<PAGE> 1
As filed with the Securities and Exchange Commission
on April 29, 1996
Registration Nos. 33-34423
811-06087
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 19 /X/
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 21 /X/
SALOMON BROTHERS SERIES FUNDS INC
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(Exact Name of Registrant as Specified in Charter)
7 World Trade Center
New York, New York 10048
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(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (800) 725-6666
Lawrence H. Kaplan, Esq.
Salomon Brothers Asset Management Inc
7 World Trade Center
New York, New York 10048
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(Name and Address of Agent for Service)
Copies to:
Gary Schpero, Esq.
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
<PAGE> 2
Approximate date of Proposed Public Offering: As soon as practicable after this
Registration Statement becomes effective.
It is proposed that this filing will become effective (check appropriate box):
/X / immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / on (date) pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / on (date) pursuant to paragraph (a)(2) Rule 485.
The Registrant has previously registered an indefinite number
of its shares under the Securities Act of 1933, as amended, pursuant to Rule
24f-2 under the Investment Company Act of 1940, as amended. The Registrant
filed its Rule 24f-2 Notice for the fiscal year ended December 31, 1995 on
February 28, 1996.
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<PAGE> 3
PRELIMINARY NOTE
The prospectus and statement of additional information for Salomon
Brothers Cash Management Fund, Salomon Brothers New York Municipal Bond Fund,
Salomon Brothers National Intermediate Municipal Fund, Salomon Brothers U.S.
Government Income Fund,Salomon Brothers High Yield Bond Fund, Salomon Brothers
Strategic Bond Fund, Salomon Brothers Total Return Fund, Salomon Brothers Asia
Growth Fund and Salomon Brothers Institutional Money Market Fund (formerly known
as Salomon Brothers U.S. Treasury Securities Money Market Fund) are incorporated
by reference to Post-Effective Amendment No. 18 as filed with the Securities and
Exchange Commission on March 29, 1996.
<PAGE> 4
SALOMON BROTHERS SERIES FUNDS INC
Registration Statement on Form N-1A
CROSS REFERENCE SHEET APPLICABLE TO:
SALOMON BROTHERS NEW YORK MUNICIPAL MONEY MARKET FUND
Pursuant to Rule 495(b)
under the Securities Act of 1933
<TABLE>
<CAPTION>
N-1A Item No. Location
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Part A Prospectus Caption
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<S> <C> <C>
Item 1. Cover Page Cover Page
Item 2. Synopsis Summary; The Fund's Expenses
Item 3. Condensed Financial
Information Financial Highlights
Item 4. General Description of
Registrant Investment Objectives and
Policies; Additional Investment
Activities; Investment
Limitations; Capital Stock
Item 5. Management of the Fund Summary; The Fund's Expenses;
Investment Manager and
Administrator; Purchase of
Shares; Back Cover
Item 5A. Management's Discussion of
Performance Not Applicable
Item 6. Capital Stock and Other
Securities Dividends and Distributions;
Taxation; Account Services;
Capital Stock
Item 7. Purchase of Securities
</TABLE>
<PAGE> 5
<TABLE>
<S> <C> <C>
Being Offered Purchase of Shares;
Determination of Net Asset
Value; Dividends and
Distributions; Shareholder
Services
Item 8. Redemption or Repurchase Redemption of Shares
Item 9. Pending Legal Proceedings Not Applicable
</TABLE>
<TABLE>
<CAPTION>
Statement of Additional
Part B Information Caption
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<S> <C> <C>
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and
History Not applicable
Item 13. Investment Objectives and
Policies Additional Information on
Portfolio Instruments;
Investment Restrictions
Item 14. Management of the Fund Management of the Fund
Item 15. Control Persons and
Principal Holders
of Securities Management of the Fund;
Capital Stock
Item 16. Investment Advisory and
Other Services Management of the Fund;
Custodian, Transfer Agent and
Shareholder Servicing Agent;
Independent Accountants
Item 17. Brokerage Allocation and
Other Practices Portfolio Transactions
Item 18. Capital Stock and Other
Securities Capital Stock
</TABLE>
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<TABLE>
<S> <C> <C>
Item 19. Purchase, Redemption and
Pricing of Securities
Being Offered Management of the Fund; Net
Asset Value
Item 20. Tax Status Additional Information
Concerning Taxes
Item 21. Underwriters Management of the Fund
Item 22. Calculation of Performance
Data Performance Data
Item 23. Financial Statements Financial Statements
</TABLE>
Part C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C of this Registration Statement.
<PAGE> 7
SALOMON BROTHERS NEW YORK MUNICIPAL MONEY MARKET FUND
A No-Load Mutual Fund
7 World Trade Center, New York, New York 10048
(800) SALOMON or (800) 725-6666
SALOMON BROTHERS NEW YORK MUNICIPAL MONEY MARKET FUND (the "Fund") is a
non-diversified investment portfolio of Salomon Brothers Series Funds Inc (the
"Company"), a professionally managed open-end investment company. The Fund's
objective is to seek as high a level of current income exempt from federal, New
York State and New York City personal income taxes as is consistent with
liquidity and the stability of principal. The Fund invests primarily in
high-quality, short-term municipal obligations issued by or on behalf of the
State of New York or by its instrumentalities or political subdivisions, the
interest on which is exempt from federal, New York State and New York City
personal income taxes. The Fund seeks to maintain a stable net asset value of
$1.00 per share. THERE IS NO ASSURANCE THAT A STABLE NET ASSET VALUE OF $1.00
PER SHARE WILL BE MAINTAINED. INVESTMENTS IN THE FUND ARE NOT GUARANTEED OR
INSURED BY THE UNITED STATES GOVERNMENT.
This Prospectus sets forth concisely the information a prospective investor
should know before investing in the Fund. This Prospectus should be read and
retained for ready reference to information about the Fund. A Statement of
Additional Information dated April 29, 1996, containing additional information
about the Fund (the "Statement of Additional Information") has been filed with
the Securities and Exchange Commission (the "SEC") and is hereby incorporated by
reference into this Prospectus. It is available without charge and can be
obtained by writing or calling the Fund at the address and telephone number
printed above.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Summary 2
The Fund's Expenses 3
Financial Highlights 4
Yield Information 5
Investment Objective and Policies 5
Additional Investment Activities 8
Investment Limitations 9
Investment Manager and Administrator 10
Determination of Net Asset Value 10
Purchase of Shares 11
Redemption of Shares 12
Dividends and Distributions 14
Taxation 15
Shareholder Services 16
Account Services 16
Capital Stock 17
Appendix A 18
</TABLE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
1
<PAGE> 8
SALOMON BROTHERS ASSET MANAGEMENT INC--INVESTMENT MANAGER
SALOMON BROTHERS INC--DISTRIBUTOR
APRIL 29, 1996
SUMMARY
THE FUND
Salomon Brothers New York Municipal Money Market Fund (the "Fund") is a
non-diversified investment portfolio of Salomon Brothers Series Funds Inc (the
"Company"), a professionally managed open-end investment company incorporated in
Maryland on April 17, 1990.
THE FUND'S OBJECTIVE AND POLICIES
The Fund's objective is to seek as high a level of current income exempt from
federal, New York State and New York City personal income taxes as is consistent
with liquidity and the stability of principal. The Fund seeks to maintain a
stable net asset value of $1.00 per share.
INVESTMENT MANAGER
Salomon Brothers Asset Management Inc ("SBAM"), an affiliate of Salomon Brothers
Inc ("Salomon Brothers"), is the Fund's investment manager. SBAM also serves as
investment adviser to other investment companies and numerous individuals and
institutions. For its services as investment manager, the Fund pays SBAM a
monthly fee at an annual rate of .20% of the Fund's average daily net assets.
PURCHASE OF SHARES
Shares of the Fund may be purchased without a sales charge at their next
determined net asset value through First Data Investor Services Group, Inc.
("FDISG"), a subsidiary of First Data Corporation, the Fund's transfer agent.
The minimum initial investment is $5,000. Additional investments require a
minimum of $500. See "Purchase of Shares."
SALE OF SHARES
The Fund redeems shares at the next determined net asset value. There is no
redemption fee. See "Redemption of Shares."
DIVIDENDS AND DISTRIBUTIONS
Substantially all of the net investment income of the Fund will be declared as a
daily dividend. Shareholders of the Fund will receive such dividends monthly in
additional shares of the Fund or may elect to receive cash. See "Dividends and
Distributions."
RISK FACTORS
Prospective investors should consider certain risks associated with an
investment in the Fund. In particular, because the Fund significantly invests in
New York municipal obligations, it is more susceptible to factors adversely
affecting issuers of such obligations than a comparable municipal securities
fund that is not so concentrated. See "Investment Objective and Policies" and
"Additional Investment Activities."
2
<PAGE> 9
THE FUND'S EXPENSES
The following expense table is provided to assist investors in understanding the
various costs and expenses that an investor will incur either directly or
indirectly as a shareholder in the Fund, based upon the Fund's actual operating
expenses for its most recent fiscal year which are calculated as a percentage of
average daily net assets.
<TABLE>
<CAPTION>
Shareholder Transaction Expenses
<S> <C>
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested
Dividends None
Redemption Fees None
Exchange Fee None
Annual Fund Operating Expenses
(as a percentage of average daily
net assets)
Management Fees (after waiver)* .18%
Administrative Fees 0.08
Other Expenses 0.17
----
Total Fund Operating Expenses (after waiver)* .43%
====
</TABLE>
* Reflects the voluntary waiver of management fees by SBAM for the period ended
December 31, 1995. Absent such waivers, the ratio of management fees and total
Fund operating expenses to the average daily net assets would have been .20% and
.45%, respectively.
"Other Expenses" includes fees for shareholder services, custodial and transfer
agency fees, legal and accounting fees, printing costs and registration fees.
For additional information with respect to the expenses identified in the table
above, see "Investment Manager and Administrator" in the Prospectus and
"Management of the Fund" in the Statement of Additional Information.
EXAMPLE: The following example demonstrates the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect to
a hypothetical investment in the Fund. These amounts are based upon payment by
the Fund of operating expenses at the levels set forth in the table above, and
are also based upon the following assumptions:
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
<S> <C>
After 1 year $4
After 3 years $14
After 5 years $24
After 10 years $54
</TABLE>
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. Moreover,
while the example assumes a 5% annual return, the Fund's performance will vary
and may result in a return greater or less than 5%.
3
<PAGE> 10
FINANCIAL HIGHLIGHTS
The following data per share of capital stock outstanding throughout each period
and ratios should be read in conjunction with the financial statements included
in the Fund's Statement of Additional Information. The financial statements and
financial highlights for each of the years ended December 31, 1995 and for the
period from October 2, 1990 (commencement of operations) through December 31,
1990 have been audited by Price Waterhouse LLP, whose unqualified report thereon
is included in the Statement of Additional Information. The Statement of
Additional Information may be obtained by shareholders by writing or calling at
the address or telephone number printed on the front cover.
<TABLE>
<CAPTION>
PERIOD
ENDED
YEAR ENDED DECEMBER 31, DECEMBER 31
------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1995 1994 1993 1992 1991 1990*
- ------------------------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
------ ------ ------ ------ ------ ------
Net investment income 0.037+ 0.027 0.023 0.031 0.047 .014+
Dividends from net investment income (0.037) (.027) (.023) (.031) (.047) (.014)
------ ------ ------ ------ ------ ------
Net asset value, end of period $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
------ ------ ------ ------ ------ ------
Net assets end of period (thousands) $226,549 $269,788 $262,413 $263,685 $154,782 $34,529
TOTAL INVESTMENT RETURN +3.7% +2.7% +2.3% +3.1% +4.8% +1.4%
RATIOS TO AVERAGE NET ASSETS:
Expenses .43%+ .41% .41% .42% .60% .64%**+
Net investment income 3.67% 2.63% 2.31% 3.07% 4.63% 5.79%**
</TABLE>
- ----------
* October 2, 1990, commencement of operations, through December 31, 1990.
** Annualized.
+ Net investment income per share would have been $0.037 and the
expense ratio to average net assets would have been .45% for the
year ended December 31, 1995 before waiver of management fee and
credits earned on custodian cash balances. Net investment income per
share would have been $.012 and the expense ratio to average net assets
would have been 1.23% for the period ended December 31, 1990 before waiver
of management fee and reimbursement of certain expenses.
4
<PAGE> 11
YIELD INFORMATION
From time to time the Fund may make available information as to its "yield" and
"effective yield." Both yield figures are based on historical earnings and are
not intended to indicate future performance. The "yield" of the Fund refers to
the income generated by an investment in the Fund over a seven-day period. This
income is then "annualized." That is, the amount of income generated by the
investment during that week is assumed to be generated each week over a 52-week
period and is shown as a percentage of the investment. The "effective yield" is
calculated similarly but, when annualized, the income earned by an investment in
the Fund is assumed to be reinvested. The effective yield will be slightly
higher than the yield because of the compounding effect of this assumed
reinvestment.
In addition, the Fund may make available information as to its "tax equivalent
yield." The "tax equivalent yield" refers to the yield on a taxable investment
necessary to produce an after-tax yield equal to the Fund's tax-exempt yield,
and is calculated by increasing the yield shown for the Fund to the extent
necessary to reflect the payment of taxes at specified rates. Thus, the tax
equivalent yield for the Fund will always exceed the Fund's yield.
The yield of the Fund may be quoted and compared to those of other mutual funds
with a similar investment objective and to other relevant indices or to rankings
prepared by independent services or other financial or industry publications
that monitor the performance of mutual funds. For example, the yield of the Fund
may be compared to performance information from Lipper Analytical Services,
Inc., IBC/Donoghue's Money Fund Report or Bank Rate Monitor. Performance and
yield data as reported in various national and local financial publications may
also be used in comparing the performance and yield of the Fund.
INVESTMENT OBJECTIVE
AND POLICIES
The investment objective of the Fund is to seek as high a level of current
income exempt from federal income tax and New York State and New York City
personal income taxes as is consistent with liquidity and the stability of
principal. The Fund invests primarily in a non-diversified portfolio of
high-quality, short-term municipal obligations issued (i) by the State of New
York and its cities, municipalities and other public authorities, and (ii) by
territories and possessions of the United States and their respective
authorities, agencies, instrumentalities and political subdivisions, the
interest on which is exempt from federal income tax and from the personal income
taxes of New York State and New York City.
The Fund invests exclusively in high-quality, United States dollar-denominated
securities which are deemed to mature in thirteen months or less and is managed
so that the average maturity of all portfolio instruments (on a dollar-weighted
basis) will not exceed 90 days. The Fund seeks to maintain a stable net asset
value of $1.00 per share. The Fund's investment objective is a fundamental
policy and may not be changed without the affirmative vote of a majority of its
outstanding shares, as defined under "Capital Stock" in the Statement of
Additional Information. Of course, achievement of this objective cannot be
guaranteed. All or a portion of the Fund's dividends paid in respect of its
shares may be a preference or an adjustment for purposes of the federal
alternative minimum tax. See "Taxation".
The types of obligations in which the Fund may invest include the following (see
"Description of Ratings" in Appendix A):
(1) Municipal commercial paper that is rated "P-1" or "P-2" by Moody's Investors
Service, Inc. ("Moody's") or "A-1" or "A-2" by Standard & Poor's Corporation
("S&P") or, if not rated, is, in the opinion of the investment manager based on
guidelines established by the Company's Board of Directors, of investment
quality comparable to rated municipal commercial paper in which the Fund may
invest (see "Description of Ratings" in Appendix A);
(2) Municipal notes that are rated "MIG 1," "MIG 2" (or "VMIG 1" or "VMIG 2" in
the case of variable rate demand notes), "P-1", "P-2" or "Aa" or better by
Moody's or "SP-1", "SP-2", "A-1", "A-2" or "AA" or better by
5
<PAGE> 12
S&P or, if not rated, are, in the opinion of the investment manager based on
guidelines established by the Company's Board of Directors, of investment
quality comparable to rated municipal notes in which the Fund may invest; and
(3) Municipal bonds which are rated "Aa" or better by Moody's or "AA" or better
by S&P or, if not rated, are, in the opinion of the investment manager based on
guidelines established by the Company's Board of Directors, of investment
quality comparable to rated municipal bonds in which the Fund may invest.
Municipal obligations are debt obligations issued by or on behalf of states,
cities, municipalities and other public authorities. The two principal
classifications of municipal obligations that may be held by the Fund are
"general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific revenue source such as the user of a facility being financed. Revenue
securities may include private activity bonds. Such bonds may be issued by or on
behalf of public authorities to finance various privately operated facilities
and are not payable from the unrestricted revenues of the issuer. As a result,
the credit quality of private activity bonds is frequently related directly to
the credit standing of private corporations or other entities. In addition, the
interest on private activity bonds issued after August 7, 1986 is subject to the
federal alternative minimum tax. The Fund will not be restricted with respect to
the proportion of its assets that may be invested in such obligations.
Accordingly, the Fund may not be a suitable investment vehicle for individuals
or corporations that are subject to the federal alternative minimum tax.
The Fund's portfolio may also include "moral obligation" securities, which are
normally issued by special purpose public authorities. If the issuer of moral
obligation securities is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality that
created the issuer.
The Fund currently intends to invest substantially all of its assets in
obligations that are exempt from federal income tax and from the personal income
taxes of the State of New York and its cities. See "Taxation." To the extent
that the unavailability of suitable obligations for investment by the Fund
prevents it from investing substantially all of its assets in such obligations,
the Fund may purchase municipal obligations issued by other states, their
agencies and instrumentalities. Under normal market conditions, however, the
Fund will invest at least 65% of its total assets in obligations that are exempt
from federal income tax and from the personal income taxes of the State of New
York and its cities, as described above. In addition, it is a fundamental policy
of the Fund to invest, under normal market conditions, at least 80% of its total
assets in obligations that are exempt from federal income tax. To the
extent not so invested, the remaining 20% of the Fund's assets may be invested
in high quality, short-term money market instruments, the income from which is
subject to federal income tax. Taxable money market instruments that may be
purchased by the Fund include securities issued or guaranteed as to principal
and interest by the United States government or by agencies or instrumentalities
thereof; obligations issued or guaranteed by United States banks with total
assets of at least $1 billion (including obligations of foreign branches of such
banks) and by the 75 largest foreign commercial banks in terms of total assets;
high quality commercial paper and other high quality short-term debt
obligations; and obligations of the International Bank for Reconstruction and
Development, other supranational organizations and foreign governments and their
agencies and instrumentalities. The Fund may also enter into repurchase
agreements with respect to the taxable obligations identified above. Dividends
paid by the Fund that are attributable to interest derived from taxable money
market instruments will be taxable to investors.
If at some future date, in the opinion of the investment manager, adverse
conditions prevail in the market for obligations exempt from federal
income tax and from the personal income taxes of the State of New York and its
cities, the Fund may, for temporary defensive purposes, invest more than 35% of
its assets in municipal obligations issued by other states, their agencies or
instrumentalities or in taxable money market instruments. Moreover, if at some
future date, in the opinion of the investment manager, adverse conditions in the
market for municipal securities generally should prevail, the Fund may
temporarily invest more than 20% of its assets in cash reserves or in taxable
money market instruments in order to maintain a defensive posture. To the extent
that the Fund deviates from its investment policies as a result of the
unavailability of suitable obligations or for other
6
<PAGE> 13
temporary defensive purposes, its investment objective of seeking income exempt
from federal income tax and the personal income taxes of New York State and its
cities may not be achieved.
RISK FACTORS
The Fund's classification as "non-diversified" means that the proportion of the
Fund's assets that may be invested in the securities of a single issuer is not
limited by the Investment Company Act of 1940, as amended (the "1940 Act").
However, as a fundamental investment limitation, the Fund limits its investments
so that with regard to 50% of total assets, no more than 5% of assets are
invested in the securities of a single issuer, and with respect to the remaining
50% of total assets, no more than 25% of total assets are invested in the
securities of a single issuer. Effective October 3, 1996, the Fund will limit
its investments so that with regard to 75% of its total assets, no more than 5%
of its assets are invested in the securities of a single issuer. Because the
Fund has the ability, like many other single-state tax-free money market funds,
to invest a significant percentage of its assets in the securities of a single
issuer, an investment in the Fund may be riskier than an investment in other
types of money market funds.
Because the Fund will invest primarily in obligations issued (i) by the State of
New York and its cities, municipalities and other public authorities, and (ii)
by territories and possessions of the United States and their respective
authorities, agencies, instrumentalities and public subdivisions, the interest
on which is exempt from federal income tax and from the personal income
taxes of New York State and New York City, it is more susceptible to factors
adversely affecting issuers of such obligations than a comparable municipal
securities fund that is not so concentrated. New York State, New York City and
other New York public bodies have recently encountered and are encountering
financial difficulties. Although New York State's financial operations improved
during the most recent fiscal years, the State incurred budget deficits during
the period 1989 through 1992 and both the State and the City continue to face
increasing debt levels. In the most recent national recession, the State was
more heavily impacted than the nation as a whole and was slower in recovering.
The City and other State localities have required and continue to require
significant financial assistance from the State. In recent years, the ratings on
State and City general obligation bonds were downgraded by Moody's and S&P. If
either New York State or any of its local governmental entities is unable to
meet its financial obligations, the income derived by the Fund and its ability
to preserve capital and liquidity could be adversely affected. See "Special
Factors Affecting The Fund's Investment in New York Municipal Obligations" in
the Statement of Additional Information for further information.
In addition, from time to time the Fund may invest 25% or more of its assets in
municipal obligations that are related in other ways such that an economic,
business or political development or change affecting one such obligation could
also affect the other obligations; for example, municipal obligations the
interest on which is paid from revenues of similar types of projects. In
addition, from time to time, the Fund may invest 25% or more of its assets in
industrial development bonds, which, although issued by industrial development
authorities, may be backed only by those assets and revenues of non-governmental
users.
Opinions relating to the validity of municipal obligations and to the exemption
of interest thereon from federal income tax and New York State and New
York City personal income taxes are rendered by bond counsel to the respective
issuers at the time of issuance. Neither the Fund nor the investment manager
will review the proceedings relating to the issuance of municipal obligations or
the basis for such opinions.
The Fund may invest without limitation in obligations that are guaranteed or
have other credit support provided by a foreign bank. The Fund's ability to
receive payment with respect to any such guarantee or other credit support may
involve certain risks, such as future political, social and economic
developments, less governmental supervision and regulation, market liquidity
differences, the possible establishment of laws or restrictions that might
adversely affect the payment of the bank's obligations under the guarantee or
other credit support and the difficulty of obtaining or enforcing a judgment
against the bank.
The investment manager seeks to enhance the yield of the Fund by taking
advantage of yield disparities or other factors that occur in the market. For
example, market conditions frequently result in similar securities trading at
different prices. The Fund may dispose of any portfolio security prior to its
maturity if such disposition and reinvestment of the proceeds are expected to
enhance yield consistent with the investment manager's judgment as to
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<PAGE> 14
a desirable portfolio maturity structure or if such disposition is believed to
be advisable due to other circumstances or considerations. Subsequent to its
purchase, a portfolio security may be assigned a lower rating or cease to be
rated. Such an event would not require the disposition of the instrument, but
the investment manager will consider such an event in determining whether the
Fund should continue to hold the security. The Fund's policy regarding
dispositions of portfolio securities and its policy of investing in securities
deemed to have maturities of 13 months or less will result in high portfolio
turnover. A higher rate of portfolio turnover results in increased transaction
costs to the Fund in the form of dealer spreads.
ADDITIONAL INVESTMENT ACTIVITIES
Certain of the obligations that the Fund may purchase have a floating or
variable rate of interest. Floating or variable rate obligations bear interest
at rates that are not fixed, but vary with changes in specified market rates or
indices, such as the prime rate, and at specified intervals. Certain of the
floating or variable rate obligations that may be purchased by the Fund may
carry a demand feature that would permit the holder to tender them back to the
issuer of the underlying instrument or to a third party at par value prior to
maturity. Such obligations include variable rate demand notes, which are
instruments issued pursuant to an agreement between the issuer and the holder
that permit the indebtedness thereunder to vary and provide for periodic
adjustments in the interest rate. The investment manager will monitor on an
ongoing basis the ability of an issuer of a demand instrument or of the entity
providing credit support for the demand feature to pay principal and interest on
demand.
The instruments that may be purchased by the Fund include participation
certificates issued by a bank, insurance company or other financial institution
in obligations that may otherwise be purchased by the Fund. A participation
certificate gives the Fund an undivided interest in the underlying obligations
in the proportion that the Fund's interest bears to the total principal amount
of such obligations. Certain of such participation certificates may carry a
demand feature that would permit the holder to tender them back to the issuer or
to a third party prior to maturity.
Among the municipal obligations in which the Fund may invest are participation
certificates in a lease, an installment purchase contract or a conditional sales
contract (hereinafter collectively called "lease obligations") entered into by a
State or a political subdivision to finance the acquisition or construction of
equipment, land or facilities. Although lease obligations do not constitute
general obligations of the issuer for which the lessee's unlimited taxing power
is pledged, a lease obligation is frequently backed by the lessee's covenant to
budget for, appropriate and make the payments due under the lease obligation.
However, certain lease obligations contain "nonappropriation" clauses which
provide that the lessee has no obligation to make lease or installment purchase
payments in future years unless money is appropriated for such purpose on a
yearly basis. Although "nonappropriation" lease obligations are secured by the
leased property, disposition of the property in the event of foreclosure might
prove difficult. These securities represent a relatively new type of financing
that has not yet developed the depth of marketability associated with more
conventional securities. Certain investments in lease obligations may be
illiquid. The Fund may not invest in illiquid lease obligations if such
investments, together with all other illiquid investments, would exceed 10% of
the Fund's net assets. The Fund may, however, invest without regard to such
limitation in lease obligations which SBAM, pursuant to guidelines which have
been adopted by the Board of Directors and subject to the supervision of the
Board, determines to be liquid.
The Fund may purchase securities on a firm commitment basis, including
when-issued securities. Securities purchased on a firm commitment basis are
purchased for delivery beyond the normal settlement date at a stated price and
yield. No income accrues to the purchaser of a security on a firm commitment
basis prior to delivery. Such securities are recorded as an asset and are
subject to changes in value based upon changes in the general level of interest
rates. Purchasing a security on a firm commitment basis can involve a risk that
the market price at the time of delivery may be lower than the agreed upon
purchase price, in which case there could be an unrealized loss at the time of
delivery. The Fund will only make commitments to purchase securities on a firm
commitment basis with the intention of actually acquiring the securities but may
sell them before the settlement date if it is deemed advisable.
8
<PAGE> 15
The Fund may enter into standby commitments with respect to securities held in
its portfolio. Such transactions entitle the Fund to "put" its securities at an
agreed upon price within a specified period prior to their maturity date.
For more detailed descriptions of certain of the Fund's investment activities,
see "Additional Investment Activities" in the Statement of Additional
Information.
Except with respect to investment by the Fund of at least 80% of its assets in
tax-exempt obligations, as described above, the foregoing investment policies
and activities are not fundamental and may be changed by the Board of Directors
of the Company without the approval of shareholders.
INVESTMENT LIMITATIONS
The Fund may not:
(1) invest more than 10% of the value of its net assets in securities which are
illiquid, including repurchase agreements having notice periods of more than
seven days, fixed time deposits subject to withdrawal penalties and having
notice periods of more than seven days and securities that would be illiquid by
virtue of legal or contractual restrictions on resale;
(2) purchase any securities which would cause more than 25% of the value of its
total assets to be invested in securities of one or more issuers conducting
their principal business activities in the same industry, provided that there is
no limitation with respect to investment in (a) obligations issued or guaranteed
by the United States Government, its agencies or instrumentalities or by any
state or territory, any possessions of the United States, or any of their
authorities, agencies, instrumentalities or political subdivisions, (b) bank
obligations, or (c) repurchase agreements with respect to any such obligations;
(3) invest more than 5% of the current value of its total assets in the
securities of any one issuer, other than obligations issued or guaranteed by the
United States Government, its agencies or instrumentalities; however, up to 50%
of the value of the total assets of the Fund may be invested without regard to
this limitation so long as no more than 25% of its total assets are invested in
the securities of any one issuer;
(4) borrow money except as a temporary measure from banks for extraordinary or
emergency purposes, and in no event in excess of 15% of the value of its total
assets, except that for the purpose of this restriction, short-term credits
necessary for settlement of securities transactions are not considered
borrowings (the Fund will not purchase any securities at any time while such
borrowings exceed 5% of the value of its total assets); or
(5) pledge, hypothecate, mortgage or otherwise encumber its assets in excess of
20% of the value of its total assets, and then only to secure borrowings
permitted by (4) above.
The foregoing investment restrictions and those described in the Statement of
Additional Information are fundamental policies of the Fund which may be changed
only when permitted by law and approved by the holders of a majority of the
Fund's outstanding voting securities, as defined under "Capital Stock" in the
Statement of the Additional Information.
As a non-fundamental operating policy, effective October 3, 1996, the Fund will
apply the percentage limitation of (3) above with respect to 75% of the value of
its total assets.
For purposes of the investment limitations applicable to the Fund, the
identification of the issuer of a municipal obligation depends on the terms and
conditions of the obligation. If the assets and revenues of an agency,
authority, instrumentality or other political subdivision are separate from
those of the government creating the subdivision and the obligation is backed
only by the assets and revenues of the subdivision, such subdivision would be
regarded as the sole issuer. Similarly, in the case of a private activity bond,
if the bond is backed only by the assets and revenues
9
<PAGE> 16
of the non-governmental user, such non-governmental user would be regarded as
the sole issuer. If in either case the creating government or another entity
guarantees an obligation, the guarantee may be considered a separate security
and may be treated as an issue of such government or entity in accordance with
applicable regulations.
If a percentage restriction on investment or use of assets set forth above is
adhered to at the time a transaction is effected, later changes in percentages
resulting from changing values will not be considered a violation.
INVESTMENT MANAGER AND ADMINISTRATOR
The Fund retains SBAM, a wholly owned subsidiary of Salomon Brothers Holding
Company Inc, which is in turn wholly owned by Salomon Inc, as its investment
manager under an investment management contract dated as of September 28, 1990
(the "Management Contract"). SBAM was incorporated in 1987 and, together with
affiliates in London, Frankfurt, Tokyo and Hong Kong, provides a broad range of
fixed income and equity investment advisory services to various individuals and
institutional clients located throughout the world, and serves as investment
adviser to various investment companies. As of February 29, 1996, SBAM had
approximately $14 billion of assets under management. Michael S. Hyland is
President of SBAM. The business address of SBAM is 7 World Trade Center, New
York, New York 10048.
Subject to policies established by the Company's Board of Directors, which has
overall responsibility for the business and affairs of the Fund, SBAM manages
the investment and reinvestment of the Fund's assets pursuant to the Management
Contract. SBAM also furnishes office space, personnel and certain facilities
required for the performance by SBAM of certain additional services provided by
it to the Fund under the Management Contract, including SEC compliance,
supervision of Fund operations, certain administrative and clerical services and
certain services to the Fund's shareholders, and pays the compensation of the
Company's officers, employees and directors affiliated with SBAM. SBAM or the
Fund's distributor will also pay any expenses incurred in distributing shares of
the Fund. Except for the expenses paid by SBAM that are described herein, the
Fund bears all costs of its operations.
As compensation for its services, the Fund pays SBAM a management fee each month
at an annual rate of .20% of the average daily net assets of the Fund. SBAM may
waive all or part of its fee from time to time in order to increase the Fund's
net investment income available for distribution to shareholders. The Fund will
not be required to reimburse SBAM for any advisory fees waived.
The Company employs Investors Bank & Trust Company ("Investors Bank"), under an
Administration Agreement dated as of December 1, 1994 (the "Administration
Agreement"), to provide certain administrative services to the Fund. The
administrator is not involved in the investment decisions made with respect to
the Fund. The services provided by Investors Bank under the Administration
Agreement include certain accounting, clerical and bookkeeping services, blue
sky compliance, corporate secretarial services and assistance in the preparation
and filing of tax returns and of reports to shareholders and the SEC. For its
services as administrator to the Fund, the Company pays Investors Bank a fee,
calculated daily and payable monthly, at an annual rate of .08% of the Fund's
aggregate average daily net assets.
DETERMINATION OF NET
ASSET VALUE
The Fund's net asset value per share for the purpose of pricing purchase and
redemption orders is determined at 12:00 noon (New York time) on each Business
Day. As used in this Prospectus, the term "Business Day" refers to those days
when the New York Stock Exchange (the "NYSE") is open for business, which is
Monday through Friday except for holidays. These holidays include New Year's
Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day, and the preceding Friday or subsequent
Monday when one of those holidays falls on a Saturday or Sunday, respectively.
The Fund determines its net asset value per share by subtracting the Fund's
liabilities (including accrued expenses and dividends payable) from the
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<PAGE> 17
total value of the Fund's investments and other assets and dividing the result
by the total outstanding shares of the Fund.
The Fund uses the amortized cost method to value its portfolio securities and
seeks to maintain a stable net asset value of $1.00 per share. The amortized
cost method involves valuing a security at its cost and amortizing any discount
or premium over the period until maturity, regardless of the impact of
fluctuating interest rates on the market value of the security. See "Net Asset
Value" in the Statement of Additional Information for a more complete
description of the amortized cost method.
PURCHASE OF SHARES
The minimum initial investment in the Fund is $5,000, and the minimum subsequent
investment is $500. The Company and the investment manager reserve the right at
any time to reject any purchase order, to suspend the offering of shares for a
period of time or to waive or lower the minimum investment requirements. There
is no sales charge or commission in connection with the purchase of shares.
Fund shares may be purchased through FDISG, the Company's transfer agent.
Purchase orders for which payment is received in or converted into federal funds
by 12:00 noon (New York time) on any Business Day will become effective and
begin to earn dividends that same day. Purchase orders for which payment is
received in or converted into federal funds after 12:00 noon (New York time) on
any Business Day will become effective and begin to earn dividends on the
following Business Day. Orders for Fund shares will be executed at the net asset
value per share next determined after an order has become effective. See
"Determination of Net Asset Value".
Funds transmitted by a wire system other than the Federal Reserve Wire System
are generally converted into federal funds on the next Business Day. In those
cases in which an investor pays for shares by a check drawn on a member bank of
the Federal Reserve System, federal funds generally will become available on the
Business Day after the check is deposited. Checks drawn on banks which are not
members of the Federal Reserve System or foreign banks may take substantially
longer to be converted into federal funds.
PURCHASE BY MAIL
Shares may be purchased initially by completing a Purchase Application and
mailing it, together with a check, payable to FDISG, to:
Salomon Brothers Funds
c/o FDISG
P.O. Box 9109
Boston, MA 02205-9109
Subsequent investments may be made at any time by mailing a check in an amount
of $500 or more to FDISG at the address set forth above, along with the
detachable stub from the Statement of Account (or a letter providing the account
number). Shareholders should be sure to write the Fund account number on the
check.
If an investor's purchase check is not collected, the purchase will be cancelled
and FDISG will charge a fee of $10 to the shareholder's account. FDISG does not
intend to resubmit such checks for collection.
PURCHASE BY WIRE
Subsequent investments can be made by wire at any time in an amount of $500 or
more by wiring federal funds to FDISG as set forth below. Prior notification by
telephone is not required in the case of subsequent wire purchases.
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<PAGE> 18
The investor should instruct the wiring bank to transmit the specified amount in
federal funds to:
Boston Safe Deposit and Trust Company
Boston, MA
ABA # 011001234
Account # 142743
Attn: Salomon Brothers New York Municipal Money Market Fund
Name of Account:
Account # (As assigned):
DISTRIBUTOR
Salomon Brothers, located at 7 World Trade Center, New York, New York 10048,
serves as a distributor of the Fund's shares. Salomon Brothers is a wholly owned
subsidiary of Salomon Brothers Holding Company Inc, which is in turn wholly
owned by Salomon Inc. It is also one of the largest securities dealers in the
world and a registered broker-dealer. Salomon Brothers makes markets in
securities and provides a broad range of underwriting, research, and financial
advisory services to governments, international corporations and institutional
investors. Salomon Brothers from time to time may receive fees from SBAM in
connection with processing and other services that it provides for certain
shareholder accounts.
REDEMPTION OF SHARES
Shareholders may redeem their shares without charge on any Business Day.
Shareholders should submit their redemption requests to FDISG.
For the shareholder's convenience, the Fund has established several different
redemption procedures. No redemption requests will be processed until a
completed Purchase Application has been received, and no redemption of shares
purchased by check will be permitted until all checks in payment for the
purchase of the shares to be redeemed have been collected, which may take up to
10 days or more.
REDEMPTION BY MAIL
Shares may be redeemed by submitting a written request to FDISG which meets all
the following requirements:
(1) Written instructions from registered owner(s), signed exactly as shares are
registered;
(2) If shares to be redeemed have a net asset value of $50,000 or more, a letter
or a stock power signed by the registered owner(s) with the signature(s)
guaranteed by an acceptable guarantor. A guarantee of each shareholder's
signature is required for all redemptions, regardless of the amount involved,
when the proceeds are to be paid to someone other than the registered owner(s)
of the shares redeemed, are to be wired to a bank or are to be sent to other
than the registered address. Signature guarantees must be in accordance with
FDISG standards and procedures. Any one of the following guarantors is normally
acceptable: (a) a commercial or savings bank which is a member of the Federal
Deposit Insurance Corporation; (b) a trust company; (c) a member firm of a
domestic stock exchange; or (d) a foreign branch of any of the above (FDISG will
not accept dated guarantees or guarantees from a notary public); and
(3) In the case of shares of record held in the name of a corporation, trust,
fiduciary or partnership, FDISG requires evidence of authority to sign and a
stock power with signature(s) guaranteed.
TO EXPEDITE PROCESSING OF REDEMPTIONS BY MAIL, SHAREHOLDERS SHOULD SUBMIT
REDEMPTION REQUESTS AND ALL RELATED DOCUMENTS DIRECTLY TO FIRST DATA INVESTOR
SERVICES GROUP, INC., P.O. BOX 9109, BOSTON, MA 02205-9109.
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<PAGE> 19
Checks for redemption proceeds will normally be mailed within seven days after
redemption. Checks for redemption proceeds will be sent to the shareholder's
address of record, unless other instructions are given in proper form. Upon
request, the proceeds of a redemption amounting to $500 or more will be sent by
federal funds or bank wire to the shareholder's predesignated bank account.
REDEMPTION BY CHECK
If redemption by check has been elected on the Purchase Application, the
redemption of shares may be made by using redemption checks provided by FDISG.
There is no charge for this service. Checks may be made payable to the order of
any person or organization designated by the shareholder and must be for amounts
of $500 or more. Shareholders will continue to earn dividends on the shares
redeemed until the check clears the banking system. If a shareholder's account
does not contain an available amount sufficient to cover the amount of a check,
the check will be returned marked insufficient funds and a $10 charge per
returned check will be imposed. If checks are improperly signed, they will not
be honored. Checks cannot be used to close an account. Redemption by check may
be terminated at any time by FDISG or the Company.
REDEMPTION BY WIRE
If redemption by wire has been elected on the Purchase Application, shares may
be redeemed, in the amount of $500 or more, on any Business Day upon request
made by telephone or letter. No signature guarantee is required on such a
redemption request. To elect this service subsequent to opening an account, call
SBAM or FDISG for further information.
You may either:
Telephone the redemption request to FDISG at:
(800) 446-1013, (800) SALOMON or (800) 725-6666
or
Mail the request to FDISG at the following address:
Salomon Brothers New York Municipal Money Market Fund
c/o FDISG
P.O. Box 9109
Boston, MA 02205-9109
Proceeds of wire redemptions of $500 or more will be wired to the shareholder's
bank indicated in the Purchase Application or by letter which has been properly
guaranteed. If a wire redemption request is received by FDISG by 12:00 Noon (New
York time) on any Business Day, the redemption proceeds generally will be
transmitted to the shareholder's bank that same day. Checks for redemption
proceeds of less than $500 will be mailed to the shareholder's address of
record.
TELEPHONE REDEMPTION PRIVILEGE
Shareholders having direct accounts with FDISG may redeem shares by means of the
Telephone Redemption Privilege. The Application for Telephone Redemption
Privilege must be completed by the shareholder with the signature(s) guaranteed
in the manner described above under "Redemption by Mail" prior to initiating a
telephone redemption.
Shareholders cannot apply the Telephone Redemption Privilege to shares held in
certificate form or for accounts requiring additional supporting documentation
for redemptions such as trust, corporate, estate and guardian accounts.
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<PAGE> 20
Proceeds from the telephone redemption will be forwarded to the shareholder by
check unless the shareholder has requested redemption by wire in the manner
described above under "Redemption by Wire." The check will be made payable to
the registered shareholder(s) and sent to the address of record on file with
FDISG.
Shareholders should realize that by making redemption requests by telephone,
they may be giving up a measure of security that they may have if they were to
redeem their shares in writing. The Fund reserves the right to refuse a
telephone request for redemption if it is believed advisable to do so.
Procedures for redeeming Fund shares by telephone may be modified or terminated
at any time by the Fund. None of the Fund or FDISG will be liable for following
redemption instructions received by telephone, which are reasonably believed to
be genuine, and the shareholder will bear the risk of loss in the event of
unauthorized or fraudulent telephone instructions. The Fund and FDISG may employ
reasonable procedures to confirm that instructions communicated by telephone are
genuine. The Fund and/or FDISG may be liable for any losses due to unauthorized
or fraudulent instructions in the absence of following these procedures. When
requesting a redemption by telephone, shareholders should have available the
correct account registration and account numbers or tax identification number.
SMALL ACCOUNTS
An account that is reduced by a shareholder to a value of $500 or less is
subject to redemption by the Company, but only after the shareholder has been
given at least 30 days to increase the account balance to more than $500.
DIVIDENDS AND DISTRIBUTIONS
The Company intends to declare as a dividend on the outstanding shares of the
Fund substantially all of its net investment income at the close of each
Business Day to the Fund's shareholders of record at 12:00 noon (New York time)
on that day. Shares purchased will begin accruing dividends on the day the
purchase order is executed and shares redeemed will accrue dividends through the
day prior to redemption. The Fund's net investment income for a Saturday, Sunday
or holiday will be declared as a dividend on the previous Business Day.
For the purpose of calculating dividends, net investment income shall consist of
interest earned, which includes any discount accreted or premium amortized to
the date of maturity, minus estimated expenses of the Fund. Dividends will be
declared and accrued throughout the month and paid on the last Business Day of
each month. Dividends will be reinvested in additional shares of the Fund at net
asset value and credited to the shareholder's account on the payment date or, at
the shareholder's election, paid in cash.
Net realized short-term capital gains of the Fund, if any, will be distributed
whenever the Directors determine that such distributions would be in the best
interest of shareholders, but in any event at least once a year. The Company
does not expect the Fund to realize any long-term capital gains. Should any such
gains be realized, they will be
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<PAGE> 21
distributed annually. In determining amounts of gains to be distributed, any
capital loss carryovers from prior years may be offset against capital gains.
If a shareholder elects to receive dividends and/or distributions in cash and
the check cannot be delivered to a shareholder due to an invalid address or
otherwise remains uncashed by the shareholder for a period of six months, the
Fund reserves the right to reinvest the dividend and/or distribution in a
shareholder's account at the then-current net asset value and to convert the
shareholder's election to automatic reinvestment in shares of the Fund.
TAXATION
The Fund intends to qualify and elect to be treated as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). If so qualified, the Fund intends to satisfy conditions which will
enable interest from municipal obligations that is exempt from federal income
tax in the hands of the Fund to qualify as exempt-interest dividends when
distributed to shareholders of the Fund. If in any year the Fund should fail to
qualify for tax treatment as a regulated investment company, the Fund would
incur a regular corporate federal income tax upon its taxable income for that
year, and distributions to shareholders would be taxable to such shareholders as
ordinary income to the extent of the earnings and profits of the Fund.
Except as discussed below, exempt interest dividends will be exempt from regular
federal income tax. In addition, such dividends will not be subject to New York
State and New York City personal income taxes to the extent attributable to
federally tax-exempt obligations of the State of New York and its political
subdivisions. Dividends and distributions from the Fund may be taxable
to shareholders who are subject to state and local taxation outside
New York State and New York City.
Dividends derived from taxable investments, together with distributions from any
net realized short-term securities gains, are subject to federal income tax at
the rates applicable to ordinary income. Distributions from net realized
long-term gains, if any, of the Fund generally are subject to regular federal
income tax as long-term capital gains to such distributions from taxable
investments and any net realized short or long-term capital gains will be
taxable to shareholders whether reinvested in additional shares or paid in cash.
Dividends paid by the Fund will not qualify for the dividends received deduction
generally available to corporations. The maximum federal income tax rate imposed
on individuals with respect to long-term capital gains is limited to 28%,
whereas the maximum federal income tax rate imposed on individuals with respect
to ordinary income currently is 39.6%. With respect to corporate taxpayers,
long-term capital gains are taxed at the same federal income tax rates as
ordinary income.
All or a portion of the Fund's gain from the sale or redemption of tax-exempt
obligations attributable to market discount will be treated as ordinary income
rather than capital gain. This rule may increase the amount of ordinary income
dividends received by shareholders.
Under the Code, interest on indebtedness incurred or continued to purchase or
carry Fund shares, which interest is deemed to relate to exempt-interest
dividends, is not deductible. Although all or a substantial portion of the
dividends paid by the Fund may be excluded by shareholders of the Fund from
their gross income for regular federal income tax purposes, under the Code all
or a portion of such exempt dividends may be (i) a preference item for purposes
of the alternative minimum tax, (ii) a component of the "ACE" adjustment for
purposes of determining the amount of corporate alternative minimum tax or (iii)
a factor in determining the extent to which a shareholder's Social Security
benefits are taxable, and may also affect the federal tax liability of certain
foreign corporations, S corporations and insurance companies.
15
<PAGE> 22
A notice detailing the tax status of dividends and distributions in the Fund
will be mailed annually. The foregoing and the additional information on
taxation in the Statement of Additional Information is general in nature and
does not constitute tax advice. Potential investors should consult their tax
advisers regarding specific questions on federal, state or local taxes.
See "Additional Information Concerning Taxes" in the Statement of Additional
Information.
SHAREHOLDER SERVICES
The Fund offers the following shareholder services. See the Statement of
Additional Information for further details about these services or call or write
the Company.
EXCHANGE PRIVILEGE
Shareholders of the Fund may exchange all or part of their Fund shares for
shares of certain Funds in the Salomon Brothers Family of Funds without payment
of any exchange fee. The following Funds are currently eligible for exchange
privileges:
SALOMON BROTHERS OPPORTUNITY FUND INC. An equity fund which invests for
long-term capital appreciation. Current income is secondary. The fund may employ
speculative investment techniques to attain its goals.
SALOMON BROTHERS CAPITAL FUND INC. An equity fund, emphasizing capital
appreciation. The fund invests in securities believed to have above-average
appreciation possibilities which may involve above-average risks.
The exchange privilege is available to shareholders residing in any state in
which the shares of the Fund being acquired may be legally sold. SBAM reserves
the right to reject any exchange request. The exchange privilege may be modified
or terminated at any time after notice to shareholders. Procedures for
exchanging Fund shares by telephone may be modified or terminated at any time by
the Fund. Neither the Fund nor FDISG will be liable for following exchange
instructions received by telephone, which are reasonably believed to be genuine,
and the shareholder will bear the risk of loss in the event of unauthorized or
fraudulent telephone instructions. The Fund and FDISG may employ reasonable
procedures to confirm that instructions communicated by telephone are genuine.
The Fund and/or FDISG may be liable for any losses due to unauthorized or
fraudulent instructions in the absence of following these procedures. When
requesting an exchange by telephone, shareholders should have available the
correct account registration and account numbers or tax identification number.
The exchange of shares of one fund for shares of another fund is treated for
federal, New York State and New York City income tax purposes as a sale of the
shares given in exchange by the shareholder, and an exchanging shareholder may,
therefore, realize a taxable gain or loss in connection with an exchange.
Shareholders exercising the exchange privilege with any of the funds listed
above should review the prospectus of that fund carefully prior to making an
exchange. Further information regarding the exchange privilege is contained in
the Statement of Additional Information. To obtain the prospectuses of funds in
the Salomon Brothers Family of Funds, shareholders should contact the Fund at
the number on the cover of this Prospectus.
ACCOUNT SERVICES
The Fund sends its shareholders annual and semi-annual reports. Annual reports
include audited financial statements. Shareholders will receive a Statement of
Account at least monthly showing transactions in the account, the total number
of shares owned, and any dividends or distributions paid. Shareholders can write
or call the Fund at the address and telephone number on the cover of this
Prospectus with any questions relating to their investment in Fund shares.
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<PAGE> 23
CAPITAL STOCK
The Company was incorporated in Maryland on April 17, 1990. The authorized
capital stock of the Company consists of 10,000,000,000 shares having a par
value of $.001 per share. Pursuant to the Company's Articles of Incorporation,
the Board of Directors has authorized ten series of shares, each representing
shares in one of ten separate portfolios. In addition to the Fund, the
portfolios of the Company include the Salomon Brothers National Intermediate
Municipal Fund, the Salomon Brothers U.S. Government Income Fund, the Salomon
Brothers High Yield Bond Fund, the Salomon Brothers Strategic Bond Fund, the
Salomon Brothers Cash Management Fund, the Salomon Brothers Institutional Money
Market Fund (formerly called the Salomon Brothers U.S. Treasury Securities Money
Market Fund), the Salomon Brothers New York Municipal Bond Fund, the Salomon
Brothers Total Return Fund and the Salomon Brothers Asia Growth Fund. On
November 17, 1994, the Board of Directors of the Company, including each
Director who is not an "interested person" as such term is defined under the
1940 Act, unanimously approved implementation of a Multiple Pricing System with
respect to each portfolio of the Company other than the Fund and the Salomon
Brothers Institutional Money Market Fund. The Company's Board of Directors may,
in the future, authorize the issuance of additional classes of capital stock
representing shares of additional investment portfolios.
All shares of the Company have equal voting rights and will be voted in the
aggregate, and not by series or class, except where voting by series or class is
required by law or where the matter involved affects only one series or class.
Each shareholder is entitled to cast, at all meetings of shareholders, such
number of full and fractional shares held by such shareholder. All shares of the
Fund will, when issued, be fully paid and non-assessable. Under the corporate
law of Maryland, the Company's state of incorporation, and the Company's By-Laws
(except as required under the 1940 Act), the Company is not required and does
not currently intend to hold annual meetings of shareholders for the election of
directors. Shareholders, however, will have the right to call for a special
meeting of shareholders if such a request is made, in writing, by the holders of
at least 10% of the Company's outstanding voting securities. In such cases, the
Company will assist in calling the meeting as required under the 1940 Act and
will pay the expenses of calling and holding the meeting . A more complete
statement of the voting rights of shareholders is contained in the Statement of
Additional Information.
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<PAGE> 24
Appendix A
DESCRIPTION OF RATINGS
Municipal bonds rated "Aa" by Moody's Investors Service, Inc.
("Moody's") or "AA" by Standard & Poor's Corporation ("S&P") are generally
regarded as high-grade bonds. Such ratings indicate a strong ability to pay
principal and interest. Municipal notes rated "MIG 1" (or "VMIG 1" in the case
of variable rate notes) by Moody's or "SP-I " by S&P are of the best quality,
having a very strong or strong capacity to pay principal and interest and
enjoying strong protection from established cash flows of funds for their
servicing or from established and broadbased access to the market for
refinancing, or both. Municipal notes rated "MIG 2" (or "VMIG 2" in the case of
variable rate notes) by Moody's or "SP-2" by S&P are of high quality, having a
satisfactory capacity to pay principal and interest and enjoying ample
protection for their servicing. Municipal commercial paper or municipal notes
rated "P-l " by Moody's or "A-l " by S&P are of the highest quality, with a
degree of safety regarding timely payment that is either overwhelming or very
strong. Municipal commercial paper or municipal notes rated "P-2" by Moody's or
"A-2" by S&P are of high quality, indicating a strong capacity for timely
repayment.
After purchase by the Fund, a security may cease to be rated or its
rating may be reduced below the minimum required for purchase by the Fund.
Neither event will require a sale of such security by the Fund. However, the
Fund's investment manager will consider such event in its determination of
whether the Fund should continue to hold the security. To the extent the ratings
given by Moody's or S&P may change as a result of changes in such organizations
or their rating systems, the Fund will attempt to use comparable ratings as
standards for investments in accordance with the investment policies contained
in the Prospectus and in this Statement of Additional Information.
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<PAGE> 25
TELEPHONE
(800) SALOMON
(800) 725-6666
DISTRIBUTOR
Salomon Brothers Inc
7 World Trade Center
New York, New York 10048
INVESTMENT MANAGER
Salomon Brothers Asset Management Inc
7 World Trade Center
New York, New York 10048
CUSTODIAN
Investors Bank & Trust Company
89 South Street
Boston, Massachusetts 02111
TRANSFER AGENT AND DIVIDEND
DISBURSING AGENT
First Data Investor Services Group, Inc.
P.O. Box 9109
Boston, Massachusetts 02205-9109
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
New York, New York 10036
LEGAL COUNSEL
Simpson Thacher & Bartlett
New York, New York 10017
PROSPECTUS
APRIL 29, 1996
No dealer, salesman or other person has been authorized to give any information
or to make any representations, other than those contained in this Prospectus,
in connection with the offer contained in this Prospectus, and, if given or
made, such other information or representations must not be relied upon as
having been authorized by the Fund, the distributor or the investment manager.
This Prospectus does not constitute an offering in any state in which such
offering may not lawfully be made.
[SALOMON BROTHERS NEW YORK MUNICIPAL MONEY MARKET FUND LOGO]
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PROSPECTUS
APRIL 29, 1996
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SALOMON BROTHERS
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SALOMON BROTHERS ASSET MANAGEMENT INC
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SALOMON BROTHERS NEW YORK MUNICIPAL MONEY MARKET FUND
7 World Trade Center
New York, New York 10048
(800) SALOMON
(800)725-6666
STATEMENT OF ADDITIONAL INFORMATION
Salomon Brothers New York Municipal Money Market Fund (the "Fund") is a
non-diversified investment portfolio of Salomon Brothers Series Funds Inc, a
professionally managed open-end investment company. The Fund's objective is to
seek as high a level of current income exempt from federal, New York State and
New York City personal income taxes as is consistent with liquidity and the
stability of principal. The Fund invests primarily in high quality, short-term
municipal obligations issued by or on behalf of the State of New York or by its
instrumentalities or political subdivisions, the interest on which is exempt
from federal, New York State and New York City personal income taxes.
This Statement of Additional Information is not a Prospectus and is
only authorized for distribution when preceded or accompanied by the Fund's
Prospectus dated April 29, 1996 (the "Prospectus"). This Statement of Additional
Information contains additional information to that set forth in the Prospectus
and should be read in conjunction with the Prospectus, additional copies of
which may be obtained without charge by writing or calling the Fund at the
address and telephone number printed above.
April 29, 1996
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Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
Additional Information on Portfolio Instruments ................................. 3
Additional Investment Activities ................................................ 5
Special Factors Affecting the Fund's Investment in New York Municipal
Obligations ..................................................................... 7
Investment Restrictions ......................................................... 39
Management of the Fund .......................................................... 40
Portfolio Transactions .......................................................... 47
Net Asset Value.................................................................. 48
Redemption In Kind .............................................................. 49
Additional Information Concerning Taxes ......................................... 49
Performance Data ................................................................ 52
Shareholder Services ............................................................ 53
Capital Stock.................................................................... 54
Custodian, Transfer Agent and Shareholder Servicing Agent ....................... 55
Validity of Shares .............................................................. 55
Independent Accountants ......................................................... 55
Other Information ............................................................... 55
Financial Statements ............................................................ 56
</TABLE>
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ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS
MUNICIPAL OBLIGATIONS
Municipal Commercial Paper. Municipal commercial paper is a debt
obligation with a stated maturity of 270 days or less that is issued by a
municipality to finance seasonal working capital needs or as short-term
financing in anticipation of longer-term debt.
Municipal Notes. Municipal notes generally have maturities at the time
of issuance of three years or less.
Municipal Bonds. Municipal bonds generally have maturities at the time
of issuance of up to thirty years.
MUNICIPAL NOTES
Municipal notes that may be purchased by the Fund include, but are not
limited to:
Tax Anticipation Notes. Tax anticipation notes ("TANs") are sold as
interim financing in anticipation of collection of taxes. An uncertainty in a
municipal issuer's capacity to raise taxes as a result of such things as a
decline in its tax base or a rise in delinquencies could adversely affect the
issuer's ability to meet its obligations on outstanding TANs.
Bond Anticipation Notes. Bond anticipation notes ("BANs") are sold as
interim financing in anticipation of a bond sale. The ability of a municipal
issuer to meet its obligations on its BANs is primarily dependent on the
issuer's adequate access to the longer term municipal bond market and the
likelihood that the proceeds of such bond sales will be used to pay the
principal of, and interest on, BANs.
Revenue Anticipation Notes. Revenue anticipation notes ("RANs") are
sold as interim financing in anticipation of receipt of other revenues. A
decline in the receipt of certain revenues, such as anticipated revenues from
another level of government, could adversely affect an issuer's ability to meet
its obligations on outstanding RANs.
Municipal notes also include construction loan notes and project notes.
TANs, BANs and RANs are usually general obligations of the issuer. Project notes
are issued by local housing authorities to finance urban renewal and public
housing projects and are secured by the full faith and credit of the United
States Government.
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The taxable market is a broader and more liquid market with a greater
number of investors, issuers and market makers than the market for municipal
obligations. The more limited
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marketability of tax-exempt municipal obligations may make it difficult in
certain circumstances to dispose of large investments advantageously. In
general, tax-exempt municipal obligations are also subject to credit risks such
as the loss of credit ratings or possible default. In addition, interest on
certain tax-exempt municipal obligations might lose its tax-exempt status in the
event of a change in the tax laws.
TAXABLE MONEY MARKET INSTRUMENTS
Taxable money market instruments in which the Fund may invest include
the following:
United States Government Securities. Securities issued or guaranteed by
the United States government or by its agencies or instrumentalities include
obligations of several kinds. Such securities in general include a wide variety
of United States Treasury obligations consisting of bills, notes and bonds,
which principally differ only in their interest rates, maturities and times of
issuance. Securities issued or guaranteed by United States government agencies
or instrumentalities include obligations which are supported by (a) the full
faith and credit of the United States Treasury (e.g., obligations of the
Government National Mortgage Association), (b) the limited authority of the
issuer or guarantor to borrow from the United States Treasury (e.g., obligations
of Federal Home Loan Banks), or (c) only the credit of the issuer (e.g.,
obligations of the Federal Home Loan Mortgage Corporation). No assurance can be
given that the United States government will provide financial support to United
States government agencies or instrumentalities as described in clauses (b) and
(c) above in the future, since it is not obligated to do so by law, rather
the agency issuing or guaranteeing the obligate is principally responsible for
ultimate repayment. Any guarantee of such securities runs only to the principal
and interest payments on the securities and not to the market value or, in the
case of mortgage-backed securities, to the principal and interest payments on
the underlying mortgages.
Bank Obligations. Such obligations include certificates of deposit,
commercial paper, banker's acceptances and fixed time deposits. Bank obligations
may be general obligations of the parent bank or may be limited to the issuing
branch by the terms of the specific obligations or by government regulation.
Commercial Paper. The commercial paper that may be purchased by the
Fund consists of direct obligations of domestic and foreign issuers which are
(i) rated "P- 1" or "P-2" by Moody's Investors Service, Inc. ("Moody's") or "A-l
" or "A-2" by Standard & Poor's Corporation ("S&P") or (ii) if not rated, are
issued or guaranteed as to principal and interest by issuers having an existing
debt security rating of "Aa" or better by Moody's or "AA" or better by S&P or
are, in the opinion of the investment manager, of an investment quality
comparable to rated commercial paper in which the Fund may invest.
Corporate Debt Securities. Fund investments in these securities will
consist of non-convertible corporate debt securities such as bonds and
debentures which are rated "Aa" or better by Moody's or "AA" or better by S&P or
are, in the opinion of the investment manager, of an investment quality
comparable to rated debt securities in which the Fund may invest.
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Securities of the World Bank/Other Supranational Organizations and
Foreign Governments. Obligations of the International Bank for Reconstruction
and Development (also known as the World Bank) and certain other supranational
organizations are supported by subscribed but unpaid commitments of member
countries. There is no assurance that these commitments will be undertaken or
complied with in the future.
The Fund limits its investments in U.S. dollar-denominated obligations
of foreign governments and their agencies and instrumentalities to the
commercial paper and other short- term notes issued or guaranteed by the
governments or agencies and instrumentalities of Western Europe, including the
United Kingdom, Spain, Portugal, Greece, Austria, France, West Germany, Belgium,
the Netherlands, Italy, Switzerland, Denmark, Norway, Sweden, Finland, Ireland,
and of Australia, New Zealand, Japan and Canada. The Fund will purchase these
obligations only if such obligations, in the opinion of the investment manager,
are of comparable quality to corporate obligations in which the Fund may invest.
Repurchase Agreements. Taxable securities held by the Fund may be
subject to repurchase agreements. A repurchase agreement is a transaction in
which the seller of a security commits itself at the time of the sale to
repurchase that security from the buyer at a mutually agreed upon time and
price. The Fund will enter into repurchase agreements only with respect to
obligations that could otherwise be purchased by the Fund. While the maturity of
the underlying securities in a repurchase agreement transaction may be more than
one year, the term of the repurchase agreement is always less than one year. The
Fund will enter into repurchase agreements only with dealers, domestic banks or
recognized financial institutions which, in the opinion of the investment
manager, present minimal credit risks. In the event of default by the seller
under the repurchase agreement, the Fund may incur costs and experience time
delays in connection with the disposition of the underlying securities. The
investment manager will monitor the value of the securities underlying the
repurchase agreement at the time the transaction is entered into and at all
times during the term of the repurchase agreement to ensure that the value of
the securities always equals or exceeds the repurchase price. The Fund requires
that additional securities be deposited if the value of the securities purchased
decreases below their resale price and does not bear the risk of a decline in
the value of the underlying security unless the seller defaults under the
repurchase obligation.
ADDITIONAL INVESTMENT ACTIVITIES
The discussion below supplements the information set forth in the
Prospectus under "Additional Investment Activities".
FLOATING AND VARIABLE RATE INSTRUMENTS
As stated in the Prospectus, certain of the floating or variable rate
obligations that may be purchased by the Fund may carry a demand feature that
would permit the holder to tender them back to the issuer at par value prior to
maturity. Some of the demand instruments purchased by the Fund are not traded in
a secondary market and derive their liquidity solely from
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the ability of the holder to demand repayment from the issuer. If a demand
instrument is not traded in a secondary market, the Fund will nonetheless treat
the instrument as "readily marketable" for the purpose of the first investment
restriction under "Investment Limitations" in the Prospectus unless the demand
feature has a notice period of more than seven days; if the notice period is
greater than seven days, the demand instrument will be characterized as "not
readily marketable" for such purpose.
The Fund's right to obtain payment at par on a demand instrument could
be affected by events occurring between the date such Fund elects to demand
payment and the date payment is due that may affect the ability of the issuer of
the instrument to make payment when due, except when such demand instruments
permit same day settlement. To facilitate settlement, these same day demand
instruments may be held in book entry form at a bank other than the Fund's
custodian subject to a sub-custodian agreement approved by the Fund between that
bank and the Fund's custodian.
STAND-BY COMMITMENTS
The Fund may enter into "put" transactions sometimes referred to as
"stand-by commitments," which entitle the holder to same-day settlement and to
receive an exercise price equal to the amortized cost of the underlying security
plus accrued interest, if any, at the time of exercise. The Fund's right to
exercise a stand-by commitment will be unconditional and unqualified.
The Fund expects that stand-by commitments will generally be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, the Fund may pay for certain stand-by commitments either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to a stand-by commitment (thus reducing the yield to
maturity otherwise available for the same securities). The Fund intends to enter
into stand-by commitments solely to facilitate portfolio liquidity and does not
intend to exercise its rights thereunder for trading purposes. The acquisition
of a stand-by commitment will not affect the valuation of the underlying
security, which will continue to be valued in accordance with the amortized cost
method. The actual stand-by commitment will be valued at zero in determining net
asset value. Where the Fund pays any consideration directly or indirectly for a
stand-by commitment, its cost will be reflected as unrealized depreciation for
the period during which the stand-by commitment is held by the Fund and will be
reflected in realized gain or loss when the stand-by commitment is exercised or
expires.
In the event that the issuer of a stand-by commitment acquired by the
Fund defaults on its obligation to purchase the underlying security, the Fund
might be unable to recover all or a portion of any loss sustained from having to
sell the security elsewhere.
If the value of the underlying security increases, the potential for
unrealized or realized gain is reduced by the cost of the stand-by commitment.
The maturity of a portfolio security will not be considered shortened by a
stand-by commitment to which such obligation is subject. Therefore, stand-by
commitment transactions will not affect the average weighted maturity of the
Fund's portfolio.
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SPECIAL FACTORS AFFECTING THE FUND'S INVESTMENT
IN NEW YORK MUNICIPAL OBLIGATIONS
Some of the significant financial considerations relating to the
investments of the Fund in New York municipal securities are summarized below.
The following information constitutes only a brief summary, does not purport to
be a complete description and is largely based on information drawn from
official statements relating to securities offerings of New York municipal
obligations available as of the date of this Statement of Additional
Information. The accuracy and completeness of the information contained in such
offering statements has not been independently verified.
NEW YORK STATE
New York State Financing Activities. There are a number of methods by
which New York State (the "State") may incur debt. Under the State Constitution,
the State may not, with limited exceptions for emergencies, undertake long-term
general obligation borrowing (i.e., borrowing for more than one year) unless the
borrowing is authorized in a specific amount for a single work or purpose by the
New York State Legislature (the "Legislature") and approved by the voters. There
is no limitation on the amount of long-term general obligation debt that may be
so authorized and subsequently incurred by the State. With the exception of
general obligation housing bonds (which must be paid in equal annual
installments or installments that result in substantially level or declining
debt service payments, within 50 years after issuance, commencing no more than
three years after issuance), general obligation bonds must be paid in equal
annual installments or installments that result in substantially level or
declining debt service payments, within 40 years after issuance, beginning not
more than one year after issuance of such bonds.
In April 1993, legislation was also enacted providing for significant
constitutional changes to the long-term financing practices of the State and the
Authorities.
In June 1994, the Legislature passed a proposed constitutional
amendment that would permit the State, within a formula-based cap, to issue
revenue bonds, which would be debt of the State secured solely by a pledge of
certain State tax receipts (including those allocated to State funds dedicated
for transportation purposes), and not by the full faith and credit of the State.
In addition, the proposed amendment would permit multiple purpose general
obligation bond proposals to be proposed on the same ballot, require that State
debt be incurred only for capital projects included in a multi-year capital
financing plan and prohibit, after its effective date, lease-purchase and
contractual-obligation financing mechanisms for State facilities.
Public hearings were held on the proposed constitutional amendment
during 1993. Following these hearings, in February 1994, Governor Cuomo and the
State Comptroller recommended a revised constitutional amendment which would
further tighten the ban on lease-purchase and contractual-obligation financing,
incorporate existing lease-purchase and contractual-obligation debt under the
proposed revenue bond cap while simultaneously reducing
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the size of the cap. After considering these recommendations, the Legislature
passed a revised constitutional amendment which tightens the ban, and provides
for a phase-in to a lower cap (4.4 percent of personal income).
Although the State Senate and Assembly passed the amendment, the voters
defeated it in November 1995.
The State may undertake short-term borrowings without voter approval
(i) in anticipation of the receipt of taxes and revenues, by issuing tax and
revenue anticipation notes ("TRANs"), and (ii) in anticipation of the receipt of
proceeds from the sale of duly authorized but unissued bonds, by issuing bond
anticipation notes ("BANs"). TRANs must mature within one year from their dates
of issuance and may not be refunded or refinanced beyond such period. BANS may
only be issued for the purposes and within the amounts for which bonds may be
issued pursuant to voter authorizations. Such BANs must be paid from the
proceeds of the sale of bonds in anticipation of which they were issued or from
other sources within two years of the date of issuance or, in the case of BANs
for housing purposes, within five years of the date of issuance.
The State may also, pursuant to specific constitutional authorization,
directly guarantee certain public authority obligations. The State Constitution
provides for the State guarantee of the repayment of certain borrowings for
designated projects of the New York State Thruway Authority, the Job Development
Authority and the Port Authority of New York and New Jersey (the "Port
Authority"). The State has never been called upon to make any direct payments
pursuant to such guarantees. The constitutional provisions allowing a
State-guarantee of certain Port Authority debt stipulates that no such
guaranteed debt may be outstanding after December 31, 1996.
Payments of debt service on State general obligation and
State-guaranteed bonds and notes are legally enforceable obligations of the
State.
The State employs additional long-term financing mechanisms,
lease-purchase and contractual-obligation financing, which involve obligations
of public authorities or municipalities that are State-supported but not general
obligations of the State. Under these financing arrangements, certain public
authorities and municipalities have issued obligations to finance the
construction and rehabilitation of facilities or the acquisition and
rehabilitation of equipment, and expect to meet their debt service requirements
through the receipt of rental or other contractual payments made by the State.
Although these financing arrangements involve a contractual agreement by the
State to make payments to a public authority, municipality or other entity, the
State's obligation to make such payments is generally expressly made subject to
appropriation by the Legislature and the actual availability of money to the
State for making the payments. The State has also entered into a
contractual-obligation financing arrangement with the New York Local Government
Assistance Corporation ("LGAC") to restructure the way the States makes certain
local aid payments. The State also participates in the issuance of certificates
of participation ("COPs") in a pool of leases entered into by the State's Office
of General Services on behalf of several State departments and agencies
interested in acquiring operational equipment, or in certain cases, real
property.
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The State has never defaulted on any of its general obligation
indebtedness or its obligations under lease-purchase or contractual-obligation
financing arrangements and has never been called upon to make any direct
payments pursuant to its guarantees.
The State also employs moral obligations financing. Moral obligation
financing generally involves the issuance of debt by a public authority to
finance a revenue-producing project or other activity. The debt is secured by
project revenues and includes statutory provisions requiring the State, subject
to appropriation by the Legislature, to make up any deficiencies which may occur
in the issuer's debt service reserve fund. There has never been a default on any
moral obligation debt of any public authority.
The State anticipates that its capital programs will be financed, in
part, through borrowings by the State and public authorities in the 1995-96
fiscal year. The State expects to issue $248 million in general obligation bonds
(including $70 million for purposes of redeeming outstanding BANs) and $186
million in general obligation commercial paper. The Legislature has also
authorized the issuance of up to $33 million in COPs during the State's 1995-96
fiscal year for equipment purchases and $14 million for capital purposes. The
projection of the State regarding its borrowings for the 1995-96 fiscal year may
change if circumstances require.
LGAC is authorized to provide net proceeds of up to $529 million during
the State's 1995-96 fiscal year, to redeem notes sold in June 1995.
Borrowings by other public authorities pursuant to lease-purchase and
contractual-obligation financings for capital programs of the State are
projected to total $2.7 billion, including costs of issuances, reserve funds,
and other costs, net of anticipated refundings and other adjustments for 1994-95
capital projects. Included therein are borrowings by (i) the Dormitory Authority
of the State of New York ("DA") for State University of New York ("SUNY"), The
City University of New York ("CUNY"), and health facilities, (ii) the New York
State Medical Care Facilities Finance Agency ("MCFFA") for mental health
facilities; (iii) Thruway Authority for the Dedicated Highway and Bridge Trust
Fund and Consolidated Highway Improvement Program; (iv) UDC for prison and youth
facilities and economic development programs; (v) the Housing Finance Agency
("HFA") for housing programs; and (vi) other borrowings by the Environmental
Facilities Corporation ("EFC") and the Energy Research and Development Authority
("ERDA").
In addition to the arrangements described above, State law provides for
State municipal assistance corporations, which are Authorities authorized to aid
financially troubled localities. The Municipal Assistance Corporation for The
City of New York ("MAC"), created to provide financing assistance to New York
City (the "City"), is the only municipal assistance corporation created to date.
To enable MAC to pay debt service on its obligations, MAC receives, subject to
annual appropriation by the Legislature, receipts from the 4% New York State
Sales Tax for the Benefit of New York City, the State-imposed Stock Transfer Tax
and, subject to certain prior liens, certain local assistance payments otherwise
payable to the City. The legislation creating MAC also includes a moral
obligation provision. Under its enabling legislation, MAC's authority to issue
bonds and notes (other than refunding bonds and notes) expired on December 31,
1984.
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State Financial Operations. The State has historically been one of the
wealthiest states in the nation. For decades, however, the State economy has
grown more slowly than that of the nation as a whole, gradually eroding the
State's relative economic affluence. Statewide, urban centers have experienced
significant changes involving migration of the more affluent to the suburbs and
an influx of generally less affluent residents. Regionally, the older Northeast
cities have suffered because of the relative success that the South and the West
have had in attracting people and business. The City has also had to face
greater competition as other major cities have developed financial and business
capabilities which make them less dependent on the specialized services
traditionally available almost exclusively in the City.
Although the State ranks 22nd in the nation for its State tax burden,
the State has the second highest combined state and local tax burden in the
United States. In 1991, total State and local taxes in New York were $3,349 per
capita, compared with $1,475 per capita in 1980. Between 1980 and 1991, State
and local taxes per capita increased at approximately the same rate in the State
as in the nation as a whole with per capita taxes in the State increasing by
127% while such taxes increased 111% in the nation. The State Division of the
Budget ("DOB") believes, however, that it is more informative to describe the
state and local tax burden in terms of its relationship to personal income. In
1992, total State and local taxes in New York were $154.70 per $1,000 of
personal income, compared with $152.70 in 1980. Between 1980 and 1992, State and
local taxes per $1,000 of personal income increased at a slower rate in the
State than in the nation as a whole with such taxes in the State increasing by
1.3 percent while such taxes increased 4 percent in the nation. The State and
its localities have used these taxes to develop and maintain their respective
transportation networks, public schools and colleges, public health systems,
other social services, and recreational facilities. Despite these benefits, the
burden of State and local taxation, in combination with the many other causes of
regional economic dislocation, may have contributed to the decisions of some
businesses and individuals to relocate outside, or not locate within, the State.
The national economy began expanding in 1991 and has added over 7
million jobs since early 1992. However, the recession lasted longer in the State
and the State's economic recovery has lagged behind the nation's. Although the
State has added approximately 185,000 jobs since November 1992, employment
growth in the State has been hindered during recent years by significant
cutbacks in the computer and instrument manufacturing, utility, defense, and
banking industries. DOB forecasted that national economic growth would weaken,
but not turn negative, during the course of 1995 before beginning to rebound.
This dynamic is often described as a "soft landing."
The national economy achieved the desired "soft landing" in 1995, as
growth slowed from 6.2 percent in 1994 to a rate sufficiently slow to inhibit
the buildup of inflationary pressures. This was achieved without any material
pause in the economic expansion, although recession worries flared in the late
spring and early summer. Growth in the national economy is expected to moderate
during 1996. Real GDP grew only 0.9 percent in the fourth quarter of 1995, and
there were declines in the leading economic indicators in four of the past five
months. It is anticipated that slow economic growth will continue through the
first half of 1996 and inflationary pressures will be modest in 1996. Economic
growth will gradually accelerate in the
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second half of 1996 as the lower level of interest rates over the last year is
expected to stimulate economic activity. Economic growth, as measured by the
nation's nominal GDP, is projected to expand by 4.3 percent in 1996 versus 4.6
in 1995. In 1992 dollars, real GDP is expected to grow 1.8 percent as compared
with the 2.1 percent growth in 1995. By either measure, economic growth is
projected to be noticeably slower for 1996 than 1995.
To stimulate economic growth, the State has developed programs,
including the provision of direct financial assistance, designed to assist
businesses to expand existing operations located within the State and to attract
new businesses to the State. In addition, the State has provided various tax
incentives to encourage business relocation and expansion. These programs
include direct tax abatements from local property taxes for new facilities
(subject to locality approval) and investment tax credits that are applied
against the State corporation franchise tax. Furthermore, the State has created
40 "economic development zones" in economically distressed regions of the
States. Businesses in these zones are provided a variety of tax and other
incentives to create jobs and make investments in the zones. There can be no
assurance that these programs will be successful.
From 1994 to 1995 the annual growth rates of most economic indicators
for the State improved. The pace of private sector employment expansion and
personal income and wage growth all accelerated. Government employment fell as
workforce reductions were implemented at federal, State and local levels.
Similar to the nation, some moderation of growth is expected in the year ahead.
Private sector employment is expected to continue to rise, although somewhat
more slowly than in 1995, while public employment should continue to fall,
reflecting government budget cutbacks. Anticipated continued restraint in wage
settlements, a lower rate of employment growth and falling interest rates are
expected to slow personal income growth significantly.
The State's fiscal year that commenced on April 1, 1995, ended on March
31, 1996, and is referred to herein as the State's 1995-96 fiscal year.
The State's budget for the 1995-96 fiscal year was enacted by the
Legislature on June 7, 1995, more than two months after the start of the fiscal
year. Prior to adoption of the budget, the Legislature enacted appropriations
for disbursements considered to be necessary for State operations and other
purposes, including all necessary appropriations for debt service. The State
Financial Plan for the 1995-96 fiscal year (the "1995-96 State Financial Plan")
was formulated on June 20, 1995 and is based on the State's budget as enacted by
the Legislature and signed into law by the Governor. The State Financial Plan is
updated quarterly pursuant to law in July, October and January.
The 1995-96 budget is the first to be enacted in the administration of
Governor George Pataki, who assumed office on January 1, 1995. It is the first
budget in over half a century which proposed and, as enacted, projects an
absolute year-over-year decline in General Fund disbursements. Spending for
State operations is projected to drop even more sharply, by 4.6 percent. Nominal
spending from all State funding sources (i.e., excluding Federal aid) is
proposed to increase by only 2.5 percent from the prior fiscal year, in contrast
to the prior decade when such spending growth averaged more than 6.0 percent
annually.
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In his Executive Budget, the Governor indicated that in the 1995-96
fiscal year, the 1995-96 State Financial Plan, based on then-current law
governing spending and revenues, would be out of balance by almost $4.7 billion,
as a result of the projected structural deficit resulting from the ongoing
disparity between sluggish growth in receipts, the effect of prior-year tax
changes, and the rapid acceleration of spending growth; the impact of unfunded
1994-95 initiatives, primarily for local aid programs; and the use of one-time
solutions, primarily surplus funds from the prior year, to fund recurring
spending in the 1994-95 budget. The Governor proposed additional tax cuts to
spur economic growth and provide relief for low and middle-income tax payers,
which were larger than those ultimately adopted, and which added $240 million to
the then projected imbalance or budget gap, bringing the total to approximately
$5 billion.
The 1995-96 State Financial Plan contemplates closing this gap based on
the enacted budget, through a series of actions, mainly spending reductions and
cost containment measures and certain reestimates that are expected to be
recurring, but also through the use of one-time solutions. The 1995-96 State
Financial Plan projects (i) nearly $1.6 billion in savings from cost
containment, disbursement reestimates, and other savings in social welfare
programs, including Medicaid, income maintenance and various child and family
care programs; (ii) $2.2 billion in savings from State agency actions to reduce
spending on the State workforce, SUNY and CUNY, mental hygiene programs, capital
projects, the prison system and fringe benefits; (iii) $300 million in savings
from local assistance reforms, including actions affecting school aid and
revenue sharing while proposing program legislation to provide relief from
certain mandates that increase local spending; (iv) over $400 million in revenue
measures, primarily a new Quick Draw Lottery game, changes to tax payment
schedules, and the sale of assets; and (v) $300 million from reestimates in
receipts.
The following discussion summarizes updates to the 1995-96 State
Financial Plan and recent fiscal years with particular emphasis on the State's
General Fund. Pursuant to statute, the State updates the financial plan at least
on a quarterly basis. Due to changing economic conditions and information,
public statements or reports may be released by the Governor, members of the
Legislature, and their respective staffs, as well as others involved in the
budget process from time to time. Those statements or reports may contain
predictions, projections or other items of information relating to the State's
financial condition, including potential operating results for the current
fiscal year and projected baseline gaps for future fiscal years, that may vary
materially and adversely from the information provided herein.
The General Fund is the principal operating fund of the State and is
used to account for all financial transactions, except those required to be
accounted for in another fund. It is the State's largest fund and receives
almost all State taxes and other resources not dedicated to particular purposes.
In the State's 1995-96 fiscal year, the General Fund is expected by the State to
account for approximately 49 percent of total governmental-fund receipts and 71
percent of total governmental-fund disbursements. General Fund moneys are also
transferred to other funds, primarily to support certain capital projects and
debt service payments in other fund types.
The General Fund is projected to be balanced on a cash basis for the
1995-96 fiscal year. Total receipts are projected to be $33.110 billion, an
increase of $48 million over total receipts in
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the prior fiscal year. Total General Fund disbursements are projected to be
$33.055 billion, an increase of $344 million over the total amount disbursed and
transferred in the prior fiscal year.
In addition to the General Fund, the State Financial Plan includes
Special Revenue Funds, Capital Projects Funds and Debt Service Funds.
Special Revenue Funds are used to account for the proceeds of specific
revenue sources such as Federal grants that are legally restricted, either by
the Legislature or outside parties, to expenditures for specified purposes.
Although activity in this fund type is expected to comprise more than 40 percent
of total government funds receipts and disbursements in the 1995-96 fiscal year,
about three-quarters of that activity relates to Federally-funded programs.
Projected receipts in this fund type total $25.547 billion, an increase
of $1.316 billion over the prior year. Projected disbursements in this fund type
total $26.002 billion, an increase of $1.641 billion over 1994-95 levels.
Disbursements from Federal funds, primarily the Federal share of Medicaid and
other social services programs, are projected to total $19.209 billion in the
1995-96 fiscal year. Remaining projected spending of $6.793 billion primarily
reflects aid to SUNY supported by tuition and dormitory fees, education aid
funded from lottery receipts, operating aid payments to the Metropolitan
Transportation Authority (the "MTA") funded from the proceeds of dedicated
transportation taxes, and costs of a variety of self-supporting programs which
deliver services financed by user fees.
Capital Projects Funds are used to account for the financial resources
used for the acquisition, construction, or rehabilitation of major State capital
facilities and for capital assistance grants to certain local governments or
public authorities. This fund type consists of the Capital Projects Fund, which
is supported by tax dollars transferred from the General Fund, and 37 other
capital funds established to distinguish specific capital construction purposes
supported by other revenues. In the 1995-96 fiscal year, activity in these funds
is expected to comprise 7 percent of total governmental receipts and
disbursements.
Disbursements from this fund type are projected to increase by $541
million over prior-year levels, primarily reflecting higher spending for
transportation and mental hygiene projects. The Dedicated Highway and Bridge
Trust Fund is projected to comprise 23 percent of the activity in this fund type
- -- $936 million in 1995-96 -- and is the single largest dedicated fund.
Projected disbursements from this dedicated fund reflect an increase of $80
million over 1994-95 levels. Spending for capital projects will be financed
through a combination of sources: Federal grants (25 percent), public authority
bond proceeds (38 percent), general obligation bond proceeds (9 percent), and
current revenues (28 percent). Total receipts in this fund type are projected at
$4.170 billion, not including $364 million expected to be available from the
proceeds of general obligation bonds.
Debt Service Funds are used to account for the payment of principal of,
and interest on, long-term debt of the State and to meet commitments under
lease-purchase and other contractual-obligation financing arrangements. This
fund is expected to comprise 4 percent of total governmental fund receipts and
disbursements in the 1995-96 fiscal year. Receipts in these
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funds in excess of debt service requirements are transferred to the General Fund
and Special Revenue Funds, pursuant to law.
The Debt Service Fund type consists of the General Debt Service Fund,
which is supported primarily by tax dollars transferred from the General Fund,
and seven other funds. In the 1995-96 fiscal year, total disbursements in this
fund type are projected at $2.506 billion, an increase of $303 million or 13.8
percent. The transfer from the General Fund of $1.583 billion is expected to
finance 63 percent of these payments.
The State contemplates financing the remaining payments by pledged
revenues, including $1.794 billion in taxes, $228 million in dedicated fees, and
$2.200 billion in patient revenues, including transfers of Federal
reimbursements. After impoundment for debt service, as required, $3.481 billion
is expected to be transferred to the General Fund and other funds in support of
State operations. The largest transfer -- $1.761 billion -- is made to the
Special Revenue Fund type, in support of operations of the mental hygiene
agencies. Another $1.341 billion in excess sales taxes is expected to be
transferred to the General Fund, following payment of projected debt service on
bonds of LGAC.
The State issued the first of the three required quarterly updates to
the 1995-96 cash-basis State Financial Plan on July 28, 1995 (the "First Quarter
Update"). The First Quarter Update projected continued balance in the State's
1995-96 Financial Plan, and incorporated few revisions to the initial State
Financial Plan of June 20, 1995. The economic forecast was unchanged. A number
of small, offsetting changes were made to the annual receipts and disbursements
estimates. The First Quarter Update also incorporated the restatement of three
transactions within the budget so that these transactions conformed with
accounting treatments utilized by the Office of the State Comptroller. These
restatements had the net effect of reducing both General Fund receipts and
disbursements by $251 million; therefore, they had no impact on the closing
balance of the General Fund.
The State issued its second quarterly update to the cash-basis 1995-96
State Financial Plan (the "Mid-Year Update") on October 26, 1995. The Mid-Year
Update projected continued balance in the State's 1995-96 Financial Plan, with
estimated receipts reduced by a net $71 million and estimated disbursements
reduced by a net $30 million as compared to the First Quarter Update. The
resulting General Fund balance decreased from $213 million in the First Quarter
Update to $172 million in the Mid-Year Update, reflecting the expected use of
$41 million from the Contingency Reserve Fund for payments of litigation and
disallowance expenses. The Mid-Year Update also incorporated changes resulting
from implementation of the Governor's Management Review Plan which was released
on October 12, 1995. The Management Review Plan is expected to produce savings
of $148 million in State fiscal year 1995-96, primarily through Medicaid
Utilization controls, consolidation of State agency staffing and office space,
controls on staffing, overtime and contractual expenses, and increased
productivity. Of the $148 million in savings attributable to the Management
Review Plan, $146 million was reflected in low spending from the General Fund
and $2 million was reflected in increased General Fund receipts.
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The State revised the cash-basis 1995-96 Financial Plan on December 15,
1995 (the "December 15 Update"), in conjunction with the release of the
Executive Budget for the 1996-97 fiscal year.
The December 15 Update projected continued balance in the 1995-96
General Fund Financial Plan, with reductions on projected receipts offset by an
equivalent reduction in projected disbursements. Modest changes were made to the
Mid-Year Update, reflecting two more months of actual results, deficiency
requests by State agencies (the largest of which is for school aid resulting
from revisions to data submitted by school districts), and administrative
efficiencies achieved by State agencies. Total General Fund receipts are
expected to be approximately $73 million lower than estimated at the time of the
Mid-Year Update. Tax receipts are now projected to be $29.57 billion, $8 million
less than in the earlier plan. Miscellaneous receipts and transfers from other
funds are estimated at $3.15 billion, $65 million lower than in the Mid-Year
Update. The largest single change in these estimates is attributable to the lag
in achieving $50 million in proceeds from sales of State assets, which are
unlikely to be completed prior to the end of the fiscal year.
Projected General Fund disbursements are reduced by a total of $73
million, with changes made in most major categories of the 1995-96 State
Financial Plan. The reduction in overall spending masks the impact of deficiency
requests totaling more than $140 million, primarily for school aid and tuition
assistance to college students. Offsetting reductions in spending are
attributable to the continued maintenance of strict controls on spending through
the fiscal year by State agencies, yielding savings of $50 million. Reductions
of $49 million in support for capital projects reflect a stringent review of all
capital spending. Reductions of $30 million in debt service costs reflect
savings from refundings undertaken in the current fiscal year, as well as
savings from lower interest rates in the financial market. Finally, the 1995-96
Financial Plan reflects reestimates based on actual results through November,
the largest of which is a reduction of $70 million in projected costs for income
maintenance. This reduction is consistent with declining caseload projections.
The balance in the General Fund at the close of the 1995-96 fiscal year
is expected to be $172 million, entirely attributable to monies in the Tax
Stabilization Reserve Fund following the required $15 million payment into that
Fund. A $40 million deposit in the Contingency Reserve Fund included as part of
the enacted 1995-96 budget will not be made, and the minor balance of $1 million
currently in the Fund will be transferred to the General Fund. These Contingency
Reserve Fund monies are expected to support payments from the General Fund for
litigation related to the State's Medicaid program, and for federal
disallowances.
Changes in federal aid programs currently pending in Congress are not
expected to have a material impact on the State's 1995-96 Financial Plan,
although prolonged interruptions in the receipt of federal grants could create
adverse developments, the scope of which can not be estimated at this time. The
major remaining uncertainties in the 1995-96 State Financial Plan continue to be
those related to the economy and tax collections, which could produce either
favorable or unfavorable variances during the balances of the year.
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The State issued its third required quarterly update to the 1995-96
cash-basis State Financial Plan on January 30, 1996 (the "Third Quarterly
Update"). The Third Quarterly Update was published two weeks after the closure
of the Governor's 30-day amendment period, during which the Governor revised the
1996-97 State Financial Plan.
The Third Quarterly Update reflected actual results through the third
quarter of the State's fiscal year, quarterly and year-end tax payments received
in December and January, and modest changes in spending to reflect the current
year impact of certain 30-day amendments. The 1995-96 General Fund State
Financial Plan was projected to remain in balance on a cash basis, with both
receipts and disbursements projected to be $47 million higher than in the
December 15 Update. Total taxes were projected to be $29.66 billion, $88 million
higher than in the December 15 Update. Miscellaneous receipts and transfers were
expected to total $3.1 billion, down $41 million from the December 15 Update.
Total disbursements were projected to be $32.75 billion. Spending in
Governmental Funds were projected at $63.31 billion, an increase of $15 million
from the December 15 Update.
The Governor presented his 1996-97 Executive Budget to the Legislature
on December 15, 1995. The Executive Budget also contains financial projections
for the State's 1997-98 and 1998-99 fiscal years and an updated Capital Plan. As
provided by the State Constitution, the Governor submitted amendments to his
1996-97 Executive Budget within 30 days following submission and after the
30-day amendment period. Those amendments are reflected in the discussion of the
1996-97 Executive Budget contained in this Statement of Additional Information.
There can be no assurance that the Legislature will enact the Executive Budget
as proposed by the Governor into law, or that the State's adopted budget
projections will not differ materially and adversely from the projections set
forth in this Statement of Additional Information.
The 1996-97 Financial Plan projects balance on a cash basis in the
General Fund. It reflects a continuing strategy of substantially reduced State
spending, including program restructurings, reductions in social welfare
spending, and efficiency and productivity initiatives. Total General Fund
receipts and transfers from other funds are projected to be $31.32 billion, a
decrease of $1.4 billion from total receipts projected in the current fiscal
year. Total General Fund disbursements and transfers to other funds are
projected to be $31.22 billion, a decrease of $1.5 billion from spending totals
projected for the current fiscal year. After adjustments and transfers for
comparability between the 1995-96 and 1996-97 State Financial Plans, the
Executive Budget proposes an absolute year-to-year decline in General Fund
spending of 5.8 percent. Spending from all funding sources (including federal
aid) is proposed to increase by 0.4 percent from the prior fiscal year after
adjustments and transfers for comparability.
The Executive Budget proposes $3.9 billion in actions to balance the
1996-97 Financial Plan. Before reflecting any actions proposed by the Governor
to restrain spending, General Fund disbursements for 1996-97 were projected at
$35 billion, an increase of $2.3 billion or 7 percent from 1995-96. This
increase would have resulted from growth in Medicaid, inflationary increases in
school aid, higher fixed costs such as pensions and debt service, collective
bargaining agreements, inflation, and the loss of non-recurring resources that
offset spending in 1995-96. Receipts would have been expected to fall by $1.6
billion. This reduction would have
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been attributable to modest growth in the State's economy and underlying tax
base, the loss of non-recurring revenues available in 1995-96 and implementation
of previously enacted tax reduction programs.
The Executive Budget proposes to close this gap primarily through a
series of spending reductions and cost containment measures. The Executive
Budget projects (i) over $1.8 billion in savings from cost containment and other
actions in social welfare programs, including Medicaid, welfare and various
health and mental programs; (ii) $1.3 billion in savings from a reduced State
General Fund share of Medicaid made available from anticipated changes in the
federal Medicaid program, including an increase in the federal share of
Medicaid; (iii) over $450 million in savings from reforms and cost avoidance in
educational services (including school aid and higher education), while
providing fiscal relief from certain State mandates that increase local
spending; and (iv) $350 million in savings from efficiencies and reductions in
other State programs. The assumption regarding an increased share of federal
Medicaid funding has received bipartisan Congressional support and would benefit
32 states, including the State.
The 1996-97 Financial Plan projects receipts of $31.32 billion and
spending of $31.22 billion, allowing for a deposit of $85 million to the
Contingency Reserve Fund and a required repayment of $15 million to the Tax
Stabilization Reserve Fund.
The Governor has submitted several amendments to the Executive Budget.
These amendments have a nominal impact on the State's Financial Plan for 1996-97
and the subsequent years. The net impact of the amendments leaves unchanged the
total estimated amount of General Fund spending in 1996-97, which continues to
be projected at $31.22 billion. All funds spending in 1996-97 is increased by
$68 million, primarily reflecting adjustments to projections of federal funds,
and now totals $63.87 billion.
The budget amendments advanced by the Governor are largely technical
revisions, with General Fund spending increases fully offset by spending
decreases. Reductions in estimated 1996-97 disbursements are recommended
primarily for welfare (associated with updated projections showing a declining
caseload) and debt service (reflecting lower interest rates and recent bond
sales). Disbursement increases are projected for snow and ice control, the AIDS
Institute, Health Department utilization review programs and other items.
Estimated disbursements for other funds are increased to accommodate updated
projections of federal funding in certain categorical grant programs and reduced
for welfare as noted for the General Fund.
On March 15, 1996, two weeks before the start of the 1996-97 fiscal
year, the Governor presented additional amendments to the 1996-97 Executive
Budget which address two potential outcomes of the federal debate on entitlement
reform:
- Contingency Plan -- If the federal government fails to adopt
entitlement changes assumed to produce savings in the Executive
Budget for the State's 1996-97 fiscal year, the Governor has
identified $2.01 billion in new or redirected resources to replace
these savings in order to preserve budget balance in the 1996-97
State Financial Plan.
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- Balanced Budget Bonus Plan -- If the federal government acts,
through legislation or through waivers of existing federal
provisions, and any necessary conforming changes are adopted by
the State Legislature, the State could receive all or a portion of
the $2.01 billion benefit anticipated in the original 1996-97
Executive Budget. As a result, a portion of the new resources
identified in the Contingency Plan would then be available to make
restorations or add new spending to the 1996-97 State budget. The
Balanced Budget Bonus Plan sets priorities for up to $1.42 billion
in potential recurring and non-recurring spending increases.
There can be no assurance that the Legislature will enact the Executive
Budget or any of the amendments proposed by the Governor, that the State's
adopted budget projections will not differ materially and adversely from the
projections set forth in this Statement of Additional Information, or that the
State's actions will be sufficient to maintain budgetary balance in 1996-97 or
future fiscal years. Further, since the amendments implementing the Contingency
Plan and the Balanced Budget Bonus Plan have been submitted after the 30-day
amendment period, the Legislature must consent to their introduction.
DOB believes that its economic assumptions and its projections of
receipts and disbursements for the 1996-97 Executive Budget as amended by the
Contingency Plan and the Balanced Budget Bonus Plan are reasonable. However,
various financial, social, economic, and political factors can affect these
projections, of which certain factors, such as action by the federal government,
are outside the State's control. Because of the uncertainty and unpredictability
of these factors, their impact cannot be fully anticipated in the assumptions
underlying the State's projections.
The 1996-97 Executive Budget includes actions that will have an impact
on receipts and disbursements in future fiscal years. The Governor has proposed
closing the 1996-97 budget gap primarily through expenditures reductions and
without increases in taxes or deferrals of scheduled tax reductions. After
accounting for proposed changes to the Executive Budget submitted during the
30-day amendment period, the net impact of these actions is expected to produce
a potential imbalance in the 1997-98 fiscal year of $1.44 billion and in the
1998-99 fiscal year of $2.46 billion, assuming implementation of the 1996-97
Executive Budget recommendations. For 1997-98, receipts are estimated at $30.62
billion and disbursements at $32.05 billion. For 1998-99, receipts are estimated
at $31.85 billion and disbursements at $34.32 billion.
For 1996-97 the closing fund balance in the General Fund is projected
to be $272 million. The required deposit to the Tax Stabilization Reserve Fund
adds $15 million to the 1995-96 balance of $172 million in that fund, bringing
the total to $187 million at the close of 1996-97. The remaining General Fund
balance reflects the deposit of $85 million to the Contingency Reserve Fund, to
provide resources to finance potential costs associated with litigation against
the State. This deposit is expected to be made pursuant to legislation submitted
with the Executive Budget which will require the State share of certain
non-recurring federal recoveries to be deposited to the Contingency Reserve
Fund.
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For 1996-97, the Financial Plan projects disbursements of $28.93
billion from this Fund. This includes $7.65 billion from Special Revenue Funds
containing State revenues, and $21.28 billion from funds containing federal
grants, primarily for social welfare programs.
The 1996-97 Executive Budget recommends that all of the SUNY's revenues
be consolidated in a single fund, permitting SUNY more flexibility and control
in the use of its revenues. As a result of this proposal, General Fund support
would be transferred to this fund, rather than spent directly from the General
Fund. SUNY's spending from this fund is projected to total $2.55 billion in
1996-97. The Mass Transportation Operating Assistance Fund and the Dedicated
Mass Transportation Trust Fund, which receive taxes earmarked for mass
transportation programs throughout the State, are projected to have total
disbursements of $1.23 billion in 1996-97. Disbursements also include $1.63
billion in lottery proceeds which, after payment of administrative expenses,
permit the distribution of $1.43 billion for education purposes. One hundred
million dollars of lottery proceeds will be reserved in a separate account for a
local school tax reduction program to be agreed upon by the Governor and the
Legislature for disbursement in State fiscal year 1997-98. Disbursements of $650
million in 1996-97 from the Disproportionate Share Medicaid Assistance Fund
constitutes most of the remaining estimated State Special Revenue Funds
disbursements.
Federal Special Revenue Fund projections for 1996-97 were developed in
the midst of considerable uncertainty as to the ultimate composition of the
federal budget, including uncertainties regarding major federal entitlement
reforms. Disbursements are estimated at $21.27 billion in 1996-97, an increase
of $2.02 billion, or 10.5 percent from 1995-96. The projections included in the
1996-97 State Financial Plan assume that the federal Medicaid program will be
reformed generally along the lines of the congressional MediGrant program. This
would include an increase from 50 percent to 60 percent in the federal share of
the State's Medicaid expenses. A repeal of the federal Boren amendment regarding
provider rates is also anticipated. As a result of these changes, the Executive
Budget projects the receipt of $13.1 billion in total federal Medicaid
reimbursements in 1996-97, an increase of approximately $915 million from the
1995-96 level.
The second largest projected increase in federal reimbursement is for
the State's welfare program. The State is projected to receive $2.5 billion, up
$421 million from 1995-96 levels, primarily because of increased funding
anticipated from the proposed federal welfare block grant. All other federal
spending is projected at $5.7 billion for 1996-97, an increase of $626 million.
Disbursements from the Capital Projects Funds in 1996-97 are estimated
at $3.76 billion. This estimate is $332 million less than the 1995-96
projections. The spending reductions are the result of program restructuring,
achieved in 1995-96 and continued in the 1996-97 Financial Plan. The spending
plan includes:
- $2.5 billion in disbursements for the second year of the
five-year $12.6 billion State and local highway and bridge
program;
- Environmental Protection Fund spending of $106.5 million;
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- Correctional services spending of $153 million; and
- SUNY and CUNY capital spending of $196 million and $87
million, respectively.
The share of capital projects to be financed by "pay-as-you-go"
resources is projected to hold steady in 1996-97 at approximately 27 percent.
State-supported bond issuances finance 44 percent of capital projects, with
federal grants financing the remaining 29 percent.
Disbursements from the Debt Service Fund are estimated at $2.64 billion
in 1996-97, an increase of $206 million or 9 percent from 1995-96. Of this
increase, $85 million is attributable to transportation bonding for the State
and local highway and bridge programs which are financed by the Dedicated
Highway and Bridge Trust Fund, $35 million is for corrections including new debt
service on prisons recently purchased from New York City, and $27 million is for
the mental hygiene programs financed through the Mental Health Services Fund.
Debt service for LGAC bonds increases only slightly after years of significant
increases, as the new-money bond issuance portion of the LGAC program was
completed in State fiscal year 1995-96. Increased debt service costs primarily
reflect prior capital commitments financed by bonds issued by the State and its
public authorities, the reduced use of capitalized interest, and the use of
shorter term bonds, such as the 10 year average maturity for the Dedicated
Highway and Bridge Trust Fund bonds.
The 1995-96 State Financial Plans and the 1996-97 Executive Budget are
based upon forecasts of national and State economic and financial conditions.
The economic and financial condition of the State may be affected by various
financial, social, economic and political factors. Those factors can be very
complex, can vary from fiscal year to fiscal year, and are frequently the result
of actions taken not only by the State but also by entities, such as the federal
government, that are outside the State's control. Because of the uncertainty and
unpredictability of changes in these factors, their impact cannot be fully
included in the assumptions underlying the State's projections. There can be no
assurance that the State economy will not experience results in the 1995-96 and
the 1996-97 fiscal years that are worse than predicted, with corresponding
material and adverse effects on the State's financial projections. |
The State's financial operations have improved during recent fiscal
years. During the period 1989-90 through 1991-92, the State incurred General
Fund operating deficits that were closed with receipts from the issuance of
TRANs. First, the national recession, and then the lingering economic slowdown
in the State and regional economy, resulted in repeated shortfalls in receipts
and three budget deficits. For its 1992-93, 1993-94 and 1994-95 fiscal years,
the State recorded balanced budgets on a cash basis, with substantial fund
balances in 1992-93 and 1993-94, and a smaller fund balance in 1994-95 as
described below.
The State ended its 1994-95 fiscal year with the General Fund in
balance. The closing fund balance of $158 million reflects $157 million in the
Tax Stabilization Reserve Fund and $1 million in the Contingency Reserve Fund
("CRF"). The CRF was established in State fiscal year 1993-94, funded partly
with surplus moneys, to assist the State in financing the 1994-95 fiscal
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year costs of extraordinary litigation known or anticipated at that time; the
opening fund balance in State fiscal year 1994-95 was $265 million. The $241
million change in the fund balance reflects the use of $264 million in the CRF
as planned, as well as the required deposit of $23 million to the Tax
Stabilization Reserve Fund. In addition, $278 million was on deposit in the tax
refund reserve account, $250 million of which was deposited at the end of the
State's 1994-95 fiscal year to continue the process of restructuring the State's
cash flow as part of the LGAC program.
Compared to the State Financial Plan for 1994-95 as formulated on June
16, 1994, reported receipts fell short of original projections by $1.163
billion, primarily in the categories of personal income and business taxes. Of
this amount, the personal income tax accounts for $800 million, reflecting weak
estimated tax collections and lower withholding due to reduced wage and salary
growth, more severe reductions in brokerage industry bonuses than projected
earlier, and deferral of capital gains realizations in anticipation of potential
Federal tax changes. Business taxes fell short by $373 million, primarily
reflecting lower payments from banks as substantial overpayments of 1993
liability depressed net collections in the 1994-95 fiscal year. These shortfalls
were offset by better performance in the remaining taxes, particularly the user
taxes and fees, which exceeded projections by $210 million. Of this amount, $227
million was attributable to certain restatements for accounting treatment
purposes pertaining to the CRF and LGAC; these restatements had no impact on
balance in the General Fund.
Disbursements were also reduced from original projections by $848
million. After adjusting for the net impact of restatements relating to the CRF
and LGAC which raised disbursements by $38 million, the variance is $886
million. Well over two-thirds of this variance is in the category of grants to
local governments, primarily reflecting the conservative nature of the original
estimates of projected costs for social services and other programs. Lower
education costs are attributable to the availability of $110 million in
additional lottery proceeds and the use of LGAC bond proceeds.
The spending reductions also reflect $188 million in actions initiated
in January 1995 by the Governor to reduce spending to avert a potential gap in
the 1994-95 State Financial Plan. These actions included savings from a hiring
freeze, halting the development of certain services, and the suspension of
non-essential capital projects. These actions, together with $71 million in
other measures comprised the Governor's $259 million gap-closing plan, submitted
to the Legislature in connection with the 1995-96 Executive Budget.
The State ended its 1993-94 fiscal year with a balance of $1.140
billion in its tax refund reserve account, $265 million in its CRF and $134
million in its Tax Stabilization Reserve Fund. These fund balances were
primarily the result of an improving national economy, State employment growth,
tax collections that exceeded earlier projections and disbursements that were
below expectations. Deposits to the personal income tax refund reserve have the
effect of reducing reported personal income tax receipts in the fiscal year when
made and withdrawals from such reserve increase receipts in the fiscal year when
made. The balance in the tax refund reserve account will be used to pay taxpayer
refunds, rather than drawing from 1994-95 receipts.
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Of the $1.140 billion deposited in the tax refund reserve account,
$1.026 billion was available for budgetary planning purposes in the 1994-95
fiscal year. The remaining $114 million was redeposited in the tax refund
reserve account at the end of the State's 1994-95 fiscal year to continue the
process of restructuring the State's cash flow as part of the LGAC program. The
balance in the CRF will be used to meet the cost of litigation facing the State.
The Tax Stabilization Reserve Fund may be used only in the event of an
unanticipated General Fund cash-basis deficit during the 1994-95 fiscal year.
Before the deposit of $1.140 billion in the tax refund reserve account,
General Fund receipts in the 1993-94 fiscal year exceeded those originally
projected when the State Financial Plan for that year was formulated on April
16, 1993 by $1.002 billion. Greater-than-expected receipts in the personal
income tax, the bank tax, the corporation franchise tax and the estate tax
accounted for most of this variance, and more than offset weaker-than-projected
collections from the sales and use tax and miscellaneous receipts. Collections
from individual taxes were affected by various factors including changes in
Federal business laws, sustained profitability of banks, strong performance of
securities firms, and higher-than-expected consumption of tobacco products
following price cuts.
The higher receipts resulted, in part, because the State economy
performed better than forecasted. Employment growth started in the first quarter
of the State's 1993-94 fiscal year, and, although this lagged behind the
national economic recovery, the growth in New York began earlier than
forecasted. The State economy exhibited signs of strength in the service sector,
in construction, and in trade. Long Island and the Mid-Hudson Valley continued
to lag behind the rest of the State in economic growth. The DOB believes that
approximately 100,000 jobs were added during the 1993-94 fiscal year.
Disbursements and transfers from the General Fund were $303 million
below the level that was projected in April 1993, an amount that would have been
$423 million had the State not accelerated the payment of Medicaid billings,
which in the April 1993 State Financial Plan were planned to be deferred into
the 1994-95 fiscal year. Compared to the estimates included in the State
Financial Plan formulated in April 1993, lower disbursements resulted from lower
spending for Medicaid, capital projects, and debt service (due to refundings)
and $114 million used to restructure the State's cash flow as part of the LGAC
program. Disbursements were higher-than-expected for general support for public
schools, the State share of income maintenance, overtime for prison guards, and
highway snow and ice removal. The State also made the first of six required
payments to the State of Delaware related to the settlement of Delaware's
litigation against the State regarding the disposition of abandoned property
receipts.
During the 1993-94 fiscal year, the State also established and funded
the CRF as a way to assist the State in financing the cost of litigation
affecting the State. The CRF was initially funded with a transfer of $100
million attributable to the positive margin recorded in the 1992-93 fiscal year.
In addition, the State augmented this initial deposit with $132 million in debt
service savings attributable to the refinancing of State and public authority
bonds during 1993-94. A year-end transfer of $36 million was also made to the
CRF, which, after a disbursement for authorized fund purposes, brought the CRF
balance at the end of 1993-94 to $265 million. This amount was $165 million
higher than the amount originally targeted for this reserve fund.
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The State ended its 1992-93 fiscal year with a balance of $671 million
in the tax refund reserve account and $67 million in the Tax Stabilization
Reserve Fund.
The State's 1992-93 fiscal year was characterized by performance that
was better than projected for the national and regional economies. National
gross domestic product, State personal income, and State employment and
unemployment performed better than originally projected in April 1992. This
favorable economic performance, particularly at year end, combined with a
tax-induced acceleration of income into 1992, was the primary cause of the
General Fund surplus. Personal income tax collections were more than $700
million higher than originally projected (before reflecting the tax refund
reserve account transaction), primarily in the withholding and estimated payment
components of the tax.
There were large, but mainly offsetting, variances in other categories
of receipts. Significantly higher-than-projected business tax collections and
the receipt of unbudgeted payments from the Medical Malpractice Insurance
Association ("MMIA") and the New York Racing Association approximately offset
the loss of an anticipated $200-million Federal reimbursement, the loss of
certain budgeted hospital differential revenue as a result of unfavorable court
decisions, and shortfalls in certain miscellaneous revenues.
Disbursements and transfers to other funds were $45 million above
projections made in April 1992, although this includes a $150 million payment to
health insurers (financed with a receipt from the MMIA made pursuant to
legislation passed in January 1993). All other disbursements were $105 million
lower than projected. This reduction primarily reflected lower costs in
virtually all categories of spending, including Medicaid, local health programs,
agency operations, fringe benefits, capital projects and debt service as
partially offset by higher-than-anticipated costs for education programs.
The financial condition of the State is affected by several factors,
including the strength of the State and regional economy and actions of the
Federal government, as well as State actions affecting the level of receipts and
disbursements. Owing to these and other factors, the State may, in future years,
face substantial potential budget gaps resulting from a significant disparity
between tax revenues projected from a lower recurring receipts base and the
future costs of maintaining State programs at current levels. Any such recurring
imbalance would be exacerbated if the State were to use a significant amount of
nonrecurring resources to balance the budget in a particular fiscal year. To
address a potential imbalance for a given fiscal year, the State would be
required to take actions to increase receipts and/or reduce disbursements as it
enacts the budget for that year, and under the State Constitution the Governor
is required to propose a balanced budget each year. To correct recurring
budgetary imbalances, the State would need to take significant actions to align
recurring receipts and disbursements in future fiscal years. There can be no
assurance, however, that the State's actions will be sufficient to preserve
budgetary balance in a given fiscal year or to align recurring receipts and
disbursements in future fiscal years.
In 1990, as part of a State fiscal reform program, legislation was
enacted creating LGAC, a public benefit corporation empowered to issue long-term
obligations to fund certain payments
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to local governments traditionally funded through the State's annual seasonal
borrowing. The legislation authorized LGAC to issue its bonds and notes in an
amount not in excess of $4.7 billion (exclusive of certain refunding bonds) plus
certain other amounts. Over a period of years, the issuance of these long-term
obligations, which are to be amortized over no more than 30 years, was expected
to eliminate the need for continued short-term seasonal borrowing. The
legislation also dedicated revenues equal to one-quarter of the four cent State
sales and use tax to pay debt service on these bonds. The legislation also
imposed a cap on the annual seasonal borrowing of the State at $4.7 billion,
less net proceeds of bonds issued by LGAC and bonds issued to provide for
capitalized interest, except in cases where the Governor and the legislative
leaders have certified the need for additional borrowing and provided a schedule
for reducing it to the cap. If borrowing above the cap is thus permitted in any
fiscal year, it is required by law to be reduced to the cap by the fourth fiscal
year after the limit was first exceeded. This provision capping the seasonal
borrowing was included as a covenant with LGAC's bondholders in the resolution
authorizing such bonds.
As of June 1995, LGAC had issued bonds and notes to provide net proceeds of
$4.7 billion completing the program. The impact of LGAC's borrowing is that the
State is able to meet its cash flow needs in the first quarter of the fiscal
year without relying on short-term seasonal borrowings. The 1995-96 State
Financial Plan includes no spring borrowing nor did the 1994-95 State Financial
Plan, which was the first time in 35 years there was no short-term seasonal
borrowing.
On January 13, 1992, S&P lowered its rating on the State's general
obligation bonds from A to A- and, in addition, reduced its ratings on the
State's moral obligation, lease purchase, guaranteed and contractual obligation
debt. S&P also continued its negative rating outlook assessment on State general
obligation debt. On April 26, 1993, S&P revised the rating outlook assessment to
stable. On February 14, 1994, S&P revised its outlook to positive and, on
October 3, 1995, confirmed its A- rating. On January 6, 1992, Moody's reduced
its ratings on outstanding limited-liability State lease purchase and
contractual obligations from A to Baa1. On October 2, 1995, Moody's reconfirmed
its A rating on the State's general obligation long-term indebtedness.
On June 6, 1990, Moody's changed its ratings on all of the State's
outstanding general obligation bonds from A1 to A, the rating having been A1
since May 27, 1986. On November 12, 1990, Moody's confirmed the A rating. In
1992, S&P lowered the State's general obligation bond rating to A-, where it
currently remains and was affirmed on July 13, 1995. Prior to this, on March 26,
1990, S&P lowered its rating of all of the State's outstanding general
obligation bonds from AA- to A. Previous S&P ratings were AA- from August, 1987
to March, 1990 and A+ from November, 1982 to August, 1987.
Authorities. The fiscal stability of the State is related, in part, to the
fiscal stability of its Authorities, which generally have responsibility for
financing, constructing and operating revenue-producing public benefit
facilities. Authorities are not subject to the constitutional restrictions on
the incurrence of debt which apply to the State itself, and may issue bonds and
notes within the amounts of, and as otherwise restricted by, their legislative
authorization. The State's access to the public credit markets could be
impaired, and the market price of its outstanding debt may be materially
adversely affected, if any of its public authorities were to
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default on their respective obligations. As of September 30, 1994, the date of
the latest data available, there were 18 Authorities that had outstanding debt
of $100 million or more, and the aggregate outstanding debt, including refunding
bonds, of these 18 Authorities was $70.3 billion. As of March 31, 1995,
aggregate Authority debt outstanding as State-supported debt was $27.9 billion
and as State-related debt was $36.1 billion.
There are numerous public authorities, with various responsibilities,
including those which finance, construct and/or operate revenue producing public
facilities. Public authority operating expenses and debt service costs are
generally paid by revenues generated by the projects financed or operated, such
as tolls charged for the use of highways, bridges or tunnels, rentals charged
for housing units, and charges for occupancy at medical care facilities.
In addition, State legislation authorizes several financing techniques for
public authorities. Also, there are statutory arrangements providing for State
local assistance payments otherwise payable to localities to be made under
certain circumstances to public authorities. Although the State has no
obligation to provide additional assistance to localities whose local assistance
payments have been paid to public authorities under these arrangements if local
assistance payments are so diverted, the affected localities could seek
additional State assistance.
Some authorities also receive monies from State appropriations to pay for
the operating costs of certain of their programs. As described below, the MTA
receives the bulk of this money in order to carry out mass transit and commuter
services.
The State's experience has been that if an Authority suffers serious
financial difficulties, both the ability of the State and the Authorities to
obtain financing in the public credit markets and the market price of the
State's outstanding bonds and notes may be adversely affected. The New York
State Housing Finance Agency, the New York State Urban Development Corporation
and certain other Authorities have in the past required and continue to require
substantial amounts of assistance from the State to meet debt service costs or
to pay operating expenses. Further assistance, possibly in increasing amounts,
may be required for these, or other, Authorities in the future. In addition,
certain other statutory arrangements provide for State local assistance payments
otherwise payable to localities to be made under certain circumstances to
certain Authorities. The State has no obligation to provide additional
assistance to localities whose local assistance payments have been paid to
Authorities under these arrangements. However, in the event that such local
assistance payments are so diverted, the affected localities could seek
additional State funds.
Metropolitan Transportation Authority . The MTA oversees the operation of
the City's subway and bus lines by its affiliates, the New York City Transit
Authority and the Manhattan and Bronx Surface Transit Operating Authority
(collectively, the "TA"). The MTA operates certain commuter rail and bus lines
in the New York Metropolitan area through MTA's subsidiaries, the Long Island
Rail Road Company, the Metro-North Commuter Railroad Company and the
Metropolitan Suburban Bus Authority. In addition, the Staten Island Rapid
Transit Operating Authority, an MTA subsidiary, operates a rapid transit line on
Staten Island. Through its affiliated agency, the Triborough Bridge and Tunnel
Authority (the "TBTA"), the MTA operates certain intrastate toll bridges and
tunnels. Because fare revenues are not sufficient
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to finance the mass transit portion of these operations, the MTA has depended,
and will continue to depend for operating support upon a system of State, local
government and TBTA support, and, to the extent available, Federal operating
assistance, including loans, grants and operating subsidies. If current revenue
projections are not realized and/or operating expenses exceed current
projections, the TA or commuter railroads may be required to seek additional
State assistance, raise fares or take other actions.
Since 1980, the State has enacted several taxes -- including a surcharge on
the profits of banks, insurance corporations and general business corporations
doing business in the 12-county Metropolitan Transportation Region served by the
MTA and a special one-quarter of 1 percent regional sales and use tax -- that
provide revenues for mass transit purposes, including assistance to the MTA. In
addition, since 1987, State law has required that the proceeds of a one quarter
of 1% mortgage recording tax paid on certain mortgages in the Metropolitan
Transportation Region be deposited in a special MTA fund for operating or
capital expenses. Further, in 1993 the State dedicated a portion of the State
petroleum business tax to fund operating or capital assistance to the MTA. For
the 1995-96 fiscal year, total State assistance to the MTA is estimated by the
State to be approximately $1.1 billion.
In 1993, State legislation authorized the funding of a five-year $9.56
billion MTA capital plan for the five-year period, 1992 through 1996 (the
"1992-96 Capital Program"). The MTA has received approval of the 1992-96 Capital
Program based on this legislation from the 1992-96 Capital Program Review Board,
as State law requires. This is the third five-year plan since the Legislature
authorized procedures for the adoption, approval and amendment of a five-year
plan in 1981 for a capital program designed to upgrade the performance of the
MTA's transportation systems and to supplement, replace and rehabilitate
facilities and equipment. The MTA, the TBTA and the TA are collectively
authorized to issue an aggregate of $3.1 billion of bonds (net certain statutory
exclusions) to finance a portion of the 1992-96 Capital Program. The 1992-96
Capital Program may be financed in significant part through dedication of State
petroleum business taxes referred to above. However, in December 1994 the
proposed bond resolution based on such tax receipts was not approved by the MTA
Capital Program Review Board. Further consideration of the resolution was
deferred until 1995.
There can be no assurance that all the necessary governmental actions for
the 1992-96 Capital Program will be taken, that funding sources currently
identified will not be decreased or eliminated, or that the 1992-96 Capital
Program, or parts thereof, will not be delayed or reduced. If the 1992-96
Capital Program is delayed or reduced, ridership and fare revenues may decline,
which could, among other things, impair the MTA's ability to meet its operating
expenses without additional State assistance.
Localities. Certain localities in addition to the City could have financial
problems leading to requests for additional State assistance during the 1995-96
fiscal years and thereafter. The potential impact on the State of such actions
by localities is not included in the projections of the State receipts and
disbursements for the 1995-96 fiscal year.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers") resulted
in the re-establishment of the Financial Control Board for the City of Yonkers
(the "Yonkers Board") by
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the State in 1984. The Yonkers Board is charged with oversight of the fiscal
affairs of Yonkers. Future actions taken by the Governor or the Legislature to
assist Yonkers could result in allocation of State resources in amounts that
cannot yet be determined.
Municipal Indebtedness. Municipalities and school districts have engaged in
substantial short-term and long-term borrowings. In 1993, the total indebtedness
of all localities in the State was approximately $17.7 billion. A small portion
(approximately $105 million) of that indebtedness represented borrowing to
finance budgetary deficits and was issued pursuant to enabling State
legislation. State law requires the Comptroller to review and make
recommendations concerning the budgets of those local government units other
than the City authorized by State law to issue debt to finance deficits during
the period that such deficit financing is outstanding. Fifteen localities had
outstanding indebtedness for deficit financing at the close of their fiscal year
ending in 1993.
From time to time, proposed Federal expenditure reductions could reduce, or
in some cases eliminate, Federal funding of some local programs and accordingly
might impose substantial increased expenditure requirements on affected
localities. If the State, the City or any of the Authorities were to suffer
serious financial difficulties jeopardizing their respective access to the
public credit markets, the marketability of notes and bonds issued by localities
within the State could be adversely affected. Localities also face anticipated
and potential problems resulting from certain pending litigation, judicial
decisions and long-range economic trends. Long-range potential problems of
declining urban population, increasing expenditures and other economic trends
could adversely affect certain localities and require increasing State
assistance in the future.
Litigation. Certain litigation pending against the State or its officers or
employees could have a substantial or long-term adverse effect on State
finances. Among the more significant of these cases are those that involve: a) a
challenge to certain enhanced supplemental pension allowances for members of the
state and local retirement systems; b)several challenges to provisions of
Chapter 81 of the Laws of 1995 which alter the nursing home Medicaid
reimbursement methodology; c) the validity of agreements and treaties by which
various Indian tribes transferred title to the State of certain land in central
and upstate New York; d) a challenge to State regulations which reduce base
prices for the direct and indirect component of Medicaid reimbursement for rate
years commencing 1989; e) an action against State and City officials alleging
that the present level of shelter allowance for public assistance recipients is
inadequate under statutory standards to maintain proper housing; f) challenges
to the practice of reimbursing certain Office of Mental Health patient care
expenses from the client's Social Security benefits; g) alleged responsibility
of State officials to assist in remedying racial segregation in the City of
Yonkers; h) alleged responsibility of the State Department of Environmental
Conservation for a plaintiff's inability to complete construction of a
cogeneration facility in a timely fashion and the damages suffered thereby; i)
challenges to the promulgation of the State's proposed procedure to determine
the eligibility for and nature of home care services for Medicaid recipients; j)
a challenge to State implementation of a program which reduces Medicaid benefits
to certain home-relief recipients; k) a challenge to the constitutionality of
petroleum business tax assessments authorized by Tax Law Section 301; and l) two
cases by commercial insurers, employee welfare benefit plans, and health
maintenance organizations to provisions of Section 2807-c of
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the Public Health Law which impose 13%, 11%, and 9% surcharges on inpatient
hospital bills and a bad debt and charity care allowance on all hospital bills
paid by such entities were resolved by order dated October 2, 1995, the United
States District Court for the Southern District of New York held that the 11
percent and 13 percent surcharges are preempted by FEBHA and unenforceable
against commercial insurers which provide stop-loss coverage to self-funded
ERISA plans.
Adverse developments in the proceedings described above or the initiation of
new proceedings could affect the ability of the State to maintain a balanced
1995-96 State Financial Plan. In its Notes to its General Purpose Financial
Statements for the fiscal year ended March 31, 1994, the State reports its
estimated liability for awards and anticipated unfavorable judgments at $675
million. There can be no assurance that an adverse decision in any of the above
cited proceedings would not exceed the amount of the 1995-96 State Financial
Plan reserves for the payment of judgments and, therefore, could affect the
ability of the State to maintain a balanced 1995-96 State Financial Plan.
NEW YORK CITY
The fiscal health of the State may also be impacted by the fiscal health of
its localities, particularly the City, which has required and continues to
require significant financial assistance from the State. The City's
independently audited operating results for each of its fiscal years from 1981
through 1993, which end on June 30, show a General Fund surplus reported in
accordance with generally accepted accounting principles ("GAAP"). In addition,
the City's financial statements for the 1993 fiscal year received an unqualified
opinion from the City's independent auditors, the eleventh consecutive year the
City has received such an opinion.
In response to the City's fiscal crisis in 1975, the State took action to
assist the City in returning to fiscal stability. Among these actions, the State
established the Municipal Assistance Corporation for the City of New York
("MAC") to provide financing assistance to the City. The State also enacted the
New York State Financial Emergency Act for The City of New York (the "Financial
Emergency Act") which, among other things, established the New York State
Financial Control Board (the "Control Board") to oversee the City's financial
affairs. The State also established the Office of the State Deputy Comptroller
for the City of New York ("OSDC") to assist the Control Board in exercising its
powers and responsibilities; and a "Control Period" from 1975 to 1986 during
which the City was subject to certain statutorily-prescribed fiscal-monitoring
arrangements. Although the Control Board terminated the Control Period in 1986
when certain statutory conditions were met, thus suspending certain Control
Board powers, the Control Board, MAC and OSDC continue to exercise various
fiscal-monitoring functions over the City, and upon the occurrence or
"substantial likelihood and imminence" of the occurrence of certain events,
including, but not limited to a City operating budget deficit of more than $100
million, the Control Board is required by law to reimpose a Control Period.
Currently, the City and its Covered Organizations (i.e., those which receive or
may receive money from the City directly, indirectly or contingently) operate
under a four-year financial plan which the City prepares annually and
periodically updates.
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Although the City has balanced its budget since 1981, estimates of the
City's revenues and expenditures, which are based on numerous assumptions, are
subject to various uncertainties. If, for example, expected Federal or State aid
is not forthcoming, if unforeseen developments in the economy significantly
reduce revenues derived from economically sensitive taxes or necessitate
increased expenditures for public assistance, if the City should negotiate wage
increases for its employees greater than the amounts provided for in the City's
financial plan or if other uncertainties materialize that reduce expected
revenues or increase projected expenditures, then, to avoid operating deficits,
the City may be required to implement additional actions, including increases in
taxes and reductions in essential City services. The City might also seek
additional assistance from the State.
On January 31, 1996, the City published the Financial Plan for the 1996-1999
fiscal years, which is a modification to a financial plan submitted to the
Control Board on July 11, 1995 (the "July Financial Plan") and which relates to
the City, the Board of Education ("BOE") and CUNY. The Financial Plan sets forth
proposed actions by the City for the 1996 fiscal year to close substantial
projected budget gaps resulting from lower than projected tax receipts and other
revenues and greater than projected expenditures. In addition to substantial
proposed agency expenditure reductions, the Financial Plan reflects a strategy
to substantially reduce spending for entitlements for the 1996 and subsequent
fiscal years, and to decrease the City's costs for Medicaid in the 1997 fiscal
year and thereafter by increasing the Federal share of Medicaid costs otherwise
paid by the City. This strategy is the subject of substantial debate, and
implementation of this strategy will be significantly affected by State and
Federal budget proposals currently being considered. The Financial Plan, which
is consistent with the City's preliminary budget for the 1997 fiscal year, may
be changed significantly by the time the budget for the 1997 fiscal year is
adopted.
The July Financial Plan set forth proposed actions to close a previously
projected gap of approximately $3.1 billion for the 1996 fiscal year. The
proposed actions in the July Financial Plan for the 1996 fiscal year included
(i) a reduction in spending of $400 million, primarily affecting public
assistance and Medicaid payments by the City; (ii) agency reduction programs,
totaling $1.2 billion; (iii) transitional labor savings totaling $600 million;
and (iv) the phase-in of the increased annual pension funding cost due to
revisions resulting from an actuarial audit of the City pension systems, which
would reduce such costs in the 1996 fiscal year. A modification to the July
Financial Plan published on November 29, 1995 (the "November Financial Plan")
included savings from a proposed refunding of outstanding debt and other
expenditure reductions to offset a $129 million increase in projected
expenditures.
The 1996-1999 Financial Plan published on January 31, 1996 reflects actual
receipts and expenditures and changes in forecast revenues and expenditures
since the November Financial Plan, and projects revenues and expenditures for
the 1996 fiscal year balanced in accordance with GAAP. For the 1996 fiscal year,
the Financial Plan includes actions to offset an additional $759 million budget
gap resulting primarily from (i) the failure of the Port Authority to pay
disputed back rent for the City's airports in the amount included in the
November Financial Plan, (ii) shortfalls in Federal and State aid included in
the November Financial Plan, (iii) shortfalls in revenues and in amounts to be
saved through gap-closing actions at BOE, (iv) shortfalls in projected savings
from cost containment initiatives proposed in the July Financial Plan affecting
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public assistance and Medicaid, and (v) the failure of the City and its labor
unions to identify assumed savings in the City's health benefits system. The
gap-closing measures for the 1996 fiscal year set forth in the Financial Plan
include (i) additional proposed agency actions aggregating $207 million, (ii)
the receipt of $150 million from MAC, and (iii) the receipt of $120 million from
the proposed sale of mortgages, $75 million from increased revenues from the
proposed sale of City tax liens on real property and $207 million from the
proposed sale of the City's television station.
The receipt of funds from MAC is subject to approval of MAC, the sale of the
tax liens requires adoption of a local law by the City Council and the proposed
sale of the City's television station is subject to Federal regulatory approval.
In addition, the Federal budget negotiation process for the 1996 Federal fiscal
year could result in a reduction in, or a delay in the receipt of, Federal
grants in the City's 1996 fiscal year. If such approvals are not received on a
timely basis, the City may be required to identify alternative measures to
balance its 1996 fiscal year budget.
The Financial Plan also sets forth projections for the 1997 through 1999
fiscal years and outlines a proposed gap-closing program to eliminate a
projected gap of $2.0 billion for the 1997 fiscal year, and to reduce projected
gaps of $3.3 billion and $4.1 billion for the 1998 and 1999 fiscal years,
respectively, assuming successful implementation of the gap-closing program for
the 1996 fiscal year. The projected gaps for the 1997 through 1999 fiscal years
have increased from the gaps projected in the November Financial Plan to reflect
(i) reductions in projected property taxes of $177 million, $294 million and
$421 million in the 1997, 1998 and 1999 fiscal years, respectively, due to a
lower than forecast increase in the tentative assessment roll published by the
New York City Department of Finance, (ii) reductions in other forecast tax
revenues of $114 millon, $216 million and $261 million in the 1997, 1998 and
1999 fiscal years, respectively, (iii) reductions in tax revenues of $79
million, $224 million and $341 million in the 1997, 1998 and 1999 fiscal years,
respectively, as a result of new tax reduction initiatives, including a proposed
sales tax exemption on clothing items under $500, and (iv) increased agency
expenditures.
The proposed gap-closing actions for the 1997 through 1999 fiscal years
include (i) additional agency actions, totaling between $643 million and $691
million in each of the 1997 through 1999 fiscal years; (ii) additional savings
resulting from State and Federal aid and cost containment in entitlement
programs to reduce City expenditures and increase revenues by $650 million in
the 1997 fiscal year and by $727 million in each of the 1998 and 1999 fiscal
years; (iii) additional proposed Federal aid of $50 million in the 1997 fiscal
year and State aid of $100 million in each of the 1997 through 1999 fiscal
years; (iv) the receipt of $300 million in the 1997 fiscal year from
privatization or other initiatives, including the sale of the City's parking
meters and associated revenues, which may require legislative action by the City
Council, or the sale of other assets; and (v) the assumed receipt of revenues
relating to rent payments for the City's airports, totaling $244 million, $226
million and $70 million in the 1997 through 1999 fiscal years, respectively,
which are currently the subject of a dispute with the Port Authority and the
collection of which may depend on the successful completion of negotiations with
the Port Authority or the enforcement of the City's remedies under the leases
through pending legal actions. The City is also preparing an additional
contingency gap-closing program for the 1997 fiscal year to be comprised of $200
million in additional agency actions.
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The Governor has released the 1996-1997 Executive Budget, which will be
considered for adoption by the State Legislature. The City estimates that the
1996-1997 Executive Budget provides the City with $173 million of savings from
Medicaid cost containment proposals and $127 million of savings from proposed
reductions in welfare spending in the 1997 fiscal year. The Financial Plan
assumes that the remaining $350 million of the $650 million of entitlement
reform benefits included in the Financial Plan for the 1997 fiscal year will be
generated by the State providing the City with a portion of the additional funds
received by the State as a result of the increased Federal share of Medicaid
costs proposed in the State Executive Budget. However, the State Executive
Budget does not currently contemplate sharing such funds with the City. In
addition, the President and Congress are currently considering budget proposals
for the 1996 Federal fiscal year. The Federal budget or other factors may cause
substantial amendments to the State Executive Budget.
The Federal and State budgets, when adopted, may result in substantial
reductions in revenues for the City, as well as a reduction in projected
expenditures in entitlement programs, including Medicare, Medicaid and welfare
programs. The Federal and State aid projected in the Financial Plan, and the
substantial savings assumed from cost containment in entitlement programs
included in the Financial Plan gap-closing program for the 1997 through 1999
fiscal years, will be significantly affected both by the outcome of the current
Federal budget negotiations and by the State budget proposals made by the
Governor and to be considered by the State Legislature. The nature and extent of
the impact on the City of the Federal and State budgets, when adopted, is
uncertain, and no assurance can be given that Federal or State actions included
in the Federal and State adopted budgets may not have a significant adverse
impact on the City's budget and its Financial Plan.
The projections for the 1996 through 1999 fiscal years reflect the costs of
the proposed settlement with the United Federation of Teachers ("UFT") and the
recent settlement with a coalition of unions headed by District Council 37 of
the American Federation of State, County and Municipal Employees ("District
Council 37"), and assume that the City will reach agreement with its remaining
municipal unions under terms which are generally consistent with such
settlements which are discussed below. The projections for the 1996 through 1999
fiscal years also assume the BOE will be able to identify actions to offset
possible substantial shortfalls in Federal, State and City revenues.
Contracts with all of the City's municipal unions expired in the 1995 and
1996 fiscal years. In November 1995, the City announced a tentative settlement
with the UFT and a coalition of unions headed by District Council 37 which
represent approximately two-thirds of the City's workforce. The settlement
provides for a wage freeze in the first two years, followed by a cumulative
effective wage increase of 11% by the end of the five year period covered by the
proposed agreements, ending in fiscal years 2000 and 2001. Additional benefit
increases would raise the total cumulative effective increase to 13% above
present costs. The Financial Plan reflects the costs associated with the
settlements, and assumes similar increases for all other City-funded employees,
which total $49 million, $459 million and $1.2 billion in the 1997, 1998 and
1999 fiscal years, respectively. Such increases exceed $2 billion in each fiscal
year after the 1999 fiscal year. District Council 37 and Local 237, representing
approximately 90,000 full-time employees, have ratified the proposed settlement.
On December 7, 1995, the members of the
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UFT voted on the proposed settlement with the UFT. Six chapters of the UFT,
representing approximately 18,000 full-time employees, including teaching
paraprofessionals, voted to ratify the proposed settlement, which will apply to
those chapters if approved by BOE. Five chapters, representing approximately
76,000 full-time employees, including teachers, voted not to ratify the proposed
settlement. A portion of the transitional labor savings contained in the
Financial Plan is dependent upon conclusion of collective bargaining agreements
with the City's workforce. There can be no assurance that the City will reach an
agreement with the chapters of the UFT which rejected the proposed settlement on
the terms contained in the Financial Plan.
In the event of a collective bargaining impasse, the terms of wage
settlements could be determined through statutory impasse procedures, which can
impose a binding settlement except in the case of collective bargaining with the
UFT, which may be subject to non-binding arbitration. On January 23, 1996, the
City requested the Office of Collective Bargaining to declare an impasse against
the Patrolmen's Benevolent Association ("PBA") and the United Firefighters
Association ("UFA").
From time to time, the Control Board staff, MAC, OSDC, the City Comptroller
and others issue reports and make public statements regarding the City's
financial condition, commenting on, among other matters, the City's financial
plans, projected revenues and expenditures and actions by the City to eliminate
projected operating deficits. Some of these reports and statements have warned
that the City may have underestimated certain expenditures and overestimated
certain revenues and have suggested that the City may not have adequately
provided for future contingencies. Certain of these reports have analyzed the
City's future economic and social conditions and have questioned whether the
City has the capacity to generate sufficient revenues in the future to meet the
costs of its expenditure increases and to provide necessary services. It is
reasonable to expect that reports and statements will continue to be issued and
to engender public comment. It is expected that the staff of the Control Board
will issue a report in March 1996 reviewing the Financial Plan.
On February 29, 1996, the staff of the City Comptroller issued a report on
the Financial Plan. The report projects that there remains $408 million to $528
million in budget risks for the 1996 fiscal year, before taking into account the
availability of $160 million in the General Reserve. The principal risks for the
1996 fiscal year identified in the report include $140 million to $190 million
of uncertain revenues and projected savings at BOE and the receipt by the City
of $100 million to $130 million from a proposed MAC refunding. The report also
expressed concern as to whether the required regulatory approval for the sale of
the City's television station would be received before the end of the 1996
fiscal year.
With respect to the 1997 fiscal year, the report states that the Financial
Plan includes total risks of between $2.05 billion and $2.15 billion. The report
notes that the gap-closing program for the 1997 fiscal year assumes the
implementation of highly uncertain State and Federal actions that would provide
between $1.2 billion and $1.4 billion in relief to the City resulting from
proposed public assistance and medical assistance entitlement reductions, a
proposed increase in Federal Medicaid reimbursements, additional State aid and
various privatization proposals. The report concludes that it is unlikely that
the City will be able to implement most of these initiatives due to Federal and
State budget difficulties. Additional risks for the 1997 fiscal year
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identified in the report include (i) risks attributable to BOE relating to
unspecified additional State aid, unspecified expenditure reductions and
proposals to reduce special education spending, which total $415 million,
without taking into account potential reductions that will likely take place
upon adoption of the Federal and State budgets; (ii) proposals for the sale of
parking meters and other assets; and (iii) the receipt of $244 million to $294
million of lease payments from the Port Authority for the City's airports.
The report concluded that the magnitude of the budget risk for the 1997
fiscal year, after two years of large agency cutbacks and work force reductions,
indicates the seriousness of the City's continuing budget difficulties, and that
the Financial Plan will require substantial revision in order to provide a
credible program for dealing with the large projected budget gap for the 1997
fiscal year. The report further notes that the relative weakness of the national
and City economies makes it unlikely that new jobs and business expansion will
generate significant additional tax revenues and that proposed Federal and State
reductions in funding will reduce the levels of intergovernmental assistance for
the City.
On March 6, 1996, the staff of the OSDC issued a report on the Financial
Plan. The report concluded that there remained a budget gap for the 1996 fiscal
year of $44 million, which can be closed with the $200 million General Reserve,
and additional significant risks totaling $507 million involving actions which
require the approval of the State and Federal governments or other third
parties. These risks include (i) potential delays in the sale of the City's
television station; (ii) shortfalls in projected resources from MAC; and (iii)
shortfalls of $100 million in projected State education aid and $50 million in
projected Federal assistance. In addition, the report expressed concern that (i)
the City may have to write off a portion of approximately $300 million in State
education aid that was included as revenue in prior years' budgets, since the
State has not made payment and neither the current nor the proposed State budget
include an appropriation sufficient to cover most of this liability, and (ii)
the City must complete two transactions before the end of the fiscal year, the
sale of property tax liens and housing mortgages, that together are expected to
produce resources of $267 million.
The report also concluded that the gap for the 1997 fiscal year could be
$544 million greater than the City's projected budget gap of $2 billion,
primarily due to the failure of BOE to specify $304 million of expenditure
reductions or additional resources necessary to bring its spending in line with
the resources allocated to it in the Financial Plan. In addition, the report
noted that gap-closing proposals set forth in the Financial Plan totalling $1.6
billion are at high risk of falling short of target. The proposals identified in
the report as high risk include (i) $800 million in expected State and Federal
assistance, primarily from savings in social service entitlement programs, which
are dependent on the ultimate resolution of the Federal and State budgets; (ii)
$300 million from initiatives to privatize parking meters and other City assets;
(iii) $244 million to be received from the Port Authority as retroactive lease
payments for the City's two airports; and (iv) $181 million in spending cuts for
BOE. Moreover, the report expressed concern that the potential for budget cuts
at BOE could exceed $1 billion after taking into account the possible loss of
$453 million in proposed reductions in State and Federal funding. The report
also stated that non-recurring resources for the 1996 fiscal year have increased
to over $1.7 billion, approaching the unprecedented $2 billion used in the 1995
fiscal year, and that one-third of the 1997 fiscal year gap-closing program
already relies on one-time resources.
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<PAGE> 60
With respect to the economy, the report noted that, in a time of slow
economic growth, revenues continue to stagnate, and that the City's economic
forecast, which is premised on sluggish national growth, does not reflect the
potential for a national recession during the four years of the Financial Plan.
In addition, the report expressed concern that the City's economy, and City and
State tax revenues, are closely tied to swings in the financial markets, such as
rising interest rates, which sharply reduced the profits of securities firms in
1994, and rising equity markets, which raised personal income and business tax
collections in 1995, as well as economic conditions in Europe and Japan, which
are currently weak.
The report noted that Federal and State assistance is likely to be
significantly reduced and that there is little potential for significant new
revenues beyond those already reflected in the Financial Plan. The report
concluded that, despite the City's success in work force reduction and
entitlement savings, the Financial Plan shows an increasing imbalance between
the City's recurring revenues and expenditures.
On December 12, 1995, the City Comptroller issued a report noting that the
capacity of the City to issue general obligation debt could be reduced in future
years. The report noted that, under the State constitution, the City is
permitted to issue debt in an amount not greater than 10% of the average full
value of taxable real estate for the current year and preceding four years. The
report concluded that, if the value of taxable real property in each of 1998 and
1999 fiscal years continues to decline, reflecting the continuing trend of lower
values of taxable property, the City would have to continue to curtail its
capital program from the levels projected in the Financial Plan to remain within
the legal debt-incurring limit in those years. The City Comptroller recommended
that the City prioritize and improve the efficiency and administration of its
current capital plan to determine which capital projects can be delayed or
cancelled to further reduce capital expenditures and thus debt service over the
course of the Financial Plan.
On October 9, 1995, S & P issued a report which concluded that proposals to
replace the graduated Federal income tax system with a "flat" tax could be
detrimental to the creditworthiness of certain municipal bonds. The report noted
that the elimination of Federal income tax deductions currently available,
including residential mortgage interest, property taxes and state and local
income taxes, could have a severe impact on funding methods under which
municipalities operate. With respect to property taxes, the report noted that
the total valuation of a municipality's tax base is affected by the
affordability of real estate and that elimination of mortgage interest deduction
would result in a significant reduction in affordability and, thus, in the
demand for, and the valuation of, real estate. The report noted that rapid
losses in property valuations would be felt by many municipalities, hurting
their revenue raising abilities. In addition, the report noted that the loss of
the current deduction for real property and state and local income taxes from
Federal income tax liability would make rate increases more difficult and
increase pressures to lower existing rates, and that the cost of borrowing for
municipalities could increase if the tax-exempt status of municipal bond
interest is worth less to investors. Finally, the report noted that tax
anticipation notes issued in anticipation of property taxes could be hurt by the
imposition of a flat tax, if uncertainty is introduced with regard to their
repayment revenues, until property values fully reflect the loss of mortgage and
property tax deductions.
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The City since 1981 has fully satisfied its seasonal financing needs in the
public credit markets, repaying all short-term obligations within their fiscal
year of issuance. The City's current monthly cash flow forecast for the 1996
fiscal year shows a need of $2.4 billion of seasonal financing for the 1996
fiscal year, a portion of which will be met with the proceeds of notes. Seasonal
financing requirements for the 1995 fiscal year increased to $2.2 billion from
$1.75 billion and $1.4 billion in the 1994 and 1993 fiscal years, respectively.
The delay in the adoption of the State's budget for its 1992 fiscal year
required the City to issue $1.25 billion in short-term notes on May 7, 1991, and
the delay in the adoption of the State's budget for its 1991 fiscal year
required the City to issue $900 million in short-term notes on May 15, 1990.
Seasonal financing requirements were $2.25 billion and $3.65 billion in the 1992
and 1991 fiscal years, respectively.
The 1996-1999 Financial Plan is based on numerous assumptions, including the
condition of the City's and the region's economy and a modest employment
recovery and the concomitant receipt of economically sensitive tax revenues in
the amounts projected. The 1996-1999 Financial Plan is subject to various other
uncertainties and contingencies relating to, among other factors, the extent, if
any, to which wage increases for City employees exceed the annual wage costs
assumed for the 1996 through 1999 fiscal years; continuation of interest
earnings assumptions for pension fund assets and current assumptions with
respect to wages for City employees affecting the City's required pension fund
contributions; the willingness and ability of the State, in the context of the
State's current financial condition, to provide the aid contemplated by the
Financial Plan and to take various other actions to assist the City, including
the proposed entitlement spending reductions; the ability of HHC, BOE and other
such agencies to maintain balanced budgets; the willingness of the Federal
government to provide the amount of Federal aid contemplated in the Financial
Plan; adoption of the City's budgets by the City Council in substantially the
forms submitted by the Mayor; the ability of the City to implement proposed
reductions in City personnel and other cost reduction initiatives, and the
success with which the City controls expenditures; the impact of conditions in
the real estate market on real estate tax revenues; approval by MAC of the
projected receipt of funds from MAC; the City's ability to market its securities
successfully in the public credit markets; and unanticipated expenditures that
may be incurred as a result of the need to maintain the City's infrastructure.
Certain of these assumptions have been questioned by the City Comptroller and
other public officials.
On June 7, 1995, the State adopted its Budget for the State's 1996 fiscal
year, commencing April 1, 1995. Prior to adoption of the budget the State had
projected a potential budget gap of approximately $5 billion for its 1996 fiscal
year. This gap is projected to be closed in the 1995-1996 State Financial Plan
based on the enacted budget, through a series of actions, mainly spending
reductions and cost containment measures and certain reestimates that are
expected to be recurring, but also through the use of one-time solutions. The
State Financial Plan projects (i) nearly $1.6 billion in savings from cost
containment, disbursement reestimates, and other savings in social welfare
programs, including Medicaid, income maintenance and various child and family
care programs; (ii) $2.2 billion in savings from State agency actions to reduce
spending on the State workforce, SUNY and CUNY, mental hygiene programs, capital
projects, the prison system and fringe benefits; (iii) $300 million in savings
from local assistance reforms, including actions affecting school aid and
revenue sharing while proposing program legislation to provide relief from
certain mandates that increase local spending; (iv) over $400
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million in revenue measures, primarily a new Quick Draw Lottery game, changes to
tax payment schedules, and the sale of assets; and (v) $300 million from
reestimates in receipts.
On January 30, 1996, the State issued an update to the 1995-1996 state
Financial Plan. These projections show continued balance in the State's
1995-1996 Financial Plan.
A significant risk to the State's projections arises from tax legislation
under consideration by Congress and the President. Congressionally-adopted
retroactive changes to Federal tax treatment of capital gains would flow through
automatically to the State personal income tax. Such changes, if ultimately
enacted, could produce revenue losses in both the 1995-1996 fiscal year and the
1996-1997 fiscal year. In addition, changes in Federal aid programs, currently
pending in Congress, could result in prolonged interruptions in the receipt of
Federal grants. According to the DOB, the major remaining uncertainties in the
1995-1996 State Financial Plan continue to be those related to the economy and
tax collections, which could produce either favorable or unfavorable variances
during the balance of the year.
The Governor presented his 1996-1997 Executive Budget to the Legislature on
December 15, 1995. The Legislature and the Comptroller will review the
Governor's Executive Budget and are expected to comment on it. There can be no
assurance that the Legislature will enact the Executive Budget into law, or that
the State's adopted budget projections will not differ materially and adversely
from the projections set forth in the Executive Budget.
The Governor's Executive Budget projects balance on a cash basis in the
General Fund. It reflects a continuing strategy of substantially reduced State
spending, including program restructurings, reductions in social welfare
spending, and efficiency and productivity initiatives. Total General Fund
receipts and transfers from other funds are projected to be $31.3 billion, a
decrease of $1.4 billion from total receipts projected in the current fiscal
year. Total General Fund disbursements and transfers to other funds are
projected to be $31.2 billion, a decrease of $1.5 billion from spending totals
projected for the current fiscal year.
The 1996-1997 Executive Budget proposes $3.9 billion in actions to balance
the 1996-97 State Financial Plan. The Executive Budget proposes to close this
gap primarily through a series of spending reductions and cost containment
measures. The Executive Budget projects (i) over $1.8 billion in savings from
cost containment and other actions in social welfare programs, including
Medicaid, welfare and various health and mental health programs; (ii) $1.3
billion in savings from a reduced State General Fund share of Medicaid made
available from anticipated changes in the Medicaid program, including an
increase in the Federal share of Medicaid; (iii) over $450 million in savings
from reforms and cost avoidance in educational services (including school aid
and higher education), while providing fiscal relief from certain State mandates
that increase local spending; and (iv) $350 million in savings from efficiencies
and reductions in other State programs. The State has noted that there is
considerable uncertainty as to the ultimate composition of the Federal budget,
including uncertainties regarding major Federal entitlement reforms. The
1996-1997 Executive Budget seeks to lessen the effect of the proposed cuts on
localities by granting certain mandate relief to permit them to exercise greater
flexibility in allocating their resources. However, no assurance can be given as
to the amount of savings which the City might realize from any of the Medicaid
cost containment or welfare reform
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measures proposed in the Executive Budget or the size of any reductions in State
aid to the City. Depending upon the amount of such savings or the size of any
such reduction in State aid, the City might be required to make substantial
additional changes in the Financial Plan.
DOB has noted that the economic and financial condition of the State may be
affected by various financial, social, economic and political factors. Those
factors can be very complex, can vary from fiscal year to fiscal year, and are
frequently the result of actions taken not only by the State but also by
entities, such as the Federal government, that are outside the State's control.
Because of the uncertainty and unpredictability of these changes, their impact
cannot be included in the assumptions underlying the State's projections at this
time. There can be no assurance that the State economy will not experience
results that are worse than predicted, with corresponding material and adverse
effects on the State's financial projections.
To make progress toward addressing recurring budgetary imbalances, the
1996-97 Executive Budget proposes significant actions to align recurring
receipts and disbursements in future fiscal years. However, there can be no
assurance that the Legislature will enact the Governor's proposals or that the
State's actions will be sufficient to preserve budgetary balance or to align
recurring receipts and disbursements in future fiscal years. The 1996-1997
Executive Budget includes actions that will have an impact on receipts and
disbursements in future fiscal years. The net impact of these actions is
expected to produce a potential imbalance in State fiscal year 1997-98 of $1.4
billion and in the 1998-99 fiscal year of $2.5 billion, assuming implementation
of the 1996-97 Executive Budget recommendations. It is expected that the
Governor will propose to close these budget gaps with future spending
reductions.
Uncertainties with regard to both the economy and potential decisions at the
Federal level add further pressure on future budget balance in the State. For
example, various proposals relating to Federal tax and spending policies could,
if enacted, have a significant impact on the State's financial condition in the
current and future fiscal years. Specific budget and tax proposals under
consideration at the Federal level but not included in the State's 1996-1997
Executive Budget forecast could also have a disproportionately negative impact
on the longer-term outlook for the State's economy as compared to other states.
In the State's 1996 fiscal year and in certain recent fiscal years, the
State has failed to enact a budget prior to the beginning of the State's fiscal
year. A delay in the adoption of the State's budget beyond the statutory April 1
deadline could delay the projected receipt by the City of State aid, and there
can be no assurance that State budgets in future fiscal years will be adopted by
the April 1 statutory deadline. In the event that a State budget is not adopted
by the statutory deadline, temporary spending measures may be adopted by the
State pending the adoption of a Federal budget.
The projections and assumptions contained in the 1996-1999 Financial Plan
are subject to revision which may involve substantial change, and no assurance
can be given that these estimates and projections, which include actions which
the City expects will be taken but which are not within the City's control, will
be realized. Changes in major assumptions could significantly affect the City's
ability to balance its budget as required by State law and to meet its
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annual cash flow and financing requirements. The City's projections are subject
to the City's ability to implement the necessary service and personnel reduction
programs successfully.
The City is a defendant in a significant number of lawsuits. Such litigation
includes, but is not limited to, actions commenced and claims asserted against
the City arising out of alleged constitutional violations, alleged torts,
alleged breaches of contracts and other violations of law and condemnation
proceedings. While the ultimate outcome and fiscal impact, if any, on the
proceedings and claims are not currently predictable, adverse determinations in
certain of them might have a material adverse effect upon the City's ability to
carry out the 1996-99 Financial Plan. The City is a party to numerous lawsuits
and is the subject of numerous claims and investigations. The City has estimated
that its potential future liability on account of outstanding claims against it
as of June 30, 1995 amounted to approximately $2.5 billion. This estimate was
made by categorizing the various claims and applying a statistical model, based
primarily on actual settlements by type of claim during the preceding ten fiscal
years, and by supplementing the estimated liability with information supplied by
the City's Corporation Counsel.
On July 10, 1995, S&P revised downward its rating on City general obligation
bonds from A- to BBB+ and removed City bonds from CreditWatch. S&P stated that
"structural budgetary balance remains elusive because of persistent softness in
the City's economy, highlighted by weak job growth and a growing dependence on
the historically volatile financial services sector". Other factors identified
by S&P's in lowering its rating on City bonds included a trend of using one-time
measures, including debt refinancings, to close projected budget gaps,
dependence on unratified labor savings to help balance the Financial Plan,
optimistic projections of additional federal and State aid or mandate relief, a
history of cash flow difficulties caused by State budget delays and continued
high debt levels.
Fitch Investors Service, Inc. ("Fitch") rates City general obligation bonds
A-. Moody's rating for City general obligation bonds is Baa1. On March 1, 1996,
Moody's put the City's Baa1 general obligation bond rating under review for a
possible downgrade pending the outcome of the adoption of the City's budget for
the 1997 fiscal year and in light of the status of the debate on public
assistance and Medicaid reform; the enactment of a State budget, upon which
major assumptions regarding State aid are dependent, which may be extensively
delayed; and the seasoning of the City's economy with regard to its strength and
direction in the face of a potential national economic slowdown. Since July 15,
1993, Fitch has rated City bonds A-. On February 28, 1996, Fitch placed the
City's general obligation bonds on FitchAlert with negative implications. There
is no assurance that such ratings will continue for any given period of time or
that they will not be revised downward or withdrawn entirely. Any such downward
revision or withdrawal could have an adverse effect on the market prices of the
City's general obligation bonds.
In 1975, S&P suspended its A rating of City bonds. This suspension remained
in effect until March 1981, at which time the City received an investment grade
rating of BBB from S&P. On July 2, 1985, S&P revised its rating of City bonds
upward to BBB+ and on November 19, 1987, to A-. On July 10, 1995, S&P revised
its rating of City bonds downward to BBB+, as discussed above. Moody's ratings
of City bonds were revised in November 1981 from B (in effect since 1977) to
Ba1, in November 1983 to Baa, in December 1985 to Baa1, in May 1988 to
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A and again in February 1991 to Baa1. Since July 15, 1993, Fitch has rated City
bonds A-. On July 12, 1995, Fitch stated that the City's credit trend remains
"declining."
INVESTMENT RESTRICTIONS
In addition to the restrictions described under "Investment Limitations" in
the Prospectus, the Fund may not:
(1) own more than 10% of the outstanding voting stock or other securities,
or both, of any one issuer (other than securities of the United States
government or any agency or instrumentality thereof);
(2) purchase shares of other investment companies (except as part of a
merger, consolidation or reorganization or purchase of assets approved
by the Fund's shareholders), provided that the Fund may purchase
shares of any registered open-end investment company that determines
its net asset value per share based on the amortized cost or
penny-rounding method, if immediately after any such purchase the Fund
does not (a) own more than 3% of the outstanding voting stock of any
one investment company, (b) invest more than 5% of the value of its
total assets in any one investment company, or (c) invest more than
10% of the value of its total assets in the aggregate in securities of
investment companies;
(3) purchase securities on margin (except for delayed delivery or
when-issued transactions or such short-term credits as are necessary
for the clearance of transactions);
(4) sell securities short;
(5) purchase or sell commodities or commodity contracts, including futures
contracts;
(6) invest for the purpose of exercising control over management of any
company;
(7) make loans, except that the Fund may (a) purchase and hold debt
instruments (including bonds, debentures or other obligations and
certificates of deposit, banker's acceptances and fixed time deposits)
in accordance ,with its investment objectives and policies; and (b)
enter into repurchase agreements with respect to portfolio securities;
(8) underwrite the securities of other issuers, except to the extent that
the purchase of investments directly from the issuer thereof and later
disposition of such securities in accordance with the Fund's
investment program may be deemed to be an underwriting;
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<PAGE> 66
(9) purchase real estate or real estate limited partnership interests
(other than money market securities secured by real estate or
interests therein or securities issued by companies that invest in
real estate or interests therein);
(10) invest directly in interests in oil, gas or other mineral exploration
development programs or mineral leases, or
(11) purchase warrants.
The investment restrictions described above and in the Prospectus
are fundamental policies of the Fund which may be changed only when permitted by
law and approved by the holders of a majority of the Fund's outstanding voting
securities, as described under "Capital Stock".
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
The principal occupations of the Directors and executive officers
of the Fund for the past five years are listed below. Certain of the Directors
and officers are also Directors and officers of one or more other investment
companies for which Salomon Brothers Asset Management Inc ("SBAM"), the Fund's
investment manager, acts as investment adviser.
<TABLE>
<CAPTION>
Position(s) Principal
Held With Occupation(s)
Name and Address The Company Past 5 Years
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Charles F. Barber** Director Consultant; formerly Chairman
66 Glenwood Drive of the Board, ASARCO
Greenwich, CT 06830 Incorporated.
Age: 79
Michael S. Hyland* Director President, SBAM and
Salomon Brothers Asset and Managing Director, Salomon
Management Inc President Brothers Inc ("Salomon
7 World Trade Center Brothers") since 1989;
New York, NY 10048 formerly Managing Director,
Age: 50 First Boston Asset
Management Corp. and
Managing Director, First
Boston Corporation.
</TABLE>
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<PAGE> 67
<TABLE>
<S> <C> <C>
Carol L. Colman** Director President, Colman Consulting
Colman Consulting Co., Inc. Co., Inc; formerly Managing
P. O. Box 212 Partner of Inferential Focus
North Salem, NY 10560 Inc.
Age: 50
Daniel P. Cronin** Director Vice President and General
Pfizer, Inc. Counsel, Pfizer International
253 East 42nd Street Inc since 1987; Senior
New York, NY 10017 Assistant General Counsel,
Age: 50 Pfizer, Inc. since 1989.
Giampaolo G. Guarnieri Executive Vice President Vice President and Portfolio
Salomon Brothers Asset Manager, SBAM AP since
Management Asia Pacific April 1995; formerly Senior
Limited Portfolio Investment Manager,
Three Exchange Square, Hong Credit Agricole Asset
Kong Management (South East Asia)
Age: 32 Limited since 1992 and head of
direct investment activities
from 1990-1992.
Steven Guterman Executive Vice President Managing Director, SBAM
Salomon Brothers Asset and Salomon Brothers Inc
Management Inc since January 1996; formerly
7 World Trade Center Vice President, SBAM and
New York, NY 10048 Salomon Brothers Inc.
Age: 42
Nancy Noyes Vice President Director, SBAM and Salomon
Salomon Brothers Asset Brothers Inc; formerly Vice
Management Inc President SBAM and Salomon
7 World Trade Center Brothers Inc.
New York, NY 10048
Age: 38
Peter J. Wilby Executive Vice President Managing Director, SBAM
Salomon Brothers Asset and Salomon Brothers Inc
Management Inc since January 1996; formerly
7 World Trade Center Vice President, SBAM and
New York, NY 10048 Salomon Brothers Inc.
Age: 37
</TABLE>
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<PAGE> 68
<TABLE>
<S> <C> <C>
Richard E. Dahlberg Executive Vice President Managing Director, SBAM
Salomon Brothers Asset and Salomon Brothers Inc
Management Inc since January 1996; formerly
7 World Trade Center Vice President, SBAM and
New York, NY 10048 Salomon Brothers Inc since
Age: 58 June 1995; prior to that
employed by Massachusetts
Financial Services Company.
Lawrence H. Kaplan Executive Vice President Vice President and Chief
Salomon Brothers Asset and General Counsel Counsel, SBAM and Vice
Management Inc President, Salomon Brothers
7 World Trade Center Inc since May 1995; formerly
New York, NY 10048 Senior Vice President,
Age: 39 Secretary, Director and
General Counsel, Kidder
Peabody Asset Management,
Inc. and Senior Vice President,
Kidder, Peabody & Co.
Incorporated since November
1990.
Alan Mandel Treasurer Vice President, SBAM since
Salomon Brothers Asset January 1995; formerly Chief
Management Inc Financial Officer, Hyperion
7 World Trade Center Capital Management since
New York, NY 10048 1991; prior to which he was
Age: 38 Vice President, Mitchell
Hutchins Asset Management,
Inc. (MHAM)
Tana E. Tselepis Secretary Compliance Officer, SBAM
Salomon Brothers Asset since 1993 and Senior
Management Inc Administrator since 1989;
7 World Trade Center Vice President, Salomon
New York, NY 10048 Brothers Inc since 1991;
Age: 60 formerly Vice President and
Senior Administrator, First
Boston Asset Management
Corporation, since 1985.
</TABLE>
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<PAGE> 69
<TABLE>
<S> <C> <C>
Eliza Lau Vice President Vice President, SBAM since
Salomon Brothers Asset 1995; previously research
Management Inc analyst, Salomon Brothers Inc.
7 World Trade Center
New York, NY 10048
Age: 33
Reji Paul Assistant Treasurer Investment Accounting
Salomon Brothers Asset Manager, SBAM since 1995;
Management Inc formerly Assistant Vice
7 World Trade Center President, MHAM since 1994;
New York, NY 10048 prior to which he was
Age: 33 Supervisor at MHAM.
Janet Tolchin Assistant Treasurer Investment Accounting
Salomon Brothers Asset Manager, SBAM.
Management Inc
7 World Trade Center
New York, NY 10048
Age: 37
Jennifer G. Muzzey Assistant Secretary Employee of SBAM since June
Salomon Brothers Asset 1994; formerly Assistant Vice
Management Inc President of SunAmerica Asset
7 World Trade Center Management Corporation.
New York, NY 10048
Age: 36
</TABLE>
- ---------------------------------
* "Interested person" as defined
in the Investment Company
Act of 1940 (the "1940 Act").
** Audit Committee Member.
- ---------------------------------
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<PAGE> 70
Compensation Table
The following table provides information concerning the compensation paid
during the fiscal year ended December 31, 1995 to each director of the Fund. The
Fund does not provide any pension or retirement benefits to directors. In
addition, no remuneration was paid during the fiscal year ended December 31,
1995 by the Fund to officers of the Fund or to Mr. Hyland, who as an employee of
SBAM may be defined as an "interested person" under the 1940 Act.
<TABLE>
<CAPTION>
Total Compensation from
Aggregate Compensation Other Funds Advised by
Name of Person, Position from the Fund SBAM(A) Total Compensation
- ------------------------ ------------- ------- ------------------
<S> <C> <C> <C>
Charles F. Barber
Director $4,326 $110,149 (12) $114,475 (13)
Carol L. Colman
Director $4,416 $ 28,250 (3) $ 32,666 (4)
Daniel P. Cronin
Director $3,544 $ 26,399 (3) $ 29,943 (4)
</TABLE>
- ---------------------
(A) The numbers in parenthesis indicate the applicable number of investment
company directorships held by that director.
Directors of the Fund not affiliated with SBAM receive from the Fund a fee
for each Board of Directors and Board committee meeting attended and are
reimbursed for all out-of-pocket expenses relating to attendance at meetings.
Directors who are affiliated with SBAM do not receive compensation from the Fund
but are reimbursed for all out-of-pocket expenses relating to attendance at
meetings.
As of April 15, 1996, Directors and Officers of the Fund as a group
beneficially owned less than 1% of the outstanding shares of the Fund.
As of April 15, 1996, the following individuals or entities beneficially
owned more than 5% of the outstanding shares of the Fund:
<TABLE>
<CAPTION>
Name and Address of Owner Amount of Shares Owned Percent of Shares Owned
<S> <C> <C>
Sandra Atlas Bass 11,612,931.99 6.20%
185 Great Neck Road
Great Neck, NY 11021
Les J. Lieberman 18,335,801.58 9.79%
360 East 88th Street, Apt. 39A
New York, NY 10128
</TABLE>
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INVESTMENT MANAGER
The Fund retains SBAM to act as its investment manager. SBAM, an indirect
wholly owned subsidiary of Salomon Inc, serves as the investment manager to
numerous individuals and institutions and other investment companies.
The management contract ("Management Contract") between SBAM and the Fund
provides that SBAM shall manage the operations of the Fund, subject to policy
established by the Board of Directors of the Fund. Pursuant to the Management
Contract, SBAM manages the Fund's investment portfolio, directs purchases and
sales of the Fund's portfolio securities and reports thereon to the Fund's
officers and directors regularly. SBAM also furnishes office space and certain
facilities reasonably necessary for the performance of its services under the
Management Contract, and provides the office space, facilities, equipment and
personnel necessary to perform the following services for the Fund: SEC
compliance, including record keeping, reporting requirements and registration
statements and proxies; supervision of Fund operations, including custodian,
accountants, counsel and other parties performing services or operational
functions for the Fund; certain administrative and clerical services, including
certain accounting services, facilitation of redemption requests, exchange
privileges, and account adjustments, development of new shareholder services and
maintenance of certain books and records; and certain services to the Fund's
shareholders, including assuring that investments and redemptions are completed
efficiently, responding to shareholder inquiries and maintaining a flow of
information to shareholders. In addition, SBAM pays the compensation of the
Fund's officers, employees and directors affiliated with SBAM. The Fund bears
all other costs of its operations, including the compensation of its directors
not affiliated with SBAM.
For its services under the Management Contract, SBAM receives from the Fund
a management fee payable monthly at an annual rate of .20% of the Fund's average
daily net assets. For the fiscal years ended December 31, 1993, December 31,
1994 and December 31, 1995, the Fund paid SBAM $442,512, $468,902 and $449,809,
respectively, for its services. For the fiscal year ended December 31, 1995,
SBAM voluntarily waived $31,455 of its fee.
The Management Contract was initially approved by the Company's Board of
Directors on September 26, 1990 and by the Fund's then sole shareholder, SBAM,
on September 27, 1990 and ratified by shareholders on September 20, 1991. The
Management Contract will continue automatically for successive annual periods
provided that such continuance is approved at least annually by the Company's
Board of Directors or by a vote of a majority (as defined under "Capital Stock")
of the outstanding shares of the Fund and, in either case, by a majority of the
directors who are not parties to the contract or interested persons (as defined
in the 1940 Act) of any party by votes cast in person at a meeting called for
such purpose. The continuation of the Management Agreement was approved through
December 7, 1996 by the Board of Directors on September 6, 1995. The Management
Contract may be terminated by the Company or SBAM on 60 days' written notice,
and will terminate automatically in the event of its assignment.
If expenses borne by the Fund in any fiscal year exceed expense limitations
imposed by applicable state securities regulations, SBAM, in its capacity as
investment manager,
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will reimburse the Company for any such excess to the extent required by such
regulations up to the amount of the fees payable to it. California is the only
state which currently imposes such an expense limitation. The limitation is 2.5%
of the first $30 million of the average net assets, 2.0% of the next $70 million
of the average net assets and 1.5% of the remaining average net assets. Such
reimbursement, if any will be estimated and paid on a monthly basis.
Rule 17j-1 under the 1940 Act requires all registered investment companies
and their investment advisers and principal underwriters to adopt written codes
of ethics and institute procedures designed to prevent "access persons" (as
defined in Rule 17j-1) from engaging in any fraudulent, deceptive or
manipulative trading practices. The Board of Directors for the Company has
adopted a code of ethics (the "Fund Code") that incorporates personal trading
policies and procedures applicable to access persons of each Fund, which
includes officers, directors and other specified persons who may make,
participate in or otherwise obtain information concerning the purchase or sale
of securities by the Fund. In addition, the Fund Code attaches and incorporates
personal trading policies and procedures applicable to access persons of SBAM,
as the investment manager to the Fund, which policies serve as SBAM's code of
ethics (the "Adviser Code"). The Fund and Adviser Codes have been designed to
address potential conflict of interests that can arise in connection with the
personal trading activities of investment company and investment advisory
personnel.
Pursuant to the Fund and Adviser Codes, access persons are generally
permitted to engage in personal securities transactions, provided that a
transaction does not involve securities that are being purchased or sold, are
being considered for purchase or sale, or are being recommended for purchase or
sale by or for a Fund. In addition, the Adviser Code contains specified
prohibitions and blackout periods for certain categories of securities and
transactions, including a prohibition on short-term trading and purchasing
securities during an initial public offering. The Adviser Code also requires
that access persons obtain preclearance to engage in personal securities
transactions with certain exceptions . Finally, the Fund and Adviser Codes
require access persons to report all personal securities transactions
periodically.
ADMINISTRATOR
The Company employs Investors Bank & Trust Company ("Investors Bank"),
under an Administration Agreement dated as of December 1, 1994 (the
"Administration Agreement"), to provide certain administrative services to the
Fund. The services provided by Investors Bank under the Administration Agreement
include certain accounting, clerical and bookkeeping services; Blue Sky
compliance; corporate secretarial services and assistance in the preparation and
filing of tax returns and reports to shareholders and the Securities and
Exchange Commission. Investors Bank is located at 89 South Street, Boston, MA
02111.
For its services as administrator to the Fund, the Company pays Investors
Bank a fee, calculated daily and payable monthly, at an annual rate of .08% of
the Fund's aggregate average daily net assets. For the fiscal year ended
December 31, 1993, The Boston Company Advisors, Inc., the Fund's previous
administrator, received fees totaling $177,004 from the Fund. For the fiscal
year ended December 31, 1994, The Boston Company Advisors, Inc. received fees
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totaling $174,144 and Investors Bank received fees totaling $15,878,
respectively. For the fiscal year ended December 31, 1995, Investors Bank
received fees totaling $180,146.
EXPENSES
The Fund's expenses include taxes, interest, fees and salaries of such Fund
directors and officers who are not directors, officers or employees of the
Fund's service contractors, SEC fees, state securities qualification fees, costs
of preparing and printing prospectuses for regulatory purposes and for
distribution to existing shareholders, advisory and administration fees, charges
of the custodian and of the transfer and dividend disbursing agent, certain
insurance premiums, outside auditing and legal expenses, costs of shareholder
reports and shareholder meetings and any extraordinary expenses.
PORTFOLIO TRANSACTIONS
Subject to policy established by the Company's Board of Directors, SBAM is
primarily responsible for the Fund's portfolio decisions and the placing of the
Fund's portfolio transactions.
The Fund's policy of investing in securities with short maturities will
result in high portfolio turnover, as described in the Prospectus.
Portfolio securities normally will be purchased or sold from or to issuers
directly or to dealers serving as market makers for the securities at a net
price, which may include dealer spreads and underwriting commissions. The
general policy of the Company in selecting dealers is to obtain the best results
taking into account factors such as the dealer's general execution and
operational facilities, the type and size of the transaction involved, the
creditworthiness of the dealer, the stability of the dealer, execution and
settlement capabilities, time required to negotiate and execute the trade,
overall performance and other factors such as the dealer's risk in positioning
the securities involved and the dealer's spread or mark-up. While SBAM generally
seeks the best price in placing its orders, the Fund may not necessarily be
paying the lowest price available.
Under the 1940 Act, persons affiliated with the Company are prohibited from
dealing with the Company as a principal in the purchase and sale of securities
unless an exemptive order allowing such transactions is obtained from the
Securities and Exchange Commission. However, the Fund may purchase securities
from underwriting syndicates of which SBAM or any of its affiliates (including
Salomon Brothers Inc) is a member under certain conditions, in accordance with
the provisions of a rule adopted under the 1940 Act.
Investment decisions for the Fund are made independently from those for
other funds and accounts advised or managed by SBAM. Such other funds and
accounts may also invest in the same securities as the Fund. If those funds or
accounts are prepared to invest in, or desire to dispose of, the same security
at the same time as the Fund, however, transactions in such securities will be
made, insofar as feasible, for the respective funds and accounts in a manner
deemed equitable to all. In some cases, this procedure may adversely affect the
size of the position obtained for or disposed of by the Fund or the price paid
or received by the Fund. In
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addition, because of different investment objectives, a particular security may
be purchased for one or more funds or accounts when one or more funds or
accounts are selling the same security.
NET ASSET VALUE
As stated in the Prospectus, the Company seeks to maintain a net asset
value of $1.00 per share with respect to the Fund and, in this connection,
values the Fund's instruments on the basis of amortized cost pursuant to Rule
2a-7 under the 1940 Act. While this method provides certainty in valuation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price the Fund would receive if it sold the instrument.
During such periods the yield to investors in the Fund may differ somewhat from
that obtained in a similar company which uses market values for all its
portfolio securities. For example, if the use of amortized cost resulted in a
lower (higher) aggregate portfolio value on a particular day, a prospective
investor in the Fund would be able to obtain a somewhat higher (lower) yield
than would result from investment in such a similar company, and existing
investors would receive less (more) investment income. The purpose of using the
amortized cost method of calculation is to attempt to maintain a stable net
asset value per share of $1.00.
The Board of Directors has established procedures reasonably designed,
taking into account current market conditions and the Fund's investment
objective, to stabilize the net asset value per share as computed for the
purposes of sales and redemptions at $1.00. These procedures include periodic
review, as the Board of Directors deem appropriate and at such intervals as are
reasonable in light of current market conditions, of the relationship between
the amortized cost value per share and net asset value per share based upon
available indications of market value.
In the event of a deviation of 1/2 of 1% between the Fund's net asset value
based upon available market quotations or market equivalents and $1.00 per share
based on amortized cost, the Board of Directors will promptly consider what
action, if any, should be taken. The Board of Directors will also take such
action as they deem appropriate to eliminate or to reduce to the extent
reasonably practicable any material dilution or other unfair result which might
arise from differences between the two. Such action may include redemption in
kind, selling instruments prior to maturity to realize capital gains or losses
or to shorten the average maturity, withholding dividends, or utilizing a net
asset value per share as determined by using available market quotations.
As stated in the Prospectus, the Fund's net asset value per share for the
purpose of pricing purchase and redemption orders is determined at 12:00 noon
(New York time) on each Business Day. As used in the Prospectus, "Business Day"
refers to those days when the investment manager, the administrator, the
transfer agent, the custodian, the New York Stock Exchange and the Federal
Reserve Bank of New York are all open for business, which is Monday through
Friday except for holidays. As of the date of this Statement of Additional
Information, such holidays are: New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas and the
preceding Friday or subsequent Monday when one of those holidays falls on a
Saturday or Sunday, respectively.
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REDEMPTION IN KIND
If the Board of Directors determines that it is in the best interests of
the remaining shareholders of the Fund, the Fund may pay the redemption price,
in whole or in part, by a distribution in kind from the portfolio of the Fund.
Under the 1940 Act, the Fund may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the New
York Stock Exchange is closed, other than customary weekend and holiday
closings, or during which trading on said Exchange is restricted, or during
which (as determined by the Commission by rule or regulation) an emergency
exists as a result of which disposal or valuation of portfolio securities is not
reasonably practicable, or for such other periods as the Commission may permit.
(The Fund may also suspend or postpone the recordation of the transfer of its
shares upon the occurrence of any of the foregoing conditions.)
ADDITIONAL INFORMATION CONCERNING TAXES
The following discussion is a brief summary of certain additional tax
considerations affecting the Fund and its shareholders. No attempt is made to
present a detailed explanation of all federal, state and local tax concerns, and
the discussion set forth here and in the Prospectus is not intended as a
substitute for careful tax planning. Investors are urged to consult their own
tax advisers with specific questions relating to federal, state, local or
foreign taxes.
The Fund intends to qualify and elect to be treated as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). To do so, among other things, the Fund must: (a) derive
at least 90% of its gross income in each taxable year from dividends, interest,
payments with respect to securities loans and gains from the sale or other
disposition of stock or securities, foreign currencies or other income
(including gains from options, futures or forward contracts) derived with
respect to its business of investing in such stock, securities or currencies;
(b) derive less than 30% of its gross income in each taxable year from the sale
or other disposition of any of the following held for less than three months:
stock, securities, options, futures, certain forward contracts, or foreign
currencies (or any options, futures or forward contracts on foreign currencies)
but only if such currencies are not directly related to the Fund's principal
business of investing in stock or securities; and (c) diversify its holdings so
that, at the end of each quarter of each taxable year, (i) at least 50% of the
market value of the Fund's assets is represented by cash, cash items, United
States Government securities, securities of other regulated investment
companies and other securities with such other securities limited, in respect
of any one issuer, to an amount not greater than 5% of the value of the Fund's
assets and 10% of the outstanding voting securities of such issuer, and (ii)
not more than 25% of the value of its assets is invested in the securities of
any one issuer (other than United States Government securities or the
securities of other regulated investment companies). In meeting these
requirements, the Fund may be restricted in the selling of portfolio securities
held for less than three months and in the utilization of certain of the
investment techniques described under "Additional Investment Activities."
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As a regulated investment company, the Fund will not be subject to Federal
income tax on that portion of income and gains that is distributed to
shareholders, provided that the Fund distributes at least 90% of its net
investment income (which generally includes dividends, taxable interest, and net
short-term capital gains in excess of net long-term capital losses) and 90% of
its net tax-exempt interest income for the taxable year.
The Fund will be subject to a nondeductible 4% excise tax on certain
undistributed ordinary income and capital gains to the extent that the Fund
does not distribute by the end of each calendar year: (a) at least 98% of its
ordinary income for such calendar year; (b) at least 98% of the excess of its
capital gains over its capital losses for the one-year period ending, as a
general rule, on October 31 of each year; and (c) the undistributed income and
gains from the preceding calendar year (if any) pursuant to the calculations in
(a) and (b).
The Fund intends to qualify to pay "exempt-interest dividends," as that
term is defined in the Code, by holding at the end of each quarter of its
taxable year at least 50% of the value of its total assets in the form of
obligations described in section 103(a) of the Code. Except as discussed below,
exempt-interest dividends will be exempt from regular federal income tax and
will not be subject to New York State and New York City personal income taxes
to the extent that such distributions qualify as exempt-interest dividends and
represent interest income attributable to federally tax-exempt obligations of
the State of New York and its political subdivisions (as well as certain other
federally tax-exempt obligations the interest on which is exempt from New York
State and New York City personal income taxes). Dividends, however, are not
excluded in determining New York State or New York City franchise taxes on
corporations and financial institutions.
All or a portion of the gain from sale or redemption of tax-exempt
obligations acquired after April 30, 1993 attributable to market discount will
be treated as ordinary income rather than capital gain. This rule may increase
the amount of ordinary income dividends received by shareholders of the Fund.
Although exempt-interest dividends may be excluded from a shareholder's
gross income for federal income tax purposes, a portion of the exempt-interest
dividends may be a specific preference item for purposes of determining the
shareholder's liability (if any) under the federal individual and corporate
alternative minimum tax provisions of the Code. Exempt-interest dividends will
constitute a specific preference item for purposes of the federal alternative
minimum tax to the extent that such dividends are derived from certain types of
private activity bonds issued after August 7, 1986. In addition, all
exempt-interest dividends will be a component of the "adjusted current earnings"
adjustment item for purposes of the federal corporate alternative minimum tax.
Moreover, the receipt of exempt-interest dividends may increase a corporate
shareholder's liability for environmental taxes under Section 59A of the Code
and a foreign corporate shareholder's liability under the branch profits tax,
and may also affect the federal tax liability of certain Subchapter S
corporations and insurance companies.
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Furthermore, the receipt of exempt-interest dividends may be a factor in
determining the extent to which a shareholder's Social Security benefits are
taxable. Taxpayers that may be subject to the alternative minimum tax should
consult their tax advisers before investing in the Fund.
Shares of the Fund would not be a suitable investment for tax-exempt
institutions and may not be a suitable investment for retirement plans qualified
under Section 401 of the Code, H.R. 10 plans and individual retirement accounts.
Such plans and accounts would not gain any additional benefit from the receipt
of exempt-interest dividends from the Fund because subsequent distributions of
such dividends to the beneficiaries will be taxable.
In addition, the Fund may not be an appropriate investment for entities
that are "substantial users" of facilities financed by private activity bonds or
"related persons" thereof. A "substantial user" is defined under United States
Treasury Regulations to include non-exempt persons who regularly uses a part of
such facilities in their trade or business and, unless such facility, or part
thereof, is constructed, reconstructed or acquired specifically for the
non-exempt person, whose gross revenue derived with respect to the facilities
financed by the issuance of bonds is more than 5% of the total revenue derived
by all users of such facilities. "Related persons" include certain related
natural persons, affiliated corporations, partnerships and their partners and S
Corporations and their shareholders. The foregoing is not a complete statement
of all of the provisions of the Code covering the definitions of "substantial
user" and "related person". For additional information, investors should consult
their tax advisers before investing in the Fund.
All or a portion of the exempt-interest dividends received by certain
foreign corporations may be subject to the federal branch profits tax. Likewise,
all or a portion of the exempt-interest dividends may be taxable to certain
Subchapter S corporations that have Subchapter C earnings and profits and
substantial passive investment income. In addition, the exempt-interest
dividends may reduce the deduction for loss reserves for certain insurance
companies. Such corporations and insurance companies should consult their tax
advisers before investing in the Fund.
The exemption of interest income for regular federal income tax purposes
and for New York State and New York City personal income tax purposes may not
result in similar exemptions under the tax law of state and local taxing
authorities outside New York. In general, a state exempts from state income tax
only interest earned on obligations issued by that state or its political
subdivisions and instrumentalities.
Under the Code, interest on indebtedness incurred or continued to
purchase or carry shares of the Fund, which interest is deemed to relate to
exempt-interest dividends, will not be deductible by shareholders of the Fund
for federal income tax purposes. The Fund intends that substantially all
dividends and distributions it pays to its shareholders will be designated as
exempt-interest dividends and as such will be exempt from regular federal
income taxes. However, to the extent the Fund earns income from taxable
investments or realizes capital gains, some portion of its respective dividends
and distributions may not qualify as exempt-interest dividends and may be
subject to regular federal income taxes. Generally, both
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shareholders and the Fund treat taxable dividends as distributed in the year of
payment. However, dividends declared in October, November or December, payable
to shareholders of record on a specified date in one of those months, will be
treated as having been paid by the Fund and received by shareholders no later
than December 31, as long as actually paid during the following January.
Gain or loss, if any, recognized on the sale of shares of the Fund will
be taxed as capital gain or loss if such shares are capital assets in the
shareholder's hands. Generally, a shareholder's gain or loss will be long-term
gain or loss if the shares have been held for more than one year. The maximum
federal income tax rate imposed on individuals with respect to long-term
capital gains is limited to 28%, whereas the maximum federal income tax rate
imposed on individuals with respect to short-term capital gains (which are
taxed at the same rate as ordinary income) currently, is 39.6%. With respect to
corporate taxpayers, long-term capital gains are taxed at the same federal
income tax rates as short-term capital gain which is currently 35%. If a
shareholder receives an exempt-interest dividend with respect to any share, and
such share is held by the taxpayer for six months or less, then any loss on the
sale of such share will, to the extent of the amount of the dividend, be
disallowed. Under H.R. 2491, as passed by Congress and vetoed by President
Clinton, individual taxpayers would have been permitted a 50 percent deduction
for any capital gains that they recognized, and corporations would have been
taxed at a 28 percent rate on capital gains, in lieu of the regular corporate
rate. The provisions generally were to have retroactive effect to January 1,
1995. It is unclear whether similar legislation will be included as part of the
1996 budget compromise and, if so, what the effective date will be.
BACKUP WITHHOLDING
The Fund may be required to withhold federal income tax at a rate of 31%
("backup withholding") from dividends (except exempt-interest dividends) and
redemption proceeds paid to non-corporate shareholders. This tax may be withheld
from dividends if (i) the payee fails to furnish the Fund with the payee's
correct taxpayer identification number, (ii) the Internal Revenue Service
notifies the Fund that the payee has failed to report properly certain interest
and dividend income to the Internal Revenue Service and to respond to notices to
that effect, or (iii) when required to do so, the payee fails to certify that he
or she is not subject to backup withholding. Redemption proceeds may be subject
to withholding under the circumstances described in (i) above. Backup
withholding is not an additional tax. Any amounts withheld under the backup
withholding rules from payments made to a shareholder may be credited against
such shareholder's federal income tax liability.
PERFORMANCE DATA
From time to time, the Fund may quote its yield and effective yield in
advertisements or in reports or other communications to shareholders. Yield
quotations are expressed in annualized terms and may be quoted on a compounded
basis.
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The current yield for the Fund is computed by (a) determining the net
change in the value of a hypothetical pre-existing account in the Fund having a
balance of one share at the beginning of a seven calendar day period for which
yield is to be quoted; (b) dividing the net change by the value of the account
at the beginning of the period to obtain the base period return; and (c)
annualizing the results (i.e., multiplying the base period return by 365/7). The
net change in the value of the account reflects the value of additional shares,
but does not include realized gains and losses or unrealized appreciation and
depreciation. In addition, the Fund may calculate a compound effective
annualized yield by adding 1 to the base period return (calculated as described
above), raising the sum to a power equal to 365/7 and subtracting 1.
Current yield information is useful in reviewing the Fund's performance,
but because current yield will fluctuate, such information may not provide a
basis for comparing an investment in the Fund with bank deposits, savings
accounts or similar investment alternatives that pay a fixed return for a stated
period of time. Investors also should recognize that in periods of declining
interest rates the Fund's yield will tend to be somewhat higher than prevailing
market rates on short-term obligations, and in periods of rising interest rates
the Fund's yield will tend to be somewhat lower. Also, when interest rates are
falling, the inflow of net new money to the Fund from the continuous sale of
shares will likely be invested in portfolio instruments producing lower yields
than the balance of the Fund's portfolio, thereby reducing the Fund's current
yield. In periods of rising interest rates, the opposite can be expected to
occur. An investor's principal is not guaranteed by the Fund.
For the seven-day period ended December 31, 1995, the annualized yield and
effective yield for the Fund were 4.55% and 4.65%, respectively. For the
seven-day period ended December 31, 1995, the tax equivalent yield for the Fund
was 8.52%, assuming an effective tax rate of 46.6%.
SHAREHOLDER SERVICES
EXCHANGE PRIVILEGE
Shareholders may exchange all or part of their Fund shares for shares in
certain of the other Salomon Brothers Family of Funds listed in the Prospectus,
to the extent such shares are offered for sale in the shareholder's state of
residence, by contacting First Data Investor Services Group, Inc. ("FDISG"), a
subsidiary of First Data Corporation.
The exchange privilege enables shareholders in any of these funds to
acquire shares in a fund with different investment objectives when they believe
that a shift between funds is an appropriate investment decision. This privilege
is available to shareholders residing in any state in which the fund shares
being acquired may legally be sold. Prior to any exchange, the shareholder
should obtain and review a copy of the current prospectus of each fund into
which an exchange is to be made. Call or write the Fund at the telephone number
or address printed on the first page of the Statement of Additional Information
for such prospectus.
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Exercise of the exchange privilege is treated as a sale and repurchase for
federal income tax purposes, and, depending on the circumstances, a short or
long-term capital gain or loss may be realized. The price of the shares of the
fund into which shares are exchanged will be the new cost basis for tax
purposes.
Upon receipt of proper instructions and all necessary supporting documents,
shares submitted for exchange are redeemed at the then-current net asset value
and the proceeds immediately invested in shares of the fund being acquired at a
price equal to the then current net asset value of such shares.
All accounts involved in an exchange must have the same registration. If a
new account is to be established, the dollar amount to be exchanged must be at
least as much as the minimum initial investment of the fund whose shares are
being purchased. Any new account established by exchange will automatically be
registered in the same way as the account from which shares are exchanged and
will carry the same dividend option.
The exchange privilege may be modified or terminated at any time. The
privilege is not designed for investors trying to catch short-term swings in
market prices by making frequent exchanges. The Fund reserves the right to
impose a limit on the number of exchanges a shareholder may make. Call or write
the Fund for further details.
CAPITAL STOCK
All shares of the Company have equal voting rights and will be voted in the
aggregate, and not by class, except where voting by class is required by law. As
used in the Prospectus and this Statement of Additional Information, the term
"majority", when referring to the approvals to be obtained from shareholders in
connection with general matters affecting the Fund and all additional investment
portfolios, means the vote of the lesser of (i) 67% of the Company's shares
represented at a meeting if the holders of more than 50% of the outstanding
shares are present in person or by proxy or (ii) more than 50% of the Company's
outstanding shares. The term "majority", when referring to the approvals to be
obtained from shareholders in connection with matters affecting the Fund or any
other single portfolio (e.g., approval of investment management contracts),
means the vote of the lesser of (i) 67% of the shares of the portfolio
represented at a meeting if the holders of more than 50% of the outstanding
shares of the portfolio are present in person or by proxy or (ii) more than 50%
of the outstanding shares of the portfolio. Shareholders are entitled to one
vote for each full share held and fractional votes for fractional shares held.
Each share of a portfolio of the Company is entitled to such dividends and
distributions out of the assets belonging to that portfolio as are declared in
the discretion of the Company's Board of Directors. In the event of the
liquidation or dissolution of the Company, shares of a portfolio are entitled to
receive the assets allocable to that portfolio which are available for
distribution, and a proportionate distribution, based upon the relative net
assets of the portfolios, of any general assets not belonging to a portfolio
which are available for distribution.
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Shareholders are not entitled to any preemptive rights. All shares, when
issued, will be fully paid, non-assessable, fully transferable and redeemable at
the option of the holder.
CUSTODIAN, TRANSFER AGENT AND
SHAREHOLDER SERVICING AGENT
Investors Bank, which is located at 89 South Street, Boston, Massachusetts
02111, serves as custodian for the Fund. As the Fund's custodian, Investors
Bank, among other things, maintains a custody account or accounts in the name of
the Fund; receives and delivers all assets for the Fund upon purchase and upon
sale or maturity; collects and receives all income and other payments and
distributions on account of the assets of the Fund; and makes disbursements on
behalf of the Fund. The custodian does not determine the investment policies of
the Fund, nor decide which securities the Fund will buy or sell. For its
services, the custodian receives a monthly fee based upon all Fund assets held
in custody and also receives securities transaction charges, including
out-of-pocket expenses. The assets of the Fund are held under bank custodianship
in compliance with the 1940 Act. The Fund may also periodically enter into
arrangements with other qualified custodians with respect to certain types of
securities or other transactions such as repurchase agreements.
FDISG, which is located at One Exchange Place, Boston, Massachusetts 02109,
serves as transfer agent for the Fund. As the Fund's transfer agent, FDISG
registers and processes transfers of the Fund's stock, processes purchase and
redemption orders, acts as dividend disbursing agent for the Fund and maintains
records and handles correspondence with respect to shareholder accounts. For
these services, FDISG receives a monthly fee of the Fund's shares and is
reimbursed for out-of-pocket expenses.
VALIDITY OF SHARES
The validity of the shares will be passed upon for the Company by Piper &
Marbury L.L.P., Baltimore, Maryland.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP serves as the independent accountants for the Fund.
The financial statements included in this Statement of Additional Information
have been so included in reliance upon the report of Price Waterhouse LLP,
independent accountants, given on the authority of that firm as experts in
auditing and accounting. Price Waterhouse LLP is located at 1177 Avenue of the
Americas, New York, New York 10036.
OTHER INFORMATION
The Prospectus and this Statement of Additional Information do not contain
all the information included in the Registration Statement filed with the
Securities and Exchange Commission under the Securities Act of 1933 with respect
to the securities offered by the Prospectus. Certain portions of the
Registration Statement have been omitted from the
-55-
<PAGE> 82
Prospectus and this Statement of Additional Information pursuant to the rules
and regulations of the Securities and Exchange Commission. The Registration
Statement including the exhibits filed therewith may be examined at the office
of the Securities and Exchange Commission in Washington, D.C.
Statements contained in the Prospectus or in this Statement of Additional
Information as to the contents of any contract or other document referred to are
not necessarily complete, and, in each instance, reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement of which the Prospectus and this Statement of Additional Information
form a part, each such statement being qualified in all respects by such
reference.
FINANCIAL STATEMENTS
The Financial Statements contained in the Fund's Annual Report to
Shareholders for the fiscal year ended December 31, 1995 accompany this
Statement of Additional Information. Copies of such Annual Report may be
obtained by calling or writing the Fund at the telephone number or address on
the first page of the Statement of Additional Information.
-56-
<PAGE> 83
SALOMON BROTHERS MONEY MARKET FUNDS
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
SALOMON BROTHERS NEW YORK MUNICIPAL MONEY MARKET FUND
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Yield to
Maturity
Principal on Date of Maturity Value
Amount Description Purchase* Date (Note 1a)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal Bonds and Notes--98.8%
New York--92.5%
$ 1,050,000 Albany County, New York
Industrial Development Agency PUT................ 4.150% 12/01/96 $ 1,050,000
800,000 Albany County, New York
Industrial Development Agency VR................. 5.250 01/04/96 800,000
1,139,000 Albany, New York
Housing Authority VR............................. 3.900 01/03/96 1,139,000
2,410,000 Albany, New York
Industrial Development Agency PUT................ 4.250 07/01/96 2,410,000
2,600,000 Amherst, New York
Industrial Development Agency VR................. 5.300 01/04/96 2,600,000
400,000 Amherst, New York
Industrial Development Agency VR................. 5.250 01/04/96 400,000
950,000 Auburn, New York
Industrial Development Agency VR................. 5.450 01/03/96 950,000
675,000 Babylon, New York
Industrial Development Agency VR................. 5.350 01/04/96 675,000
2,025,000 Broome County, New York
Industrial Development Agency VR................. 5.250 01/04/96 2,025,000
650,000 Broome County, New York
Industrial Development Agency VR................. 4.800 01/03/96 650,000
2,250,000 Chantaqua County, New York
Industrial Development Agency VR................. 5.450 01/03/96 2,250,000
3,000,000 Chemung County, New York
Industrial Development Agency VR................. 5.250 01/04/96 3,000,000
730,000 Colonia, New York
Housing Development Corporation VR............... 3.900 01/03/96 730,000
3,525,000 Colonia, New York
Industrial Development Agency PUT................ 4.150 12/01/96 3,525,000
585,000 Colonia, New York
Industrial Development Agency VR................. 5.250 01/04/96 585,000
5,000,000 Connetquat Central School District,
New York GO TAN.................................. 3.900 06/27/96 5,011,220
1,273,000 Dutchess County, New York
Industrial Development Agency VR................. 5.250 01/04/96 1,275,000
1,210,000 Erie County, New York
Industrial Development Agency VR................. 5.250 01/04/96 1,210,000
500,000 Erie County, New York
Industrial Development Agency VR................. 5.250 01/04/96 500,000
400,00 Erie County, New York
Industrial Development Agency VR................. 5.250 01/04/96 400,000
</TABLE>
See accompanying notes to financial statements.
<PAGE> 84
SALOMON BROTHERS MONEY MARKET FUNDS
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
SALOMON BROTHERS NEW YORK MUNICIPAL MONEY MARKET FUND (CONTINUED)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Yield to
Maturity
Principal on Date of Maturity Value
Amount Description Purchase* Date (Note 1a)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 388,400 Erie County, New York
Industrial Development Agency VR.......... 5.250% 01/04/96 $ 388,400
1,140,000 Fulton County, New York
Industrial Development Agency PUT......... 4.150 12/01/96 1,140,000
1,860,000 Fulton County, New York
Industrial Development Agency VR.......... 5.150 01/04/96 1,860,000
3,000,000 Islip, New York
Industrial Development Agency VR.......... 5.225 01/04/96 3,000,000
500,000 Lewis County, New York
Development Agency VR..................... 4.900 01/03/96 500,000
1,820,000 Monroe County, New York
Industrial Development Agency PUT......... 4.000 06/01/96 1,820,000
700,000 Monroe County, New York
Industrial Development Agency PUT......... 4.400 06/15/96 700,000
6,500,000 Monroe County, New York
Industrial Development Agency VR.......... 5.450 01/03/96 6,500,000
4,375,000 Monroe County, New York
Industrial Development Agency VR.......... 5.250 01/04/96 4,375,000
4,300,000 Monroe County, New York
Industrial Development Agency VR.......... 5.000 01/04/96 4,300,000
3,325,000 Monroe County, New York
Industrial Development Agency VR.......... 5.300 01/04/96 3,325,000
2,370,000 Monroe County, New York
Industrial Development Agency VR.......... 5.350 01/04/96 2,370,000
2,200,000 Monroe County, New York
Industrial Development Agency VR.......... 4.150 01/02/96 2,200,000
1,740,000 Monroe County, New York
Industrial Development Agency VR.......... 5.350 01/04/96 1,740,000
1,700,000 Monroe County, New York
Industrial Development Agency VR.......... 5.500 01/03/96 1,700,000
1,580,000 Monroe County, New York
Industrial Development Agency VR.......... 5.350 01/04/96 1,580,000
945,000 Monroe County, New York
Industrial Development Agency VR.......... 5.350 01/04/96 945,000
225,000 Monroe County, New York
Industrial Development Agency VR.......... 5.250 01/04/96 225,000
</TABLE>
See accompanying notes to financial statements.
<PAGE> 85
SALOMON BROTHERS MONEY MARKET FUNDS
SALOMON BROTHERS NEW YORK MUNICIPAL MONEY MARKET FUND (CONTINUED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Yield to
Maturity
Principal on Date of Maturity Value
Amount Description Purchase* Date (Note 1a)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 4,475,000 Mount Pleasant, New York
Industrial Development Agency, VR........... 5.200% 01/02/96 $ 4,475,000
3,000,000 Nassau County, New York GO BAN............... 3.450 08/15/96 3,014,475
2,000,000 Nassau County, New York GO TAN.............. 3.700 04/15/96 2,004,309
1,090,000 Nassau County, New York
Industrial Development Agency VR........... 5.250 01/04/96 1,090,000
800,000 New York City, New York
Housing Development Corporation VR......... 5.250 01/03/96 800,000
16,330,000 New York City, New York
Housing Development Corporation VR......... 5.750 01/04/96 16,330,000
2,000,000 New York City, New York
Housing Development Corporation VR......... 5.800 01/04/96 2,000,000
1,000,000 New York City, New York
Housing Development Corporation VR......... 5.750 01/04/96 1,000,000
9,500,000 New York City, New York
Industrial Development Agency VR........... 6.250 01/02/96 9,500,000
6,000,000 New York City, New York
Industrial Development Agency VR........... 5.500 01/04/96 6,000,000
2,100,000 New York City, New York
Industrial Development Agency VR........... 6.100 01/02/96 2,100,000
1,650,000 New York City, New York
Industrial Development Agency VR........... 5.350 01/04/96 1,650,000
1,300,000 New York City, New York
Industrial Development Agency VR........... 5.250 01/04/96 1,300,000
780,000 New York City, New York
Industrial Development Agency VR........... 5.350 01/04/96 780,000
600,000 New York City, New York
Industrial Development Agency VR........... 5.350 01/04/96 600,000
505,000 New York City, New York
Industrial Development Agency VR........... 5.250 01/04/96 505,000
400,000 New York City, New York
Industrial Development Agency VR........... 5.800 01/04/96 400,000
115,000 New York City, New York
Industrial Development Agency VR........... 5.250 01/04/96 115,000
1,200,000 New York City, New York
Trust for Cultural Resources VR............ 5.550 01/03/96 1,200,000
</TABLE>
See accompanying notes to financial statements.
<PAGE> 86
SALOMON BROTHERS MONEY MARKET FUNDS
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
SALOMON BROTHERS NEW YORK MUNICIPAL MONEY MARKET FUND (CONTINUED)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Yield to
Maturity
Principal on Date of Maturity Value
Amount Description Purchase* Date (Note 1a)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 5,000,000 New York City, New York GO VR ........................... 6.100% 01/02/96 $ 5,000,000
8,000,000 New York City, New York GO VR ........................... 6.250 01/02/96 8,000,000
6,900,000 New York City, New York GO VR ........................... 5.500 01/03/96 6,900,000
3,800,000 New York City, New York GO VR ........................... 6.250 01/02/96 3,800,000
1,100,000 New York City, New York GO VR ........................... 5.350 01/03/96 1,100,000
1,050,000 New York State, Dormitory Authority FGIC ................ 3.800 07/01/96 1,063,100
13,874,000 New York State, Dormitory Authority TECP ................ 4.900 01/03/96 13,674,000
500,000 New York State,
Energy Research & Development VR ...................... 3.550 01/02/96 500,000
3,350,000 New York State,
Job Development Authority VR .......................... 4.400 01/03/96 3,350,000
1,620,000 New York State,
Job Development Authority VR .......................... 4.400 01/02/96 1,620,000
925,000 New York State,
Job Development Authority VR .......................... 4.300 01/02/96 925,000
420,000 New York State,
Job Development Authority VR .......................... 4.300 01/02/96 420,000
125,000 New York State,
Job Development Authority VR .......................... 4.300 01/02/96 125,000
100,000 New York State,
Job Development Authority VR .......................... 4.300 01/02/96 100,000
1,000,000 New York State,
Urban Development Corporation BIG P/R ................. 3.500 01/01/96 1,020,000
1,350,000 New York State,
Urban Development Corporation P/R ..................... 3.500 01/01/96 1,377,000
1,000,000 New York State,
Urban Development Corporation P/R ..................... 5.750 01/01/96 1,020,000
600,000 New York State,
Urban Development Corporation P/R ..................... 5.750 01/01/96 612,000
1,600,000 Newburgh, New York
Industrial Development Agency VR ...................... 4.800 01/03/96 1,600,000
1,180,000 Niagara County, New York
Industrial Development Agency VR ...................... 5.350 01/04/96 1,180,000
2,050,000 Oneida County, New York
Industrial Development Agency VR ...................... 5.350 01/04/96 2,050,000
</TABLE>
See accompanying notes to financial statements.
<PAGE> 87
SALOMON BROTHERS MONEY MARKET FUNDS
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
SALOMON BROTHERS NEW YORK MUNICIPAL MONEY MARKET FUND (CONTINUED)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Yield to
Maturity
Principal on Date of Maturity Value
Amount Description Purchase* Date (Note 1a)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 379,000 Oneida County, New York
Industrial Development Agency VR.......... 5.100% 01/04/96 $ 379,000
3,900,000 Onondaga County, New York
Industrial Development Agency VR.......... 5.400 01/03/96 3,900,000
1,300,000 Onondaga County, New York
Industrial Development Agency VR.......... 5.400 01/03/96 1,300,000
3,500,000 Ontario County, New York
Industrial Development Agency VR.......... 6.650 01/02/96 3,500,000
1,650,000 Rockland County, New York
Industrial Development Agency VR.......... 5.350 01/04/96 1,650,000
345,000 Schoharie County, New York
Industrial Development Agency VR.......... 5.100 01/04/96 345,000
75,000 St. Lawrence County, New York
Industrial Development Agency VR.......... 5.450 01/04/96 75,000
1,675,000 Suffolk County, New York GO AMBAC........... 3.750 10/15/96 1,684,606
1,500,000 Syracuse, New York
Industrial Development Agency PUT......... 4.400 06/15/96 1,500,000
3,550,000 Syracuse, New York
Industrial Development Agency VR.......... 5.500 01/03/96 3,550,000
2,000,000 Triborough Bridge & Tunnel Authority
New York P/R.............................. 4.000 01/01/96 2,040,000
6,660,000 Wyoming County, New York
Industrial Development Agency VR.......... 5.350 01/04/96 6,660,000
640,000 Wyoming County, New York
Industrial Development Agency VR.......... 5.250 01/04/96 640,000
1,440,000 Yates County, New York
Industrial Development Agency VR.......... 5.150 01/04/96 1,440,000
1,080,000 Yonkers, New York
Industrial Development Agency VR.......... 5.250 01/04/96 1,080,000
-----------
210,137,113
</TABLE>
See accompanying notes to financial statements.
<PAGE> 88
SALOMON BROTHERS MONEY MARKET FUNDS
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
SALOMON BROTHERS NEW YORK MUNICIPAL MONEY MARKET FUND (CONCLUDED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Yield to
Maturity
Principal on Date of Maturity Value
Amount Description Purchase* Date (Note 1a)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Puerto Rico--6.0%
$13,600,000 Puerto Rico Industrial, Tourist, Educational,
Medical & Environmental Control Facilities VR..... 5.400% 01/03/96 $ 13,600,000
------------
Total Investments--98.8% (cost $223,737,113)........ 223,737,113
Other assets in excess of liabilities--1.2%......... 2,811,482
------------
Net Assets--100.0%.................................. $226,548,595
============
</TABLE>
*Yield to maturity on date of purchase, except in the case of Variable Rate
Demand Notes (VR) and Put Bonds, whose yields are determined on date of the
last interest rate change. For Variable Rate Demand Notes and Put Bonds,
maturity date shown is the date of next interest rate change.
Abbreviations used in this statement:
AMBAC--Insured as to principal and interest by the American Municipal Bond
Assurance Corporation.
BAN --Bond Anticipation Note.
BIG --Insured as to principal and interest by the Bond Investors Guaranty
Insurance Company.
FCIC --Insured as to principal and interest by the Financial Guaranty
Insurance Company.
GO --General Obligation
P/R --Pre-refunded in U.S. Treasury Securities.
PUT --Optional or mandatory put. Maturity date shown is the put date as well
as the date of the next interest rate change.
TAN --Tax Anticipation Note
TECP --Tax Exempt Commercial Paper
See accompanying notes to financial statements.
<PAGE> 89
SALOMON BROTHERS MONEY MARKET FUNDS
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
SALOMON BROTHERS NEW YORK MUNICIPAL MONEY MARKET FUND
<TABLE>
- ----------------------------------------------------------------------------------------------------
<S> <C>
Assets
Investments, at value (cost $223,737,113) ........................................... $223,737,113
Cash ................................................................................ 22,069
Receivable for Fund shares sold ..................................................... 1,234,480
Interest receivable. ................................................................ 1,210,552
------------
Total assets ................................................................ 226,204,214
------------
Liabilities
Payable for Fund shares redeemed .................................................... 266,863
Dividend payable .................................................................... 15,997
Management fee payable .............................................................. 35,265
Accrued expenses .................................................................... 37,494
------------
Total liabilities ........................................................... 335,619
------------
Net Assets (equivalent to $1.00 per share on 226,776,791 shares of $.001 par value
capital stock outstanding) ........................................................ $225,548,595
============
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
SALOMON BROTHERS NEW YORK MUNICIPAL MONEY MARKET FUND
<TABLE>
- ----------------------------------------------------------------------------------------------------
<S> <C>
Income
Interest .......................................................................... $9,231,307
Expenses
Management fee ........................................................ $ 449,809
Custody and administration fees ....................................... 258,054
Shareholder services .................................................. 113,900
Audit and tax return preparation fees ................................. 77,282
Legal ................................................................. 40,000
Printing .............................................................. 27,718
Amortization of organization expenses ................................. 9,071
Directors' fees and expenses .......................................... 1,617
Other ................................................................. 30,000
----------
1,007,451
Management fee waived by investment advisor ........................... (31,455)
Credits earned from custodian on cash balances ........................ (6,021) 969,975
---------- ----------
Net investment income ............................................................. 8,261,332
Net realized gain on securities sold ................................................ 27,905
----------
Net increases in net assets from operations ......................................... $8,289,237
==========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 90
SALOMON BROTHERS MONEY MARKET FUNDS
STATEMENT OF CHANGES IN NET ASSETS
SALOMON BROTHERS NEW YORK MUNICIPAL MONEY MARKET FUND
<TABLE>
- -----------------------------------------------------------------------------------------------------------
<CAPTION>
Year Ended December 31,
---------------------------
1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income................................................... $ 8,261,332 $ 6,160,954
Net realized gain (loss) on securities sold............................. 27,905 (65,622)
------------- -------------
Net increase in net assets from operations.............................. 8,289,237 6,095,332
------------- -------------
Dividends from net investment income........................................ (8,261,332) (6,160,954)
------------- -------------
Capital Share Transactions
Proceeds from sales of shares........................................... 298,776,320 424,692,601
Net asset value of shares issued in reinvestment of dividends........... 7,924,931 5,955,235
Payment for redemption of shares........................................ (349,968,556) (423,206,832)
------------- -------------
Net increase (decrease) in net assets derived from share transactions... (43,267,305) 7,441,007
------------- -------------
Net increase (decrease) in net assets................................... (43,239,400) 7,375,385
------------- -------------
Net Assets
Beginning of year....................................................... 259,787,995 262,412,610
------------- -------------
End of year............................................................. $ 226,548,595 $ 259,767,995
============= =============
</TABLE>
FINANCIAL HIGHLIGHTS
SELECTED DATA PER SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR:
SALOMON BROTHERS NEW YORK MUNICIPAL MONEY MARKET FUND
<TABLE>
- -----------------------------------------------------------------------------------------------------------
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------
1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year........... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- -------- -------- -------- --------
Net investment income........................ 0.037* 0.027 0.023 0.031 0.047
Dividends from net investment income......... (0.037) (0.027) (0.023) (0.031) (0.047)
-------- -------- -------- -------- --------
Net asset value, end of year................. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======== ======== ======== ======== ========
Net assets end of year (thousands)........... $226,549 $388,788 $252,413 $261,685 $154,782
Total investment return...................... +3.7% +2.7% +2.3% +3.1% +4.8%
Ratios to average net assets:
Expenses................................. 0.43%* 0.41% 0.41% 0.42% 0.60%
Net investment income.................... 3.67% 2.63% 2.31% 3.07% 4.63%
</TABLE>
* Net investment income per share would have been $.037 and the expense ratio
to average net assets would have been .45% before waiver of management fee
and credits earned on custodian cash balances.
See accompanying notes to financial statements.
<PAGE> 91
SALOMON BROTHERS MONEY MARKET FUNDS
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
SALOMON BROTHERS U.S. TREASURY SECURITIES MONEY MARKET FUND
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Yield to
Maturity
Principal on Date of Maturity Value
Amount Description Purchase* Date (Note 1a)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Bills - 99.9%
$ 898,000 U.S. Treasury Bill.......................... 5.350% 01/11/96 $ 896,665
870,000 U.S. Treasury Bill.......................... 5.270 01/16/96 867,835
190,000 U.S. Treasury Bill.......................... 4.600 02/08/96 189,037
9,190,000 U.S. Treasury Bill.......................... 4.860 02/08/96 9,142,662
315,000 U.S. Treasury Bill.......................... 5.270 02/08/96 313,248
-----------
Total Investments - 99.9% (cost $11,409,447)....................... 11,409,447
Other assets in excess of liabilities - 0.1%....................... 16,021
-----------
Net Assets - 100.0%................................................ $11,425,468
===========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 92
SALOMON BROTHERS MONEY MARKET FUNDS
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
SALOMON BROTHERS U.S. TREASURY SECURITIES MONEY MARKET FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments, at value (cost $11,409,447).......................... $11,409,447
Cash.............................................................. 7,304
Receivable from investment advisor................................ 5,394
Receivable for Fund shares sold................................... 28,974
-----------
Total assets.............................................. 11,451,119
-----------
LIABILITIES
Payable for Fund shares redeemed.................................. 8,000
Dividend payable.................................................. 10,635
Accrued expenses.................................................. 7,016
-----------
Total liabilities......................................... 25,651
-----------
Net Assets (equivalent to $1.00 per share on 11,425,379 shares
of $.001 par value capital stock outstanding)................... $11,425,468
===========
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
SALOMON BROTHERS U.S. TREASURY SECURITIES MONEY MARKET FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C> <C>
Income
Interest........................................................ $843,023
Expenses
Management fee...................................... $ 15,217
Custody and administration fees..................... 26,631
Registration and filing fees........................ 13,359
Amortization of organization expenses............... 11,241
Shareholder services................................ 11,079
Audit and tax return preparation fees............... 9,200
Legal............................................... 7,144
Printing............................................ 6,000
Directors' fees and expenses........................ 1,618
Other............................................... 4,551
--------
106,040
Management fee waived by investment advisor......... (7,096)
Credits earned from custodian on cash balances...... (31) 98,913
-------- --------
Net investment income........................................... 744,110
Net realized gain on securities sold................................ 6,443
--------
Net increase in net assets from operations.......................... $750,553
========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 93
SALOMON BROTHERS MONEY MARKET FUNDS
STATEMENT OF CHANGES IN NET ASSETS
SALOMON BROTHERS U.S. TREASURY SECURITIES MONEY MARKET FUND
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Year Ended December 31,
-----------------------------
1995 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income................................................ $ 744,110 $ 1,045,349
Net realized gain (loss) on securities sold.......................... 6,443 (2,037)
------------ -------------
Net increase in net assets from operations........................... 750,553 1,043,212
------------ -------------
Dividends and distributions to shareholders
Dividends from net investment income................................. (744,110) (1,045,249)
Distributions from net realized gains................................ (959) --
------------ -------------
(745,069) (1,045,249)
Capital Share Transactions
Proceeds from sales of shares........................................ 79,773,868 127,781,043
Net asset value of shares issued in reinvestment of dividends........ 555,617 221,270
Payment for redemption of shares..................................... (96,624,438) (135,113,944)
------------ -------------
Net decrease in net assets derived from share transactions........... (16,295,153) (6,431,631)
------------ -------------
Contribution from investment advisor (Note 2)........................ 48,447 --
------------ -------------
Net decrease in net assets........................................... (16,341,222) (6,453,668)
Net Assets
Beginning of year.................................................... 27,666,690 34,120,358
------------ -------------
End of year (including undistributed net investment income of
$265 for 1995)..................................................... $ 11,425,468 $ 27,686,690
============ =============
</TABLE>
FINANCIAL HIGHLIGHTS
SELECTED DATA PER SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
SALOMON BROTHERS U.S. TREASURY SECURITIES MONEY MARKET FUND
<TABLE>
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
Year ended December 31,
-------------------------------------------------------
1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year............. $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000
------- ------- ------- ------- -------
Net investment income.......................... 0.049* 0.035 0.026 0.034 0.054*
Dividends from net investment income........... (0.049) (0.036) (0.028) (0.034) (0.054)
------- ------- ------- ------- -------
Net assets value, end of year.................. $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000
======= ======= ======= ======= =======
Net assets end of year (thousands)............. $11,425 $27,687 $34,120 $50,554 $35,414
Total investment return........................ +5.0% +3.6% +2.9% +3.4% +5.3%
Ratios to average net assets:
Expenses.................................. 0.65%* 0.45% 0.35% 0.44% 0.54%*
Net investment income..................... 4.59% 3.53% 2.53% 3.42% 5.53%
</TABLE>
* Net investment income per share would have been $.049 and $.052 and the
expense ratios to average net assets would have been .70% and .64%,
respectively, for the years ended December 31, 1995 and 1991 before
applicable waiver of management fee, expenses absorbed by SBAM and credits
earned on custodian cash balances.
See accompanying notes to financial statements.
<PAGE> 94
SALOMON BROTHERS MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Salomon Brothers Series Funds Inc (the "Company") was incorporated in Maryland
on April 17, 1990 as an open-end management investment company, and currently
operates as a series company comprised of nine portfolios: Salomon Brothers Cash
Management Fund (the "Cash Management Fund"), Salomon Brothers New York
Municipal Money Market Fund, (the "New York Municipal Money Fund"), Salomon
Brothers U.S. Treasury Securities Money Market Fund (the "U.S. Treasury Fund"),
Salomon Brothers New York Municipal Bond Fund (the "New York Municipal Bond
Fund"), Salomon Brothers National Intermediate Municipal Fund (the "National
Intermediate Municipal Fund"), Salomon Brothers U.S. Government Income Fund (the
"U.S. Government Income Fund"), Salomon Brothers High Yield Bond Fund (the "High
Yield Bond Fund"), Salomon Brothers Strategic Bond Fund (the "Strategic Bond
Fund"), and Salomon Brothers Total Return Fund (the "Total Return Fund"). The
New York Municipal Money Fund and the U.S. Treasury Fund (individually, a
"Fund", collectively, the "Funds") are included in this report. The New York
Municipal Money Fund's objective is to seek as high a level of current income
exempt from federal, New York State and New York City personal income taxes as
is consistent with liquidity and the stability of principal. The U.S. Treasury
Fund's objective is to seek a high level of current income by investing only in
short-term United States government and government agency securities. The Cash
Management Fund, New York Municipal Bond Fund, National Intermediate Municipal
Fund, U.S. Government Income Fund, High Yield Bond Fund, Strategic Bond Fund,
and Total Return Fund are reported in a separate report and are not included
herein.
Following is a summary of significant accounting policies followed by each Fund
in the preparation of its financial statements. The policies are in conformity
with generally accepted accounting principles ("GAAP"). The preparation of
financial statements in accordance with GAAP requires management to make
estimates of certain reported amounts in the financial statements. Actual
amounts could differ from those estimates.
(A) SECURITIES VALUATION. Portfolio securities are valued using the
amortized cost method, which involves initially valuing an investment at
its cost and thereafter assuming a constant amortization to maturity of any
premium or discount. This method results in a value approximating market
value and does not include unrealized gains or losses.
(B) FEDERAL INCOME TAXES. Each Fund has complied and intends to
continue to comply with the requirements of the Internal Revenue Code
applicable to regulated investment companies, including the distribution
requirements of the Tax Reform Act of 1986, and to distribute all of its
income, including any net realized gains, to shareholders. Therefore, no
Federal income tax or excise tax provision is required.
PAGE 14
<PAGE> 95
SALOMON BROTHERS MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
(C) DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends on the
shares of each Fund are declared each business day to shareholders of
record that day, and paid on the last business day of the month.
Distributions of net realized gains to shareholders, if any, are declared
annually and recorded on the ex-dividend date. Dividends and distributions
are determined in accordance with income tax regulations, which may differ
from GAAP.
(D) EXPENSES. Direct expenses are charged to the Fund that incurred
them, and general expenses of the Company are allocated to the Funds based
on relative average net assets for the period the expense was incurred.
(E) OTHER. Investment transactions are recorded as of the trade date.
Interest income, including the accretion of discounts or the amortization
of premiums, is recognized when earned. Gains or losses on sales of
securities are calculated on the identified cost basis.
2. MANAGEMENT FEE AND OTHER AGREEMENTS
The Company retains Salomon Brothers Asset Management Inc ("SBAM"), an indirect
wholly owned subsidiary of Salomon Inc, to act as investment manager of each
Fund, subject to the supervision by the Board of Directors of the Company. SBAM
furnishes the Company with office space and certain services and facilities
required for conducting the business of the Company and pays the compensation of
its officers. The management fee for these services is payable monthly and is
based on the following annual percentages of the Funds' average daily net
assets: .20% for the New York Municipal Money Fund and .10% for the U.S.
Treasury Fund. For the year ended December 31, 1995, SBAM voluntarily waived
management fees of $31,455 and $7,096 for the New York Municipal Money Fund and
U.S. Treasury Fund, respectively.
If in any fiscal year total expenses of any Fund, excluding taxes, interest,
brokerage and extraordinary expenses, but including the management fee, exceed
the most stringent expense limitations imposed by state securities regulations
applicable to the Fund, SBAM will pay or reimburse the Fund for the excess.
Currently, the most restrictive of these limitations on an annual basis is 2.5%
of the first $30 million of average daily net assets, 2.0% of the next $70
million of average daily net assets and 1.5% of average daily net assets in
excess of $100 million. No such expense reimbursement was required for the year
ended December 31, 1995.
PAGE 15
<PAGE> 96
SALOMON BROTHERS MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
The U.S. Treasury Fund incurred realized losses on the sale of certain
securities in current and previous years. In order to maintain a $1 net asset
value per share, SBAM contributed $48,447 to offset cumulative net realized
losses. For tax purposes, this contribution was applied against the realized
losses for the year ended December 31, 1995. Accordingly, such amount has been
reclassified from paid-in-capital to accumulated net realized loss on
investments in the composition of net assets detailed in Note 3.
Investors Bank & Trust Company serves as custodian and administrator for each
Fund, which includes performing custodial and certain administrative services in
connection with the operation of each Fund. During the year ended December 31,
1995, custodian fees were reduced by $6,021 and $31 for the New York Municipal
Money Fund and U.S. Treasury Fund, respectively, relating to credits earned on
cash balances held by the custodian.
Each Fund has an agreement with Salomon Brothers Inc to distribute its shares.
3. CAPITAL STOCK
At December 31, 1995, the Company had 10,000,000,000 shares of authorized
capital stock, par value $.001 per share, of which the New York Municipal Money
Fund and the U.S. Treasury Fund each had 1,111,111,112 shares authorized.
Net assets, after re-classification of book/tax differences, consist of:
<TABLE>
<CAPTION>
NEW YORK U.S.
MUNICIPAL TREASURY
MONEY FUND FUND
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Par value....................................................................... $ 226,777 $ 11,425
Paid-in capital in excess of par................................................ 226,549,157 11,413,954
Undistributed net investment income............................................. -- 265
Accumulated net realized loss on investments.................................... (227,339) (176)
------------ -----------
Net assets...................................................................... $226,548,595 $11,425,468
============ ===========
</TABLE>
PAGE 16
<PAGE> 97
SALOMON BROTHERS MONEY MARKET FUNDS
4. PORTFOLIO ACTIVITY
The New York Municipal Money Fund invests in money market instruments maturing
in thirteen months or less whose credit ratings are within the highest ratings
category of two nationally recognized statistical rating organizations
("NRSROs") or if rated by only one NRSRO, the highest rating of that NRSRO, or,
if not rated, are believed by the investment manager to be of comparable
quality. The U.S. Treasury Fund invests in U.S. Treasury Securities maturing in
thirteen months or less. The New York Municipal Money Fund pursues its
investment objectives by investing at least 65% of its net assets in
obligations that are exempt from regular Federal income tax and from personal
taxes of the State and City of New York. Because the New York Municipal Money
Fund invests primarily in obligations of the State and City of New York, it is
more susceptible to factors adversely affecting issuers of such obligations
than a fund that is more diversified.
During the year ended December 31, 1995, the New York Municipal Money Fund and
U.S. Treasury Fund utilized $27,604 and $6,411, respectively, of capital loss
carry-forwards to offset net realized capital gains. At December 31, 1995, the
Funds had net capital loss carry-forwards available to offset future capital
gains as follows:
<TABLE>
<CAPTION>
New York U.S.
Municipal Treasury
Year of Expiration Money Fund Fund
- --------------------------------------------------------------------------------
<S> <C> <C>
1999................................................ $ 67,240 --
2000................................................ 94,778 --
2002................................................ 65,321 $176
-------- ----
$227,339 $176
======== ====
</TABLE>
<PAGE> 98
SALOMON BROTHERS MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Salomon Brothers New York Municipal Money Market Fund and
Salomon Brothers U.S. Treasury Securities Money Market Fund
In our opinion, the accompanying statements of assets and liabilities, including
the portfolios of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Salomon Brothers New York Municipal
Money Market Fund and Salomon Brothers U.S. Treasury Securities Money Market
Fund (two of the portfolios constituting Salomon Brothers Series Funds Inc,
hereafter referred to as the "Funds") at December 31, 1995, the results of each
of their operations for the year then ended, the changes in each of their net
assets for each of the two years in the period then ended and the financial
highlights for each of the periods indicated, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Funds' management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1995 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
PRICE WATERHOUSE LLP
New York, New York
February 16, 1996
PAGE 18
<PAGE> 99
SALOMON BROTHERS SERIES FUNDS INC
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements included in Part A:
For the Salomon Brothers New York Municipal Money Market Fund:
Selected Per Share Data and Ratios for the specified periods
for the Fund are presented under the heading "Financial
Highlights" in the Prospectus
Financial Statements included in Part B:
1. For Salomon Brothers New York Municipal Money Market Fund and Salomon
Brothers U.S. Treasury Securities Money Market Fund (now known as
Salomon Brothers Institutional Money Market Fund):
(i) Portfolio of Investments at December 31, 1995
(ii) Statement of Assets and Liabilities at December 31,
1995
(iii) Statement of Operations for the year ended December
31, 1995
(iv) Statement of Changes in Net Assets for the years
ended December 31, 1995 and 1994
(v) Financial Highlights for the years ended December 31,
1995, 1994, 1993, 1992 and 1991
(vi) Notes to Financial Statements
(vii) Report of Independent Accountants
(b) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
1(a) -- Articles of Incorporation of Registrant (filed as Exhibit 1 to the Registration Statement on Form N-1A (File Nos.
33-34423 and 811-06087) and incorporated herein by reference).
</TABLE>
<PAGE> 100
<TABLE>
<S> <C>
1(b) -- Articles Supplementary (filed as Exhibit 1(b) to Post-Effective Amendment No. 6 to the Registration Statement on
Form N-1A and incorporated herein by reference).
1(c) -- Articles Supplementary (filed as Exhibit 1(c) to Post-Effective Amendment No. 6 to the Registration Statement on
Form N-1A and incorporated herein by reference).
1(d) -- Form of Registrant's Articles of Amendment (filed as Exhibit 1(d) to Post-Effective Amendment No. 12 to the
Registration Statement on Form N-1A and incorporated herein by reference).
1(e) -- Form of Articles Supplementary (filed as Exhibit 1(e) to Post-Effective Amendment No. 12 to the Registration
Statement on Form N-1A and incorporated herein by reference).
1(f) -- Form of Articles Supplementary (filed as Exhibit 1(f) to Post-Effective Amendment No. 15 to the Registration
Statement on Form N-1A and incorporated herein by reference).
1(g) -- Form of Articles Supplementary (filed as Exhibit 1(g) to Post-Effective Amendment No. 17 to the Registration
Statement on Form N-1A and incorporated herein by reference).
2(a) -- Registrant's By-Laws (filed as Exhibit 2 to the Registration Statement on Form N-1A (File Nos. 33-34423 and
811-06087) and incorporated herein by reference).
3 -- None.
4(a) -- Form of Stock Certificate for shares of Class A Stock (filed as Exhibit 4(a) to Post-Effective Amendment No. 2 to
the Registration Statement on Form N-1A (File Nos. 33-34423 and 811-06087) and incorporated herein by reference).
4(b) -- Form of Stock Certificate for shares of Class B Stock (filed as Exhibit 4(b) to Post-Effective Amendment No. 2 to
the Registration Statement on Form N-1A (File Nos. 33-34423 and 811-06087) and incorporated herein by reference).
4(c) -- Form of Stock Certificate for shares of Class C Stock (filed as Exhibit 4(c) to Post-Effective Amendment No. 2 to
the Registration Statement on Form N-1A (File Nos. 33-34423 and 811-06087) incorporated herein by reference).
4(d) -- Form of Stock Certificate for shares of Class D Stock (filed as Exhibit 4(d) to Post-Effective Amendment No. 6 to
the Registration Statement on Form N-1A and incorporated herein by reference).
</TABLE>
<PAGE> 101
<TABLE>
<S> <C>
4(e) -- Forms of Specimen Stock Certificates: for Cash Management Fund - A, New York Municipal Bond Fund - A, National
Intermediate Municipal Fund - A, U.S. Government Income Fund - A, High Yield Bond Fund - A, Strategic Bond Fund -
A, Cash Management Fund - B, New York Municipal Bond Fund - B, National Intermediate Municipal Fund - B, U.S.
Government Income Fund - B, High Yield Bond Fund - B, Strategic Bond Fund - B, Cash Management Fund - C, New York
Municipal Bond Fund - C, National Intermediate Municipal Fund - C, U.S. Government Income Fund - C, High Yield Bond
Fund - C and Strategic Bond Fund - C, Cash Management Fund - O, New York Municipal Bond Fund - O, National
Intermediate Municipal Fund - O, U.S. Government Income Fund - O, High Yield Bond Fund - O, Strategic Bond Fund - O
(filed as Exhibit 4(e) to Post-Effective Amendment No. 12 to the Registration Statement on Form N-1A and
incorporated herein by reference).
4(f) -- Forms of Specimen Stock Certificates for Total Return Fund - A, Total Return Fund - B, Total Return Fund - C and
Total Return Fund - O (filed as Exhibit 4(f) to Post-Effective Amendment No. 15 to the Registration Statement on
Form N-1A and incorporated herein by reference).
4(g) -- Forms of Specimen Stock Certificates for Asia Growth Fund - A, Asia Growth Fund - B, Asia Growth Fund - C and Asia
Growth Fund - O (filed as Exhibit 4(g) to Post-Effective Amendment No. 18 to the Registration Statement on Form
N-1A and incorporated herein by reference).
5(a) -- Management Contract between Registrant and Salomon Brothers Asset Management Inc dated September 27, 1990 relating
to the Salomon Brothers Cash Management Fund and the Salomon Brothers New York Municipal Money Market Fund (filed
as Exhibit 5(a) to Post-Effective Amendment No. 7 to the Registration Statement on Form N-1A and incorporated
herein by reference).
5(b) -- Management Contract between Registrant and Salomon Brothers Asset Management Inc dated December 7, 1990 relating to
the Salomon Brothers U.S. Treasury Securities Money Market Fund (filed as Exhibit 5 to Post-Effective Amendment No.
5 to the Registration Statement on Form N-1A and incorporated herein by reference).
5(c) -- Management Contract between Registrant and Salomon Brothers Asset Management Inc dated December 8, 1992 relating to
the Salomon Brothers New York Municipal Bond Fund (filed as Exhibit 5(c) to Post-Effective Amendment No. 7 to the
Registration Statement on Form N-1A and incorporated herein by reference).
5(d) -- Form of Management Contract between Registrant and Salomon Brothers Asset Management Inc relating to the Salomon
Brothers National Intermediate Municipal Fund (filed as Exhibit 5(d) to Post-Effective Amendment No. 12 to the
Registration Statement on Form N-1A and incorporated herein by reference).
</TABLE>
<PAGE> 102
<TABLE>
<S> <C>
5(e) -- Form of Management Contract between Registrant and Salomon Brothers Asset Management Inc relating to the Salomon
Brothers U.S. Government Income Fund (filed as Exhibit 5(e) to Post-Effective Amendment No. 12 to the Registration
Statement on Form N-1A and incorporated herein by reference).
5(f) -- Form of Management Contract between Registrant and Salomon Brothers Asset Management Inc relating to the Salomon
Brothers High Yield Bond Fund (filed as Exhibit 5(f) to Post-Effective Amendment No. 12 to the Registration
Statement on Form N-1A and incorporated herein by reference).
5(g) -- Form of Management Contract between Registrant and Salomon Brothers Asset Management Inc relating to the Salomon
Brothers Strategic Bond Fund (filed as Exhibit 5(g) to Post-Effective Amendment No. 12 to the Registration
Statement on Form N-1A and incorporated herein by reference).
5(h) -- Form of Subadvisory Consulting Agreement between Salomon Brothers Asset Management Inc and Salomon Brothers Asset
Management Limited relating to the Strategic Bond Fund (filed as Exhibit 5(h) to Post-Effective Amendment No. 12 to
the Registration Statement on Form N-1A and incorporated herein by reference).
5(i) -- Form of Management Contract between Registrant and Salomon Brothers Asset Management Inc relating to the Salomon
Brothers Total Return Fund (filed as Exhibit 5(i) to Post-Effective Amendment No. 15 to the Registration Statement
on Form N-1A and incorporated herein by reference).
5(j) -- Form of Management Contract between Registrant and Salomon Brothers Asset Management Inc relating to the Salomon
Brothers Asia Growth Fund (filed as Exhibit 5(j) to Post-Effective Amendment No. 18 to the Registration Statement
on Form N-1A and incorporated herein by reference).
5(k) -- Form of Sub-advisory Contract between Salomon Brothers Asset Management Inc and Salomon Brothers Asset Management
Asia Pacific Limited relating to the Salomon Brothers Asia Growth Fund (filed as Exhibit 5(k) to Post-Effective
Amendment No. 18 to the Registration Statement on Form N-1A and incorporated herein by reference).
6(a) -- Distribution Agreement between Registrant and Salomon Brothers Inc dated September 27, 1990 (filed as Exhibit 6 to
Post-Effective Amendment No. 5 to the Registration Statement on Form N-1A and incorporated herein by reference).
6(b) -- Distribution Agreement between Registrant and Salomon Brothers Inc dated December 7, 1990 relating to the Salomon
Brothers U.S. Treasury Money Market Fund (filed as Exhibit 6 to Post-Effective Amendment No. 5 on Form N-1A and
incorporated herein by reference).
</TABLE>
<PAGE> 103
<TABLE>
<S> <C>
6(c) -- Distribution Agreement between Registrant and Salomon Brothers Inc dated December 8, 1992 relating to the New York
Municipal Bond Fund (filed as Exhibit 6(c) to Post-Effective Amendment No. 7 to the Registration Statement on Form
N-1A and incorporated herein by reference).
6(d) -- Distribution Agreement between Registrant and AMT Capital Services, Inc. dated June 18, 1993 relating to the
Salomon Brothers New York Municipal Money Market Fund and the Salomon Brothers New York Municipal Bond Fund (filed
as Exhibit 6(d) to Post-Effective Amendment No. 8 to the Registration Statement on Form N-1A and incorporated
herein by reference).
6(e) -- Form of Distribution Agreement between Registrant and Salomon Brothers Inc relating to Salomon Brothers National
Intermediate Municipal Fund, Salomon Brothers U.S. Government Income Fund, Salomon Brothers High Yield Bond Fund
and Salomon Brothers Strategic Bond Fund (filed as Exhibit 6(e) to Post-Effective Amendment No. 12 to the
Registration Statement on Form N-1A and incorporated herein by reference).
6(f) -- Form of Distribution Agreement between Registrant and Salomon Brothers Inc relating to Salomon Brothers Total
Return Fund (filed as Exhibit 6(f) to Post-Effective Amendment No. 15 to the Registration Statement on Form N-1A
and incorporated herein by reference).
6(g) -- Form of Distribution Agreement between Registrant and Salomon Brothers Inc relating to Salomon Brothers Asia Growth
Fund (filed as Exhibit 6(g) to Post-Effective Amendment No. 18 to the Registration Statement on Form N-1A and
incorporated herein by reference).
7 -- None.
8(a) -- Custody Agreement between Registrant and Boston Safe Deposit and Trust Company (filed as Exhibit 8 to
Post-Effective Amendment No. 4 to the Registration Statement on Form N-1A (File Nos. 33-34423 and 811-06087) and
incorporated herein by reference).
8(b) -- Form of Custodian Agreement between Registrant and Investors Bank & Trust Company (filed as Exhibit 8(b) to
Post-Effective Amendment No. 12 to the Registration Statement on Form N-1A and incorporated herein by reference).
9(a) -- Transfer Agency Agreement between Registrant and The Shareholder Services Group, Inc. (filed as Exhibit 9(a) to
Post-Effective Amendment No. 5 to the Registration Statement on Form N-1A and incorporated herein by reference).
9(b) -- Administration Agreement between Registrant and The Boston Company Advisors, Inc. (filed as Exhibit 9(a) to
Post-Effective Amendment No. 4 to the Registration Statement on Form N-1A (File Nos. 33-34423 and 811-06087) and
incorporated herein by reference).
</TABLE>
<PAGE> 104
<TABLE>
<S> <C>
9(c) -- Form of Administration Agreement between Registrant and Investors Bank & Trust Company (filed as Exhibit 9(c) to
Post-Effective Amendment No. 12 to the Registration Statement on Form N-1A and incorporated herein by reference).
9(d) -- Form of Amendment to Transfer Agency Agreement between Registrant and The Shareholders Services Group, Inc (filed
as Exhibit 9(d) to Post-Effective Amendment No. 12 to the Registration Statement on Form N-1A and incorporated
herein by reference).
9(e) -- Form of Transfer Agency Agreement among the Registrant, Salomon Brothers Institutional Series Funds Inc and
Investors Bank & Trust Company (filed as Exhibit 9(e) to Post-Effective Amendment No. 18 to the Registration
Statement on Form N-1A and incorporated herein by reference).
9(f) -- Form of Subadministration Agreement between Salomon Brothers Asset Management Inc and Salomon Brothers Asset
Management Limited (filed as Exhibit 9(f) to Post-Effective Amendment No. 18 to the Registration Statement on Form
N-1A and incorporated herein by reference).
10 -- Opinion and Consent of Counsel of Piper & Marbury, LLP is incorporated by reference to Rule 24f-2 Notice as filed
with the SEC on February 28, 1996.
11 -- Consent of Price Waterhouse LLP is filed herein.
12 -- None.
13(a) -- Share Purchase Agreement (filed as Exhibit 13 to Post-Effective Amendment No. 5 to the Registration Statement on
Form N-1A (File Nos. 33-34423 and 811-06087) and incorporated herein by reference).
13(b) -- Form of Share Purchase Agreement relating to Salomon Brothers New York Municipal Bond Fund, Salomon Brothers
National Intermediate Municipal Fund, Salomon Brothers U.S. Government Income Fund, Salomon Brothers High Yield
Bond Fund and the Strategic Bond Fund (filed as Exhibit 13(b) to Post-Effective Amendment No. 12 to the
Registration Statement on Form N-1A and incorporated herein by reference).
13(c) -- Form of Share Purchase Agreement Relating to Salomon Brothers Total Return Fund (filed as Exhibit 13(c) to
Post-Effective Amendment No. 15 to the Registration Statement on Form N-1A and incorporated herein by reference).
13(d) -- Form of Share Purchase Agreement Relating to Salomon Brothers Asia Growth Fund (filed as Exhibit 13(d) to
Post-Effective Amendment No. 18 to the Registration Statement on Form N-1A and incorporated herein by reference).
</TABLE>
<PAGE> 105
<TABLE>
<S> <C>
14 -- None.
15(a) -- Form of Services and Distribution Plan for Salomon Brothers Series Funds Inc (filed as Exhibit 15(a) to
Post-Effective Amendment No. 12 to the Registration Statement on Form N-1A and incorporated herein by reference).
16(a) -- Performance Data (filed as Exhibit 16 to Post-Effective Amendment No. 4 to the Registration Statement on Form N-1A
(File Nos. 33-34423 and 811-06087) and incorporated herein by reference).
16(b) -- Schedule of Performance Data for Class A, Class B, Class C and Class O Shares for Salomon Brothers New York
Municipal Bond Fund (filed as Exhibit 16(b) to Post-Effective Amendment No. 12 to the Registration Statement on
Form N-1A and incorporated herein by reference).
17 -- Financial Data Schedule for Salomon Brothers New York Municipal Money Market Fund is filed herein.
18 -- Form of Application and Signature Card for Salomon Brothers Investment Series (filed as Exhibit 18 to
Post-Effective Amendment No. 13 to the Registration Statement on Form N-1A and incorporated herein by reference).
18(a) -- Powers of Attorney (filed as an Exhibit to Post-Effective Amendment No. 1 to the Registration Statement on Form
N-1A (File Nos. 33-34423 and 811-06087) and incorporated herein by reference).
18(b) -- Powers of Attorney of Carol L. Colman and Daniel P. Cronin (filed as an Exhibit to Post-Effective Amendment No. 11
to the Registration Statement on Form N-1A (File Nos. 33-34423 and 811-06087) and incorporated herein by
reference).
18(c) -- Powers of Attorney of Carol L. Colman, Daniel P. Cronin and Charles F. Barber (filed as Exhibit 18(c) to
Post-Effective Amendment No. 13 to the Registration Statement on Form N-1A (File Nos. 33-34423 and 811-06087) and
incorporated herein by reference).
18(d) -- Form of Multiclass Plan Pursuant to Rule 18f-3 Under the Investment Company Act of 1940 for the Salomon Brothers
Series Funds Inc (filed as Exhibit 18(d) to Post-Effective Amendment No. 13 to the Registration Statement on Form
N-1A (File Nos. 33-34423 and 811-06087) and incorporated herein by reference).
</TABLE>
Item 25. Persons Controlled by or under Common Control with Registrant.
Salomon Brothers Holding Company Inc ("SBH"), owns a substantial
amount of the outstanding shares of the National Intermediate Municipal Fund,
U.S. Government Income Fund, High Yield Bond Fund, Strategic Bond Fund and
Total Return Fund and consequently is a controlling person of such Funds. SBH
owns the outstanding shares of SBAM, Salomon Brothers Inc and certain of their
affiliates.
<PAGE> 106
Item 26. Number of Holders of Securities.
<TABLE>
<CAPTION>
Number of Record
Holders at
Title of Class March 16, 1996
--------------
<S> <C>
Shares of Salomon Brothers Cash
Management Fund, par value
$.001 per share
Class A 34
Class B 7
Class C 11
Class O 121
Shares of Salomon Brothers New 804
York Municipal Money Market
Fund, par value $.001 per share
Shares of Salomon Brothers U.S. 106
Treasury Securities Money Market
Fund, par value $.001 per share
Shares of Salomon Brothers New
York Municipal Bond Fund, par
value $.001 per share
Class A 5
Class B 7
Class C 1
Class O 68
Shares of Salomon Brothers
Investors Fund, par value $1.00
per share
Class A 30
Class B 29
Class C 8
Class O 16,232
Shares of Salomon Brothers
National Intermediate Municipal
Fund, par value $.001 per share
Class A 1,075
Class B 6
</TABLE>
<PAGE> 107
<TABLE>
<S> <C>
Class C 2
Class O 2
Shares of Salomon Brothers U.S.
Government Income Fund, par
value $.001 per share
Class A 1,081
Class B 11
Class C 2
Class O 1
Shares of Salomon Brothers
High Yield Bond Fund, par
value $.001 per share
Class A 1,515
Class B 670
Class C 76
Class O 4
Shares of Salomon Brothers
Strategic Bond Fund, par
value $.001 per share
Class A 1,115
Class B 188
Class C 20
Class O 3
Shares of Salomon Brothers
Total Return Fund, par
value $.001 per share
Class A 1,516
Class B 694
Class C 31
Class O 3
Shares of Salomon Brothers
Asia Growth Fund, par
value $.001 per share
Class A 0
Class B 0
Class C 0
</TABLE>
<PAGE> 108
<TABLE>
<S> <C>
Class O 0
</TABLE>
Item 27. Indemnification.
Reference is made to Article VII of Registrant's Articles of
Incorporation, Article IV of Registrant's By-Laws and Section 4 of the
Distribution Agreements between the Registrant and Salomon Brothers Inc.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act"), may be permitted to
directors, officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant understands that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
Item 28. Business and Other Connections
of Investment Adviser.
The list required by this Item 28 of officers and directors of SBAM,
Salomon Brothers Asset Management Limited ("SBAM Limited") and Salomon Brothers
Asia Pacific Limited ("SBAM AP"), together with information as to any other
business, profession, vocation or employment of a substantial nature engaged in
by such officers and directors during the past two years, is incorporated by
reference to Schedules A and D of their respective FORM ADV filed by SBAM, SBAM
Limited and SBAM AP, respectively, pursuant to the Advisers Act (SEC File Nos.
801-32046, 801-43335 and 51393, respectively).
Item 29. Principal Underwriter.
(a) Salomon Brothers Inc ("Salomon Brothers") currently acts as
distributor for, in addition to the Registrant, Salomon Brothers Capital Fund
Inc, Salomon Brothers Investors Fund Inc and Salomon Brothers Opportunity Fund
Inc.
(b) The information required by this Item 29 with respect to each
director, officer or partner of Salomon Brothers is incorporated by reference
to Schedule A of Form BD filed by Salomon Brothers pursuant to the Securities
Exchange Act of 1934 (SEC File No. 8-26920).
(c) Not applicable.
Item 30. Location of Accounts and Records.
<PAGE> 109
(1) Salomon Brothers Asset Management Inc
7 World Trade Center
New York, New York 10048
(2) Investors Bank & Trust Company
89 South Street
Boston, Massachusetts 02111
(3) First Data Investor Services Group, Inc.
One Exchange Place
Boston, Massachusetts 02109
Item 31. Management Services.
Not applicable.
Item 32. Undertakings.
(a) Not applicable.
(b) Not applicable.
(c) Registrant undertakes to furnish to each person to whom a
prospectus is delivered a copy of Registrant's latest annual report to
shareholders, upon request and without charge.
(d) Registrant hereby undertakes to call a meeting of shareholders
for the purpose of voting upon the question of removal of one or more of
Registrant's directors when requested in writing to do so by the holders of at
least 10% of Registrant's outstanding shares of common stock and, in connection
with such meeting, to assist in communications with other shareholders in this
regard, as provided under Section 16(c) of the Investment Company Act of 1940,
as amended.
<PAGE> 110
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, the Registrant
certifies that it meets all of the requirements for effectiveness of this
Post-Effective Amendment to the Registration Statement pursuant to Rule 485(b)
under the Securities Act of 1933, as amended, and has duly caused this
Post-Effective Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
and State of New York, on the 25th day of April, 1996.
SALOMON BROTHERS SERIES FUNDS INC
(Registrant)
By /s/ Michael S. Hyland
----------------------
Michael S. Hyland
President
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Post-Effective Amendment to the Registration Statement has been
signed below by the following persons in the capacities and on the date
indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
President and
Director (principal
/s/ Michael S. Hyland executive officer) April 25, 1996
----------------------
Michael S. Hyland
Treasurer (principal
financial and
/s/ Alan M. Mandel accounting officer)
---------------------
Alan M. Mandel April 25, 1996
* Director
------------------
Charles F. Barber April 25, 1996
* Director
------------------
Carol L. Colman April 25, 1996
</TABLE>
<PAGE> 111
<TABLE>
<S> <C> <C>
* Director
-------------
Daniel P. Cronin April 25, 1996
*By: /s/ Alan M. Mandel
---------------------
Alan M. Mandel as
Attorney-in-Fact
April 25, 1996
</TABLE>
<PAGE> 112
SALOMON BROTHERS SERIES FUNDS INC
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ------- ----------------------
<S> <C>
11 Consent of Price Waterhouse LLP
17 Financial Data Schedule dated December 31, 1995
</TABLE>
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 19 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
February 16, 1996, relating to the financial statements and financial highlights
of Salomon Brothers New York Municipal Money Market Fund and Salomon Brothers
U.S. Treasury Securities Money Market Fund (two of the portfolios constituting
Salomon Brothers Series Funds Inc), which appears in such Statement of
Additional Information, and to the incorporation by reference of our report
into the Prospectus which constitutes part of this Registration Statement. We
also consent to the reference to us under the heading "Independent Accountants"
in such Statement of Additional Information and to the reference to us under
the heading "Financial Highlights" in such Prospectus.
/s/ PRICE WATERHOUSE LLP
- ------------------------
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York, 10036
April 24, 1996
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from Salomon
Brothers Series Funds Inc form N-SAR for the period ended December 31, 1995 and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 21
<NAME> NEW YORK MUNICIPAL MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 223,737,113
<INVESTMENTS-AT-VALUE> 223,737,113
<RECEIVABLES> 3,145,032
<ASSETS-OTHER> 22,069
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 226,904,214
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 355,619
<TOTAL-LIABILITIES> 355,619
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 226,776,791
<SHARES-COMMON-PRIOR> 270,044,096
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 226,548,595
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 9,231,307
<OTHER-INCOME> 0
<EXPENSES-NET> 969,975
<NET-INVESTMENT-INCOME> 8,261,332
<REALIZED-GAINS-CURRENT> 27,905
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 8,289,237
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8,261,332
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 298,776,320
<NUMBER-OF-SHARES-REDEEMED> 349,968,556
<SHARES-REINVESTED> 7,924,931
<NET-CHANGE-IN-ASSETS> (43,239,400)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (65,662)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 449,289
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,007,451
<AVERAGE-NET-ASSETS> 224,904,457
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.04)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.43
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
