SCHEDULE 14A INFORMATION
Proxy statement pursuant to Section 14(a) of the Securities Exchange Act of
1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
___________________________________________________________________________
___________
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
Smith Barney Adjustable Rate Government Income Fund
(Name of Registrant as Specified In Its Charter)
Smith Barney Adjustable Rate Government Income Fund
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-
6(j)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price of other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
4) Proposed maximum aggregate value of transaction:
Set forth the amount on which the filing fee is calculated and state
how it was determined.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number of the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
117874.c1
SMITH BARNEY ADJUSTABLE
RATE GOVERNMENT INCOME FUND
Please Cast Your Vote Promptly
Dear Investor:
I am writing to encourage you to vote on a proposal which I believe will
provide a positive long-term benefit to you as a shareholder.
As you may be aware, PNC Bank, N.A. ("PNC") has agreed to acquire BlackRock
Financial Management, L.P., the current sub-adviser for your mutual fund.
Smith Barney views this sale as a positive development that brings together
two companies with complementary strengths. The details of the transaction
are described in the proxy materials accompanying this letter.
Assignment of Sub-Advisory Agreement: Your Vote Is Important
Because the sub-investment adviser which is responsible for your Fund's
assets will have a new ultimate corporate parent as a result of the sale to
PNC, you are being asked to approve a new sub-advisory agreement. Your
approval is required in order for the sub-investment adviser to continue to
provide services to your Fund; these services include making investment
decisions, supplying investment research and portfolio management services,
and placing orders to purchase and sell securities on behalf of the Fund.
It is not anticipated that the new sub-advisory agreement will result in
any substantive change in the way your Fund is managed, nor will the new
agreement result in any increase in the costs borne by you as a
shareholder.
The Board of Trustees recommends that shareholders of the Fund vote to
approve the new sub-advisory agreement.
Please Cast Your Vote
I want to thank you for your participation as a shareholder. I encourage
you to read the enclosed proxy materials carefully and return your vote
promptly.
The Shareholder Services Group has been engaged by Smith Barney to assist
in returning proxy votes; a representative may contact you to remind you to
cast your vote by the requested deadline. Should you have any questions,
please call your Financial Consultant.
Sincerely,
HEATH B. MCLENDON
Chairman of the Board
SMITH BARNEY ADJUSTABLE
RATE GOVERNMENT INCOME FUND
Two World Trade Center
New York, New York 10048
_______________
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held on December 7, 1994
_______________
To the Shareholders of the
SMITH BARNEY ADJUSTABLE
RATE GOVERNMENT INCOME FUND:
Notice is hereby given that a Special Meeting of Shareholders of the
Smith Barney Adjustable Rate Government Income Fund will be held at Two
World Trade Center, 100th Floor, New York, New York on Wednesday, December
7, 1994, commencing at 11:00 a.m. for the following purposes:
1. To approve or disapprove for the Fund a new Sub-Advisory
Agreement, set forth in Exhibit A, with BlackRock Financial Management,
L.P. (Proposal 1).
2. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Your consideration of the new Sub-Advisory Agreement is necessitated
by the purchase by PNC Bank, N.A. of the outstanding partnership interests
of BlackRock Financial Management, L.P. (the "Sub-Adviser"), the current
sub-investment adviser for the Fund. Under the terms of the existing
Sub-Advisory Agreement and as required by the Investment Company Act of
1940, the existing Sub-Advisory Agreement automatically terminates upon its
assignment. As more fully discussed in the accompanying Proxy Statement,
the consummation of the transaction will be considered an assignment of the
Fund's existing Sub-Advisory Agreement, thereby causing its termination.
In order for the Fund to continue to receive investment advisory services
from the Sub-Adviser after completion of the transaction, it is necessary
that a new Sub-Advisory Agreement be approved by shareholders of the Fund.
The proposed new Sub-Advisory Agreement is identical in all substantive
respects to the existing Sub-Advisory Agreement.
These items are discussed in greater detail in the attached Proxy
Statement. The close of business on October 14, 1994 has been fixed as the
record date for the determination of shareholders of the Fund entitled to
notice of and to vote at the meeting and any adjournment thereof.
By Order of the Board of Trustees,
CHRISTINA T. SYDOR
Secretary
November __, 1994
SHAREHOLDERS OF THE FUND WHO DO NOT EXPECT TO ATTEND THE SPECIAL MEETING
ARE REQUESTED TO COMPLETE, SIGN, DATE AND RETURN THE PROXY CARD IN THE
ENCLOSED ENVELOPE, WHICH NEEDS NO POSTAGE IF MAILED IN THE UNITED STATES.
INSTRUCTIONS FOR THE PROPER EXECUTION OF PROXY CARDS ARE SET FORTH ON THE
FOLLOWING PAGE. IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY.
INSTRUCTIONS FOR SIGNING PROXY CARDS
The following general rules for signing proxy cards may be of
assistance to you and avoid the time and expense to the Fund involved in
validating your vote if you fail to sign your proxy card properly.
1. Individual Accounts: Sign your name exactly as it appears in
the registration on the proxy card.
2. Joint Accounts: Either party may sign, but the name of the
party signing should conform exactly to the name shown in the registration
on the proxy card.
3. All Other Accounts: The capacity of the individual signing the
proxy card should be indicated unless it is reflected in the form of
registration. For example:
Registration Valid Signature
Corporate Accounts
(1) ABC Corp. ABC Corp.
(2) ABC Corp. John Doe, Treasurer
(3) ABC Corp.
c/o John Doe, Treasurer John Doe
(4) ABC Corp. Profit Sharing Plan John Doe, Trustee
Trust Accounts
(1) ABC Trust Jane B. Doe, Trustee
(2) Jane B. Doe, Trustee
u/t/d 12/28/78 Jane B. Doe
Custodian or Estate Accounts
(1) John B. Smith, Cust.
f/b/o John B. Smith, Jr. UGMA John B. Smith
(2) Estate of John B. Smith John B. Smith, Jr., Executor
SMITH BARNEY ADJUSTABLE
RATE GOVERNMENT INCOME FUND
Two World Trade Center
New York, New York 10048
_______________
SPECIAL MEETING OF SHAREHOLDERS
December 7, 1994
_______________
PROXY STATEMENT
INTRODUCTION
The accompanying Proxy is being
solicited by the Board of Trustees (the
"Board") of Smith Barney Adjustable Rate
Government Income Fund (the "Fund") for use
at the Special Meeting of Shareholders (the
"Meeting") of the Fund to be held on
December 7, 1994, or any adjournment or
adjournments thereof. The Meeting will be
held at Two World Trade Center, 100th Floor,
New York, New York at the time specified in
the Notice of Meeting of Shareholders and
proxy card that accompany this Proxy
Statement. This Proxy Statement and
accompanying proxy card will be first mailed
on or about __________, 1994. Proxy
solicitations will be made primarily by
mail, but proxy solicitations also may be
made by telephone, telegraph or personal
interviews conducted by officers and
employees of the Fund, Smith Barney Inc.
("Smith Barney"), the distributor of shares
of the Fund, Smith Barney Strategy Advisors
Inc., the investment adviser of the Fund
("SBSA"), Smith, Barney Advisers, Inc., the
administrator for the Fund ("SBA"), The
Boston Company Advisors, Inc., the
sub-administrator of the Fund ("Boston
Advisors"), and/or The Shareholder Services
Group, Inc., the Fund's transfer agent. The
costs of the proxy solicitation and expenses
incurred in connection with the preparation
of this Proxy Statement and its enclosures
will be borne by BlackRock Financial
Management, L.P., the sub-adviser of the
Fund (the "Sub-Adviser"). The Sub-Adviser
also will reimburse expenses of forwarding
solicitation material to beneficial owners
of shares of the Fund.
If the enclosed proxy is properly
executed and returned in time to be voted at
the Meeting, the shares represented thereby
will be voted in accordance with the
instructions marked thereon. Unless
instructions to the contrary are marked
thereon, a proxy will be voted FOR the
proposal listed in the accompanying Notice
of Meeting of Shareholders and otherwise in
the discretion of the persons named as
proxies. Any shareholder who has given a
proxy has the right to revoke it at any time
prior to its exercise either by attending
the Meeting and voting his or her shares in
person or by submitting a letter of
revocation or a later-dated proxy to the
Fund at the above address prior to the date
of the Meeting.
In the event that a quorum is not
present at the Meeting, or in the event that
a quorum is present but sufficient votes to
approve the proposal are not received, the
persons named as proxies may propose one or
more adjournments of the Meeting to permit
further solicitation of proxies. In
determining whether to adjourn the Meeting,
the following factors may be considered:
the nature of the proposals that are the
subject of the Meeting, the percentage of
votes actually cast, the percentage of
negative votes actually cast, the nature of
any further solicitation and the information
to be provided to shareholders with respect
to the reasons for the solicitation. Any
adjournment will require the affirmative
vote of a majority of those shares
represented at the Meeting in person or by
proxy. Under Fund's Master Trust Agreement,
a quorum is constituted by the presence in
person or by proxy of the holders of a
majority of the outstanding shares of the
Fund entitled to vote at the Meeting.
Abstentions and broker "non-votes" (i.e.,
proxies from brokers or nominees indicating
that such persons have not received
instructions from the beneficial owner or
other person entitled to vote shares on a
particular matter with respect to which the
brokers or nominees do not have
discretionary power) will be counted as
shares that are present for purposes of
determining the presence of a quorum and
will have the effect of a vote against the
proposal set forth in this Proxy Statement.
The Board has fixed the close of
business on October 14, 1994 as the record
date (the "Record Date") for the
determination of shareholders of the Fund
entitled to notice of and to vote at the
Meeting. The Fund issues shares of
beneficial interest of separate series
having a par value of $.001 per share. The
Fund offers three classes of shares
designated Class A, Class B and Class D.
Each share of the Fund is entitled to one
vote, and any fractional share is entitled
to a fractional vote. On the Record Date,
__________ shares of the Fund were issued
and outstanding and entitled to vote at the
Meeting.
As of the Record Date, to the
knowledge of the Fund and the Board, no
single shareholder or "group" (as that term
is used in Section 13(d) of the Securities
Exchange Act of 1934 (the "1934 Act")),
beneficially owned more than 5% of the
outstanding shares of the Fund. As of the
Record Date, the officers and Board members
of the Fund beneficially owned less than 1%
of the shares of the Fund.
PNC BANK TRANSACTION
On June 16, 1994, BlackRock Financial
Management, L.P. (the "Sub-Adviser" or
"BlackRock") entered into a definitive
agreement whereby PNC Bank, N.A. ("PNC")
will acquire all of the partnership
interests of BlackRock for $240 million in
the form of cash and notes (the
"Transaction"). PNC Bank is a wholly owned
indirect subsidiary of PNC Bank Corp. ("PNC
Corp." or the "Holding Company").
PNC is a commercial bank
offering a wide range of domestic and
international commercial banking, retail
banking and trust services to its customers.
Its principal office is located in
Pittsburgh, Pennsylvania. At December 31,
1993, PNC had approximate total assets of
$40.6 billion, total deposits of $21.0
billion, total loans (net of unearned
income) of $22.1 billion and total equity
capital of $2.8 billion. At June 30, 1994,
the corresponding amounts approximated $44.8
billion, $23.0 billion, $24.5 billion and
$3.2 billion, respectively. Based on June
30, 1994 total assets, PNC was the 8th
largest commercial bank in the United
States. PNC's business is subject to
examination and regulation by federal
banking authorities. Its primary federal
bank regulatory authority is the Office of
the Comptroller of the Currency.
PNC is a wholly-owned indirect
subsidiary of PNC Bank Corp., a bank holding
company organized under the laws of the
Commonwealth of Pennsylvania. The Holding
Company was incorporated in 1983 with the
consolidation of Pittsburgh National
Corporation and Provident National
Corporation. Since 1983, the Holding
Company has diversified its geographical
presence and product capabilities through
numerous strategic acquisitions and the
formation of various non-banking
subsidiaries. At June 30, 1994, the Holding
Company operated 10 banking subsidiaries in
Pennsylvania, Delaware, Indiana, Kentucky,
Massachusetts, New Jersey and Ohio and 78
non-banking subsidiaries. At December 31,
1993, the Holding Company had approximate
total assets of $62.1 billion, total
deposits of $33.1 billion, total loans (net
of unearned income) of $33.3 billion and
total shareholders' equity of $4.3 billion.
At June 30, 1994 the corresponding amounts
were $64.0 billion, $32.9 billion, $34.9
billion and $4.3 billion, respectively.
Based on June 30, 1994, total assets, the
Holding Company was the 11th largest bank
holding company in the United States. As of
June 30, 1994 the Holding Company and its
subsidiaries managed $23.2 billion of
registered investment company assets. These
assets are held in three different
proprietary mutual fund families as well as
in one or more individual portfolios of an
additional six non-proprietary mutual funds.
Following the closing of the Transaction,
the Sub-Adviser will become a wholly owned
indirect subsidiary of PNC Asset Management
Group, Inc., the Holding Company for PNC's
asset management business. The Holding
Company and its subsidiaries employed
approximately 20,900 persons on an average
full-time equivalent basis for the first six
months of 1994.
The Holding Company delivers a full
range of banking products and services to
its customers through four lines of
business: Corporate Banking, Retail
Banking, Investment Management and Trust,
and Investment Banking. For the most part,
these products and services are distributed
through the Holding Company's retail banking
and mortgage origination office networks or
its wholesale banking offices in certain
major metropolitan areas located in the
United States.
PNC Corp. has informed the Fund that
no shareholder either individually or as a
"group" (as defined in Section 13(d) of the
1934 Act) beneficially owned more than 10%
of the outstanding shares of PNC Corp's.
voting securities.
As required by the Investment Company
Act of 1940, as amended (the "1940 Act"),
the existing Sub-Advisory Agreement between
the Fund and the Sub-Adviser provides for
its automatic termination upon its
"assignment." The 1940 Act defines
"assignment" to include any direct or
indirect transfer of a controlling block of
the assignor's outstanding voting
securities. When the Transaction is
consummated, the acquisition of the
Sub-Adviser by PNC will give rise to an
"assignment" of the existing Sub-Advisory
Agreement within the meaning of the 1940
Act.
The consummation of the Transaction is
subject to prior satisfaction of several
conditions, including, among others, the
approval of certain bank regulatory
authorities. At the present time it is
anticipated that the closing of the
Transaction and, thus, the assignment, will
occur in the fourth quarter of 1994. The
precise date on which any assignment of the
existing Sub-Advisory Agreement will occur,
if at all, cannot now be determined. The
Transaction may be terminated upon certain
events and in any event may be terminated by
either party if the transactions thereunder
have not been consummated on or before March
31, 1995.
I. APPROVAL OR DISAPPROVAL OF NEW
SUB-INVESTMENT
ADVISORY ARRANGEMENTS (Proposal 1)
The Board is proposing that
shareholders of the Fund approve a new
sub-investment advisory agreement (the "New
Sub-Advisory Agreement"), effective with the
consummation of the Transaction, between the
Fund and the Sub-Adviser. A description of
the Fund's New Sub-Advisory Agreement and
the services to be provided by the
Sub-Adviser is set forth below. This
description is qualified in its entirety by
reference to the form of New Sub-Advisory
Agreement which is attached as Exhibit A to
this Proxy Statement. The proposed New
Sub-Advisory Agreement is identical in all
substantive respects to the existing
sub-investment advisory agreement (the "Old
Sub-Advisory Agreement"), differing only in
its effective and termination dates.
In connection with its approval of the
proposed New Sub-Advisory Agreement, the
Board considered that the terms of the
Transaction do not contemplate any change in
the Fund's investment objective or policies,
the management or operation of the
Sub-Adviser relating to the Fund with the
exception of the addition of two of PNC's
senior investment management personnel to
the Sub-Adviser's Board of Directors, the
personnel managing the Fund, or the
shareholder services or other business
activities of the Fund. PNC has informed
the Board that the Transaction is not
expected to result in any such change,
although there can be no assurance that such
a change will not occur. PNC has also
informed the Board that at present there are
no plans or proposals developed in
connection with the Transaction to make any
material changes in the business or
composition of senior management or
personnel of the Sub-Adviser, or in the
manner in which the Sub-Adviser renders
investment advisory services to the Fund.
The Fund has also been informed by PNC that,
in connection with the Transaction, certain
senior officers and directors of the
Sub-Adviser will participate in compensation
arrangements which are designed to ensure
the retention of key individuals and which
entitle them to payments both upon the
consummation of the Transaction and upon
their continued employment with the
Sub-Adviser for a period of five years
thereafter. In addition, BlackRock will
retain its name and will continue to operate
from its offices in New York. If, after the
Transaction, changes in the Sub-Adviser are
proposed that might materially affect its
services to the Fund, the Board will
consider the effect of those changes and
take such action as it deems advisable under
the circumstances.
The Fund has been informed by PNC and
the Sub-Adviser that they propose to comply
with Section 15(f) of the 1940 Act.
Section 15(f) provides a non-exclusive safe
harbor for an investment adviser or any of
its affiliated persons to receive any amount
or benefit in connection with a change in
control of the investment adviser as long as
two conditions are met. First, for a period
of three years after the transaction, at
least 75% of the Trustees of the investment
company must not be interested persons of
the Sub-Adviser or the predecessor adviser.
At present, none of the Board members is an
interested person of the Sub-Adviser or the
predecessor Sub-Adviser. Second, an "unfair
burden" must not be imposed on the
investment company as a result of such
transaction or any express or implied terms,
conditions or understandings applicable
thereto. The term "unfair burden" is
defined in Section 15(f) to include any
arrangement during the two-year period after
the transaction whereby the sub-investment
adviser (or predecessor or successor
sub-adviser), or any interested person of
any such sub-adviser, receives or is
entitled to receive any compensation,
directly or indirectly, from the investment
company or its security holders (other than
fees for bona fide investment advisory or
other services) or from any person in
connection with the purchase or sale of
securities or other property, from or on
behalf of the investment company (other than
bona fide ordinary compensation as principal
underwriter for such investment company).
Neither PNC nor the Sub-Adviser, after due
inquiry, is aware of any express or implied
term, condition, arrangement or
understanding which would impose an "unfair
burden" on the Fund as a result of the
Transaction. In particular, PNC, the
Sub-Adviser and their affiliates have
informed the Fund that they have not entered
into any arrangements in connection with the
Transaction whereby PNC or any of its
affiliates is entitled to receive brokerage
commissions for executing portfolio
transactions for the Fund. PNC has agreed
that it, the Sub-Adviser and their
affiliates will take no action that would
have the effect of imposing an "unfair
burden" on the Fund as a result of the
Transaction. The Sub-Adviser has undertaken
to pay all costs and expenses incurred by
the Fund as a result of the Transaction,
including the costs of the shareholders'
meeting.
The Board discussed approval of the
New Sub-Advisory Agreement at a meeting held
on September 7, 1994. In evaluating the
Sub-Advisory Agreement, the Board reviewed
materials furnished by the Sub-Adviser and
PNC relevant to its decision. Those
materials included information regarding the
Sub-Adviser and its affiliates and their
personnel, operations and financial
condition. Representatives of the
Sub-Adviser discussed with the Board the
Sub-Adviser's philosophy of management,
performance expectations and methods of
operation insofar as they related to the
Fund and indicated its belief that as a
consequence of the Transaction, the
operations of the Sub-Adviser and its
ability to provide services to the Fund
would not be adversely affected and would
likely be enhanced from the resources of
PNC, although there could be no assurances
as to any particular benefits that would be
obtained. In its deliberations, the Board
considered the terms of the Transaction,
including, among other things, the continued
employment of all of the senior members of
the management team of the Sub-Adviser which
it believed to be important to assure
continuity of the quality of advisory and
other services provided by the Sub-Adviser
to the Fund. The Board also considered
comparative information on other investment
companies with similar investment
objectives, including information prepared
utilizing information derived from
independent statistical services. In
addition, the Board reviewed and discussed
the terms and provisions of the New
Sub-Advisory Agreement and compared fees and
expenses under the New Sub-Advisory
Agreement with those paid by other
investment companies. The Board considered
any benefits that the Fund might obtain from
the Sub-Adviser's relationship with PNC.
Based on its review, the Board, including a
majority of the Board members who are not
"interested persons" (as defined in the 1940
Act) of any party to the New Sub-Advisory
Agreement, approved the New Sub-Advisory
Agreement with the Sub-Adviser. The Board
recommends that shareholders of the Fund
vote to approve the New Sub-Advisory
Agreement.
Required Vote. Approval of the New
Sub-Advisory Agreement will require the
affirmative vote of a "majority of the
outstanding voting securities" of the Fund,
which for this purpose means the affirmative
vote of the lesser of (1) more than 50% of
the outstanding shares of the Fund or
(2) 67% or more of the shares of the Fund
present at the meeting if more than 50% of
the outstanding shares of the Fund are
represented at the meeting in person or by
proxy ("Majority Vote"). If the
shareholders of the Fund do not approve the
New Sub-Advisory Agreement, PNC and the
Sub-Adviser intend nevertheless to proceed
with the Transaction (assuming all
conditions precedent have been satisfied),
and, in such case, the Sub-Advisory
Agreement will terminate automatically. In
this event, the Board shall take such
further action as it may deem to be in the
best interests of shareholders of the Fund.
Description of New Sub-Advisory Agreement
With the exception of the commencement
and termination dates, the provisions,
including fees, of the New and Old Sub-
Advisory Agreements are identical. The
compensation payable to the Sub-Adviser for
its services under the New Sub-Advisory
Agreement will be accrued daily and paid
monthly at an annual percentage rate of
0.20% of the average daily net asset value
of the Fund. The rate used to determine
fees payable pursuant to the New
Sub-Advisory Agreement is identical to the
rate in the old Sub-Advisory Agreement. The
Sub-Adviser received $759,294 in aggregate
remuneration from the Fund pursuant to the
Old Sub-Advisory Agreement for the fiscal
year ended May 31, 1994. The Old
Sub-Advisory Agreement is dated July 30,
1993 and was submitted to a vote of the
shareholders of the Fund on June 1, 1993.
The continuance of the Old Sub-Advisory
Agreement has been approved annually by the
Board, most recently at a regular meeting of
the Board held on September 7, 1994.
Under the terms of the New
Sub-Advisory Agreement, the Sub-Adviser is
required, subject to the supervision and
approval of the Board, and subject to review
by SBSA, to manage the Fund's investments in
accordance with the investment objective and
policies as stated in the Fund's Prospectus
and Statement of Additional Information.
The Sub-Adviser is responsible for making
investment decisions, supplying investment
research and portfolio management services
and placing orders to purchase and sell
securities on behalf of the Fund.
The Sub-Adviser bears all expenses in
connection with the performance of its
services under the New Sub-Advisory
Agreement. The Fund bears expenses incurred
in its operation, including taxes, interest,
brokerage fees and commissions, if any; fees
of the Board members of the Fund who are not
officers, directors, shareholders or
employees of Smith Barney or any of its
affiliates; SEC fees and state blue sky
qualification fees; charges of custodians;
transfer and dividend disbursing agents'
fees, including a portion of the charges
associated with check processing for Fund
shareholders participating in certain Smith
Barney central asset account programs;
certain insurance premiums; outside auditing
and legal expenses; costs of maintenance of
existence; investor services (including
allocated telephone and personnel expenses);
costs of preparation and printing of
prospectuses and statements of additional
information for regulatory purposes and for
distribution to shareholders; shareholder
reports; and costs incurred in connection
with meetings of the shareholders of the
Fund.
SBSA and SBA each have agreed that, if
in any fiscal year of the Fund, the
aggregate expenses of the Fund (including
fees payable pursuant to the Fund's
agreements with SBSA and SBA, but excluding
interest, taxes, brokerage fees, fees paid
pursuant to the Fund's distribution and
shareholder servicing plan (the "Plan"),
and, if permitted by the relevant state
securities commissions, extraordinary
expenses) exceed the expense limitation of
any state having jurisdiction over the Fund,
SBSA and SBA will reduce their fees by the
amount of the excess expenses, the amount to
be allocated between them in the proportion
that their respective fees bear to the
aggregate of the fees paid to them by the
Fund. BlackRock has agreed to reduce its
fees by an amount equal to one-half of any
amount that SBSA is required to reduce its
fee pursuant to such agreement. Fee
reductions, if any, will be reconciled
monthly.
The New Sub-Advisory Agreement
provides that in the absence of willful
misfeasance, bad faith, gross negligence or
reckless disregard for its obligations
thereunder, the Sub-Adviser shall not be
liable for any act or omission in the course
of or in connection with the rendering of
its services thereunder.
The New Sub-Advisory Agreement will
remain in effect pursuant to its terms for
an initial term of one year from its date of
execution and thereafter with respect to the
Fund for successive periods if and so long
as such continuation is specifically
approved annually by (a) the Board or (b) a
Majority Vote of the Fund's shareholders,
provided that in either event the
continuation also is approved by a majority
of the Board members who are not "interested
persons" (as defined in the 1940 Act) of any
party to the New Sub-Advisory Agreement by
vote cast in person at a meeting called for
the purpose of voting on approval. The New
Sub-Advisory Agreement is terminable,
without penalty, on 60 days' written notice
by the Board or by a Majority Vote of the
Fund's shareholders, or on 90 days' written
notice by the Sub-Adviser. The New
Sub-Advisory Agreement terminates
automatically in the event of its assignment
(as defined in the 1940 Act).
OTHER INFORMATION
The Sub-Adviser
The Sub-Adviser was founded in April
1988 by Laurence D. Fink and Ralph L.
Schlosstein. The Sub-Adviser's general
partner is BFM Management Partners L.P.
("BFM Management"), a Delaware limited
partnership. The general partner of BFM
Management is BFM Management Corp., a
Delaware corporation whose stock is owned by
Messrs. Fink and Schlosstein. The
Sub-Adviser is registered as an investment
adviser under the Investment Advisers Act of
1940.
The Sub-Adviser's general and limited
partners and employees include several
individuals with extensive experience in
creating, evaluating and investing in a
broad range of fixed-income securities
including mortgage-backed securities, U.S.
Treasury securities, municipal obligations,
corporate bonds, and hedging products.
Prior to co-founding the Sub-Adviser, from
July 1976 to March 1988, Mr. Fink, the
Chairman and Chief Executive Officer of the
Sub-Adviser, was employed by The First
Boston Corporation where he had been a
Managing Director since January 1979. At
First Boston, he was a member of the
Management Committee and co-head of its
Taxable Fixed Income division. He also
managed the Financial Futures and Fixed
Income Options Department and the Mortgage
and Real Estate Products Group. Mr.
Schlosstein, President and a co-founder of
the Sub-Adviser, was employed by Lehman
Brothers Inc. from February 1981 to March
1988 and became a Managing Director in
August 1984. At Lehman Brothers Inc., he
was co-head of the Mortgage and Savings
Institutions Group. Messrs. Fink and
Schlosstein, along with other members of the
Sub-Adviser, were instrumental in many of
the major innovations in these securities
markets, including the creation of the fixed
and floating rate collateralized mortgage
obligation, asset-backed securities and the
senior-subordinated mortgage pass-through.
The executive officers of the Sub-Adviser
are:
Name Position
Laurence D. Fink Chairman and Chief
Executive Officer
Ralph L. Schlosstein President
Robert S. Kapito Vice Chairman
Henry Gabbay Chief Operating Officer
Scott Amero Partner
Keith T. Anderson Partner
The Sub-Adviser provides asset
management services with respect to high
quality fixed income instruments including
mortgage-backed securities, U.S. Treasury
securities, municipal obligations, corporate
bonds and hedging products. The Sub-Adviser
currently serves as the investment adviser
to individual and institutional fixed income
investors in the United States and overseas
through several funds and separately managed
accounts with combined total assets in
excess of $24 billion.
Messrs. Kapito, Amero and Anderson are
officers of the Fund.
The names of the investment companies
for which the Sub-Adviser provides services,
the amounts of their net assets as of August
31, 1994, and the annual rate of the
Sub-Adviser's fees for its services to those
companies are set forth as Exhibit B hereto.
An audited balance sheet of the Sub-Adviser
as of December 31, 1993, is set forth as
Exhibit C hereto.
Portfolio Transactions
Decisions to buy and sell securities
for the Fund will be made by the
Sub-Adviser, subject to the overall review
of the Board. Allocation of transactions on
behalf of the Fund, including their
frequency, to various dealers will be
determined by the Sub-Adviser in its best
judgment and in a manner deemed fair and
reasonable to the Fund's shareholders. The
primary considerations of the Sub-Adviser in
allocating transactions will be availability
of the desired security and the prompt
execution of orders in an effective manner
at the most favorable prices. Subject to
these considerations, dealers that provide
supplemental investment research and
statistical or other services to the
Sub-Adviser may receive orders for portfolio
transactions by the Fund. Information so
received is in addition to, and not in lieu
of, services required to be performed by
SBSA or the Sub-Adviser, and the fees of
SBSA and the Sub-Adviser are not reduced as
a consequence of their receipt of the
supplemental information. The information
may be useful to SBSA and the Sub-Adviser in
serving both the Fund and other clients, and
conversely, supplemental information
obtained by the placement of business of
other clients may be useful to SBSA and the
Sub-Adviser in carrying out their
obligations to the Fund.
For the fiscal period from June 22,
1992 (commencement of operations) through
May 31, 1993, the Fund incurred total
brokerage commissions of $29,330, none of
which were paid to Shearson Lehman Brothers,
the Fund's distributor prior to Smith
Barney. For the fiscal year ended May 31,
1994, the Fund incurred $135,457 in total
brokerage commissions of which Shearson
Lehman Brothers and Smith Barney were paid
$61,028, representing 45% of the total
brokerage commissions paid by the Fund, and
effected 45% of the total dollar amount of
the Fund's transactions involving payment of
brokerage commissions during this period.
The Fund will not purchase U.S.
government securities during the existence
of any underwriting or selling group
relating to the securities, of which Smith
Barney is a member, except to the extent
permitted by rules or exemptions adopted by
the SEC or interpretations of the staff of
the SEC. Under certain circumstances, the
Fund may be at a disadvantage because of
this limitation in comparison to other funds
that have similar investment objectives but
that are not subject to a similar
limitation.
Distribution Plans
As more fully set forth below, shares
of the Fund are distributed on a best
efforts basis by Smith Barney as exclusive
sales agent of the Fund pursuant to a
Distribution Agreement. To compensate Smith
Barney for the services it provides and for
the expense it bears under the Distribution
Agreement, the Fund has adopted a services
and distribution plan (the "Plan") pursuant
to Rule 12b-1 under the 1940 Act. Under the
Plan, the Fund pays Smith Barney a service
fee, accrued daily and paid monthly,
calculated at the annual rate of .25% of the
value of the Fund's average daily net assets
attributable to the Class A, Class B and
Class D shares. In addition, Smith Barney
also is paid an annual distribution fee with
respect to Class A, Class B and Class D
shares at the rate of .50% of the value of
the average daily net assets attributable to
each respective class of shares. For the
fiscal period from June 22, 1992
(commencement of operations) through May 31,
1993, the Fund incurred service fees of
$434,859 and $1,672 for Class A and Class B
shares, respectively. For the fiscal year
ended May 31, 1994, the Fund incurred
service fees of $935,890, $12,962 and $265
for Class A, Class B and Class D shares,
respectively. For the fiscal period from
June 22, 1992 (commencement of operations)
through May 31, 1993, the Fund incurred
distribution fees of $869,718 and $3,319 for
Class A and Class B shares, respectively.
For the fiscal year ended May 31, 1994, the
Fund incurred distribution fees of
$1,871,783, $25,923 and $529 for Class A,
Class B and Class D shares, respectively.
Under its terms, the Plan continues
from year to year, provided such continuance
is approved annually by vote of the Board,
including a majority of the Trustees who are
not interested persons of the Fund and who
have no direct or indirect financial
interest in the operation of the Plan or in
the Distribution Agreement (the "Independent
Trustees"). The Plan may not be amended to
increase the amount of the service and
distribution fees without shareholder
approval, and all material amendments of the
Plan also must be approved by the Trustees
and the Independent Trustees in the manner
described above. The Plan may be terminated
at any time with respect to a Class, without
penalty, by vote of a majority of the
Independent Trustees or by a vote of a
majority of the outstanding voting
securities of the Fund (as defined in the
1940 Act). Pursuant to the Plan, Smith
Barney will provide the Board with periodic
reports of amounts expended under the Plan
and the purpose for which such expenditures
were made.
Distributor's Contract
Smith Barney serves as distributor of
the Fund's shares. For the period from
November 6, 1992 through May 31, 1993 and
the fiscal year ended May 31, 1994, Shearson
Lehman Brothers and Smith Barney received
$958 and $21,639, respectively, in
contingent deferred sales charges on the
redemption of the Fund's Class B shares, and
did not reallow any portion thereof to
dealers.
Administrator
SBA serves as the Fund's
administrator. The Fund pays SBA a monthly
fee at an annual rate of .20% of the value
of the Fund's average daily net assets.
Because SBA did not act as the Fund's
administrator prior to June 1, 1994, the
Fund paid SBA no administration fees for the
fiscal year ended May 31, 1994. Boston
Advisors serves as the Fund's
sub-administrator. For the fiscal year ended
May 31, 1994, the Fund paid administration
fees to Boston Advisors, the Fund's prior
administrator, in an amount equal to .20% of
the value of the Fund's average daily net
assets.
SUBMISSION OF SHAREHOLDER PROPOSALS
The Fund is not generally required to
hold annual or special shareholders'
meetings. Shareholders wishing to submit
proposals for inclusion in a proxy statement
for a subsequent shareholders' meeting
should send their written proposals to the
Secretary of the Fund at the address set
forth on the cover of this Proxy Statement.
Shareholder proposals for inclusion in the
Fund's proxy statement for any subsequent
meeting must be received by the Fund a
reasonable period of time prior to any such
meeting.
OTHER MATTERS TO COME BEFORE THE MEETING
The Board does not intend to present
any other business at the Meeting, nor is it
aware that any shareholder intends to do so.
If, however, any other matters are properly
brought before the Meeting, the persons
named in the accompanying proxy card will
vote thereon in accordance with their
judgment.
THE BOARD OF TRUSTEES RECOMMENDS THAT
SHAREHOLDERS OF THE FUND VOTE TO APPROVE THE
NEW SUB-ADVISORY AGREEMENT.
November __, 1994
New York, New York
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. SHAREHOLDERS WHO DO
NOT EXPECT TO ATTEND THE MEETING ARE THEREFORE URGED TO COMPLETE, SIGN,
DATE AND RETURN THE PROXY AS SOON AS POSSIBLE IN THE ENCLOSED POSTAGE
PAID ENVELOPE.
VOTE THIS VOTING INSTRUCTION CARD TODAY!
YOUR PROMPT RESPONSE WILL SAVE
THE EXPENSE OF ADDITIONAL MAILINGS
(Please Detach at Perforation Before
Mailing)
. . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . .
Please indicate your vote by an "X" in the
appropriate box below.
This proxy, if properly executed, will be
voted in the manner directed by the
undersigned shareholder.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR THE PROPOSAL.
Please refer to the Proxy Statement for a
discussion of the Proposal.
1. To approve a new sub-investment
advisory agreement between Smith Barney
Adjustable Rate Government Income Fund,
Smith Barney Strategy Advisers Inc. and
BlackRock Financial Management L.P.
containing the same sub-advisory fee as the
Fund's current sub-investment advisory
agreement.
FOR * AGAINST *
ABSTAIN *
VOTE THIS VOTING INSTRUCTION CARD TODAY!
YOUR PROMPT RESPONSE WILL SAVE
THE EXPENSE OF ADDITIONAL MAILINGS
(Please Detach at Perforation Before
Mailing)
. . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . .
SMITH BARNEY ADJUSTABLE RATE GOVERNMENT
INCOME FUND PROXY SOLICITED BY
THE BOARD OF TRUSTEES
The undersigned holder of shares of Smith
Barney Adjustable Rate Government Income
Fund ("the Fund"), a Massachusetts business
trust, hereby appoints Heath B. McLendon,
Richard P. Roelofs, Christina T. Sydor and
Lee D. Augsburger attorney and proxies for
the undersigned with full powers of
substitution and revocation, to represent
the undersigned and to vote on behalf of the
undersigned all shares of the Fund that the
undersigned is entitled to vote at the
Special Meeting of Shareholders of the Fund
to be held at the offices of the Fund, Two
World Trade Center, New York, New York, on
December 7, 1994 at 11:00 a.m. and any
adjournment or adjournments thereof. The
undersigned hereby acknowledges receipt of
the Notice of Special Meeting and Proxy
Statement dated November __, 1994 and hereby
instructs said attorneys and proxies to vote
said shares as indicated hereon. In their
discretion, the proxies are authorized to
vote upon such other business as may
properly come before the Special Meeting. A
majority of the proxies present and acting
at the Special Meeting in person or by
substitute (or, if only one shall be so
present, then that one,) shall have and may
exercise all the power and authority of said
proxies hereunder. The undersigned hereby
revokes any proxy previously given.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE
ENCLOSED ENVELOPE
NOTE: Please sign exactly as your name
appears on this Proxy. If joint owners,
EITHER may sign this Proxy. When signing as
attorney, executor, administrator, trustee,
guardian or corporate officer, please give
your full title.
DATE:
_________________________________________
______________________________________
_________
______________________________________
_________
Signature(s) (Title(s), if
applicable)
1
1
G:\SHARED\SHEARSN2\CLOSED\ARMS\CARD.DOC
G:\SHARED\SHEARSN2\CLOSED\ARMS\CARD.DOC
Exhibit A
SUB-ADVISORY AGREEMENT
SMITH BARNEY SHEARSON ADJUSTABLE RATE GOVERNMENT INCOME FUND
December __, 1994
BlackRock Financial Management L.P.
345 Park Avenue
New York, New York 10154
Ladies and Gentlemen:
Pursuant paragraph 7 of the Advisory Agreement (the "Advisory
Agreement"), between Smith Barney Shearson Adjustable Rate Government
Income Fund (the "Fund"), a business trust organized under the laws of The
Commonwealth of Massachusetts, and Smith Barney Strategy Advisers, Inc.
("Strategy Advisers"), Strategy Advisers, as the Fund's investment manager,
is generally responsible for furnishing, or causing to be furnished to the
Fund, investment management and administrative services, which services
include, among other things, the selection and compensation of an
investment adviser to the Fund. Strategy Advisers hereby confirms, and the
Fund hereby approves, its agreement with BlackRock Financial Management
L.P. ("BlackRock") regarding investment advisory services to be provided by
BlackRock to the Fund upon the following terms and conditions:
1. Investment Description; Appointment.
The Fund anticipates that it will employ its capital by investing and
reinvesting in investments of the kind and in accordance with the
limitations specified in the Fund's Master Trust Agreement dated May 7,
1992, as amended from time to time (the "Master Trust Agreement"), in the
prospectus ("Prospectus") and the statement of additional information (the
"Statement") filed with the Securities and Exchange Commission as part of
the Fund's Registration Statement on Form N-1A, as amended from time to
time, and in the manner and to the extent as may from time to time be
approved by the Board of Trustees of the Fund. Copies of the Prospectus,
the Statement and the Master Trust Agreement have been or will be submitted
to BlackRock. Pursuant to paragraph 1(b) of the Advisory Agreement,
Strategy Advisers desires to employ and appoints BlackRock to act as the
Fund's investment adviser. BlackRock accepts the appointment and agrees to
furnish the services for the compensation set forth below.
2. Services as Investment Adviser.
Subject to the supervision and direction of Strategy Advisers and the
Board of Trustees of the Fund, BlackRock will (a) manage the Fund's
portfolio in accordance with the Fund's investment objectives and policies
as stated in the Prospectus and the Statement; (b) make investment
decisions for the Fund; (c) place orders to purchase and sell securities on
behalf of the Fund; and (d) employ professional portfolio managers and
securities analysts who provide research services to the Fund. In
providing those services, BlackRock will conduct a continual program of
investment evaluation and, if appropriate, sale and reinvestment of the
Fund's assets.
3. Brokerage.
In selecting brokers or dealers to execute portfolio transactions on
behalf of the Fund, BlackRock will seek the best overall terms available.
In assessing the best overall terms available for any transaction,
BlackRock will consider the factors it deems relevant, including, but not
limited to, the breadth of the market in the security, the price of the
security, the financial condition and execution capability of the broker or
dealer and the reasonableness of the commission, if any, for the specific
transaction and on a continuing basis. In selecting brokers or dealers to
execute a particular transaction, and in evaluating the best overall terms
available, BlackRock is authorized to consider the brokerage and research
services (as those terms are defined in Section 28(e) of the Securities
Exchange Act of 1934, as amended) provided to the Fund and/or other
accounts over which BlackRock or its affiliates exercise investment
discretion.
4. Information Provided to the Fund and Strategy Advisers.
BlackRock will keep the Fund and Strategy Advisers informed of
developments materially affecting the Fund, and will, on its own
initiative, furnish the Fund from time to time with whatever information
BlackRock believes is appropriate for this purpose. In addition, BlackRock
agrees to notify the Fund of any change of BlackRock's membership within 30
days after the date of the change.
5. Standard of Care.
BlackRock will exercise its best judgment in rendering the services
described in paragraph 2 of this Agreement. BlackRock will not be liable
for any error of judgment or mistake of law or for any loss suffered by the
Fund in connection with the matters to which this Agreement relates, except
that nothing in this Agreement may be deemed to protect or purport to
protect BlackRock against any liability to the Fund or to shareholders of
the Fund to which BlackRock would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence on its part in the performance
of its duties or by reason of BlackRock's reckless disregard of its
obligations and duties under this Agreement.
6. Compensation.
In consideration of the services rendered pursuant to this Agreement,
Strategy Advisers will pay BlackRock on the first business day of each
month a fee for the previous month at the annual rate of .20% of the value
of the Fund's average daily net assets. The fee for the period from the
date set forth on this Agreement to the end of that month shall be prorated
according to the proportion that the period bears to the full monthly
period. Upon any termination of this Agreement before the end of a month,
the fee for such part of that month will be prorated according to the
proportion that the period bears to the full monthly period and will be
payable upon the date of termination of this Agreement. For the purpose of
determining fees payable to BlackRock, the value of the Fund's net assets
will be computed at the times and in the manner specified in the Prospectus
and/or the Statement.
7. Expenses.
BlackRock will bear all expenses in connection with the performance
of its services under this Agreement. The Fund will bear all other
expenses to be incurred in its operation, including, but not limited to:
costs incurred in connection with the Fund's organization; investment
management; investment advisory, sub-investment advisory, administration
and distribution fees; fees for necessary professional and brokerage
services; fees for any pricing service; the costs of regulatory compliance;
and costs associated with maintaining the Fund's legal existence and
shareholder relations.
8. Reduction of Fee.
If in any fiscal year of the Fund, the aggregate expenses of the Fund
(including fees pursuant to the Advisory Agreement and the Fund's sub-
investment advisory and administration agreement, but excluding interest,
taxes, brokerage fees, fees paid by the Fund pursuant to the Fund's
shareholder servicing plan, and, if permitted by the relevant state
securities commissions, extraordinary expenses) exceed the expense
limitation of any state having jurisdiction over the Fund, BlackRock will
reduce its fee under paragraph 6 hereof by an amount equal to one-half of
the amount that Strategy Advisers shall be required to reduce its fee
pursuant to paragraph 5 of the Advisory Agreement. A fee reduction
pursuant to this paragraph 8, if any, will be estimated, reconciled and
paid on a monthly basis.
9. Services to Other Companies or Accounts.
(a) The Fund understands that BlackRock now acts, will continue to
act and may act in the future as investment adviser to fiduciary and other
managed accounts, and may act in the future as investment adviser to other
investment companies, and the Fund has no objection to BlackRock so acting,
provided that whenever the Fund and one or more fiduciary and other managed
accounts or other investment companies advised by BlackRock have available
funds for investment, investments suitable and appropriate for each will be
allocated in a manner believed by BlackRock to be equitable to each. The
Fund recognizes that in some cases this procedure may adversely affect the
price paid or received by the Fund or the size of the position obtained or
disposed of by the Fund.
(b) The Fund understands that the persons employed by BlackRock to
assist in the performance of BlackRock's duties under this Agreement will
not devote their full time to that service and nothing contained in this
Agreement will be deemed to limit or restrict the right of BlackRock or any
affiliate of BlackRock to engage in and devote time and attention to other
businesses or to render services of whatever kind or nature.
10. Term of Agreement.
(a) This Agreement will become effective as of the "Closing Date" as
that term is defined in that certain [Purchase Agreement executed between
BlackRock and PNC Bank N.A. dated June __, 1994] (the "Effective Date") and
will continue for an initial two-year term and will continue thereafter so
long as the continuance is specifically approved at least annually by (i)
the Board of Trustees of the Fund or (ii) a vote of a "majority" (as
defined in the Investment Company Act of 1940, as amended (the "1940
Act")), of the Fund's outstanding voting securities, provided that in
either event the continuance is also approved by a majority of the Board of
Trustees who are not "interested persons" (as defined in the 1940 Act) of
any party to this Agreement, by vote cast in person at a meeting called for
the purpose of voting on the approval.
(b) This Agreement is terminable, without penalty, on 60 days'
written notice, by Strategy Advisers or the Board of Trustees of the Fund
or by vote of holders of a majority of the Fund's shares, or upon 90 days'
written notice, by BlackRock.
(c) This Agreement will terminate automatically in the event of its
assignment (as defined in the 1940 Act).
11. Representation by the Fund.
The Fund represents that a copy of the Master Trust Agreement is on
file with the Secretary of The Commonwealth of Massachusetts and with the
Boston City Clerk.
Strategy Advisers and BlackRock agree that the obligations of the
Fund under this Agreement will not be binding upon any of the Trustees of
the Fund, shareholders of the Fund, nominees, officers, employees or
agents, whether past, present or future, of the Fund, individually, but are
binding only upon the assets and property of the Fund, as provided in the
Master Trust Agreement of the Fund. The execution and delivery of this
Agreement have been authorized the Trustees of the Fund and signed by an
authorized officer of the Fund, acting as such, and neither the
authorization by the Trustees, not the execution and delivery by the
officer will be deemed to have been made by any of them individually or to
impose any liability on any of them personally, but will bind only the
assets and property of the Fund as provided in its Master Trust Agreement.
If the foregoing is in accordance with your understanding, kindly
indicate your acceptance of this Agreement by signing and returning the
enclosed copy of this Agreement.
Very truly yours,
SMITH BARNEY STRATEGY ADVISERS, INC.
By:____________________________________
Name:
Title:
SMITH BARNEY SHEARSON ADJUSTABLE RATE
GOVERNMENT INCOME FUND
By:_________________________________________
Name:
Title:
Accepted:
BLACKROCK FINANCIAL MANAGEMENT L.P.
By:___________________________________
Name:
Title:
G:\SHARED\DOMESTIC\CLIENTS\SHEARSON\FUNDS\ARMS\BRAMGT2.DOC 5
G:\SHARED\DOMESTIC\CLIENTS\SHEARSON\FUNDS\ARMS\BRAMGT2.DOC
Exhibit B
BLACKROCK FINANCIAL MANAGEMENT L.P.
INVESTMENT ADVISER OR SUBADVISER FOR THE FOLLOWING REGISTERED INVESTMENT
COMPANIES
Adviser:
NET ASSETS
AS OF
8/31/94
(in
thousands)
CURRENT
ADVISORY
FEE RATE
THE BLACKROCK INCOME TRUST INC.
473,305
0.65%
THE BLACKROCK TARGET TERM TRUST INC.
901,373
0.45%
THE BLACKROCK ADVANTAGE TERM TRUST INC.
91,588
0.60%
THE BLACKROCK STRATEGIC TERM TRUST INC.
488,681
0.60%
THE BLACKROCK 1998 TERM TRUST INC.
545,089
0.50%
THE BLACKROCK NORTH AMERICAN GOVERNMENT INCOME TRUST INC.
372,104
0.60%
THE BLACKROCK INVESTMENT QUALITY TERM TRUST INC.
318,083
0.60%
THE BLACKROCK 1999 TERM TRUST INC.
188,369
0.40%
THE BLACKROCK 2001 TERM TRUST INC.
1,194,7
63
0.40%
THE BLACKROCK BROAD INVESTMENT GRADE 2009 TERM TRUST INC.
36,753
0.55%
THE BLACKROCK MUNICIPAL TARGET TERM TRUST INC.
478,333
0.35%
THE BLACKROCK INSURED MUNICIPAL TERM TRUST INC.
267,928
0.35%
THE BLACKROCK INSURED MUNICIPAL 2008 TERM TRUST INC.
403,332
0.35%
THE BLACKROCK INVESTMENT QUALITY MUNICIPAL TRUST INC.
218,730
0.35%
THE BLACKROCK CALIFORNIA INSURED MUNICIPAL 2008 TERM TRUST INC.
152,902
0.35%
THE BLACKROCK NEW YORK INSURED MUNICIPAL 2008 TERM TRUST INC.
166,267
0.35%
THE BLACKROCK FLORIDA INSURED MUNICIPAL 2008 TERM TRUST INC.
128,229
0.35%
THE BLACKROCK FLORIDA INVESTMENT QUALITY MUNICIPAL TRUST INC.
14,478
0.35%
THE BLACKROCK CALIFORNIA INVESTMENT QUALITY MUNICIPAL TRUST INC.
12,975
0.35%
THE BLACKROCK NEW YORK INVESTMENT QUALITY MUNICIPAL TRUST INC.
16,767
0.35%
THE BLACKROCK NEW JERSEY INVESTMENT QUALITY MUNICIPAL TRUST INC.
12,796
0.35%
THE BFM INSTITUTIONAL TRUST INC.
43,471
0.30%
Investment SubAdviser:
THE BLACKROCK GOVERNMENT INCOME TRUST INC.
64,924
0.25%
DEAN WITTER PREMIER INCOME TRUST
49,915
0.20%
SMITH BARNEY SHEARSON ADJUSTABLE RATE GOVERNMENT INCOME FUND
242,952
0.20%
ACCESSOR FUNDS, INC. - MORTGAGE SECURITIES PORTFOLIO
33,324
0.25%
FRANK RUSSELL INVESTMENT COMPANY
82,752
0.25%
US AFFINITY TAX-FREE MUNICIPAL FUND
2,120
0.20%
G:\SHARED\SHEARSN2\CLOSED\ARMS\BLKROCK.DOC 2
G:\SHARED\SHEARSN2\CLOSED\ARMS\BLKROCK.DOC
Exhibit C
BlackRock Financial Management L.P.
Consolidated Statement of
Financial Condition
as of December 31, 1993
and Independent Auditors' Report
Independent Auditors' Report
To the Partners of
BlackRock Financial Management L.P.:
We have audited the accompanying consolidated statement of financial
condition of BlackRock Financial Management L.P. and subsidiary (the
"Partnership") as of December 31, 1993. This financial statement is the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statement is free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statement.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such consolidated financial statement presents fairly, in
all material respects, the financial position of BlackRock Financial
Management L.P. and subsidiary at December 31, 1993 in conformity with
generally accepted accounting principles.
/s/ Deloitte & Touche
February 18, 1994
BlackRock Financial Management L.P.
Consolidated Statement of Financial Condition
as of December 31, 1993
ASSETS
Cash and cash equivalents $ 7,931,040
Accounts receivable 6,503,904
Investments, at market value 2,213,199
Property and equipment, net 3,827,819
Other assets 1,642,528
Total assets $22,118,490
LIABILITIES AND PARTNERS' INTERESTS
Liabilities:
Accounts payable and accrued expenses $14,814,444
Payable to affiliates 486,679
Total liabilities 15,301,123
Partners' interests:
Subordinated notes 1,477,674
Partners' capital:
General partner 2,898,340
Limited partners 2,441,353
Total partners' interests 6,817,367
Total liabilities and partners' interests
$22,118,490
See notes to consolidated statement of financial condition.
BlackRock Financial Management L.P.
Notes to Consolidated Statement of Financial Condition
1. The Partnership
BlackRock Financial Management L.P. ("BFM") provides investment management
services to registered investment companies, offshore funds and private
accounts for both domestic and international clients and portfolio advisory
services to companies in the financial services industry. The general
partner of BFM is BFM Management Partners L.P. ("BFM Management"). The
general partner of BFM Management is BFM Management Corp. Effective as of
January 1, 1993, there was a reorganization of partnership interests in
which certain general and limited partners transferred their partnership
interests to BFM Management. Net income (loss) of BFM is allocated to its
partners based on specific profit sharing allocations.
BFM owns a 99% limited partnership interest in BFM International L.P.
("BFM I") which provides investment management services for internationally
based clients. BFM International Inc. is the general partner of BFM I and
is controlled by certain partners of BFM.
2. Significant Accounting Policies
Basis of Presentation
The consolidated statement of financial condition includes the accounts of
BFM and BFM I (the "Partnership"). All interpartnership accounts have been
eliminated.
Cash and Cash Equivalents
The Partnership has defined cash and cash equivalents as cash and short-
term, highly liquid investments with maturities of three months or less.
Revenue Recognition
Investment management fees are recognized as earned under the Partnership's
Investment Advisory Agreements ("Agreements"). Under the Agreements,
investment management fees paid to the Partnership are based on a
percentage of the net assets managed by the Partnership. Under the
Partnership's portfolio advisory agreements, revenues are recognized over
the terms of such agreements.
BlackRock Financial Management L.P.
Notes to Consolidated Statement of Financial Condition
2. Significant Accounting Policies (continued)
Financial Instruments
Financial instruments are carried at fair value or at amounts
which approximate fair value. Cash and cash equivalents, accounts
receivable and payable to affiliates are carried at cost which approximates
fair value. Investments, consisting of shares of registered investment
companies managed by the Partnership, are valued at their quoted market
value.
Property and Equipment
Property and equipment is recorded at cost. Depreciation is generally
provided on the straight-line method over an estimated useful life of five
years.
Income Taxes
Effective January 1, 1993, the Partnership adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". This change
had no significant impact on the consolidated statement of financial
condition.
3. Property and Equipment
Property and equipment consists of the following:
Office and computer equipment $3,771,099
Furniture and fixtures 1,302,349
Leasehold improvements 144,157
5,217,605
Less accumulated depreciation 1,389,786
Property and equipment, net $3,827,819
BlackRock Financial Management L.P.
Notes to Consolidated Statement of Financial Condition
4. Subordinated Notes
Under the terms of the BFM partnership agreement, a portion of
undistributed net operating income (as defined in the partnership
agreement) is converted into subordinated notes. Each subordinated note
bears interest at LIBOR plus 1 percent per annum, payable semi-annually,
and shall mature five years from the date of issuance, subject to
extension.
5. Commitments
The Partnership and an affiliate have an agreement, expiring in 1999, to
lease the Partnership's primary office space. Future minimum commitments
under this agreement, net of rental reimbursements from affiliates, are as
follows:
1994 $1,296,054
1995 1,317,396
1996 1,317,396
1997 1,317,396
1998 1,317,396
Thereafter 219,783
$6,785,421
Under the lease agreement, the Partnership and an affiliate are responsible
for certain escalation payments.
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