<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act
of 1934 (Amendment No. )
Filed by the Registrant [ X ] Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Sec. 240.14a-11(c) or Sec. 240.14a-12
(Name of Registrant as Specified In Its Charter)
THE INEFFICIENT-MARKET FUND INC.
(Name of Person(s) Filing Proxy Statement)
Robert M. Nelson
Payment of Filing Fee (Check the appropriate box):
[ X ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE> 2
The Inefficient -Market Fund, Inc.
Stockholder Letter Accompanying Proxy Statement Regarding Proposed Fund Changes
Dear Stockholder:
This letter is to inform you of some important proposed changes to The
Inefficient-Market Fund, Inc. (the "Fund"). We ask that you read the attached
proxy statement carefully and send us your vote regarding these proposed
changes before the annual stockholders' meeting scheduled to be held on Friday,
April 18, 1997.
If these recommendations are approved by the stockholders, the Fund, which is
currently a closed-end fund, would upon effectiveness of the Fund's SEC
Registration Statement become an open-end fund and join the Smith Barney family
of funds. (A closed-end mutual fund issues a fixed number of shares, which are
usually traded on a stock exchange. An open-end mutual fund continuously
offers to sell and redeem shares at the current net asset value.) In addition,
the Fund's name would be changed to "Smith Barney Disciplined Small Cap Fund,
Inc." after the April 18, 1997 annual meeting.
Please note, however, that the Fund's investment objective of long-term
capital appreciation would remain unchanged and the Fund will continue to be
managed by Travelers Investment Management Company.
In addition, subject again to stockholder approval, the Fund's current 75 basis
point management fee and 25 basis point administrative fee structure would be
replaced by a 65 basis point management fee, 10 basis point administrative fee
and 25 basis point 12b-1 fee. (A 12b-1 fee is used to pay certain client
service and marketing expenses.) If approved, the new fee structure will
result in no net increase in Fund expenses.
Furthermore, if the Fund's conversion from a closed-end fund to an open-end
fund is approved, existing stockholders will receive Class A shares. The Fund's
Board of Directors has decided to implement a temporary 2% redemption fee
from the date that the SEC declares the Fund's conversion to be effective
through the end of 1997. In addition, after January 1, 1998, shares of the Fund
will be fully exchangeable into any other Smith Barney Mutual Fund's Class A
shares.
In closing, the Fund's Board of Directors believes that these and the other
proposed changes discussed in greater detail in the attached proxy statement
are in the best interests of current stockholders. We thank you for your
investment in the Fund and look forward to helping you achieve your financial
goals.
Sincerely,
Heath B. McLendon
Chairman and Chief Executive Officer
March 28, 1997
<PAGE> 3
THE INEFFICIENT-MARKET FUND, INC.
388 GREENWICH STREET
NEW YORK, NEW YORK 10013
- - - - - - - - - - - - - - - - - - - - - -
NOTICE OF 1997 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 18, 1997
- - - - - - - - - - - - - - - - - - - - - -
To the Stockholders of The Inefficient-Market Fund, Inc.:
The Annual Meeting of Stockholders (the "Meeting") of The
Inefficient-Market Fund, Inc. (the "Fund") will be held at the Fund's offices,
on April 18, 1997, at 2:00 P.M. for the following purposes:
(1) To elect Directors as follows:
(a) If Proposal No. 3 is approved, to elect nine Directors;
(b) If Proposal No. 3 is not approved, to elect three Directors;
(2) To ratify the selection of KPMG Peat Marwick LLP to serve as
independent auditors for the Fund;
(3) To approve a proposal to convert the Fund from a closed-end
investment company to an open-end investment company, which proposal includes
the following:
(a) Changing the Fund's subclassification from a closed-end investment
company to an open-end investment company;
(b) Approving changes to the Fund's Articles of Incorporation to:
1. Reflect the Fund's status as an open-end investment company;
2. Change the Fund's name to "Smith Barney Disciplined Small Cap
Fund, Inc."; and
3. Enable the Fund to establish multiple classes of shares to
facilitate the offer and sale of Fund shares in a manner
consistent with other Smith Barney mutual funds;
(4) If Proposal No.3 is approved, to approve a change to the Fund's
investment restrictions to add one restriction relating to the Fund's
diversification status;
(5) If Proposal No.3 is approved, to approve an amended Investment
Advisory Agreement;
(6) If Proposal No.3 is approved, to approve the adoption of a
distribution plan pursuant to Rule 12b-1; and
(7) To transact such other business as may properly come before the
Meeting or adjournment thereof.
The stock transfer books will not be closed, but in lieu thereof the
Board of Directors has fixed the close of business on February 10, 1997 as the
record date for the determination of stockholders entitled to notice of and to
vote at the Meeting or any adjournments thereof.
By Order of the Board of Directors
Christina T. Sydor, Secretary
New York, New York
Dated: March 28, 1997
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING IN PERSON OR BY
PROXY. IF YOU DO NOT EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN
AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE PROVIDED FOR YOUR
CONVENIENCE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE> 4
THE INEFFICIENT-MARKET FUND, INC.
388 GREENWICH STREET
NEW YORK, NEW YORK 10013
- - - - - - - - - - - - - - - - - - - - - -
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 18, 1997
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors (the "Board") of The Inefficient-Market Fund, Inc.
(the "Fund") of proxies to be voted at the Annual Meeting of Stockholders (the
"Meeting") of the Fund to be held at 388 Greenwich Street, 26th Floor, New York,
New York 10013 on April 18, 1997 at 2:00 P.M. (New York time), and at any
adjournments thereof, for the purposes set forth in the accompanying Notice of
Annual Meeting of Stockholders (the "Notice").
The cost of soliciting proxies will be borne by the Fund. Proxy
solicitations will be made primarily by mail. In addition, certain officers,
directors and employees of the Fund, Smith Barney Inc. ("Smith Barney"), the
Fund's distributor; and/or First Data Investor Services Group, Inc. ("First
Data"), the Fund's transfer agent, may solicit proxies in person or by
telephone, telegraph or mail. Smith Barney is located at 388 Greenwich Street,
New York, New York 10013; and First Data is located at 53 State Street, Boston
Massachusetts 02109.
The Annual Report of the Fund, including audited financial statements
for the fiscal year ended December 31, 1996 has previously been furnished to all
stockholders of the Fund. This Proxy Statement and form of proxy are first being
mailed to stockholders on or about March 28, 1997. The Fund will provide
additional copies of the annual report to any stockholder upon request by
calling the Fund at 1-800-224-7523.
All properly executed proxies received prior to the Meeting will be
voted at the Meeting in accordance with the instructions marked thereon or
otherwise as provided therein. Unless instructions to the contrary are marked,
shares represented by the proxies will be voted "FOR" the election of the Board
of Directors, "FOR" the ratification of the selection of independent auditors to
serve for the Fund's current fiscal year, "FOR" the proposal to convert the Fund
from a closed-end investment company to an open-end investment company, "FOR"
the addition of a fundamental investment restriction, "FOR" approval of an
amended Investment Advisory Agreement and "FOR" the adoption of the Rule 12b-1
Plan of Distribution. By voting "FOR" the proposal to convert the Fund to an
open-end investment company, a stockholder will also be deemed to be voting
"FOR" approval of the Fund's Amended and Restated Articles of Incorporation
which enables the Fund to establish multiple classes of shares (the "Multi-Class
-2-
<PAGE> 5
Distribution System") and changes the Fund's name to "Smith Barney Disciplined
Small Cap Fund, Inc.". Any proxy may be revoked at any time prior to the
exercise thereof by giving written notice to the Secretary of the Fund at the
Fund's address indicated above or by voting in person at the Meeting.
If a proxy that is properly executed and returned accompanied by
instructions to withhold authority to vote (an abstention) or represents a
broker "non-vote" (that is, a proxy from a broker or nominee indicating
that such person has not received instructions from the beneficial owner
or other person entitled to vote shares on a particular matter with respect
to which the broker or nominee does not have discretionary power), the
shares represented thereby, with respect to matters to be determined by a
majority of the votes cast on such matters, will be considered present for
purposes of determining the existence of a quorum for the transaction of
business but, not being cast, will have no effect on the outcome of such
matters. With respect to matters requiring the affirmative vote of a
majority of the total shares outstanding, an abstention or broker non-vote
will be considered present for purposes of determining the existence of a
quorum but will have the effect of a vote against such matters.
THE FUND WILL NOT CONVERT TO AN OPEN-END INVESTMENT COMPANY UNLESS THE
REQUIRED FAVORABLE VOTE OF STOCKHOLDERS IS OBTAINED ON PROPOSAL NOS. 3, 4, 5 AND
6: THE PROPOSAL TO CONVERT TO AN OPEN-END INVESTMENT COMPANY; THE PROPOSAL TO
ADOPT AN ADDITIONAL FUNDAMENTAL INVESTMENT RESTRICTION; THE PROPOSAL TO APPROVE
THE AMENDED INVESTMENT ADVISORY AGREEMENT; AND THE PROPOSAL TO ADOPT A PLAN OF
DISTRIBUTION PURSUANT TO RULE 12B-1. IF ANY OF THESE FOUR PROPOSALS IS REJECTED,
THE FUND WILL CONTINUE AS A CLOSED-END INVESTMENT COMPANY.
The Board of Directors has fixed the close of business on February 10,
1997 as the record date (the "Record Date") for the determination of
stockholders of the Fund entitled to notice of and to vote at the Meeting and at
any adjournment thereof. Stockholders on the Fund Record Date will be entitled
to one vote on each share held, with no cumulative voting rights. As of the
close of business on February 10, 1997, the Fund had 4,300,950 outstanding
shares of common stock, par value $.001 per share, the only authorized class of
stock of which 4,200,729.822 (or 97.6%) were held in accounts but not
beneficially owned by Cede & Co., P.O. Box 20, Bowling Green Station, New York,
New York 10004. At the close of business on February 10, 1997, the following
persons owned more than 5% of the outstanding shares of the Fund: Stevenson
Capital Management (2420 Sand Hill Road, Suite 101, Menlo Park, CA 94025),
Bowling Portfolio Management, Inc. (2651 Observatory Avenue, Cincinnati, OH
45208) and David E. Ware & Associates, Incorporated (P.O. Box 4330, 862 Oak Hill
Road, Barrington, IL 60011). As of the record date, the officers and Board
members beneficially owned less than 1% of the outstanding shares of the Fund.
As of the Record Date, to the knowledge of the Board of Directors, no
shares of Smith Barney or its ultimate parent corporation, Travelers Group Inc.
("Travelers"), were held by Board members who are not interested persons of the
Fund (as that term is used in the Investment Company Act of 1940 (the "1940
Act")).
In the event that sufficient votes in favor of the proposals set forth
in the Notice and this Proxy Statement are not received by the time scheduled
for the Meeting, and whether or not a quorum exists, the persons named as
proxies may move one or more adjournments of the Meeting to permit further
solicitation of proxies with respect to any such proposals. In determining
whether to adjourn the Meeting, the following factors may be considered: the
nature of the proposals that are the subject of the Meeting, the percentage of
votes actually cast; the percentage of negative votes actually cast; the nature
of any further solicitation and the information to be provided to stockholders
with respect to the reasons for the solicitation. Any such adjournment will
require the affirmative vote of a majority of the shares present at the Meeting
or represented by proxy. The persons named as proxies will vote in favor of
such adjournment those shares which they are entitled to vote and which have
voted in favor of such proposals. In the event that a meeting is adjourned, the
same procedure will apply at a later meeting date.
-3-
<PAGE> 6
PROPOSAL NO. 1 ELECTION OF DIRECTORS
As prescribed in the Fund's current Bylaws, the Directors are
divided into three classes and their terms of office are staggered so that
one class would be elected each year for a three-year term. The Board of
Directors is currently comprised of nine members with their terms of
office fixed as follows: Class I: Joseph H. Fleiss, Paul Hardin and
Jessica Bibliowicz - whose terms expire in 1997; Class II: Francis P.
Martin, Roderick C. Rasmussen and Bruce D. Sargent - whose terms expire in
1998; and Class III: Donald R. Foley, John P. Toolan and Heath B. McLendon
- - whose terms expire in 1999.
The classified Board was intended, in part, to make it more difficult
and time-consuming to change majority control of the Board of Directors
without its consent and thus to reduce the Fund's vulnerability to an
unsolicited takeover proposal or similar action that does not contemplate
an acquisition of all outstanding voting stock of the Fund. However, the
conversion of the Fund to an open-end investment company would reduce, if
not eliminate, the need for this precautionary measure. Therefore, the
Board of Directors has considered and approved the declassification of the
Board in the event that the proposed conversion of the Fund to open-end
status is approved.
Accordingly, if Proposal No. 3 to convert the Fund to an open-end
investment company is approved, the Board of Directors will be
declassified and nine Directors will be elected to hold office for an
indefinite period; namely, until the next meeting of shareholders at which
Directors are elected and their successors are elected and qualify.
Directors move to Emeritus status upon attainment of age 80. It is the
intention of the persons named in the accompanying form of Proxy to vote
for the election of Joseph H. Fleiss, Paul Hardin, Jessica Bibliowicz,
Donald R. Foley, John P. Toolan, Heath B. McLendon, Francis P. Martin,
Roderick C. Rasmussen and Bruce D. Sargent, all of whom are currently
members of the Board of Directors. Each of the nominees has consented
to be named in this Proxy Statement and to serve as a Director if elected.
Alternatively, if Proposal No. 3 is not approved, Class I Directors
will be elected to serve until the Fund's 2000 Annual Meeting of
Stockholders or until their successors have been duly elected and
qualified. In that event, the Board will remain classified and it is the
intention of the persons named in the enclosed Proxy to vote in favor of
the election of Messrs. Fleiss and Hardin and Ms. Bibliowicz.
Thereafter, Directors will be elected annually as their terms expire in
accordance with the Fund's current Bylaws.
The Directors have no reason to believe that any of the nominees named
above will become unavailable for election as a Director, but if that
should occur before the Meeting, proxies will be voted for such persons as
the Directors may recommend.
If Proposal No. 3 is approved, the Fund does not intend to hold
annual meetings of shareholders in the future unless shareholder action
is required.
Certain information concerning the nominees is set forth below: All
of the nominees are currently directors. Messrs. Fleiss, Foley, Martin,
Toolan and Rasmussen have served in such capacity since the Fund commenced
operations. Mr. Sargent became a director in 1991, Mr. Hardin became a
director in 1994, and Ms. Bibliowicz and Mr. McLendon became directors in
1995. Except as indicated each individual has held the office shown or
other offices in the same company for the last five years. Directors
affiliated with Smith Barney and considered an "interested person" as
defined in the 1940 Act are indicated by an asterisk (*).
-4-
<PAGE> 7
CLASS I DIRECTORS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
NUMBER AND PERCENTAGE
OF FUND SHARES
PRINCIPAL OCCUPATION BENEFICIALLY OWNED
DURING PAST FIVE YEARS, FEBRUARY 10, 1997
NAME OTHER DIRECTORSHIPS AND AGE
- -------------------------------------------------------------------------------------
<S> <C> <C>
Joseph H. Fleiss Retired; Director of ten 2,000(a)
Director Since 1989 investment companies associated (less than 1%)
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.
- -------------------------------------------------------------------------------------
Paul Hardin Interim President of University None
Director Since 1994 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.
- -------------------------------------------------------------------------------------
Jessica Bibliowicz* Executive Vice President of Smith None
Director Since 1995 Barney; Chairman of the Board of
Smith Barney Mutual Funds
Management, Inc. ("SBMFM");
Director of twelve investment
companies associated with Smith
Barney; President of forty-two
investment companies associated
with Smith Barney. Prior to
January 1994, Director of Sales
and Marketing for Prudential
Mutual Funds; 37.
</TABLE>
CLASS II DIRECTORS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
NUMBER AND PERCENTAGE
OF FUND SHARES
PRINCIPAL OCCUPATION BENEFICIALLY OWNED
DURING PAST FIVE YEARS, FEBRUARY 10, 1997
NAME OTHER DIRECTORSHIPS AND AGE
- -------------------------------------------------------------------------------------
<S> <C> <C>
Francis P. Martin Practicing physician; Director of None
Director Since 1989 ten investment companies
associated with Smith Barney.
Formerly President of the Nassau
Physicians' Fund, Inc.; 72.
- -------------------------------------------------------------------------------------
Roderick C. Rasmussen Investment Counselor; Director of None
Director Since 1989 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 863(a)
Director Since 1991 Barney, and Vice President and (less than 1%)
Director of SBMFM, Smith Barney
Funds, Inc., and Smith Barney
World Funds, Inc.; 53.
</TABLE>
CLASS III DIRECTORS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
NUMBER AND PERCENTAGE
OF FUND SHARES
PRINCIPAL OCCUPATION BENEFICIALLY OWNED
DURING PAST FIVE YEARS, FEBRUARY 10, 1997
NAME OTHER DIRECTORSHIPS AND AGE
- -------------------------------------------------------------------------------------
<S> <C> <C>
Donald R. Foley Retired; Director of ten None
Director Since 1989 investment companies associated
with Smith Barney. Formerly Vice
President of Edwin Bird Wilson,
Incorporated(advertising); 74.
- -------------------------------------------------------------------------------------
John P. Toolan Retired: Director of ten None
Director Since 1989 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.
- -------------------------------------------------------------------------------------
Heath B. McLendon* Managing Director of Smith 2,200
Director Since 1995 Barney; Chairman of forty-two (less than 1%)
investment companies associated
with Smith Barney; Chairman of
the Board of Smith Barney
Strategy Advisers Inc.: and
President of SBMFM. Prior to
July 1993, Senior Executive Vice
President of Shearson Lehman
Brothers Inc.; Vice Chairman of
Shearson Asset Management; 63.
- -------------------------------------------------------------------------------------
</TABLE>
(a) Represents shares owned by members of the director's family.
As of February 10, 1997, all directors and officers as a group
(17 persons) beneficially owned less than 1% of the shares outstanding
of the Fund.
-5-
<PAGE> 8
Section 16(a) of the Securities Exchange Act of 1934 and Section 30(f)
of the 1940 Act each requires the Fund's officers and directors, persons who own
more than ten percent of a registered class of the Fund's equity securities, and
certain other entities to file reports of ownership with the Securities and
Exchange Commission (the "SEC"), the American Stock Exchange and the Fund. Based
solely upon its review of the copies of such forms received by it, except for a
late filing of a Statement of Changes in Beneficial Ownership of Securities for
John Toolan, the Fund believes that, during fiscal year 1996, all filing
requirements applicable to such persons were complied with.
The Fund has no compensation or nominating committee of the Board of
Directors or any committee performing similar functions. The Fund has an audit
committee of all the directors who are not interested persons of the Fund or
Smith Barney (the "Independent Directors") which is charged with recommending a
firm of independent auditors to the Fund and reviewing accounting matters with
the auditors.
Eight meetings of the Board of Directors of the Fund were held during
the last fiscal year, four of which were regular meetings. The audit committee
held one meeting during the same period. In the last fiscal year no director
attended less than 75% of these meetings of the Board that were held.
Only the Independent Directors receive remuneration from the Fund for
acting as a director. Aggregate fees of $5,000 were paid to such directors by
the Fund during the fiscal year ended December 31, 1996. Fees for Independent
Directors who are directors of a group of funds sponsored by Smith Barney are
set at $42,000 per annum and are allocated based upon relative net assets of
each fund in the group. In addition, these directors receive $100 per fund or
portfolio for each Board meetings attended plus travel and out-of pocket
expenses incurred in connection with Board meetings. The Board meeting fees and
the out-of-pocket expenses are borne equally by each individual fund or
portfolio in the group. None of the officers of the Fund received any
compensation from the Fund for such period. Officers and interested directors of
the Fund are compensated by Travelers Investment Management Company ("TIMCO"),
the Fund's investment manager, or by Smith Barney.
The following table sets forth for the fiscal year ended December 31,
1996, compensation paid by the Fund to each incumbent director.
-6-
<PAGE> 9
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Compensation Table
- ----------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Total Compensation Number of
Aggregate Pension or Retirement from Fund and Funds for Which Director
Compensation Benefits Accrued as part Fund Complex Serves
Name of Person from Fund of Fund Expenses Paid to Directors Within Fund Complex
-
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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; John P. Toolan - $856.
</TABLE>
The following is a list of the current executive officers of the Fund,
all of whom have been elected by the directors to serve until their respective
successors are elected:
<TABLE>
<CAPTION>
Offices and Positions Period Principal Occupations During
Name Held with Fund Offices Past Five Years and Age
<S> <C> <C> <C>
Heath McLendon Chairman and 1995 to date (see table of directors above)
Chief Executive Officer
Jessica Bibliowicz President 1995 to date (see table of directors above)
Lewis E. Daidone Senior Vice 1990 to date Managing Director of Smith Barney; Director
President and Treasurer and Senior Vice President of SBMFM; and
Senior Vice President and Treasurer
of the other investment companies
associated with Smith Barney; 38.
Kent A. Kelley Vice President 1995 to date Chief Executive Officer and Director of
TIMCO; 45.
Sandip A. Bhagat Vice President 1995 to date President and Director of
TIMCO; 36.
</TABLE>
-7-
<PAGE> 10
<TABLE>
<S> <C> <C> <C>
Christina T. Sydor Secretary 1989 to date Managing Director of Smith Barney; General
Counsel and Secretary of SBMFM and
Secretary of the other investment companies
associated with Smith Barney; 46.
Thomas M. Reynolds Controller and 1991 to date Director of Smith Barney in the Asset
Assistant Secretary Management Division; and
Controller and Assistant Secretary of
certain other investment companies
associated with Smith Barney; 36.
</TABLE>
Vote Required
Directors must be elected by a vote of a plurality of the shares
present at the Meeting in person or by proxy and entitled to vote thereupon,
provided that a quorum is present.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE NOMINEES TO
THE BOARD.
Proposal No. 2 SELECTION OF INDEPENDENT AUDITORS
KPMG Peat Marwick LLP ("KPMG") have been selected as the independent
auditors to audit the accounts of the Fund for the fiscal year ended December
31, 1997 by a majority of the Independent Directors by a vote cast in person
subject to ratification by the stockholders at the Meeting. KPMG also serves as
the independent auditors for other investment companies associated with Smith
Barney and for Travelers. KPMG has no direct or material indirect financial
interest in the Fund, Travelers or any other investment company sponsored by
Smith Barney or its affiliates.
If the Fund receives a written request from any stockholder at least
five days prior to the Meeting stating that such stockholder will be present in
person at the Meeting and desires to ask questions of the auditors concerning
the Fund's financial statements, the Fund will arrange to have representatives
of KPMG present at the Meeting who will respond to appropriate questions and
have an opportunity to make a statement.
Vote Required
The affirmative vote of a majority of the shares present at the
Meeting, in person or by proxy and entitled to vote thereupon, is required for
ratification.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL NO. 2.
THE FOLLOWING FOUR PROPOSALS ARE LINKED IN THAT EACH RELATES TO THE
PROPOSAL TO CONVERT THE FUND TO AN OPEN-END INVESTMENT COMPANY:
-8-
<PAGE> 11
Proposal No. 3 - CONVERSION OF THE FUND TO AN OPEN-END INVESTMENT COMPANY,
INCLUDING AMENDMENT TO THE FUND'S ARTICLES OF INCORPORATION,
CHANGE IN THE FUND'S NAME, AND IMPLEMENTATION OF THE
MULTI-CLASS DISTRIBUTION SYSTEM;
Proposal No. 4 - ADOPTION OF AN ADDITIONAL FUNDAMENTAL INVESTMENT RESTRICTION;
Proposal No. 5 - AMENDMENT OF THE CURRENT INVESTMENT ADVISORY AGREEMENT
CONSISTENT WITH THE CONVERSION TO AN OPEN-END INVESTMENT
COMPANY; AND
Proposal No. 6 - APPROVAL OF PLAN OF DISTRIBUTION PURSUANT TO RULE 12B-1.
THE FUND WILL NOT CONVERT TO AN OPEN-END INVESTMENT COMPANY UNLESS THE
REQUIRED FAVORABLE VOTE OF STOCKHOLDERS IS OBTAINED ON PROPOSAL NOS. 3, 4, 5 AND
6. IF ANY OF THESE FOUR PROPOSALS IS REJECTED, THE FUND WILL CONTINUE TO OPERATE
AS A CLOSED-END INVESTMENT COMPANY.
Proposal No. 3 CONVERSION OF THE FUND FROM
A CLOSED-END INVESTMENT COMPANY
TO AN OPEN-END INVESTMENT COMPANY
The following is a proposal to convert the Fund from a closed-end
investment company to an open-end investment company. If the proposed conversion
of the Fund is approved, stockholders will be permitted to redeem their shares
for cash at any time (except in certain circumstances authorized by the 1940
Act) at the net asset value of such shares next determined after the tender for
redemption, instead of having to sell at a price set in the market. Upon
converting to an open-end investment company, the Fund also would commence a
continuous offering of its shares and would no longer list its shares on the
American Stock Exchange. These changes in the manner of offering and repurchase
of Fund shares may result in certain modifications in management of the Fund,
including higher expenses. For example, when cash in-flows are not sufficient,
the Fund may hold a greater percentage of its assets in temporary investments or
may be required to liquidate portfolio securities in order to meet redemption
requests. In such circumstances, the performance of the Fund may be affected.
The Fund's investment objective and investment policies will remain essentially
unchanged. See Proposal No. 4 below for a description of the Fund's proposal to
adopt an additional fundamental investment restriction.
Background of the Proposal
When the Fund was organized in 1990, it was determined that using a
closed-end investment company structure, rather than an open-end structure, was
the most appropriate form of organization for the Fund. Closed-end investment
companies differ from open-end investment companies in that closed-end
investment companies have a permanent capital base, while open-end investment
-9-
<PAGE> 12
companies issue securities redeemable at net asset value at any time at the
option of the stockholder and typically engage in a continuous offering of their
shares. Accordingly, open-end investment companies are subject to periodic asset
in-flows and out- flows that can complicate portfolio management, especially in
the early years of operation. Conversely, closed-end investment companies do not
face the prospect of having to maintain cash positions or liquidate portfolio
holdings to meet redemptions.
At the same time, however, stockholders should recognize that the
shares of closed-end investment companies frequently trade at a discount from
their net asset value. As the following table indicates, except for a period
immediately following the commencement of the Fund's operations (and briefly at
the end of 1996), when the shares traded at a slight premium, the shares of the
Fund have traded at a discount from their net asset value.
-10-
<PAGE> 13
Price at NAV at Premium (+)
Period Quarter-End Quarter-End Discount (-)
1990
1st Quarter* $11 5/8 $11.10 +5%
2nd Quarter 11 11.40 -4
3rd Quarter 7 3/4 9.22 -16
4th Quarter 8 3/8 9.32 -10
1991
1st Quarter 9 1/8 10.70 -15
2nd Quarter 9 3/8 10.61 -12
3rd Quarter 9 3/8 10.85 -14
4th Quarter 8 7/8 10.34 -14
1992
1st Quarter 10 1/2 11.88 -12
2nd Quarter 9 1/4 10.65 -13
3rd Quarter 9 1/4 10.55 -12
4th Quarter 9 7/8 11.49 -14
1993
1st Quarter 10 11/30 -12
2nd Quarter 9 5/8 11.29 -15
3rd Quarter 10 3/8 12.25 -15
4th Quarter 10 1/2 12.50 -16
1994
1st Quarter 10 1/4 12.38 -17
2nd Quarter 9 1/2 11.78 -19
3rd Quarter 9 5/8 12.33 -22
4th Quarter 9 1/2 11.78 -19
1995
1st Quarter 9 5/8 12.24 -21
2nd Quarter 10 1/8 12.99 -22
3rd Quarter 10 3/4 13.74 -22
4th Quarter 9 13/16 12.15 -19
1996
1st Quarter 10 5/8 12.87 -17
2nd Quarter 11 5/8 13.44 -15
3rd Quarter 11 1/4 13.40 -16
4th Quarter 11 1/2 12.30 -7
* For the period from January 23, 1990 (commencement of operations)
to March 31, 1990.
The Board of Directors recognizes that the shares of closed-end investment
companies typically may trade at significant discounts from their net asset
value, and that, historically, share repurchases alone have not proven to
eliminate the market discount over the long term. In addition, for the fiscal
year ending December 31, 1991, the Fund instituted the policy of distributing
10% of its assets, whether or not earned, annually. This distribution policy
also did not prove effective at eliminating the discount and was abandoned.
-11-
<PAGE> 14
Consequently, the Board of Directors believes that the best way to
assure that stockholders of the Fund have an ongoing opportunity to realize the
value of their investment is to convert the Fund to an open-end investment
company. The Board believes that operating the Fund as an open-end investment
company would be beneficial to the Fund and its stockholders. Through the
continuous offering of its shares the Fund may have an ongoing source of new
capital available for investment. Depending on the level of new share purchases
as compared with share redemptions, and certain other factors, Fund assets may
increase as a result of such purchases. Of course, they may also decrease if
current stockholders redeem and new sales are insufficient to offset such
redemptions. There is no assurance that assets will increase or expense
reductions will result. It is also possible, however, that after the conversion,
Fund assets may decrease and/or Fund expenses may increase. At a meeting held on
December 6, 1996, the Board of Directors, including the Independent Directors,
determined that conversion of the Fund to an open-end investment company (1) was
feasible, because the Fund's investment objective and policies are consistent
with operation as an open-end investment company, (2) would be the most
effective way to eliminate the discount and (3) would, except during the period
immediately following the conversion when a high level of redemptions may be
expected to occur, not be likely to have a material adverse effect on the
overall performance of the Fund. As described further below, at a subsequent
meeting held on March 7, 1997, the Board, including the Independent Directors,
also considered and approved new arrangements for the management, distribution
and operation of the Fund as an open-end investment company, including an
addition to the Fund's investment restrictions. Stockholders are now being asked
to approve the conversion of the Fund to an open-end investment company and
those additional arrangements.
Differences Between Fund Operations as an Open-End Investment Company and a
Closed-End Investment Company
The Fund is currently registered as a closed-end investment company
under the 1940 Act. Closed-end investment companies neither redeem their
outstanding stock nor generally engage in the continuous sale of new securities,
and thus operate with a relatively fixed capitalization. The stock of closed-end
investment companies is normally bought and sold on national securities
exchanges. The Fund's shares are currently traded on the American Stock
Exchange. The Fund's shares will be delisted from this Exchange, however, if the
Fund's conversion to an open-end investment company is approved.
In contrast, open-end investment companies, commonly referred to as
"mutual funds", issue redeemable securities. The holders of redeemable
securities have the right to surrender those securities to the mutual fund and
obtain in return their proportionate share of the value of the fund's net assets
(less any redemption fee charged by the fund). Many mutual funds (including the
Fund, if the proposed conversion is effected) also continuously issue new shares
of stock to investors based on the fund's net asset value at the time of such
issuance.
Some of the other legal and practical differences between the Fund's
current operation as a closed-end investment company and its operation as an
open-end investment company are as follows:
-12-
<PAGE> 15
Acquisition and Disposition of Shares. Stockholders currently pay
brokerage commissions in connection with the purchase and sale of Fund shares on
the American Stock Exchange. If the Fund were to be converted into an open-end
investment company, investors wishing to acquire shares of the Fund's common
stock would be able to purchase them from or through Smith Barney, the Fund's
principal underwriter (the "Distributor"). Stockholders desiring to realize the
value of their shares would be able to do so by exercising their right to have
such shares redeemed by the Fund at the then current net asset value of the
shares or at such net asset value less any applicable redemption fee or
contingent deferred sales charge ("CDSC"). The Fund's net asset value per share
is calculated by dividing (i) the value of its portfolio securities plus all
cash and other assets (including accrued interest and dividends received but not
collected) less all liabilities (including accrued expenses) by (ii) the number
of outstanding shares of the Fund.
Voting Rights. Stockholders will have fewer voting opportunities if the
Fund converts to an open-end investment company, since the Fund ordinarily will
not hold annual stockholder meetings. As discussed above, the shares of the Fund
currently are listed on American Stock Exchange in order to provide a liquid
trading market for Fund shares. Exchange rules generally provide for annual
meetings of the stockholders of listed companies for the election of directors.
The Articles of Incorporation of the Fund currently provide for one class of
directors, each with a term of office of three years. If the proposal to convert
the Fund to an open-end investment company is approved, the Fund's shares will
be delisted and voting for the election of directors will be determined solely
by reference to the 1940 Act and to Maryland corporate law.
Under the 1940 Act, the Fund would be required to hold a stockholder
meeting if the number of directors elected by the stockholders were less than a
majority of the total number of directors, or if a change were sought in the
fundamental investment policies of the Fund, in the Investment Advisory
Agreement or in a distribution plan adopted pursuant to Rule 12b-1 under the
1940 Act (where such change involved a material increase in Fund expenses).
Maryland law provides that, if the articles of incorporation or by-laws
of either an open-end or closed-end investment company registered under the
1940 Act so provides, the company is not required to hold an annual stockholder
meeting in any year in which the election of directors is not required to be
acted upon under the 1940 Act; the Fund's current Articles of Incorporation and
By-Laws do not so provide. However, the Board of Directors has adopted amended
By-Laws, which will go into effect if the proposal to convert the Fund to an
open-end investment company is approved, that provide that the Fund will not be
required to hold an annual meeting in any year in which the election of
directors is not required to be acted upon under the 1940 Act. Thus, the Fund
does not intend to hold annual meetings in any year in which it is not so
required. By not holding annual stockholder meetings, the Fund would save the
costs of preparing proxy materials and soliciting stockholders' votes on the
usual proposals contained therein. Based on the number of outstanding shares and
stockholders as of the Record Date, such costs would aggregate approximately
$20,000 per year.
-13-
<PAGE> 16
While Maryland law would not require the Fund to hold annual meetings
of stockholders, such law requires the directors to call a special meeting of
stockholders when requested in writing to do so by the stockholders entitled to
cast at least 25% of all the votes entitled to be cast at the special meeting;
provided, however, that, unless requested by stockholders entitled to cast a
majority of all the votes entitled to be cast at the special meeting, a special
meeting need not be called 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 twelve months. The amended By-Laws that will take effect if the
Fund converts to an open-end investment company reduce the Maryland law
requirement that stockholders entitled to cast at least 25% of the votes
entitled to be cast at the special meeting request a meeting to at least 10% of
the votes entitled to be cast request a meeting.
The holders of shares of the Fund will continue to have one vote for
each share held on each matter submitted to a vote of stockholders if the Fund
converts to an open-end investment company. Under Maryland law and the Amended
and Restated Articles of Incorporation, the Board of Directors will have the
authority to increase the number of shares of any class the Fund is authorized
to issue and may reclassify unissued shares into additional classes of stock and
may also reclassify issued shares into additional classes (provided such
reclassification of issued shares does not substantially adversely affect the
rights of holders of such issued shares) and, accordingly, these matters need
not be submitted to a vote of the stockholders. As discussed in the "Multi-Class
Distribution System" below, the Board of Directors has approved the
establishment of four classes of shares bearing different expenses specifically
related to the distribution of shares of each class. The four classes will have
the same rights except that each class will vote separately as a class with
respect to any distribution plan applicable to such class.
Determination of Net Asset Value. The net asset value of the Fund
currently is determined after the close of business on the American Stock
Exchange (generally 4:00 p.m., New York time), on the last business day in each
week. SEC regulations under the 1940 Act generally require open-end investment
companies to value their assets on each business day in order to determine the
current net asset value on the basis of which their shares may be redeemed by
stockholders or purchased by investors. Net asset values of most such companies
are published daily by leading financial publications. It is anticipated that
the net asset value of the Fund will be similarly published.
Expenses; Potential Net Redemptions. The Fund's expenses may increase
upon conversion to an open-end investment company, either as a result of the
cost of additional services typically required by an open-end company or because
of higher operating costs. For example, transfer agency costs will likely
increase as a result of the processing of ongoing purchase and redemption
requests. In addition, conversion to an open-end investment company could result
in immediate, substantial redemptions of Fund shares and, consequently, a marked
reduction in the size of the Fund. As a result of such a decrease in size, the
Fund could experience an increase in its expense ratio, i.e., the Fund's ratio
of operating costs to average net assets. On the other hand, this result could
be offset by new sales of the Fund's shares and reinvestment of dividends and
capital gains distributions in shares of the Fund, although the experiences of
other closed-end funds that have converted to open-end funds suggest that, in
the short-term, redemptions exceed sales. If the Fund's asset base were to
decrease, producing an increase in its expense ratio, the Fund may experience a
lower return than is currently being produced. In addition, the Fund might be
required to sell portfolio securities in order to meet redemptions, thereby
resulting in realization of gains (or losses) and in brokerage and other
transactional expenses.
-14-
<PAGE> 17
In order to mitigate immediate redemptions and their attendant costs,
the Board of Directors decided that it is in the best interests of the current
stockholders to implement a 2% redemption fee for the period from declaration of
effectiveness of the new open-end Fund by the SEC through the end of calendar
year 1997. This temporary redemption fee, which would be paid to the Fund, is
intended to moderate any adverse impact on the Fund's investment operations
resulting from the possibility of satisfying a large number of redemption
requests with a resulting decrease in net asset value. The implementation of a
temporary redemption fee is intended to discourage current stockholders from
immediately exercising their right to redeem.
Significant net redemptions could also cause the Fund to become too
small to be considered economically viable. In such circumstances, the Board of
Directors would consider alternatives to continuing the Fund's operations,
ranging from merger of the Fund with another investment company to liquidation
of the Fund. The Fund has no plans to pursue such alternatives at this time, and
any such merger or liquidation would require stockholder approval.
Elimination of Discount. The fact that stockholders who wish to realize
the value of their shares will be able to do so by redemption will eliminate any
market discount from net asset value (less the temporary redemption fee). It
will also eliminate any possibility that the Fund's shares will trade at a
premium over net asset value. If the proposal to convert the Fund to an open-end
investment company is approved by the stockholders, the discount may be reduced
prior to the date of such conversion to the extent investors are induced to
purchase shares in the open market in anticipation of the prospect of the Fund
becoming an open-end investment company.
Dividends. The Fund intends to provide the opportunity for stockholders
to elect to receive dividends and capital gains distributions in cash. There are
no sales charges imposed upon dividend reinvestments. Effective upon conversion
to an open-end investment company, such reinvestments in shares would be made at
net asset value, rather than, as currently provided by the Fund's dividend
reinvestment plan, at market value. At the time of conversion, stockholders who
now participate in the Fund's dividend reinvestment plan and those not
participating will receive their dividends and distributions in cash. New
stockholders may elect on the purchase application either to participate in the
dividend reinvestment plan or to receive their dividends and distributions in
cash. If no choice is made on the application, dividends and distributions will
be automatically reinvested.
Portfolio Management. Unlike mutual funds, closed-end investment
companies are not subject to pressures to sell portfolio securities at
disadvantageous times in order to meet net redemptions. Most open-end funds
maintain adequate reserves of cash or cash equivalents in order to meet net
redemptions as they arise. Because closed-end investment companies do not have
to meet redemptions, their cash reserves can be substantial or minimal,
depending primarily on management's perception of market conditions and on
decisions to use fund assets to repurchase shares. The larger reserves of cash
or cash equivalents required to operate prudently as an open-end investment
company when net redemptions are anticipated could reduce the Fund's investment
flexibility and the scope of its investment opportunities. The Fund's portfolio
may be restructured by selling portfolio securities in order to accommodate the
need for larger reserves of cash or cash equivalents than would otherwise be
maintained. In connection with any such restructuring, there may be an increase
in transaction costs and portfolio turnover and an adverse effect on investment
return. However, TIMCO does not expect the Fund's investment return to be
materially affected in the long-term nor does it expect any significant changes
in the Fund's investment policies or procedures as a result of open-ending.
-15-
<PAGE> 18
Illiquid Securities. An open-end investment company is subject to
federal regulatory requirements that no more than 15% of its net assets may be
invested in securities that are not readily marketable. The Fund is currently
not subject to any such restriction. If the Fund is converted to a mutual fund,
it will be restricted from investing more than 15% of its net assets in illiquid
securities, including repurchase agreements which have a maturity of longer than
seven days, securities with legal and contractual restrictions on resale
(restricted securities) and securities that are not readily marketable in
securities markets either within or outside of the United States. Restricted
securities eligible for resale pursuant to Rule 144A under the Securities Act
1993, as amended, and privately placed commercial paper that have a readily
available market will not be considered illiquid for purposes of this
limitation. TIMCO will monitor the liquidity of such restricted securities under
the supervision of the Board of Directors.
Senior Securities and Borrowings. The 1940 Act prohibits open-end
investment companies from issuing "senior securities" representing indebtedness
(i.e., bonds, debentures, notes and other similar securities), other than
indebtedness to banks where there is an asset coverage of at least 300% for all
borrowings. Closed-end investment companies, on the other hand, are permitted to
issue senior securities, representing indebtedness to any lender if the 300%
asset coverage is met. In addition, closed-end investment companies may issue
preferred stock (subject to various limitations), whereas open-end investment
companies generally may not issue preferred stock. This ability to issue senior
securities may give closed-end investment companies more flexibility than mutual
funds in "leveraging" of their stockholders' investments. To date, although it
has the authority to do so, the Fund has neither engaged in borrowing nor issued
any senior securities nor currently intends to do so. TIMCO does not believe
that the greater limitations on open-end investment companies in this respect
will have any effect upon the Fund's operations.
Stockholder Services. If this Proposal is approved and the Fund becomes
an open-end investment company, stockholders will have access to various
services that are often available to stockholders in such a company. Such
services will include participation in an exchange privilege, allowing
stockholders of the Fund to exchange their shares for shares of other Smith
Barney mutual funds (current stockholders effective January 1, 1998). Details of
such services will be disclosed in the Fund's prospectus and statement of
additional information. The cost of such services would normally be borne by the
Fund rather than by individual stockholders.
Distribution Plan. An open-end investment company, unlike a closed-end
investment company, is permitted to finance activities primarily intended to
result in the sale of fund shares by adopting a plan of distribution pursuant to
Rule 12b-1 under the 1940 Act. If the Fund is converted to an open-end
investment company, and Proposal No. 6 has been approved by stockholders,
shares of the Fund currently held by its stockholders will be designated Class A
shares and will be subject to a Rule 12b-1 plan of distribution providing for
the Fund to pay Smith Barney a 0.25% service fee. In addition, the Fund will
adopt plans of distribution pursuant to Rule 12b-1 with respect to the Fund's
proposed Class B and Class C shares in order to pay for the costs incurred in
distributing such shares and providing ongoing stockholder account maintenance.
See Proposal No. 6 below.
-16-
<PAGE> 19
Minimum Investment and Involuntary Redemptions. If the Fund is
converted to an open-end fund, it will adopt requirements that an initial
investment in Fund shares and any subsequent investment must be in a specified
minimum amount, in order to reduce the administrative burdens incurred in
monitoring numerous small accounts. The Fund expects that the minimum initial
investment requirement will be $1,000 for Class A, Class B and Class C shares
and $5,000,000 for Class Y shares. The Fund reserves the right to redeem all of
the shares of any stockholder, other than a stockholder which is an IRA or other
tax-deferred retirement plan, whose account has a net asset value of less than
$500 due to a redemption. The Fund will give such stockholders 60 days' prior
written notice in which to purchase sufficient additional shares to avoid such
redemption. The Fund may reserve the right to waive the minimum for, among
others, certain retirement and employee savings plans or custodial accounts for
the benefit of minors. Any such minimum investment requirement will not apply to
existing stockholders at the time of conversion, except with respect to minimums
for subsequent investments. See Proposal No. 6 below.
Qualification as a Regulated Investment Company. The Fund intends to
continue to qualify for treatment as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"), after conversion to an
open-end investment company, so that it will continue to be relieved of federal
income tax on that part of its investment company taxable income and net capital
gain that is distributed to its stockholders. To qualify for this treatment the
Fund must currently meet several requirements, one of which is that less than
30% of the Fund's gross income in each taxable year be derived from the sale or
other disposition of securities, options or futures contracts held for less than
three months. TIMCO anticipates that the Fund will continue to be able to meet
this requirement after the conversion. No assurance exists, however, that this
requirement will be met under all possible circumstances, particularly if the
Fund is required to sell recently acquired portfolio securities because of
unexpectedly large net redemptions or large influxes of cash followed within a
short time by significant redemptions of Fund shares.
Conversion to an Open-End Investment Company
If the proposed conversion to an open-end investment company is
approved, the Board will take such other actions as are necessary to effect the
conversion. The conversion of the Fund to an open-end investment company will be
accomplished by: (i) the filing of an Amended and Restated Articles of
Incorporation for the Fund with the Maryland State Department of Assessments and
Taxation and (ii) changing the Fund's subclassification under the 1940 Act from
a closed-end investment company to an open-end investment company. In addition,
since shares of an open-end investment company are offered to the public on a
continuous basis, the Fund will enter into a Distribution Agreement with the
Distributor with respect to each of Class A, Class B, Class C and Class Y shares
in a form approved by the Board, including a majority of the Independent
Directors. A registration statement under the Securities Act of 1933, as
amended, covering the offering of the shares of the Fund and appropriate state
securities law qualifications will be filed, and, if conversion is approved, the
Fund will file the Amended and Restated Articles of Incorporation with the State
Department of Assessments and Taxation of Maryland. (Conversion of the Fund to
open-end status is not, however, conditioned upon prior or simultaneous receipt
of regulatory approvals or entry into contractual arrangements regarding the
sale of Fund shares.)
-17-
<PAGE> 20
Although management will use all practicable measures to keep costs at
a minimum, certain costs will be incurred, many of which will be nonrecurring,
in connection with the change from a closed-end to an open-end investment
company, including costs associated with the seeking of necessary government
clearances, the preparation of a registration statement and prospectuses as
required by federal securities laws (including printing and mailing costs), the
incremental costs of preparing this Proxy Statement as a result of the
consideration at the Meeting of the non-routine matters and legal fees and
accounting fees related to the foregoing. The Fund estimates that these
additional costs, which will be paid by the Fund, will be approximately $10,000.
Management anticipates that substantially all of these costs will be incurred by
the Fund prior to the effective date of the conversion.
Neither the Fund nor its stockholders will realize any gain or loss for
tax purposes as a result of the Fund's conversion. However, the stockholders
will recognize a gain or loss if they later redeem their shares to the extent
that the redemption proceeds are greater or less than the respective adjusted
tax bases of their shares. Payment for any such redemption (less any applicable
redemption fee, such as the temporary 2% redemption fee described above) will be
made within seven days after receipt of a proper request for redemption, in
accordance with redemption procedures as will be specified in the prospectus.
Such payment may be postponed or the right of redemption suspended at times (a)
when the New York Stock Exchange is closed for other than customary weekends and
holidays, (b) when trading on such Exchange is restricted, (c) when an emergency
exists as a result of which disposal by the Fund of securities owned by it is
not reasonably practicable or it is not reasonably practicable for the Fund
fairly to determine the value of its net assets, or (d) during any other period
when the SEC, by order, so permits; provided that applicable rules and
regulations of the SEC shall govern as to whether the conditions prescribed in
(b), (c) or (d) exist. The Board of Directors also reserves the right to redeem
Fund shares in kind. If redemptions are made in kind, a stockholder would incur
transaction costs in disposing of any securities received. The Board has no
current intention to redeem Fund shares in kind.
Amendment of the Fund's Articles of Incorporation
It is intended that if the proposed conversion to an open-end
investment company is approved, the Fund will be organized as set forth in the
Fund's Amended and Restated Articles of Incorporation, in the form approved by
the Board of Directors at their meeting on, March 7, 1997. A copy of the Amended
and Restated Articles of Incorporation, which reflect the amendments
contemplated by this Proposal No. 3, is attached hereto as Exhibit A. The
Amended and Restated Articles of Incorporation rename the Fund as "Smith Barney
Disciplined Small Cap Fund, Inc.", increase the authorized capital stock to
100,000,000 for each of A, B, C and Y Classes shares of common stock, par value
$ .001 per share, authorize the issuance of multiple classes of redeemable
securities at net asset value and provide that the Fund's outstanding common
stock will be redeemable at the option of the stockholders. In connection with
such Amended and Restated Articles of Incorporation, the Board of Directors has
adopted new By-Laws, which will go into effect upon conversion to an open-end
company, reflecting the necessary conforming changes.
If Proposal No. 3 is approved by the stockholders, the Fund will be
renamed "Smith Barney Disciplined Small Cap Fund, Inc." shortly after such
approval. The proposed Amended and Restated Articles of Incorporation are
expected to be filed with the State of Maryland to become effective
simultaneously with the conversion. Such filing will not be made, however,
until shortly before a registration statement under the Securities Act of 1933
covering the offering of the shares of the Fund is anticipated to become
effective.
-18-
<PAGE> 21
Implementation Of The Multi-Class Distribution System. In connection
with the conversion of the Fund to an open-end investment company, the Fund
proposes the implementation of the Multi-Class Distribution System to permit the
Fund to provide investors with several different purchase alternatives. These
alternative purchase arrangements permit each investor to choose the method of
purchasing shares that is most beneficial given the amount of the investor's
investment, the length of time the investor expects to hold Fund shares, and
other relevant circumstances.
On March 7, 1997, the Board of Directors of the Fund, including a
majority of the Independent Directors, considered and approved the Multi-Class
Distribution System and an amendment to the Articles of Incorporation in order
to implement the Multi-Class Distribution System. In so doing, the Board of
Directors considered several factors, including that implementation of the
Multi-Class Distribution System would (i) enable investors to choose the
purchasing option which best suits their individual situation, thereby
encouraging current stockholders to make additional investments in the Fund and
attracting new investors and assets to the Fund to the benefit of the Fund and
its stockholders, (ii) facilitate distribution of the Fund's shares, and (iii)
maintain the competitive position of the Fund in relation to other funds that
have implemented or are seeking to implement similar distribution arrangements.
In connection with the Multi-Class Distribution System, the Fund
intends to designate Class A, Class B, Class C and Class Y shares. Under the
Multi-Class Distribution System, stockholders may choose from four purchase
alternatives, as described below.
-19-
<PAGE> 22
<TABLE>
- ------------------------------------------------------------------------------------------------------------
<S> <C>
Class A: Class A shares are sold at net asset value plus an initial sales charge of up to 5%
and are subject to an annual service fee of 0.25%. The initial sales charge may be
reduced or waived for certain purchases. Certain purchases will be made at net asset
value with no initial sales charge, but will be subject to a 1.00% CDSC if the shares
are redeemed within 12 months of purchase. In addition, current stockholders will be
subject to the 2% redemption charge until the end of 1997.
- ------------------------------------------------------------------------------------------------------------
Class B: Class B shares are sold at net asset value subject to a maximum CDSC of 5.00%
declining to zero by 1.00% each year after the date of purchase. 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 average daily net assets of the
Class B shares. Approximately eight years after issuance, Class B shares will convert
automatically into Class A shares. Upon conversion, such shares will no longer be subject
to an annual distribution fee.
- ------------------------------------------------------------------------------------------------------------
Class C: Class C shares are sold at net asset value with no initial sales charge, but are subject
to an annual service fee of 0.25%, and an annual distribution fee of 0.75%, of average
daily net assets of the Class C shares. Investors will pay a CDSC of 1.00% if they redeem
Class C shares within one year of purchase.
- ------------------------------------------------------------------------------------------------------------
Class Y: Class Y shares are only available 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
and are not subject to any service or distribution fees.
- ------------------------------------------------------------------------------------------------------------
</TABLE>
The implementation of the Multi-Class Distribution System will not
affect the net asset value of a current stockholder's investment in the Fund. By
providing investors with a broader choice as to the method of purchasing shares,
the Board of Directors believes that it will attract a broader base of
stockholders, thereby bringing more investment dollars into the Fund which will
benefit the holders of each Class of shares by facilitating the management of
the Fund's portfolio and by reducing the operating expense ratio of the Fund.
The expense ratio for current shareholders after conversion will
remain the same. Prior to conversion the management and administrative fees
totaled 1.00% of the Fund's average daily net assets (a 0.75% management
fee and a 0.25% administrative fee). After the conversion to open-end status,
fees will also total 1.00% of the Fund's average daily net assets (a 0.25%
service fee pursuant to a Rule 12b-1 plan, a reduced management fee of
0.65% and a 0.10% administrative fee).
If the conversion to an open-end investment company is approved, the
currently issued and outstanding shares of common stock will be reclassified as
Class A shares. If the conversion to an open-end investment company is approved,
a current stockholder of the Fund will hold Class A shares in his or her
stockholder account and will be eligible to purchase additional Class A shares
of the Fund.
Each Class A, Class B, Class C and Class Y share will represent
identical interests in the investment portfolio of the Fund except that (i)
Class A, Class B, and Class C shares would bear the expenses of the applicable
Rule 12b-1 plan payments and account maintenance fees, expenses of deferred
sales arrangements and stockholder servicing costs attributable solely to a
particular class and any other incremental expenses subsequently identified that
should be properly allocated to such class; (ii) the stockholders of each Class
subject to a Rule 12b-1 plan would have exclusive voting rights with respect to
the Rule 12b-1 plan pursuant to which, in conjunction with any CDSC, deferred
charges would be paid; and (iii) the Classes would have exchange privileges with
other Smith Barney Mutual Funds pursuant to terms to be described in the Fund's
prospectus and statement of additional information (except that the exchange
privilege will not be effective for Class A shares until after
January 1, 1998).
-20-
<PAGE> 23
Vote Required
The proposal regarding a change in the Fund's subclassification under
the 1940 Act from a closed-end investment company to an open-end investment
company, which includes amending the Fund's Articles of Incorporation, requires
the affirmative vote of a majority of the outstanding shares of Common Stock
entitled to be voted on the matter, voting in person or by proxy.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL NO.
3.
Proposal No. 4 IF PROPOSAL NO. 3 IS APPROVED, TO APPROVE AN ADDITIONAL
FUNDAMENTAL INVESTMENT RESTRICTION
The Fund has adopted investment restrictions that govern generally the
operations of the Fund. Investment restrictions that are deemed fundamental may
not be changed without a vote of the outstanding shares of the Fund, while
non-fundamental investment restrictions may be changed by the Fund's Board of
Directors if it deems such changes to be in the best interest of the Fund and
its stockholders. In addition to investment restrictions, the Fund operates
pursuant to an investment objective and investment policies that govern the
investment activities of the Fund and further limit its ability to invest in
certain types of securities or engage in certain types of transactions. The
investment objective and investment policies of the Fund will be essentially
unaffected by the adoption of the proposed investment restrictions. The
investment policies of a Fund are non-fundamental and may not be changed unless
and until (i) the Board of Directors authorizes a change by resolution and (ii)
the prospectus of the Fund is amended to reflect the change and to include any
appropriate additional disclosure.
In connection with its conversion to an open-end investment company,
the Board proposes that the stockholders approve the addition of the investment
restriction set forth below. Adoption of the additional investment restriction
is intended to implement the open-end Fund's change in classification to a
diversified investment company and is not expected to affect materially the
current operations of the Fund.
Under the proposed additional fundamental investment restriction, the
Fund may not:
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.
-21-
<PAGE> 24
Vote Required
The proposal to adopt an additional fundamental investment restriction
requires the affirmative vote of a majority of the Fund's outstanding voting
securities (which for this purpose and under the 1940 Act means the lesser of
(i) 67% or more of the voting securities present at the Meeting, if more than
50% of the outstanding voting securities are present or represented by proxy, or
(ii) more than 50% of the outstanding voting securities).
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL NO. 4.
Proposal No. 5 IF PROPOSAL NO. 3 IS APPROVED,
TO APPROVE AN AMENDED INVESTMENT ADVISORY AGREEMENT
Pursuant to stockholder approval on July 7, 1995, the Fund entered into
an investment advisory agreement (the "current Investment Advisory Agreement"),
pursuant to which TIMCO serves as the investment adviser to the Fund (the
"Investment Adviser"). On June 4, 1996, the Board of Directors of the Fund,
including a majority of the Independent Directors, approved the continuation of
the current Investment Advisory Agreement for a period of one year. In their
consideration of this matter, the Board received information relating to, among
other things, alternatives to the present arrangements, the nature, quality and
extent of the advisory and other services provided to the Fund by TIMCO and
comparative data with respect to the advisory and management arrangements of
other investment companies.
Stockholders are being requested to approve amending the current
Investment Advisory Agreement to reflect the Fund's status as an open-end
company. If stockholders approve the Fund's conversion to an open-end investment
company, the current Investment Advisory Agreement will be amended as proposed
(as so amended, the "Amended Advisory Agreement"). The form of Amended Advisory
Agreement (with deletions from the current agreement shown in brackets and
additions shown by underscoring) appears as Exhibit B to this Proxy Statement.
The Amended Advisory Agreement will remain in effect for so long as it is
approved annually by the Board (including a majority of the Independent
Directors) and is not otherwise terminated. If, however, the Fund does not
convert to an open-end investment company, the current Investment Advisory
Agreement will continue in effect for the period previously approved by the
Directors and thereafter, for so long as it is approved annually by such
Directors.
The Current Investment Advisory Agreement
The current Investment Advisory Agreement provides that, subject to the
direction of the Board of Directors of the Fund, TIMCO is responsible for the
actual management of the Fund's portfolio and for the review of the Fund's
holdings in light of its own research analysis and analyses from other relevant
sources. The responsibility for making decisions to buy, sell or hold a
particular security rests with TIMCO, subject to review by the Board of
Directors. See "Information Concerning TIMCO" below.
-22-
<PAGE> 25
Investment Advisory Fee. The current Investment Advisory Agreement
provides that as compensation for its services to the Fund, TIMCO receives from
the Fund a monthly fee equal to 0.75% per annum of the Fund's average daily net
assets of the Fund during the month. For the fiscal year ended December 31,
1996, the investment advisory fee paid by the Fund to TIMCO aggregated $416,104.
At February 28, 1997, the Fund had net assets of approximately $53.2 million. At
this asset level, the Fund's annual investment advisory fee would aggregate
$400,000.
Payment of Expenses. Under the current Investment Advisory Agreement,
TIMCO bears all expenses in connection with its performance as Investment
Adviser. The Fund pays all other expenses incurred in the operation of the Fund,
including, without limitation, expenses for legal and auditing services, taxes,
costs of printing proxies, stock certificates and stockholder reports,
prospectuses, charges of the Custodian, any Sub-Custodian and Transfer Agent,
Dividend Disbursing Agent and Registrar, SEC fees, accounting and pricing costs,
insurance, interest, brokerage costs, litigation and other extraordinary or
non-recurring expenses, mailing and other expenses properly payable by the Fund.
Duration and Termination. The current Investment Advisory Agreement
continues in effect from year to year if approved annually (a) by the Board of
Directors of the Fund, or by a majority of the outstanding voting securities of
the Fund, and (b) by a majority of the Directors who are not parties to such
agreement or interested persons (as defined in the 1940 Act) of any such party
cast in person at a meeting called for the purpose of voting on such approval.
The current Investment Advisory Agreement is not assignable and may be
terminated without penalty on 60 days' written notice at the option of either
party thereto or by a vote of the majority of the outstanding voting securities
of the Fund.
The Amended Advisory Agreement
On March 7, 1997, a majority of the Board of Directors, including a
majority of the Independent Directors, approved the Amended Advisory Agreement
between the Fund and TIMCO subject to the approval by the stockholders of the
conversion of the Fund to an open-end investment company. Upon effectiveness of
the conversion of the Fund to an open-end investment company, the current
Investment Advisory Agreement will be terminated and the Amended Advisory
Agreement will become effective.
The terms of the Amended Advisory Agreement are essentially the same as
the terms of the current Investment Advisory Agreement, except that under the
Amended Advisory Agreement, the advisory fee payable to TIMCO by the Fund will
be accrued daily and paid monthly at the annual rate of 0.65% of the Fund's
average daily net assets (whereas the rate under the current Investment Advisory
Agreement is 0.75%).
Information Concerning TIMCO
TIMCO is a wholly owned subsidiary of Smith Barney Holdings Inc.
("SBHI"). On December 30, 1994, SBHI, a wholly owned subsidiary of The Travelers
Inc. (which subsequently changed its name to Travelers Group Inc.) bought the
outstanding common stock of TIMCO. TIMCO currently manages approximately $1.3
billion for pension funds, registered investment companies and variable annuity
funds. TIMCO was founded over 25 years ago as an investment adviser responsible
for providing investment advice to investment companies and pension fund
accounts. The investment professionals at TIMCO have extensive experience in
developing and managing equity portfolios with objectives similar to the Fund's
objectives.
-23-
<PAGE> 26
TIMCO serves as an investment adviser to a number of institutional
accounts as well as various registered investment companies and insurance
company separate accounts. Specifically, TIMCO acts as an investment adviser to
Series Index Fund and acts as sub-adviser to the Managed Assets Trust and as
investment manager to the following insurance company separate accounts: The
Travelers Growth and Income Stock Account for Variable Annuities, The Travelers
Timed Growth and Income Stock Account for Variable Annuities, The Travelers
Timed Aggressive Stock Account for Variable Annuities and The Travelers Timed
Bond Account for Variable Annuities.
Securities held by the Fund may also be held by or be appropriate
investments for other TIMCO Advised Funds or by investment advisory clients of
TIMCO. Because of different investment objectives or other factors, a particular
security may be bought for one or more clients when one or more clients are
selling the security. If purchases or sales of securities for the Fund or other
investment company or advisory clients arise for consideration at or about the
same time, transactions in such securities will be made, insofar as feasible,
for the respective investment companies and clients in a manner deemed equitable
to all. To the extent that transactions on behalf of more than one client of
TIMCO during the same period may increase the demand for securities being
purchased or the supply of securities being sold, there may be an adverse effect
on price.
Set forth below is the name, address and principal occupation of each
principal executive officer and director of the Investment Adviser. The officers
of the Fund are listed under "Compensation of Directors and Officers" and
"Officers of the Fund" in Proposal No. 1 above. The business address of TIMCO
and Messrs. Kelley and Bhagat is One Tower Square, Hartford, CT 06183-2030. The
business address of Messrs. Lane, McLendon, Day and Rosenbaum is 388 Greenwich
Street, New York, N.Y. 10013.
-24-
<PAGE> 27
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
NAME POSITION(S) WITH TIMCO PRINCIPAL OCCUPATION
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Jeffrey B. Lane Chairman of the Board Vice Chairman of Travelers Group Inc.
- ---------------------------------------------------------------------------------------------------------------------------
Kent A. Kelley Director and Chief Executive Chief Executive Officer and Portfolio Manager
Officer
- ---------------------------------------------------------------------------------------------------------------------------
Sandip A. Bhagat Director and President President and Portfolio Manager
- ---------------------------------------------------------------------------------------------------------------------------
Heath B. McLendon Director Managing Director of Smith Barney Inc.
- ---------------------------------------------------------------------------------------------------------------------------
Michael J. Day Treasurer Executive Vice President and Controller of
Smith Barney Inc.
- ---------------------------------------------------------------------------------------------------------------------------
Michael F. Rosenbaum Corporate Secretary General Counsel-Asset Management of Smith
Barney Inc.
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
-25-
Vote Required
The proposal to approve the Amended Advisory Agreement requires the
affirmative vote of a majority of the Fund's outstanding voting securities
(which for this purpose and under the 1940 Act means the lesser of (i) 67% or
more of the voting securities present at the Meeting, if more than 50% of the
outstanding voting securities are present or represented by proxy, or (ii) more
than 50% of the outstanding voting securities).
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL NO.
5.
Proposal No. 6 IF PROPOSAL NO. 3 IS APPROVED,
TO APPROVE THE ADOPTION OF A PLAN OF DISTRIBUTION
PURSUANT TO RULE 12B-1 UNDER THE 1940 ACT
At a meeting called for the purpose and held on March 7, 1997, the
Board of Directors of the Fund, including a majority of the Independent
Directors, approved the adoption of a plan of distribution pursuant to Rule
12b-1 under the 1940 Act (the "Plan"). The Board of Directors recommends the
Plan to the stockholders of the Fund for approval at the Meeting. The purpose of
the Plan is to create incentives for the financial advisers of Smith Barney (the
Distributor) and other qualified broker-dealers to provide distribution
assistance to their customers who are investors in the shares of the Fund and to
defray the costs and expenses, including the payment of account servicing fees,
of the services provided and activities undertaken to distribute shares of the
Fund and to provide personal service to stockholders.
In considering whether or not to approve the Plan, the Directors
reviewed, among other things, the nature and scope of the services to be
provided by the Distributor, the purchase options that may be available to
stockholders if the Multi-Class Distribution System described under Proposal No.
3 is approved by the stockholders and the potentially higher fees payable to the
Distributor if the Plan is adopted. The Board also considered the potential
benefits of the Plan to stockholders. The Directors took into account the
competitive market environment which the Fund will operate in as an open-end
investment company. More specifically, the Directors recognized the need to
provide adequate compensation to broker-dealers who serve existing stockholders
or offer the Fund to prospective investors. Without such service, the Fund would
be subject to a significant risk that it would not maintain or increase its
assets, threatening the viability of the Fund as an open-end investment company.
-26-
<PAGE> 28
In considering the payment of service fees at the rate of 0.25% of the average
net assets of the Class A shares (including those which will be held by current
stockholders), the Directors took into account that fact that many investors
hold shares through broker-dealers other than Smith Barney and that, without
service fees, such broker-dealers have little incentive not to recommend
redemption. The Board viewed implementation of this fee with respect to current
stockholders as a way to protect the Fund from the possibility that, without
such an economic incentive for individual account executives not associated with
Smith Barney, a substantial number of such brokers would encourage their clients
to redeem their shares immediately with disastrous results to the Fund's expense
ratio and the future of the Fund in general as assets precipitously decline.
Accordingly, the Class A share service fee should be viewed as a defensive
measure, as well as an affirmative incentive to attract new investors.
Based upon their review, the Directors, including a majority of the
Independent Directors, determined that there is a reasonable likelihood that the
Plan will benefit the Fund and its stockholders.
Under the Plan, the Fund will pay to Smith Barney a service fee at the
annual rate of 0.25% of the average net assets of each of Class B and Class C
shares (as well as Class A shares). Also, with respect to Class B and Class C
shares, the Fund will 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.
The Plan provides that the amount payable by a particular Class 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. Asset-based sales charges and shareholder servicing
fees and the activities of Smith Barney carried out in respect of the Plan will
be interpreted in a manner consistent with the Rules of Fair Practice of the
National Association of Securities Dealers.
Under the Plan, Smith Barney will provide at least quarterly to the
Board of Directors for its review a written report of the amounts expended for
each Class and the purposes for which such expenditures were made.
-26-
<PAGE> 29
As required by Rule 12b-1 under the 1940 Act, if approved by the
stockholders, the Plan will continue in effect from year to year, provided such
continuance is approved at least annually by a majority of the Board of
Directors and a majority of the Independent Directors by votes cast in person at
a meeting called for the purpose of voting on the continuation of the Plan. The
Plan may not be amended to increase materially the amount to be spent for the
services described therein without approval by a majority of the outstanding
voting securities of the Fund affected by the Plan. All material amendments of
the Plan must also be approved by the Directors in the manner described above.
The Plan may be terminated at any time without payment of any penalty by vote of
a majority of the Independent Directors of the Fund or by the vote of a majority
of the outstanding shares of the Fund (as defined in the 1940 Act) on not more
than 60 days' written notice to any other party to such Plan. The Plan will
automatically terminate in the event of its assignment (as defined in the 1940
Act). So long as the Plan is in effect, the selection and nomination of the
Independent Directors will be committed to the discretion of the Independent
Directors. If the Plan is terminated or not continued, there will be no further
payments of any amounts except those previously accrued.
Vote Required
The proposed Plan requires the affirmative vote of a majority of the
Fund's outstanding voting securities (which for this purpose and under the 1940
Act means the lesser of (i) 67% or more of the voting securities present at the
Meeting, if more than 50% of the outstanding voting securities are present or
represented by proxy, or (ii) more than 50% of the outstanding voting
securities).
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL
NO. 6.
EXPENSES
The expenses of preparation, printing and mailing of the enclosed form
of proxy and accompanying Notice and Proxy Statement will be borne by the Fund.
The Fund will reimburse banks, brokers and others for their reasonable expenses
in forwarding proxy solicitation material to the beneficial owners of the shares
of the Fund. The Fund may also hire proxy solicitors at the expense of the Fund.
In order to obtain the necessary quorum at the Meeting (i.e., a
majority of the shares of the Fund entitled to vote at the Meeting, present in
person or by proxy), supplementary solicitation may be made by mail, telephone,
telegraph or personal interview by officers of the Fund. It is anticipated that
the cost of such supplementary solicitation, if any, will be nominal.
OTHER MATTERS
The Board of Directors of the Fund knows of no business other than that
mentioned in Proposal Nos. 1 through 6 of the Notice which will be presented for
consideration at the Meeting. If any other matter is properly presented, it is
the intention of the persons named in the enclosed proxy to vote in accordance
with their best judgment in the interest of the Fund taking into account all
relevant circumstances.
-27-
<PAGE> 30
ANNUAL REPORT DELIVERY
The Fund will furnish, without charge, a copy of its annual report for
the fiscal year ended December 31, 1996 to any stockholder upon request. Such
requests should be directed to the Fund at 388 Greenwich Street, New York, New
York, 10013, (800) 224-7523, or by contacting a Smith Barney Financial
Consultant.
STOCKHOLDER PROPOSALS
A stockholder proposal intended to be presented at any subsequent
meeting of stockholders of the Fund must be received by the Fund in a reasonable
time before the Board of Directors' solicitation relating to such meeting is to
be made in order to be considered in the Fund's Proxy Statement and form of
proxy relating to the Meeting. The mere submission of a proposal by a
stockholder does not guarantee that such proposal will be included in the Proxy
Statement because certain rules under the federal securities laws must be
complied with before inclusion of the proposal is required. If Proposal No. 3 is
approved and the Fund is converted to open-end status, the Fund does not intend
to hold annual meetings of stockholders unless otherwise required by law.
By Order of the Board of Directors
Christina T. Sydor
Secretary
Dated: March 28, 1997
-28-
<PAGE> 31
EXHIBIT A
THE INEFFICIENT-MARKET FUND, INC.
ARTICLES OF AMENDMENT AND RESTATEMENT
THE INEFFICIENT-MARKET 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 THE INEFFICIENT-MARKET 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: These Articles of Amendment and Restatement contain a provision
changing the name of the Corporation from "The Inefficient-Market Fund, Inc." to
"Smith Barney Disciplined Small Cap Fund, Inc."
THIRD: 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.
FOUR: The text of the Articles of Incorporation of the Corporation is
hereby restated to read in its entirety as follows:
[NOTE: Deletions from the current Articles of Incorporation of the Fund
are indicated below by [brackets], and additions to the current Articles are
underlined.]:
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
SMITH BARNEY DISCIPLINED SMALL CAP FUND, INC.
ARTICLE [II]I
NAME
The name of the corporation is [THE INEFFICIENT-MARKET FUND, INC.]
SMITH BARNEY DISCIPLINED SMALL CAP FUND, INC.
ARTICLE [III] 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.
<PAGE> 32
ARTICLE [IV] 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 is 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 [V] IV
CAPITAL STOCK
Section 1. The total number of shares of capital stock that the
Corporation has authority to issue is [100,000,000] 400,000,000 shares, [all of
one class called Common Stock,] of the par value of .001 per share, and of the
aggregate par value of [$100,000] $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.
<PAGE> 33
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.
<PAGE> 34
Section 7. Except as provided in Section 8 of this Article [V] IV,
Section 3 of -- Article [VI] V and the penultimate sentence of Article X of
these Articles of Incorporation and notwithstanding any provision of the
[General Law of the State of] Maryland General Corporation Law requiring [action
to be taken or authorized by the affirmative vote of the holders of a designated
proportion greater] 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, the Corporation is hereby authorized (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) [the conversion of the Corporation to an "open-end
company" or any amendment to these Articles of Incorporation to make
any class of the Corporation's capital stock a "redeemable security"
(as such terms are defined in the Investment Company Act of 1940)]
{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.
<PAGE> 35
(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 k 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.
<PAGE> 36
ARTICLE [VI] V
DIRECTORS
Section 1. The [initial] number of directors of the Corporation shall
be [two] nine, [and the names of those who shall act as such until the first
annual meeting and until their successors are elected and qualify are as
follows: J. Perry Ruddick and John P. Toolan.] and [The] the Bylaws of the
Corporation may fix the number of Directors [at a number other than two] 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 numbers 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 [VII] 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.
<PAGE> 37
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.
<PAGE> 38
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 of officer that exists at the time
of such amendment, modification or repeal.
<PAGE> 39
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.
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
IN WITNESS THEREOF, THE INEFFICIENT-MARKET 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 the day of , 1997.
Attest
THE INEFFICIENT-MARKET FUND, INC.
(a Maryland Corporation)
By:
- ----------------------- ------------------------------
Christina T. Sydor Heath B. McLendon
Secretary Chairman and Chief Executive Officer
<PAGE> 40
EXHIBIT B
[NOTE: Deletions from the current Investment Advisory Agreement are
indicated below by [brackets], and additions to the current Investment Advisory
Agreement are underlined.]:
[THE INEFFICIENT MARKET FUND, INC.]
SMITH BARNEY DISCIPLINED SMALL CAP FUND, INC.
AMENDED AND RESTATED
INVESTMENT ADVISORY AGREEMENT
AGREEMENT, made as of the day of 1997 between [THE INEFFICIENT MARKET
FUND, INC.] 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 [non-diversified closed-end] 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.
<PAGE> 41
(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,] 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 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 investment company associations; expenses of fidelity bonding and other
insurance premiums; expenses of stockholders' meetings; [SEC and state blue sky
registration fees; American Stock Exchange listing fees;] filing fees and
expenses related to the registration and qualification of the Fund's shares and
the Fund under Federal or State Securities laws and maintaining such
registrations and qualifications (including the printing of the Fund's
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
[0.75%] 0.65% per annum of the Fund's average daily net assets during the month.
<PAGE> 42
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.
[11. Under a License Agreement dated December 18, 1989 between the Fund
and Smith Barney Inc., Smith Barney has granted to the Fund a royalty-free,
non-exclusive license to use the name "The Inefficient-Market Fund, Inc." in the
United States only in connection with the operation of an investment company. It
is further provided in the License Agreement that Smith Barney may use or
license the above term in connection with other investment companies, subject to
the requirements of the 1940 Act, or any other business enterprise during the
term of such License Agreement or thereafter. The License Agreement is
terminable by Smith Barney on sixty days' notice to the Fund or as soon as
practicable thereafter. Upon such termination the Fund is required to change its
name to one which does not include the term "Inefficient Market".]
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:
<PAGE> 43
EXHIBIT C
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.
<PAGE> 44
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: _________________ , 1997
SMITH BARNEY DISCIPLINED
SMALL CAP FUND, INC.
By:________________________________
Heath B. McLendon, Chairman
<PAGE> 45
PRELIMINARY COPY
FORM OF PROXY
THE INEFFICIENT MARKET FUND, INC.
388 Greenwich Street
New York, New York 10013
This Proxy is Solicited on Behalf of the Directors of the Fund
The undersigned hereby appoints HEATH B. McLENDON, LEWIS E. DAIDONE,
and ROBERT M. NELSON, and each of them acting in the absence of the other, as
Proxies, each with the power to appoint his substitute, and hereby authorizes
them to represent and to vote, as designated herein, all the shares of common
stock of The Inefficient-Market Fund, Inc. held of record by the undersigned on
February 10, 1997 at a Meeting of Stockholders to be held on April 18, 1997 or
any adjournment thereof.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE [SEE REVERSE SIDE]
<PAGE> 46
[ X ] Please mark
votes as in
this example.
This proxy, when properly executed, will be voted in the manner directed hereby
by the undersigned stockholder. If no direction is made, this proxy will be
voted for each nominee for director and for each proposal.
PROPOSAL NO. 1
ELECTIONS OF DIRECTORS
a. If Proposal No. 3 is approved, to elect the following nine
Directors: Joseph H. Fleiss, Paul Hardin, Jessica Bibliowicz,
Donald R. Foley, John P. Toolan, Heath B. McLendon,
Francis P. Martin, Roderick C. Rasmussen and Bruce D. Sargent.
WITH- FOR ALL
FOR HOLD EXCEPT
[ ] [ ] [ ]
b. If Proposal No. 3 is not approved, to elect the following Class I
Directors (Term Expiring in 2000): Joseph II Fleiss, Paul Wardin
and Jessica Bibliowicz.
WITH- FOR ALL
FOR HOLD EXCEPT
[ ] [ ] [ ]
INSTRUCTIONS: To withhold authority for any individual nominee,
mark the " For All Except" box and strike a line through that
nominee's name in the list above.
PROPOSAL NO. 2
RATIFICATION OF THE SELECTION OF KPMG PEAT MARWICK LLP AS THE
INDEPENDENT AUDITORS OF THE FUND.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
PROPOSAL NOS. 3, 4, 5 AND 6
PROPOSALS RELATED TO CONVERSION OF THE INEFFICIENT-MARKET FUND,
INC. FROM A CLOSED-END TO AN OPEN-END MANAGEMENT INVESTMENT COMPANY.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR CONVERSION OF
THE FUND TO THE PROPOSED OPEN-END INVESTMENT COMPANY STATUS
Part A permits stockholders to vote on the four proposals presented in
the Proxy Statement related to conversion of the Fund from a closed-end
to an open-end management investment company as a single group.
Alternatively, Part B permits stockholders to vote on each of the four
proposals separately.
Part A
Approval of the four proposals to convert the Fund to an open-end
management investment company.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
<PAGE> 47
Part B Do not complete this Part B if you have completed Part A above.
If you have completed Part A, any votes checked in Part B will NOT be
counted.
Since the Fund will not convert to an open-end management investment
company unless stockholders approve all four related Proposals below,
stockholders should bear in mind, that a vote against any of these four
proposals may result in the Fund not implementing any of these four
proposals.
Proposal No. 3
(1) To approve a proposal to convert the Fund from a closed-end
investment company to an open-end investment company, which
proposal includes the following:
(a) Changing the Fund's subclassification from a closed-end
investment company to an open-end investment company;
(b) Approving changes to the Fund's Articles of Incorporation to:
1. Reflect the Fund's status as an open-end investment
company;
2. Change the Fund's name to "Smith Barney Disciplined Small
Cap Fund, Inc."; and
3. Enable the Fund to establish multiple classes of shares to
facilitate the offer and sale of Fund shares in a manner
consistent with other Smith Barney mutual funds.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Proposal No. 4
(2) If Proposal No.3 is approved, to approve a change to the Fund's
investment restrictions to add one restriction relating to the
Fund's diversification status.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Proposal No. 5
(3) If Proposal No.3 is approved, to approve an amended Investment
Advisory Agreement.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Proposal No. 6
(4) If Proposal No.3 is approved, to approve the adoption of a
distribution plan pursuant to Rule 12b-1.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
In their discretion, the Proxies are authorized to vote upon such
other business as may properly come before the meeting.
<PAGE> 48
[ ]
MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW.
Please sign exactly as name appears to the left. When shares are held
by joint tenants, both should sign, or if one signs, that stockholder's
vote binds both stockholders. When signing as attorney, executor,
administrator, agent, trustee or guardian, please give full title as
such. If a corporation, please sign in full corporate name by President
or other authorized officer. If a partnership, please sign in
partnership name by authorized person
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
Signature:____________________________ Date:____________________
Signature:____________________________ Date:____________________
