portfolio hereunder may be paid from amounts received by it from
the Fund under such Plan. Smith Barney shall provide to the Board of
Directors of the Fund and the Board of Directors shall review, at least
quarterly, a written report of the amounts so expended and the purposes for
which such expenditures were made.
7. The Investment Company shall bear all costs and expenses of the
continuous offering of Shares in connection with: (a) fees and disbursements
of its counsel and independent accountants; (b) the preparation, filing and
printing of any Registration Statements and/or Prospectuses required by and
under the Federal and state securities laws; (c) the preparation and mailing
of annual and interim reports, Prospectuses and proxy materials to share-
holders; and (d) the qualification of Shares for sale and of the Investment
Company as a broker or dealer under the securities laws of such states or
other jurisdictions as shall be selected by the Investment Company and the
Distributor and the cost and expenses payable to each such state for continu-
ing qualification therein.
8. This Agreement shall be submitted for approval to the Board of
Directors of the Investment Company annually and shall continue in effect only
so long as its continuance is specifically approved annually as required by
the Investment Company Act of 1940 and the rules thereunder.
9. This Agreement may be terminated at any time, upon 60 days'
written notice by either party without payment of any penalty to the other
party and shall terminate automatically in the event of its assignment, as
defined in Section 2(a) (4) of the Investment Company Act of 1940.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their officers thereunto duly authorized.
SMITH BARNEY DISCIPLINED SMALL CAP FUND, INC.
By:
Attest:
SMITH BARNEY INC.
By:
Attest:
FORM OF
CUSTODIAN SERVICES AGREEMENT
This Agreement is made as of , 1997 by and between
Smith Barney Disciplined Small Cap Fund Inc., a Maryland corporation (the
"Fund") and PNC BANK, NATIONAL ASSOCIATION, a national banking association
("PNC Bank").
The Fund is registered as an open-end investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"). The Fund wishes
to retain PNC Bank to provide custodian services and PNC Bank wishes to
furnish such services, either directly or through an affiliate or affiliates,
as more fully described herein. In consideration of the premises and mutual
covenants herein contained, the parties agree as follows:
1. Definitions.
(a) "Authorized Person". The term "Authorized Person" shall
mean any officer of the Fund and any other person, who is duly authorized by
the Fund's Governing Board, to give Oral and Written Instructions on behalf of
the Fund. Such persons are listed in the Certificate attached hereto as the
Authorized Persons Appendix, as such Appendix may be amended in writing by the
Fund's Governing Board from time to time.
(b) "Book-Entry System". The term "Book-Entry System" means
Federal Reserve Treasury book-entry system for United States and federal
agency securities, its successor or successors, and its nominee or nominees
and any book-entry system maintained by an exchange registered with the SEC
under the 1934 Act.
(c) "CFTC". The term "CFTC" shall mean the Commodities Futures
Trading Commission.
(d) "Governing Board". The term "Governing Board" shall mean the
Fund's Board of Directors if the Fund is a corporation or the Fund's Board of
Trustees if the Fund is a trust, or, where duly authorized, a competent
committee thereof.
(e) "Oral Instructions". The term "Oral Instructions" shall mean
oral instructions received by PNC Bank from an Authorized Person or from a
person reasonably believed by PNC Bank to be an Authorized Person.
(f) "SEC". The term "SEC" shall mean the Securities and Exchange
Commission.
(g) "Securities and Commodities Laws". The term "Securities and
Commodities Laws" shall mean the "1933 Act" which shall mean the Securities
Act of 1933, the "1934 Act" which shall mean the Securities Exchange Act of
1934, the 1940 Act, and the "CEA" which shall mean the Commodities Exchange
Act, each as amended.
(h) "Shares". The term "Shares" shall mean the shares of stock
of any series or class of the Fund, or, where appropriate, units of beneficial
interest in a trust where the Fund is organized as a Trust.
(i) "Property". The term "Property" shall mean:
(i) any and all securities and other investment items
which the Fund may from time to time deposit, or cause
to be deposited, with PNC Bank or which PNC Bank may
from time to time hold for the Fund;
(ii) all income in respect of any of such securities or
other investment items;
(iii) all proceeds of the sale of any of such securities or
investment items; and
(iv) all proceeds of the sale of securities issued by the
Fund, which are received by PNC Bank from time to
time, from or on behalf of the Fund.
(j) "Written Instructions". The term "Written Instructions"
shall mean written instructions signed by one Authorized Person and received
by PNC Bank. The instructions may be delivered by hand, mail, tested
telegram, cable, telex or facsimile sending device.
2. Appointment. The Fund hereby appoints PNC Bank to provide custodian
services to the Fund, and PNC Bank accepts such appointment and agrees to
furnish such services.
3. Delivery of Documents. The Fund has provided or, where applicable,
will provide PNC Bank with the following:
(a) certified or authenticated copies of the resolutions of the
Fund's Governing Board, approving the appointment of PNC Bank or its
affiliates to provide services;
(b) a copy of the Fund's most recent effective registration
statement;
(c) a copy of the Fund's advisory agreement or agreements;
(d) a copy of the Fund's distribution agreement or agreements;
(e) a copy of the Fund's administration agreements if PNC Bank is
not providing the Fund with such services;
(f) copies of any shareholder servicing agreements made in
respect of the Fund; and
(g) certified or authenticated copies of any and all amendments
or supplements to the foregoing.
4. Compliance with Government Rules and Regulations. PNC Bank
undertakes to comply with all applicable requirements of the Securities and
Commodities Laws and any laws, rules and regulations of governmental
authorities having jurisdiction with respect to all duties to be performed by
PNC Bank hereunder. Except as specifically set forth herein, PNC Bank assumes
no responsibility for such compliance by the Fund.
5. Instructions. Unless otherwise provided in this Agreement, PNC Bank
shall act only upon Oral and Written Instructions. PNC Bank shall be entitled
to rely upon any Oral and Written Instructions it receives from an Authorized
Person (or from a person reasonably believed by PNC Bank to be an Authorized
Person) pursuant to this Agreement. PNC Bank may assume that any Oral or
Written Instructions received hereunder are not in any way inconsistent with
the provisions of organizational documents or this Agreement or of any vote,
resolution or proceeding of the Fund's Governing Board or of the Fund's
shareholders.
The Fund agrees to forward to PNC Bank Written Instructions confirming
Oral Instructions so that PNC Bank receives the Written Instructions by the
close of business on the same day that such Oral Instructions are received.
The fact that such confirming Written Instructions are not received by PNC
Bank shall in no way invalidate the transactions or enforceability of the
transactions authorized by the Oral Instructions.
The Fund further agrees that PNC Bank shall incur no liability to the
Fund in acting upon Oral or Written Instructions provided such instructions
reasonably appear to have been received from an Authorized Person.
6. Right to Receive Advice.
(a) Advice of the Fund. If PNC Bank is in doubt as to any action
it should or should not take, PNC Bank may request directions or advice,
including Oral or Written Instructions, from the Fund.
(b) Advice of Counsel. If PNC Bank shall be in doubt as to any
questions of law pertaining to any action it should or should not take, PNC
Bank may request advice at its own cost from such counsel of its own choosing
(who may be counsel for the Fund, the Fund's advisor or PNC Bank, at the
option of PNC Bank).
(c) Conflicting Advice. In the event of a conflict between
directions, advice or Oral or Written Instructions PNC Bank receives from the
Fund, and the advice it receives from counsel, PNC Bank shall be entitled to
rely upon and follow the advice of counsel.
(d) Protection of PNC Bank. PNC Bank shall be protected in any
action it takes or does not take in reliance upon directions, advice or Oral
or Written Instructions it receives from the Fund or from counsel and which
PNC Bank believes, in good faith, to be consistent with those directions,
advice or Oral or Written Instructions.
Nothing in this paragraph shall be construed so as to impose an
obligation upon PNC Bank (i) to seek such directions, advice or Oral or
Written Instructions, or (ii) to act in accordance with such directions,
advice or Oral or Written Instructions unless, under the terms of other
provisions of this Agreement, the same is a condition of PNC Bank's properly
taking or not taking such action.
7. Records. The books and records pertaining to the Fund which are in
the possession of PNC Bank, shall be the property of the Fund. Such books and
records shall be prepared and maintained as required by the 1940 Act and other
applicable securities laws, rules and regulations. The Fund, or the Fund's
Authorized Persons, shall have access to such books and records at all time
during PNC Bank's normal business hours. Upon the reasonable request of the
Fund, copies of any such books and records shall be provided by PNC Bank to
the Fund or to an Authorized Person of the Fund, at the Fund's expense.
8. Confidentiality. PNC Bank agrees to keep confidential all records
of the Fund and information relative to the Fund and its shareholders (past,
present and potential), unless the release of such records or information is
otherwise consented to, in writing, by the Fund. The Fund agrees that such
consent shall not be unreasonably withheld and may not be withheld where PNC
Bank may be exposed to civil or criminal contempt proceedings or when required
to divulge. The Fund further agrees that, should PNC Bank be required to
provide such information or records to duly constituted authorities (who may
institute civil or criminal contempt proceedings for failure to comply), PNC
Bank shall not be required to seek the Fund's consent prior to disclosing such
information.
9. Cooperation with Accountants. PNC Bank shall cooperate with the
Fund's independent public accountants and shall take all reasonable action in
the performance of its obligations under this Agreement to ensure that the
necessary information is made available to such accountants for the expression
of their opinion, as required by the Fund.
10. Disaster Recovery. PNC Bank shall enter into and shall maintain in
effect with appropriate parties one or more agreements making reasonable
provision for emergency use of electronic data processing equipment to the
extent appropriate equipment is available. In the event of equipment
failures, PNC Bank shall, at no additional expense to the Fund, take
reasonable steps to minimize service interruptions but shall have no liability
with respect thereto.
11. Compensation. As compensation for custody services rendered by PNC
Bank during the term of this Agreement, the Fund will pay to PNC Bank a fee or
fees as may be agreed to from time to time in writing by the Fund and PNC
Bank.
12. Indemnification. The Fund agrees to indemnify and hold harmless
PNC Bank and its nominees from all taxes, charges, expenses, assessment,
claims and liabilities (including, without limitation, liabilities arising
under the Securities and Commodities Laws and any state and foreign securities
and blue sky laws, and amendments thereto, and expenses, including (without
limitation) attorneys' fees and disbursements, arising directly or indirectly
from any action which PNC Bank takes or does not take (i) at the request or on
the direction of or in reliance on the advice of the Fund or (ii) upon Oral or
Written Instructions. Neither PNC Bank, nor any of its nominees, shall be
indemnified against any liability to the Fund or to its shareholders (or any
expenses incident to such liability) arising out of PNC Bank's own willful
misfeasance, bad faith, negligence or reckless disregard of its duties and
obligations under this Agreement.
13. Responsibility of PNC Bank. PNC Bank shall be under no duty to
take any action on behalf of the Fund except as specifically set forth herein
or as may be specifically agreed to by PNC Bank, in writing. PNC Bank shall
be obligated to exercise care and diligence in the performance of its duties
hereunder, to act in good faith and to use its best effort, within reasonable
limits, in performing services provided for under this Agreement. PNC Bank
shall be responsible for its own negligent failure to perform its duties under
this Agreement. Notwithstanding the foregoing, PNC Bank shall not be
responsible for losses beyond its control, provided that PNC Bank has acted in
accordance with the standard of care set forth above; and provided further
that PNC Bank shall only be responsible for that portion of losses or damages
suffered by the Fund that are attributable to the negligence of PNC Bank.
Without limiting the generality of the foregoing or of any other
provision of this Agreement, PNC Bank, in connection with its duties under
this Agreement, shall not be under any duty or obligation to inquire into and
shall not be liable for (a) the validity or invalidity or authority or lack
thereof of any Oral or Written Instruction, notice or other instrument which
conforms to the applicable requirements of this Agreement, and which PNC Bank
reasonably believes to be genuine; or (b) delays or errors or loss of data
occurring by reason of circumstances beyond PNC Bank's control, including acts
of civil or military authority, national emergencies, labor difficulties,
fire, flood or catastrophe, acts of God, insurrection, war, riots or failure
of the mails, transportation, communication or power supply.
Notwithstanding anything in this Agreement to the contrary, PNC Bank
shall have no liability to the Fund for any consequential, special or indirect
losses or damages which the Fund may incur or suffer by or as a consequence of
PNC Bank's performance of the services provided hereunder, whether or not the
likelihood of such losses or damages was known by PNC Bank.
14. Description of Services.
(a) Delivery of the Property. The Fund will deliver or arrange
for delivery to PNC Bank, all the property owned by the Fund, including cash
received as a result of the distribution of its Shares, during the period that
is set forth in this Agreement. PNC Bank will not be responsible for such
property until actual receipt.
(b) Receipt and Disbursement of Money. PNC Bank, acting upon
Written Instructions, shall open and maintain separate account(s) in the
Fund's name using all cash received from or for the account of the Fund,
subject to the terms of this Agreement. In addition, upon Written
Instructions, PNC Bank shall open separate custodial accounts for each
separate series, class or portfolio of the Fund and shall hold in such
account(s) all cash received from or for the accounts of the Fund specifically
designated to each separate series, class or portfolio. PNC Bank shall make
cash payments from or for the account of the Fund only for:
(i) purchases of securities in the name of the Fund or PNC Bank
or PNC Bank's nominee as provided in sub-paragraph j
and for which PNC Bank has received a copy of the
broker's or dealer's confirmation or payee's invoice,
as appropriate;
(ii) purchase or redemption of Shares of the Fund
delivered to PNC Bank;
(iii) payment of, subject to Written Instructions, interest,
taxes, administration, accounting, distribution,
advisory, management fees or similar expenses which
are to be borne by the Fund;
(iv) payment to, subject to receipt of Written
Instructions, the Fund's transfer agent, as agent for
the shareholders, an amount equal to the amount of
dividends and distributions stated in the Written
Instructions to be distributed in cash by the transfer
agent to shareholders, or, in lieu of paying the
Fund's transfer agent, PNC Bank may arrange for the
direct payment of cash dividends and distributions to
shareholders in accordance with procedures mutually
agreed upon from time to time by and among the Fund,
PNC Bank and the Fund's transfer agent;
(v) payments, upon receipt of Written Instructions, in
connection with the conversion, exchange or surrender
of securities owned or subscribed to by the Fund and
held by or delivered to PNC Bank;
(vi) payments of the amounts of dividends received with
respect to securities sold short; payments made to a
sub-custodian pursuant to provisions in sub-paragraph
c of this Paragraph; and
(viii) payments, upon Written Instructions made for
other proper Fund purposes. PNC Bank is hereby
authorized to endorse and collect all checks, drafts
or other orders for the payment of money received as
custodian for the account of the Fund.
(c) Receipt of Securities.
(i) PNC Bank shall hold all securities received by it for
the account of the Fund in a separate account that
physically segregates such securities from those of
any other persons, firms or corporations, except for
securities held in a Book-Entry System. All such
securities shall be held or disposed of only upon
Written Instructions of the Fund pursuant to the terms
of this Agreement. PNC Bank shall have no power or
authority to assign, hypothecate, pledge or otherwise
dispose of any such securities or investment, except
upon the express terms of this Agreement and upon
Written Instructions, accompanied by a certified
resolution of the Fund's Governing Board, authorizing
the transaction. In no case may any member of the
Fund's Governing Board, or any officer, employee or
agent of the Fund withdraw any securities. At PNC
Bank's own expense and for its own convenience, PNC
Bank may enter into sub-custodian agreements with
other banks or trust companies to perform duties
described in this sub-paragraph c. Such bank or trust
company shall have an aggregate capital, surplus and
undivided profits, according to its last published
report, of at least one million dollars ($1,000,000),
if it is a subsidiary or affiliate of PNC Bank, or at
least twenty million dollars ($20,000,000) if such
bank or trust company is not a subsidiary or affiliate
of PNC Bank. In addition, such bank or trust company
must agree to comply with the relevant provisions of
the 1940 Act and other applicable rules and
regulations. PNC Bank shall remain responsible for
the performance of all of its duties as described in
this Agreement and shall hold the Fund harmless from
PNC Bank's own (or any sub-custodian chosen by PNC
Bank under the terms of this sub-paragraph c) acts or
omissions, under the standards of care provided for
herein.
(d) Transactions Requiring Instructions. Upon receipt of Oral or
Written Instructions and not otherwise, PNC Bank, directly or through the use
of the Book-Entry System, shall:
(i) deliver any securities held for the Fund against the
receipt of payment for the sale of such securities;
(ii) execute and deliver to such persons as may be
designated in such Oral or Written Instructions,
proxies, consents, authorizations, and any other
instruments whereby the authority of the Fund as owner
of any securities may be exercised;
(iii) deliver any securities to the issuer thereof, or its
agent, when such securities are called, redeemed,
retired or otherwise become payable; provided that, in
any such case, the cash or other consideration is to
be delivered to PNC Bank;
(iv) deliver any securities held for the Fund against
receipt of other securities or cash issued or paid in
connection with the liquidation, reorganization,
refinancing, tender offer, merger, consolidation or
recapitalization of any corporation, or the exercise
of any conversion privilege;
(v) deliver any securities held for the Fund to any
protective committee, reorganization committee or
other person in connection with the reorganization,
refinancing, merger, consolidation, recapitalization
or sale of assets of any corporation, and receive and
hold under the terms of this Agreement such
certificates of deposit, interim receipts or other
instruments or documents as may be issued to it to
evidence such delivery;
(vi) make such transfer or exchanges of the assets of the
Fund and take such other steps as shall be stated in
said Oral or Written Instructions to be for the
purpose of effectuating a duly authorized plan of
liquidation, reorganization, merger, consolidation or
recapitalization of the Fund;
(vii) release securities belonging to the Fund to any bank
or trust company for the purpose of a pledge or
hypothecation to secure any loan incurred by the Fund;
provided, however, that securities shall be released
only upon payment to PNC Bank of the monies borrowed,
except that in cases where additional collateral is
required to secure a borrowing already made subject to
proper prior authorization, further securities may be
released for that purpose; and repay such loan upon
redelivery to it of the securities pledged or
hypothecated therefor and upon surrender of the note
or notes evidencing the loan;
(viii) release and deliver securities owned by the Fund
in connection with any repurchase agreement entered
into on behalf of the Fund, but only on receipt of
payment therefor; and pay out moneys of the Fund in
connection with such repurchase agreements, but only
upon the delivery of the securities;
(ix) release and deliver or exchange securities owned by
the Fund in connection with any conversion of such
securities, pursuant to their terms, into other
securities;
(x) release and deliver securities owned by the Fund for
the purpose of redeeming in kind shares of the Fund
upon delivery thereof to PNC Bank; and
(xi) release and deliver or exchange securities owned by
the Fund for other corporate purposes. PNC Bank must
also receive a certified resolution describing the
nature of the corporate purpose and the name and
address of the person(s) to whom delivery shall be
made when such action is pursuant to sub-paragraph d
above.
(e) Use of Book-Entry System. The Fund shall deliver to PNC Bank
certified resolutions of the Fund's Governing Board approving, authorizing and
instructing PNC Bank on a continuous and on-going basis, to deposit in the
Book-Entry System all securities belonging to the Fund eligible for deposit
therein and to utilize the Book-Entry System to the extent possible in
connection with settlements of purchases and sales of securities by the Fund,
and deliveries and returns of securities loaned, subject to repurchase
agreements or used as collateral in connection with borrowings. PNC Bank
shall continue to perform such duties until it receives Written or Oral
Instructions authorizing contrary actions(s).
To administer the Book-Entry System properly, the following provisions
shall apply:
(i) With respect to securities of the Fund which are
maintained in the Book-Entry system, established
pursuant to this sub-paragraph e hereof, the records
of PNC Bank shall identify by Book-Entry or otherwise
those securities belonging to the Fund. PNC Bank
shall furnish the Fund a detailed statement of the
Property held for the Fund under this Agreement at
least monthly and from time to time and upon written
request.
(ii) Securities and any cash of the Fund deposited in the
Book-Entry System will at all times be segregated
from any assets and cash controlled by PNC Bank in
other than a fiduciary or custodian capacity but may
be commingled with other assets held in such
capacities. PNC Bank and its sub-custodian, if any,
will pay out money only upon receipt of securities and
will deliver securities only upon the receipt of
money.
(iii) All books and records maintained by PNC Bank which
relate to the Fund's participation in the Book-Entry
System will at all times during PNC Bank's regular
business hours be open to the inspection of the Fund's
duly authorized employees or agents, and the Fund will
be furnished with all information in respect of the
services rendered to it as it may require.
(iv) PNC Bank will provide the Fund with copies of any
report obtained by PNC Bank on the system of internal
accounting control of the Book-Entry System promptly
after receipt of such a report by PNC Bank. PNC Bank
will also provide the Fund with such reports on its
own system of internal control as the Fund may
reasonably request from time to time.
(f) Registration of Securities. All Securities held for the Fund
which are issued or issuable only in bearer form, except such securities held
in the Book-Entry System, shall be held by PNC Bank in bearer form; all other
securities held for the Fund may be registered in the name of the Fund; PNC
Bank; the Book-Entry System; a sub-custodian; or any duly appointed nominee(s)
of the Fund, PNC Bank, Book-Entry system or sub-custodian. The Fund reserves
the right to instruct PNC Bank as to the method of registration and
safekeeping of the securities of the Fund. The Fund agrees to furnish to PNC
Bank appropriate instruments to enable PNC Bank to hold or deliver in proper
form for transfer, or to register its registered nominee or in the name of the
Book-Entry System, any securities which it may hold for the account of the
Fund and which may from time to time be registered in the name of the Fund.
PNC Bank shall hold all such securities which are not held in the Book-Entry
System in a separate account for the Fund in the name of the Fund physically
segregated at all times from those of any other person or persons.
(g) Voting and Other Action. Neither PNC Bank nor its nominee
shall vote any of the securities held pursuant to this Agreement by or for the
account of the Fund, except in accordance with Written Instructions. PNC
Bank, directly or through the use of the Book-Entry System, shall execute in
blank and promptly deliver all notice, proxies, and proxy soliciting materials
to the registered holder of such securities. If the registered holder is not
the Fund then Written or Oral Instructions must designate the person(s) who
owns such securities.
(h) Transactions Not Requiring Instructions. In the absence of
contrary Written Instructions, PNC Bank is authorized to take the following
actions:
(i) Collection of Income and Other Payments.
(A) collect and receive for the account of the Fund,
all income, dividends, distributions, coupons,
option premiums, other payments and similar
items, included or to be included in the
Property, and, in addition, promptly advise the
Fund of such receipt and credit such income, as
collected, to the Fund's custodian account;
(B) endorse and deposit for collection, in the name
of the Fund, checks, drafts, or other orders for
the payment of money;
(C) receive and hold for the account of the Fund all
securities received as a distribution on the
Fund's portfolio securities as a result of a
stock dividend, share split-up or
reorganization, recapitalization, readjustment
or other rearrangement or distribution of rights
or similar securities issued with respect to any
portfolio securities belonging to the Fund held
by PNC Bank hereunder;
(D) present for payment and collect the amount
payable upon all securities which may mature or
be called, redeemed, or retired, or otherwise
become payable on the date such securities
become payable; and
(E) take any action which may be necessary and
proper in connection with the collection and
receipt of such income and other payments and
the endorsement for collection of checks,
drafts, and other negotiable instruments.
(ii) Miscellaneous Transactions.
(A) PNC Bank is authorized to deliver or cause to be
delivered Property against payment or other
consideration or written receipt therefor in the
following cases:
(1) for examination by a broker or dealer
selling for the account of the Fund in
accordance with street delivery custom;
(2) for the exchange of interim receipts or
temporary securities for definitive
securities; and
(3) for transfer of securities into the name
of the Fund or PNC Bank or nominee of
either, or for exchange of securities for
a different number of bonds,certificates,
or other evidence, representing the same
aggregate face amount or number of units
bearing the same interest rate, maturity
date and call provisions, if any; provided
that, in any such case, the new securities
are to be delivered to PNC Bank.
(B) Unless and until PNC Bank receives Oral or
Written Instructions to the contrary, PNC Bank
shall:
(1) pay all income items held by it which call
for payment upon presentation and hold the
cash received by it upon such payment for
the account of the Fund;
(2) collect interest and cash dividends
received, with notice to the Fund, to the
Fund's account;
(3) hold for the account of the Fund all stock
dividends, rights and similar securities
issued with respect to any securities held
by PNC Bank; and
(4) execute as agent on behalf of the Fund all
necessary ownership certificates required
by the Internal Revenue Code or the Income
Tax Regulations of the United States
Treasury Department or under the laws of
any State now or hereafter in effect,
inserting the Fund's name, on such
certificate as the owner of the securities
covered thereby, to the extent it may
lawfully do so.
(i) Segregated Accounts.
(i) PNC Bank shall upon receipt of Written or Oral
Instructions establish and maintain segregated
account(s) on its records for and on behalf of the
Fund. Such account(s) may be used to transfer cash
and securities, including securities in the Book-Entry
System:
(A) for the purposes of compliance by the Fund with
the procedures required by a securities or
option exchange, providing such procedures
comply with the 1940 Act and any releases of the
SEC relating to the maintenance of segregated
accounts by registered investment companies; and
(B) Upon receipt of Written Instructions, for other
proper corporate purposes.
(ii) PNC Bank may enter into separate custodial agreements
with various futures commission merchants ("FCMs")
that the Fund uses ("FCM Agreement"). Pursuant to an
FCM Agreement, the Fund's margin deposits in any
transactions involving futures contracts and options
on futures contracts will be held by PNC Bank in
accounts ("FCM Account") subject to the disposition by
the FCM involved in such contracts and in accordance
with the customer contract between FCM and the Fund
("FCM Contract"), SEC rules and the rules of the
applicable commodities exchange. Such FCM Agreements
shall only be entered into upon receipt of Written
Instructions from the Fund which state that:
(A) a customer agreement between the FCM and the
Fund has been entered into; and
(B) the Fund is in compliance with all the rules and
regulations of the CFTC. Transfers of initial
margin shall be made into a FCM Account only
upon Written Instructions; transfers of premium
and variation margin may be made into a FCM
Account pursuant to Oral Instructions.
Transfers of funds from a FCM Account to the FCM
for which PNC Bank holds such an account may
only occur upon certification by the FCM to PNC
Bank that pursuant to the FCM Agreement and the
FCM Contract, all conditions precedent to its
right to give PNC Bank such instructions have
been satisfied.
(iii) PNC Bank shall arrange for the establishment of IRA
custodian accounts for such share- holders holding
Shares through IRA accounts, in accordance with the
Fund's prospectuses, the Internal Revenue Code
(including regulations), and with such other
procedures as are mutually agreed upon from time to
time by and among the Fund, PNC Bank and the Fund's
transfer agent.
(j) Purchases of Securities. PNC Bank shall settle purchased
securities upon receipt of Oral or Written Instructions from the Fund or its
investment advisor(s) that specify:
(i) the name of the issuer and the title of the
securities, including CUSIP number if applicable;
(ii) the number of shares or the principal amount purchased
and accrued interest, if any;
(iii) the date of purchase and settlement;
(iv) the purchase price per unit;
(v) the total amount payable upon such purchase; and
(vi) the name of the person from whom or the broker through
whom the purchase was made. PNC Bank shall upon
receipt of securities purchased by or for the Fund pay
out of the moneys held for the account of the Fund the
total amount payable to the person from whom or the
broker through whom the purchase was made, provided
that the same conforms to the total amount payable as
set forth in such Oral or Written Instructions.
(k) Sales of Securities. PNC Bank shall settle sold securities
upon receipt of Oral or Written Instructions from the Fund that specify:
(i) the name of the issuer and the title of the security,
including CUSIP number if applicable;
(ii) the number of shares or principal amount sold, and
accrued interest, if any;
(iii) the date of trade, settlement and sale;
(iv) the sale price per unit;
(v) the total amount payable to the Fund upon such sale;
(vi) the name of the broker through whom or the person to
whom the sale was made; and
(vii) the location to which the security must be delivered
and delivery deadline, if any. PNC Bank shall deliver
the securities upon receipt of the total amount
payable to the Fund upon such sale, provided that the
total amount payable is the same as was set forth in
the Oral or Written Instructions. Subject to the
foregoing, PNC Bank may accept payment in such form as
shall be satisfactory to it, and may deliver
securities and arrange for payment in accordance with
the customs prevailing among dealers in securities.
(l) Reports.
(i) PNC Bank shall furnish the Fund the following reports:
(A) such periodic and special reports as the Fund
may reasonably request;
(B) a monthly statement summarizing all transactions
and entries for the account of the Fund, listing
the portfolio securities belonging to the Fund
with the adjusted average cost of each issue and
the market value at the end of such month, and
stating the cash account of the Fund including
disbursement;
(C) the reports to be furnished to the Fund pursuant
to Rule 17f-4; and
(D) such other information as may be agreed upon
from time to time between the Fund and PNC Bank.
(ii) PNC Bank shall transmit promptly to the Fund any proxy
statement, proxy material, notice of a call or
conversion or similar communication received by it as
custodian of the Property. PNC Bank shall be under no
other obligation to inform the Fund as to such actions
or events.
(m) Collections. All collections of monies or other property, in
respect, or which are to become part of the Property (but not the safekeeping
thereof upon receipt by PNC Bank) shall be at the sole risk of the Fund. If
payment is not received by PNC Bank within a reasonable time after proper
demands have been made, PNC Bank shall notify the Fund in writing, including
copies of all demand letters, any written responses, memoranda of all oral
responses and telephonic demands thereto, and await instructions from the
Fund. PNC Bank shall not be obliged to take legal action for collection
unless and until reasonably indemnified to its satisfaction. PNC Bank shall
also notify the Fund as soon as reasonably practicable whenever income due on
securities is not collected in due course.
15. Duration and Termination. This Agreement shall continue until
terminated by the Fund or by PNC Bank on sixty (60) days' prior written notice
to the other party. In the event this Agreement is terminated (pending
appointment of a successor to PNC Bank or vote of the shareholders of the Fund
to dissolve or to function without a custodian of its cash, securities or
other property), PNC Bank shall not deliver cash, securities or other property
of the Fund to the Fund. It may deliver them to a bank or trust company of
PNC Bank's choice, having an aggregate capital, surplus and undivided profits,
as shown by its last published report, of not less than twenty million dollars
($20,000,000), as a custodian for the Fund to be held under terms similar to
those of this Agreement. PNC Bank shall not be required to make any such
delivery or payment until full payment shall have been made to PNC Bank of all
of its fees, compensation, costs and expenses. PNC Bank shall have a security
interest in and shall have a right of setoff against Property in the Fund's
possession as security for the payment of such fees, compensation, costs and
expenses.
16. Notices. All notices and other communications, including Written
Instructions, shall be in writing or by confirming telegram, cable, telex or
facsimile sending device. Notice shall be addressed (a) if to PNC Bank at PNC
Bank's address: Airport Business Center, International Court 2, 200 Stevens
Drive, Lester, Pennsylvania 19113, marked for the attention of the Custodian
Services Department (or its successor) (b) if to the Fund, at the address of
the Fund; or (c) if to neither of the foregoing, at such other address as
shall have been notified to the sender of any such notice or other
communication. If notice is sent by confirming telegram, cable, telex or
facsimile sending device, it shall be deemed to have been given immediately.
If notice is sent by first-class mail, it shall be deemed to have been given
five days after it has been mailed. If notice is sent by messenger, it shall
be deemed to have been given on the day it is delivered.
17. Amendments. This Agreement, or any term hereof, may be changed or
waived only by a written amendment, signed by the party against whom
enforcement of such change or waiver is sought. 18. Delegation. PNC
Bank may assign its rights and delegate its duties hereunder to any
wholly-owned direct or indirect subsidiary of PNC Bank, National Association
or PNC Bank Corp., provided that (i) PNC Bank gives the Fund thirty (30) days
prior written notice; (ii) the delegate agrees with PNC Bank to comply with
all relevant provisions of the 1940 Act; and (iii) PNC Bank and such delegate
promptly provide such information as the Fund may request, and respond to such
questions as the Fund may ask, relative to the assignment, including (without
limitation) the capabilities of the delegate.
19. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. 20. Further
Actions. Each party agrees to perform such further acts and execute such
further documents as are necessary to effectuate the purposes hereof.
21. Miscellaneous. This Agreement embodies the entire agreement and
understanding between the parties and supersedes all prior agreements and
understandings relating to the subject matter hereof, provided that the
parties may embody in one or more separate documents their agreement, if any,
with respect to delegated duties and/or Oral Instructions. The captions in
this Agreement are included for convenience of reference only and in no way
define or delimit any of the provisions hereof or otherwise affect their
construction or effect.
This Agreement shall be deemed to be a contract made in Pennsylvania and
governed by Pennsylvania law, without regard to principles of conflicts of
law. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first above
written.
PNC BANK, NATIONAL ASSOCIATION
By:
Title:
SMITH BARNEY DISCIPLINED SMALL CAP FUND
INC.
By:
Title:
AUTHORIZED PERSONS APPENDIX
NAME (Type) SIGNATURE
25
FORM OF
TRANSFER AGENCY AND REGISTRAR AGREEMENT
AGREEMENT, dated as of ___________, 1997 between Smith Barney
Disciplined Small Cap Fund, Inc.., (the "Fund"), a corporation organized
under the laws
of Maryland and having its principal place of business at 388 Greenwich
Street
New York, NY 10013, and First Data Investor Services Group, Inc.Inc. (MA)
(the
"Transfer Agent"), a Massachusetts corporation with principal offices at One
Exchange Place, 53 State Street, Boston, Massachusetts 02109.
W I T N E S S E T H
That for and in consideration of the mutual covenants and promises
hereinafter set forth, the Fund and the Transfer Agent agree as follows:
1. Definitions. Whenever used in this Agreement, the following words
and phrases, unless the context otherwise requires, shall have the following
meanings:
(a) "Articles of Incorporation" shall mean the Articles of
Incorporation, Declaration of Trust, Partnership Agreement, or similar
organizational document as the case may be, of the Fund as the same may be
amended from time to time.
(b) "Authorized Person" shall be deemed to include any person,
whether or not such person is an officer or employee of the Fund, duly
authorized to give Oral Instructions or Written Instructions on behalf of the
Fund as
indicated in a certificate furnished to the Transfer Agent pursuant to Section
4(c)
hereof as may be received by the Transfer Agent from time to time.
(c) "Board of Directors" shall mean the Board of Directors, Board
of Trustees or, if the Fund is a limited partnership, the General Partner(s)
of the Fund, as the case may be.
(d) "Commission" shall mean the Securities and Exchange
Commission.
(e) "Custodian" refers to any custodian or subcustodian of
securities and other property which the Fund may from time to time deposit,
or
cause to be deposited or held under the name or account of such a custodian
pursuant to a Custodian Agreement.
(f) "Fund" shall mean the entity executing this Agreement, and if
it is a series fund, as such term is used in the 1940 Act, such term shall
mean each series of the Fund hereafter created, except that appropriate
documentation
with respect to each series must be presented to the Transfer Agent before
this
Agreement shall become effective with respect to each such series.
(g) "1940 Act" shall mean the Investment Company Act of 1940.
(h) "Oral Instructions" shall mean instructions, other than
Written Instructions, actually received by the Transfer Agent from a person
reasonably
believed by the Transfer Agent to be an Authorized Person;
(i) "Prospectus" shall mean the most recently dated Fund
Prospectus and Statement of Additional Information, including any supplements
thereto if any, which has become effective under the Securities Act of 1933
and the 1940 Act.
(j) "Shares" refers collectively to such shares of capital stock,
beneficial interest or limited partnership interests, as the case may be, of
the Fund as may be issued from time to time and, if the Fund is a closed-end
or a
series fund, as such terms are used in the 1940 Act any other classes or
series of
stock, shares of beneficial interest or limited partnership interests that may
be
issued from time to time.
(k) "Shareholder" shall mean a holder of shares of capital stock,
beneficial interest or any other class or series, and also refers to partners
of limited partnerships.
(l) "Written Instructions" shall mean a written communication
signed by a person reasonably believed by the Transfer Agent to be an
Authorized Person and actually received by the Transfer Agent. Written
Instructions
shall include manually executed originals and authorized electronic
transmissions,
including telefacsimile of a manually executed original or other process.
2. Appointment of the Transfer Agent. The Fund hereby appoints and
constitutes the Transfer Agent as transfer agent, registrar and dividend
disbursing agent for Shares of the Fund and as shareholder servicing agent for
the Fund.
The Transfer Agent accepts such appointments and agrees to perform the duties
hereinafter set forth.
3. Compensation.
(a) The Fund will compensate or cause the Transfer Agent to
be compensated for the performance of its obligations hereunder in accordance
with the fees set forth in the written schedule of fees annexed hereto as
Schedule A and incorporated herein. The Transfer Agent will transmit an
invoice to the
Fund as soon as practicable after the end of each calendar month
which will be
detailed in accordance with Schedule A, and the Fund will pay to the Transfer
Agent the amount of such invoice within thirty (30) days after the Fund's
receipt of the invoice.
In addition, the Fund agrees to pay, and will be billed separately for,
reasonable out-of-pocket expenses incurred by the Transfer Agent in the
performance of its duties hereunder. Out-of-pocket expenses shall include,
but
shall not be limited to, the items specified in the written schedule of out-
of-pocket charges annexed hereto as Schedule B and incorporated herein.
Unspecified
out-of-pocket expenses shall be limited to those out-of-pocket expenses
reasonably incurred by the Transfer Agent in the performance of its
obligations hereunder. Reimbursement by the Fund for expenses incurred by the
Transfer
Agent in any month shall be made as soon as practicable but no later than 15
days after the receipt of an itemized bill from the Transfer Agent.
(b) Any compensation agreed to hereunder may be adjusted from
time to time by attaching to Schedule A, a revised fee schedule executed and
dated by the parties hereto.
4. Documents. In connection with the appointment of the Transfer Agent
the Fund shall deliver or caused to be delivered to the Transfer Agent the
following documents on or before the date this Agreement goes into effect,
but
in any case within a reasonable period of time for the Transfer Agent to
prepare
to perform its duties hereunder:
(a) If applicable, specimens of the certificates for Shares of
the Fund;
(b) All account application forms and other documents relating to
Shareholder accounts or to any plan, program or service offered by the Fund;
(c) A signature card bearing the signatures of any officer of the
Fund or other Authorized Person who will sign Written Instructions or is
authorized to give Oral Instructions.
(d) A certified copy of the Articles of Incorporation, as
amended;
(e) A certified copy of the By-laws of the Fund, as amended;
(f) A copy of the resolution of the Board of Directors
authorizing the execution and delivery of this Agreement;
(g) A certified list of Shareholders of the Fund with the name,
address and taxpayer identification number of each Shareholder,
and the number
of Shares of the Fund held by each, certificate numbers and denominations (if
any certificates have been issued), lists of any accounts against which stop
transfer orders have been placed, together with the reasons therefore, and the
number
of Shares redeemed by the Fund; and
(h) An opinion of counsel for the Fund with respect to the
validity of the Shares and the status of such Shares under the Securities Act
of 1933,
as amended.
5. Further Documentation. The Fund will also furnish the Transfer
Agent with copies of the following documents promptly after the same shall
become
available:
(a) each resolution of the Board of Directors authorizing the
issuance of Shares;
(b) any registration statements filed on behalf of the Fund and
all pre-effective and post-effective amendments thereto filed with the
Commission;
(c) a certified copy of each amendment to the Articles of
Incorporation or the By-laws of the Fund;
(d) certified copies of each resolution of the Board of Directors
or other authorization designating Authorized Persons; and
(e) such other certificates, documents or opinions as the
TransferAgent may reasonably request in connection with
the performance of its
duties hereunder.
6. Representations of the Fund. The Fund represents to the Transfer
Agent that all outstanding Shares are validly issued, fully paid and non-
assessable. When Shares are hereafter issued in accordance with the terms of
the
Fund'sArticles of Incorporation and its Prospectus, such Shares shall be
validly issued, fully paid and non-assessable.
7. Distributions Payable in Shares. In the event that the Board of
Directors of the Fund shall declare a distribution
payable in Shares, the Fund
shall deliver or cause to be delivered to the Transfer Agent written notice of
such
declaration signed on behalf of the Fund by an officer thereof,
upon which the
Transfer Agent shall be entitled to rely for all purposes, certifying (i) the
identity of the Shares involved, (ii) the number of Shares involved, and (iii)
that all
appropriate action has been taken.
8. Duties of the Transfer Agent. The Transfer Agent shall be
responsible for administering and/or performing those functions typically
performed by a
transfer agent; for acting as service agent in connection with dividend and
distribution functions; and for performing shareholder account and
administrative agent functions in connection with the issuance, transfer and
redemption or
repurchase (including coordination with the Custodian) of Shares
in accordance
with the terms of the Prospectus and applicable law. The operating standards
and procedures to be followed shall be determined from time to time by
agreement
between the Fund and the Transfer Agent and shall initially be
as described in
Schedule C attached hereto. In addition, the Fund shall deliver to the
Transfer Agent all notices issued by the Fund with respect to the Shares in
accordance
with and pursuant to the Articles of Incorporation or By-laws of the Fund or
as
required by law and shall perform such other specific duties as are set forth
in the
Articles of Incorporation including the giving of notice of any special
or annual meetings of shareholders and any other notices regquired
thereby.
9. Record Keeping and Other Information. The Transfer Agent shall
create and maintain all records required of it pursuant to its duties
hereunder and as set forth in Schedule C in accordance with all applicable
laws, rules and
regulations, including records required by Section 31(a) of the 1940 Act.
All
records shall be available during regular business hours for inspection and
use by the Fund. Where applicable, such records shall be maintained by the
Transfer
Agent for the periods and in the places required by Rule 31a-2 under the 1940
Act.
Upon reasonable notice by the Fund, the Transfer Agent shall make
available during regular business hours such of its facilities and premises
employed in connection with the performance of
its duties under this Agreement
for reasonable visitation by the Fund, or any person retained by the Fund as
may be necessary for the Fund to evaluate the quality of the services
performed by
the Transfer Agent pursuant hereto.
10. Other Duties. In addition to the duties set forth in Schedule C,
the Transfer Agent shall perform such other duties and functions,
and shall be
paid such amounts therefor, as may from time to time be agreed
upon in writing
between the Fund and the Transfer Agent. The compensation for such other
duties and functions shall be reflected in a written amendment to Schedule A
or B and the duties and functions shall be reflected in an amendment to
Schedule C,
both dated and signed by authorized persons of the parties hereto.
11. Reliance by Transfer Agent; Instructions
(a) The Transfer Agent will have no liability when acting upon
Written or Oral Instructions believed to have been executed or orally
communicated by an Authorized Person and will not be held to have any notice
of any change of authority of any person until receipt of a Written
Instruction
thereof from the Fund pursuant to Section 4(c). The Transfer Agent will also
have no
liability when processing Share certificates which it reasonably believes to
bear the proper manual or facsimile signatures of the officers of the Fund
and the
proper countersignature of the Transfer Agent.
(b) At any time, the Transfer Agent may apply to any Authorized
Person of the Fund for Written Instructions and may seek advice from legal
counsel for the Fund, or its own legal counsel, with respect to any matter
arising in connection with this Agreement, and it shall not be liable for any
action
taken or not taken or suffered by it in good faith in accordance with such
Written
Instructions or in accordance with the opinion of counsel for the Fund or for
the Transfer Agent. Written Instructions requested by the Transfer Agent
will be
provided by the Fund within a reasonable period of time. In addition, the
Transfer Agent, its officers, agents or employees, shall accept Oral
Instructions or
Written Instructions given to them by any person representing or acting on
behalf of
the Fund only if said representative is an Authorized Person. The Fund
agrees
that all Oral Instructions shall be followed within one business day by
confirming
Written Instructions, and that the Fund's failure to so confirm shall not
impair in
any respect the Transfer Agent's right to rely on Oral Instructions. The
Transfer
Agent shall have no duty or obligation to inquire into, nor shall the Transfer
Agent
be responsible for, the legality of any act done by it upon the request or
direction of a person reasonably believed by the Transfer Agent to be an
Authorized Person.
(c) Notwithstanding any of the foregoing provisions of this
Agreement, the Transfer Agent shall be under no duty or obligation to inquire
into, and shall not be liable for: (i) the legality of the issuance or sale
of any Shares or the sufficiency of the amount to be received therefor; (ii)
the
legality of the redemption of any Shares, or the propriety of the amount to be
paid
therefor; (iii) the legality of the declaration of any dividend by the Board
of
Directors, or the legality of the issuance of any Shares in payment of any
dividend; or (iv)
the legality of any recapitalization or readjustment of the Shares.
12. Acts of God, etc. The Transfer Agent will not be liable or
responsible for delays or errors by acts of God or by reason of circumstances
beyond its
control, including acts of civil or military authority, national emergencies,
labor difficulties, mechanical breakdown, insurrection, war, riots, or
failure or
unavailability of transportation, communication or power supply, fire, flood
or other catastrophe.
13. Duty of Care and Indemnification. Each party hereto (the
"Indemnifying Party') will indemnify the other party
(the "Indemnified Party")
against and hold it harmless from any and all losses, claims, damages,
liabilities or expenses of any sort or kind (including reasonable counsel fees
and
expenses) resulting from any claim, demand, action or suit or other proceeding
(a
"Claim") unless such Claim has resulted from a negligent failure to act or
omission to
act or bad faith of the Indemnified Party in the performance of its duties
hereunder.
In addition, the Fund will indemnify the Transfer Agent against and hold it
harmless from any Claim, damages, liabilities or expenses (including
reasonable counsel
fees) that is a result of: (i) any action taken in accordance with Written or
Oral Instructions, or any other instructions,
or share certificates reasonably
believed by the Transfer Agent to be genuine and to be signed, countersigned
or executed,
or orally communicated by an Authorized Person; (ii) any action taken in
accordance with written or oral advice reasonably believed by the Transfer
Agent to have
been given by counsel for the Fund or its own counsel; or (iii) any action
taken as a result of any error or omission in any record (including but not
limited to
magnetic tapes, computer printouts, hard copies and microfilm copies)
delivered, or caused to be delivered by the Fund to the Transfer Agent in
connection with
this Agreement.
In any case in which the Indemnifying Party may be asked to indemnify or
hold the Indemnified Party harmless, the Indemnifying Party shall be advised
of all pertinent facts concerning the situation in question.
The Indemnified
Party will notify the Indemnifying Party promptly after identifying any
situation
which it believes presents or appears likely to present a claim for
indemnification
against the Indemnifying Party although the failure to
do so shall not prevent
recovery by the Indemnified Party. The Indemnifying Party shall have the
option to defend
the Indemnified Party against any Claim which may be the subject of this
indemnification, and, in the event that the Indemnifying Party so elects,
such
defense shall be conducted by counsel chosen by the Indemnifying Party and
satisfactory to the Indemnified Party, and thereupon the Indemnifying Party
shall take over complete defense of the
Claim and the Indemnified Party shall
sustain no further legal or other expenses in respect of such Claim. The
Indemnified
Party will not confess any Claim or make any compromise in any case in which
the Indemnifying Party will be asked to provide indemnification, except with
the Indemnifying Party's prior written consent. The obligations of the
parties
hereto under this Section shall survive the termination of this Agreement.
14. Consequential Damages. In no event and under no circumstances
shall either party under this Agreement be liable to the other party for
indirect loss of profits, reputation or business or any other special damages
under any
provision of this Agreement or for any act or failure to act hereunder.
15. Term and Termination.
(a) This Agreement shall be effective on the date first written
above and shall continue until September 2, 1994, and thereafter shall
automatically continue for successive annual periods
ending on the anniversary
of the date first written above, provided that it may be
terminated by either
party upon written notice given at least 60 days prior to termination.
(b) In the event a termination notice is given by the Fund, it
shall be accompanied by a resolution of the Board of Directors, certified by
the Secretary of the Fund, designating a successor
transfer agent or transfer
agents. Upon such termination and at the expense of the Fund, the Transfer
Agent will
deliver to such successor a certified list of shareholders of the Fund (with
names and addresses), and all other relevant books, records, correspondence
and
other Fund records or data in the possession of the Transfer Agent, and the
Transfer
Agent will cooperate with the Fund and any successor transfer agent or agents
in the substitution process.
16. Confidentiality. Both parties hereto agree that any non public
information obtained hereunder concerning the other party is confidential and
may not be disclosed to any other person without the consent of the other
party,
except as may be required by applicable law or at the request of the
Commission or
other governmental agency. The parties further agree that a breach of this
provision would irreparably damage the other party and accordingly agree that
each of
them is entitled, without bond or other security, to an injunction or
injunctions
to prevent breaches of this provision.
17. Amendment. This Agreement may only be amended or modified by a
written instrument executed by both parties.
18. Subcontracting. The Fund agrees that the Transfer Agent may, in
its discretion, subcontract for certain of the services described under this
Agreement or the Schedules hereto; provided that the appointment of any such
Transfer
Agent shall not relieve the Transfer Agent of its responsibilities hereunder.
19. Miscellaneous.
(a) Notices. Any notice or other instrument authorized or
required by this Agreement to be given in writing to the Fund or the Transfer
Agent,
shall be sufficiently given if addressed to that party and received by it at
its
office set forth below or at such other place as it may from time to time
designate in
writing.
To the Fund:
Smith Barney Disciplined Small Cap Fund, Inc.
388 Greenwich Street, 22 Floor
New York, NY 10013
Attention:Heath B. McLendon
To the Transfer Agent:
First Data Investor Services Group
One Exchange Place
53 State Street
Boston, Massachusetts 02109
(b) Successors. This Agreement shall extend to and shall be
binding upon the parties hereto, and their respective successors and assigns,
provided, however, that this Agreement shall not be assigned to any person
other than a person controlling, controlled by or under common control with
the
assignor without the written consent of the other party, which consent shall
not be unreasonably withheld.
(c) Governing Law. This Agreement shall be governed
exclusively by the laws of the State of New York without reference to the
choice of law provisions thereof. Each party hereto hereby agrees that (i)
the
Supreme Court of New York sitting in New York County shall have exclusive
jurisdiction
over any and all disputes arising hereunder; (ii) hereby consents to the
personal jurisdiction of such court over the parties hereto, hereby waiving
any defense
of lack of personal jurisdiction; and (iii) appoints the person to whom
notices
hereunder are to be sent as agent for service of process.
(d) Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original; but such
counterparts shall, together, constitute only one instrument.
(e) Captions. The captions of this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hreof or otherwise affect their construction or effect.
(f) Use of Transfer Agent's Name. The Fund shall not use the
name of the Transfer Agent in any Prospectus, Statement of Additional
Information, shareholders' report, sales literature or
other material relating
to the Fund in a manner not approved prior thereto in writing; provided, that
the
Transfer Agent need only receive notice of all reasonable uses of its name
which merely refer in accurate terms to its appointment hereunder or
which are
required by any government agency or applicable law or rule. Notwithstanding
the
foregoing, any reference to the Transfer Agent shall include a statement to
the effect that it is a wholly owned subsidiary of First Data Corporation.
(g) Use of Fund's Name. The Transfer Agent shall not use the
name of the Fund or material relating to the Fund on any documents or forms
for other than internal use in a manner not approved prior thereto in
writing;
provided, that the Fund need only receive notice of all
reasonable uses of its
name which merely refer in accurate terms to the appointment of the Transfer
Agent
or which are required by any government agency or applicable law or rule.
(h) Independent Contractors. The parties agree that they are
independent contractors and not partners or co-venturers.
(i) Entire Agreement; Severability. This Agreement and the
Schedules attached hereto constitute the entire agreement of the parties
hereto relating to the matters covered hereby and supersede any previous
agreements.
If any provision is held to be illegal, unenforceable or invalid for any
reason,
the remaining provisions shall not be affected or impaired thereby.
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed by their duly authorized officers,
as of the day and year first above written.
SMITH BARNEY DISCIPLINED SMALL CAP FUND, INC.
By: _______________
Heath B. McLendon
President
FIRST DATA INVESTOR SERVICES GROUP, INC.
By:__________________
Michael G. McCarthy
Vice President
A-1
Transfer Agent Fee
Schedule A
Class A B and Cshares
The Fund will be charged at the annual rate of .1% of
average daily net assets of the Fund.
Class Yshares
The Fund shall pay the Transfer Agent an annualized fee of $9.50 per
shareholder account that is open during any monthly period. Such fee shall be
billed by
the Transfer Agent monthly in arrears on a prorated basis of 1/12 of the
annualized fee for all accounts that are open during such a month.
The Fund shall pay the Transfer Agent an additional fee of $.125 per closed
account per month applicable to those shareholder accounts which close in a
given month and remain closed through the following month-end billing cycle.
Such
fee shall be billed by the Transfer Agent monthly in arrears.
B-1
Schedule B
OUT-OF-POCKET EXPENSES
The Fund shall reimburse the Transfer Agent monthly for applicable
out-of-pocket expenses, including, but not limited to the following items:
- Microfiche/microfilm production
- Magnetic media tapes and freight
- Printing costs, including certificates, envelopes, checks and
stationery
- Postage (bulk, pre-sort, ZIP+4, barcoding, first class) direct
pass through to the Fund
- Due diligence mailings
- Telephone and telecommunication costs, including
all lease, maintenance and line costs
- Proxy solicitations, mailings and tabulations
- Daily & Distribution advice mailings
- Shipping, Certified and Overnight mail and insurance
- Year-end form production and mailings
- Terminals, communication lines, printers and other equipment
and any expenses incurred in connection with such terminals and lines
- Duplicating services
- Courier services
- Incoming and outgoing wire charges
- Federal Reserve charges for check clearance
- Record retention, retrieval and destruction costs, including,
but not limited to exit fees charged by third party record keeping vendors
- Third party audit reviews
- Insurance
- Such other miscellaneous expenses reasonably incurred by the
Transfer Agent in performing its duties and responsibilities under this
Agreement.
The Fund agrees that postage and mailing expenses will be paid on the
day of or prior to mailing as agreed with the Transfer Agent. In addition,
the
Fund will promptly reimburse the Transfer Agent for any other unscheduled
expenses
incurred by the Transfer Agent whenever the Fund and the Transfer Agent
mutually agree that such expenses are not otherwise properly borne by the
Transfer Agent as part of its duties and obligations under the Agreement.
C-1
Schedule C
DUTIES OF THE TRANSFER AGENT
1. Shareholder Information. The Transfer Agent or its agent
shall maintain a record of the number of Shares held by each holder of record
which
shall include name, address, taxpayer identification and which shall indicate
whether such Shares are held in certificates or uncertificated form.
2. Shareholder Services. The Transfer Agent or its agent will
investigate all inquiries from shareholders of the Fund relating to
Shareholder accounts and will respond to all communications from Shareholders
and others
relating to its duties hereunder and such other correspondence as may from
time to time be mutually agreed upon between the Transfer Agent and the Fund.
The
Transfer Agent shall provide the Fund with reports concerning shareholder
inquires and the responses thereto by the Transfer Agent, in such form and at
such times as are agreed to by the Fund and the Transfer Agent.
3. Share Certificates.
(a) At the expense of the Fund, it shall supply the Transfer
Agent or its agent with an adequate supply of blank share certificates
to meet
the Transfer Agent or its agent's requirements therefor. Such Share
certificates
shall be properly signed by facsimile. The Fund agrees that, notwithstanding
the
death, resignation, or removal of any officer of the Fund whose signature
appears on
such certificates, the Transfer Agent or its agent may continue to
countersign
certificates which bear such signatures until otherwise directed by Written
Instructions.
(b) The Transfer Agent or its agent shall issue replacement Share
certificates in lieu of certificates which have been lost, stolen or
destroyed, upon receipt by the Transfer Agent or its agent of properly
executed affidavits and
lost certificate bonds, in form satisfactory to the Transfer Agent or its
agent,
with the Fund and the Transfer Agent or its agent as obligees under the bond.
(c) The Transfer Agent or its agent shall also maintain a record
of each certificate issued, the number of Shares represented thereby and the
holder of record. With respect to Shares held in open accounts or
uncertificated form,
i.e., no certificate being issued with respect thereto, the Transfer Agent or
its
agent shall maintain comparable records of the record holders thereof,
including
their names, addresses and taxpayer identification. The Transfer Agent or its
agent
shall further maintain a stop transfer record on lost and/or replaced
certificates.
C-2
4. Mailing Communications to Shareholders; Proxy Materials. The
Transfer Agent or its agent will address and mail to
Shareholders of the Fund, all reports to Shareholders, dividend and
distribution notices and proxy material for the Fund's meetings of
Shareholders. In
connection with meetings of Shareholders, the Transfer Agent or its Agent will
prepare
Shareholder lists, mail and certify as to the mailing of proxy materials,
process and tabulate returned proxy cards, report on proxies voted prior to
meetings,
act as inspector of election at meetings and certify Shares voted at
meetings.
5. Sales of Shares
(a) Suspension of Sale of Shares. The Transfer Agent or its
agent shall not be required to issue any Shares of the Fund where it has
received a
Written Instruction from the Fund or official notice from any appropriate
authority that the sale of the Shares of the Fund has been suspended or
discontinued. The existence of such Written Instructions or such official
notice shall be conclusive evidence of the right of the Transfer Agent or its
agent
to rely on such Written Instructions or official notice.
(b) Returned Checks. In the event that any check or other order
for the payment of money is returned unpaid for any reason,
the Transfer Agent
or its agent will: (i) give prompt notice of such return to the Fund or its
designee; (ii) place a stop transfer order against all Shares issued as a
result of such
check or order; and (iii) take such actions as the Transfer Agent may from
time to time
deem appropriate.
6. Transfer and Repurchase
(a) Requirements for Transfer or Repurchase of Shares. The
Transfer Agent or its agent shall process all requests to transfer or redeem
Shares in accordance with the transfer or repurchase procedures set forth in
the
Fund's Prospectus.
The Transfer Agent or its agent will transfer or repurchase Shares
upon receipt of Oral or Written Instructions or otherwise pursuant to the
Prospectus and Share certificates, if any, properly endorsed for transfer or
redemption, accompanied by such documents as the Transfer Agent or its agent
reasonably may deem necessary.
The Transfer Agent or its agent reserves the right to refuse to
transfer or repurchase Shares until it is satisfied that the endorsement on
the instructions is valid and genuine. The Transfer Agent or its agent also
reserves the right to refuse to transfer or repurchase Shares until it is
satisfied
that the requested transfer or repurchase is legally authorized, and it shall
incur no
liability for the refusal, in good faith, to make transfers or repurchases
which the
TransferAgent or its agent, in
C-3
its good judgement, deems improper or unauthorized, or until it is reasonably
satisfied that there is no basis to any claims adverse
to such transfer or repurchase.
(b) Notice to Custodian and Fund. When Shares are redeemed, the
Transfer Agent or its agent shall, upon receipt of the instructions and
documents in proper form, deliver to the Custodian and the Fund or its
designee a
notification setting forth the number of Shares to be repurchased. Such
repurchased shares
shall be reflected on appropriate accounts maintained
by the Transfer Agent or
its agent reflecting outstanding Shares of the Fund and Shares attributed to
individual accounts.
(c) Payment of Repurchase Proceeds. The Transfer Agent or its
agent shall, upon receipt of the moneys paid to it by the Custodian for the
repurchase of Shares, pay such moneys as are received from the Custodian, all
in accordance with the procedures described in the written instruction
received
by the Transfer Agent or its agent from the Fund.
The Transfer Agent or its agent shall not process or effect any
repurchase with respect to Shares of the Fund after receipt by the Transfer
Agent or its agent of notification of the suspension of the determination of
the net
asset value of the Fund.
7. Dividends
(a) Notice to Agent and Custodian. Upon the declaration of each
dividend and each capital gains distribution by the Board of Directors of the
Fund with respect to Shares of the Fund, the Fund shall furnish or cause to
be
furnished to the Transfer Agent or its agent a copy of a resolution of the
Fund's Board
of Directors certified by the Secretary of the Fund setting forth the date of
the
declaration of such dividend or distribution, the ex-dividend date, the date
of payment thereof, the record date as of which shareholders entitled to
payment
shall be determined, the amount payable per Share to the shareholders of
record as of that date, the total amount payable to the Transfer Agent or its
agent on
the payment date and whether such dividend or distribution is to be paid in
Shares
of such class at net asset value.
On or before the payment date specified in such resolution of the
Board of Directors, the Custodian of the Fund will pay to the Transfer Agent
sufficient cash to make payment to the shareholders of record as of such
payment date.
(b) Insufficient Funds for Payments. If the Transfer Agent or
its agent does not receive sufficient cash from the Custodian to make total
dividend and/or distribution payments to all shareholders of the Fund as of
the record date, the Transfer
C-4
Agent or its agent will, upon notifying the Fund, withhold payment to all
Shareholders of record as of the record date until sufficient cash is
provided
to the Transfer Agent or its agent.
C-5
Exhibit
1
to
Schedule C
Summary of Services
The services to be performed by the Transfer Agent or its agent shall be
as follows:
A. DAILY RECORDS
Maintain daily the following information with respect to each
Shareholder account as received:
o Name and Address (Zip Code)
o Class of Shares
o Taxpayer Identification Number
o Balance of Shares held by Agent
o Beneficial owner code: i.e., male, female, joint tenant,
etc.
o Dividend code (reinvestment)
o Number of Shares held in certificate form
B. OTHER DAILY ACTIVITY
o Answer written inquiries relating to Shareholder accounts
(matters relating to portfolio management, distribution of
Shares and other management policy questions will be
referred to the Fund).
o Process additional payments into established Shareholder
accounts in accordance with Written Instruction from the
Agent.
o Upon receipt of proper instructions and all required
documentation, process requests for repurchase of Shares.
o Identify redemption requests made with respect to accounts
in which Shares have been purchased within an
agreed-upon period of time for determining whether good
funds have been collected with respect to such purchase
and process as agreed by the Agent in accordance with
written instructions set forth by the Fund.
o Examine and process all transfers of Shares, ensuring that
all transfer requirements and legal documents have been
supplied.
C-6
o Issue and mail replacement checks.
o Open new accounts and maintain records of exchanges
between accounts
C. DIVIDEND ACTIVITY
o Calculate and process Share dividends and distributions as
instructed by the Fund.
o Compute, prepare and mail all necessary reports to
Shareholders or various authorities as requested by the
Fund. Report to the Fund reinvestment plan share
purchases and determination of the reinvestment price.
D. MEETINGS OF SHAREHOLDERS
o Cause to be mailed proxy and related material for all
meetings of Shareholders. Tabulate returned proxies
(proxies must be adaptable to mechanical equipment of the
Agent or its agents) and supply daily reports when
sufficient proxies have been received.
o Prepare and submit to the Fund an Affidavit of Mailing.
o At the time of the meeting, furnish a certified list of
Shareholders, hard copy, microfilm or microfiche and, if
requested by the Fund, Inspection of Election.
E. PERIODIC ACTIVITIES
o Cause to be mailed reports, Prospectuses, and any other enclosures
requested by the Fund (material must be adaptable to mechanical
equipment of Agent or its agents).
o Receive all notices issued by the Fund with respect to the
Preferred Shares in accordance with and pursuant to the Articles of
Incorporation and the Indenture and perform such other specific
duties as are set forth in the Articles of Incorporation including a
giving of notice of a special meeting and notice of redemption in
the circumstances and otherwise in accordance with all relevant
provisions of the Articles of Incorporation.
AMENDED ADMINISTRATION AGREEMENT
OF
SMITH BARNEY DISCIPLINED SMALL CAP FUND, INC
This Amended ADMINISTRATION AGREEMENT, made as of the 23rd day of June,
1997 between SMITH BARNEY DISCIPLINED SMALL CAP FUND, INC, a Maryland
corporation (the "Fund"), and Smith Barney Mutual Funds Management Inc., a
Delaware corporation (the "Administrator").
WITNESSETH:
WHEREAS, the Fund is a diversified open-end management investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Fund will retain an investment adviser for the purpose of
investing its assets in securities and desires to retain the Administrator for
certain administrative services and to administer the Fund's business affairs,
and the Administrator is willing to furnish such administrative services on
the terms and conditions hereinafter set forth;
NOW, THEREFORE, the parties hereto agree as follows:
1. The Fund hereby appoints the Administrator to provide the services
set forth below, subject to the overall supervision of the Board of Directors
of the Fund (the "Board") for the period and on the terms set forth in this
Agreement. The Administrator hereby accepts such appointment and agrees
during such period to render the services herein described and to assume the
obligations herein set forth, for the compensation herein provided.
2. Subject to the supervision of the Board and the officers of the
Fund, the Administrator shall administer the Fund's corporate affairs and, in
connection therewith, shall furnish the Fund with office facilities, and shall
be responsible for the financial and accounting records required to be
maintained by the Fund (including supervising those being maintained by the
Fund's Custodian); and with ordinary clerical, bookkeeping and recordkeeping
services at such office facilities; and shall provide personnel to assist the
officers of the Fund in the performance of the following services:
(a) oversee the determination and publication of the Fund's net asset
value in accordance with the Fund's policy as adopted from time to time by the
Board;
(b) oversee the maintenance by the Fund's Custodian, Registrar and
Transfer and Dividend Paying Agent of certain books and records of the Fund as
required under the 1940 Act and maintain (or oversee maintenance by such other
persons as approved by the Board) such other books and records (other than
those maintained by the Investment Adviser) required by law or for the proper
operation of the Fund;
(c) oversee the preparation and filing of the Fund's federal, state
and local income tax returns and any other required tax returns;
(d) review the appropriateness of and arrange for payment of the
Fund's expenses;
(e) prepare for review and approval by officers of the Fund,
financial information for the Fund's quarterly, semi-annual and annual
reports, proxy statements and other communications with shareholders required
or otherwise to be sent to Fund shareholders, and arrange for the printing and
dissemination of such reports and communications to shareholders;
(f) prepare for review by an officer of the Fund, the Fund's periodic
financial reports required to be filed with the Securities and Exchange
Commission (the "SEC") on Form N-SAR and Form N-1A and such other reports,
forms or filings, as may be mutually agreed upon;
(g) prepare reports relating to the business and affairs of the Fund
(not otherwise appropriately prepared by the Fund's Investment Adviser,
Custodian, counsel or auditors);
(h) prepare such information and reports as may be required by any
stock exchange or exchanges on which the Fund's shares are listed;
(i) make such reports and recommendations to the Board concerning the
performance of the independent accountants as the Board may reasonably request
or deems appropriate;
(j) make such reports and recommendations to the Board concerning the
performance and fees of the Fund's Custodian, Registrar and Transfer and
Dividend Disbursing Agent as the Board may reasonably request or deems
appropriate;
(k) oversee and review calculations of fees paid to the
Administrator, the Investment Adviser and the Custodian;
(l) consult with the Fund's officers, independent accountants, legal
counsel, Custodian, accounting agent and Transfer and Dividend Disbursing
Agent in establishing the accounting policies of the Fund;
(m) review the implementation of any stock purchase or dividend
reinvestment programs authorized by the Board;
(n) facilitate bank or other borrowings by the Fund;
(o) prepare such information and reports as may be required by any
bank from which the Fund borrows funds; and
(p) provide such assistance to the Investment Adviser, the Custodian
and the Fund's counsel and auditors as generally may be required to properly
carry on the business and operations of the Fund.
All services are to be furnished through the medium of any directors,
officers or employees of the Administrator as the Administrator deems
appropriate in order to fulfill its obligations hereunder.
In connection with its administration of the corporate affairs of the
Fund, the Administrator will bear the following expenses: (a) salaries and
expenses of all personnel of the Administrator; and (b) all expenses
incurred by the Administrator or by the Fund in connection with administering
the ordinary course of the Fund's business, other than those assumed by the
Fund, in the Investment Advisory Agreement.
3. The Fund will pay the Administrator a monthly fee at an annual rate
of 0.10% of the Fund's average daily net assets during the month.
4. The Administrator assumes no responsibility under this Agreement
other than to render the services called for hereunder, and specifically
assumes no responsibilities for investment advice or the investment or
reinvestment of the Fund's assets.
5. The Administrator shall not be liable for any error of judgment or
for any loss suffered by the Fund in connection with the matters to which this
Agreement relates, except a loss resulting from willful misfeasance, bad faith
or gross negligence on its part in the performance of, or from reckless
disregard by it of its obligations and duties under, this Agreement.
6. This Agreement shall continue in effect unless terminated as herein
provided. This Agreement may be terminated by either party hereto (without
penalty) at any time upon at least 60 days' prior written notice by either
party to the other party hereto.
7. The services of the Administrator to the Fund hereunder are not
exclusive and nothing in this Agreement shall limit or restrict the right of
the Administrator to engage in any other business or to render services of any
kind to any other corporation, firm, individual or association. The
Administrator shall be deemed to be an independent contractor, unless
otherwise expressly provided or authorized by this Agreement.
8. Any notice or other communication required to be given pursuant to
this Agreement shall be deemed duly given if delivered or mailed by registered
mail, postage prepaid: (1) to the Administrator at 388 Greenwich Street, New
York, New York 10013, Attention: Chairman; or (2) to the Fund at 388
Greenwich Street, New York, New York 10013, Attention: Secretary.
9. This Agreement sets forth the agreement and understanding of the parties
hereto solely with respect to the matters covered hereby and the relationship
between the Fund and Smith Barney Mutual Funds Management Inc. as
Administrator. Nothing in this Agreement shall govern, restrict or limit in
any respect any other business dealings between the parties hereto unless
otherwise expressly provided herein.
10. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York without reference to choice of law
principles thereof and in accordance with the 1940 Act. In the case of any
conflict the 1940 Act shall control.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
SMITH BARNEY
DISCIPLINED SMALL CAP FUND, INC.
By
Name:
Title:
SMITH BARNEY MUTUAL FUNDS
MANAGEMENT INC.
By:
Name:
Title:
5
EXHIBIT 18
Rule 18f-3 (d) Multiple Class Plan
for Smith Barney Mutual Funds
Introduction
This plan (the "Plan") is adopted pursuant to Rule 18f-3 (d) of
the Investment Company Act of 1940, as amended (the "1940 Act").
The purpose of the Plan is to restate the existing arrangements
previously approved by the Boards of Directors and Trustees of
certain of the open-end investment companies set forth on
Schedule A (the "Funds" and each a "Fund") distributed by Smith
Barney Inc. ("Smith Barney") under the Funds' existing order of
exemption (Investment Company Act Release Nos. 20042 (January 28,
1994) (notice) and 20090 (February 23, 1994)). Shares of the
Funds are distributed pursuant to a system (the "Multiple Class
System") in which each class of shares (a "Class") of a Fund
represents a pro rata interest in the same portfolio of
investments of the Fund and differs only to the extent outlined
below.
I. Distribution Arrangements and Service Fees
One or more Classes of shares of the Funds are offered for
purchase by investors with the following sales load structure.
In addition, pursuant to Rule 12b-1 under the 1940 Act (the
"Rule"), the Funds have each adopted a plan (the "Services and
Distribution Plan") under which shares of the Classes are subject
to the services and distribution fees described below.
1. Class A Shares
Class A shares are offered with a front-end sales load and under
the Services and Distribution Plan are subject to a service fee
of up to 0.25% of average daily net assets. In addition, the
Funds are permitted to asses a contingent deferred sales charge
("CDSC") on certain redemptions of Class A shares sold pursuant
to a complete waiver of front-end sales loads applicable to large
purchases, if the shares are redeemed within one year of the date
of purchase. This waiver applies to sales of Class A shares
where the amount of purchase is equal to or exceeds $500,000
although this amount may be changed in the future.
2. Class B Shares
Class B shares are offered without a front-end sales load, but
are subject to a five-year declining CDSC and under the Services
and Distribution Plan are subject to a service fee at an annual
rate of up to 0.25% of average daily net assets and a
distribution fee at an annual rate of up to 0.75% of average
daily net assets.
3. Class C Shares
Class C shares are offered without a front-end load, but are
subject to a one-year CDSC and under the Services and
Distribution Plan are subject to a service fee at an annual rate
of up to 0.25% of average daily net assets and a distribution fee
at an annual rate of up to 0.75% of average daily net assets.
Unlike Class B shares, Class C shares do not have the conversion
feature as discussed below and accordingly, these shares are
subject to a distribution fee for an indefinite period of time.
The Funds reserve the right to impose these fees at such higher
rates as may be determined.
4. Class Y Shares
Class Y shares are offered without impositions of either a sales
charge or a service or distribution fee for investments where the
amount of purchase is equal to or exceeds $5 million.
5. Class Z Shares
Class Z shares are offered without imposition of either a sales
charge or a service or distribution fee for purchase (i) by
employee benefit and retirement plans of Smith Barney and its
affiliates, (ii) by certain unit investment trusts sponsored by
Smith Barney and its affiliates, and (iii) although not currently
authorized by the governing boards of the Funds, when and if
authorized, (x) by employees of Smith Barney and its affiliates
and (y) by directors, general partners or trustees of any
investment company for which Smith Barney serves as a distributor
and, for each of (x) and (y), their spouses and minor children.
6. Additional Classes of Shares
The Boards of Directors and Trustees of the Funds have the
authority to create additional classes, or change existing
Classes, from time to time, in accordance with Rule 18f-3 of the
1940 Act.
II. Expense Allocations
Under the Multiple Class System, all expenses incurred by a Fund
are allocated among the various Classes of shares based on the
net assets of the Fund attributable to each Class, except that
each Class's net assets value and expenses reflect the expenses
associated with that Class under the Fund's Services and
Distribution Plan, including any costs associated with obtaining
shareholder approval of the Services and Distribution Plan (or an
amendment thereto) and any expenses specific to that Class. Such
expenses are limited to the following:
(I) transfer agency fees as identified by the transfer
agent as being attributable to a specific Class;
(ii) printing and postage expenses related to preparing and
distributing materials such as shareholder reports,
prospectuses and proxies to current shareholders;
(iii) Blue Sky registration fees incurred by a Class of
shares;
(iv) Securities and Exchange Commission registration fees
incurred by a Class of shares;
(v) the expense of administrative personnel and services as
required to support the shareholders of a specific Class;
(vi) litigation or other legal expenses relating solely to
one Class of shares; and
(vii) fees of members of the governing boards of the funds
incurred as a result of issues relating to one Class of
shares.
Pursuant to the Multiple Class System, expenses of a Fund
allocated to a particular Class of shares of that Fund are borne
on a pro rata basis by each outstanding share of that Class.
III. Conversion Rights of Class B Shares
All Class B shares of each Fund will automatically convert to
Class A shares after a certain holding period, expected to be, in
most cases, approximately eight years but may be shorter. Upon
the expiration of the holding period, Class B shares (except
those purchases through the reinvestment of dividends and other
distributions paid in respect of Class B shares) will
automatically convert to Class A shares of the Fund at the
relative net asset value of each of the Classes, and will, as a
result, thereafter be subject to the lower fee under the Services
and Distribution Plan. For purposes of calculating the holding
period required for conversion, newly created Class B shares
issued after the date of implementation of the Multiple Class
System are deemed to have been issued on (i) the date on which
the issuance of the Class B shares occurred or (ii) for Class B
shares obtained through an exchange, or a series of exchanges,
the date on which the issuance of the original Class B shares
occurred.
Shares purchased through the reinvestment of dividends and other
distributions paid in respect of Class B shares are also Class B
shares. However, for purposes of conversion to Class A, all
Class B shares in a shareholder's Fund account that were
purchased through the reinvestment of dividends and other
distributions paid in respect of Class B shares (and that have
not converted to Class A shares as provided in the following
sentence) are considered to be held in a separate sub-account.
Each time any Class B shares in the shareholder's Fund account
(other than those in the sub-account referred to in the preceding
sentence) convert to Class A, a pro rata portion of the Class B
shares then in the sub-account also converts to Class A. The
portion is determined by the ratio that the shareholder's Class B
shares converting to Class A bears to the shareholder's total
Class B shares not acquired through dividends and distributions.
The conversion of Class B shares to Class A shares is subject to
the continuing availability of a ruling of the Internal Revenue
Service that payment of different dividends on Class A and Class
B shares does not result in the Fund's dividends or distributions
constituting "preferential dividends" under the Internal Revenue
Code of 1986, as amended (the "Code"), and the continuing
availability of an opinion of counsel to the effect that the
conversion of shares does not constitute a taxable event under
the Code. The conversion of Class B shares to Class A shares may
be suspended if this opinion is no longer available, In the
event that conversion of Class B shares of not occur, Class B
shares would continue to be subject to the distribution fee and
any incrementally higher transfer agency costs attending the
Class B shares for an indefinite period.
IV. Exchange Privileges
Shareholders of a Fund may exchange their shares at net asset
value for shares of the same Class in certain other of the Smith
Barney Mutual Funds as set forth in the prospectus for such Fund.
Class A shareholders who wish to exchange all or part of their
shares for Class A shares of a Fund sold subject to a sales
charge equal to or lower that that assessed with respect to the
shares of the Fund being exchanged may do so without paying a
sales charge. Class A shareholders of a Fund who wish to
exchange all or part of their shares for Class A shares of a Fund
sold subject to a sales charge higher than that assessed with
respect to the shares of the Fund being exchanged are charged the
appropriate "sales charge differential." Funds only permit
exchanges into shares of money market funds having a plan under
the Rule if, as permitted by paragraph (b) (5) of Rule 11a-3
under the 1940 Act, either (i) the time period during which the
shares of the money market funds are held is included in the
calculations of the CDSC or (ii) the time period is not included
but the amount of the CDSC is reduced by the amount of any
payments made under a plan adopted pursuant to the Rule by the
money market funds with respects to those shares. Currently, the
Funds include the time period during which shares of the money
market fund are held in the CDSC period. The exchange privileges
applicable to all Classes of shares must comply with Rule 11a-3
under the 1940 Act.
Smith Barney Sponsored Investment Companies
Operating under Rule 18f-3 - Schedule A
(as of June10, 1997)
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
Concert Social AwarEness Fund
Smith Barney Growth and Income Fund
Smith Barney Fundamental Value Fund Inc.
Smith Barney Funds, Inc. - Equity Income Portfolio
Income Return Account Portfolio
Short-Term U.S. Treasury Securities Portfolio
U.S. Government Securities Portfolio
Smith Barney Premium Total Return Fund
Smith Barney Convertible Fund
Smith Barney Diversified Strategic Income Fund
Smith Barney High Income Fund
Smith Barney Tax-Exempt Income Fund
Smith Barney Exchange Reserve Fund
Smith Barney Utilities Fund
Smith Barney Intermediate Maturity
California Municipals Fund
Smith Barney Intermediate Maturity
New York Municipals Fund
Smith Barney Special Equities Fund
Smith Barney Government Securities Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Growth Opportunity Fund
Smith Barney Managed Growth Fund
Smith Barney Institutional Cash Management Fund Inc.
Smith Barney Managed Governments Fund Inc.
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
Smith Barney Money Funds, Inc. -
Cash Portfolio
Government Portfolio
Retirement Portfolio
Smith Barney Municipal Money Market Fund, Inc.
Smith Barney Muni Funds -
California Municipals Fund Inc.
Florida Portfolio
Georgia Portfolio
Limited Term Portfolio
National Portfolio
New York Portfolio
Pennsylvania Portfolio
California Money Market Portfolio
New York Money Market Portfolio
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney Oregon Municipals Fund
Smith Barney Natural Resources Fund Inc..
Smith Barney Telecommunications Income Fund
Smith Barney World Funds, Inc. -
Emerging Markets Portfolio
International Equity Portfolio
International Balanced Portfolio
European Portfolio
Pacific Portfolio
Global Government Bond Portfolio
Smith Barney Concert Allocation Series Inc.
Smith Barney Concert Allocation Series Inc. - Balanced Portfolio
Smith Barney Concert Allocation Series Inc. - Conservative Portfolio
Smith Barney Concert Allocation Series Inc. - Growth Portfolio
Smith Barney Concert Allocation Series Inc. - High Growth Portfolio
Smith Barney Concert Allocation Series Inc. - Income Portfolio.
g:\fundsl\imf\ 18f3.doc
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
June 13, 1997
Smith Barney Disciplined Small Cap Fund, Inc.,
388 Greenwich Street,
New York, New York 10013.
Dear Sirs:
In connection with the Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-1A (File No. 333-25499) of Smith Barney
Disciplined Small Cap Fund, Inc., a Maryland corporation (the "Company"),
which you expect to file under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to an indefinite number of shares of Common
Stock, par value $0.001 per share (the "Shares"), initially divided into four
classes (each a "Class"), we, as your counsel, have examined such corporate
records, certificates and other documents, and such questions of law, as we
have considered necessary or appropriate for the purposes of this opinion.
Upon the basis of such examination, we advise you that, in our
opinion, the Shares have been duly authorized to the extent of an aggregate of
100,000,000 Shares of each Class and, assuming the prior filing by the Company
and acceptance for filing by the Maryland Department of Assessments and
Taxation of the Company's Articles of Amendment and Restatement in the form
filed as Exhibit 1 to the Registration Statement referred to above (the
"Charter"), when the Registration Statement has become effective under the
Securities Act and the Shares have been issued and sold (a) for at least the
par value thereof, (b) so as not to exceed the then authorized number of
Shares of each Class, (c) as contemplated by the Registration Statement and
(d) in accordance with the Charter, and as authorized by the Board of
Directors of the Company, the Shares will be validly issued, fully paid and
nonassessable.
The foregoing opinion is limited to the Federal laws of the United
States and the General Corporation Law of the State of Maryland, and we are
expressing no opinion as to the effect of the laws of any other jurisdiction.
Also, we have relied as to certain matters on information obtained
from public officials, officers of the Company and other sources believed by
us to be responsible.
We hereby consent to the filing of this opinion as an exhibit to
the Pre-Effective Amendment referred to above. In giving such consent, we do
not thereby admit that we are in the category of persons whose consent is
required under Section 7 of the Securities Act.
Very truly yours,
SULLIVAN & CROMWELL
Smith Barney Disciplined Small Cap Fund, Inc. -2-
u:\Legal\funds\#imf\misc\s&cop.doc
Independent Auditors' Consent
To the Shareholders and Board of Directors of
the Smith Barney Disciplined Small Cap Fund, Inc.:
We consent to the use of our report dated February 18, 1997, with respect to
the Smith Barney Disciplined Small Cap Fund, Inc. (formerly, The
Inefficient-Market Fund, Inc.), incorporated herein by reference and to the
references to our Firm under the heading "Financial Highlights" in the
Prospectus and Counsel and Auditors'in the Statement of Additional
Information.
KPMG Peat Marwick LLP
New York, New York
June 16, 1997
SPECIMEN
No. ______________ Shares
____________________
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
SMITH BARNEY DISCIPLINED SMALL CAP FUND, INC.
Class Z Common Stock, Par Value $.001
THIS CERTIFIES that ________________ is the owner of
________________________fully paid and non-assessable Shares of the above
Corporation transferable only on the books of the Corporation by the holder
hereof in person or by duly authorized Attorney upon surrender of this
Certificate properly endorsed.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and to be sealed with the Seal of the
Corporation.
Dated_____________________
_________________________
President
__________________________
Secretary
The Corporation is authorized to issue two or more classes of stock. The
Corporation will furnish to any stockholder on request and without charge a
full statement of the designation and any preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption of the stock of each
class which the Corporation is authorized to issue and, if the Corporation is
authorized to issue any preferred or special class in series, of the
differences in the relative rights and preferences between the shares of each
series to the extent they have been set and the authority of the Board of
Directors to set the relative rights and preferences of subsequent series.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations. Additional abbreviations may
also be used though not in the list.
TEN COM
as tenants in common
TEN ENT
as tenants by the entireties
JT TEN
as joint tenants with right of
survivorship and not as tenants in
common
UNIF GIFT MIN ACT
_______Custodian______ (Minor)
under Uniform Gifts to Minors Act
(State)
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
____________________________
For value received, the undersigned hereby sells, assigns and transfers unto
______________
________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)
_____________________________________________________________________
Shares represented by the within Certificate, and hereby irrevocably
constitutes and appoints
________________________________________________________________________
_____________________________________________ Attorney to transfer the said
shares on
the books of the within-named Corporation with full power of substitution in
the premises.
Dated: _____________________ ________________________
In the presence of
NOTICE: The signature to the assignment must correspond with the name as
written on the face of the certificate in every particular without alteration
or enlargement, or any change whatsoever.
SPECIMEN
No. ______________ Shares
____________________
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
SMITH BARNEY DISCIPLINED SMALL CAP FUND
Class Z Common Stock, Par Value $.001
THIS CERTIFIES that __________________is the owner of
____________________fully paid and non-assessable Shares of the above
Corporation transferable only on the books of the Corporation by the holder
hereof in person or by duly authorized Attorney upon surrender of this
Certificate properly endorsed.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and to be sealed with the Seal of the
Corporation.
Dated_____________________
_________________________
President
__________________________
Secretary
The Corporation is authorized to issue two or more classes of stock. The
Corporation will furnish to any stockholder on request and without charge a
full statement of the designation and any preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption of the stock of each
class which the Corporation is authorized to issue and, if the Corporation is
authorized to issue any preferred or special class in series, of the
differences in the relative rights and preferences between the shares of each
series to the extent they have been set and the authority of the Board of
Directors to set the relative rights and preferences of subsequent series.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations. Additional abbreviations may
also be used though not in the list.
TEN COM
as tenants in common
TEN ENT
as tenants by the entireties
JT TEN
as joint tenants with right of
survivorship and not as tenants in
common
UNIF GIFT MIN ACT
(Cust.) Custodian (Minor) under
Uniform Gifts to Minors Act (State)
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
____________________________
For value received, the undersigned hereby sells, assigns and transfers unto
______________
________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)
_____________________________________________________________________
Shares represented by the within Certificate, and hereby irrevocably
constitutes and appoints
________________________________________________________________________
_____________________________________________ Attorney to transfer the said
shares on
the books of the within-named Corporation with full power of substitution in
the premises.
Dated: _____________________ ________________________
In the presence of
NOTICE: The signature to the assignment must correspond with the name as
written on the face of the certificate in every particular without alteration
or enlargement, or any change whatsoever
SPECIMEN
No. ______________ Shares
____________________
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
SMITH BARNEY DISCIPLINED SMALL CAP FUND, INC.
Class Z Common Stock, Par Value $.001
THIS CERTIFIES that ___________________ is the owner of
________________________ fully paid and non-assessable Shares of the above
Corporation transferable only on the books of the Corporation by the holder
hereof in person or by duly authorized Attorney upon surrender of this
Certificate properly endorsed.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and to be sealed with the Seal of the
Corporation.
Dated_____________________
_________________________
President
__________________________
Secretary
The Corporation is authorized to issue two or more classes of stock. The
Corporation will furnish to any stockholder on request and without charge a
full statement of the designation and any preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption of the stock of each
class which the Corporation is authorized to issue and, if the Corporation is
authorized to issue any preferred or special class in series, of the
differences in the relative rights and preferences between the shares of each
series to the extent they have been set and the authority of the Board of
Directors to set the relative rights and preferences of subsequent series.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations. Additional abbreviations may
also be used though not in the list.
TEN COM
as tenants in common
TEN ENT
as tenants by the entireties
JT TEN
as joint tenants with right of
survivorship and not as tenants in
common
UNIF GIFT MIN ACT
(Cust.) Custodian (Minor) under
Uniform Gifts to Minors Act (State)
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
____________________________
For value received, the undersigned hereby sells, assigns and transfers unto
______________
________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)
_____________________________________________________________________
Shares represented by the within Certificate, and hereby irrevocably
constitutes and appoints
________________________________________________________________________
_____________________________________________ Attorney to transfer the said
shares on
the books of the within-named Corporation with full power of substitution in
the premises.
Dated: _____________________ ________________________
In the presence of
NOTICE: The signature to the assignment must correspond with the name as
written on the face of the certificate in every particular without alteration
or enlargement, or any change whatsoever
SPECIMEN
No. ______________ Shares
____________________
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
SMITH BARNEY DISCIPLINED SMALL CAP FUND, INC.
Class Z Common Stock, Par Value $.001
THIS CERTIFIES that _______________________ is the owner of
____________________ fully paid and non-assessable Shares of the above
Corporation transferable only on the books of the Corporation by the holder
hereof in person or by duly authorized Attorney upon surrender of this
Certificate properly endorsed.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and to be sealed with the Seal of the
Corporation.
Dated_____________________
_________________________
President
__________________________
Secretary
The Corporation is authorized to issue two or more classes of stock. The
Corporation will furnish to any stockholder on request and without charge a
full statement of the designation and any preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption of the stock of each
class which the Corporation is authorized to issue and, if the Corporation is
authorized to issue any preferred or special class in series, of the
differences in the relative rights and preferences between the shares of each
series to the extent they have been set and the authority of the Board of
Directors to set the relative rights and preferences of subsequent series.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations. Additional abbreviations may
also be used though not in the list.
TEN COM
as tenants in common
TEN ENT
as tenants by the entireties
JT TEN
as joint tenants with right of
survivorship and not as tenants in
common
UNIF GIFT MIN ACT
(Cust.) Custodian (Minor) under
Uniform Gifts to Minors Act (State)
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
____________________________
For value received, the undersigned hereby sells, assigns and transfers unto
______________
________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)
_____________________________________________________________________
Shares represented by the within Certificate, and hereby irrevocably
constitutes and appoints
________________________________________________________________________
_____________________________________________ Attorney to transfer the said
shares on
the books of the within-named Corporation with full power of substitution in
the premises.
Dated: _____________________ ________________________
In the presence of
NOTICE: The signature to the assignment must correspond with the name as
written on the face of the certificate in every particular without alteration
or enlargement, or any change whatsoever
SPECIMEN
No. ______________ Shares
____________________
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
SMITH BARNEY DISCIPLINED SMALL CAP FUND, INC.
Class Z Common Stock, Par Value $.001
THIS CERTIFIES that ____________________is the owner of
_______________________ fully paid and non-assessable Shares of the above
Corporation transferable only on the books of the Corporation by the holder
hereof in person or by duly authorized Attorney upon surrender of this
Certificate properly endorsed.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and to be sealed with the Seal of the
Corporation.
Dated_____________________
_________________________
President
__________________________
Secretary
The Corporation is authorized to issue two or more classes of stock. The
Corporation will furnish to any stockholder on request and without charge a
full statement of the designation and any preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption of the stock of each
class which the Corporation is authorized to issue and, if the Corporation is
authorized to issue any preferred or special class in series, of the
differences in the relative rights and preferences between the shares of each
series to the extent they have been set and the authority of the Board of
Directors to set the relative rights and preferences of subsequent series.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations. Additional abbreviations may
also be used though not in the list.
TEN COM
as tenants in common
TEN ENT
as tenants by the entireties
JT TEN
as joint tenants with right of
survivorship and not as tenants in
common
UNIF GIFT MIN ACT
(Cust.) Custodian (Minor) under
Uniform Gifts to Minors Act (State)
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
____________________________
For value received, the undersigned hereby sells, assigns and transfers unto
______________
________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)
_____________________________________________________________________
Shares represented by the within Certificate, and hereby irrevocably
constitutes and appoints
_______________________________________________________ -_______________
_____________________________________________ Attorney to transfer the said
shares on
the books of the within-named Corporation with full power of substitution in
the premises.
Dated: _____________________ ________________________
In the presence of
NOTICE: The signature to the assignment must correspond with the name as
written on the face of the certificate in every particular without alteration
or enlargement, or any change whatsoever.
PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1
OF
SMITH BARNEY DISCIPLINED SMALL CAP FUND, INC.
This Plan of Distribution (the "Plan") is adopted in accordance with Rule
12b-1 under the Investment Company Act of 1940 (the "Act") by SMITH BARNEY
DISCIPLINED SMALL CAP FUND, INC. (the "Fund"), subject to the following terms
and conditions:
1. With respect to Class A, Class B and Class C shares, the Fund shall
pay to Smith Barney a service fee at the annual rate of 0.25% of the average
net assets of each such class. With respect to Class B and Class C shares,
the Fund shall pay to Smith Barney an asset-based sales charge at the annual
rate of 0.75% of the average net assets of each such class. Amounts payable by
each class shall be calculated and accrued daily and paid monthly or at such
other intervals as the Board of Directors shall determine.
2. The amount payable by a particular class as set forth in paragraph 1
of the Plan may be spent by Smith Barney on the following types of activities
or expenses: (1) compensation to Financial Consultants whose clients are
shareholders of the class; (2) the pro rata share of other employment costs of
such Financial Consultants based on their gross production credits (e.g. FICA,
employee benefits, etc.); (3) employment expenses of home office personnel
primarily responsible for distribution of the class shares and for providing
service to the class' shareholders; (4) the pro rata share of branch office
fixed expenses (including branch overhead allocations); (5) media advertising
or promotion; (6) printing costs of marketing materials, including
prospectuses, sales literature, communications to shareholders and
advertisements (including the creative costs associated therewith); (7)
payments to other Broker/Dealers and (8) interest and/or carrying charges. In
addition, for purposes of paragraph 1 hereof, asset-based sales charges and
shareholder servicing fees and the activities of Smith Barney carried out in
respect thereof shall be interpreted in a manner consistent with Section 26(d)
of the Rules of Fair Practice of the National Association of Securities
Dealers.
3. The Plan shall become effective upon its execution by an authorized
officer of the Fund following its approval by votes of a majority of both (a)
the Board of Directors of the Fund and (b) those directors of the Fund who are
not "interested persons" of the Fund (as defined in the Act) and have no
direct or indirect financial interest in the operation of the Plan or any
agreements related to it (the "Independent Directors"), cast in person at a
meeting (or meetings) called for the purpose of voting on the Plan or any
related agreements (the "Effective Date").
4. The Plan and any related agreements shall remain in effect for one
year from its Effective Date and may be continued thereafter if it is approved
each year by the votes set forth in the preceding paragraph.
5. Smith Barney shall provide to the Board of Directors of the Fund and
the Board of Directors shall review, at least quarterly, a written report of
the amounts so expended for each class and the purposes for which such
expenditures were made.
6. The Plan may be terminated with respect to a class at any time by vote
of a majority of the Independent Directors or by a vote of a majority of the
outstanding voting securities of the class.
7. The Plan may not be amended to increase materially the amount payable
by a class in accordance with paragraph 1 hereof unless such amendment is
approved by a "vote of a majority of the outstanding voting securities" of the
class, which is defined as the vote of the lesser of (1) 67% or more of the
shares present at the meeting, if the holders of more than 50% of the
outstanding shares of the class are present or represented by proxy; (2) more
than 50% of the outstanding shares of the class. No material amendment to the
Plan shall be made unless approved in the manner provided for initial approval
in paragraph 3 hereof.
8. While the Plan is in effect, the selection and nomination of directors
who are not interested persons (as defined in the Act) of the Fund shall be
committed to the discretion of the directors who are not interested persons.
9. The Fund shall preserve copies of the Plan and any related agreements
and all reports made pursuant to paragraph 5 hereof, for a period of not less
than six years from the date of the Plan, or such agreement or such report, as
the case may be, the first two years in an easily accessible place.
IN WITNESS THEREOF, the Fund has executed this Plan of Distribution on the
day and year set forth below in New York, New York.
DATED AS OF: June 23, 1997
SMITH BARNEY
DISCIPLINED SMALL CAP FUND, INC.
By:
Heath B. McLendon, Chairman
2
g:\funds\#imf\agreemts\12b-1sbd.doc
