1
U:\Osunkwo\cvr1n14.SMA
As filed with the Securities and Exchange Commission
on June 16, 1995
Registration Nos: 33-89600
and 8111464
U.S. SECURITIES AND EXCHANGE
COMMISSION WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF
1933
[ X] Pre-Effective Amendment No. 1 [ ] Post-
Effective Amendment No.
SMITH BARNEY FUNDS, INC.
(Exact name of Registrant as specified in
Charter) Area Code and Telephone Number:
(212) 793-9218
388 Greenwich Street, New York, New York
10013 (Address of principal executive offices)
(Zip Code)
Christina T. Sydor, Esq
Smith Barney Inc.
388 Greenwich Street, New York, New York 10013 (22nd
floor) (Name and address of agent for
service) copies to:
Burton M. Leibert, Esq. John
Baumgardner, Esq. Willkie Farr & Gallagher
Sullivan & Cromwell One Citicorp Center
125 Broad Street
153 East 53rd Street New York,
NY
10004
New York, NY 10022
Approximate date of proposed public offering: As soon as
possible after the effective date of this Registration Statement.
Registrant has registered an indefinite amount of securities
pursuant to Rule 24f-2 under the Investment Company Act of 1940,
as amended; accordingly, no fee is payable
herewith.
Registrant's Rule 24f-2 Notice for the fiscal year ended
December 31, 1994 was filed with the Securities and
Exchange Commission on February 28, 1995.
Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its
effective date until the Registrant shall file a further
amendment which specifically states that this Registration
Statement shall
thereafter become effective in accordance with Section
8(a) of the Securities Act of 1933 or until
the
Registration Statement shall become
effective on such date as the Commission, action pursuant
to said Section 8(a), may determine.
Total Number of
Pages SMITH BARNEY
FUNDS, INC.
CONTENTS OF
REGISTRATION
STATEMENT
This Registration Statement contains the
following pages and
documents:
Front Cover
Contents Page
Cross-Reference Sheet
Letter to Shareholders
Notice of Special Meeting
Part A - Prospectus/Proxy Statement
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
<TABLE>
FORM N-14 CROSS REFERENCE SHEET
<CAPTION>
Pursuant to Rule 481(a) Under the Securities Act of 1933
<S> <C>
Prospectus/Proxy
Part A Item No. and Caption
Statement
Caption
Item 1. Beginning of Registration
Cover
Page; Cross Reference
Statement and Outside Front Sheet
Cover Page of Prospectus
Item 2. Beginning and Outside Back
Table
of
Contents
Cover Page of Prospectus
Item 3. Synopsis Information and
Summary;
Risk
Factors; Comparison of Risk
Factors
Investment Objectives and Policies
Item 4. Information About the Transaction
Summary;
Reasons for
the
Reorganization; Information About
the
Reorganization; Information
on Shareholders' Rights; Exhibit
A
(Agreement and Plan
of
Reorganization)
Item 5. Information About the Registrant
Cover
Page; Summary;
Information
About the Reorganization;
Comparison
of Investment Objectives and
Policies;
Comparative Information
on
Shareholders' Rights;
Information
About the Portfolio and the
Limited
Maturity Fund; Prospectus of
the
Portfolio dated April 28, 1995
Item 6. Information About the
Summary;
Information
About the
Company Being Acquired Reorganization;
Comparison
of
Investment Objectives and
Policies; Information on
Shareholders'
Rights;
Information About the Portfolio
and
the Limited Maturity Fund
Item 7. Voting Information
Summary;
Information
About the
Reorganization;
Comparative Information
on
Shareholders' Rights; Voting Information
Item 8. Interest of
Certain
Persons
Financial Statements
and Experts;
and
Experts Legal Matters
Item 9.
Additional
Information
Not Applicable
Required
for Reoffering By
Persons Deemed
to
be Underwriters
Statement of
Additional Part B Item No. and Caption
Information
Caption
Item 10. Cover Page Cover Page
Item 11. Table of Contents Cover
Page
Item 12. Additional Information
Cover
Page;
Statement of Additional About the
Registrant
Information of Smith Barney
Funds,
Inc. dated April 28, 1995
Item 13. Additional Information Not
Applicable
About the Company Being
Acquired
Item 14. Financial Statements
Annual Report
of Smith Barney Funds,
Inc.;
Annual Report of Smith
Barney
Limited Maturity Treasury
Fund;
Semi-Annual Report of Smith
Barney
Funds, Inc.
Part C Item No. and Caption
Other
Information Caption
Item 15. Indemnification
Incorporated by
reference to Part
A
caption "Comparative Information
on
Shareholders' Rights - Liability
of
Directors"
Item 16. Exhibits Exhibits
Item 17. Undertakings
Undertakings </TABLE>
Smith Barney Mutual Funds
Investing for your future. Every
day.
June 12, 1995
Dear Valued Shareholder:
An Important Notice About the Smith Barney Limited
Maturity Treasury Fund
We would like to inform you of a proposal that has
recently been reviewed and unanimously endorsed by the
Board of Trustees of Smith Barney Income Trust
concerning the reorganization of the Smith Barney Limited
Maturity Treasury Fund.
The proposal calls for the Smith Barney Limited
Maturity Treasury Fund's assets to be acquired by
the Smith Barney Funds/Short-Term U.S. Treasury
Securities Portfolio. After this reorganization, the
Limited Maturity Treasury Fund will be
terminated, and you will become a shareholder of the
Short Term U.S. Treasury Securities Portfolio. You will
receive
shares with a total net asset value equal to the total
net asset value of your Limited Maturity Treasury Fund
investment at the time of the transaction.
The Board of Trustees believes that the
proposed
reorganization is in the best interests of Limited
Maturity Treasury Fund shareholders and should provide
benefits due, in part, to savings in expenses paid by
shareholders. In our opinion, this will be a tax-free
transaction.
Please complete, sign and mail the enclosed proxy
card...today!
A Special Meeting of Shareholders will be held on
July 14, 1995 to consider this transaction. We strongly
urge you to participate by reviewing, completing and
returning your proxy by no later than July 13, 1995
in the postagepaid envelope provided.
For more details about the proposed transaction,
please refer to the enclosed proxy statement. If you sign
and date your proxy card, but do not provide voting
instructions, your shares will be voted FOR the proposal.
We thank you for your timely participation and look
forward to serving your investment needs with Smith Barney
Mutual Funds. If you have any questions, please call your
Financial Consultant who will be pleased to assist you.
Sincerely,
Heath B. McLendon
Chairman of the Board
Smith Barney Income Trust
SMITH BARNEY LIMITED MATURITY
TREASURY FUND a series of
Smith Barney Income Trust
388 Greenwich Street
New York, New York
10013
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held On July 14, 1995
___________________
Notice is hereby given that a Special
Meeting
of
Shareholders (the "Meeting") of Smith Barney Limited
Maturity Treasury Fund (the "Limited Maturity Fund"), a
separate series of Smith Barney Income Trust (the
"Trust"), will be held at 388 Greenwich Street, New
York, New York on July 14, 1995, at 4:30 p.m. for the
following purposes:
1. To consider and act upon the Agreement and
Plan
of
Reorganization (the "Plan") dated as of December
20,
1994 providing for (i) the acquisition of
all or substantially all of the assets of
Smith Barney Limited Maturity Treasury Fund (the
"Limited Maturity Fund") by the Short-Term
U.S. Treasury Securities Portfolio (the
"Portfolio"), a separate series of Smith
Barney Funds, Inc. ("Smith Barney Funds") in
exchange for shares of the Portfolio and
the assumption by the Portfolio of certain
liabilities of the Limited Maturity Fund, (ii)
the distribution of such shares of the
Portfolio to shareholders of the
Limited Maturity Fund in liquidation of
the Limited Maturity Fund and (iii) the
subsequent termination of the Limited
Maturity Fund.
2. To transact any other business which may
properly
come
before the Meeting or any adjournment(s) thereof.
The Board of Trustees of the Trust on behalf of the
Limited Maturity Fund has fixed the close of business on
May 23, 1995, as the record date for the determination
of shareholders of the Limited Maturity Fund
entitled
to notice of and to vote at this
Meeting or any adjournment(s) thereof.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY.
SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND IN PERSON ARE
URGED TO SIGN AND RETURN WITHOUT DELAY THE ENCLOSED
PROXY
IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE,
IF MAILED IN THE
CONTINENTAL UNITED
STATES, SO THAT THEIR SHARES MAY BE
REPRESENTED AT THE MEETING. INSTRUCTIONS FOR THE
PROPER EXECUTION OF PROXIES ARE SET FORTH ON THE
FOLLOWING PAGE. PROXIES MAY BE REVOKED AT ANY TIME
BEFORE THEY ARE EXERCISED BY THE SUBSEQUENT
EXECUTION
AND SUBMISSION OF A REVISED
PROXY, BY GIVING WRITTEN NOTICE OF REVOCATION AT ANY
TIME
BEFORE THE PROXY IS EXERCISED OR BY VOTING IN PERSON AT
THE MEETING. YOUR PROMPT
ATTENTION TO THE ENCLOSED PROXY WILL
HELP TO AVOID THE EXPENSE OF FURTHER SOLICITATION.
By order of the
Board of Trustees
Christina T. Sydor
Secretary
June 12, 1995
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
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:
<TABLE>
<CAPTION>
Registration Valid
Signatures
<S> <C>
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
Custodial or Estate Accounts
(1) John B. Smith, Cust.
f/b/o/ John B. Smith, Jr. UGMA
............ John B. Smith
(2) John B. Smith
....................................................
John B. Smith, Jr., Executor
</TABLE>
THE PROSPECTUS/PROXY STATEMENT DATED JUNE 12,
1995
Acquisition of the Assets Of
SMITH BARNEY LIMITED MATURITY TREASURY
FUND a series of Smith Barney Income
Trust
388 Greenwich Street
New York, New York
10013
(212) 723-9218
By And In Exchange For Shares
Of
SMITH BARNEY FUNDS, INC. - SHORT-TERM U.S.
TREASURY
SECURITIES PORTFOLIO
388 Greenwich Street
New York, New York 10013
(212) 723-9218
This Prospectus/Proxy Statement is being
furnished to shareholders of the Smith Barney
Limited Maturity Treasury
Fund (the "Limited Maturity Fund"), a separate series of
Smith Barney Income Trust (the "Trust"), in
connection
with a proposed plan of reorganization, to be
submitted to shareholders for consideration
at
a
Special Meeting of
Shareholders to be held on July 14, 1995 at 4:30 p.m.,
New
York City time, at the offices of Smith Barney Inc.,
located at 388 Greenwich Street, 26th Floor, New York,
New York, and
any adjournments thereof (collectively, the "Meeting").
The Plan provides for all or substantially all
of the assets of the Limited Maturity Fund to be
acquired by the Short-Term U.S.
Treasury Securities Portfolio
(the
"Portfolio"), a separate series of Smith Barney
Funds, Inc. ("Smith Barney Funds") in exchange for
shares of the Portfolio and the assumption by the
Portfolio of certain liabilities of
the Limited Maturity Fund (hereinafter referred to
as the "Reorganization"). (The Portfolio and the
Limited Maturity Fund are herein referred to
individually as a "Fund" and collectively as the
"Fund"). Following the Reorganization, shares of the
Portfolio will be distributed to shareholders of
the Limited Maturity Fund in liquidation of
the Limited Maturity Fund and the Limited
Maturity
Fund will be
terminated. As a result of the proposed Reorganization,
each shareholder of the Limited Maturity Fund will
receive that number of shares of the Portfolio having
an aggregate net asset value equal to the aggregate net
asset value of such shareholder's shares of the Limited
Maturity Fund. Holders of
Class A and Class C shares of the Limited Maturity Fund
will receive Class A shares of the Portfolio, and no
sales charge will be imposed on the Class A shares
of the Portfolio received by the Limited Maturity Fund
Class A and Class C shareholders. Holders of Class
Y shares in the Limited Maturity Fund will receive
Class Y shares of the Portfolio. This transaction
is being
structured as a tax-free
reorganization.
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/PROXY STATEMENT.
ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The investment objective of the Limited Maturity
Fund is
to seek as high a level of current income as is
consistent with preservation of principal by investing
exclusively in (a) securities issued by the United
States Treasury and (b) other United States
government securities that generally provide interest
income exempt from state and local income taxes.
The investment objective of the Portfolio is to
seek
current income, preservation of capital and liquidity,
by investing its assets in U.S. Treasury debt securities
guaranteed by the direct "full faith and credit"
pledge
of the United States Government. Smith Barney Mutual
Funds Management Inc.
("SBMFM") serves as investment adviser to both the
Portfolio and the Limited Maturity Fund. SBMFM is
a wholly owned subsidiary of Smith Barney Holdings
Inc. ("Holdings") which is, in turn, a wholly-owned
subsidiary of Travelers Group Inc. (formerly Primerica
Corporation). SBMFM (through its
predecessors) has been in the investment counseling
business since 1934.
The investment policies of the Portfolio are
generally similar to those of the Limited Maturity
Fund. However, certain differences in the Funds'
investment policies are described under "Comparison
of Investment Objectives and
Policies" in this Prospectus/Proxy Statement.
This Prospectus/Proxy Statement, which should be
retained for future reference, sets forth concisely
the information about the Portfolio that a prospective
investor should know
before investing. Certain relevant documents listed
below, which have been filed with the Securities
and Exchange Commission ("SEC"), are incorporated
by reference. A
Statement of Additional Information dated June 12,
1995
relating to this Prospectus/Proxy Statement and
the Reorganization, has been filed with the SEC
and is incorporated by reference into this
Prospectus/Proxy Statement.
A copy of such Statement of Additional Information
and the Limited Maturity Fund Prospectus referred to below
are available upon request and without charge by
writing to the Limited Maturity Fund at the address
listed on the cover page of this Prospectus/Proxy
Statement or by calling (800) 2247523.
1.The Prospectus dated April 28, 1995
of Smith Barney Funds, Inc. - Short-
Term U.S. Treasury
Securities Portfolio is
incorporated in its
entirety by reference and a
copy is included herein.
2.The Prospectus dated
January 29, 1994 of Smith
Barney Limited Maturity
Treasury Fund, as amended by
Supplement dated November 6,
1994 to the Prospectus and
further amended by Supplement
dated April 1, 1995 to the
Prospectus and Statement of
Additional Information dated
January 29, 1995, a copy of
which is included herein,
is incorporated in its
entirety by reference.
Also accompanying this Prospectus/Proxy
Statement as Exhibit A is a copy of the
Agreement and Plan
of Reorganization (the "Plan") for the proposed
transaction.
<TABLE>
TABLE OF CONTENTS
<CAPTION>
<S>
<C>
Page Additional
Materials.............................................
.. ..
.. ....................................... 3
Fee
Tables...................................................
.. .
................................................ 4
Summary....................................................
.. . .................................................
8
Risk
Factors...............................................
.. .. ..
............................................... 11
Reasons for
the R
eorganization............................................
.. ............................... 11
Information about
the R
eorganization............................................
.. ........................ 12
Comparison of Investment Objectives
and
Policies...................................................
. .. 17
Comparative Information on
Shareholders'
Rights................................................
.. .. .. 20
Information About the Portfolio and the Limited
Maturity Fund....................................
22
Other
Business..............................................
.. .. ..
............................................. 22
Voting
Information
...........................................................
. ............................... 23
Financial Statements
and E
xperts...................................................
.. ..................... 24
Legal
Matters...............................................
.. .. ..
............................................. 24
Exhibit A: Agreement and Plan
of
Reorganization..........................................
.. .. ....... A-1
</TABLE>
ADDITIONAL MATERIALS
The following additional materials, which
have been incorporated by reference into the
Statement of Additional Information dated June
12, 1995 relating to this Prospectus/Proxy
Statement and
the
Reorganization, will be sent to all shareholders
requesting a copy of such Statement of Additional
Information.
1.Statement of Additional Information of Smith Barney
Funds, Inc. dated April 28, 1995.
2.Statement of Additional Information of Smith Barney
Income Trust dated January 29, 1995.
3.Annual Report of Smith Barney Funds, Inc. - Short-Term
U.S. Treasury Securities Portfolio dated December 31,
1994.
4.Semi-Annual Report of Smith Barney Funds,
Inc. - Short Term U.S. Treasury Securities Portfolio
dated June 30, 1994.
5.Annual Report of Smith Barney Limited Maturity Treasury
Fund dated November 30, 1994.
<TABLE>
<CAPTION>
FEE TABLES
Following are tables showing the current costs and
expenses of the Limited Maturity Fund and the Portfolio and
the pro forma costs and expenses expected to be incurred by
the Portfolio after giving effect to the Reorganization,
each based upon the maximum sales charges that may be
incurred at the time of purchase or redemption:
<S> <C> <C> <C> <C>
Limited Limited
CLASS A SHARES* Portfol Maturity Maturity Pro
io Fund - Fund -
Forma+
Class A Class C
Shareholder
Transaction
Expenses:
Maximum sales
charge imposed
on purchases
(as a percentage None 2.00% None
None of offering
price)............
..................
......
Maximum CDSC
(as a percentage
of original
cost or None None**
1.00%
None redemption
proceeds,
whichever is
lower)............
.
Annual Operating
Expenses:
(as a percentage
of average net
assets)
Management
0.45%
fees.............. 0.45% 0.55%*** 0.55%***
........
12b-1 0.35 0.15 0.35
0.35
fees..............
..................
.
Other 0.11 0.38 0.38
0.11
expenses..........
..............
Total Portfolio
Operating 0.91% 1.08% 1.28%
0.91% Expenses..........
..................
......
<S> <C> <C>
<C>
CLASS Y SHARES Portfo Limited
Pro
lio Maturity Fund
Forma
Shareholder Transaction
Expenses:
Maximum sales charge
imposed on purchases
(as a percentage of None
None
None
offering price)
..........................
..........................
Maximum CDSC
(as a percentage of
original cost or
redemption proceeds, None
None None
whichever is
lower)....................
..........................
......
Annual Operating Expenses:
(as a percentage of
average net assets)
Management 0.45% 0.55%
0.45%
fees......................
................
12b-1 None None None
fees......................
..........................
.
Other expenses 0.10 0.38 0.10
..........................
..............
Total Portfolio Operating 0.55% 0.93% 0.55%
Expenses.......
</TABLE>
<TABLE>
<CAPTION>
Examples
The following examples are intended to assist an
investor in understanding the various costs that an
investor will bear directly or indirectly. The examples
assume payment of operating expenses at the levels set
forth in the tables above. <S> <C> <C> <C>
<C>
1 Year 3 Years 5
Years 10 Years
An investor would pay the following
expenses on a $1,000 investment,
assuming (1) 5.00% annual return
and (2) redemption at the end of
each time period:
Class A
Portfolio $9 $29
$50
$112
Limited Maturity Fund 31 54
78 149
Pro forma 9 29
50
112
Class C
Limited Maturity Fund 22 38
65 144
Pro forma * 9 29 50
112
Class Y
Portfolio 6 18
31
69
Limited Maturity Fund 9 30
51
114
Pro forma 6 18
31
69
An investor would pay the following expenses on the
same investment, assuming the same annual return and no
redemption: <S>
<C> <C> <C> <C>
1 Year 3 Years
5 Years 10 Years
Class A
Portfolio $9 $29
$50
$112
Limited Maturity Fund 31
54
78 149
Pro forma 9 29
50
112
Class C
Limited Maturity Fund 12 38
65 144
Pro forma* 9 29
50
112
Class Y
Portfolio 6 18
31
69
Limited Maturity Fund 9 30
51
114
Pro forma 6 18
31
69
The examples also provide a means for the investor to
compare expense levels of funds with different fee
structures over varying investment periods. To
facilitate such comparison, all funds are
required to utilize a
5.00% annual return assumption.
However, the Fund's actual return will vary and may be
greater or less than 5.00%. These examples should
not
be considered representations of past or future expenses
and actual expenses may be greater or
less than those shown.
SUMMARY
This summary is qualified in its entirety by
reference to the additional
information contained elsewhere in this
Prospectus/Proxy Statement, the Prospectus of the
Portfolio dated April 28, 1995, the Statement of
Additional Information of Smith
Barney
Funds, Inc. dated April 28, 1995, the
Prospectus of the Limited Maturity Fund dated January
29,
1994, as modified by Supplement dated November 6, 1994
to the Prospectus and further modified by Supplement
dated April 1,
1995 to the Prospectus and Statement of
Additional
Information, the Statement of Additional Information
of the Trust dated January 29, 1995, and the Plan, a
copy of which is attached to this Prospectus/Proxy
Statement as Exhibit A.
Proposed Reorganization. The Plan provides
for the transfer of all or substantially all of the
assets of the Limited Maturity Fund in exchange for
shares of the Portfolio and the assumption by the
Portfolio of certain liabilities of the Limited
Maturity Fund. The Plan also
calls for the distribution
of shares of the
Portfolio to the
Limited
Maturity Fund shareholders in liquidation of the
Limited Maturity Fund.
(The
foregoing proposed transaction is
referred to in this Prospectus/Proxy Statement as
the
"Reorganization.") As a result of the Reorganization,
each shareholder of the Limited Maturity Fund will become
the owner of that number of full and fractional shares of
the Portfolio having an aggregate net asset value equal to
the aggregate net asset value of the shareholders'
shares of the Limited Maturity Fund as of the close of
business on the date that the Limited Maturity Fund's
assets are exchanged for shares of the Portfolio.
(Shareholders of Class A and Class C shares of the Limited
Maturity Fund will receive Class A shares of the
Portfolio. Shareholders of Class Y shares of the
Limited
Maturity Fund will receive Class Y shares of the
Portfolio.) See "Information About the
Reorganization" in this
Prospectus/Proxy Statement.
For the reasons set forth below under "Reasons
for the Reorganization" the Board of Trustees of the
Limited Maturity Fund, including all of the "non-
interested" Trustees, as that term is defined in the
Investment Company Act of 1940, as amended (the "1940
Act"), has unanimously concluded that the
Reorganization would be in the best interests of
the
shareholders of the Limited Maturity Fund and that
the
interests of the Limited Maturity Fund's existing
shareholders would not be
diluted as a result of the transaction
contemplated by the Reorganization, and therefore
has
submitted the Plan for approval by the Limited Maturity
Fund's shareholders. The Board of Trustees of the
Limited Maturity Fund
recommends approval of the Plan
effecting the
Reorganization.
The Board of Directors of the Smith Barney
Funds, in respect of the Portfolio, has also
approved the
Reorganization.
Approval of the Reorganization will require
the
affirmative vote of a majority, as defined in the 1940
Act, of the outstanding shares of the Limited Maturity
Fund, which is the lesser of: (i) 67% of the voting
securities of the Limited Maturity Fund present at the
Meeting, if the holders of more than 50% of the
outstanding voting securities of the Limited Maturity
Fund are present or represented by proxy; or (ii)
more than
50%
of the outstanding shares of the Limited
Maturity Fund. See "Voting Informaion" in
this
Prospectus/Proxy Statement.
Tax Consequences. Prior to completion of
the
Reorganization, the Limited Maturity Fund will have
received from counsel an opinion that, upon the
Reorganization and
the
transfer of the assets of the Limited Maturity Fund, no
gain or loss will be recognized by the Limited Maturity
Fund or its shareholders for Federal income tax
purposes. The holding period
and
tax basis of shares of the Portfolio that
are
received by each Limited Maturity Fund shareholder will
be the
same as the holding period and tax basis of the shares of
the
Limited Maturity Fund previously held by such shareholder.
In
addition, the holding period and tax basis of the
assets of the Limited Maturity Fund in the hands of the
Portfolio as a result of
the
Reorganization will be the same as in the hands
of the Limited Maturity Fund immediately prior to
the
Reorganization.
Investment Objectives, Policies and Restrictions.
The
Limited Maturity Fund and the Portfolio have generally
similar
investment objectives, policies and restrictions.
The
investment objective of the Limited Maturity Fund is to
seek as high a level of current income as is
consistent with preservation of principal by
investing exclusively in
(a)
securities issued by the United States Treasury and (b)
other United
States
government securities that generally provide
interest income exempt from state and local income taxes.
The
investment objective of the Portfolio is to seek
current income,
preservation of capital and liquidity, by investing
its assets in U.S. Treasury debt securities guaranteed by
the
direct "full faith and credit" pledge of the United
States
Government.
Although the respective investment objectives
and
policies of the Portfolio and the Limited Maturity Fund
are
generally similar, shareholders of the Limited Maturity
Fund should
consider certain differences in such objectives
and policies. See "Comparison of Investment
Objectives
and
Policies" in this Prospectus/Proxy Statement.
Purchase and Redemption Procedures. Purchase of
shares of the
Portfolio and the Limited Maturity Fund must be made
through Smith Barney Inc. ("Smith Barney") a broker
that
clears securities transactions through Smith Barney on a
fully disclosed basis or an investment dealer in the
selling group, at their respective public offering
prices (net asset value next determined plus any
applicable sales charge). Class A
shares of the Portfolio are sold at net asset value
without a
sales charge and are subject to an annual service fee of
0.25% and an
annual
distribution fee of 0.10% of the average daily
net assets of this Class. Class Y shares of the
Portfolio are available only to investors meeting an
initial investment minimum
of $5,000,000. Class Y shares are sold at net asset
value with no initial sales charge or CDSC and are not
subject to any
service or distribution fees. Class A shares of
the Limited Maturity Fund are sold subject to a front-
end
sales
charge of 2.00% for purchases of less than $500,000.
For
purchases of $500,000 and over, shares are sold at net
asset value,
subject to a 1.00% CDSC for the first year only.
All Class A shares of the Limited Maturity Fund are
subject to a service fee of 0.15%. Class
C shares of the
Limited Maturity
Fund have a CDSC of 1.00%, a service fee of 0.15%
and a distribution fee of 0.20% for the first year.
After the first year of purchase of Class C shares
there is no CDSC, however the 0.15% service fee and
0.20% distribution fee remain.
Exchange Privileges. The exchange privileges
available to shareholders of the Portfolio are
identical to those available to shareholders of
the Limited Maturity
Fund.
Shareholders of both the Portfolio and the Limited
Maturity Fund may exchange at net asset value all or a
portion of their shares for shares of the same class
in certain funds in the Smith Barney Mutual Funds at
the respective net asset values next
determined,
plus any applicable sales
charge
differential. Any exchange will be a taxable event for
which a shareholder may have to recognize a gain or a
loss under Federal income tax provisions. Exchanges
of shares of both Funds are subject to minimum
investment and other requirements of the fund into
which exchanges are made and a sales charge
differential may apply. (See "Exchange Privilege" in
each Fund's Prospectus.)
Dividends. The policies of each Fund with
regard to dividends and distributions are generally
the same. The
Portfolio declares and pays dividends of investment
income monthly and the Limited Maturity Fund declares
dividends of investment income daily and pays them
monthly, generally on the 10th day of each calendar
month. Each Fund's policy is to make distributions of
any realized capital gains annually. Unless a
shareholder instructs otherwise, income dividends and
capital gain distributions payable by a Fund will
be reinvested automatically in additional shares of
the same Class of that Fund at net asset value, subject
to no sales charge or CDSC. Whichever distribution
option is currently in effect for a shareholder of a
Fund will remain in effect after the
Reorganization. After the Reorganization,
however, shareholders may change their distribution
option at any time by contacting the Fund's transfer
agent, The Shareholder Services Group, Inc. ("TSSG"),
in writing. (See "Dividends, Distributions and Taxes" in
the accompanying prospectus of the Portfolio.)
Shareholder Voting Rights. The Portfolio is a
separate series of Smith Barney Funds which is an open
end, diversified investment company, incorporated in the
State of Maryland. As
permitted under Maryland law, there will normally
be no meetings of shareholders for the purpose of
electing directors unless and until such time as less
than a majority of the directors holding office have
been elected by shareholders. At that time, the
directors of Smith Barney Funds then in office will
call a shareholders' meeting for the election of
directors. Shareholders may, at any meeting called for
the purpose, remove a director by the affirmative vote
of the holders of record of a majority of the votes
entitled to be cast for the election of directors. The
Limited Maturity Fund is a separate series of the
Trust which is an open-end diversified investment
company, organized under the laws of the Commonwealth
of Massachusetts as a business entity
commonly known as a "Massachusetts business trust".
Normally, no meetings of shareholders will be held for
the purpose of electing trustees of the Trust unless
and until such time as less than a majority of the
trustees holding office have been elected by
shareholders, at which time the trustees then in office
will call a shareholders' meeting for the election of
trustees. For purposes of voting with respect
to the Reorganization, the Class A, Class C and Class
Y shares, if any, of the Limited Maturity Fund shall
vote together as a single class.
See "Comparative Information on Shareholders'
Rights - Voting Rights" in this Prospectus/Proxy Statement.
The Funds' Management. Patrick Sheehan is a
Managing Director of Smith Barney, a Vice President of
Smith Barney Funds and portfolio manager of the
Portfolio. Prior to January 1992, Mr. Sheehan was a
Portfolio Manager at Value Line Inc., Senior Vice
President of Seaman's Bank for Savings,
Assistant Vice President of Capital Markets of Federal
Home Loan Board of New York and Vice President and
Treasurer of Poughkeepsie Savings Bank. Mr. Sheehan
manages the day-to-day operations of the Portfolio,
including making all investment decisions. It is
proposed that Mr. Sheehan would continue as the
Portfolio's investment manager after the Reorganization.
James E. Conroy, an Investment Officer of
SBMFM,
has served as Vice President of the Limited Maturity Fund
since it commenced operations on December 31, 1991, and
manages the dayto-day operations of the Limited
Maturity Fund, including making all investment
decisions.
RISK FACTORS
Due to the similarities of investment
objectives and policies of the Limited Maturity Fund
and the Portfolio, the investment risks are generally
similar. Such risks are
generally those typically associated with investing in
fixed income investments. Such risks, and certain
differences in the risks associated with
investing
in the Funds, are
discussed under the caption "Comparison of
Investment
Objectives and Policies" in this Prospectus/Proxy
Statement.
REASONS FOR THE REORGANIZATION
The Board of Trustees of the Trust has determined
that it is advantageous to combine the Limited Maturity
Fund with the Portfolio. The Funds have generally
similar investment
objectives and policies, as well as the same
investment adviser, administrator, custodian and transfer
agent.
The Board of Trustees of the Trust has determined
that the Reorganization should provide certain
benefits to the shareholders of the Limited Maturity
Fund. In making such a determination, the Board of
Trustees considered, among other things: (i)
the terms and
conditions of the Reorganization; (ii) the savings in
total operating expenses borne by shareholders
expected to be realized by the Reorganization; (iii)
the fact that the Reorganization will be effected as a
taxfree reorganization; (iv) the comparative
investment performance of the Funds; (v) the
advantages of
eliminating duplication inherent in marketing two
funds with similar investment objectives; and (vi) the
fact that the costs of the Reorganization will be
borne by Smith Barney, the Fund's distributor.
In light of the foregoing, the Board of Trustees
of the Trust, including the non-interested Trustees,
have decided that it is in the best interests of the
Limited Maturity Fund and its shareholders to combine
with the Portfolio. The Board of Trustees has also
determined that a combination of the Limited Maturity
Fund and the Portfolio would not result in a dilution
of the
interests of the Limited Maturity Fund's shareholders.
The Board of Directors of Smith Barney Funds
considered the following factors, among others, in
approving the
Reorganization and determining that it is advantageous
for the Portfolio to acquire the assets of the Limited
Maturity Fund: (i) the terms and conditions of the
Reorganization; (ii) the fact that the Reorganization
will be effected as a tax-free reorganization; and
(iii) the fact that the costs of the Reorganization
will be borne by Smith Barney. Accordingly, the Board
of Directors of Smith Barney Funds, including a
majority of the non-interested Directors, has determined
that
the Reorganization is in the best interests of the
Portfolio's shareholders and that the interests of
the Portfolio's shareholders will not be diluted as
a result of the
Reorganization.
INFORMATION ABOUT THE REORGANIZATION
Plan of Reorganization. The following summary
of the
Plan is qualified in its entirety by reference to the
Plan
(Exhibit A hereto). The Plan provides that the Portfolio
will acquire all or substantially all of the assets of the
Limited Maturity Fund in exchange for shares of the
Portfolio and the assumption
by
the Portfolio of certain liabilities of the
Limited Maturity Fund on July 21, 1995, or such later date
as
may be agreed upon by the parties (the "Closing Date").
Prior to the Closing Date, the Limited Maturity Fund
will endeavor to discharge all of its known
liabilities and obligations. The Portfolio will not
assume any liabilities or obligations of the Limited
Maturity Fund other than those reflected in
an unaudited statement of assets and liabilities of the
Limited Maturity Fund prepared as of the close of
regular trading on
the New York Stock Exchange, Inc. (the "NYSE"),
currently 4:00 p.m. New York time, on the Closing Date.
The number of full
and fractional Class A shares of the Portfolio to be issued
to
the Limited Maturity Fund shareholders will be determined
on
the basis of relative net asset values per the
Limited
Maturity Fund's Class A and Class C shares, to the
Portfolio's Class A shares, computed as of the close of
regular trading
on the NYSE on the Closing Date. The net asset value
per share of each Class will be determined by
dividing
assets, less liabilities, by the total number of
outstanding shares.
The Portfolio and the Limited Maturity Fund will
use The Boston Advisors, Inc. ("Boston Advisors")
as agent to
determine the value of their respective portfolio
securities. The Limited Maturity Fund and the Portfolio
will use the same independent pricing service to
determine the value of each security so that
Boston Advisors, as agent,
can determine the aggregate value of each Fund's
portfolio. The method
of valuation employed will be consistent with Rule
22c-1 under the 1940 Act, and with the interpretation
of such rule by the SEC's Division of Investment
Management.
At or prior to the Closing Date, the Limited
Maturity Fund
will, and the Portfolio may, declare a dividend
or dividends which, together with all previous such
dividends, shall
have the effect of distributing to their respective
shareholders all taxable income for the taxable year
ending
on
or prior to the Closing Date. In addition, the
Limited Maturity Fund's dividend will include its net
capital gains realized in the taxable year ending on or
prior to the Closing Date (after reductions for any
capital loss carryforward).
As soon after the Closing Date as
conveniently
practicable, the Limited Maturity Fund will
liquidate and distribute pro rata to shareholders of
record as of the close of business on the Closing Date
the full and fractional shares of the Portfolio received
by the Limited Maturity Fund.
Such
liquidation and distribution will be accomplished by
the establishment of accounts in the names of the Limited
Maturity Fund's shareholders on the share records of
the Portfolio's shareholder servicing agent. Each
account will represent the respective pro rata number
of full and fractional shares of the Portfolio due
to each of the Limited Maturity Fund's shareholders.
After such distribution and the winding up of its
affairs, the Limited Maturity Fund will be terminated.
The consummation of the Reorganization is subject
to the conditions set forth in the Plan. Notwithstanding
approval of the Limited Maturity Fund's shareholders,
the Plan may be amended as set forth in Section 12
of the Plan and may be terminated at any time at or
prior to the Closing Date by: (i) mutual agreement of
the Portfolio and the Limited Maturity Fund;
(ii) either party to the Plan upon a material breach by
the other of any representation, warranty or
agreement
contained therein to be performed at or prior to the
Closing Date;
(iii)
by either party if a condition therein expressed
to be precedent to the obligations of the terminating
party has not been met and it reasonably appears that it
will not or cannot be met.
Smith Barney shall be liable for the expenses
incurred in connection with the Reorganization,
whether or not the
Reorganization is consummated.
Approval of the Plan will require the affirmative
vote of a majority, as defined in the 1940 Act, of
the
outstanding shares of the Limited Maturity Fund, which
is the lesser of: (i) 67% of the voting securities of
the Limited Maturity Fund present at the Meeting, if the
holders of more than 50% of the outstanding voting
securities of the Limited Maturity Fund are present or
represented by proxy; or (ii) more than 50% of the
outstanding shares of the Limited Maturity Fund. See
"Voting Information" in this Prospectus/Proxy
Statement. If the
Reorganization is not approved
by shareholders of the Limited Maturity Fund, the
Board of Trustees of the Trust will consider other
possible courses of action, including liquidation of
the Limited Maturity Fund.
Description of the Portfolio's Shares. Full
and
fractional shares of the respective Class of shares of
common stock
of the Portfolio will be issued to the Limited Maturity
Fund in accordance with the procedures detailed in the
Plan and as described in the Portfolio's Prospectus.
Generally, the
Portfolio does not issue share certificates
to
shareholders unless a specific request is submitted to
TSSG. The shares of the Portfolio to be issued to
the Limited Maturity Fund shareholders and registered
on the shareholder records of TSSG will have no pre
preemptive or conversion rights.
Federal Income Tax Consequences. The exchange of
assets for shares of the Portfolio is intended to
qualify for Federal income tax purposes as a tax-free
reorganization under Section 368 (a) of the Internal
Revenue Code of 1986,
as amended (the "Code"). As a condition to the closing
of
the Reorganization, the Limited Maturity Fund will receive
an opinion from Willkie Farr & Gallagher, counsel to the
Limited Maturity Fund, to the effect that, on the basis
of the existing provisions of the Code,
U.S. Treasury regulations issued thereunder, current
administrative rules, pronouncements and court
decisions, for Federal income tax purposes, upon
consummation of the
Reorganization:
(1) the transfer of all or substantially all
of the Limited
Maturity Fund's assets in exchange for
the Portfolio's Class A and Class Y shares and the
assumption by the Portfolio of certain scheduled
liabilities of the
Limited Maturity Fund will constitute a
"reorganization" within the meaning of Section 368
(a)(1)(C) of the Code, and the
Portfolio and the Limited Maturity Fund are each
a "party to a reorganization" within the meaning of
Section 368(b) of the Code;
(2) no gain or loss will be recognized by the
Portfolio upon
the receipt of the assets of the Limited Maturity Fund
in exchange for the Portfolio's shares, and the
assumption by the Portfolio of certain scheduled
liabilities of the Limited Maturity Fund;
(3) no gain or loss will be recognized by the
Limited Maturity Fund upon the transfer of the
Limited Maturity Fund's
assets to the Portfolio in exchange for
the Portfolio's shares and the assumption by the
Portfolio of certain scheduled liabilities of the
Limited Maturity Fund or upon the distribution
(whether actual or constructive) of the Portfolio
shares to the Portfolio's shareholders;
(4) no gain or loss will be recognized by
shareholders of the Limited Maturity Fund upon the
exchange of their Limited Maturity Fund shares for
the Portfolio shares and the
assumption by the Portfolio of certain scheduled
liabilities of the Limited Maturity Fund;
(5) the aggregate tax basis of the Portfolio
shares received by each Limited Maturity Fund
shareholder pursuant to the Reorganization will be
the same as the aggregate tax basis of the Limited
Maturity Fund shares surrendered in exchange
therefor and the holding period of the Portfolio
shares to be received by each Limited Maturity
Fund shareholder will include the period during which
the shares of the Limited Maturity Fund which were
surrendered in exchange therefor were held by such
shareholder (provided the Limited Maturity Fund shares
were held as capital assets on the date of the
Reorganization);
(6) the tax basis of the Limited Maturity Fund's
assets acquired by the Portfolio will be the same as
the tax basis of such assets to the Limited
Maturity Fund immediately prior to the Reorganization
and the holding period of the assets of the
Limited Maturity Fund in the hands of the Portfolio
will include the period
during which such assets were held by the Limited
Maturity Fund.
Shareholders of the Limited Maturity Fund should
consult their tax advisers regarding the effect, if
any, of the proposed Reorganization in light of
their individual circumstances. Since the foregoing
discussion only relates to the Federal income tax
consequences of the Reorganization, shareholders of
the Limited Maturity Fund should also consult their tax
advisers as to state and local tax consequences, if any,
of the Reorganization.
</TABLE>
<TABLE>
<CAPTION>
Capitalization The following table, which is
unaudited, shows the capitalization of the Portfolio
and the Limited Maturity Fund as of March 15, 1995 and
on a pro forma basis as
of that date, giving effect to the proposed acquisition
of
assets at net asset value:
<S> <C> <C> <C>
Portfolio Limited Maturity Fund
Pro
forma for Reorganization
Class A Shares (Unaudited)
(Unaudited)
(Unaudited)
Net Assets........ $78,745,043
$63,034,571 $141,849,111
Net asset value per share.. $4.02
$7.34
$4.02
Shares outstanding......... 19,590,557
8,583,277
35,279,789
Portfolio Limited Maturity
Fund
Pro
forma for Reorganization
Class C Shares* (Unaudited)
(Unaudited) (Unaudited)
Net Assets........ None $69,497
None
Net asset value per share.. None $
7.34 None
Shares outstanding......... None
9,463
None
</TABLE>
<TABLE>
As of the Record Date, May 23, 1995, there were
7,742,828.024 outstanding Class A shares, 9,479.890
outstanding Class C shares and 0 outstanding Class Y
shares of the Limited Maturity Fund and
17,716,132.775 outstanding Class A shares and 0
outstanding Class Y shares of the Portfolio. As of the
Record Date, the officers and Trustees of the
Limited Maturity Fund beneficially owned as a group less
than 1% of the outstanding shares of each Class of the
Limited Maturity Fund. To the best knowledge of the
Trustees of the Trust, as of the Record Date, no
shareholder or "group" (as that term is used in Section
13(d) of the Securities Exchange Act of 1934 (the
"Exchange Act"), except as set forth in the table below,
owned beneficially or of record more than 5% of a
class of the Limited Maturity Fund.
<CAPTION>
<S> <C> <C> <C>
Percentage of Class
Owned of Record
or Beneficially
No. of Shares Held
Name and As of As
of
Address Class the Record Date
the
Record Date
Mr. Paul R. Freeman Class C 49.299%
4,673.480
Smith Barney Inc. Keo MP Cust.
91 Dogwood Lane
New Hyde Park, NY 11040-2309
Paul Freeman Class C 23.715%
2,248.124 91 Dogwood Lane
New Hyde Park, NY 11040-2309
Del-Val Financial Corp. Savings Class C
11.640% 1,103.647
Plan 401(k) UAD 1/1/87
Attn: Joel Zbar TTEE
FBO Joyce K. Helman
P.O. Box 408
Bogota, NJ 07603-0408
Patrick D. Davis and Class C
7.912%
750.017 Patricia L. Davis JTWROS
7005 Weathersfield Way
Canton, MI 48187-1680
Jeffrey E. Peck TTEE Class C
5.701%
540.469 UWO M.E.B. Peck Dtd 6/12/84
FBO Phillip F.W. Peck
9 Winter Street
Medfield, MA 02052-1305
</TABLE>
As of the Record Date, the officers and Directors of
Smith Barney Funds beneficially owned as a group less
than 1% of the outstanding shares each Class of the
Portfolio. To the best knowledge of the Directors of
Smith Barney Funds,
as of the Record Date, no shareholder or "group" (as
that term is used in Section 13(d) of the Exchange
Act)
owned
beneficially or of record more than 5% of a class of
shares of the Portfolio.
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
The following discussion comparing investment
objectives, policies and restrictions of the Portfolio
and the Limited Maturity Fund is based upon and
qualified in its entirety by the
respective investment objectives, policies
and
restrictions sections of the Prospectuses of the
Portfolio and the Limited Maturity Fund. For a full
discussion of the investment objectives, policies and
restrictions of
the
Portfolio, refer to the Portfolio's Prospectus,
which accompanies this Prospectus/Proxy Statement,
under the
caption, "Investment Objective and Management
Policies" and for a discussion of these issues as they
apply to the Limited Maturity Fund, refer to the Limited
Maturity Fund's Prospectus under the caption,
"Investment Objective and Management Policies".
Investment Objective. The principal investment
objective of the Portfolio is to seek current income,
preservation of capital and liquidity by investing its
assets in U.S. Treasury debt securities guaranteed by
the direct "full faith and credit" pledge of the
U.S. government. The principal investment objective
of the Limited Maturity Fund is to seek as high a level
of current income as is consistent with
preservation of principal by investing exclusively
in
securities issued by the United States Treasury and
other United
States government securities that generally provide
interest exempt from state and local income taxes. Although
the language used by each Fund to define its
respective investment objectives is slightly different, the
investment objectives of the Funds are generally the same.
Both the Portfolio's and the Limited Maturity Fund's
investment objectives and policies are fundamental and, as
such, may be changed only by the vote of a majority of
the outstanding voting securities of the Funds, as defined
in the 1940 Act.
Primary Investments. The Portfolio invests in
U.S. Treasury debt which includes Treasury bills, notes and
bonds. The payment of principal and interest on such
securities is unconditionally guaranteed by the U.S.
government and, therefore, they are deemed to be of the
highest possible credit
quality. In an effort to minimize fluctuations in
market value of its portfolio securities, the Portfolio
is
expected to maintain a dollar-weighted average maturity
of approximately 3 years.
The Limited Maturity Fund invests exclusively in
(a) securities issued by the United States Treasury and (b)
other United
States government securities that generally provide
interest income exempt from state and local income
taxes. Among the Treasury securities in which the Fund
invests are Treasury bills, notes, bonds and other debt
instruments issued by the United States Treasury that
differ among themselves in interest rates, maturities, call
provisions and the times of their issuance.
The Limited Maturity Fund may also invest in
United States government securities, other than Treasury
securities, the interest from which is prohibited under
Federal law from being taxed by the states. Among the
obligations to which this prohibition may apply are those
issued by the Federal Financing Bank, Federal Home Loan
Banks, the General Services Administration, the Student
Loan Marketing Association, the Tennessee Valley
Authority, the U.S. Postal Service and various
institutions that previously were or currently are part
of the Farm Credit System (which has been undergoing a
reorganization since 1987).
The weighted average maturity of the Limited
Maturity Fund's portfolio securities will normally not be
less than two nor more than five years. The maximum
remaining maturity of the securities in which the Fund will
normally invest will be no greater than 10 years.
Though U.S. Treasury debt securities have
historically not involved risk of loss of principal if held
to maturity, they are subject to variations in market
value due to
fluctuations in interest rates. Changes in the value
of portfolio securities will not affect interest income
from those securities but will be reflected in the net asset
values of each Fund. Thus, a decrease in interest
rates will generally result in an increase in the value of
each Fund's shares. Conversely, during periods of rising
interest rates, the value of the Fund's shares will
generally decline.
Investment Restrictions. The Portfolio has adopted
the following restrictions and fundamental policies that
cannot be changed without approval by a "vote of a
majority of the outstanding voting securities" as defined
in the 1940 Act and Rule 18f-2 thereunder. Without the
approval of a majority of
its outstanding voting securities the Portfolio may not:
(i)
invest more than 5% of the 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); (ii) purchase common stocks,
preferred stocks, warrants, other equity securities,
corporate bonds, municipal bonds or industrial revenue
bonds; (iii) borrow money except from banks for temporary
purposes in an amount up
to 10% of the value of its total assets (the Portfolio
will borrow money only to accommodate requests for the
redemption of shares while effecting an orderly
liquidation of portfolio securities or to clear securities
transactions and may not
for leveraging purposes) and whenever borrowings exceed 5%
of
the
value of the Portfolio's total assets, the Portfolio will
not
make any additional investments (this restriction will not
be
deemed to prohibit the Portfolio from obtaining letters
of
credit solely for the purpose of participating in a
captive insurance company
sponsored by the Investment Company
Institute to provide fidelity and directors and
officers liability insurance); (iv) pledge, hypothecate,
mortgage or
otherwise encumber its assets, except in an amount up to
10%
of the value of its total assets, but only to
secure borrowings for temporary purposes; (v) sell
securities short or purchase securities on margin; (vi)
write or purchase put
or call options; (vii) underwrite the securities of
other issuers or purchase restricted securities; (viii)
purchase or
sell real estate, real estate investment trust
securities, commodities or commodity contracts or oil
and gas interests; (ix) make loans to others except
through the purchase
of qualified debt obligations in accordance with the
Portfolio's investment objective and policies; (x) issue
senior securities as defined in the 1940 Act except
insofar as the Portfolio may
be deemed to have issued a senior security by reason of
(a)
borrowing money in accordance with restrictions
described above or (b) by purchasing securities on a
when-issued or delayed delivery basis or purchasing or
selling securities on a forward
commitment basis; and (xi) invest in securities of
other investment companies, except as they may be acquired
as part of a merger, consolidation, acquisition of assets
or plan of reorganization.
The Limited Maturity Fund has adopted certain
fundamental investment
restrictions that may not be changed without
approval of a majority of the Fund's outstanding shares
as defined in the
1940 Act. Included among those fundamental
restrictions are the following: the Limited Maturity Fund
may not (i) borrow money, except that the Fund may
borrow from banks for
temporary or emergency (not leveraging) purposes,
including the meeting of redemption requests and cash
payments of dividends and distributions that might
otherwise require the untimely disposition of
securities, in an amount not to exceed 10%
of the value of the Fund's total assets (including
the amount borrowed) valued at market less liabilities
(not
including the amount borrowed) at the time the borrowing
is made (whenever the Fund's borrowings exceed 5% of the
value of its total
assets, the Fund may not make any additional
investment), (ii) lend money to other persons, except
through purchasing
debt obligations, or (iii) pledge, hypothecate,
mortgage or otherwise encumber its assets, except to
secure permitted borrowings.
Risk Factors and Special Considerations. Although
both
the Portfolio and the Limited Maturity Fund limit
their investments to United States government securities,
shares of each Fund,
unlike certain bank deposit accounts, are not
insured or guaranteed by the United States
government.
Changes in interest rates generally will result in
increases
or decreases in the market value of the obligations held
by each Fund.
The yields of the Portfolio and the Limited
Maturity Fund may not be as high as those of other
mutual funds that invest in lower quality and/or
longer term
securities. Neither the Portfolio nor the Limited
Maturity
Fund is a money market fund; the value of each
Fund's
investments, and thus, the net asset value of its shares,
will fluctuate in response to changes in market and
economic conditions, as
well as the financial condition and prospects
of issuers in which each Fund invests. In an effort
to
minimize fluctuations in market value of its
portfolio
securities, the Portfolio intends to maintain a
dollar-
weighted average maturity of approximately 3 years.
The weighted average maturity of the Limited Maturity
Fund's portfolio securities normally will not be less
than two nor more than five years.
State and Local Taxation. Many, but not all, states
will permit the
Limited Maturity Fund's shareholders to treat
dividends from the Fund that represent interest derived
from Treasury and certain United States securities as
income that is exempt from state income taxes. As a
result, the state and local tax benefits intended to be
offered by the Fund may be unavailable to certain
investors. The Portfolio believes that dividends paid to
its shareholders are exempt from state income taxes.
Prior to investing in shares of either the Portfolio or
the Limited Maturity Fund, investors should consult with
their tax advisers concerning the Federal, state
and
local tax consequences of such investments.
COMPARATIVE INFORMATION ON SHAREHOLDERS' RIGHTS
General. Smith Barney Funds and the Trust are
openend, management investment companies registered under
the 1940 Act, which continuously offer to sell shares
at their current net asset value. The Portfolio is a
series
of Smith Barney Funds, a Maryland corporation and is
governed by Smith Barney Fund's articles of
incorporation, by-laws and Board of Directors. The
Limited Maturity Fund is a series of the Trust which is
organized under the laws of the Commonwealth of
Massachusetts and is governed by the Trust's master trust
agreement, by-laws and Board of Trustees. Each Fund is
also governed by applicable state and Federal law. The
Board of Directors of Smith Barney Funds has authorized
the issuance of fifteen series of shares, each
representing shares in one of fifteen separate
portfolios, and may authorize the issuance of additional
series of shares in the future. The Board of Trustees of
the Trust has authorized the issuance of four series of
shares, each representing shares in one of four separate
portfolios, and may authorize the issuance of additional
series of shares in the future. The assets of each
portfolio of Smith Barney Funds and the Trust are
segregated and separately managed and a shareholder's
interest is in the assets of the portfolio in which he or
she holds shares. Class A and Class Y shares of the
Portfolio represent interests in the assets of the
Portfolio, as do the Class A, Class C and Class Y shares
of the Limited Maturity Fund in the assets of the Fund.
The shares of the various Classes of each Fund
have identical voting, dividend, liquidation, and other
rights on the same terms and conditions except
that expenses related to the distribution of each
Class of shares are borne solely by each Class and
each Class of shares has exclusive voting rights
with respect to provisions of each Fund's Rule 12b-
1 distribution plan which pertains to a particular
Class.
Board Members. The by-laws of each of Smith
Barney Funds and the Trust provide that the term of
office of each board member shall be from the
time of his/her
election and qualification until the next
annual meeting of shareholders or until his/her
successor shall have been elected and shall have
qualified. Any board member may be removed by the
shareholders by a majority of the votes entitled to
be cast for the election of board members.
Vacancies on the Boards of either Smith Barney Funds
or the Trust may be filled by the board members
remaining in office. A meeting of shareholders will
be required for the purpose of electing additional
board members whenever fewer than a majority of
the board
members then in office were elected by shareholders.
Voting Rights. As permitted by Maryland law and
under the laws of the Commonwealth of Massachusetts,
there will normally be no meetings of shareholders
for the purpose of electing board members unless and
until such time as less than a majority of the
board members holding office
have been elected by shareholders. At that time,
the board members then in office will call a
shareholders' meeting for the election of board
members. Shareholders may, at any meeting called
for the purpose, remove a board member by the
affirmative vote of the holders of record of a
majority of the votes entitled to be cast for the
election of board members.
Liquidation or Dissolution. In the event of
the liquidation or dissolution of any of the
portfolios of the Smith Barney Funds or of a
liquidation or termination of any of the portfolios
of the Trust, the shareholders of the respective
portfolios are entitled to receive, when, and as
declared by the Directors or Trustees, as the case
may be, the excess of the assets belonging to the
liquidated or dissolved portfolio of Smith Barney
Funds or the liquidated or terminated portfolio of
the Trust. In each case, the assets so
distributed to shareholders would be distributed
among the shareholders in proportion to the number
of shares of the Fund held by them and recorded on
the books of the
liquidated or terminated portfolio.
Liability of Board Members. The articles
of
incorporation of Smith Barney Funds and the master
trust agreement of the Trust provide that the
respective Funds will indemnify their board members
and officers against liabilities and expenses
incurred in connection with litigation in which
they may be involved because of their positions with
that Fund. However, nothing in the articles of
incorporation of Smith Barney Funds, or the master
trust agreement of the Trust protects
or
indemnifies a board member or officer against
any
liability to which such person would otherwise be
subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of
the duties involved in the conduct of such person's
office.
Rights of Inspection. Shareholders of the Portfolio
and of the Limited Maturity Fund have the same
inspection rights. Currently, each shareholder is
permitted to inspect the records, accounts and
books of the Fund subject to reasonable
regulations of the Board of
Directors, not contrary to Maryland law for
the
Portfolio, and subject to reasonable regulations of
the Board of Trustees, not contrary to the laws
of the Commonwealth of Massachusetts for the Limited
Maturity Fund as to whether and to what extent, and at
what times and places, and under what conditions and
regulations, such right shall be exercised.
Shareholder Liability. Under Maryland law, the
Smith Barney Fund's shareholders do not have personal
liability for the Smith Barney Fund's
corporate acts and
obligations. Shares of the Portfolio issued to
the
shareholders of the Limited Maturity Fund in
the Reorganization will be fully paid and non
assessable when issued with no personal liability
attaching to the ownership thereof and
transferable without restrictions and will have no
preemptive or conversion rights. Under Massachusetts
law, shareholders of the Limited Maturity Fund may,
under certain circumstances be held personally liable
for the obligations of the Fund. The trust
instrument of the Trust, however, disclaims
shareholder liability for acts or obligations of
the Fund and requires that notice of such
disclaimer be given in each agreement, obligation
or instrument entered into or executed by the
Trust. The trust instrument also provides for the
indemnification out of the property of the Trust or
the particular sub-trust in question for all losses
and expenses of any shareholder held personally
liable for the obligations of the Trust or a sub
trust, as the case may be.
Appraisal Rights. Under the laws of the Commonwealth
of Massachusetts, shareholders of the Trust do
not have appraisal rights in connection with a
combination or acquisition of the assets of the Trust
or of any of its sub-trusts by another entity.
Shareholders of the
Limited Maturity Fund may, however, redeem their
shares at net asset value prior to the date
of the
Reorganization.
The foregoing is only a summary of
certain
characteristics of the operations of the Portfolio
and the Limited Maturity Fund and is not a
complete description of the documents cited.
Shareholders should refer to the provisions of
the corporate and trust documents and state laws
governing each Fund for a more thorough description.
INFORMATION ABOUT
THE PORTFOLIO AND THE LIMITED MATURITY FUND
The Portfolio. Information
concerning the operation and management of the
Portfolio is
incorporated herein
by
reference from its current Prospectus dated April 28, 1995, a
copy of which is included herein and in the Statement
of
Additional Information dated April 28,
1995, which has been filed with the
SEC. A copy of such Statement of Additional
Information is available upon request
and without charge by
writing Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities
Portfolio at 388 Greenwich Street,
New York, New York 10013 or by
calling (800) 244-7523.
The Limited Maturity Fund.
Information about the Limited
Maturity Fund is incorporated
herein by reference from the
Prospectus dated January 29, 1994,
as modified by Supplement dated November
6,
1994 and in the Statement of
Additional
Information dated January 29, 1995,
both of which have been filed with the SEC
and have been further modified by
Supplement dated April 1, 1995 to
Prospectus and Statement of
Additional Information, a copy of which
is included herein. A
copy of the Prospectus and
Statement of Additional
Information, as amended or modified, is available upon request
and without charge by writing Smith Barney Limited Maturity
Treasury Fund at 388 Greenwich Street, New York, New York
10013 or by calling (800) 244-7523.
Both the Portfolio and the Limited Maturity Fund are
subject to the informational requirements of the Exchange Act
and in accordance therewith file reports and other information
including proxy material, reports and charter documents with
the SEC. These reports can be inspected and copies obtained
at the Public Reference Facilities
maintained by the SEC at
450 Fifth Street, N.W., Washington,
D.C. 20549 and at the New York Regional Office of the SEC, 75
Park Place, New York, New York 10007. Copies of such material
can also be obtained from the Public Reference Branch, Office of
Consumer Affairs and Information Services, SEC,
Washington, D.C. 20549 at
prescribed rates.
OTHER BUSINESS
The Trustees of the Trust do not
intend to present any other business at
the Meeting. If, however, any other matters
are properly brought before the
Meeting, the persons named
in the accompanying form of proxy
will vote thereon in accordance with
their
judgment.
VOTING INFORMATION
This Prospectus/Proxy
Statement is furnished
in connection with a solicitation of
proxies by the Board of
Trustees of the Trust to be used at
the Special Meeting of
Shareholders of the Limited Maturity
Fund to be held at 4:30 p.m. on July
14, 1995, at 388 Greenwich Street, New
York, New York 10013 and at
any
adjournments thereof. This
Prospectus/Proxy Statement, along with
a Notice of the Meeting and a proxy
card, is first being mailed to
shareholders of the Limited Maturity
Fund on or about June 12, 1995.
Only shareholders of record as of the
close of business on the Record
Date will be entitled to notice of, and
to vote at, the Meeting or any adjournment thereof. The holders
of a majority of the shares of the Limited
Maturity Fund outstanding at the close of business
on the Record Date present in person or
represented by proxy will constitute a
quorum for the Meeting. For purposes
of transacting business at the Meeting,
abstentions and broker "non-votes"
(that is, proxies from broker or
nominees indicating that such persons have not
received instructions from the beneficial owner
or other persons entitled to vote shares on a
particular matter with respect to which the
brokers
or nominees do not
have
discretionary power) will be
treated as shares that are present
but which have not been voted. For this reason,
abstentions and broker non-votes will have the
effect of a "no" vote for purposes of obtaining
the requisite approval
of
the Plan. If the enclosed form of
proxy is properly executed and
returned in time to be voted at the
Meeting, the proxies named therein will vote the
shares represented by the proxy in
accordance with the instructions marked thereon.
Unmarked proxies will be voted FOR the proposed
Reorganization and FOR any other matters deemed
appropriate. A proxy may be revoked at any time
on or
before the Meeting by written notice
to Smith Barney Limited Maturity
Treasury Fund, 388 Greenwich Street,
New York, New York 10013, 22nd Floor, c/o the
Corporate Secretary. Unless revoked, all valid
proxies will be voted in accordance with the
specifications thereon or, in
the absence of such specifications, FOR approval of
the Plan and the Reorganization contemplated thereby.
Approval of the Plan will require the
affirmative vote of a majority, as defined in the
1940 Act, of the outstanding shares of the Limited
Maturity Fund, which is the lesser
of (i) 67% of the voting securities of
the Limited Maturity Fund present at
the Meeting, if the holders of more
than 50% of the outstanding voting
securities of the Limited Maturity
Fund are present or represented by
proxy; or (ii) more than 50% of
the outstanding shares of the
Limited Maturity Fund. Shareholders
of Class A, Class C and Class Y
shares of the Limited Maturity
Fund shall vote together as a single
class. Shareholders
of the Limited Maturity Fund are
entitled to one vote for each share.
Proxies are solicited by mail.
Additional solicitations may be
made by telephone, telegraph or
personal contact by
officers or employees of Smith
Barney and its affiliates and/or
TSSG. The aggregate cost of the
solicitation of the Limited
Maturity Fund shareholders is
expected to be $8,000. The cost of
solicitation will be borne by Smith
Barney.
In the event that
sufficient votes to approve the
Reorganization are not received by
July 14, 1995, 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 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 such adjournment will
require an
affirmative vote by the holders of a
majority of the shares present in
person or by proxy and entitled to
vote at the Meeting. The persons
named as proxies will vote upon
such adjournment after consideration
of the best interests of all
shareholders.
The votes of the shareholders
of the Portfolio are not being
solicited by this Prospectus/Proxy
Statement.
FINANCIAL STATEMENTS AND EXPERTS
The audited statements of
assets and liabilities of the
Portfolio as of December 31, 1994,
and the Limited Maturity Fund as
of November 30, 1994 and the related
statements of operations for the
year then ended and changes in net
assets for the two years then
ended and selected per share data
and ratios, have been incorporated
by reference into the Statement of
Additional Information relating to
this Prospectus/Proxy Statement in
reliance on the reports of KPMG Peat
Marwick LLP, independent auditors
and Coopers & Lybrand L.L.P.,
independent auditors for the
Portfolio and the Limited Maturity
Fund, respectively, given on the
authority of such firms as experts
in accounting and auditing. In
addition, the unaudited financial
statements for the Portfolio for
the six-month period ended June
30, 1994 are incorporated by
reference into the aforementioned
Statement of Additional Information.
LEGAL MATTERS
The validity of shares of the
Portfolio will be passed upon by
Sullivan & Cromwell, 125 Broad
Street, New York, New York 10004.
In rendering such opinion, Sullivan
& Cromwell may rely on an opinion
of Piper & Marbury, 36 South
Charles Street, Baltimore,
Maryland, as to certain matters
under Maryland law.
THE BOARD OF TRUSTEES OF THE
TRUST, INCLUDING THE
"NONINTERESTED" TRUSTEES, UNANIMOUSLY
RECOMMEND APPROVAL OF THE PLAN, AND
ANY UNMARKED PROXIES WITHOUT
INSTRUCTIONS TO THE CONTRARY WILL BE
VOTED IN FAVOR OF APPROVAL OF THE
PLAN.
_______________________________
[FN]
* Upon the Reorganization, Class A
and
Class C shareholders of
the Limited Maturity Fund will
receive Class A shares of the
Portfolio and Class Y shareholders of
the Limited Maturity Fund will
receive Class Y shares of the
Portfolio.
+ The pro forma financial figures
are intended to provide
shareholders with information about
the continuing impact of the
Reorganization as if the
Reorganization had taken place as of
January 31, 1995.
** Purchases of Class A shares in the
amount of $500,000 or more will be
made at net asset value with no sales
charge but will be subject to a CDSC
of 1.00% on redemptions made within 12
months. *** Does not include
waivers. During the fiscal year
ended November 30, 1994, the Limited
Maturity Fund's investment adviser
voluntarily waived administration
and advisory fees in an aggregate
amount equal to 0.09% of the value
of the Fund's average daily net
assets or approximately $54,000.
[FN]
As of the Record Date, May 23, 1995,
no Class Y shares of either Fund had
been sold. Accordingly,"other
expenses" for Class Y shares of
both Funds are
estimated based on actual expenses
incurred by Class A shares of the
respective Funds as of the close of
that Fund's most recent fiscal year.
[FN]
* Upon the Reorganization, Class A
and
Class C shareholders of
the Limited Maturity Fund will
receive Class A shares of the
Portfolio. [FN]
* Upon the Reorganization, Class A
and
Class C shareholders of
the Limited Maturity Fund will
receive Class A shares of the
Portfolio.
[FN]
* Upon the Reorganization, Class A
and
Class C shareholders of the Limited
Maturity Fund will receive Class A
shares of the Portfolio and Class Y
shareholders of the Limited Maturity
Fund will receive Class Y shares of
the Portfolio. As of the Record
Date, May 23, 1995, no Class Y shares
of either Fund has been sold.
A - 16
U:\Osunkwo\lmtrN14.Agr
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the
"Agreement") is made as of this 20th day of
December, 1994, by and between the
Short-
Term U.S. Treasury Securities Portfolio (the
"Acquiring Fund"), a separate series of Smith Barney
Funds, Inc., a Maryland corporation with its principal
place
of business at
388 Greenwich Street, New York, New York 10013 (the
"Company"), and Smith Barney Limited Maturity
Treasury Fund (the "Acquired Fund"), a
subtrust of Smith Barney Income Trust, a
Massachusetts business trust with its principal place
of business at 388 Greenwich Street, New York, New York
10013 (the "Trust").
This Agreement is intended to be and is adopted as a
plan of
reorganization and liquidation within the meaning
of Section 368 (a)(1)(C) of the United States Internal
Revenue Code of 1986, as
amended (the "Code"). The reorganization
(the "Reorganization") will consist of the
transfer of all or substantially all of the assets of
the Acquired
Fund in exchange solely for Class A and Class Y
shares of common stock of the Acquiring Fund
(collectively, the "Acquiring Fund Shares" and each,
an "Acquiring Fund Shares") and the assumption by
the Acquiring Fund of certain liabilities of the
Acquired Fund and the distribution, after the Closing
Date hereinafter referred to, of Acquiring Fund Shares
to the shareholders of the Acquired Fund in
liquidation of the Acquired Fund as provided herein,
all upon the terms and conditions hereinafter set forth
in this Agreement.
WHEREAS, the Company and the Trust are registered
investment companies of the management type and the
Acquired Fund owns securities that generally are
assets of the character in which the Acquiring Fund
is permitted to invest; and
WHEREAS, both the Acquired Fund and the Acquiring
Fund are authorized to issue shares of beneficial
interest and common stock, respectively; and
WHEREAS, the Board of Trustees of the Trust has
determined that the exchange of all of the assets
and certain of the liabilities of the Acquired Fund
for Acquiring Fund Shares and the assumption of such
liabilities by the Acquiring Fund is in the best
interests of the Acquired Fund's shareholders and that
the interests of the existing shareholders of the
Acquired Fund would not be diluted as a result of this
transaction; and
WHEREAS, the Board of Directors of the
Company has determined that the exchange of all of the
assets of the Acquired Fund for Acquiring Fund Shares
is
in the best interests of the Acquiring Fund's
shareholders and that the interests of the existing
shareholders of the Acquiring Fund would not be
diluted as a result of this transaction.
NOW, THEREFORE, in consideration of the premises
and of the covenants and agreements hereinafter set
forth, the parties hereto covenant and agree as
follows:
1.TRANSFER OF ASSETS OF THE ACQUIRED
FUND IN
EXCHANGE FOR ACQUIRING FUND SHARES AND ASSUMPTION
OF THE ACQUIRED FUND'S SCHEDULED LIABILITIES AND
LIQUIDATION AND TERMINATION OF THE ACQUIRED FUND
1.1 Subject to the terms and conditions herein
set
forth and on the basis of the representations and
warranties contained herein, the Acquired Fund agrees
to transfer the Acquired Fund's assets as set forth
in paragraph 1.2 to the Acquiring Fund, and the
Acquiring Fund agrees in exchange therefor: (i) to
deliver to the Acquired Fund the number of Class A
Acquiring Fund Shares, including fractional Class A
Acquiring Fund Shares, determined by dividing the
value of the Acquired Fund's net assets attributable
to its Class A and Class C shares, computed in the
manner and as of the time and
date set forth in paragraph 2.1, by the net asset
value of one Class A Acquiring Fund Share, computed in
the manner and as of
the time and date set forth in paragraph 2.2; (ii) to
deliver to the Acquired Fund the number of Class Y
Acquiring Fund Shares, including fractional Class Y
Acquiring Fund Shares, determined by dividing the
value of the Acquired Fund's net assets attributable
to its Class Y shares, computed in the manner and as
of the time and date set forth in paragraph 2.1,
by the net asset value of one Class Y Acquiring Fund
Share, computed in the manner and as of the time and
date set forth in paragraph 2.2: (iii) to assume
certain liabilities of the Acquired Fund, as set forth
in paragraph 1.3. Such transactions shall take place
at the closing provided for in paragraph 3.1 (the
"Closing").
1.2 (a) The assets of the Acquired Fund to be
acquired by the Acquiring Fund shall consist of
all property including, without limitation, all
cash, securities, and dividend
or
interest receivables which are owned by the Acquired
Fund and any deferred or prepaid expenses shown as an
asset on the books of the Acquired Fund on the
closing date provided in paragraph 3.1 (the "Closing
Date").
(b) The Acquired Fund has provided the Acquiring
Fund with a list of all of the Acquired Fund's
assets as of the date of execution of this Agreement.
The Acquired Fund reserves the right to sell any of
these securities but will not, without the prior
approval of the Acquiring Fund, acquire any additional
securities other than securities of the type in which
the Acquiring Fund is permitted to invest. The
Acquiring Fund will,
within a reasonable time prior to the Closing Date,
furnish the Acquired Fund with a statement of the
Acquiring Fund's investment objectives, policies and
restrictions and a list of the
securities, if any, on the Acquired Fund's list
referred to in the first sentence of this paragraph
which do not conform to the Acquiring Fund's
investment objectives, policies and
restrictions. In the event that the Acquired Fund
holds any investments which the Acquiring Fund may
not hold, the Acquired Fund will dispose of such
securities prior to the Closing Date. In addition,
if it is determined that the portfolios of the
Acquired Fund and the Acquiring Fund, when
aggregated, would contain investments exceeding
certain percentage limitations imposed upon the
Acquiring Fund with respect to such investments, the
Acquired Fund, if requested by the Acquiring Fund,
will dispose of and/or reinvest a sufficient
amount of such investments as may be necessary
to avoid violating such limitations as of the
Closing Date.
1.3 The Acquired Fund will endeavor to discharge
all the Acquired Fund's known liabilities and
obligations prior to the Closing Date. The
Acquiring Fund shall assume all liabilities, expenses,
costs, charges and reserves reflected on an unaudited
Statement of Assets and Liabilities of the Acquired
Fund prepared by Smith Barney Mutual Funds
Management Inc. ("SBMFM"), as administrator of the
Acquiring Fund and the Acquired Fund, as of the
Valuation Date (as defined in paragraph 2.1),
in accordance with generally accepted accounting
principles consistently applied from the prior
audited period. The Acquiring Fund shall
assume only those liabilities of the Acquired Fund
reflected in that unaudited statement of assets and
liabilities and shall not assume any other
liabilities, whether absolute or
contingent, not reflected therein.
1.4 As provided in paragraph 3.4, as soon after the
Closing
Date as is conveniently practicable (the "Liquidation
Date"), the Acquired Fund will liquidate and
distribute pro rata to the Acquired Fund's
shareholders of record determined as of the close of
business on the Closing Date (the "Acquired
Fund Shareholders") the Acquiring Fund Shares it
receives pursuant to paragraph 1.1. Shareholders of
Class A and Class C shares of the Acquired Fund shall
receive Class A shares of the Acquiring Fund and
shareholders of Class Y shares of the Acquired Fund
shall receive Class Y shares of the Acquiring Fund.
Such liquidation and distribution will be
accomplished by the transfer of the Acquiring Fund
Shares then credited to the account of the Acquired
Fund on the books of the Acquiring Fund to open
accounts on the share records of the Acquiring Fund
in the name of the Acquired Fund's shareholders and
representing the respective pro rata number of the
Acquiring Fund Shares
due such shareholders. All issued and outstanding
shares of the Acquired Fund will simultaneously be
canceled on the books of the Acquired Fund, although
share certificates representing interests in the
Acquired Fund will represent a number of Acquiring
Fund Shares after the Closing Date as determined in
accordance with Section 2.3. The Acquiring Fund
shall not issue certificates representing the
Acquiring Fund Shares in connection with such
exchange.
1.5 Ownership of Acquiring Fund Shares will be
shown on the
books of the Acquiring Fund's transfer agent.
Shares of the Acquiring Fund will be issued in the
manner described in the Acquiring Fund's current
prospectus and statement of additional information.
1.6 Any transfer taxes payable upon issuance
of
the
Acquiring Fund Shares in a name other than the
registered holder of the Acquired Fund Shares on the
books of the Acquired Fund as of that time shall, as a
condition of such issuance and transfer, be paid by
the person to whom such Acquiring Fund shares are to
be issued and transferred.
1.7 Any reporting responsibility of the Acquired
Fund is
and shall remain the responsibility of the Acquired
Fund up to and including the Closing Date and such
later dates on which the Acquired Fund is dissolved
and deregistered.
1.8 The Acquired Fund shall, following the Closing
Date and
the making of all distributions pursuant to paragraph
1.4 hereof, be terminated under the Laws of The
Commonwealth of Massachusetts and in accordance with
its governing documents.
2.VALUATION
2.1 The value of the Acquired Fund's assets to be
acquired
by the Acquiring Fund hereunder shall be the value of
such assets computed as of the close of regular
trading on the New York Stock Exchange, Inc. (the
"NYSE") on the Closing Date (such time and date
being hereinafter called the "Valuation Date"), using
the valuation procedures set forth in the Acquiring
Fund's then current prospectus or statement of
additional information.
2.2 The net asset value of each class of Shares
of the
Acquiring Fund shall be the net asset value per share
computed as of the Valuation Date, using the
valuation procedures set forth
in the Acquiring Fund's then current prospectus or
statement of additional information.
2.3 All computations of value shall be made by
The Boston
Advisors, Inc. (the "Boston Advisors") in
accordance with its regular practice as pricing
agent for the Acquired Fund and Acquiring Fund.
3.CLOSING AND CLOSING DATE
3.1 The Closing Date shall be June 26, 1995,
or such later
date as the parties may agree to in writing. All
acts taking place at the Closing shall be deemed to
take place simultaneously as of the close of
business on the Closing Date unless otherwise
provided. The Closing shall be held as of 5:00
p.m., at the offices of SBMFM, 388 Greenwich
Street, New York, New York 10013, or at such
other time and/or place as the parties may agree.
3.2 In the event that on the Valuation Date (a)
the
NYSE
or
another primary trading market for portfolio
securities of the Acquiring Fund or the Acquired Fund
shall be closed to trading or trading thereon shall
be restricted or (b) trading or the reporting of
trading on the NYSE or elsewhere shall be disrupted
so that accurate appraisal of the value of the net
assets of the Acquiring Fund or the Acquired Fund is
impracticable, the
Closing Date shall be postponed until the first
business day after the day when trading shall have
been fully resumed and reporting shall have been
restored.
3.3 The Acquired Fund shall deliver at the
Closing
a list
of the names and addresses of the Acquired Fund's
shareholders and the number, class and percentage
ownership of outstanding Shares owned by each such
shareholder immediately prior to the Closing,
certified on behalf of the Acquired Fund by the
President of the Trust. The Acquiring Fund shall
issue and deliver a confirmation evidencing the
Acquiring Fund Shares to be credited to the Acquired
Fund's account on the Closing Date to the Secretary
of the Acquired Fund or provide evidence
satisfactory to the Acquired Fund that such Acquiring
Fund Shares have been credited to the Acquired Fund's
account on the books of the Acquiring Fund. At the
Closing, each party shall deliver to the
other such bills of sale, checks, assignments,
share certificates, if any, receipts or other
documents as such other party or its counsel may
reasonably
request.
4.REPRESENTATIONS AND WARRANTIES
4.1 The Trust and the Acquired Fund represent and
warrant
to the Company and the Acquiring Fund as follows:
(a) The Acquired Fund is a sub-trust of
the Trust, which is a Massachusetts business trust,
duly organized, validly existing and in good standing
under the laws of the Commonwealth of Massachusetts;
(b) The Trust is a registered investment
company classified as management company of the open
end type and its registration with the Securities
and Exchange Commission (the "Commission") as an
investment company under the Investment Company Act
of 1940 (the "1940 Act") is in full force and effect;
(c) The Trust is not, and the execution,
delivery and performance of this Agreement will not
result, in a material violation of its Master
Trust Agreement or By-Laws or of any agreement,
indenture, instrument, contract, lease or other
undertaking to which the Trust or the Acquired Fund is
a party or by which they are bound;
(d) The Trust has no material contracts
or other
commitments (other than this Agreement) which will be
terminated with liability to the Acquired Fund prior
to the Closing Date;
(e) No litigation or administrative
proceeding or
investigation of or before any court or
governmental body is presently pending or to its
knowledge threatened against the Acquired Fund or any
of its properties or assets (other than that
previously disclosed to the other party to the
Agreement) which, if adversely determined, would
materially and adversely affect its financial
condition or the conduct of its business. The Trust
and the Acquired Fund know of no facts which might
form the basis for the
institution of such proceedings and are not parties to
or subject to the provisions of any order, decree or
judgment of any court or governmental body which
materially and adversely affects its business or its
ability to consummate the transactions herein
contemplated;
(f) The Statement of Assets and
Liabilities of the
Acquired Fund for the period beginning with the
commencement of operations through the fiscal year
ended November 30, 1994 have been audited by Coopers
& Lybrand, certified public accountants, and are
in accordance with generally accepted accounting
principles consistently applied, and such statements
(copies of which have been furnished to the Acquiring
Fund) fairly reflect the financial condition of the
Acquired Fund as of such dates, and there are no
known contingent liabilities of the Acquired Fund as
of such dates not disclosed therein;
(g) Since November 30, 1994, there has
not been any
material adverse change in the Acquired Fund's
financial
condition, assets, liabilities or business other
than changes occurring in the ordinary course of
business, or any incurrence by the Acquired Fund of
indebtedness maturing more than one year from the
date that such indebtedness was incurred, except as
otherwise disclosed to and accepted by the Acquiring
Fund. For the purposes of this subparagraph (g), a
decline in net asset value per share of the Acquired
Fund shares shall not constitute a material adverse
change;
(h) At the Closing Date, all federal and
other tax
returns and reports of the Acquired Fund required by
law to have been filed by such dates shall have been
filed, and all federal and other taxes shall have
been paid so far as due, or provision shall have been
made for the payment thereof and, to the best of the
Acquired Fund's knowledge, no such return is currently
under audit and no assessment has been asserted with
respect to such returns;
(i) For the most recent fiscal year of its
operation, the Acquired Fund has met the requirements
of Subchapter M of the Code for qualification and
treatment as a regulated investment company;
(j) All issued and outstanding shares of
the Acquired Fund are, and at the Closing Date
will be, duly and validly issued and outstanding,
fully paid and non assessable. All of
the issued and outstanding shares of the Acquired
Fund will, at the time of Closing, be held by the
persons and in the amounts set forth in the records
of the transfer agent as provided in paragraph 3.3.
The Acquired Fund does not have outstanding any
options, warrants or other rights to subscribe for or
purchase any of the Acquired Fund's shares, nor is
there outstanding any
security convertible into any of the Acquired Fund's
shares; (k) At the Closing Date, the
Acquired Fund will
have
good and marketable title to its assets to be
transferred to the Acquiring Fund pursuant to
paragraph 1.2 and full right, power and authority to
sell, assign, transfer and deliver such assets
hereunder and, upon delivery and payment for such
assets, the Acquiring Fund will acquire good and
marketable title thereto, subject to no restrictions
on the full transfer thereof, including such
restrictions as might arise under the Securities Act
of 1933, as amended (the "1933 Act"), other than as
disclosed to the Acquiring Fund;
(l) The execution, delivery and
performance of this
Agreement will have been duly authorized prior to
the Closing Date by all necessary actions on the part
of the Trust's Board of Trustees, and subject to the
approval of the Acquired Fund's shareholders,
this Agreement, assuming due authorization,
execution and delivery by the Company on behalf of
the Acquiring Fund, will constitute a valid and
binding obligation of the Trust on behalf of the
Acquired Fund,
enforceable in accordance with its terms, subject
to enforcement of bankruptcy, insolvency,
reorganization, moratorium and other laws relating
to or
affecting creditors' rights and to general equity
principles;
(m) The information to be furnished by
the Acquired
Fund for use in no-action letters, applications for
exemptive orders, registration statements, proxy
materials and other documents which may be
necessary in
connection with
the
transactions contemplated hereby shall be accurate
and complete in all material respects and shall
comply in all material respects with federal
securities and other laws and regulations thereunder
applicable thereto;
(n) The proxy statement of the Acquired
Fund (the
"Proxy Statement") to be included in the Registration
Statement referred to in paragraph 5.7 (other than
information therein that relates to the Acquiring
Fund) will, on the
effective date of the Registration Statement and on
the Closing Date, not contain any untrue statement
of a material fact or omit to state a material fact
required to be stated therein or necessary to make
the statements therein, in light of the circumstances
under which such statements were made, not misleading.
4.2 The Company and the Acquiring Fund
represent
and
warrant to the Trust and the Acquired Fund as follows:
(a) The Acquiring Fund is a portfolio of
the Company, which is a Maryland corporation, duly
organized, validly existing and in good standing under
the laws of the State of Maryland;
(b) The Company is a registered
investment company
classified as a management company of the open-end
type and its registration with the Commission as an
investment company under the 1940 Act is in full force
and effect;
(c) The current prospectus of the
Acquiring Fund and statement of additional information
of the Company conform in all material respects to the
applicable requirements of the 1933 Act and the 1940
Act and the rules and regulations of the Commission
thereunder and do not include any untrue statement of
a material fact or omit to state any material fact
required to be stated therein or necessary to make
the statements therein, in light of the circumstances
under which they were made, not materially
misleading;
(d) At the Closing Date, the Acquiring
Fund
will have good and marketable title to its assets;
(e) The Company is not, and the
execution, delivery
and performance of this Agreement will not result, in
a material violation of its Charter or By-Laws
or of any agreement, indenture, instrument, contract,
lease or other undertaking to which the Company or
the Acquiring
Fund is a party or by which they are bound;
(f) No material litigation or
administrative proceeding or investigation of or
before any court or
governmental body is presently pending or threatened
against the Acquiring Fund or any of its properties
or assets, except as previously disclosed in
writing to the Acquired Fund. The Acquiring Fund
knows of no facts which might form the basis for the
institution of such proceedings and is not a party
to or subject to the provisions of any
order, decree or judgment of any court or governmental
body which materially and adversely affects its
business or its ability to consummate the
transactions contemplated herein;
(g) The Statement of Assets and
Liabilities
of the
Acquiring Fund for the period beginning with the
commencement of operations through the fiscal year
ended December 31, 1994 have been audited by KPMG
Peat Marwick LLP,, certified public accountants, and
are in accordance with generally accepted accounting
principles consistently applied, and such statements
(copies of which have been furnished to the Acquired
Fund) fairly reflect the financial condition of the
Acquiring Fund as of such dates, and there are no
known contingent liabilities of the Acquiring Fund as
of such dates not disclosed therein;
(h) Since December 30, 1994, there has
not
been any
material adverse change with respect to the
Acquiring Fund's financial condition, assets,
liabilities or business other than changes occurring
in the ordinary course of business, or any
incurrence by the Acquiring Fund of indebtedness
maturing more than one year from the date that such
indebtedness was incurred. For the purposes of this
subparagraph (h), a decline in net asset value per
share of the Acquiring Fund Shares shall not
constitute a material adverse change;
(i) At the Closing Date, all federal and
other tax
returns and reports of the Acquiring Fund required by
law then to be filed shall have been filed, and all
federal and other taxes shown as due on said returns
and reports shall have been paid or provision shall
have been made for the payment thereof, and to the
best of the Acquiring Fund's knowledge, no such
return is currently under audit and no
assessment has been asserted with respect to such
returns;
(j) For the most recent fiscal year of
its
operation
the Acquiring Fund has met the requirements of
Subchapter M of the Code for
qualification and
treatment as a
regulated investment company and the Acquiring Fund
intends to do so in the future;
(k) At the date hereof, all issued and
outstanding
shares of the Acquiring Fund are, and at the Closing
Date will be, duly and validly issued and
outstanding,
fully paid and nonassessable, with no personal
liability attaching to the ownership thereof. The
Acquiring Fund
does not have outstanding any options, warrants or
other rights to subscribe for or purchase any
shares of the Acquiring Fund, nor is there outstanding
any security convertible into any shares of the
Acquiring Fund;
(l) The execution, delivery and
performance of
this
Agreement will have been duly authorized prior to
the Closing Date by all necessary actions, if any,
on the part of the Company's Board of
Directors and the Acquiring Fund's shareholders,
and, assuming due authorization, execution and
delivery by the Trust on behalf of the Acquired
Fund, this Agreement will constitute a valid and
binding obligation of the Acquiring Fund
enforceable in accordance with its terms, subject to
enforcement of bankruptcy, insolvency,
reorganization, moratorium and other laws relating
to or affecting creditors' rights and to general
equity principles;
(m) The Acquiring Fund Shares to be
issued
and
delivered to the Acquired Fund, for the account of
the Acquired Fund's shareholders, pursuant to the
terms of this Agreement, will at the Closing Date
have been duly authorized and, when so issued and
delivered, will be duly and validly issued Acquiring
Fund Shares, and will be fully paid and nonassessable
with no personal liability attaching to the ownership
thereof;
(n) The information to be furnished by
the Acquiring
Fund for use in no-action letters, applications for
exemptive orders, registration statements, proxy
materials and other documents which may be
necessary in connection with
the
transactions contemplated hereby shall be accurate
and complete in all material respects and shall
comply in all material respects with federal
securities and other laws and regulations applicable
thereto;
(o) The Proxy Statement to be
included in
the
Registration Statement (only insofar as it
relates to the Acquiring Fund) will, on the effective
date of the Registration Statement and on the
Closing Date, not contain any untrue statement of
a material fact or omit to state a material fact
required to be stated therein or necessary to make the
statements therein, in light of the circumstances
under which
such
statements were made, not misleading; and
(p) The Company, on behalf of the
Acquiring Fund,
agrees to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933
Act, the 1940 Act and such of the state Blue Sky
or
securities laws as it may deem appropriate in
order to continue its operations after the
Closing Date.
5.COVENANTS OF THE ACQUIRING FUND AND THE
ACQUIRED FUND.
5.1 The Acquiring Fund and the Acquired Fund
each will
operate its business in the ordinary course
between the date hereof and the Closing Date, except
that the Acquired Fund ceased offering its shares for
sale to the public as of January 3, 1995 and that
such ordinary course of business will include the
declaration and payment of customary dividends and
distributions.
5.2 The Acquired Fund will call a meeting of
its
shareholders to consider and act upon this Agreement
and to take all other actions necessary to
obtain approval
of
the
transactions contemplated herein.
5.3 The Acquired Fund covenants that the
Acquiring
Fund
Shares to be issued hereunder are not being
acquired for the purpose of making any
distribution thereof other than in accordance with
the terms of this Agreement.
5.4 The Acquired Fund will assist the Acquiring
Fund
in
obtaining such information as the Acquiring Fund
reasonably
requests concerning the beneficial ownership of
the Acquired Fund's Shares.
5.5 Subject to the provisions of this
Agreement,
the
Acquiring Fund and the Acquired Fund each will take,
or cause to be taken, all action, and do or cause
to be done, all things reasonably necessary, proper
or advisable to consummate and make effective the
transactions contemplated by this Agreement.
5.6 As promptly as practicable, but in any case
within
sixty days after the Closing Date, the Acquired
Fund shall furnish the Acquiring Fund, in such
form as is reasonably satisfactory to the Acquiring
Fund, a statement of the earnings and profits of
the Acquired Fund for
federal income tax purposes which will be carried
over to the Acquiring Fund as a result of Section
381 of the Code, and which will be certified by
the Trust's
President and its Treasurer.
5.7 The Acquired Fund will provide the Acquiring
Fund with
information reasonably necessary for the
preparation of a prospectus (the "Prospectus")
which will include the Proxy Statement referred to in
paragraph 4.1(n), all
to be included in a registration statement on Form
N14 of the Acquiring Fund (the "Registration
Statement"), in compliance with the 1933 Act, the
Securities Exchange Act of 1934 (the "1934 Act") and
the 1940 Act in connection with the meeting of
the Acquired Fund's shareholders to consider
approval of this Agreement and the transactions
contemplated herein.
6.CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED
FUND
The obligations of the Acquired Fund to
consummate
the transactions provided for herein shall be
subject, at its election, to the performance by the
Company and the Acquiring Fund of all of the
obligations to be performed by them hereunder on or
before the Closing Date and, in addition thereto,
the following further conditions:
6.1 All representations and warranties of the
Acquiring
Fund and the Company contained in this Agreement
shall be true and correct in all material respects as
of the date hereof and, except as they may be
affected by the transactions contemplated by this
Agreement, as of the Closing Date with the same force
and effect as if made on and as of the Closing Date;
6.2 The Company shall have delivered to the
Acquired Fund a certificate executed in its name
by its
President or
Vice President and its Treasurer or Assistant
Treasurer, in a form reasonably satisfactory to the
Acquired Fund and dated
as of the Closing Date, to the effect that the
representations
and
warranties of the Company and the Acquiring Fund
made in this Agreement are true and correct at and
as of the Closing Date, except as they may be
affected by the transactions contemplated by this
Agreement and as to such other matters as the
Acquired Fund shall reasonably request; and
6.3. The Acquired Fund shall have received on
the Closing Date a favorable opinion from Sullivan &
Cromwell, counsel to the Company and the Acquiring
Fund, dated as of the Closing Date, in a form
reasonably satisfactory to the Secretary of the
Trust, covering the following points:
That (a) the Company is duly organized and validly
existing under the laws of the State of Maryland; (b)
the Company is an open-end management investment
company registered under the 1940 Act; (c) this
Agreement, the reorganization provided
for
hereunder and the execution of this Agreement have
been duly
authorized and approved by all requisite action of
the Company, and this Agreement has been duly
executed and delivered by the Company and is a valid
and binding obligation of the Company with respect to
the Acquiring Fund enforceable in accordance with its
terms against the assets of the Acquiring Fund; and
(d) the Class A and Class Y Acquiring Fund Shares to
be issued to the Acquired Fund for distribution to
its shareholders pursuant to this Agreement have
been, to the extent of the number of Acquiring Fund
Shares authorized to be issued by the Acquiring Fund
in the Articles of Incorporation of the Company and
then unissued, duly authorized and, subject to the
receipt by the Company of consideration equal to the
net asset value thereof (but in no event less than
the par value thereof), such Class A and Class Y
Acquiring Fund Shares, when issued in accordance
with this Agreement, will be validly issued and
fully paid and nonassessable. Such opinion may
state that it is solely for the benefit of the
Acquired Fund, its Trustees and its officers. Such
counsel may rely, as to matters governed by the laws
of the State of Maryland, on an opinion of Maryland
counsel.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE
ACQUIRING
FUND.
The obligations of the Company and the Acquiring
Fund to complete the transactions provided for herein
shall be subject, at their election, to the
performance by the Acquired Fund of all the
obligations to be performed by it hereunder on or
before the Closing Date and, in addition thereto, the
following conditions: 7.1 All representations and
warranties of the Trust and the
Acquired Fund contained in this Agreement shall be
true and correct in all material respects as of the
date hereof and, except as they may be affected by
the transactions contemplated by this Agreement, as of
the Closing Date with the same force and effect as if
made on and as of the Closing Date;
7.2 The Acquired Fund shall have delivered to
the Acquiring Fund a statement of the Acquired
Fund's assets and liabilities, together with a list
of the Acquired Fund's portfolio securities showing
the tax costs of such securities by lot and the
holding periods of such securities, as of the Closing
Date, certified by the Treasurer or Assistant
Treasurer of the Trust;
7.3 The Trust shall have delivered to the Acquiring
Fund on the Closing Date a certificate executed in
its name, by the Trust's President or Vice
President and its Treasurer or
Assistant Treasurer, in form and substance
satisfactory to the Acquiring Fund and dated as of
the Closing Date, to the effect that the
representations and warranties of the Acquired Fund
and the Trust made in this Agreement are true and
correct at and as of the Closing Date, except
as they may be affected by the transactions
contemplated by this Agreement, and as to such other
matters as the Acquiring Fund shall reasonably
request; and
7.4 The Acquiring Fund shall have received on
the Closing
Date a favorable opinion of Willkie Farr & Gallagher,
counsel to the Trust and the Acquired Fund, in a
form satisfactory to the Secretary of the Company
and the Acquired Fund, covering the following
points:
That (a) the Acquired Fund is a sub-
trust of the Trust, which is a business trust duly
organized and validly existing under the
laws of The Commonwealth
of
Massachusetts: (b) the Trust is an open-end
management investment company registered under
the 1940 Act; and (c) this Agreement, the
reorganization provided for hereunder and
the execution of this Agreement have been
duly authorized and approved by all requisite
action of the Trust, and this Agreement has
been duly executed and delivered by the Trust
and is a valid and binding obligation of the
Trust and the Acquired Fund enforceable in
accordance with its terms against the assets of
the Acquired Fund. Such opinion may state that it
is solely for the
benefit of the Company, its Directors and officers.
Such counsel may rely, on matters governed by the
laws of the Commonwealth of Massachusetts on an
opinion of Massachusetts counsel.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF
THE
ACQUIRING
FUND AND THE ACQUIRED FUND.
If any of the conditions set forth below do not
exist on or before the Closing Date with respect to
the Acquiring Fund, the Acquired Fund shall, and if
any of such conditions do not exist on or before the
Closing Date with respect to the Acquired Fund, the
Acquiring Fund shall, at their respective option, not
be required to consummate the transactions
contemplated by this Agreement:
8.1 The Agreement and the transactions
contemplated
herein shall have been approved by the requisite vote
of the holders of the outstanding Shares of the
Acquired Fund in accordance with the
provisions of the Trust's Master Trust Agreement
and certified copies of the votes evidencing such
approval shall have been delivered to the Acquiring
Fund. Notwithstanding anything herein to the
contrary, neither the Acquiring Fund nor the
Acquired Fund may waive the conditions set forth in
this paragraph 8.1;
8.2 On the Closing Date no action, suit or other
proceeding shall be pending before any court or
governmental agency in which it is sought to restrain
or prohibit, or obtain damages or other relief in
connection with, this Agreement or the transactions
contemplated herein;
8.3 All consents of other parties and all other
consents, orders and permits of federal, state
and
local regulatory authorities (including those of the
Commission and of state Blue Sky and securities
authorities, including "no-action" positions of and
exemptive orders from such federal and state
authorities) deemed necessary by the Acquiring Fund or
the Acquired Fund to
permit consummation, in all material respects,
of the
transactions contemplated hereby shall have been
obtained,
except where failure to obtain any such consent,
order or permit would not involve a risk of a
material adverse effect on the assets or properties
of the Acquiring Fund or the Acquired Fund, provided
that either party hereto may for itself waive any
of such conditions;
8.4 The Registration Statement shall have
become effective under the 1933 Act and no
stop orders suspending
the
effectiveness thereof shall have been issued and, to
the best knowledge of the parties hereto, no
investigation or proceeding for that purpose shall
have been instituted or be pending, threatened or
contemplated under the 1933 Act;
8.5 The Acquired Fund will, and the Acquiring
Fund
may, declare a dividend or dividends which, together
with all previous such dividends, shall have the
effect of distributing to their respective
shareholders all of each
Fund's investment company taxable income for all
taxable years ending on or prior to the Closing
Date. The dividend declared and paid by the Acquired
Fund will include all of the Fund's net capital gain
realized in all taxable years ending on or prior to
the Closing Date (after reduction for any capital loss
carry forward);
8.6 The parties shall have received a favorable
opinion of Willkie Farr & Gallagher, addressed to the
Acquiring Fund and the Acquired Fund and satisfactory
to the Secretary of the Company and the Trust,
substantially to the effect
that for federal income tax purposes:
(a) The transfer of all or substantially all
of
the
Acquired Fund's assets in exchange for the Acquiring
Fund Shares and the assumption by the Acquiring Fund
of certain
scheduled liabilities of the Acquired Fund
will constitute a
"reorganization" within the meaning of Section
368(a)(1)(C) of the Code and the Acquiring Fund and
the Acquired Fund are each a "party to a
reorganization" within the meaning of Section 368(b)
of the Code; (b) no gain or loss will be recognized
by the Acquiring Fund upon the receipt of the assets
of the Acquired Fund solely in exchange for the
Acquiring Fund Shares and the assumption by the
Acquiring Fund of certain identified
liabilities of the
Acquired Fund; (c) no gain or loss will be
recognized
by the Acquired Fund upon the transfer of the
Acquired Fund's assets to the Acquiring Fund
in exchange for the Acquiring Fund
Shares and the assumption by the Acquiring
Fund of certain identified liabilities of the
Acquired Fund or upon the
distribution (whether actual or
constructive) of
the
Acquiring Fund Shares to the Acquired
Fund's shareholders
in exchange for their shares of the Acquired Fund;
(d) no gain or loss will be recognized by
shareholders of the Acquired Fund upon the exchange
of their Acquired Fund shares for the
Acquiring Fund Shares and the assumption by the
Acquiring Fund of certain identified liabilities of
the Acquired Fund; (e) the aggregate tax basis for
the Acquiring Fund Shares received by each of the
Acquired Fund's shareholders pursuant to the
Reorganization will be the same as the aggregate tax
basis of the Acquired Fund shares held by such
shareholder immediately prior
to the Reorganization, and the holding period of
the Acquiring Fund Shares to be received by each
Acquired Fund shareholder will include the period
during which the Acquired Fund shares exchanged
therefor were held by such shareholder (provided that
the Acquired Fund Shares were held as capital assets
on the date of the Reorganization); and (f) the tax
basis of the Acquired Fund's assets acquired by the
Acquiring Fund will be the same as the tax basis of
such assets to the Acquired Fund immediately prior to
the Reorganization, and the holding period of the
assets of the Acquired Fund in the hands of the
Acquiring Fund will include the period during which
those assets were held by the Acquired Fund.
Notwithstanding anything herein to the
contrary, neither the Acquiring Fund nor the
Acquired
Fund
may
waive the
conditions set forth in this paragraph 8.6.
9. BROKERAGE FEES AND EXPENSES
9.1 The Acquiring Fund represents and
warrants
to
the Acquired Fund, and the Acquired Fund represents
and warrants to the Acquiring Fund, that there
are no brokers or finders entitled
to receive any payments in connection with
the transactions provided for herein.
9.2 (a) Except as may be otherwise provided
herein,
the Fund's distributor shall be liable for the
expenses incurred in
connection with entering into and carrying out the
provisions of this Agreement, whether or not the
transactions contemplated hereby are consummated.
The
expenses payable hereunder shall include the
expenses of: (i) counsel and independent accountants
associated with Reorganization; (ii) printing and
mailing the Prospectus/Proxy Statement and soliciting
proxies in connection with the meeting of
shareholders of the Acquired Fund referred to in
paragraph 5.2 hereof; (iii) all fees and expenses
related to the liquidation of the Acquired Fund;
(iv) fees and expenses of
the Fund's custodian and transfer agent incurred
in connection with the Reorganization; (v) any special
pricing fees associated
with the valuation of the Fund's portfolio on the
Closing Date; (vi) expenses associated with
preparing this Agreement and preparing and filing
the Registration Statement under the
1933 Act covering the Acquiring Fund Shares to be
issued in the Reorganization; and (vii)
registration or
qualification fees and expenses of preparing and
filing such forms, if any, necessary under applicable
state securities laws to qualify the Acquiring Fund
Shares to be issued in connection with the
Reorganization.
(b) Consistent with the provisions of paragraph
1.3, the
Acquired Fund, prior to the Closing, shall pay for or
include in the unaudited Statement of Assets and
Liabilities prepared pursuant to paragraph 1.3 all
of its known and reasonably estimated expenses
associated with the transactions contemplated by this
Agreement.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Company, the Acquiring Fund, the Trust
and the
Acquired Fund agree that no party has made any
representation, warranty or covenant not set
forth herein and thatthis Agreement constitutes the
entire agr eement
among the parties.
10.2 The representations, warranties and
covenants
contained in this Agreement or in any document
delivered
pursuant hereto or in connection herewith shall
survive the consummation of the transactions
contemplated hereunder.
11. TERMINATION
11.1 This Agreement may be terminated at any
time at or
prior to the Closing Date by: (1) mutual
agreement of the Acquired Fund and the Acquiring
Fund; (2) the Acquired Fund in the event the
Acquiring Fund shall, or the Acquiring Fund in the
event the
Acquired Fund shall, materially breach
any representation, warranty or agreement contained
herein to be performed at or prior to the Closing
Date; or (3) either party, if a condition herein
expressed to be precedent to the
obligations of the terminating party or parties has
not
been met and it reasonably appears that it will not or
cannot be met.
11.2 In the event of any such termination, there
shall be
no liability for damages on the part of either the
Acquiring Fund or the Acquired Fund, or the
respective Directors and Trustees or officers, to
the other party or parties, but each shall bear
the expenses incurred by it incidental to the
preparation and carrying out of this Agreement as
provided in paragraph 9.
12. AMENDMENTS; WAIVERS
12.1 This Agreement may be amended,
modified
or
supplemented in such manner as may be mutually
agreed upon in writing by the authorized officers
of the Company and the Trust;
provided, however, that following the meeting of
the Acquired Fund's shareholders called by the
Acquired Fund pursuant to
paragraph 5.2 of this Agreement, no such amendment
may have the
effect of changing the provisions for determining
the number of
the Acquiring Fund Shares to be issued to the
Acquired Fund's Shareholders under this Agreement
to the detriment of such shareholders without their
further approval.
12.2 At any time prior to the Closing Date,
either party hereto may by written instrument
signed by it (i) waive any inaccuracies in the
representations and warranties made to it
contained herein and (ii) waive compliance with
any of the covenants or conditions made for its
benefit contained herein.
13. NOTICES
Any notice, report, statement or demand
required or
permitted by any provisions of this Agreement
shall be in
writing and shall be given by prepaid telegraph,
telecopy or
certified mail addressed to the Acquired Fund or
the Acquiring Fund, 388 Greenwich Street, Floor 22,
New York, New York 10013, Attention: Heath B.
McLendon. 14. HEADINGS; COUNTERPARTS; GOVERNING
LAW;
ASSIGNMENT; LIMITATION OF LIABILITY
14.1 The article and paragraph headings
contained in this Agreement are for reference
purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
14.2 This Agreement may be executed in any
number of
counterparts, each of which shall be deemed an
original.
14.3 This Agreement shall be governed by and
construed in
accordance with the laws of the State of New York.
14.4 This Agreement shall bind and inure to the
benefit of
the parties hereto and their respective successors
and assigns, but no
assignment or transfer hereof or of any rights
or obligations hereunder shall be made by any
party without the written
consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to
confer upon or give any person, firm or
corporation, other than the parties hereto and their
respective successors and assigns, any rights or
remedies under or by reason of this Agreement.
14.5 It is expressly agreed that the
obligations of the Trust in respect of the
Acquired Fund shall not be binding upon any of
the Trustees, shareholders, nominees officers,
agents or employees of the Trust or of the
Acquired Fund personally, but bind only the
corporate property of the Acquired Fund as
provided in the
trust instruments of the Trust. The execution and delivery of this
Agreement have been authorized by the Trustees of
the
Trust and this Agreement has been executed by authorized
officer of the Trust, on behalf of the Acquired Fund,
acting as
such, and neither such authorization by such Trustees
nor such execution and delivery by such officers shall
be deemed to have been made by any of them
individually or to impose any liability on any
of them personally, but shall bind only the corporate
property of the Acquired Fund as provided in the
Trust's Master Trust Agreement.
14.6 The Acquiring Fund is hereby expressly put on
notice of the limitation of Trustee and shareholder
liability as set forth in the
Trust's Master Trust Agreement, and the Acquiring
Fund agrees that obligations assumed by the Acquired
Fund and the Trust pursuant to this Agreement shall be
limited in all cases to
the Acquired Fund and its assets. The Acquiring
Fund agrees that it shall not seek
satisfaction of any such obligation from the
holders of the Acquired Fund's
shares, nor from the Trustees of the
Trust.
IN WITNESS WHEREOF, each of the
parties hereto has caused this
Agreement to be executed by its
Chairman of the Board, President or
Vice President and its seal to be
affixed hereto and attested by its
Secretary or Assistant Secretary.
Acquiring Fund -
SMITH BARNEY FUNDS, INC.
on behalf of Short-Term U.S. Treasury
Securities Portfolio
By: /s/ Jessica M.
Bibliowicz____________
Name: Jessica M. Bibliowicz
Title: President
Attest: /s/ Christina T.
Sydor__________
Name: Christina T. Sydor
Title: Secretary
Acquired Fund -
SMITH BARNEY INCOME TRUST
on behalf of Smith Barney Limited
Maturity Treasury Fund
By: /s/ Heath B.
McLendon_________ Name: Heath B.
McLendon
Title: Chairman of the Board
Attest: /s/ Christina T.
Sydor__________
Name: Christina T. Sydor
Title:
Secretary
Part B
April 28, 1995
SMITH BARNEY FUNDS,
INC. 388 Greenwich
Street
New York, New York
10013
STATEMENT OF ADDITIONAL INFORMATION Shares
of Smith Barney Funds, Inc. (the "Fund") are
offered currently with a choice of six Portfolios:
the Income and Growth Portfolio, the U.S. Government
Securities Portfolio, the Monthly Payment Government
Portfolio, the Income Return Account Portfolio, the
Utility Portfolio and the Short-Term U.S. Treasury
Securities Portfolio. (collectively referred to as
"Portfolios" and individually as "Portfolio").
This Statement of Additional Information is
not a prospectus. It is intended to
provide more
detailed information about
Smith
Barney Funds, Inc. as well as
matters already discussed in the Prospectus of
the
applicable Portfolio and therefore should be
read in conjunction with such Portfolio's Prospectus
which may be obtained from
the Fund or a Smith Barney
Financial Consultant.
<TABLE>
TABLE OF CONTENTS
<S> <C>
Directors and Officers 2
Investment Policies 4
Investment Restrictions 7
Additional Tax Information 11
IRA and Other Prototype Retirement Plans 12
Performance Information 13
Valuation of Shares 16
Purchase and Redemption of Shares 17
Investment Management Agreement
and Other Services 17
Custodian 20
Independent Auditors 20
Voting 20
Financial Statements 26
Appendix - Ratings of Debt Obligations 27
</TABLE>
DIRECTORS AND OFFICERS
*JESSICA M. BIBLIOWICZ, Director and President Executive
Vice President of Smith Barney Inc.
("Smith Barney"); Director of twelve investment
companies associated with Smith Barney, President of
forty investment companies associated with Smith
Barney. Prior to January 1994, Director of Sales and
Marketing for Prudential Mutual Funds; Prior to
September 1991, Assistant Portfolio Manager for
Shearson Lehman Brothers; 35.
RALPH D. CREASMAN, Director
Retired, 4 Moss Hammock Lane, The Landings, Skidaway
Island, Savannah, Georgia 31411.
Director of ten investment
companies associated with Smith Barney. Formerly
Chairman, President and Chief Executive Officer of
Lionel D. Edie & Co., Inc.
(investment counselors),
Chairman of Edie International S.A. and President
and Director of Edie Ready Assets Trust, Fundamerica of
Japan, Edie Special Growth Fund and Edie Capital Fund;
73. JOSEPH H. FLEISS, Director
Retired, 3849 Torrey Pines Blvd., Sarasota, Florida
34238. Director of ten investment companies associated
with Smith Barney. Formerly Senior Vice President of
Citibank, Manager of Citibank's Bond Investment
Portfolio and Money Management Desk and a Director of
Citicorp Securities Co., Inc; 77.
DONALD R. FOLEY, Director
Retired, 3668 Freshwater Drive, Jupiter, Florida
33477. Director of ten investment companies associated
with Smith Barney. Formerly Vice President of Edwin
Bird Wilson,
Incorporated (advertising); 72.
PAUL HARDIN, Director
Chancellor of the University of North Carolina at
Chapel Hill, University of North Carolina, 103 S.
Building, Chapel Hill, North Carolina 27599; Director
of twelve investment companies associated with Smith
Barney; and a Director of The Summit Bancorporation;
63.
FRANCIS P. MARTIN, Director
Practicing physician, 2000 North Village Avenue,
Rockville Centre, New York 11570. Director of
ten investment
companies associated with Smith Barney. Formerly
President of the Nassau Physicians' Fund, Inc.; 70.
*HEATH B. McLENDON, Chairman of the Board and
Chief Executive Officer
Managing Director of Smith Barney ; Director of forty
one investment companies associated with Smith Barney;
President of Smith Barney Mutual Funds Management
Inc. (the "Manager"); Chairman of the Board of Smith
Barney Strategy Advisors Inc.; prior to July 1993,
Senior Executive Vice President of Shearson Lehman
Brothers; Vice Chairman of the Board of Asset
Management; 61.
RODERICK C. RASMUSSEN, Director
Investment Counselor, 81 Mountain Road, Verona, New
Jersey 07044. Director of ten investment companies
associated with Smith Barney. Formerly Vice
President of Dresdner and Company Inc. (investment
counselors); 68.
[FN]
* Designates an "interested person" as defined in
the Investment Company Act of 1940 whose business
address is 388 Greenwich Street, New York, New York
10013.
*BRUCE D. SARGENT, Director and Vice President
Managing Director of Smith Barney and Vice President
and Director of the Manager and of four investment
companies associated with Smith Barney; 51.
JOHN P. TOOLAN, Director
Retired, 13 Chadwell Place, Morristown, New Jersey
07960. Director of ten investment companies associated
with Smith Barney. Formerly, Director and Chairman of
Smith Barney
Trust Company, Director of Smith Barney Holdings Inc.
and the Manager and Senior Executive Vice President,
Director and Member of the Executive Committee of Smith
Barney; 64.
C. RICHARD YOUNGDAHL, Director
Retired, 339 River Drive, Tequesta, Florida 33469.
Director of ten investment companies associated with
Smith Barney and Member of the Board of Directors of
D.W. Rich & Company, Inc. Formerly Chairman of the
Board of Pensions of the Lutheran Church in America,
Chairman of the Board and Chief Executive Officer of
Aubrey G. Lanston & Co. (dealers in U.S. Government
securities) and President of the Association of Primary
Dealers in U.S. Government Securities; 79.
*LEWIS E. DAIDONE, Senior Vice President and Treasurer
Managing Director of Smith Barney, Senior Vice President
and Treasurer of forty-one investment companies
associated with Smith Barney, and Director and Senior
Vice President the Manager; 37.
*PATRICK SHEEHAN, Vice President
Managing Director of Smith Barney and Vice President of
two investment companies associated with Smith Barney.
Prior to January 1992, Portfolio Manager of Value Line
Inc., Senior Vice President of Seaman's Bank for
Savings, Assistant Vice President of Capital Markets of
Federal Home Loan Board of New York and Vice
President and Treasurer of Poughkeepsie Savings Bank;
47.
*THOMAS M. REYNOLDS, Controller and Assistant Secretary
Director of Smith Barney and Controller and
Assistant Secretary of ten investment companies
associated with Smith Barney. Prior to September
1991, Assistant
Treasurer of Aquila Management Corporation and its
associated investment companies; 35.
*CHRISTINA T. SYDOR, Secretary
Managing Director of Smith Barney and Secretary of
certain other investment companies associated with Smith
Barney and the Manager; 44.
On April 11, 1995, directors and officers owned in
the aggregate less than 1% of the outstanding shares
of each Portfolio.
[FN]
* Designates an "interested person" as defined in
the Investment Company Act of 1940 whose business
address is 388 Greenwich Street, New York, New York
10013. <TABLE>
The following table shows the compensation paid by the
Fund to each incumbent director during the Fund's
last fiscal year. None of the oficers of the Fund
received any
compensation from the Fund for such period. Officers
and interested directors of the Fund are compensated
by Smith Barney.
<CAPTION>
COMPENSATION TABLE
<S> <C>
<C>
<C> <C>
Total
Pension or Compensation Number of
Retirement from Fund Funds for
AggregateBenefits Accrued and Fund
Which director
Compensation as part of Complex Serves
Within Name of Person from Fund Fund Expenses Paid
to Directors Fund Complex
Jessica M. Bibliowicz* $0 $0 $0
12
Ralph D. Creasman 10,254 0
51,500
10
Joseph H. Fleiss 10,254 0
50,900
10
Donal R. Foley 10,254 0 51,500 10
Paul Hardin 5,802 0 27,800** 12**
Heath B. McLendon* 0 0 0 41
Francis P. Martin 10,254 0
51,500
10
Roderick C. Rasmussen 10,254 0
51,500
10
Bruce D. Sargent* 0 0 0 3
John P. Toolan10,254 0 51,500 10 C.
Richard Youngdahl 10,254 0
51,500
10
<FN>
* Designates an "interested director".
** Reflects the compensation paid to Dr. Hardin and
the number of funds within the Fund Complex for which Dr.
Hardin serves as a director as of the date of this
Statement of Additional Information. For the fiscal
year ended December 31, 1994, Mr. Hardin served as a
director of 25 funds within the Fund Complex and was paid
$96,400. </TABLE>
INVESTMENT POLICIES
The Articles of Incorporation of the Fund permit the
Board of Directors to establish additional Portfolios of
the Fund from time to time. The investment objectives,
policies and restrictions applicable to additional
Portfolios would be established by the Board of
Directors at the time such Portfolios were
established and may differ from those set forth in
the Prospectus and this Statement of Additional
Information.
The Fund effects portfolio transactions with a
view towards attaining the investment objectives
of the
Portfolios and is not limited to a predetermined rate
of portfolio turnover. A high portfolio turnover
results in correspondingly greater transaction costs in
the form of dealer spreads or brokerage
commissions and other transaction costs that a
Portfolio will bear directly, and may result in the
realization of net capital gains which are taxable when
distributed to shareholders. See " Financial
Highlights" in the Prospectus and "Investment
Management Agreement and Other Services - Brokerage" in
this Statement of Additional Information.
Each Portfolio, other than the Short-Term U.S.
Treasury Securities Portfolio, may invest in investment
grade bonds, i.e. U.S. Government Obligations or bonds
rated Aaa, Aa, A and Baa by Moody's Investors Service,
Inc. ("Moody's") or AAA, AA, A and BBB by Standard &
Poor's ("S&P").
Repurchase and Reverse Repurchase Agreements. Each
Portfolio may on occasion enter into repurchase
agreements, wherein the seller agrees to repurchase a
security from the Portfolio at an agreed-upon future
date, normally the next business day. The resale price
is greater than the purchase price, which reflects the
agreed-upon rate of return for the period the Portfolio
holds the security and which is not
related to the coupon rate on the purchased security.
The
Fund requires continual maintenance of the market value
of the collateral in amounts at least equal to the
resale price, thus risk is limited to the ability of the
seller to pay the agreed-upon amount on the delivery
date; however, if the seller defaults, realization upon
the collateral by the Portfolio may be delayed or
limited or the Portfolio might incur a loss if the
value of the collateral securing the repurchase
agreement declines and might incur disposition costs
in connection with liquidating the collateral. A
Portfolio will only enter into repurchase agreements
with broker/dealers or other financial institutions
that are deemed creditworthy by the Manager under
guidelines approved by the Board of Directors. It is the
policy of the Fund not to invest in repurchase agreements
that do not mature within seven days if any such
investment together with any other illiquid assets held
by a Portfolio amount to more than 15% of that
Portfolio's total assets.
The Fund has never entered into reverse
repurchase
agreements even though it is permitted to do so on behalf
of the Income Return Account Portfolio, the U.S.
Government Securities Portfolio, the Monthly
Payment Government Portfolio, and the Utility Portfolio.
The Fund does not currently intend to commit to such
agreements more than 5% of the net assets of any of
these four Portfolios, although the fundamental
policies of the Income Return Account Portfolio and
the Utility Portfolio permit each Portfolio to invest up
to 1/3 of its total assets in reverse repurchase
agreements, and this right is reserved.
Each of
these
Portfolios may enter into reverse repurchase agreements
with broker/dealers and other financial institutions.
Such agreements involve the sale of Portfolio securities
with an agreement to repurchase the securities at an
agreed-upon price, date and
interest payment and have
the
characteristics of borrowing. Since the proceeds
of
borrowings under reverse repurchase agreements are
invested, this would introduce the speculative
factor known as
"leverage." The securities purchased with the
funds
obtained from the agreement and securities
collateralizing the agreement will have maturity dates
no later than the repayment date. Generally the
effect of such a transaction is that the Fund can
recover all or most of the cash invested in the
portfolio securities involved during the term of the
reverse repurchase agreement, while in many cases it
will be able to keep some of the interest income
associated with those securities. Such transactions
are only advantageous if the Portfolio has an
opportunity to earn a greater rate of interest on the
cash derived from the transaction than the interest cost
of obtaining that cash. Opportunities to realize
earnings from the use of the proceeds equal to or
greater than the interest required to be paid may not
always be available, and the
Fund intends to use the reverse repurchase technique
only when the Manager believes it will be advantageous to
the Portfolio. The use of reverse repurchase
agreements may exaggerate any interim increase or
decrease in the value of the participating
Portfolio's assets. The Fund's custodian bank will
maintain a separate amount for the Portfolio with
securities having a value equal to or greater than such
commitments.
Securities Lending. Each Portfolio, other than
the Income Return Account Portfolio and the Short-
Term U.S. Treasury Securities Portfolio, may seek to
increase its net investment income by lending its
securities provided such loans are callable at any time
and are continuously secured
by cash or U.S. Government Obligations equal to no less
than the market value, determined daily, of the
securities loaned. The Portfolio will receive
amounts
equal to
dividends or interest on the securities loaned. It
will also earn income for having made the loan
because cash collateral pursuant to these loans will be
invested in shortterm money market instruments. In
connection with lending of securities the
Fund may pay reasonable
finders, administrative and custodial fees. Management
will limit such lending to not more than one-third of
the value of the total assets of each of the U.S.
Government Securities Portfolio, the Monthly Payment
Government Portfolio, and the Utility Portfolio, and
the investment restriction of the Income and Growth
Portfolio limits it to less than 20% of
such Portfolio's net assets. Where voting or consent
rights with respect to loaned securities pass to the
borrower, management will follow the policy of calling
the loan, in
whole or in part as may be appropriate, to permit
the exercise of such voting or consent rights if the
issues involved have a material effect on the
Portfolio's
investment in the securities loaned. Apart from lending
its securities and acquiring debt securities of a
type
customarily purchased by financial institutions, none of
the foregoing Portfolios will make loans to other
persons. The
risks in lending portfolio securities, as with
other extensions of secured credit, consist of possible
delay in
receiving additional collateral or in the recovery of
the securities or possible loss of rights in the
collateral should the borrower fail financially. Loans
will only be
made to borrowers whom the Manager deems to be of
good standing and will not be made unless, in the
judgment of the Manager, the interest to be earned from
such loans would justify the risk.
Foreign Investments. The Income and Growth
Portfolio, and the Utility Portfolio each may invest its
assets in the securities of foreign issuers.
Investments in foreign
securities involve certain risks not ordinarily
associated with investments in securities of domestic
issuers. Such
risks include currency exchange control regulations
and costs, the possibility of expropriation,
seizure,
or
nationalization of foreign deposits, less liquidity
and volume and more volatility in foreign securities
markets and the impact of political, social, economic
or diplomatic developments or the adoption of other
foreign government restrictions that might adversely
affect the payment of
principal and interest on securities in a Portfolio. If
it
should become necessary, the Fund might encounter
greater difficulties in invoking legal processes abroad
than would be the case in the United States. In
addition, there may be less publicly available
information about a non-U.S. company, and non-U.S.
companies are not generally subject to uniform
accounting and financial reporting standards,
practices and requirements comparable to those applicable
to U.S. companies. Furthermore, some of these
securities may be subject to foreign brokerage and
withholding taxes.
For many foreign securities, there are U.S.
dollar denominated American Depositary Receipts ("ADRs"),
which are traded in the United States on exchanges or
over the counter and are sponsored and issued by
domestic banks. ADRs
represent the right to receive securities of foreign
issuers deposited in a domestic bank or a correspondent
bank. ADRs
do not eliminate all the risk inherent in investing in
the securities of foreign issuers. However, by
investing in
ADRs rather than directly in foreign issuers' stock,
the
Portfolio can avoid currency risks during the
settlement period for either purchases or sales. In
general, there is a large, liquid market in the United
States for many ADRs. The information available for
ADRs is subject to the accounting, auditing and
financial reporting standards of the domestic market
or exchange on which they are traded, which standards
are more uniform and more exacting that those to which
many foreign issuers may be subject.
Restricted Securities. The Utility Portfolio
may invest in securities the disposition of which is
subject to legal or contractual restrictions. The
sale of restricted securities often requires more time
and results in higher brokerage charges or dealer
discounts and other selling expenses than does the
sale of securities eligible for trading on a
national securities exchange that are not subject to
restrictions on resale. Restricted securities often
sell at a price lower than similar securities that are
not subject to restrictions on resale.
Additional Policies - Income and Growth Portfolio
and Utility Portfolio
Although the Income and Growth Portfolio and
the Utility Portfolio may, as described below, sell
short "against the box," buy or sell puts or calls
and borrow money, the Income and Growth Portfolio has
not done so during the last fiscal year and neither
Portfolio has any intention of doing so in the
foreseeable future.
Although the Income and Growth Portfolio may lend
money or assets, as described in investment restriction
18 on page 11, the Portfolio has not engaged in this
practice within the last year and does not currently
intend to engage in loans other than short-term loans.
While the Income and Growth Portfolio is permitted
to invest in warrants (including 2% or less of the
Portfolio's total net assets in warrants that are not
listed on the New York Stock Exchange or American
Stock Exchange), the
Portfolio has not purchased any warrants during its
last fiscal year and has no intention of doing so
in the foreseeable future. For purposes of computing
the foregoing percentage, warrants acquired by the
Portfolio in units or attached to securities will be
deemed to be without value.
In addition, although each of the Income and
Growth Portfolio and the Utility Portfolio may buy or
sell put and call options up to 15% of its net
assets, provided such options are listed on a
national securities exchange, neither Portfolio has
done so in the last year, and neither Portfolio
currently intends to commit more than 5% of its assets
to be invested in or subject to put and call options. A
"call option" gives a holder the right to purchase
a specific stock at a specified price referred to
as the "exercise price," within a specific period of
time (usually 3, 6, or 9 months). A "put option" gives
a holder the right to sell a specific stock at a
specified price within a specified time period.
The initial purchaser of a call option pays the
"writer" a premium, which is paid at the time of
purchase and is retained by the writer whether or not
such option is exercised. Put and call options are
currently traded on The Chicago Board Options Exchange
and several other national exchanges. Institutions, such
as the Fund, that sell (or "write") call options against
securities held in their investment portfolios retain
the premium. If the writer
determines not to deliver the stock prior to the
option's being exercised, the writer may purchase in
the secondary market an identical option for the same
stock with the same price and expiration date in
fulfillment of the obligation. In the event the
option is exercised the writer must deliver the
underlying stock to fulfill the option obligation.
The brokerage commissions associated with the buying
and selling of call options are normally
proportionately higher than those associated with
general securities transactions.
In selecting investments, the Utility Portfolio
will use the following criteria: the company must have
a good earnings record; the company must have
experienced management; the security must have
competitive yields; and the utility must have a
favorable regulatory climate and be located within a
growing service area.
INVESTMENT RESTRICTIONS
The Fund has adopted the following restrictions
and fundamental policies that cannot be changed without
approval by a "vote of a majority of the
outstanding voting securities" of each Portfolio
affected by the change as defined in the Investment
Company Act of 1940 (the "Act") and Rule 18f-2
thereunder (see "Voting").
Without the approval of a majority of its
outstanding voting securities the Income and Growth
Portfolio may not:
1. Invest more than 5% of the value of its
total assets in any one issuer (except securities of
the U.S. Government and its instrumentalities); 2.
Invest more than 25% of the value of its total assets
in any one industry; 3.
Invest more than 5% of its total
assets in issuers with less than three years of
continuous operation (including that of predecessors)
or so-called "unseasoned" equity securities that are
not either admitted for trading on a national stock
exchange or regularly quoted in the over-the-counter
market; 4.
Purchase more than 10% of any class of outstanding
securities, or any class of voting securities, of any
one issuer; 5. Purchase any securities on margin;
6. Make short sales of securities or maintain a
short position unless at all times when a short
position is open, the Portfolio owns or has the right
to obtain, at no added cost, securities identical to
those sold short; 7. Borrow money, except as a
temporary measure for extraordinary or emergency
purposes, and then not in excess of the lesser of 10% of
its total assets taken at cost or 5% of the value of
its total assets; 8. Mortgage or pledge any of its
assets; 9. Act as a securities underwriter or invest
in real estate or commodities (the purchase by the
Portfolio of securities for which there is an
established market of companies engaged in real estate
activities or investments shall not be deemed to be
prohibited by this fundamental investment limitation);
10. Invest in securities of another investment
company
except as permitted by Section 12(d)(1) of the
Investment Company Act of 1940 or as part of a merger,
consolidation, or acquisition; 11. Invest in or hold
securities of an issuer if those officers and
directors of the Fund, its Adviser, or Smith Barney
owning beneficially more than 1/2 of 1% of the
securities of such issuer together own more than 5%
of the securities of such issuer; 12. Invest
in
"restricted securities", that is, securities which at
the time of purchase by the Portfolio would have
to be
registered under the Securities Act of 1933 before
they could be sold; 13. Invest in any company for the
purpose of exercising control of management; 14. Have
more than 15% of its net assets at any time invested in
or subject to puts, calls or combinations thereof and
may not purchase or sell options that are not
listed on a national securities exchange; 15.
Invest in interests in oil or gas or other mineral
exploration or development programs; 16.
Participate on a joint or joint and several basis in
any
securities trading account; 17. Purchase or sell
any securities other than shares of the Fund from or
to the Adviser or any
officer or director of the Adviser or the
Fund; and 18. Lend money or assets, except that
the Portfolio may purchase a portion of issues of
publicly distributed
bonds,
debentures or notes and may invest in
certificates of deposit or commercial paper, and may
lend a portion of its
portfolio securities to broker-dealers and
financial institutions, provided that any such loan
must
be secured at all times by cash or U.S. Government
Obligations equal at all times to at least 100% of the
market value of the portfolio securities loaned. The
Portfolio will not make a portfolio securities loan
if immediately thereafter as a result thereof,
portfolio securities with a market value of 20% or
more of the Portfolio's total net assets would be
subject to such loans.
Without the approval of a majority of its
outstanding voting securities the U.S. Government
Securities Portfolio and the Monthly Payment Government
Portfolio each may not:
1. Purchase any securities other than
obligations
issued or guaranteed by the U.S. Government or its
agencies or instrumentalities, some of which may be
subject to repurchase agreements. There is no limit on
the amount of its assets which may be invested in the
securities of any one issuer of such obligations; 2.
Purchase securities on margin, sell securities
short (provided however each Portfolio may sell
short if it maintains a segregated account of
cash or U.S. Government Obligations with the
Custodian, so that the amount deposited in it plus
the collateral deposited with the broker equals the
current market value of the securities sold short and
is not less than the market value of the securities
at the time they were sold short) or purchase
mortgagerelated securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities);
3. Borrow money, except from banks for temporary
purposes and then in amounts not in excess of 5% of
the value of each Portfolio's assets at the time of
such borrowing; or mortgage, pledge or hypothecate
any assets except in connection with any such borrowing
and in amounts not in excess of 7 1/2% of the value of
the Fund's assets at the time of such borrowing.
(This borrowing provisions is not for investment
leverage, but solely to facilitate management of each
Portfolio by enabling each Portfolio to meet
redemption requests where the liquidation of portfolio
securities is deemed to be disadvantageous or
inconvenient.) Borrowings may take the form of a sale
of portfolio securities accompanied by a simultaneous
agreement as to their repurchase; 4. Make loans, except
through the purchase of debt obligations (described
in restriction 1 above), repurchase agreements and
loans of each Portfolio's securities; and 5. Act as
an underwriter of securities
except to the extent the Fund may be deemed to be
an underwriter in
connection with the sale of
portfolio
holdings.
Without the approval of a majority of its
outstanding voting securities the Income Return Account
Portfolio may not:
1. Purchase common stocks, preferred stocks,
warrants, other equity securities or municipal
obligations; 2. Borrow money except from banks for
temporary purposes in an amount up to 10% of the value
of its total assets and may pledge its assets in an
amount up to 10% of the value of its total assets only
to secure such borrowings. The Portfolio will borrow
money
only to accommodate requests for the redemption of
shares while effecting an orderly liquidation of
portfolio securities or to clear securities transactions
and not for leveraging purposes. This restriction shall
not be deemed to prohibit the Portfolio from entering
into reverse repurchase agreements so long as not more
than 33 1/3% of the Portfolio's total assets are
subject to such agreements; 3.
With respect to 75% of its assets, invest more than 5%
of its assets in the securities of any one issuer,
except securities issued or guaranteed as to principal
and interest by the U.S. Government, its agencies or
instrumentalities; 4.
Purchase securities on margin or sell securities short;
5. Write or purchase put or call options; 6.
Underwrite
the securities of other issuers or knowingly
purchase securities subject to restrictions on
disposition under the Securities Act of 1933 (i.e.
"restricted securities"); 7. Purchase or sell
commodities or commodity futures contracts, oil and gas
interests or real estate (however, the Portfolio may
purchase mortgage-related securities issued
or
guaranteed by the U.S. Government or its agencies
or instrumentalities); 8. Make loans to others (except
through the purchase of debt obligations as described
in the Fund's then current Prospectus), except that the
Fund may purchase and simultaneously resell for later
delivery, obligations issued or guaranteed as to
principal and interest by the U.S. Government or
its agencies or instrumentalities; provided, however,
that the Portfolio will not enter into such a
repurchase agreement if, as a result thereof, more than
10% of its total assets (taken at current value) at
that time would be subject to repurchase agreements
maturing in more than seven days; 9. Invest in
companies for the purpose of exercising control;
10. Invest in securities of other investment
companies,
except as they may be acquired as part of a
merger, consolidation or acquisition of assets; 11.
Purchase any securities, other than obligations of the
U.S. Government, its agencies or its
instrumentalities, if immediately after such purchase
more than 25% of the Portfolio's total assets would be
invested in the securities of issuers in the same
industry; and 12. Issue senior securities as defined in
the Act except insofar as the Fund may be deemed to
have issued a senior security by reason of (a)
entering into any repurchase agreement or reverse
repurchase agreement; or (b) permitted borrowings of
money.
Without the approval of a majority of its
outstanding voting securities, the Utility Portfolio may
not:
1. With respect to 75% of its total assets,
invest more than 5% of its total assets in the
securities of any single issuer (except securities of
the U.S. Government and its agencies and
instrumentalities); 2. Invest more than 25% of its
total assets in a particular industry, except that the
Portfolio will invest more than 25% of its total assets
in the securities of utility companies; 3. Purchase
more than
10% of the outstanding voting securities of an issuer;
4. Purchase any securities on margin; 5.
Make
short sales of securities or maintain a short
position unless at all times when a short position
is open, the Portfolio owns or has the right to obtain,
at no added cost, securities identical to those sold
short; 6. Purchase or sell
real estate or interests therein, although the
Portfolio may purchase securities of issuers which
engage in real estate operations and securities secured
by real estate or interests therein; 7. Invest in
securities of another investment company except by
purchase in the open market involving only customary
brokerage commissions or as part of a merger,
consolidation, or acquisition; 8. Purchase or
sell puts, calls,
straddles, spreads or combinations thereof except as
described in this Statement of Additional
Information and may not purchase or sell options that
are not listed on a national securities exchange; 9.
Purchase
oil, gas or other mineral leases, rights or
royalty
contracts or exploration or development programs,
except that the Portfolio may invest in the securities
of companies which operate, invest in, or sponsor
such programs; 10. Borrow money (including borrowings
through entering into reverse repurchase agreements)
in excess of 33 1/3% of its total assets (including
the amount of money borrowed but excluding any
liabilities and indebtedness not constituting senior
securities), or letters of credit solely for purposes of
participating in a captive insurance company sponsored
by the Investment Company Institute to provide
fidelity and directors and officers liability
insurance, or pledge its assets other than to secure
such borrowings or in connection with short sales,
when-issued and delayed
delivery
transactions and similar investment strategies.
Whenever
borrowings exceed 5% of the value of the Portfolio's
total assets, the Portfolio will not make any
additional investments; and 11. Make loans, except the
Portfolio may purchase debt
obligations, may enter into repurchase
agreements and may lend securities.
In order to comply with certain state statutes
and policies, the Utility Portfolio also will not, as a
matter of operating policy:
1. Purchase puts, calls, straddles, spreads, and
any
repurchase thereof if by reason thereof the value of
its aggregate investment in such classes of
securities will exceed 5%
of its total assets; 2. Make
illiquid
investments, i.e., purchase securities which cannot
be readily resold to the public because of legal or
contractual restrictions on resale or for which no
readily available market exits or engage in a
repurchase agreement maturing in more than seven days
if, as a result thereof, more than 10% of the value of
the total assets of the Portfolio could be invested in
such securities; 3. Purchase any security if as a
result the Portfolio would
then have more than 5% of its total assets (taken at
current value) invested in securities of companies
(including predecessors) that have been in operation
for less that three years or in equity securities for
which market quotations are not readily available; 4.
Purchase or sell commodities or commodity futures
contracts or options thereon, or interests in
commodity pools; 6. Purchase or retain the securities
of any issuer if the officers and directors of the
Fund or its investment adviser owning beneficially more
than 1/2 of 1% of the issuer's securities together
own beneficially more than 5% of the issuer's
securities; and 7. Purchase warrants if as a result
the Portfolio would then have more than 5% of its net
assets (determined at the time of investment) invested
in warrants. Warrants will be valued at the lower of
cost or market and investment in warrants which are not
listed on the New York Stock Exchange or the American
Stock Exchange will be limited to 2% of the
Portfolio's net assets (determined at the time of
investment). For the purpose of this limitation,
warrants acquired in units or attached to securities
are deemed to be without value.
Without the approval of a majority of its
outstanding voting securities, the Short-Term U.S.
Treasury Securities Portfolio may not:
1. Invest more than 5% of the 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); 2. Purchase common stocks,
preferred stocks, warrants, other equity securities,
corporate bonds, municipal bonds or industrial revenue
bonds; 3. Borrow money except from banks for
temporary purposes in an amount up to 10% of the value
of its total assets. The Portfolio will borrow money
only to accommodate requests for the redemption of
shares while effecting an orderly liquidation of
portfolio securities or to clear securities
transactions and may not for leveraging purposes.
Whenever borrowings exceed 5% of the value of the
Portfolio's total assets, the Portfolio will not make
any additional investments. This restriction will not
be deemed to prohibit the Fund from obtaining letters of
credit solely for purpose of participating in a captive
insurance company sponsored by the Investment Company
Institute to provide fidelity and directors and
officers liability insurance; 4. Pledge, hypothecate,
mortgage or otherwise encumber its assets, except in
an amount up to 10% of the value of its total assets,
but only to secure borrowings for temporary purposes;
5. Sell securities short or purchase securities on
margin; 6. Write or purchase put or call options; 7.
Underwrite the securities of other issuers or
purchase restricted securities; 8. Purchase or sell real
estate, real estate investment trust securities,
commodities or commodity contracts or oil and gas
interests; 9. Make loans to others except through the
purchase of qualified debt obligations in accordance
with the Portfolio's investment objective and
policies; 10. Issue senior securities as defined in the
Act except insofar as the Portfolio may be deemed to
have issued a senior security by reason of: (a)
borrowing money in accordance with restrictions
described above or (b) by purchasing securities on a
when-issued or delayed delivery basis or purchasing
or selling securities on a forward
commitment basis; and 11. Invest in securities of
other investment companies, except as they may be
acquired as part of a merger, consolidation, acquisition
of assets or plan of reorganization.
The foregoing percentage restrictions apply at the
time an investment is made; a subsequent increase or
decrease in percentage may result from changes in values
or net assets.
ADDITIONAL TAX INFORMATION
The following summary addresses the principal
United States income tax considerations regarding the
purchase, ownership and disposition of shares in a
Portfolio of the Fund.
General.
Each Portfolio within the Fund is generally
treated as a separate corporation for federal income
tax purposes, and thus the provisions of the Internal
Revenue Code of 1986, as amended (the "Code")
generally will be applied to each Portfolio
separately, rather than to the Fund as a whole. For
tax purposes therefor, net long-term and short-term
capital gains, net income and operating expenses will
be determined separately for each Portfolio.
Each Portfolio within the Fund intends to qualify
and elect to be treated for each taxable year as a
"regulated investment company" under Sections 851-855 of
the Code. To
so qualify, each Portfolio must, among other things,
(i) derive at least 90% of its gross income in each
taxable year from dividends, interest, proceeds from
loans of stock and securities, gains from the sale or
other disposition of
stock, securities or foreign currency, of certain
other income (including but not limited to gains from
options, futures and forward contracts) derived from its
business of
investing stock, securities or currency; (ii) derive
less than 30% of its gross income in each taxable year
from the sale or other disposition of any of the
following which was held for less than three months:
(a) stocks or securities, (b) options, futures or
forward contracts (other than options, futures or
forward contracts on foreign currency), but only if
such currency (or options futures of forward contracts)
is not directly related to each Portfolio's principal
business of investing in stock or securities (or options
or futures with respect to stock or securities); and
(iii) diversify its holding so that , at the end of
each quarter of its taxable years, the following two
conditions are met: (a) at least 50% of the market
value of the Portfolio's total assets is
represented by cash, U.S. 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 Portfolio's assets and
not more than 10% of the outstanding voting securities
of such issuer; and (b) not more than 25% of the
value of the Portfolio's assets is invested in
securities of
any one issuer (other than U.S. Government securities
or securities of other
regulated investment companies). The
diversification requirements described above may limit
a Portfolio's ability to engage in hedging
transactions by
writing or buying options or by entering into futures
or
forward contracts.
At December 31, 1994 the unused capital loss
carryovers of the Fund by Portfolio were approximately
as follows: U.S. Government Securities Portfolio,
$31,251,158; Monthly Payment Government Portfolio,
$2,102,900; Income Return Account Portfolio,
$1,816,221; and Short-Term U.S. Treasury Portfolio,
$3,929,597. For federal income tax purposes, these
amounts are available to be applied against future
securities gains, if any, realized. The carryovers
expire as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
December
31, (in
thousands)
1995 1996
1997
2002
U.S. Government Securities Portfolio $27,365$ 392$898
$2,596 Monthly Payment Government Portfolio 1,673 --- -
- -430 Income Return Account Portfolio --- 1,032 237
547 Short-Term U.S. Treasury --- --- --- 3,930
Distributions
If the net asset value of shares of a Portfolio
is reduced below a shareholder's costs as a result
of a distribution by the Portfolio, such distribution
will be taxable even though it represents a return
of invested capital.
Redemption of Shares.
Any gain or loss realized on the redemption or
exchange of Portfolio shares by a shareholder who is not
a dealer in securities will be treated as long-term
capital loan or loss if the shares have been held for
more than one year, and otherwise as short-term capital
gain or loss.
However, any loss realized by a shareholder upon
the redemption or exchange of Portfolio shares held six
months or less will be treated as a long-term capital
loss to the extent of any long-term capital gain
distributors received by the shareholder with
respect to such shares. Additionally, any loss
realized on a redemption or exchange of Portfolio
shares will be disallowed to the extent the shares
disposed of are replaced within a period of 61 days
beginning 30 days before and ending 30 days after
such disposition, such as pursuant to
reinvestment of dividends in Portfolio shares.
IRA AND OTHER PROTOTYPE RETIREMENT PLANS
Copies of the following plans with custody or
trust agreements have been approved by the Internal
Revenue Service and are available from the Fund or
Smith Barney; investors should consult with their own
tax or retirement planning advisors prior to the
establishment of a plan.
IRA, Rollover IRA and Simplified Employee Pension - IRA
The Tax Reform Act of 1986 (the "Tax Reform Act")
changed the eligibility requirements for participants in
Individual Retirement Accounts ("IRAs"). Under the Tax
Reform Act's new provisions, if you or your spouse has
earned income and neither your nor your spouse is an
active participant in any employer-sponsored retirement
plan, each of you
may
establish an IRA and make maximum annual contributions
equal to the lesser of earned income or $2,000. If your
spouse is not employed, you may contribute and deduct on
your joint venture a total of $2,250 between two IRA's.
If you or you spouse is an active participant in
an employer-sponsored retirement plan, a deduction
for
contributions to an IRA might still be allowed in full or
in part, depending on your combined adjusted gross
income. For married
couples filing jointly, a full deduction of
contributions to an IRA will be allowed where the
couples'
adjusted gross income is below $40,001 ($25,001 for
an unmarried individual); a partial deduction will be
allowed when adjusted gross income is between $40,001
$50,000 ($25,001 - $35,000 for an unmarried
individual); and no deduction when adjusted income is
$50,000 ($35,000 for an unmarried individual).
Shareholders should consult their tax advisors
concerning the effects of the Tax Reform Act on the
deductibility of their IRA contributions.
A Rollover IRA is available to defer taxes on lump
sum payments and other qualifying rollover amounts (no
maximum) received from another retirement plan.
An employer who has established a Simplified
Employee Pension - IRA ("SEP-IRA") on behalf of
eligible employees may make a maximum annual contribution
to each participant's account of 15% (up to $22,500)
of each participant's compensation.
In addition, certain small employers (those who have
25 or fewer employees) can establish a Simplified
Employees Pension Plan - Salary Reduction Plan
("SEP - Salary Reduction Plan") under which employees
can make
elective pretax contributions of up to $9,240 of gross
income. Consult your tax advisor for special rules
regarding establishing either type of SEP.
An ERISA disclosure statement providing
additional details is included with each IRA
application sent to participants.
Paired Defined Contribution Prototype
Corporations (including Subchapter S corporations)
and non-corporate entities may purchase shares of
the Fund through the
Smith
Barney Prototype Paired Defined
Contribution Plan. The prototype permits adoption of
profitsharing provisions, money purchase pension
provisions, or both, to provide benefits for eligible
employees and their beneficiaries. The prototype
provides for a maximum annual tax deductible
contribution on behalf of each Participant of up to 25%
of compensation, but not to exceed $30,000 (provided
that a money purchase pension plan or both a profit-
sharing plan and a money purchase pension plan are
adopted thereunder).
PERFORMANCE INFORMATION
From time to time the Fund may advertise a
Portfolio's total return, average annual total return
and yield in advertisements. In addition, in other
types of sales literature the Fund may also advertise a
Portfolio's current dividend return. These figures are
based on historical earnings and
are not intended to indicate future
performance. The total return shows what an investment
in the Portfolio would have earned over a specified
period of time (one, five or ten years) assuming the
payment of the maximum sales load when the investment
was first made, that all distributions and dividends
by the Portfolio were reinvested on the reinvestment
dates during the period less the maximum sales load
charged upon reinvestment and less all recurring fees.
The average annual total return is derived from this
total return, which provides the ending
redeemable value. The Fund may also quote a
Portfolio's total return for present shareholders that
eliminates the sales charge on the initial investment.
</TABLE>
<TABLE>
Each Portfolio's average annual total return with
respect to its Class A Shares for the one-year period,
five-year period, if any, and for the life of the
Portfolio (except for the Income & Growth Portfolio
and U.S. Government Securities Portfolio which displays
performance data for ten years) ended December 31, 1994
is as follows:
<CAPTION>
<S> <C> <C> <C> <C>
One Year Five Years Life Inception Date
Income & Growth(9.10)%5.38%11.10%* 2/26/72
Income Return0.05 6.16 7.15
3/4/85 U.S. Government(5.89) 6.46 8.99*
10/9/84 Monthly Payment(5.83) 6.38
7.57 4/16/86 Utility (13.14) N/A
4.90 12/28/90 Short-Term U.S.(2.15) N/A
3.98 11/11/91
<FN>
* Representative of ten years, not life of the
Income &
Growth Portfolio and U.S. Government Securities
Portfolio. </TABLE>
<TABLE>
Each Portfolio's average annual total return with
respect to its Class B Shares (where applicable) for
the life of such Portfolio's Class B shares through
December 31, 1994 is as follows:
<CAPTION>
<S> <C> <C>
Portfolio Life Inception Date
Income & Growth (6.22)%
11/7/94
Utility (3.18) 11/7/94
U.S. Gov't (2.46) 11/7/94
Monthly Payment (2.86) 11/10/94
</TABLE>
<TABLE>
Each Portfolio's average annual total return with respect
to its Class C Shares (where applicable) for the
oneyear period and life of such Portfolio's Class C
shares through December 31, 1994 is as follows:
<CAPTION>
<S> <C> <C> <C>
Portfolio One Year Life Inception Date
Income & Growth (5.86)% 4.88% 12/2/92
Utility (10.10) 0.77 12/2/92
Income Return 0.86 2.79 12/16/92
U.S. Government (3.09) 2.19 12/2/92
Monthly Payment (3.05) 2.26 12/2/92
</TABLE>
<TABLE>
Each Portfolio's average annual total return with respect
to its Class Y Shares (where applicable) for the life of
such Portfolio's Class Y shares through December 31, 1994
is as follows:
<CAPTION>
<S> <C> <C>
Portfolio Life Inception Date
Income Return 2.63%
2/1/93
U.S. Government 1.98
1/12/93
</TABLE>
<TABLE>
Each Portfolio's average annual total return with
respect to its Class Z Shares (where applicable) for
the life of such Portfolio's Class Z shares through
December 31, 1994 is as follows:
<CAPTION>
<S> <C> <C>
Portfolio Life Inception Date
Income Return 0.38%
11/7/94
U.S. Government 2.15
11/7/94
Income & Growth (0.73)
11/7/94
</TABLE>
Note that effective October 3, 1994 Class C shares
were reclassified as additional Class A shares with
respect to the Income and Growth Portfolio, the
Utility Portfolio and the Capital Appreciation
Portfolio and that effective November 7, 1994 Class C
shares were redesignated Class Y shares with respect
to the U.S. Government Securities Portfolio, the
Monthly Payment Government Portfolio and the Income
Return Account Portfolio. Note further that effective
November 7, 1994 then existing Class B shares of
each Portfolio were designated as Class C shares. Each
Portfolio (except the Short-Term U.S. Treasury
Securities Portfolio) began to offer new Class B shares
on November 7, 1994.
Each Portfolio's yield is computed by dividing the
net investment income per share earned during a
specified thirty day period by the maximum offering
price per share on the last day of such period and
annualyzing the result. For
purposes of the yield calculation, interest income
is determined based on a yield to maturity percentage
for each long-term debt obligation in the Portfolio;
income on shortterm obligations is based on current
payment rate.
The Fund calculates current dividend return for the
U.S. Government Securities Portfolio by analyzing the
most recent quarterly distribution from investment
income, including net equalization credits or debits,
and dividing by the net asset value or the maximum
public offering price (including sales charge) on the
last day of the period for which current dividend
return is presented. The Fund calculates current
dividend return for the Income and Growth Portfolio and
the Utility Portfolio by dividing the dividends from
investment income declared during the most recent
twelve months by the net asset value or the maximum
public offering price (including sales charge) on the
last day of the period for which current dividend return
is presented. The Fund
calculates current dividend return for the
Capital Appreciation Portfolio by dividing the
distribution from investment income declared during the
most recent six-month period by the net asset value or
the maximum public offering price (including sales
charge) on the last day of the period for which
current dividend return is presented. The Fund
calculates current dividend return for the Monthly
Payment Government Portfolio, the Income Return Account
Portfolio and the Short-Term U.S. Treasury Securities
Portfolio by analyzing the most recent monthly
distribution, including net equalization credits and
debits, and dividing by the net asset value or the
maximum public offering price (including sales charge)
on the last day of the period for which current
dividend return is presented. From time to time, the
Fund may include a Portfolio's current dividend return
in information furnished to present or
prospective shareholders and in advertisements.
A Portfolio's current dividend return may vary from
time
to time depending on market conditions, the composition
of its investment portfolio and operating expenses.
These factors and possible differences in the methods
used in calculating current dividend return should
be
considered when comparing the Portfolio's current
dividend return to yields published for other
investment companies in other investment vehicles.
Current dividends return should also be considered
relative to changes in the value of the Portfolio's
shares and to the risks associated with the
Portfolio's investment objective and policies. For
example, in comparing current dividend returns with
those offered by Certificates of Deposit ("CDs"), it
should be noted that CDs are insured (up to $100,000)
and offer a fixed rate of return. Returns of the
Income Return Account Portfolio and the Short-Term
U.S. Treasury Securities Portfolio may from time to
time be compared with returns of money market funds
measured by Donoghue's Money Fund Report, a
widelydistributed publication on money market funds.
Performance information may be useful in
evaluating a Portfolio and for providing a basis for
comparison with other financial alternatives. Since the
performance of each Portfolio changes in response to
fluctuations in market conditions, interest rates
and Portfolio expenses, no performance quotation
should be considered a representation as to the
Portfolio's performance for any future period. <TABLE>
<CAPTION>
Smith Barney Funds - Income and Growth Portfolio
Historic Highs
(Ten $1,000 annual investments at the highest offering
price .)
<S> <C> <C>
Date of the Year's High Price
For the Income and
Growth Portfolio Maximum Offering
Shares
(1985
1994) Price
Purchased
12/20/85 $10.93 91.491
9/14/86 12.67 78.927
8/14/87 14.12 70.822
10/21/88 12.03 83.126
9/1/89 14.14 70.721
1/12/90 12.83 77.942
11/13/91 13.26 75.415
8/4/92 13.64 73.314
12/13/93 14.80 67.568
1/31/94 14.39 69.493
</TABLE>
VALUATION OF SHARES
The net asset value of each Portfolio's Classes of
shares will be determined on any day that the
New York Stock
Exchange is open. The New York Stock Exchange is closed
on the following holidays: New Year's Day,
President's Day,
Good Friday, Memorial Day, Independence Day, Labor
Day,
Thanksgiving Day and Christmas Day.
PURCHASE AND REDEMPTION OF SHARES
The Fund has committed itself to pay in cash all
requests for redemption by any shareholder of
record limited in
amount during any 90-day period to the lesser of
$250,000 or 1% of the net asset value of the Fund at
the beginning of such period. Such commitment is
irrevocable without the
prior approval of the Securities and Exchange
Commission. Redemptions in excess of the above limit
may be paid in portfolio securities, in cash or any
combination or both, as the Board of Directors may deem
advisable; however, payments shall be made wholly in
cash unless the Board of Directors believes that
economic conditions exist that would make such a
practice detrimental to the best interests of the Fund
and its remaining shareholders. If a redemption is
paid in portfolio securities, such securities will
be valued in accordance with the procedures described
under "Valuation of Shares" in the Prospectus and a
shareholder would incur brokerage expenses if these
securities were then converted to cash.
INVESTMENT MANAGEMENT AGREEMENT AND OTHER SERVICES
Manager
<TABLE>
For the year 1992, 1993 and 1994 the management fees
for
each Portfolio were as follows:
<CAPTION>
<S>
<C>
<C> <C>
Portfolio 1992 1993 1994
U.S. Gov't$$1,892,949$2,178,838$1,987,629
Income Return189,754 257,413 208,151
Monthly Payment188,472235,187 226,622
Utility 689,892 799,734 557,472
Inc. and Growth
3,381,0083,654,3784,079,437 Short-Term
Treas. 557,833808,698735,555
</TABLE>
Pursuant to the Management Agreement, the
management fee for
each of the Income and Growth Portfolio and the Utility
Portfolio is calculated at a rate in accordance with
the following schedule: 0.60% of the first $500
million of average daily net assets; 0.55% of the
next $500 million; and
0.50% of average daily net assets over $1 billion. The
management fee for the U.S. Government Securities
Portfolio, the
Monthly Payment Government Portfolio and the Income
Return Account Portfolio is calculated at a rate
in accordance with the following schedule: 0.50% of
the first $200 million of aggregate average daily net
assets of the three Portfolios, and 0.40% of the
aggregate average daily net
assets of the three Portfolios in excess of $200
million. The management fee for the Short-Term
U.S. Treasury Securities Portfolio is calculated at
the annual rate of 0.45% of such Portfolios average
daily net assets.
The Management Agreement for each of the
Fund's Portfolios further provides that all other
expenses not specifically assumed by the Manager
under the Management Agreement on
behalf of the Portfolio are
borne by the Fund. Expenses payable by the Fund
include, but are not limited to,
all charges of custodians (including sums as custodian
and sums for keeping books and for rendering other
services
to the Fund) and shareholder servicing agents, expenses
of preparing, printing and distributing all
prospectuses, proxy material, reports and notices to
shareholders, all expenses of shareholders' and
directors' meetings. filing fees and expenses relating
to the registration and qualification of the
Fund's shares and the Fund under Federal or state
securities laws and maintaining such registrations
and qualifications (including the printing of the
Fund's registration statements), fees of auditors
and legal
counsel, costs of performing portfolio valuations, out
ofpocket expenses of directors and fees of directors
who are not
"interested persons" as defined in the Act, interest,
taxes and governmental fees, fees and commissions of
every kind, expenses of issue, repurchase or redemption
of shares, insurance expense, association membership
dues, all other costs incident to
the Fund's existence and
extraordinary expenses such as litigation and
indemnification expenses. Direct expenses are
charged to each Portfolio; general corporate
expenses are allocated on the basis of relative net
assets.
Plan of Distribution
Pursuant to a Plan of Distribution adopted by the
Fund on behalf of each Portfolio under Rule 12b-1
under the Investment Company Act of 1940 (the "Plan"),
Smith Barney incurs the expenses of distributing each
Portfolio's Class A, Class B, Class C and Class Y
shares. See "Distributor" in each Portfolio's
applicable Prospectus.
<TABLE>
For the year ended December 31, 1994, the table
below represents the fees which have been accrued and/or
paid to Smith Barney under the Plans of Distribution
pursuant to Rule 12b-1 for the Fund's Portfolios.
The distribution expenses for 1994 included
compensation of Financial Consultants and printing
costs of prospectuses and marketing materials.
<CAPTION>
<S> <C> <C> <C> <C> <C>
Portfolio Class A Class B Class C Class Y Total
U.S. Gov't $232,042 $1,230$159,261 $18,269
$410,802
Income Return N/A N/A 12,920 7,682 20,602
Monthly Payment N/A 0 23,791 N/A 50,511
Utility 211,655 340 82,164 N/A 294,159
Inc. and Growth1,779,433 257 282,942 N/A
2,062,633
Short-Term Treas.572,083 N/A N/A 0 572,083
</TABLE>
During the fiscal years 1992 and 1993 aggregate
sales commissions of $8,668,237 and $8,756,000
respectively, were paid to Smith Barney by the
purchasers of Fund shares. For the fiscal year 1994,
aggregate sales commissions
of
approximately $1,992,000 were paid to Smith Barney by
the purchasers of Fund shares. A contingent
deferred sales charge ("CDSC") may be imposed on
certain redemptions of Class A, Class B shares and
Class C shares. The amount of the CDSC will depend
on the number of years since the shareholder made
the purchase payment from which the amount is being
redeemed. For Class B shares, for each of the Income
and Growth Portfolio and the Utility Portfolio the
maximum CDSC is 5.00% of redemption proceeds, declining
by 1.00% each year after the date of purchase to
zero.
For Class B shares of each of the U.S. Government
Securities Portfolio and the Monthly Payment Government
Portfolio the maximum CDSC is 4.50% of redemption
proceeds, declining by 0.50% the first year after
purchase and by 1.00% each year thereafter to zero.
A CDSC of 1.00% is imposed
on
redemptions of Class A which when combined with
Class A shares offered with a sales charge currently
held by an investor equal or exceed $500,000 in the
aggregate and Class C shares if such redemptions
occur within 12 months from the date such investment
was made. Any sales charge imposed on redemptions is
paid to the distributor of the Fund shares.
Note that effective October 3, 1994 Class C shares
were reclassified as additional Class A shares with
respect to the Income and Growth Portfolio, the
Utility Portfolio and the Capital Appreciation
Portfolio and that effective November 7, 1994 Class C
shares were redesignated Class Y shares with respect
to the U.S. Government Securities Portfolio, the
Monthly Payment Government Portfolio and the Income
Return Account Portfolio. Note further that effective
November 7, 1994 Class B shares of each Portfolio
were
designated as Class C shares.
Each Portfolio (except the Short-Term U.S.
Treasury Securities Portfolio) began to offer new Class
B shares on November 7, 1994.
Brokerage
The Manager is responsible for allocating the
Fund's brokerage. Orders may be directed to any broker
including, to the extent and in the manner permitted by
applicable law, Smith Barney. Smith Barney has
acted as the Fund's principal broker on behalf of
the Income and Growth Portfolio and the Utility
Portfolio (no commissionable transactions have been
paid to date on behalf of the U.S. Government
Securities Portfolio, the Monthly Payment
Government Portfolio or the Income Return Account
Portfolio, or the ShortTerm U.S. Treasury Securities
Portfolio) and has received a substantial portion of
brokerage fees paid by such Portfolios. No Portfolio
will deal with Smith Barney in any transaction in which
Smith Barney acts as principal.
The Fund attempts to obtain the most favorable
execution of each portfolio transaction, that is, the
best combination of net price and price and prompt
reliable execution. In the opinion of the Manager or
the Subadviser, as the case may be, however, it is
not possible to determine in advance that any
particular broker will actually be able to effect the
most favorable execution because, in the context of a
constantly changing market, order execution
involves judgments as to price, commission rates,
volume,
the
direction of the market and the likelihood of future
change. In making its decision as to which broker or
brokers are most likely to provide the most
favorable execution, the management of the Fund
takes into account the relevant circumstances. These
include, in varying degrees, the size of the order,
the importance of prompt execution, the breadth and
trends of the market in the particular security,
anticipated commission rates, the broker's familiarity
with such security including its contacts with possible
buyers and sellers and its level of activity in the
security, the possibility of a block transaction and
the general record of the broker for prompt, competent
and reliable service in all aspects of order processing,
execution and settlement.
Commissions are negotiated and take into account
the difficulty involved in execution of a transaction,
the time it took to conclude, the extent of the
broker's commitment of its own capital, if any,
and the price received. Anticipated commission rates
are an important consideration in all trades and are
weighed along with the other relevant factors affecting
order execution set forth above. In allocating
brokerage among those brokers who are believed to be
capable of providing equally favorable execution, the
Fund takes into consideration the fact that a
particular broker may, in addition to execution
capability, provide other services to the Fund such as
research and statistical information. It is not
possible to place a dollar value on such services nor
does their availability reduce
the
expenses of the Manager, the Subadviser or Smith
Barney in connection with services rendered to other
advisory clients and not all such services may be used
in connection with the Fund.
<TABLE>
Shown below are the total brokerage fees paid by the
Fund on behalf of the Income and Growth Portfolio and
the Utility Portfolio during 1992, 1993 and 1994.
Also shown is the portion paid to Smith Barney and
the portion paid to other
brokers for the execution of orders allocated
in
consideration of research and statistical services or
solely for their ability to execute the order. During
fiscal year 1994, the total amount of commissionable
transactions was $661,159,000; $158,888,000 (24.0%) of
which was directed to Smith Barney and executed by
unaffiliated brokers and $502,271,000 (76.0%) of
which was directed to other brokers. <CAPTION>
Commissions
<S> <C> <C>
To
Others For
Execution and
For Execution
Only Research and
Statistical
Total To Smith Barney To Others
Services
1992 571,556 316,151 * 48.419,988
15.6
235,417
36.0
1993 1,169,691342,492* 29.3 242,492 20.7 584,707 50.0
1994 1,062,407177,691* 16.7 271,982 25.6 613,334
57.7
<FN>
* Directed to Smith Barney and executed
by
unaffiliated brokers.
</TABLE>
The Board of Directors of the Fund has adopted
certain policies and procedures incorporating the
standards of Rule 17e-1 issued by the Securities and
Exchange Commission under the Act which requires that
the commissions paid to Smith Barney must be
"reasonable and fair compared to the
commission, fee or other remuneration received or to
be received by other brokers in connection with
comparable transactions involving similar
securities during a
comparable period of time." The Rule and the policy
and procedures also contain review requirements and
require the Manager to furnish reports to the Board of
Directors and to maintain records in connection with
such reviews.
CUSTODIAN
Portfolio securities and cash owned by the Fund are
held in the custody of PNC Bank, National Association,
17th and Chestnut Streets, Philadelphia, Pennsylvania
19103 (foreign securities, if any, will be held in
the custody of the Barclays Bank, PLC)
In the event of the liquidation or dissolution of
the Fund, shares of a Portfolio are entitled to
receive the assets belonging to that Portfolio that
are available for distribution and a proportionate
distribution, based upon the relative net assets of
the respective Portfolios, of any general assets not
belonging to any particular
Portfolio
that are available for distribution.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, 345 Park Avenue, New York,
New York 10154, have been selected as independent
auditors for the Fund for its fiscal year ending
December 31, 1995 to audit and report on the
financial statements and
supplementary financial information of the Fund.
VOTING
As permitted by Maryland law, there will normally be
no meetings of shareholders for the
purpose of electing
directors unless and until such time as less than a
majority of the directors holding office have been
elected by shareholders. At that time, the directors
then in office will call a shareholders' meeting
for the election of directors. The directors must
call a meeting
of
shareholders for the purpose of voting upon the question
or removal of any director when requested in writing to
do so by the record holders of not
less than 10% of the
outstanding shares of the Fund. At such a
meeting, a director may be removed after the holders of
record of not less than a majority of the outstanding
shares of the Fund have declared that the director
be removed either by declaration in writing or by
votes cast in person or by proxy. Except as set
forth above, the directors shall continue to hold
office and may appoint successor directors.
As used in the Prospectus and this Statement
of Additional Information, a "vote of a majority
of the outstanding voting securities" means the
affirmative vote of the lesser of (a) more than 50% of
the outstanding shares of the Fund (or the affected
Portfolio or class) or (b) 67% or more of such shares
present at a meeting if more than 50% of the
outstanding shares of the Fund (or the affected
Portfolio or class) are represented at the meeting in
person or by proxy. A Portfolio or class shall be
deemed to be affected by a matter unless it is clear
that the interests of each Portfolio or class in
the matter are identical or that the matter does
not affect any interest of the Portfolio or class.
Under the Rule the approval of a management
agreement or any change in a fundamental
investment policy would be effectively acted upon
with respect to a Portfolio only if approved by a
"vote of a majority of the outstanding voting
securities" of the Portfolio affected by the matter;
however, the ratification of independent accountants,
the election of directors, and the approval of a
distribution agreement that is submitted to
shareholders are not subject to the separate voting
requirements and may be effectively acted upon by a vote
of the holders of a majority of all Fund shares voting
without regard to Portfolio. As of April 11, 1995, the
Smith Barney 401(k) Employee Savings Plan, 388
Greenwich Street, New York, New York, 10013,
owned of record, but
not
beneficially, 6,764,056.881 (100%) of the outstanding
Class Z shares of the Income and Growth Portfolio;
the Smith Barney 401(k) Employee Savings Plan, 388
Greenwich Street, New York, New York, 10013, owned
of record, but not beneficially, 1,581,464.673 (100%)
of the outstanding Class Z shares of the U.S.
Government Securities Portfolio; and the Smith Barney
401(k) Employee Savings Plan, 388 Greenwich Street, New
York, New York, 10013, owned of record, but not
beneficially, 739,425.414 (100%) of the outstanding
Class Z shares of the Income Return Account Portfolio.
The following table contains a list of shareholders
who of record or beneficially own at least 5% of the
outstanding shares of a
particular class of shares of a Portfolio of the
Fund:
U.S. Government Securities Portfolio
Class B
Charlie G. Herring
Smith Barney Inc. Rollover Cust.
1147 Hunters Drive
Stone Mountain, GA 30083-2544
owned 11,773.396 (5.86%) shares
Class Y
Virginia P. Swindal Tr.
UAD 4-9-92
Virginia P. Swindal Rev Trust
5111 South Nichols Street
Tampa, FL 33611-4132
owned 60,757.000 (9.66%) shares
Baxter P. Freeze & Anne Freeze TRS
U/A/D 4/24/92
Baxter P. Freeze Charitable Trust
1515 Wickliff Avenue
High Point, NC 27262-4551
owned 77,532.849 (12.33%) shares
Arthur Smith Corporation
c/o Phyllis Smith
4888 Loop Central Drive
Suite 500
Houston, TX 77081-2214
owned 105,560.000 (16.79%) shares
Bost & Co.
FBO Labranche & CO.
One Cabot Road
Mutual Fund Operations
Medford, MA 02155
owned 558,358.16 (6.90%) shares
Raul Cuadrado
3250 Riveria Drive
Coral Gables, FL 33134-6477
owned 36,390.102 (5.79%) shares
Charles Dockery
Smith Barney Inc. Rollover Cust
338 Deauville Road
Statesville, NC 28677-7501
owned 35,919.486 (5.71%) shares
Nolan Gotcher
232 Spyglass Drive
Advance, NC 27006-9566
owned 35,588 (5.66%) shares
Monthly Payment Government Portfolio
Class B shares
J.H. Winters Inc.
P.O. Box 445
Burlingame, CA 94011-0445
owned 6,480.167 (25.59%) shares
Lincoln Trust Co. C/F
Invt. Annuity of Paul Kasper
P.O. Box 5831 T.A.
Denver, CO 80217
owned 2,543.772 (10.05%) shares
Winslow Williams
June K. Williams
300 Ridge Road
Richmond, VA 23229-7449
owned 2,520.383 (9.95%) shares
Konrad R. Solochier & Edna M.
Solochier Family Trust
FBO Konrad and Edna Solochier
306 NE Holly Ave.
Port St. Lucie, FL 34952
owned 2,441.215 (9.64%) shares
William J. Keck
Smith Barney Inc. Rollover Cust
2649 Via Pacheco
Palos Vedes, CA 90275
owned 2,123.375 (8.39%) shares
George E. Fitch Jr.
Smith Barney Inc. Rollover Cust
2649 Via Pacheco
Palos Verdes Est CA 90274-4349
owned 1,271.886 (5.02%) shares
Class C shares
Martha Araujo as Conservator
FOR Manuel Araujo
47-26 157th Street
Flushing, NY 11355-2346
owned 22,034.696 (8.30%) shares
City of Falcon Heights
Attn: Tom Kelly
2077 West Larpeatlur Avenue
Falcon Heights, MN 55113-5551
owned 22,919.000 (8.63%) shares
Income Return Account Portfolio
Class A
Haffner's Car Care Corp.
Attn: E. Haffner Fournier
69 Parket Street
Lawrence, MA 01843-1532
owned 100,436.024 (5.21%) shares
Kerry E. Barnett, Receiver
FOR North-West Insurance Co.
c/o Jack Sanguin
350 Morgan Bldg., 720 S.W. Washington
Portland, OR 97205-3500
owned 437,391.568 (22.71%) shares
Class C
Marshall E. Redding / IRA
Smith Barney IRA Cust.
2530 Atlantic Avenue, Suite - A
Long Beach, CA 90806-2741
owned 21,720.353 (7.42%) shares
Brendan T. Cremen
Susan Delany Cremen
c/o Delany
17 Libarary Road
Shankill
County Dublin, Ireland
owned 19,071.371 (6.51%) shares
Process Supplies And
Accessories Incorporated
Profit Sharing Plan
Attn. Larry E. Wright
P.O. 11025
Knoxville, TN 37939
owned 16,112.859 (5.50%) shares
Class Y
Mark Rothbaum & Associates Inc.
Pension Plan U/A/D 7/1/80
Mark Rothbaum TTEE
P.O. Box K
Redding, CT 06875-0236
owned 49,745.154 (21.03%) shares
The Interfaith Coalition Fr.
the Andrew Recovery Effort
Attn: Mary Louise Cole/Director
111 S.W. Fifth Avenue, #104
Miami, FL 33130-1381
owned 34,423.627 (14.55%) shares
Beatrice S. Wind
Smith Barney IRA Cust.
8101 S.W. 72nd Avenue
Miami, FL 33143-7609
owned 50,177.516 (21.44%) shares
Kurt F. Wilkening
243 Robin Drive
Sarasota, FL 34236
owned 55,097.057 (23.29%) shares
Elizabeth Lynn Schneider &
Theodre J. Vittoria
Beatrice S. Wind Charitable
630 Fifth Avenue
New York, NY 10111
owned 22,109.115 (9.35%) shares
David B. Heyler Jr.
Myrtle Elaine Cornish Trust
FBO South Coast Botanic Garden
Foundation
2049 Century PArk East # 1200
Los Angeles, CA 90067
owned 18,785.201 (7.94) shares
Utility Portfolio
Class B shares
Derrell Johnson &
Carol Robinson Co.
FBO Rady and Assoc. Inc.
910 Collier
Fort Worth, TX 76102-3524
owned 9,829.283 (5.68%) shares
Katherine W. Washburne
2022 N. 71st Street
Milwaukee, WI 53213
owned 9,156.37 (5.29%) shares
<TABLE>
FINANCIAL STATEMENTS
The following financial information is
hereby incorporated by reference to the indicated
pages of the Fund's 1994 Annual Reports to
Shareholders, copies of which are furnished with this
Statement of Additional Information. <CAPTION>
Page(s) in
Annual Report:
<S>
<C>
<C>
Income & Growth
U.S.Gov't
et al
Average Annual Total Return 3-5 3-4, 6-
8
Line Graph Showing Growth of $10,000 Investment
6 5,9
Statements of Assets and Liabilities
dated December 31, 1994 11 12
Statements of Changes in Net Assets
for the years ended December 31, 1994 and 1993
13
14
Statements of Operations
for the year ended December 31, 1994 12 13
Notes to Financial Statements 14-18 15-20
Financial Highlights 19-21 21-23
Independent Auditors' Report 22 24
Page(s) in
Annual Report:
Income
Return et al
Average Annual Total Return 3-4,6
Line Graph Showing Growth of $10,000 Investment
5,7 Statement of Assets and Liabilities
dated December 31, 1994 10
Statement of Changes in Net Assets
for the years ended December 31, 1994 and 1993 12
Statement of Operations
for the year ended December 31, 1994
11
Notes to Financial Statements 13-
16
Financial Highlights 17-
19
Independent Auditors' Report
20
Page(s) in
Annual Report:
Utility
Average Annual Total Return 3-4
Line Graph Showing Growth of $10,000 Investment
5 Statement of Assets and Liabilities
dated December 31, 1994 8
Statement of Changes in Net Assets
for the years ended December 31, 1994 and 1993
10 Statement of Operations
for the year ended December 31, 1994 9
Notes to Financial Statements 11-
14
Financial Highlights
15
Independent Auditors' Report
16
</TABLE>
APPENDIX - RATINGS OR DEBT
OBLIGATIONS BOND (AND NOTES) RATINGS
Moody's Investors Service, Inc.
Aaa - Bonds that are rated "Aaa" are judged to be of
the best quality. They carry the smallest
degree of investment risk and are generally
referred to as "gilt edged." Interest payments are
protected by a large or
by an
exceptionally stable margin and principal is secure.
While the various protective elements are likely to
change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of
such issues.
Aa - Bonds that are rated "Aa" are judged to
be of high quality by all standards. Together with the
"Aaa" group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in
"Aaa" securities or fluctuation of protective elements
may be of greater amplitude or there may be other
elements present that make the long term risks appear
somewhat larger than in "Aaa" securities.
A - Bonds that are rated "A" possess many
favorable investment attributes and are to be considered
as upper medium grade obligations. Factors giving
security to principal and
interest are considered adequate by elements may be
present that suggest a susceptibility to impairment
sometime in the future.
Baa - Bonds that are rated "Baa" are considered
as medium grade obligations, i.e., they are neither
highly protected nor poorly secured. Interest
payments and principal security appear adequate for
the present but certain protective elements may
be lacking or may be characteristically
unreliable over any
great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative
characteristics as well.
Ba - Bonds which are rated Ba are judged to
have speculative elements; their future cannot be
considered as
well assured. Often the protection of interest
and principal payments may be very moderate and thereby
not well safeguarded during both good and bad times over
the future. Uncertainty of position characterizes bonds
in this class.
B - Bonds which are rated B generally lack
characteristics of the desirable investment. Assurance
of interest and principal payments or of maintenance of
other terms of the contract over any long period of time
may be small.
Caa - Bonds which are rated Caa are of poor
standing. Such issues may be in default or there may
be present elements of danger with respect to principal
or interest.
Ca - Bonds which are rated Ca represent obligations which
are speculative in a high degree. Such issues are often
in default or have other marked shortcomings.
C - Bonds which are rated C are the lowest class of bonds
and issues so rated can be regarded as having extremely
poor prospects of ever attaining any real investment
standing.
Con (..) - Bonds for which the security depends upon
the completion of some act or the fulfillment
of some condition are
rated conditionally. These are bonds secured by (a)
earnings of projects under construction, (b) earnings of projects
unseasoned in operating experience, (c) rentals which begin when
facilities are completed, or (d) payments to which
some other limiting condition attaches.
Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
Note: The modifier 1 indicates that the security
ranks in the higher end of
its
generic rating category; the modifier
2 indicates a mid-range ranking; and the
modifier 3
indicates that the issue ranks in the lower end
of its generic rating category.
Standard & Poor's Corporation
AAA - Debt rated "AAA" has the highest rating
assigned by Standard & Poor's. Capacity to pay interest and
repay principal is extremely strong.
AA - Debt rated "AA" has a very strong capacity to pay interest
and repay principal and differs from the highest rated issues only
in small degree.
A- Debt rated "A" has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB - Debt rated "BBB" is regarded as having an adequate capacity
to pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
BB, B, CCC, CC, C - Debt rated 'BB', 'B', 'CCC',
'CC' and 'C' is regarded,
on
balance, as predominantly speculative
with respect to capacity to pay interest and repay
principal in accordance with the terms of the
obligation.
'BB'
indicates the lowest degree of speculation and
'C' the highest degree of speculation. While such debt
will likely have some quality and protective
characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse
conditions.
Plus (+) or Minus (-): The ratings from 'AA' to 'B'
may be modified by the addition of a plus or minus sign
to show relative standing within the major rating
categories.
Provisional Ratings: The letter "p" indicates that
the rating is provisional. A provisional rating
assumes the successful completion of the project being
financed by the debt being rated and indicates that
payment of debt service requirements is largely or
entirely dependent upon the successful and timely
completion of
the project.
This
rating, however, while addressing credit quality
subsequent to completion of the project, makes
no comment on the likelihood of, or the risk
of default upon failure of, such completion.
The investor should exercise judgment with
respect to such likelihood and risk.
L The letter "L" indicates that the rating
pertains to the principal
amount
of those bonds where the underlying
deposit collateral is fully insured by the Federal
Savings & Loan Insurance Corp. or the Federal Deposit Insurance Corp.
+ Continuance of the rating is contingent
upon S&P's receipt of closing documentation confirming investments and
cash flow.
* Continuance of the rating is contingent
upon S&P's receipt of an executed copy of the escrow agreement.
NR Indicates no rating has been requested, that there is
insufficient information on which to base a rating,
or that S&P does not rate
a
particular type of obligation as a
matter of policy.
COMMERCIAL PAPER RATINGS
Moody's Investors Service, Inc.
Issuers rated "Prime-1" (or related supporting institutions)
have a superior capacity for repayment of short-term promissory
obligations. Prime-1 repayment will normally be evidenced by the
following characteristics: leading market positions in well-
established
industries; high rates of
return
on funds employed; conservative
capitalization structures with moderate reliance on
debt and ample asset protection; broad margins in
earnings coverage of
fixed financial changes and high internal
cash generation; well-established access to a range of
financial markets and assured sources of
alternate liquidity.
Issuers rated "Prime-2" (or related
supporting institutions) have strong capacity
for
repayment of shortterm
promissory obligations. This will normally
be
evidenced by many of the characteristics cited
above but to a lesser degree. Earnings trends
and coverage ratios, while sound, will be more
subject to variation. Capitalization
characteristics, while still appropriate, may
be more
affected by external conditions. Ample
alternate liquidity is maintained.
Standard & Poor's Corporation
A-1 - This designation indicates that
the degree of safety regarding timely
payment is either overwhelming or very
strong.
Those issuers determined to possess
overwhelming safety characteristics will be
denoted with a plus (+) sign designation.
A-2 - Capacity for timely payment on issues
with this designation is strong. However, the
relative degree of safety is not as high as for
issues designated A-1.
u:\osunkwo\soain14.sma
STATEMENT OF ADDITIONAL INFORMATION DATED JUNE
12, 1995
Acquisition Of The Assets Of
SMITH BARNEY LIMITED MATURITY TREASURY
FUND a separate series of
SMITH BARNEY INCOME
TRUST
388 Greenwich Street
New York, New York
10013
(800) 224-7523
By And In Exchange For Class A and Class Y
Shares Of
SHORT-TERM U.S. TREASURY SECURITIES
PORTFOLIO a separate series
of SMITH BARNEY FUNDS,
INC.
388 Greenwich
Street New York,
New York
10013 (800)
224 7523
This Statement of Additional
Information, relating specifically to
the proposed transfer of all or
substantially all of the assets of
Smith Barney Limited Maturity Treasury
Fund (the "Acquired Fund"), a separate
series of Smith Barney Income Trust
(the "Trust")
to Smith Barney Funds, Inc. (the
"Company") on
behalf of Short-Term U.S. Treasury
Securities Portfolio (the "Acquiring
Fund") in exchange for Class A and
Class Y shares of the Acquiring Fund
and the
assumption by the Company on behalf of
the Acquiring Fund of certain
scheduled liabilities of
the Acquired Fund, consists of this
cover page and the following
described documents, each of which
accompanies this Statement of
Additional Information and is
incorporated herein by reference.
1. Statement of
Additional Information of Smith
Barney Income Trust dated January 29,
1995.
2. Statement of
Additional Information of Smith Barney
Funds, Inc. dated April 28,
1995.
3. Annual Report of Smith Barney
Limited Maturity
Treasury Fund dated November
30, 1994.
4. Semi-annual Report of Smith
Barney
Limited
Maturity Treasury Fund dated May 31,
1994.
5. Semi-Annual Report of Smith Barney
Funds, Inc. -
Short-Term U.S. Treasury Securities
Portfolio dated June 30, 1994.
6. Annual Report of Smith
Barney Funds, Inc. - Short-Term
U.S. Treasury Securities
Portfolio dated December 31, 1994.
7 Pro Forma Financial Statements.
This Statement of
Additional Information is not a prospectus. A
Prospectus/Proxy Statement, dated May 10, 1995,
relating to the above-referenced matter may be
obtained without charge by calling or writing
either the Acquiring Fund or the Acquired Fund at
the telephone numbers or addresses set forth
above or by contacting any Smith
Barney Financial Consultant or by
calling tollfree 1-800- 224-7523. This
Statement of Additional Information should
be read
in conjunction with the
Prospectus/Proxy Statement dated June
12, 1995.
The date of this Statement
of Additional Information is June 12,
1995.
<PAGE>
P R O S P E C T U S
SMITH BARNEY FUNDS, INC.
Short-Term
U.S. Treasury
Securities
Portfolio
APRIL 28, 1995
Prospectus begins on page one
LOGO Smith Barney Mutual Funds
Investing for your future.
Every day.
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
PROSPECTUS
APRIL 28, 1995
388 Greenwich Street
New York, New York 10013
(212) 723-9218
The Short-Term U.S. Treasury Securities Portfolio
(the "Portfolio") is one of
six investment portfolios that currently comprise
Smith Barney Funds, Inc. (the
"Fund"). The Portfolio seeks current income,
preservation of capital and
liquidity. The Portfolio seeks to achieve its
objective by investing its assets
in U.S. Treasury securities backed by the full
faith and credit of the U.S.
Government. Shares of the Portfolio are not
issued, insured or guaranteed, as
to value or yield, by the U.S. Government or its
agencies or instrumentalities.
This Prospectus sets forth concisely certain
information about the Fund and
the Portfolio, including distribution and service
fees and expenses, that pro-
spective investors will find helpful in making an
investment decision. Invest-
ors are encouraged to read this Prospectus
carefully and retain it for future
reference.
Additional information about the Portfolio is
contained in a Statement of
Additional Information dated April 28, 1995, as
amended or supplemented from
time to time, that is available upon request and
without charge by calling or
writing the Fund at the telephone number or
address set forth above or by con-
tacting a Smith Barney Financial Consultant. The
Statement
of Additional Infor-
mation has been filed with the Securities and
Exchange Commission (the "SEC")
and is incorporated by reference into this
Prospectus in its entirety.
SMITH BARNEY INC.
Distributor
SMITH BARNEY MUTUAL FUNDS MANAGEMENT INC.
Investment Manager
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>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
TABLE OF CONTENTS
<TABLE>
<S>
<C> PROSPECTUS SUMMARY
3 -------------------------------------------
FINANCIAL HIGHLIGHTS
8 -------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 9 ----
- ---------------------------------------VALUATION OF
SHARES
10 -------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
11 -------------------------------------------
PURCHASE OF SHARES
12 -------------------------------------------
EXCHANGE PRIVILEGE
16 -------------------------------------------
REDEMPTION OF SHARES
20 --------------------------------------------
MINIMUM ACCOUNT SIZE
23 -------------------------------------------
PERFORMANCE
23 -------------------------------------------
MANAGEMENT OF THE FUND
24 --------------------------------------------
DISTRIBUTOR
26 -------------------------------------------
ADDITIONAL INFORMATION
26 ---------------------------------------------
</TABLE>
- ---------------------------------------------------
- ----------------------
No person has been authorized to give any
information
or
to make any
representations in connection with this offering
other than those contained in
this Prospectus and, if given or made, such other
information and
representations must not be relied upon as having
been authorized by the Fund
or the Distributor. This Prospectus does not
constitute an offer by the Fund
or the Distributor to sell or a solicitation of an
offer to buy any of the
securities offered hereby in any jurisdiction to
any person to whom it is
unlawful to make such offer or solicitation in such
jurisdiction. -------------------------------------
- ---
- ----------------------------------
2
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
PROSPECTUS SUMMARY
The following summary is qualified in its entirety
by detailed information
appearing elsewhere in this Prospectus and in the
Statement of Additional
Information. Cross references in this summary are
to headings in the
Prospectus. See "Table of Contents."
INVESTMENT OBJECTIVE The Portfolio is an open-end,
management investment com-
pany. The Portfolio seeks current income,
preservation of capital and liquidi-
ty. The Portfolio seeks to achieve its objective by
investing its assets in
U.S. Treasury securities backed by the full faith
and credit of the U.S. Gov-
ernment. Shares of the Portfolio are not issued,
insured or guaranteed, as to
value or yield, by the U.S. Government or its
agencies or instrumentalities.
See "Investment Objective and Management Policies."
ALTERNATIVE PURCHASE ARRANGEMENTS The Portfolio
offers two classes of shares
("Classes") to investors. The general public is
offered Class A shares. Class
Y shares are offered only to investors meeting an
initial investment minimum
of $5,000,000. See "Purchase of Shares" and
"Redemption of Shares."
Class A Shares. Class A shares are sold at net
asset value without a sales
charge. Class A shares acquired as part of an
exchange privilege transaction,
which were originally acquired in one of the other
funds of the Smith Barney
Mutual Funds at net asset value subject to a
contingent deferred sales charge
("CDSC"), remain subject to the original fund's
CDSC while held in the Portfo-
lio. Class A shares are subject to an annual
service fee of 0.25% and an
annual distribution fee of 0.10% of the average
daily net assets of this
Class.
Class Y Shares. Class Y shares are available only
to investors meeting an ini-
tial investment minimum of $5,000,000. Class Y
shares are sold at net asset
value with no initial sales charge or CDSC. They
are not subject to any serv-
ice or distribution fees.
See "Distributor" for a complete description of the
service and distribution
fees for Class A shares and "Valuation of Shares,"
"Dividends, Distributions
and Taxes" and "Exchange Privilege" for other
differences between the Classes
of shares.
SMITH BARNEY 401(k) PROGRAM Investors may be
eligible to participate in the
Smith Barney 401(k) Program, which is generally
designed to assist plan spon-
sors in the creation and operation of retirement
plans under Section 401(a)
3
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
PROSPECTUS SUMMARY (CONTINUED)
of the Internal Revenue Code of 1986, as amended
(the "Code"), as well as
other types of participant directed, tax-qualified
employee benefit plans
(collectively, "Participating Plans"). Class A and
Class Y shares are avail-
able as investment alternatives for Participating
Plans. See "Purchase of
Shares -- Smith Barney 401(k) Program."
PURCHASE OF SHARES Shares may be purchased through
a brokerage account main-
tained with Smith Barney Inc. ("Smith Barney").
Shares may also be purchased
through a broker that clears securities
transactions through Smith Barney on a
fully disclosed basis (an "Introducing Broker") or
an investment dealer in the
selling group. In addition, certain investors,
including qualified retirement
plans and certain other institutional investors,
may purchase shares directly
from the Fund through the Fund's transfer agent,
The Shareholder Services
Group, Inc. ("TSSG"), a subsidiary of First Data
Corporation. See "Purchase of
Shares."
INVESTMENT MINIMUMS Investors in Class A shares may
open an account by making
an initial investment of at least $1,000 for each
account, or $250 for an
individual retirement account ("IRA") or a
SelfEmployed Retirement Plan.
Investors in Class Y shares may open an account for
an initial investment of
$5,000,000. Subsequent investments of at least $50
may be made in either
Class. For participants in retirement plans
qualified under Section 403(b)(7)
or Section 401(a) of the Code, the minimum initial
investment requirement for
Class A shares and the subsequent investment
requirement for both Class A and
Class Y shares is $25. The minimum initial
investment requirement for Class A
shares and the subsequent investment requirement
for both Class A and Class Y
shares through the Systematic Investment Plan
described below is $50. See
"Purchase of Shares."
SYSTEMATIC INVESTMENT PLAN The Portfolio
offers shareholders a Systematic
Investment Plan under which they may
authorize the automatic placement of a
purchase order each month or quarter for
Portfolio shares in an amount of at
least $50. See "Purchase of Shares."
REDEMPTION OF SHARES Shares may be redeemed on
each day the New York Stock
Exchange, Inc. ("NYSE") is open for business.
See "Purchase of Shares" and
"Redemption of Shares."
4
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
PROSPECTUS SUMMARY (CONTINUED)
MANAGEMENT OF THE PORTFOLIO Smith Barney Mutual
Funds Management Inc. (former-
ly, Smith, Barney Advisers, Inc.) (the "Manager")
serves as the Portfolio's
investment manager. The Manager is a wholly owned
subsidiary of Smith Barney
Holdings Inc. ("Holdings"). Holdings is a wholly
owned subsidiary of The Trav-
elers Inc. ("Travelers"), a diversified financial
services holding company
engaged, through its subsidiaries, principally in
four business segments:
Investment Services, Consumer Finance Services,
Life Insurance Services and
Property & Casualty Insurance Services. See
"Management of the Fund."
EXCHANGE PRIVILEGE Shares of a Class may be
exchanged for shares of the same
Class of certain other funds of the Smith
Barney Mutual Funds at the respec-
tive net asset values next determined, plus
any applicable sales charge dif-
ferential. See "Exchange Privilege."
VALUATION OF SHARES Net asset value of the
Portfolio for the prior day gener-
ally is quoted daily in the financial section of
most newspapers and is also
available from a Smith Barney Financial Consultant.
See "Valuation of Shares."
DIVIDENDS AND DISTRIBUTIONS Dividends are paid
monthly from net investment
income. Distributions of net realized capital
gains, if
any, are paid annual-
ly. See "Dividends, Distributions and Taxes."
REINVESTMENT OF DIVIDENDS Dividends and
distributions paid on shares of the
Portfolio will be reinvested automatically, unless
otherwise specified by an
investor, in additional shares of the same Class at
current net asset value.
See "Dividends, Distributions and Taxes."
RISK FACTORS AND SPECIAL CONSIDERATIONS There can
be no assurance that the
Portfolio's investment objective will be achieved.
The value of the Portfo-
lio's investments, and thus the net asset value of
the Portfolio's shares,
will fluctuate in response to changes in market and
economic conditions, as
well as the financial condition and prospects of
issuers in which the Portfo-
lio invests. See "Investment Objective and
Management Policies."
5
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
PROSPECTUS SUMMARY (CONTINUED)
THE PORTFOLIO'S EXPENSES The following expense
table lists the costs and
expenses an investor will incur either directly or
indirectly as a shareholder
of the Portfolio based, unless otherwise noted, on
the Portfolio's operating
expenses for its most recent fiscal year:
<TABLE>
<CAPTION>
CLASS A CLASS Y -----------------------------------
- ---------------------------------------
<S>
<C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on
purchases (as a percentage of
offering price).......................
None None
Maximum CDSC
(as a percentage of original cost or redemption
proceeds, whichever is
lower)............................. None* None -
- ---------------------------------------------------
- -----------------
ANNUAL PORTFOLIO OPERATING EXPENSES
(as a percentage of average net assets)
Management
fees.............................................
0.45% 0.45%
12b-1
fees...............................................
.. . 0.35 --
Other
expenses**.........................................
.. . 0.11 0.10 -----------------------------------
- ------
- -----
- -------------------------------
TOTAL PORTFOLIO OPERATING EXPENSES
0.91% 0.55% -------------------------------------
- -------------------------------------
</TABLE>
* Class A shares acquired as part of an exchange
privilege
transaction, which
were originally acquired in one of the other funds
of the
Smith Barney
Mutual Funds at net asset value subject to a
CDSC, remain
subject to the
original fund's CDSC while held in the
Portfolio. ** "Other expenses" for Class Y shares
have been estimated because no Class Y
shares were outstanding during the fiscal year
ended December 31, 1994.
Smith Barney receives an annual 12b-1 fee of 0.35%
of the
value of average
daily net assets of Class A shares, consisting of a
0.10% distribution fee and
a 0.25% service fee. "Other expenses" in the above
table
include fees for
shareholder services, custodial fees, legal and
accounting fees, printing costs
and registration fees.
6
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities
Portfolio
PROSPECTUS SUMMARY (CONTINUED)
EXAMPLE
The following example is intended to assist
an
investor in understanding the
various costs that an investor in the Portfolio
will bear directly or indirect-
ly. The example assumes payment by the Portfolio of
operating expenses at the
levels set forth in the table above. See "Purchase
of Shares," "Redemption of
Shares" and "Management of the Fund."
<TABLE>
<CAPTION>
1
YEAR 3 YEARS 5 YEARS 10 YEARS ---
- ---------------------------------------------------
- --------------------
<S> <C>
<C>
<C> <C>
An investor would pay the following expenses
on a $1,000 investment, assuming (1) 5.00%
annual return and (2) redemption at the
end of each time period:
Class A.................................... $
9 $29
$50 $112
Class Y....................................
6 18
31 69
</TABLE>
The example also provides a means for the investor
to compare expense levels
of funds with different fee structures over varying
investment periods. To
facilitate such comparison, all funds are required
to utilize a 5.00% annual
return assumption. However, the Portfolio's actual
return will vary and may be
greater or less than 5.00%. THIS EXAMPLE SHOULD NOT
BE CONSIDERED A REPRESENTA-
TION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN
THOSE SHOWN.
7
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
FINANCIAL HIGHLIGHTS
The following schedule for the periods ended
December 31st has been audited in
conjunction with the annual audits of the financial
statements of Smith Bar-
ney Funds, Inc. by KPMG Peat Marwick LLP,
independent auditors. The 1994 finan-
cial statements and the independent auditors'
report thereon appear in the
December 31, 1994 Annual Report to Shareholders. No
information is presented
for Class Y shares, because no Class Y shares were
outstanding for the periods
shown.
FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT
EACH PERIOD:
<TABLE>
<CAPTION>
CLASS A SHARES 1994
1993 1992 1991(a) -----------------------------
- --------------------------------------------
<S> <C>
<C>
<C> <C>
Net Asset Value, Beginning of Period $4.16
$4.12 $4.09 $4.01 ------------------------------
- -------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERA-
TIONS:
Net investment income 0.18
0.18
0.19 0.03
Net realized and unrealized gain
(loss) on investments (0.25)
0.06
0.04 0.09 -------------------------------------
- --
- --
- ----------------------------------
Total Income (Loss) from Investment
Operations (0.07)
0.24
0.23 0.12 -------------------------------------
- --
- --
- ----------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (0.18)
(0.18) (0.19) (0.03)
Distributions from net realized gains
on security transactions -(0.02)
(0.01) (0.01) -----------------------------------
- --------------------------------------
Total Distributions (0.18)
(0.20) (0.20) (0.04) ----------------------------
- ---------------------------------------------
NET ASSET VALUE, END OF PERIOD 3.91
4.16
4.12 4.09 -------------------------------------
- --
- --
- ----------------------------------
TOTAL RETURN (2.15)%
6.01% 5.92% 2.85%++ -
- --
- ---------------------------------------------------
- --------------------
NET ASSETS, END OF PERIOD (000S) $88,707
$205,758 $130,280 $93,946 ------------------------
- ------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.91%
0.88%
0.91% 0.80%+
Net investment income 4.54
4.40
4.76 4.89+ ------------------------------------
- --
- --
- -----------------------------------
PORTFOLIO TURNOVER RATE 24.51%
41.12%
44.99% 4.61% -----------------------------------
- --
- --
- ------------------------------------
</TABLE>
(a) For the period from November 11,
1991 (commencement of operations) to
December 31, 1991.
+ Annualized.
++ Not annualized as it may not be representative
of the
total return for the
year.
8
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The investment objective of the Portfolio is current
income, preservation of
capital and liquidity. There can be no assurance
that the investment objective
of the Portfolio will be achieved.
The Portfolio will seek to achieve its objective by
investing its assets in
U.S. Treasury debt securities guaranteed by the
direct "full faith and credit"
pledge of the United States Government. U.S.
Treasury debt securities (includ-
ing Treasury bills, notes and bonds) are direct
obligations of the U.S. Trea-
sury. The payment of principal and interest on such
securities is uncondition-
ally guaranteed by the U.S. Government and,
therefore, they are deemed to be of
the highest possible credit quality.
Though U.S. Treasury debt securities have
historically not involved risk of
loss of principal if held to maturity, they are
subject to variations in market
value due to fluctuations in interest rates. Changes
in the value of portfolio
securities will not affect interest income from
those securities but will be
reflected in the Portfolio's net asset value. Thus,
a decrease in interest
rates will generally result in an increase in the
value of the Portfolio's
shares. Conversely, during periods of rising
interest rates, the value of the
Portfolio's shares will generally decline. In an
effort to minimize fluctua-
tions in market value of its portfolio securities,
the Portfolio is expected to
maintain a dollar-weighted average maturity of
approximately 3 years.
Pending direct investment in U.S. Treasury debt
securities, the Portfolio may
enter into repurchase agreements secured by such
securities in order to earn
income on available cash but only in an amount up to
10% of the value of its
total assets. A repurchase agreement arises when the
Portfolio acquires a secu-
rity and simultaneously agrees to resell it to the
vendor at an agreed-upon
future date, normally the next business day. The
resale price is greater than
the purchase price and reflects an agreed-upon
return unrelated to the coupon
rate on the purchased security. Such transactions
afford an opportunity for the
Portfolio to invest temporarily available cash at no
market risk. The Portfolio
requires continual maintenance of the market value
of the collateral in amounts
at least equal to the resale price. The Portfolio's
risk is limited to the
ability of the seller to pay the agreed-upon amount
on the delivery date; how-
ever, if the seller defaults, realization upon the
collateral by the Portfolio
may be delayed or limited, or the Portfolio might
incur a loss if the value of
the collateral securing the repurchase agreement
declines and might incur dis-
position costs in connection with liquidating the
collateral.
9
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
(CONTINUED)
The Portfolio may, to a limited degree, engage in
short term trading to
attempt to take advantage of short-term market
variations, or may dispose of a
portfolio security prior to its maturity if it
believes such disposition advis-
able or it needs to generate cash to satisfy
redemptions. As the portfolio
turnover rate increases, so will the Portfolio's
dealer markups and other
transaction related expenses. Investors should
realize that risk of loss is
inherent in the ownership of any securities and that
shares of the Portfolio
will fluctuate with the market value of its
securities.
As a matter of fundamental policy, the Portfolio may
borrow money from banks
for temporary purposes but only in an amount up to
10% of the value of its
total assets and may pledge its assets in an amount
up to 10% of the value of
its total assets to secure such borrowings. The
Portfolio will borrow money
only to accommodate requests for the redemption of
shares while effecting an
orderly liquidation of portfolio securities or to
clear securities transactions
and not for leveraging purposes. Whenever borrowings
exceed 5% of the value of
its total assets, the Portfolio will not make any
additional investments.
The Portfolio's investment objective may be changed
only by the "vote of a
majority of the outstanding voting securities" as
defined in the Investment
Company Act of 1940 (the "1940 Act"). Except as
specifically noted, the Portfo-
lio's investment policies are not fundamental and,
as such, may be modified by
the directors of the Fund provided such
modification is not prohibited by the
investment restrictions (which are set forth in the
Statement of Additional
Information) or applicable law, and any such change
will first be disclosed in
the then current prospectus.
VALUATION OF SHARES
The Portfolio's net asset value per share is
determined as of the close of
regular trading on the NYSE on each day that the
NYSE is open, by dividing the
value of the Portfolio's net assets attributable to
each Class by the total
number of shares of the Class outstanding.
Securities owned by the Portfolio are valued at the
mean between the bid and
asked quotations for those securities or if no
quotations are available, then
for securities of similar type, yield and maturity.
Short term investments that
have a maturity of more than 60 days are valued at
prices based on market
10
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
VALUATION OF SHARES (CONTINUED)
quotations for securities of similar type, yield
and maturity. Short-term
investments with a remaining maturity of 60 days or
less are valued at amor-
tized cost where the Board has determined that
amortized cost is fair value.
Other investments of the Portfolio, if any, are
valued at a fair value deter-
mined by the Board of Directors in good faith.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Portfolio declares a dividend of substantially
all of
its net investment
income on each day the NYSE is open. Net investment
income includes interest
accrued and discount earned and all short-term
realized gains and losses on
portfolio securities and is less premium amortized
and expenses accrued.
Income dividends are paid monthly. Distributions of
net realized capital
gains, if any, are paid annually.
If a shareholder does not otherwise instruct,
dividends
and capital gain
distributions will be reinvested automatically in
additional shares of the
same Class at net asset value.
Income dividends and capital gain distributions that
are invested are cred-
ited to shareholders' accounts in additional shares
at the net asset value as
of the close of business on the payment date. A
shareholder may change the
option at any time by notifying a Smith Barney
Financial Consultant. Accounts
held directly by TSSG should notify TSSG in writing
at least five business
days prior to the payment date to permit the change
to be entered in the
shareholder's account. If a shareholder redeems in
full
an account between
payment dates, all dividends accrued to the date of
liquidation will be paid
with the proceeds from the redemption of shares.
The per share dividends on Class A shares of the
Portfolio may be lower than
the per share dividends on Class Y shares
principally as a result of the serv-
ice and distribution fees applicable to Class A
shares. Distributions of capi-
tal gains, if any, will be in the same amount for
Class A and Class Y shares.
TAXES
The Portfolio intends to qualify as a regulated
investment company under
Subchapter M of the Code to be relieved of Federal
income tax on that part of
11
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
its net investment income and realized capital gains
which it pays out to its
shareholders. To qualify, the Portfolio must meet
certain tests, including dis-
tributing at least 90% of its investment company
taxable income, and deriving
less than 30% of its gross income from the sale or
other disposition of certain
investments held for less than three months.
Dividends from net investment income and
distributions of
realized short-term
capital gains on the sale of securities, whether
paid in cash or automatically
invested in additional shares of the Portfolio, are
taxable to shareholders of
the Portfolio as ordinary income. The Portfolio's
dividends will not qualify
for the dividends received deduction for
corporations. Distributions out of net
long-term capital gains (i.e., net long-term
capital gains in excess of net
short-term capital losses) are taxable to
shareholders as long-term capital
gains. Information as to the tax status of
dividends paid or deemed paid in
each calendar year will be mailed to shareholders
as early in the succeeding
year as practical but not later than January 31.
The Fund is required to withhold and remit to the
U.S. Treasury 31% of divi-
dends, distributions and redemption proceeds to
shareholders who fail to pro-
vide a correct taxpayer identification number (the
Social Security number in
the case of an individual) or to make the required
certifications, or who have
been notified by the Internal Revenue Service that
they are subject to backup
withholding and who are not otherwise exempt. The
31% withholding tax is not an
additional tax, but is creditable against a
shareholder's Federal income tax
liability.
State Taxes. The Fund believes that dividends paid
by the
Portfolio are
exempt from state income taxation.
Prior to investing in shares of the Portfolio,
investors should consult with
their tax advisors concerning the Federal, state
and local tax consequences of
such an investment.
PURCHASE OF SHARES
GENERAL
The Portfolio offers two Classes of shares. Class A
shares are sold to
investors without an initial sales charge or CDSC
but are subject to annual
service
12
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
PURCHASE OF SHARES (CONTINUED)
and distribution fees. (In addition, Class A shares
acquired as part of an
exchange privilege transaction, which were
originally acquired in one of the
other funds of the Smith Barney Mutual Funds at net
asset value subject to a
CDSC, remain subject to the original fund's CDSC
while held in the Portfolio.)
Class Y shares are sold without an initial sales
charge or CDSC or service or
distribution fees, and are available only to
investors investing a minimum of
$5,000,000.
Shares may be purchased through a brokerage account
maintained with Smith
Barney. Shares may also be purchased through an
Introducing Broker or an
investment dealer in the selling group. In
addition, certain investors, includ-
ing qualified retirement plans and certain other
institutional investors, may
purchase shares directly from the Fund through
TSSG. When purchasing shares of
the Portfolio, investors must specify whether the
purchase is for Class A or
Class Y shares. No maintenance fee will be charged
by the Fund in connection
with a brokerage account through which an investor
purchases or holds shares.
Investors in Class A shares may open an account
by making
an initial invest-
ment of at least $1,000 for each account, or $250
for an IRA or a Self-Employed
Retirement Plan in the Portfolio. Investors in
Class Y shares may open an
account by making an initial investment of
$5,000,000. Subsequent investments
of at least $50 may be made for each Class. For
participants in retirement
plans qualified under Section 403(b)(7) or Section
401(a) of the Code, the min-
imum initial investment requirement for Class A
shares and the subsequent
investment requirement for both Classes in the
Portfolio is $25. For the Port-
folio's Systematic Investment Plan, the minimum
initial investment requirement
for Class A Shares and the subsequent investment
requirement for both Classes
is $50. There are no minimum investment
requirements in Class A shares for
employees of Travelers and its subsidiaries,
including Smith Barney, Directors
of the Fund, and their spouses and children. The
Fund reserves the right to
waive or change minimums, to decline any order to
purchase its shares and to
suspend the offering of shares from time to time.
Shares purchased will be held
in the shareholder's account by the Fund's
transfer agent, TSSG. Share certifi-
cates are issued only upon a shareholder's written
request to TSSG.
The Portfolio's shares are sold continuously at
their net
asset value next
determined after a purchase order is received and
becomes effective. A purchase
order becomes effective when the Fund, Smith
Barney or an Introducing Broker
receives, or converts the purchase amount into,
Federal funds (i.e., monies of
member banks within the Federal Reserve System
held on deposit at a Federal
13
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
PURCHASE OF SHARES (CONTINUED)
Reserve Bank). When orders for the purchase of
Portfolio shares are paid for in
Federal funds, or are placed by an investor with
sufficient Federal funds or
cash balance in the investor's brokerage account
with Smith Barney or the
Introducing Broker, the order becomes effective on
the day of receipt prior to
the close of regular trading on the NYSE, on any
day the Portfolio calculates
its net asset value. See "Valuation of Shares."
Purchase orders received after
the close of regular trading on the NYSE are
effective as of the time the net
asset value is next determined. When orders for
the purchase of Portfolio
shares are paid for other than in Federal funds,
Smith Barney or the Introduc-
ing Broker, acting on behalf of the investor, will
complete the conversion
into, or itself advance, Federal funds, and the
order becomes effective on the
day following its receipt by the Fund, Smith
Barney or the Introducing Broker.
Shares purchased directly through TSSG begin to
accrue income dividends on the
day that the purchase order becomes effective. All
other shares purchased begin
to accrue dividends on the next business day
following the day the purchase
order becomes effective.
SYSTEMATIC INVESTMENT PLAN
Shareholders may make additions to their accounts
at any time by purchasing
shares through a service known as the Systematic
Investment Plan. Under the
Systematic Investment Plan, Smith Barney or TSSG
is authorized through preau-
thorized transfers of $50 or more to charge the
regular bank account or other
financial institution indicated by the shareholder
on a monthly or quarterly
basis to provide systematic additions to the
shareholder's Portfolio account. A
shareholder who has insufficient funds to complete
the transfer will be charged
a fee of up to $25 by Smith Barney or TSSG. The
Systematic Investment Plan also
authorizes Smith Barney to apply cash held in the
shareholder's Smith Barney
brokerage account or redeem the shareholder's
shares of a Smith Barney money
market fund to make additions to the account.
Additional information is avail-
able from the Fund or a Smith Barney Financial
Consultant.
LETTER OF INTENT
Class Y Shares. A Letter of Intent may also be used
as a way for investors to
meet the minimum investment requirement for Class Y
shares. Such investors must
make an initial minimum purchase of $1,000,000 in
Class Y shares of the Portfo-
lio and agree to purchase a total of $5,000,000 of
Class Y shares of the same
Portfolio
within six months from the date of the Letter. If a
total invest-
14
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
PURCHASE OF SHARES (CONTINUED)
ment of $5,000,000 is not made within the six-month
period, all Class Y shares
purchased to date will be transferred to Class A
shares, where they will be
subject to all fees (including a service fee of
0.25% and a distribution fee
of 0.10%) and expenses applicable to the
Portfolio's Class A shares. Please
contact a Smith Barney Financial Consultant or TSSG
for further information.
SMITH BARNEY 401(k) PROGRAM
Investors may be eligible to participate in the
Smith Barney 401(k) Program,
which is generally designed to assist plan sponsors
in the creation and opera-
tion of retirement plans under Section 401(a) of
the Code. To the extent
applicable, the same terms and conditions are
offered to all Participating
Plans in the Smith Barney 401(k) Program.
The Portfolio offers to Participating Plans Class
A and
Class Y shares as
investment alternatives under the Smith Barney
401(k) Program. Class A shares
acquired through the Smith Barney 401(k) Program
are subject to the same serv-
ice and distribution fees as, but a different CDSC
schedule than, the Class A
shares acquired by other investors. Similar to
those shares available to other
investors, Class Y shares acquired through the
Smith Barney 401(k) Program are
not subject to any service or distribution fees or
any initial sales charge or
CDSC. Once a Participating Plan has made an initial
investment in the Portfo-
lio, all of its subsequent investments in the
Portfolio must be in the same
Class of shares.
Class A Shares. Class A shares of the Portfolio are
offered to any Partici-
pating Plan that purchases from $500,000 to
$4,999,999 of Class A shares of
one or more of the other Smith Barney Mutual Funds.
Class A shares acquired
through the Smith Barney 401(k) Program after
November 7, 1994 by exchange
from one of the other Smith Barney Mutual Funds are
subject to a CDSC of 1.00%
of redemption proceeds, if the Participating Plan
terminates within four years
of the date the Participating Plan first enrolled
in the Smith Barney 401(k)
Program.
Class Y Shares. Class Y shares of the Portfolio are
offered without any
service or distribution fees, sales charge or CDSC
to any Participating Plan
that purchases $5,000,000 or more of Class Y shares
of one or more of the
other funds of the Smith Barney Mutual Funds.
No CDSC is imposed on redemptions of Class A shares
to the extent that the
net asset value of the shares redeemed does not
exceed the current net asset
15
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
PURCHASE OF SHARES (CONTINUED)
value of the shares purchased through reinvestment
of dividends or capital gain
distributions, plus (a) the current net asset value
of such shares purchased
more than one year prior to redemption, plus (b)
increases in the net asset
value of the shareholder's Class A shares above the
purchase payments made dur-
ing the preceding year. Whether or not the CDSC
applies to a Participating Plan
depends on the number of years since the
Participating Plan first became
enrolled in the Smith Barney 401(k) Program, unlike
the applicability of the
CDSC to other shareholders, which depends on the
number of years since those
shareholders made the purchase payment from which
the amount is being redeemed.
The CDSC will be waived on redemptions of Class A
shares in connection with
lump-sum or other distributions made by a
Participating Plan
as a result of:
(a) the retirement of an employee in the
Participating Plan; (b) the termina-
tion of employment of an employee in the
Participating Plan; (c) the death or
disability of an employee in the Participating
Plan; (d) the attainment of age
59 1/2 by an employee in the Participating Plan;
(e) hardship of an employee in
the Participating Plan to the extent permitted
under Section 401(k) of the
Code; or (f) redemptions of shares in connection
with a loan made by the Par-
ticipating Plan to an employee.
Participating Plans wishing to acquire shares of
the
Portfolio through the
Smith Barney 401(k) Program must purchase such
shares directly from TSSG. For
further information regarding the Smith Barney
401(k) Program, investors should
contact a Smith Barney Financial Consultant.
EXCHANGE PRIVILEGE
Except as otherwise noted below, shares of each
Class may
be exchanged for
shares of the same Class in the following funds of
the Smith Barney Mutual
Funds, to the extent shares are offered for sale
in the shareholder's state of
residence. Exchanges of Class A shares are subject
to minimum investment
requirements and all shares are subject to the
other requirements of the fund
into which exchanges are made and a sales charge
differential may apply.
FUND NAME
Growth Funds
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
16
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities
Portfolio
EXCHANGE PRIVILEGE (CONTINUED)
Smith Barney Fundamental Value Fund
Inc. Smith Barney Growth Opportunity
Fund Smith Barney Managed Growth Fund
Smith Barney Special Equities Fund
Smith Barney Telecommunications Growth
Fund
Growth and Income Funds
Smith Barney Convertible Fund
Smith Barney Funds, Inc. -- Income and
Growth Portfolio Smith Barney Funds,
Inc. -Utility Portfolio
Smith Barney Growth and Income Fund
Smith Barney Premium Total Return
Fund Smith Barney Strategic
Investors Fund Smith Barney
Utilities Fund
Taxable Fixed-Income Funds
Smith Barney Adjustable Rate
Government Income Fund Smith Barney
Diversified Strategic Income Fund
Smith Barney Funds, Inc. -- Income
Return Account
Portfolio
Smith Barney Funds, Inc. -- Monthly
Payment Government Portfolio
Smith Barney Funds, Inc. -- U.S.
Government Securities Portfolio
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond
Fund Smith Barney Managed Governments
Fund
Inc.
Tax-Exempt Funds
Smith Barney Arizona Municipals Fund
Inc. Smith Barney California
Municipals Fund Inc. Smith Barney
Florida Municipals Fund
Smith Barney Intermediate Maturity California
Municipals Fund
Smith Barney Intermediate Maturity New York
Municipals Fund
Smith Barney Limited Maturity Municipals
Fund Smith Barney Managed Municipals
Fund
Inc. Smith Barney Massachusetts Municipals
Fund Smith Barney Muni Funds -- California
Portfolio Smith Barney Muni Funds -- Florida
Limited Term Portfolio Smith Barney Muni
Funds -- Florida Portfolio
Smith Barney Muni Funds -- Georgia
Portfolio Smith Barney Muni Funds -- Limited
Term Portfolio
17
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
EXCHANGE PRIVILEGE (CONTINUED)
Smith Barney Muni Funds -- National Portfolio
Smith Barney Muni Funds -- New Jersey
Portfolio Smith Barney Muni Funds -- New
York Portfolio Smith Barney Muni Funds -Ohio
Portfolio
Smith Barney Muni Funds -- Pennsylvania
Portfolio Smith Barney New Jersey Municipals
Fund Inc. Smith Barney New York Municipals
Fund Inc. Smith Barney Oregon Municipals Fund
Smith Barney Tax Exempt Income Fund
International Funds
Smith Barney Precious Metals and Minerals
Fund Inc. Smith Barney World Funds, Inc. --
Emerging Markets
Portfolio
Smith Barney World Funds, Inc. -- European
Portfolio Smith Barney World Funds, Inc.
Global Government Bond
Portfolio
Smith Barney World Funds, Inc. --
International Balanced Portfolio
Smith Barney World Funds, Inc. --
International Equity Portfolio
Smith Barney World Funds, Inc. -- Pacific Portfolio
Money Market Funds
Smith Barney Money Funds, Inc. -- Cash Portfolio
Smith Barney Money Funds, Inc. -- Government
Portfolio
*Smith Barney Money Funds, Inc. -- Retirement
Portfolio Smith Barney Municipal Money Market
Fund, Inc.
Smith Barney Muni Funds -- California Money Market
Portfolio
Smith Barney Muni Funds -- New York Money Market
Portfolio -----------------------------------------
- ---------------------------------
* Available only for exchange with Class A shares
of
the
Portfolio.
Class A Exchanges. Class A shares of the Portfolio
will be subject to the
appropriate "sales charge differential" upon the
exchange of such shares for
Class A shares of another fund of the Smith Barney
Mutual Funds sold with a
sales charge. The "sales charge differential" is
limited to a percentage rate
no greater than the excess of the sales charge rate
applicable to purchases of
shares of the mutual fund being acquired in the
exchange over the sales charge
rate(s) actually paid on the mutual fund shares
relinquished in the exchange
and on any predecessor of those shares. For
purposes of the exchange privilege,
shares obtained through automatic reinvestment of
dividends and capital gain
distribu-
18
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
EXCHANGE PRIVILEGE (CONTINUED)
tions are treated as having paid the same sales
charges applicable to the
shares on which the dividends or distributions were
paid; however, except in
the case of the Smith Barney 401(k) Program, if no
sales charge was imposed
upon the initial purchase of the shares, any shares
obtained through automatic
reinvestment will be subject to a sales charge
differential upon exchange.
Class A shares held in the Portfolio prior to
November 7, 1994 that are subse-
quently exchanged for shares of other funds of the
Smith Barney Mutual Funds
will not be subject to a sales charge differential.
Class Y Exchanges. Class Y shareholders of the
Portfolio who wish to
exchange all or a portion of their Class Y shares
for Class
Y shares in any of
the funds identified above may do so without
imposition of any charge.
Additional Information Regarding the Exchange
Privilege. Although the
exchange privilege is an important benefit,
excessive exchange transactions
can be detrimental to the Portfolio's performance
and its shareholders. The
Manager may determine that a pattern of frequent
exchanges is excessive and
contrary to the best interests of the Portfolio's
other shareholders. In this
event, the Manager will notify Smith Barney and
Smith Barney may, at its dis-
cretion, decide to limit additional purchases
and/or exchanges by the share-
holder. Upon such a determination, Smith Barney
will provide notice in writing
or by telephone to the shareholder at least 15 days
prior to suspending the
exchange privilege and during the 15 day period the
shareholder will be
required to (a) redeem his or her shares in the
Portfolio or (b) remain
invested in the Portfolio or exchange into any of
the funds of the Smith Bar-
ney Mutual Funds ordinarily available, which
position the shareholder would be
expected to maintain for a significant period of
time. All relevant factors
will be considered in determining what constitutes
an abusive pattern of
exchanges.
Exchanges will be processed at the net asset
value next
determined, plus any
applicable sales charge differential. Redemption
procedures discussed below
are also applicable for exchanging shares, and
exchanges will be made upon
receipt of all supporting documents in proper
form. If the account registra-
tion of the shares of the fund being acquired is
identical to the registration
of the shares of the fund exchanged, no signature
guarantee is required. A
capital gain or loss for tax purposes will be
realized upon the exchange,
depending upon the cost or other basis of shares
redeemed. Before exchanging
shares, investors should read the current
prospectus describing the shares to
be acquired. The Portfolio reserves the right to
modify or discontinue
exchange privileges upon 60 days' prior notice to
shareholders.
19
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
REDEMPTION OF SHARES
The Fund is required to redeem the shares of the
Portfolio tendered to it,
as described below, at a redemption price equal to
their net asset value per
share next determined after receipt of a written
request in proper form at no
charge other than any applicable CDSC. Redemption
requests received after the
close of regular trading on the NYSE are priced at
the net asset value next
determined.
If a shareholder holds shares in more than one
Class, any
request for
redemption must specify the Class being redeemed.
In the event of a failure to
specify which Class, or if the investor owns fewer
shares of the Class than
specified, the redemption request will be delayed
until the Fund's transfer
agent receives further instructions from Smith
Barney, or if the shareholder's
account is not with Smith Barney, from the
shareholder directly. The redemp-
tion proceeds will normally be remitted on the
business day following receipt
of proper tender but, in any event, payment will
be made within seven days
thereafter, except on any days on which the NYSE
is closed or as permitted
under the 1940 Act in extraordinary circumstances.
The Fund anticipates that,
in accordance with regulatory changes, beginning on
or about June 1, 1995,
payment will be made no later than the third
business day after receipt of
proper tender. Generally, if the redemption
proceeds are remitted to a Smith
Barney brokerage account, these funds will not be
invested for the sharehold-
er's benefit without specific instruction and Smith
Barney will benefit from
the use of temporarily uninvested funds. Redemption
proceeds for shares pur-
chased by check, other than a certified or official
bank check, will be remit-
ted upon clearance of the check, which may take up
to ten days or more.
Shares held by Smith Barney as custodian must
be redeemed
by submitting a
written request to a Smith Barney Financial
Consultant. Shares other than
those held by Smith Barney as custodian may be
redeemed through an investor's
Financial Consultant, Introducing Broker or dealer
in the selling group or by
submitting a written request for redemption to:
Smith Barney Funds, Inc./Short-Term U.S.
Treasury
Securities Portfolio
Class A or Y (please specify)
c/o The Shareholder Services Group, Inc.
P.O. Box 9134
Boston, Massachusetts 02205-9134
20
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
REDEMPTION OF SHARES (CONTINUED)
A written redemption request must (a) state the
Class and
number or dollar
amount of shares to be redeemed, (b) identify the
shareholder's account number
and (c) be signed by each registered owner exactly
as the shares are regis-
tered. If the shares to be redeemed were issued in
certificate form, the cer-
tificates must be endorsed for transfer (or be
accompanied by an endorsed
stock power) and must be submitted to TSSG together
with the redemption
request. Any signature appearing on a redemption
request, share certificate or
stock power must be guaranteed by an eligible
guarantor institution, such as a
domestic bank, savings and loan institution,
domestic credit union, member
bank of the Federal Reserve System or member firm
of a national securities
exchange. TSSG may require additional supporting
documents for redemptions
made by corporations, executors, administrators,
trustees or guardians. A
redemption request will not be deemed properly
received until TSSG receives
all required documents in proper form.
AUTOMATIC CASH WITHDRAWAL PLAN
The Portfolio offers shareholders an automatic cash
withdrawal plan, under
which shareholders who own shares with a value of
at least $10,000 may elect
to receive cash payments of at least $50 monthly or
quarterly. Retirement plan
accounts are eligible for automatic cash withdrawal
plans only where the
shareholder is eligible to receive qualified
distributions and has an account
value of at least $5,000. The withdrawal plan will
be carried over on
exchanges between funds or Classes of the
Portfolio. Any applicable CDSC will
not be waived on amounts withdrawn by a shareholder
that exceed 1.00% per
month of the value of the shareholder's shares
subject to the CDSC at the time
the withdrawal plan commences. (With respect to
withdrawal plans in effect
prior to November 7, 1994, any applicable CDSC will
be waived on amounts with-
drawn that do not exceed 2.00% per month of the
value of the shareholder's
shares subject to the CDSC.) For further
information regarding the automatic
cash withdrawal plan, shareholders should contact a
Smith Barney Financial
Consultant.
CONTINGENT DEFERRED SALES CHARGE
Class A shares of the Portfolio acquired as part of
an exchange privilege
transaction, which were originally acquired in one
of the other Smith Barney
Mutual Funds at net asset value subject to a CDSC,
continue to be subject to
any applicable CDSC of the original fund.
Therefore, Class A shares that are
redeemed within 12 months of the date of purchase
of the original fund may be
subject to a CDSC of 1.00%. The amount of any CDSC
will be paid to and
retained by
21
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
REDEMPTION OF SHARES (CONTINUED)
Smith Barney. The CDSC will be assessed based on an
amount equal to the lesser
of the cost of the shares being redeemed or their
net asset value at the time
of redemption. Accordingly, no CDSC will be imposed
on increases in net asset
value above the initial purchase price in the
original fund. In addition, no
charge will be assessed on shares derived from
reinvestment of dividends or
capital gain distributions.
In determining the applicability of any CDSC, it
will be
assumed that a
redemption is made first of shares representing
capital appreciation, next of
shares representing the reinvestments of dividends
and capital gain distribu-
tions and finally of other shares held by the
shareholder for the longest
period of time. The length of time that Class A
shares acquired through an
exchange have been held will be calculated from the
date that the Class A
shares were initially acquired in one of the other
Smith Barney Mutual Funds,
and such shares being redeemed will be considered
to represent, as applicable,
capital appreciation or dividend and capital gain
distribution reinvestments in
such other funds. For Federal income tax purposes,
the amount of the CDSC will
reduce the gain or increase the loss, as the case
may be, on the amount real-
ized on redemption.
The CDSC on Class A shares, if any, will be waived
on (a)
exchanges (see "Ex-
change Privilege" above); (b) automatic cash
withdrawals in amounts equal to or
less than 1.00% per month of the value of the
shareholder's shares at the time
the withdrawal plan commences (see "Automatic Cash
Withdrawal Plan") (provided,
however, that automatic cash withdrawals in amounts
equal to or less than 2.00%
per month of the value of the shareholder's shares
will be permitted for with-
drawal plans that were established prior to
November 7, 1994); (c) redemptions
of shares within twelve months following the death
or disability of the share-
holder; (d) redemption of shares made in connection
with qualified distribu-
tions from retirement plans or IRAs upon the
attainment of age 59 1/2; (e)
involuntary redemptions; and (f) redemptions of
shares in connection with a
combination of a Portfolio with any investment
company by merger, acquisition
of assets or otherwise. In addition, a shareholder
who has redeemed shares from
other funds of the Smith Barney Mutual Funds may,
under certain circumstances,
reinvest all or part of the redemption proceeds
within 60 days and receive pro
rata credit for any CDSC imposed on the prior
redemption.
CDSC waivers will be granted subject to
confirmation (by Smith Barney in the
case of shareholders who are also Smith Barney
clients or by TSSG in the case
of all other shareholders) of the shareholder's
status or holdings, as the case
may be.
22
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
REDEMPTION OF SHARES (CONTINUED)
For information concerning the CDSC applicable to
Class A
shares acquired
through the Smith Barney 401(k) Program, see
"Purchase of Shares --Smith Barney
401(k) Program."
MINIMUM ACCOUNT SIZE
The Fund reserves the right to involuntarily
liquidate any shareholder's
account in the Portfolio if the aggregate net asset
value of the shares held in
the Portfolio account is less than $500. (If a
shareholder has more than one
account in this Portfolio, each account must
satisfy the minimum account size.)
The Fund, however, will not redeem shares based
solely upon market reductions
in net asset value. Before the Fund exercises such
right, shareholders will
receive written notice and will be permitted 60
days to bring accounts up to
the minimum to avoid involuntary liquidation.
PERFORMANCE
From time to time the Portfolio may include its
total return, average annual
total return and yield in advertisements. In
addition, in other types of sales
literature the Portfolio may include its current
dividend return. These figures
are computed separately for Class A and Class Y
shares of the Portfolio. These
figures are based on historical earnings and are
not intended to indicate
future performance. Total return is computed for a
specified period of time
assuming reinvestment of all income dividends and
capital gain distributions on
the reinvestment dates at prices calculated as
stated in this Prospectus, then
dividing the value of the investment at the end of
the period so calculated by
the initial amount invested and subtracting 100%.
The standard average annual
total return, as prescribed by the SEC is derived
from this total return, which
provides the ending redeemable value. Such standard
total return information
may also be accompanied with nonstandard total
return information for differing
periods computed in the same manner but without
annualizing the total return.
The yield of the Portfolio refers to the net
investment income earned by
investments in the Portfolio over a thirty-day
period. This net investment
income is then annualized, i.e., the amount of
income earned by the investment
during that thirty-day period is assumed to be
earned each 30-day period for
twelve periods and is expressed as a percentage of
the investments. The yield
quotation
23
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
PERFORMANCE (CONTINUED)
is calculated according to a formula prescribed by
the
SEC to facilitate com-
parison with yields quoted by other investment
companies. The Portfolio calcu-
lates current dividend return for each Class by
annualizing
the most recent
distribution and dividing by the net asset value on
the last day of the period
for which current dividend return is presented. The
Portfolio's current divi-
dend return for each Class may vary from time to
time depending on market con-
ditions, the composition of its investment
portfolio and operating expenses.
These factors and possible differences in the
methods used in calculating cur-
rent dividend return should be considered when
comparing the Portfolio's cur-
rent return to yields published for other
investment companies and other
investment vehicles. The Portfolio may also include
comparative performance
information in advertising or marketing its shares.
Such performance informa-
tion may include data from Lipper Analytical
Services, Inc. and other financial
publications. The Portfolio will include
performance data for Class A and Class
Y shares in any advertisement or information
including
performance data.
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
Overall responsibility for management and
supervision of the Fund rests with
the Fund's Board of Directors. The Directors
approve all significant agreements
between the Fund and the companies that furnish
services to the Fund and the
Portfolio, including agreements with the Fund's
distributor, investment manag-
er, custodian and transfer agent. The day-to-day
operations of the Portfolio
are delegated to the Manager. The Statement of
Additional Information contains
background information regarding each Director and
executive officer of the
Fund.
MANAGER
Smith Barney Mutual Funds Management Inc. (the
"Manager")
manages the day-to-
day operations of the Portfolio pursuant to a
management agreement entered into
by the Fund on behalf of the Portfolio under which
the Manager offers the Port-
folio advice and assistance with respect to the
acquisition, holding or dis-
posal of securities and recommendations with
respect to other aspects and
affairs of the Portfolio and furnishes the
Portfolio with bookkeeping, account-
ing and administrative services, office space and
equipment, and the
24
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
MANAGEMENT OF THE FUND (CONTINUED)
services of the officers and employees of the Fund.
By written agreement the
research and other departments of Smith Barney and
staff furnish the Manager
with information, advice and assistance and are
available for consultation on
the Fund's Portfolios, thus Smith Barney may also
be considered an investment
adviser to the Fund. Smith Barney's services are
paid for by the Manager on the
basis of direct and indirect costs to Smith Barney
for performing such servic-
es; there is no charge to the Fund for such
services.
For the Portfolio's last fiscal year, the
management fee was 0.45% of the
Portfolio's average net assets and the Portfolio's
total expenses were 0.91% of
the average net assets for Class A shares.
The Manager was incorporated on March 12, 1968
under
the laws of Delaware. As
of March 31, 1995 the Manager had aggregate assets
under management of approxi-
mately $54 billion. The Manager, Smith Barney and
Holdings are each located at
388 Greenwich Street, New York, New York 10013. The
term "Smith Barney" in the
title of the Fund has been adopted by permission of
Smith Barney and is subject
to the right of Smith Barney to elect that the Fund
stop using the term in any
form or combination of its name.
PORTFOLIO MANAGEMENT
Patrick Sheehan is a Managing Director of Smith
Barney, a
Vice President of
the Fund and portfolio manager of the Portfolio,
the U.S. Government Securities
Portfolio, the Monthly Payment Government Portfolio
and the Income Return
Account Portfolio of Smith Barney Funds, Inc. Mr.
Sheehan manages the day to
day operations of each of these Portfolios,
including making all investment
decisions. Prior to January 1992, Mr. Sheehan was a
Portfolio Manager at Value
Line Inc., Senior Vice President of Seaman's Bank
for Savings, Assistant Vice
President of Capital Markets of Federal Home Loan
Board of New York and Vice
President and Treasurer of Poughkeepsie Savings
Bank.
Management's discussion and analysis, and
additional performance information
regarding the Portfolio during the fiscal year
ended December 31, 1994 is
included in the Annual Report dated December 31,
1994. A copy of the Annual
Report may be obtained upon request and without
charge from a Smith Barney
Financial Consultant or by writing or calling the
Fund at the address or phone
number listed on page one of this Prospectus.
25
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
DISTRIBUTOR
Smith Barney distributes shares of the Portfolio as
principal underwriter and
as such conducts a continuous offering pursuant to
a "best efforts" arrangement
requiring Smith Barney to take and pay for only
such securities as may be sold
to the public. Pursuant to a plan of distribution
adopted by the Portfolio
under Rule 12b-1 under the 1940 Act (the "Plan"),
Smith Barney is paid a serv-
ice fee with respect to Class A shares of the
Portfolio at the annual rate of
0.25% of the average daily net assets of that
Class. Smith Barney is also paid
a distribution fee with respect to Class A shares
at the
annual rate of 0.10%
of the average daily net assets attributable to
those shares. The fees are used
by Smith Barney to pay its Financial Consultants
for servicing shareholder
accounts and to cover expenses primarily intended
to result in the sale of
those shares. These expenses include: advertising
expenses; the cost of print-
ing and mailing prospectuses to potential
investors; payments to and expenses
of Smith Barney Financial Consultants and other
persons who provide support
services in connection with the distribution of
shares; interest and/or carry-
ing charges; and indirect and overhead costs of
Smith Barney associated with
the sale of Portfolio shares, including lease,
utility, communications and
sales promotion expenses.
The payments to Smith Barney Financial Consultants
for selling shares of a
Class include a commission or fee paid by the
investor or Smith Barney at the
time of sale and, with respect to Class A shares, a
continuing fee for servic-
ing shareholder accounts for as long as a
shareholder remains a holder of that
Class. Smith Barney Financial Consultants may
receive different levels of com-
pensation for selling the different Classes of
shares.
Amounts expended by Smith Barney but not reimbursed
by the Portfolio in any
year will not be a continuing liability of the
Portfolio in subsequent years.
Because the Portfolio reimburses Smith Barney only
for actual expenditures,
Smith Barney realizes no profit from the Plan.
ADDITIONAL INFORMATION
The Fund, an open-end, diversified investment
company, was incorporated in
Maryland on December 2, 1966. The Fund has an
authorized capital of
2,000,000,000 shares with a par value of $.01 per
share. The Board of Directors
has authorized the issuance of fifteen series of
shares, each representing
shares in one of fifteen separate Portfolios and
may authorize the issuance of
26
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
ADDITIONAL INFORMATION (CONTINUED)
additional classes of shares in the future. The
assets of each Portfolio are
segregated and separately managed and a
shareholder's interest is in the assets
and earnings of the Portfolio in which he or she
holds shares. Class A and
Class Y shares of the Portfolio represent interests
in the assets of the Port-
folio and have identical voting, dividend,
liquidation and other rights on the
same terms and conditions except that expenses
related to the distribution of
each Class of shares are borne solely by each Class
and each Class of shares
has exclusive voting rights with respect to
provisions of the Fund's Rule 12b-1
distribution plan which pertains to a particular
Class. Shareholders are enti-
tled to one vote for each share held and will vote
in the aggregate and not by
Portfolio except as otherwise required by the 1940
Act or Maryland law. As
described under "Voting" in the Statement of
Additional Information, the Fund
ordinarily will not hold meetings of shareholders
annually; however, sharehold-
ers have the right to call a meeting upon a vote of
10% of the Fund's outstand-
ing shares for the purpose of voting to remove
directors. Shareholders will
receive assistance in communicating with other
shareholders in connection with
the removal of directors as required by the 1940
Act. Shares do not have cumu-
lative voting rights or preemptive rights and are
fully paid, transferable and
nonassessable when issued for payment as described
in this Prospectus.
PNC Bank, National Association, located at 17th and
Chestnuts Streets,
Philadelphia, Pennsylvania 19103, serves as
custodian of the Portfolio's
investments.
TSSG, located at Exchange Place, Boston,
Massachusetts 02109, serves as the
Fund's transfer agent.
The Fund sends its shareholders a semi-annual
report and an audited annual
report, which include listings of the investment
securities held by the Fund at
the end of the period covered. In an effort to
reduce the Fund's printing and
mailing costs, the Fund plans to consolidate the
mailing of its semi-annual and
annual reports by household. This consolidation
means that a
household having
multiple accounts with the identical address
of record will receive a single
copy of each report. In addition, the Fund
also plans to consolidate the mail-
ing of its Prospectus so that a shareholder having
multiple accounts (that is,
individual, IRA and/or Self-Employed Retirement
Plan accounts) will receive a
single Prospectus annually. Shareholders who do
not want this consolidation to
apply to their account should contact their Smith
Barney Financial Consultant
or the Fund's transfer agent.
27
<PAGE>
SMITH BARNEY
- ------------
A
Member of TravelersGroup LOGO
SMITH BARNEY
FUNDS, INC.
SHORT-TERM
U.S. TREASURY
SECURITIES PORTFOLIO
388 Greenwich Street
New York, New York 10013
FD 2319 D5
<PAGE>
- -----------------------------------------------------
- ---------------------
ANNUAL REPORT ------
- -----------------------------------------------------
- ----------
1994
1994
1994
1994
1994
Smith Barney
Funds, Inc.
Income Return
Account Portfolio
Short-Term U.S.
Treasury Securities
Portfolio
-----------------------------
- ---------------------
December 31,1994
Smith Barney Mutual Funds
[LOGO APPEARS HERE] Investing for your future.
Every day.
<PAGE>
- ------------------------------------
INCOME RETURN ACCOUNT AND SHORT-TERM
U.S. TREASURY SECURITIES PORTFOLIOS -----------------
- --------------
Dear Shareholder:
Interest rates moved steadily upward during the past
year causing a substantial
decline in bond prices. In fact, 1994 has been
characterized as the worst year
for bonds since record keeping began in 1927. By
December 31, the yield on the
benchmark 30-year Treasury bond had risen to 7.88%,
compared with 6.35% at the
start of the year. The rise in short-term rates was
even more striking. The
yield on the two-year Treasury note, for example,
rose from 4.23% to 7.69% by
December.
Rates were propelled upward by the Federal Reserve
Board's ("Fed") six increases
in the federal funds rate -- the rate banks charge
each other for overnight
loans. The Fed, concerned that inflationary pressures
were building, moved
toward this more restrictive monetary policy in an
effort to stem potential
future inflation before it became an issue. On
February 4, 1994, the Fed raised
the federal funds rate to 3.25%, and by the end of
December, it had pushed the
rate to 5.5%.
Income Return Account Portfolio
Performance and Strategy
For the year ended December 31, 1994, the total
return for Class A shares of the
Smith Barney Funds, Inc.: Income Return Account
Portfolio was 2.14%. The
Portfolio slightly underperformed its benchmark, the
Salomon Brothers 1-Year
Treasury Index, which produced a total return of
2.63% for the same period.
According to Lipper Analytical Services, the
Portfolio outperformed the average
short investment-grade bond fund which returned a
negative 0.37% for the year.
The Income Return Account Portfolio seeks to achieve
positive quarterly total
returns, along with the highest current income
consistent with those returns,
through the use of a computer-generated model. Last
year's difficult market
environment provided a strong test for our model, and
it performed well. We did
avoid negative returns for all four quarters, even
though we did experience
negative returns in the months of February and
September.
With interest rates rising early in 1994, the
computer model
recommended a
shortening of the Portfolio's duration. Duration is a
measure of a fund's
volatility when interest rates move up or down. The
longer the duration, the
more sensitive the fund is to interest rate changes.
The Portfolio's duration
was 1.1 years in January and, by March, it was as
short as four months. By
December, the duration was back up to 1.01 years.
1
<PAGE>
Short-Term U.S. Treasury Securities Portfolio
Performance and Strategy
The Smith Barney Funds, Inc.: Short-Term U.S.
Treasury Securities Portfolio
produced a total return of a negative 2.15% for Class
A shares for the year
ended December 31, 1994 compared to a negative 1.56%
for the Salomon Brothers
3-Year Treasury Index for the same period.
Because of the Fed's series of interest-rate hikes
during the year, we kept the
average duration of the Portfolio relatively short
at about 2.2 years. This
enabled us to avoid some of the price volatility
associated with longer-duration
securities.
Outlook
Despite the Fed's efforts to cool the economy,
strong capital spending and
employment growth indicate a fourth-quarter gross
domestic product (GDP) rate
that could exceed 4.0% when the final data for 1994
is tallied. It is generally
understood that a rate which surpasses 2.5% may
point to future inflation. A
healthy GDP number could cause the Fed to increase
rates when its policy-making
committee meets at the end of January.
In our opinion, inflation, as measure by the
Consumer Price Index, will probably
trend toward 3.5% in 1995 which will represent an
increase but should not pose a
problem. We believe that short-term rates will peak
around midyear, and after an
erratic first quarter, the environment for
fixedincome investments will turn
more positive.
As rates stabilize, we will most likely extend the
duration of both the Income
Return Account Portfolio and the Short-Term U.S.
Treasury Securities Portfolio.
We anticipate that these duration extensions will
improve our yields and create
a more favorable result for the Portfolios in 1995.
Sincerely,
/s/ Stephen Treadway
Stephen Treadway
Chairman and Chief Executive Officer
January 31, 1995
2
<PAGE>
Smith Barney Funds, Inc.
Income Return Account Portfolio -------------------
- --------------------------------------------------
Historical Performance - Class A Shares -----------
- ---------------------------------------------------
- -------
<TABLE>
<CAPTION>
Net Asset Value -----------
-----
Beginning End of
Income Capital Gain Total
Year Ended of Year Year
Dividends
Distributions Returns/(1)/ ----------------------
- ---------------------------------------------------
- ---
- ----
<S> <C> <C> <C>
<C> <C>
12/31/94 $9.59 $9.34
$0.45
$0.00 2.14% -------------------------------
- -
- ---------------------------------------------------
12/31/93 9.68 9.59
0.47
0.00 4.00 ---------------------------------
- -
- -------------------------------------------------
12/31/92 9.65 9.68
0.52
0.00 5.85 ---------------------------------
- -
- -------------------------------------------------
12/31/91 9.38 9.65
0.73
0.00 11.06 ---------------------------------
- -
- -------------------------------------------------
12/31/90 9.31 9.38
0.74
0.00 9.10 ---------------------------------
- -
- -------------------------------------------------
12/31/89 9.12 9.31
0.75
0.00 10.67 ---------------------------------
- -
- -------------------------------------------------
12/31/88 9.26 9.12
0.72
0.00 6.48 ---------------------------------
- -
- --
- ------------------------------------------------
12/31/87 9.43 9.26
0.60
0.06 5.36 ---------------------------------
- --
- ------------------------------------------------
12/31/86 9.51 9.43
0.87
0.01 8.78 ---------------------------------
- --
- -----------------------------------------------
3/4/85*12/31/85 9.17
9.51
0.50
0.00 9.34 ---------------------------------
- --
- ------------------------------------------------
Total $6.35
$0.07 ----------------------------------------------
- --------------------------------------
</TABLE>
IT IS THE FUND'S POLICY TO DISTRIBUTE DIVIDENDS
MONTHLY AND CAPITAL GAINS, IF ANY, ANNUALLY.
- ----------------------------------------------------
- ----------------------
Average Annual Total Return -- Class A Shares ------
- ----------------------------------------------------
- -----------
<TABLE>
<CAPTION>
Without With
Sales Charge/(1)/ Sales Charge/(2)/ ----------
- -----------
- ----------------------------------------------------
- --
- ---
<S> <C>
<C>
Year Ended 12/31/94
2.14%
0.05% ----------------------------------------------
- -----------------------------------
Five Years Ended 12/31/94
6.40
6.16 -----------------------------------------------
- ----------------------------------
3/4/85* through 12/31/94
7.05
7.15 -----------------------------------------------
- ----------------------------------
</TABLE>
- ----------------------------------------------------
- ----------------------
Historical Performance -- Class C Shares -----------
- ----------------------------------------------------
- -------
<TABLE>
<CAPTION>
Net Asset Value
Beginning End of
Income
Capital Gain Total
Year Ended of Year Year
Dividends
Distributions Returns/(1)/ ---------------------
- ---------------------------------------------------
- -----
- ---
<S> <C> <C> <C>
<C> <C>
12/31/94 $9.58 $9.34
$0.42
$0.00 1.86% -----------------------------
- --------------------------------------------------
12/31/93 9.68 9.58
0.43
0.00 3.53 -------------------------------
- ------------------------------------------------
12/2/92*-12/31/92 9.69 9.68
0.04
0.00 0.31 -------------------------------
- --------------------------------------------------
Total $0.89
$0.00 ---------------------------------------------
- ---------------------------------------
</TABLE>
* Inception.
3
<PAGE>
Smith Barney Funds, Inc.
Income Return Account Portfolio
- ---------------------------------------------------
- -----------------------
Average Annual Total Return - Class C Shares ------
- ---------------------------------------------------
- ---
- ----------
<TABLE>
<CAPTION>
Without With
Sales Charge/(1)/ Sales Charge/(2)/ ------------
- ---------------------------------------------------
- --------------
<S>
<C>
<C>
Year Ended 12/31/94
1.86%
0.86% ---------------------------------------------
- ------------------------------------
12/16/92* through 12/31/94
2.79
2.79 ----------------------------------------------
- ------------------------------------
</TABLE>
- ---------------------------------------------------
- -----------------------
Historical Performance - Class Y Shares -----------
- ---------------------------------------------------
- -------
<TABLE>
<CAPTION>
Net Asset Value -----
------------
Beginning End of
Income
Capital Gain Total
Year Ended of Year Year
Dividends Distributions Returns/(1)/ --------
- --
- ---------------------------------------------------
- ------------------------------
<S> <C> <C>
<C>
<C> <C>
12/31/94 $9.59 $9.34
$0.44 $0.00 2.01%
- ---------------------------------------------------
- --------------------------------------
2/1/93*12/31/93* 9.72 9.59
0.42 0.00 3.01
- ---------------------------------------------------
- ----------------------------------------
Total $0.86
$0.00 ---------------------------------------------
- ---------------------------------------------
</TABLE>
- ---------------------------------------------------
- -----------------------
Average Annual Total Return - Class Y Shares ------
- ---------------------------------------------------
- ------------
<TABLE>
<CAPTION>
Without With
Sales Charge/(1)/ Sales Charge/(2)/ ------------
- --
- ---------------------------------------------------
- ------------
<S>
<C>
<C>
Year Ended 12/31/94
2.01%
2.01% ---------------------------------------------
- ------------------------------------
2/1/93* through 12/31/94
2.63
2.63 ----------------------------------------------
- -----------------------------------
</TABLE>
- ---------------------------------------------------
- -----------------------
Historical Performance - Class Z Shares -----------
- ---------------------------------------------------
- -------
<TABLE>
<CAPTION>
Net Asset Value ---------
--------
Beginning End of
Income
Capital Gain Total
Year Ended of Year Year
Dividends
Distributions Returns/(1)/ ---------------------
- ---------------------------------------------------
- ----------
<S> <C> <C>
<C>
<C> <C>
11/7/94*-12/31/94 $9.42 $9.35
$0.12
$0.00 0.38% -------------------------------
- ---------------------------------------------------
</TABLE>
- ---------------------------------------------------
- -----------------------
Average Annual Total Return - Class Z Shares ------
- ---------------------------------------------------
- ------------
<TABLE>
<CAPTION>
Without With
Sales Charge/(1)/ Sales Charge/(2)/ -----------
- --
- ---------------------------------------------------
- ----------
- -----
<S>
<C>
<C>
11/7/94* through 12/31/94
0.38%
0.38% ---------------------------------------------
- -------------------------------------
</TABLE>
- ---------------------------------------------------
- ----
- --------------------
Cumulative Total Return ---------------------------
- -----------------------------------------------
<TABLE>
<CAPTION>
Without
Sales Charge/(1)/ ---------------------------------
- ------------------------------------------
<S>
<C>
Class A (3/4/85* through 12/31/94)
95.28% --------------------------------------------
- ------------------------------
Class C (12/16/92* through 12/31/94)
5.78 ----------------------------------------------
- ----------------------------
Class Y (2/1/93* through 12/31/94)
5.09 ----------------------------------------------
- ----------------------------
Class Z (11/7/94* through 12/31/94)
0.38 ----------------------------------------------
- ----------------------------
</TABLE>
* Inception.
4
<PAGE>
Smith Barney Funds, Inc.
Income Return Account Portfolio -------------------
- --------------------------------------------------
Historical Performance ----------------------------
- ---
- --------------------------------------------
Growth of $10,000 Invested in Class
A Shares of
Income Return Account
Portfolio vs. Salomon Brothers
1Year Treasury
Index+
(unaudited) -----
- ---------------------------------------------------
- -------------
March 1985 - December
1994
[CHART APPEARS HERE]
+Hypothetical illustration of $10,000 invested in
Class A shares at inception on
March 4, 1985, assuming deduction of the maximum
2.50% sales charge at the time
of investment and the reinvestment of dividends
(after deduction of applicable
sales charges) and capital gains (at net asset
value) through December 31,
1994. The Salomon Brothers 1-Year Treasury Index is
composed of one 1-year
United States Treasury Bond ("Bond") which is used
to track
the Bond's return
until its maturity. The Index is unmanaged and is
not
subject to the same
management and trading expenses of a mutual fund.
The performance of the
Portfolio's other classes may be greater or less
than the
Class A shares
performance indicated on this chart, depending
on whether
greater or lesser
sales charges and fees were incurred by
shareholders investing in the other
classes.
All figures represent past performance and are not
a guarantee of future
results. Investment return and principal value will
fluctuate and redemption
values may be more or less than the original cost.
No adjustment has been made
for shareholder tax liability on dividends or
capital gains. ------------------------------------
- --------------------------------------
(1) Assumes reinvestment of all dividends and
capital gain distributions at net
asset value and does not reflect a deduction of the
applicable sales charge
with respect to Class A shares or the applicable
contingent deferred sales
charges ("CDSC") with respect to Class C shares.
(2) Assumes reinvestment of all dividends and
capital gain distributions at net
asset value, except for income dividends on Class A
shares which are
reinvested at the maximum offering price. In
addition, the deduction of the
maximum initial sales charge of 2.00% with respect
to Class A shares and the
deduction of a CDSC of 1.00% with respect to Class
C
shares has been
factored into these calculations.
5
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio -----
- ---------------------------------------------------
- -------------
Historical Performance - Class A Shares -----------
- ---------------------------------------------------
- -------
<TABLE>
<CAPTION>
Net Asset Value ---------
- ---
--
Beginning End of
Income Capital Gain Total
Year Ended of Year Year
Dividends
Distributions Returns -------------------------
- ---------------------------------------------------
<S> <C> <C> <C>
<C> <C>
12/31/94 $4.16 $3.91
$0.18
$0.00 (2.15)% ----------------------------
- -----------------------------------------------
12/31/93 4.12 4.16 0.18
0.02 6.01 -------------------------------
- ----------------------------------------------
12/31/92 4.09 4.12 0.19
0.01 5.92 -------------------------------
- -------------------------------------------
11/11/91*12/31/91 4.01 4.09
0.03 0.01 2.85 --------------------------
- ---------------------------------------------------
- -Total
$0.58 $0.04 ---------------------------------------
- ---------------------------------------
</TABLE>
IT IS THE FUND'S POLICY TO DISTRIBUTE DIVIDENDS
MONTHLY AND CAPITAL GAINS, IF
ANY, ANNUALLY.
- ---------------------------------------------------
- -----------------------
Average Annual Total Return - Class A Shares ------
- ---------------------------------------------------
- ------------
<TABLE>
<CAPTION>
Without
Sales Charge --------------------------------------
- ------------------------------------
<S>
<C>
Year Ended 12/31/94
(2.15)% -------------------------------------------
- -------------------------------
11/11/91* through 12/31/94
3.98 ----------------------------------------------
- ----------------------------
</TABLE>
- ---------------------------------------------------
- -----------------------
Cumulative Total Return ---------------------------
- -----------------------------------------------
<TABLE>
<CAPTION>
Without
Sales Charge --------------------------------------
- ------------------------------------
<S>
<C>
Class A (11/11/91* through 12/31/94)
13.01% --------------------------------------------
- ------------------------------
</TABLE>
* Inception.
6
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio -----
- ---------------------------------------------------
- -------------
Historical Performance ----------------------------
- ----------------------------------------------
Growth of $10,000 Invested in Class
A Shares of
Short-Term U.S. Treasury Securities
Portfolio vs.
Salomon Brothers 3-Year
Treasury Index+
(unaudited)
- ---------------------------------------------------
- -----------------------
November 1991 - December
1994 [CHART APPEARS
HERE]
+Hypothetical illustration of $10,000 invested in
shares at inception on
November 11, 1991, assuming reinvestment of
dividends and
capital gains through
December 31, 1994. The Salomon Brothers 3-Year
Treasury
Index is composed of
one 3-year United States Treasury Bond ("Bond")
which is used to track the
Bond's return until its maturity. The index is
unmanaged and is not subject to
the same management and trading expenses of a
mutual fund.
All figures represent past performance and are not
a guarantee of future
results. Investment returns and principal value
will fluctuate, and redemption
values may be more or less than the original cost.
No adjustment has been made
for shareholder tax liability on dividends or
capital gains.
7
<PAGE>
Smith Barney Funds, Inc. --------------------------
- ---------------------------------------------
Schedules of Investments
December 31, 1994 ---------------------------------
- -----------------------------------------
INCOME RETURN ACCOUNT
PORTFOLIO <TABLE>
<CAPTION>
FACE
COUPON
AMOUNT SECURITY
RATE MATURITY VALUE
- ---------------------------------------------------
- ----------------------------------------------
<S> <C>
<C> <C> <C>
U.S. GOVERNMENT AND GOVERNMENT AGENCY
OBLIGATIONS43.5% $ 2,250,000 U.S. Treasury
Note
5.88% 5/15/95 $ 2,245,568
3,000,000 U.S. Treasury Note
5.50 4/30/96
2,925,630
2,000,000 U.S. Treasury Note
4.25 5/15/96
1,917,100
2,000,000 U.S. Treasury Note
6.25 1/31/97
1,945,860
5,000,000 U.S. Treasury Note
6.75 2/28/97 4,903,750
- ---------------------------------------------------
- ----------------------------------------------
TOTAL U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS (Cost
$14,381,172)
13,937,908 ----------------------------------------
- ---------------------------------------------------
- -CORPORATE NOTES -- 6.2%
2,000,000 Goldman Sachs
4.84++ 2/16/95
(Cost - $2,000,000)
2,000,000 -----------------------------------------
- ---------------------------------------------------
SHORT-TERM INVESTMENTS -- 50.3%
13,000,000 U.S. Treasury Bill
7.06+ 12/14/95 12,150,450
3,948,000 Repurchase Agreement -
Chemical Securities Inc., 5.75% due
1/3/95, Proceeds at maturity
$3,950,521 (Fully
collateralized
by U.S. Treasury Notes 6.50%, due
9/30/96; Market value - $4,027,214)
3,948,000 -----------------------------------------
- ---------------------------------------------------
TOTAL SHORT-TERM (Cost -
$16,118,477)
16,098,450 ----------------------------------------
- ---------------------------------------------------
- -
TOTAL INVESTMENTS-100% (Cost
$32,499,649*) $32,036,358 -------------------------
- ---------------------------------------------------
- ----------------
</TABLE>
See Notes to Financial
Statements. 8
<PAGE>
Smith Barney Funds, Inc. --------------------------
- ---------------------------------------------
Schedules of Investments (continued)
December 31, 1994 ---------------------------------
- -----------------------------------------
SHORT-TERM U.S. TREASURY
SECURITIES PORTFOLIO
<TABLE>
<CAPTION>
FACE
COUPON
AMOUNT SECURITY
RATE MATURITY VALUE -----------
- ---------------------------------------------------
- -------------------------------
<S> <C>
<C> <C> <C>
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS
98.9% $ 5,000,000 U.S. Treasury Note
6.88% 10/31/96 $
4,933,400
3,000,000 U.S. Treasury Note
4.38 11/15/96
2,830,800
11,000,000 U.S. Treasury Note
6.50 11/30/96
10,780,000
30,000,000 U.S. Treasury Note
6.25 1/31/97
29,187,900
6,000,000 U.S. Treasury Note
5.50 7/31/97
5,684,100
6,000,000 U.S. Treasury Note
6.50 8/15/97
5,817,780
9,000,000 U.S. Treasury Note
6.00 11/30/97
8,584,740
4,750,000 U.S. Treasury Note
6.00 12/31/97
4,526,703
5,000,000 U.S. Treasury Note
5.13 6/30/98
4,593,550
10,000,000 U.S. Treasury Note
6.50 4/30/99 9,507,800
- ---------------------------------------------------
- ----------------------------------------------
TOTAL U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS (Cost
$90,357,499)
86,446,773 ----------------------------------------
- ---------------------------------------------------
- -REPURCHASE AGREEMENT -- 1.1%
988,000 Chemical Securities, Inc. 5.75% due
1/03/95 Proceeds at maturity
$988,631 (Fully collateralized by
U.S. Treasury Notes 6.50%,
due
9/30/96; Market value - $1,007,823)
(Cost $988,000)
988,000
- ---------------------------------------------------
- ----------------------------------------------
TOTAL INVESTMENTS - 100% (Cost
$91,345,499*)
$87,434,773 ---------------------------------------
- ---------------------------------------------------
- ------</TABLE>
++ Daily Floating Rate Note - interest rate varies
with Federal Funds Rate.
+ Annualized yield on date of purchase for short-
term securities.
* Aggregate cost for federal income tax purposes
is
substantially the same.
See Notes to Financial
Statements. 9
<PAGE>
Smith Barney Funds, Inc. --------------------------
- ----------------------------------------------
Statements of Assets and Liabilities
December 31, 1994 ---------------------------------
- -----------------------------------------
<TABLE>
<CAPTION>
Income Short-Term
Return U.S. Treasury
Account Securities
Portfolio Portfolio -----------------------
- -
- ---------------------------------------------------
- ----------------
<S>
<C> <C>
ASSETS:
Investments, at value (Cost
$32,499,649 and $91,345,499,
respectively)
$32,036,358 $87,434,773
Cash
758 88
Receivable for Fund shares sold
545 2,683
Interest receivable
239,509 1,640,060
Other assets
61,761 --
- ---------------------------------------------------
- --------------------------------------------
Total Assets
32,338,931 89,077,604 ---------------------
- --
- ---------------------------------------------------
- ------------------
LIABILITIES:
Payable for Fund shares reacquired
- -- 122,086
Management fees payable
25,721 80,743
Distribution costs payable
3,338 80,438
Accrued expenses and other liabilities
18,577 14,463
Dividends payable
- -- 73,281
- ---------------------------------------------------
- --------------------------------------------
Total Liabilities
47,636 371,011 -------------------------
- ---------------------------------------------------
- --------------
Total Net Assets
$32,291,295 $88,706,593
- ---------------------------------------------------
- --------------------------------------------
NET ASSETS:
Par value of capital shares
$ 34,576 $ 226,843
Capital paid in excess of par value
34,520,992 96,320,073
Undistributed net investment income
15,239 --
Accumulated net realized loss on
security transactions
(1,816,221) (3,929,597)
Net unrealized depreciation of investments
(463,291) (3,910,726) ----------------------
- ---------------------------------------------------
- -----------------
Total Net Assets
$32,291,295 $88,706,593 --------------------
- -
- ---------------------------------------------------
- --------------------
Shares Outstanding:
Class A
2,026,123 22,684,266 ----------------------
-----------------------------
- -----------------------------------------
Class C
327,182 --
-----------------------------------------------
- --------------------------------------------
Class Y
346,380 --
-----------------------------------------------
- --------------------------------------------
Class Z
757,905 --
-----------------------------------------------
- --------------------------------------------
Net Asset Value:
Class A (and redemption price)
$9.34 $3.91 --------------------------
- -- ---------------------------------------------
- -----------------
Class C*
$9.34 --
-----------------------------------------------
- --------------------------------------------
Class Y (and redemption price)
$9.34 --
-----------------------------------------------
- --------------------------------------------
Class Z (and redemption price)
$9.35 --
-----------------------------------------------
- ----
- -----------------------------------------
Class A Maximum Public Offering Price Per Share
(net asset value plus 2.04% of net asset value per
share) $9.53 $3.91 -------------------
- --
- ---------------------------------------------------
- --------------------
</TABLE>
* Redemption price is NAV of Class C shares reduced
by
1.00%
if shares are
redeemed within the first year of purchase.
See Notes to Financial
Statements. 10
<PAGE>
Smith Barney Funds, Inc. --------------------------
- ---------------------------------------------
Statements of Operations For the year ended
December
31, 1994 ------------------------------------------
- --------------------------------
<TABLE>
<CAPTION>
Income Short-Term
Return U.S. Treasury
Account Securities
Portfolio Portfolio
- ---------------------------------------------------
- -----------------------------------------
<S>
<C> <C>
INVESTMENT INCOME:
Interest
$ 2,491,543 $ 8,796,122
- ---------------------------------------------------
- -----------------------------------------
EXPENSES:
Management fees (Note 2)
208,151 735,555
Distribution costs (Note 2)
20,602 572,083
Registration fees
26,003 65,003
Shareholder servicing fees
9,534 40,000
Custodian fees
6,001 18,002
Audit and legal fees
5,603 8,603
Shareholder communication fees
4,500 13,998
Directors' fees
1,000 3,103
Other
6,402 5,200
- ---------------------------------------------------
- -----------------------------------------
Total Expenses
287,796 1,461,547 --------------------
- ---------------------------------------------------
- -----
- ------------
Net Investment Gain
2,203,747 7,334,575
- ---------------------------------------------------
- -----------------------------------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS:
Realized Loss From Security
Transactions (excluding short-
term securities): Proceeds from
sales
58,269,456 127,295,867
Cost of securities sold
58,816,593 131,244,286
- ---------------------------------------------------
- -----------------------------------------
Net Realized Loss
(547,137) (3,948,419) ------------------
- ---------------------------------------------------
- ------------------
Change in Unrealized Depreciation of Investments:
Beginning of year
226,494 2,623,169
End of year
(463,291) (3,910,726) ------------------
- ---------------------------------------------------
- ------------------
Increase in Unrealized Depreciation
(689,785) (6,533,895)
Net Loss On Investments
(1,236,922) (10,482,314)
- ---------------------------------------------------
- -----------------------------------------
Increase (Decrease) in Net Assets Resulting
From Operations
$ 966,825 $ (3,147,739)
- ---------------------------------------------------
- -----------------------------------------
</TABLE>
See Notes to Financial
Statements.
11
<PAGE>
Smith Barney Funds, Inc. --------------------------
- ---------------------------------------------
Statements of Changes in Net Assets ---------------
- ---------------------------------------------------
- ------
For the years ended December 31,
<TABLE>
<CAPTION>
Short-Term
Income Return U.S.
Treasury
Account Portfolio Securities
Portfolio
------
- ---------------------- ----------------------
- ------
- --
1994 1993 1994
1993
- ---------------------------------------------------
- ---------------------------------------------------
- ------<S> <C>
<C> <C> <C>
OPERATIONS:
Net investment income $
2,203,747
$ 2,751,158 $ 7,334,575 $
7,847,190
Net realized gain (loss) on
security transactions
(547,137)
65,282 (3,948,419) 1,132,857
Increase in net unrealized
appreciation (depreciation) of
investments
(689,785)
(616,609) (6,533,895) 554,436
- ---------------------------------------------------
- ---------------------------------------------------
- ---
Increase (Decrease) in Net
Assets Resulting From
Operations
966,825
2,199,831 (3,147,739)
9,534,483 -----------------------------------------
- ---------------------------------------------------
- --------------DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income
(2,191,210)
(2,859,347) (7,334,575)
(7,847,190) Net realized gains on security
transactions
- -
- -
- -- -- (1,113,325) ----
- --
- ---------------------------------------------------
- --------------------------------------------------
Decrease in Net Assets
from Distributions to
Shareholders
(2,191,210)
(2,859,347) (7,334,575)
(8,960,515) ---------------------------------------
- ---------------------------------------------------
- ------------------
FUND SHARE TRANSACTIONS:
Net proceeds
from sale of shares
13,380,684 35,287,465 89,709,541
236,111,337 Net value of shares issued
for reinvestment of
dividends
1,738,307
2,314,282 6,166,194
7,302,423
Cost of shares reacquired
(41,882,513) (25,210,776) (202,445,248)
(168,509,798) -------------------------------------
- ---------------------------------------------------
- ---------------------
Increase (Decrease) in Net
Assets From Fund
Share Transactions
(26,763,522) 12,390,971 (106,569,513)
74,903,962 ----------------------------------------
- ---------------------------------------------------
- -----------------Increase (Decrease) in
Net Assets
(27,987,907)
11,731,455 (117,051,827)
75,477,930
NET ASSETS:
Beginning of year
60,279,202 48,547,747 205,758,420
130,280,490 ---------------------------------------
- ---------------------------------------------------
- ---
- -----------------
End of year* $
32,291,295
$ 60,279,202 $ 88,706,593 $
205,758,420 ---------------------------------------
- ---------------------------------------------------
- --------------------
* Includes undistributed
net investment income of:
$15,239 $2,702 -- --
- ---------------------------------------------------
- ---------------------------------------------------
- --------
</TABLE>
See Notes to Financial
Statements. 12
<PAGE>
Smith Barney Funds, Inc. --------------------------
- -----------------------------------------------
Notes to Financial Statements ---------------------
- ---------------------------------------------------
- ---
1. SIGNIFICANT ACCOUNTING POLICIES
The Income Return Account Portfolio ("Income Return
Account") and the
Short-Term U.S. Treasury Securities Portfolio
("Short Term") are separate
investment portfolios ("Portfolios") of the Smith
Barney
Funds, Inc. ("Fund").
The Fund, a Maryland corporation, is registered
under the Investment Company Act
of 1940, as amended, as a diversified, open-end
management investment company.
The Fund consists of these Portfolios and five
other separate investment
portfolios: Income and Growth, U.S. Government
Securities, Monthly Payment
Government, Capital Appreciation and Utility
Portfolios. The financial
statements and financial highlights for the other
portfolios are presented in
separate annual reports.
The significant accounting policies consistently
followed by the Fund are:
(a) securities transactions are accounted for on
the trade date; (b) U.S.
Government and Government Agency obligations are
valued at the mean between the
bid and asked prices: short-term investments that
have a maturity of more than
60 days are valued at prices based on market
quotations for securities of
similar type, yield and maturity; short-term
investments that have a maturity of
60 days or less are valued at cost plus accreted
discount, or minus amortized
premiums, as applicable; (c) interest income is
recorded on the accrual basis;
(d) gains or losses on the sale of securities are
calculated by using the
specific identification method and include gains
or losses resulting from
repayments of principal on mortgage-backed
securities; (e) direct expenses are
charged to each portfolio and each class;
management fees and general fund
expenses are allocated on the basis of relative net
assets;(f) dividends and
distributions to shareholders are recorded by the
Fund on the ex-dividend date;
and (g) each Portfolio intends to comply with the
requirements of the Internal
Revenue Code pertaining to regulated investment
companies and to make the
required distributions to shareholders; therefore,
no provision for Federal
income taxes has been made.
2. MANAGEMENT AGREEMENT AND TRANSACTIONS WITH
AFFILIATED PERSONS
Smith Barney Mutual Funds Management
Inc. ("SBMFM"),
formerly known as
Smith Barney Advisers, Inc., a subsidiary of
Smith Barney Holdings Inc., acts as
investment manager to the Fund. The Monthly
Payment, U.S. Government Securities
and Income Return Account
13
<PAGE>
Smith Barney Funds, Inc.
Income Return Account Portfolio -------------------
- ---------------------------------------------------
Notes to Financial Statements (continued) --------
- ---------------------------------------------------
- ----------Portfolios pay SBMFM a management fee
calculated at the annual rate of 0.50% on
the first $200 million of the aggregate average
daily net assets of the three
portfolios and 0.40% on the aggregate average daily
net assets in excess of $200
million, allocated to each Portfolio based on their
relative average daily net
assets. Short-Term U.S. Treasury Securities
Portfolio pays SBMFM a management
fee calculated at the annual rate of 0.45% of the
Portfolio's average daily net
assets. All fees are calculated daily and paid
monthly.
Smith Barney Inc. ("SB"), another subsidiary of
Smith Barney Holdings Inc.,
acts as distributor of Fund shares. For the year
ended December 31, 1994, SB has
advised the Fund that it was paid sales charges of
approximately $36,000 by
purchasers of Income Return Account.
Effective November 7, 1994, the Fund adopted a new
class structure,
renaming the existing Class B shares as Class C
shares for the Income Return
Account Portfolio. A contingent deferred sales
charge ("CDSC") of 1.0% was
imposed on Class C shares if redemption occurs
within the first year from the
date such investment was made. Any CDSC imposed on
redemptions is paid to SB.
For the year ended December 31, 1994, there were
approximately $16,000 in such
charges.
Pursuant to a Distribution Plan Income Return
Account pays a distribution
fee and service fee with respect to its Class C
shares calculated at an annual
rate of 0.20% and 0.15% of average daily net
assets, respectively. Short-Term
U.S. Treasury Securities pays a service fee with
respect to Class A shares
calculated at the annual rate of 0.25% of its
average daily net assets and a
distribution fee calculated at the annual rate of
0.10% of average daily net
assets. All officers and two directors of the Fund
are employees of SB.
3. INVESTMENTS
During the year ended December 31, 1994, the
aggregate cost of purchases
and proceeds from sales (including maturities, but
excluding short-term
securities) of investments were, as follows:
<TABLE>
<CAPTION>
Portfolio
Purchases Sales ---------------------------
- -----------------------------------------------
<S>
<C>
<C>
Income Return Account
$37,838,281 $ 63,331,406
Short-Term U.S. Treasury Securities
37,397,031 135,295,866 ------------------------
- -----------------------------------------------
</TABLE>
14
<PAGE>
Smith Barney Funds, Inc. --------------------------
- -----------------------------------------------
Notes to Financial Statements (continued) ---------
- ---------------------------------------------------
- ----------
At December 31, 1994, the net unrealized
depreciation of investments for
Federal Income tax purposes by Portfolio consisted
of the following:
<TABLE>
<CAPTION>
Short-
Income Term U.S.
Return Treasury
Account Securities --------------------------
- ------------------------------------------------
<S>
<C>
<C>
Gross unrealized appreciation
$ -- $ --
Gross unrealized depreciation
(463,291) (3,910,726)
Net unrealized depreciation
$(463,291) $(3,910,726) -----------------------
- -----------------------------------------------
</TABLE>
At December 31, 1994, the Income Return Account and
Short-Term U.S.
Treasury Portfolios had net capital loss carryovers
of $1,816,221 and $3,929,597
available to offset future capital gains,
respectively. To the extent that these
carryover losses are used to offset capital gains,
it is probable that any gains
so offset will not be distributed. The amount and
expiration of the carryovers
are indicated below. Expiration occurs on December
31, of the year indicated:
<TABLE>
<CAPTION>
Portfolio
2002
1997 1996 --------------------------------
- ---------------------------------------------------
<S> <C>
<C> <C>
Income Return Account
$ 547,137 $236,762 $1,032,322
Short-Term U.S. Treasury Securities
3,929,597 -- ---------------
- ---------------------------------------------------
- --------------
</TABLE>
4. REPURCHASE AGREEMENTS
The Portfolios purchase (and its custodian takes
possession of) U.S.
Government securities from banks and securities
dealers subject to agreements to
resell the securities to the sellers at a future
date (generally, the next
business day) at an agreed-upon higher repurchase
price. The Portfolios require
continual maintenance of the market value of the
collateral in amounts at least
equal to the repurchase price.
5. CAPITAL SHARES
At December 31, 1994, the Fund had two
billion shares
of $0.01 par value
capital stock authorized. The Income Return
Account has the ability to issue
multiple classes of shares. Each share of a
class represents an identical
interest and has the same rights, except that
each class bears certain expenses,
including those specifically related to the
distribution of its shares. At
December 31, 1994 paid-in-capital amounted to
the following for each class and
respective Portfolio.
15
<PAGE>
Smith Barney Funds, Inc. --------------------------
- -----------------------------------------------
Notes to Financial Statements (continued) ---------
- ---------------------------------------------------
- ----------
<TABLE>
<CAPTION>
Portfolio
Class
A Class C Class Y Class Z --------------
- --
- ---------------------------------------------------
- -----------------------
<S> <C>
<C> <C> <C>
Income Return Account
$20,802,925
$3,184,667 $3,428,415 $7,139,561
Short-Term U.S. Treasury Securities
96,546,916
- -- -- -----------------------
- ---------------------------------------------------
- ------------------
</TABLE>
Transactions in shares of each Portfolio were as
follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1994 December 31,
1993 -
------
--
- ------------------- --------------------------
- -Income Return Account
Shares
Amount Shares Amount -----
- ---------------------------------------------------
- --------------------------------------------------
<S> <C> <C> <C> <C>
Class A
Shares sold
276,529
$ 2,616,488 2,608,900 $
25,261,540
Shares issued on reinvestment
150,791
1,427,935 230,967 2,231,516
Shares redeemed
(3,708,422)
(35,070,581) (2,547,228) (24,582,050)
- ---------------------------------------------------
- ---------------------------------------------------
- -Net Increase (Decrease)
(3,281,102)
$ (31,026,158) 292,639 $
2,911,006
- ---------------------------------------------------
- ---------------------------------------------------
- ---
- --Class C+
Shares sold
256,226
$ 2,437,665 474,467 $
4,583,636 Shares issued on reinvestment
11,683
110,488 5,796 55,873
Shares redeemed
(357,469)
(3,389,893) (64,558) (623,143)
- ---------------------------------------------------
- ---------------------------------------------------
- ---Net Increase (Decrease)
(89,560)
$(841,740) 415,705 $ 4,016,366 --
- ---------------------------------------------------
- ---------------------------------------------------
Class Y++ Shares sold
121,282
$ 1,152,444 562,143 $
5,442,289 Shares issued on reinvestment
11,913
112,510 2,789 26,893
Shares redeemed
(351,172)
(3,300,139) (575) (5,583)
- ---------------------------------------------------
- ---------------------------------------------------
- ---Net Increase (Decrease)
(217,977)
$ (2,035,185) 564,357 $
5,463,599 -----------------------------------------
- ---------------------------------------------------
- -------------Class Z*
Shares sold
761,580
$ 7,174,087 --
Shares issued on reinvestment
9,325
87,374 -- -Shares
redeemed
(13,001) (121,900) ------------------
- ---------------------------------------------------
- --------------------------------------Net Increase
757,904 $ 7,139,561 -------------
- ---------------------------------------------------
- ---------------------------------------------
Short-Term U.S. Treasury Securities ---------------
- ---------------------------------------------------
- ----------------------------------------Class A
Shares sold 21,923,554 $ 89,709,541
56,302,474 $ 236,111,337
Shares issued on reinvestment
1,530,315
6,166,194 1,742,918 7,302,423
Shares redeemed
(50,274,705)
(202,445,248) (40,197,809)
(168,509,798) -------------------------------------
- ---------------------------------------------------
- ----------------Net Increase (Decrease)
(26,820,836) $ (106,569,513) 17,847,583
$ 74,903,962 --------------------------------------
- ---------------------------------------------------
- -----------------</TABLE>
+ On November 7, 1994 the old Class B shares were
renamed Class C shares.
++ On November 7, 1994 the old Class C shares were
renamed Class Y shares.
* Sales of Class Z shares commenced on November 7,
1994.
16
<PAGE>
Smith Barney Funds, Inc.
Income Return Account Portfolio -------------------
- --------------------------------------------------
Financial Highlights ------------------------------
- --------------------------------------------
FOR A SHARE OF EACH CLASS OF CAPITAL STOCK
OUTSTANDING THROUGHOUT THE YEAR:
<TABLE>
<CAPTION>
Class A Shares
1994 1993 1992 1991
1990 ----------------------------------------------
- ---------------------------------------------------
- ----------------
<S>
<C> <C> <C> <C>
<C> Net Asset Value, Beginning of Year
$9.59 $9.68 $9.65 $9.38
$9.31 ---------------------------------------------
- ---------------------------------------------------
- -----------------
Income From Investment Operations:
Net investment income
0.46 0.45 0.52 0.67
0.73
Net realized and unrealized gain (loss)
on investments
(0.26) (0.07) 0.03 0.33
0.08 ----------------------------------------------
- ---------------------------------------------------
- ----------------
Total Income from Investment Operations
0.20 0.38 0.55 1.00
0.81 ----------------------------------------------
- ---------------------------------------------------
- ----------------
Less Distributions:
Dividends from net investment income
(0.45) (0.47) (0.52) (0.73)
(0.74) --------------------------------------------
- ---------------------------------------------------
- ------------------
Total Distributions
(0.45) (0.47) (0.52) (0.73)
(0.74) --------------------------------------------
- ---------------------------------------------------
- ------------------
Net Asset Value, End of Year
$9.34 $9.59 $9.68 $9.65
$9.38 ---------------------------------------------
- ---------------------------------------------------
- -----------------
Total Return
2.14% 4.00% 5.85% 11.06%
9.10% ---------------------------------------------
- ---------------------------------------------------
- -----------------
Net Assets, End of Year (000s)
$18,918 $50,874 $48,538 $33,682
$24,058 -------------------------------------------
- ---------------------------------------------------
- -------------------
Ratios to Average Net Assets:
Expenses
0.56% 0.53% 0.50% 0.49%
0.43%
Net investment income
4.60 4.67 5.33 6.98
7.92 ----------------------------------------------
- ---------------------------------------------------
- ----------------
Portfolio Turnover Rate
126.64% 152.04% 84.15% 30.44%
27.90% --------------------------------------------
- ---------------------------------------------------
- ------------------
<CAPTION>
Class C Shares (1)
1994 1993 1992(2)
- ---------------------------------------------------
- ---------------------------------------------------
- -----------
<S>
<C> <C> <C>
Net Asset Value, Beginning of Year
$9.58 $9.68 $9.69
- ---------------------------------------------------
- ---------------------------------------------------
- ------------
Income From Investment Operations:
Net investment income
0.42 0.45 0.03
Net realized and unrealized loss on investments
(0.24) (0.12) ------------------
- --
- ---------------------------------------------------
- -----------------------------------------
- -----
Total Income from Investment Operations 0.18
0.33 0.03 -------------------------------
- --
- ---------------------------------------------------
- -------------------------------
Less Distributions:
Dividends from net investment income
(0.42) (0.43) (0.04) --------------
- --
- ---------------------------------------------------
- -----------------------------------------------
Total Distributions
(0.42) (0.43) (0.04) --------------
- --
- ---------------------------------------------------
- ------------------------------------------------
Net Asset Value, End of Year
$9.34 $9.58 $9.68 ---------------
- --
- ---------------------------------------------------
- --
- ---------------------------------------------Total
Return
1.86% 3.53% 0.31%++ -------------
- ---------------------------------------------------
- -------------------------------------------------
Net Assets, End of Year (000s)
$3,055 $3,993 $10 --------------
- ---------------------------------------------------
- ------------------------------------------------
Ratios to Average Net Assets:
Expenses
0.94% 0.90% 0.86%+
Net investment income
4.40 4.25 5.71+ ---------------
- ---------------------------------------------------
- ----------------------------------------------
Portfolio Turnover Rate
126.64% 152.04% 84.15% -------------
- ---------------------------------------------------
- -----------------------------------------------
</TABLE>
(1) On November 7, 1994 old Class B shares were
renamed Class C shares.
(2) For the period from December 16, 1992
(inception date) to December 31, 1992.
++ Not annualized as it may not be representative
of the total return for the
year.
+ Annualized.
17
<PAGE>
Smith Barney Funds, Inc.
Income Return Account Portfolio -------------------
- ---------------------------------------------------
- -Financial Highlights (continued) -----------------
- ---------------------------------------------------
- ---FOR A SHARE OF EACH CLASS OF CAPITAL STOCK
OUTSTANDING THROUGHOUT THE YEAR:
<TABLE>
<CAPTION>
Class Y Shares (1)
1994 1993(2) ----------------------------
- ---------------------------------------------------
- --<S> <C> <C>
Net Asset Value, Beginning of Year
$9.59 $9.72 ----------------------------
- ---------------------------------------------------
- ----Income From Investment Operations:
Net investment income
0.44 0.42
Net realized and unrealized loss on investments
(0.25) (0.13) ---------------------------
- ---------------------------------------------------
- -----
Total Income from Investment Operations
0.19 0.29 -----------------------------
- ---------------------------------------------------
- ---Less Distributions:
Dividends from net investment income
(0.44) (0.42) ---------------------------
- ---------------------------------------------------
- ---
- ---
Total Distributions
(0.44) (0.42) ---------------------------
- ---------------------------------------------------
- -----
Net Asset Value, End of Year
$9.34 $9.59 ----------------------------
- ---------------------------------------------------
- ----Total Return
2.01% 3.01%++ --------------------------
- ---------------------------------------------------
- ------
Net Assets, End of Year (000s)
$3,235 $5,412 ---------------------------
- ---------------------------------------------------
- -----
Ratios to Average Net Assets:
Expenses
0.69% 0.75%+
Net investment income
4.65 4.78+ ----------------------------
- ---------------------------------------------------
- ----Portfolio Turnover Rate
126.64% 152.04% --------------------------
- ---------------------------------------------------
- ------
<CAPTION>
Class Z Shares
1994(3) -------------------------------------------
- ------------------------------------------
<S>
<C>
Net Asset Value, Beginning of Year
$9.42 ---------------------------------------------
- ----------------------------------------
Income From Investment Operations:
Net investment income
0.07
Net realized and unrealized loss on investments
(0.02) --------------------------------------------
- -----------------------------------------
Total Income from Investment Operations
0.05 ----------------------------------------------
- ---------------------------------------
Less Distributions:
Dividends from net investment income
(0.12) --------------------------------------------
- -----------------------------------------
Total Distributions
(0.12) --------------------------------------------
- -----------------------------------------
Net Asset Value, End of Year
$9.35 ---------------------------------------------
- ----------------------------------------
Total Return
0.38%++ -------------------------------------------
- ------------------------------------------
Net Assets, End of Year (000s)
$7,083 --------------------------------------------
- -----------------------------------------
Ratios to Average Net Assets:
Expenses
0.46%+
Net investment income
5.29+ ---------------------------------------------
- --
- ---------------------------------------
Portfolio Turnover Rate
126.64% -------------------------------------------
- ------------------------------------------
</TABLE>
(1) On November 7, 1994 old Class C shares were
renamed Class Y shares.
(2) For the period from February 1, 1993 (inception
date) to December 31, 1993.
(3) For the period from November 7, 1994 (inception
date) to December 31, 1994.
++ Not annualized as it may not be representative
of the total return for the
year.
+ Annualized.
18
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio -----
- ---------------------------------------------------
- -------------
Financial Highlights (continued) ------------------
- ---------------------------------------------------
- --FOR A SHARE OF EACH CLASS OF CAPITAL STOCK
OUTSTANDING
THROUGHOUT THE YEAR:
<TABLE>
<CAPTION>
Class A Shares
1994 1993 1992 1991(1)
- ---------------------------------------------------
- ------------------------------------------------<S>
<C> <C> <C> <C>
Net Asset Value, Beginning of Year
$4.16 $4.12 $4.09 $4.01 -
- ---------------------------------------------------
- -----------------------------------------------
Income (Loss) From Investment Operations:
Net investment income
0.18 0.18 0.19 0.03
Net realized and unrealized gain (loss)
on investments
(0.25) 0.06 0.04 0.09 -
- ---------------------------------------------------
- -------------------------------------------------
Total Income (Loss) from Investment Operations
(0.07) 0.24 0.23 0.12 -------------------
- ---------------------------------------------------
- --------------------------------Less Distributions:
Dividends from net investment income
(0.18) (0.18) (0.19) (0.03)
Distribution from net realized gains
on security transactions
- -- (0.02) (0.01) (0.01) ---
- ---------------------------------------------------
- ----------------------------------------------
Total Distributions
(0.18) (0.20) (0.20) (0.04)
- ---------------------------------------------------
- ------------------------------------------------Net
Asset Value, End of Year
$3.91 $4.16 $4.12 $4.09 -
- ---------------------------------------------------
- -----------------------------------------------
Total Return (2.15)% 6.01% 5.92%
2.85%++ -------------------------------------------
- ---------------------------------------------------
- --------Net Assets, End of Year (000s)
$88,707 $205,758 $130,280 $93,946
- ---------------------------------------------------
- -----------------------------------------------
Ratios to Average Net Assets:
Expenses
0.91% 0.88% 0.91% 0.80%+
Net investment income
4.54 4.40 4.76 4.89+ -
- ---------------------------------------------------
- ----------------------------------------------
Portfolio Turnover Rate
24.51% 41.12% 44.99% 4.61%
- ---------------------------------------------------
- -----------------------------------------------
</TABLE>
(1) For the period from November 11, 1991
(inception date)
to December 31,
1991.
++ Not annualized as it may not be representative
of the total return for the
year.
+ Annualized.
19
<PAGE>
Smith Barney Funds, Inc. --------------------------
- --------------------------------------------
Independent Auditors' Report ----------------------
- ---------------------------------------------------
- -
To The Shareholders and Board of Directors of
Smith Barney Funds, Inc.:
We have audited the accompanying statements of
assets and liabilities
including the schedules of investments of the
Income Return Account and the
Short-Term U.S. Treasury Securities Portfolios of
Smith Barney Funds, Inc. as of
December 31, 1994, and the related statements of
operations for the year then
ended, the statements of changes in net assets for
each of the years in the two-
year period then ended and the financial highlights
for each of the years in the
five-year period then ended with respect to the
Income Return Account Portfolio
and for each of the years in the three-year period
then ended and the period
from November 11, 1991 (commencement of operations)
to December 31, 1991 with
respect to the Short-Term U.S. Treasury Securities
Portfolio. These financial
statements and financial highlights are the
responsibility of the Fund's
management. Our responsibility is to express an
opinion on these financial
statements and financial highlights based on our
audits.
We conducted our audits 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
statements and financial
highlights are free of material misstatement. An
audit includes examining, on a
test basis, evidence supporting the amounts and
disclosures in the financial
statements. Our procedures included confirmation of
securities owned as of
December 31, 1994, by correspondence with the
custodian. 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 audits provide a reasonable
basis for our opinion.
20
<PAGE>
Smith Barney Funds, Inc. --------------------------
- --------------------------------------------
Independent Auditors' Report (continued) ----------
- ---------------------------------------------------
- ---------
In our opinion, the financial statements and
financial highlights referred
to above present fairly, in all material respects,
the financial position of the
Income Return Account and the Short-Term U.S.
Treasury Securities Portfolios of
Smith Barney Funds, Inc. as of December 31, 1994,
and the results of their
operations for the year then ended, the changes in
their net assets for each of
the years in the two-year period then ended and the
financial highlights for
each of the years in the five-year period then
ended with respect to Income
Return Account Portfolio and for each of the years
in the three-year period then
ended and the period from November 11, 1991
(commencement of operations) to
December 31, 1991 with respect to the Short-Term
U.S. Treasury Securities
Portfolio, in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
New York, New York
February 17, 1995
21
<PAGE>
Smith Barney
- ------------
A Member of Travelers Group [LOGO
APPEARS HERE]
Smith Barney
Funds, Inc.
Directors
Ralph D. Creasman
Joseph H. Fleiss
Donald R. Foley
Paul Hardin
Francis P.Martin, M.D.
Roderick C. Rasmussen
Bruce D. Sargent
John P. Toolan
Stephen Treadway, Chairman
C. Richard Youngdahl
Officers
Stephen Treadway
Chief Executive Officer
Heath B. McLendon
President
Lewis E. Daidone
Senior Vice President
and Treasurer
Bruce D. Sargent
Vice President
Ayako Weissman
Vice President
Thomas M. Reynolds
Controller
Christina T. Sydor
Secretary
Investment Manager
Smith Barney Mutual Funds
Management Inc.
Distributor
Smith Barney Inc.
Custodian
PNC Bank
Shareholder
Servicing Agent
The Shareholder Services Group, Inc.
P.O. Box 9134
Boston, MA 02205-9134
This report is submitted for the
general information of the
shareholders of
Smith Barney Funds, Inc. Income Return Account
and Short Term U.S. Treasury
Securities Portfolios. It is not authorized
for distribution to prospective
investors unless accompanied or preceded by a
current Prospectus for the
Portfolio, which contains information
concerning the Portfolio's investment
policies and expenses as well as other
pertinent information.
Smith Barney Funds, Inc.
388 Greenwich Street
New York, New York 10013
FD084 B5
Smith Barney Limited Maturity Treasury
Fund (the "Fund")
Supplement dated April 1, 1995
to Prospectus and Statement of Additional
Information Although the Fund has ceased
offering its shares
to the public, the following information updated
the Fund's Prospectus and Statement of Additional
Information both dated January 29, 1994.
The Fund's Expenses
<TABLE>
The following expense table lists the costs and
expenses that an investor will incur, either directly
or indirectly as a shareholder of the Fund, based
upon the maximum sales charge or maximum contingent
deferred sales charge ("CDSC") that may be incurred
at the time of purchase or redemption and the
Fund's operation expenses for its most recent fiscal
year.
- ------------------------------------------------------
- ------------------------------------------------
<CAPTION>
<S>
SHAREHOLDER TRANSACTION EXPENSES
<C> <C> <C>
Class A Class C Class Y
Maximum sales charge imposed on purchases
(as percentage of offering price) 2.00% None None
Maximum CDSC
(as a percentage of redemption proceeds)
1.00% 1.00% None -------------------------------------
- ------------------------------------------------------
- ------ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fees (net of waivers) 0.46% 0.46% 0.46%
12b1 fees 0.15 0.35 None
Other expenses 0.38 0.38 0.38
- ------------------------------------------------------
- -------------------------------------------------
TOTAL OPERATING EXPENSES
(after waivers) 0.99
1.19
0.84 -------------------------------------------------
- --
- -----------------------------------------------------
</TABLE>
Smith Barney Mutual Funds Management Inc.
("SBMFM") has voluntarily waived investment advisory
and administration fees in the aggregate amount equal
to 0.09% of the value of the Fund's average daily
net assets. This has the effect of lowering the
Fund's overall expense ratio and increasing the
returns available to investor. If SBMFM had not
elected to waive fees, the Fund's total operating
expenses for the fiscal year ended November 30, 1994,
would have been 1.08% of the value of the Fund's
average daily net assets.
EXAMPLE
The following example is intended to assist an
investor in understanding the various costs and
expenses that an investor in the Fund will bear
directly or indirectly. The example assumes payment
by the Fund of operating expenses at the levels set
forth in the table above.
<TABLE>
<CAPTION>
<S> <C> <C>
1 Year 3 Years 5
Years 10 Years ---------------------------------------
- ------------------------------------------------------
- ----
An investor would pay the following
expenses on a $1,000 investment,
assuming (1) 5.00% annual return
and (2) redemption at the end of
each time period:
Class A $40 $51
$74
$139
Class C 22 38
65
144
Class Y 9 27
47
104
An investor would pay the following
expenses on the same investment,.
assuming the same annual return
and no redemption:
Class A $30 $51 $74
$139
Class C 12 38 65
144
Class Y 9 27 47
104 --------------------------------------------------
- ----------------------------------------------------
</TABLE>
The example also provides a means for the
investor to compare expense levels of funds with
different fee structures over varying investment
periods. To facilitate such comparisons, all
funds are required to
utilize a 5.00% annual return
assumption. However, the Fund's actual return will
vary and may be greater or less that 5.00%. This
example should not be considered a representation of
past or future expenses and actual expenses may be
greater or less than those shown.
Financial Highlights
The Fund's "Financial Highlights" for the
fiscal year ended November 30, 1994 may be
obtained from the Fund's Annual Report also dated
November 30, 1994.
Management of the Trust and the
Fund
<TABLE>
For the following fiscal years the Fund
paid investment advisory fees as follows:
<CAPTION>
<S> <C> <C> <C>
Fees Waived and
Fiscal Year Ended Fees paid Expenses
Reimbursed November 30, 1994$ 215,192
$ 34,372
November 30, 1993$ 91,652 $ 79,608
November 3, 1992$ 6,603 $ 76,000
</TABLE>
For the fiscal year ended November 30,
1994, the Fund paid The Boston Company
Advisors, Inc. ("Boston Advisors") $3,537 in
administration fees and for the same period
Boston Advisors waived $43,665.
<TABLE>
For the following fiscal years the Fund paid
administration fees as follows:
<CAPTION>
<S> <C> <C> <C>
Fees Waived and
Fiscal Year Ended Fees paid Expenses
Reimbursed November 30, 1994$ 122,966 $
19,641 November 30, 1993$ 51,860 $
46,003
</TABLE>
Investment Objective and Management Policies
The Portfolio turnover rate for the fiscal
years ended November 30, 1994 and 1993 were
152% and 104%, respectively.
Distributor
The Fund paid distribution fees, sales
charges and CDSCs for the fiscal.
Performance Data
<TABLE>
The Fund's 30 day SEC yield for Class A
shares for the period ended November 30, 1994
was 6.53%. Year ended November 30, 1994, to
Smith Barney Inc. as follows:
<S> <C> <C>
Class Distribution Fees Sales Charge
<C> <C>
Service Fees CDSC
Class A $ 0.00 $ 59,800 $ 92,225
$43,639 Class C $ 1.00 $ 0.00 $
1.00
$ 0.00
</TABLE>
<TABLE>
The Fund's average annual total
return was as follows:
<CAPTION>
One Year Period Ended November 30, 1994
<S> <C> <C>
Class (With fee waivers) (Without
fee
waivers)
Class A (7.02) (7.11)
<CAPTION>
Per Annum from Commencement of
Operations (December 31, 1991 and
November 7, 1994 respectively)
through November 30, 1994
<S> <C>
Class (With fee waivers)
(Without
fee
waivers)
Class A 2.16 1.83
Class C (1.16) (1.16)
The Fund's aggregate total return was as
follows:
<CAPTION>
One Year Period Ended
November 30, 1994 Class
<S> <C> <C>
Class (With fee (Without fee
Waivers) Waivers)
Class A (7.02) (7.11)
<CAPTION>
For the period from Commencement
of Operations (December 31,
1991 and November 7, 1994
respectively) through
November 30, 1994
<S> <C>
Class (With fee waivers)
(Without
fee
waivers)
Class A 6.43 5.43
Class C (1.16) (1.16)
</TABLE>
The average annual and aggregate total return
figures listed above assume that the maximum Class A
2.00% sales charge has been deducted from the
investment at the time of purchase and the
maximum CDSC for Class C shares has
been deducted and have been restated to show the
change in the maximum sales charge.
Financial Statements
The Fund's Annual Report for the Fiscal year
ended November 30, 1994 accompanies this
Supplement to the Prospectus and Statement of
Additional Information and is incorporated herein by
reference in its entirety.
PRO FORMA STATEMENT OF ASSETS AND LIABILITIES AT
DECEMBER 31, 1994 (Unaudited)
Smith Barney
Limited Maturity
Short Term U.S.
Treasury Treasury Fund Pro Forma Pro
Forma
12/31/94 12/31/94
Adjustments Combined
(Historical)
(Historical)
ASSETS:
Investments, at value
87434773
69845035 157279808
Cash 88
88
Interest receivable
1640060
1164849 2804909
Receivable for Fund shares sold
2683
8957 11640
Organization Expenses
105006 -105006 (f) -
Receivable from Adviser
2392
117048 (f) 119440
Total Assets 89077604
71126239 12042 160215885
LIABILITIES:
Cash Overdraft -
251060
251060
Payable for Fund shares redeemed
122086 54195 176281
Management fee payable
80743 136953 42638 (a)
260334
Administration fee payable
78188 -78188 (b) -
Distribution costs payable
80438
- - 47592 (c) 128030
Accrued expenses and other liabilities
14463 85038 99501
Dividends payable 73281
28140
101421
Total Liabilities 371011
633574 12042 1016627
Net Assets 88706593
70492665
- - 159199258
NET ASSETS:
Par value of capital shares
226843
9960941 -9780574 (h) 407210
Capital paid in excess of par value
96320073 67050252 9780574 (h)
173150899
Undistributed net investment income
- - 707 707
Accumulated net realized (loss)
3929597 -1862307 -
5791904
Net unrealized depreciation of
investments 3910726
- -4656928 -8567654
Net Assets 88706593
70492665
- - 159199258
Outstanding Shares:
CLASS A 22684266
9951222
8085471 (h) 40720959
CLASS B - -
CLASS C - 9720
- -
9720
(h)
CLASS Y - -
Net Asset Value
CLASS A (and redemption price)
3.91 7.08
3.9095164237168383
CLASS B* - -
CLASS C* -
7.08
CLASS Y* - -
3.91 -
3.91
See accompanying notes to pro forma financial
statements.
-1-
PRO FORMA STATEMENT OF OPERATIONS For the
year
ended December 31, 1994 (Unaudited)
Smith Barney
Limited
Maturity
Short Term U.S.
Treasury Treasury Fund Pro Forma Pro
Forma
12/31/94 12/31/94
Adjustments Combined
(Historical)
(Historical)
INVESTMENT INCOME:
Interest 8796122
34497324
- - 43293446
EXPENSES:
Management fees 735555
221216 63205 (a) 1019976
Administrative fees -
126408
- -126408 (b) -
Distribution costs
572083
94805
126411 (c) 793299
Shareholder servicing agent
40000
55678 -5430 (d) 90248
Shareholder communications
13998
42563 56561
Registration fees
65003
41617
106620
Custodian fees 18002
19530
37532
Legal and auditing fees
8603
46334
- -46334 (e) 8603
Directors' fees 3103
10437
- -10437 (e) 3103
Other 5200 9316
14516
Amortization of organization costs
12042 -12042 (f) -
Total Expenses
1461547 679946 -
11035
2130458
Less: Management Fee Waivers
55993 11035 (g) -44958
Net Expenses
1461547
623953 - 2085500
NET INVESTMENT INCOME
7334575
33873371 - 41207946
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net Realized Gain From Security
Transactions (excluding short term
securities)
- -3948419 -1876705 - -
5825124
Net Change in Unrealized Appreciation of
Investments -6533895 -3979485 -
10513380
Net Gain (Loss) On Investments
10482314 -5856190 -
16338504
Increase in Net Assets Resulting from
Operations 3147739
28017181 - 24869442
See accompanying notes to pro forma financial
statements.
(a)reflects management fee agreement of
surviving fund (e)decrease due to duplicate
services
(b)Administrative fees not seperately charged
on
surviving fund.
(f)unamortized
expenses absorbed by management company
(c)reflects distribution fee agreement of
surviving fund
(g)reduction in waiver due
to
reduction in expenses
(d)decrease in expense due to agreement in place
with Short Term U.S. Treasury
(h)reflects new shares issued by Short Term U.S.
Treasury
-2-
SHORT- TERM U.S. TREASURY PORTFOLIO-FINANCIAL
HIGHLIGHTS (For a share of each class of capital
stock outstanding throughout each period):
^CLASS A SHARES
1994 1993 1992 1991(1)
Net Assets Value, Beginning of Period
4.16 4.12 4.09 4.01
Income From Investment Operations:
Net Investment Income 0.18 0.18
0.19
0.03
Net realized and unrealized gain (loss) on
Investments -0.25 0.06
0.04
0.09
Total Income from Investment Operations
- -0.07 0.24 0.23 0.12
Less Distributions:
Dividends fom net Investment income
0.18 -0.18 -0.19 -0.03
Distribution from net realized
gains -
0.02 -0.01 -0.01
Total Distributions -
0.18
0.2 -0.2 -0.04
Net Asset Value, End of Period
3.91 4.16 4.12 4.09
Total Return -0.0162 0.0601
0.0592
0.0285
Net Asset Value, End of Period (000s)
88707 205758 130280 93946
Ratios to Average Net Assets:
Expenses 0.0091 0.0088
0.0091
0.008 *
Net Investment Income 4.54 4.4
4.76
4.89 *
Portfolio Turnover Rate 0.2451
0.4112
0.4499 0.0461
(1) For the period from Novemeber 11, 1991
(inception date) to December 31,1991.
*Annualized
Combined Management Fee Calculation:
(a)Increase of management fee from .35%
to .45%
Average net assets:
Limited Maturity Treasury Fund new rate
63,204,571 x .45%
284420.5695 old rate 63,204,571 x .35% 221215.9985
adjustment 63204.571
Transfer Agent Fees: Current
Total New Transfer Transfer
Agent TSSG fee per Acct x Accts for the year
=
Agent Fee - Balance =
Adjustment
11 4568 50248 55678 -5430
Distribution fee:
Avg. Net Assets
63,204,571 x .35%
221215.9985
63,204,571 x .15%
94805
adjustment 126410.9985
Pro Forma Footnotes of Merger Between Smith Barney
Funds, Inc. Short-Term U.S. Treasury Securities
Portfolio and Smith Barney Limited Maturity Treasury
Fund, a subtrust of Smith Barney Income Trust.
December 31, 1994 (unaudited)
1. General
The accompanying pro forma financial
statements
are
presented to show the effect of the proposed
acquisition of Smith Barney Limited Maturity Treasury
Fund (the "Fund") by the
Smith Barney Short-Term U.S. Treasury
Securities Portfolio (the "Portfolio"), as if such
acquisition had taken place as of January 1, 1994.
Under the terms of the Plan of
Reorganization, the
combination of the Portfolio and the Fund will be
taxed as a tax-free business combination and
accordingly will be
accounted for by a method of accounting for tax free
mergers of investment companies (sometimes
referred
to as the pooling with out restatement method).
The acquisition would be accomplished by an
acquisition of the net assets of the Fund in
exchange for shares of the Portfolio at net asset
value. The statements of assets and liabilities
and the related statements of operations of the
Portfolio and the Fund have been combined as of
and for the period ended December 31, 1994.
The accompanying pro forma financial statements
should be read in conjunction with the financial
statements and schedules of investments of the Fund
and the Portfolio which are included in their
respective annual reports dated November 30, 1994
and December 31, 1994, respectively.
The following notes refer to the accompanying pro
forma financial statements as if the above mentioned
acquisition of the Portfolio and the Fund had taken
place as of January 1, 1994.
2. Significant Accounting Policies
The Portfolio is a separate investment portfolio
of the Smith Barney Funds, Inc. which is a Maryland
corporation, registered under the Investment Company
Act of 1940, as amended, as a diversified, open-
end management investment company.
The significant accounting policies consistently
followed by the Portfolio are (a) securities
transactions are accounted for on the trade date
(b) U.S. Government and Government Agency
obligations are valued at the mean between the bid
and asked prices short-term investments that have a
maturity of more than 60 days are valued at prices
based on market quotations for securities of
similar type, yield and
maturity short-term investments that have a maturity
of 60 days or less are valued at cost plus accreted
discount, or minus amortized premiums, as
applicable (c) interest income is recorded on the
accrual basis (d) gains or losses on the sale of
securities are calculated by using the specific
identification method (e) direct expenses are
charged to each portfolio of Smith Barney Funds,
Inc. and management fees and general fund expenses
are allocated on the basis of relative net assets
(f) dividends and distributions to shareholders are
recorded by the Fund on the exdividend date: and
(g) the Fund intends to comply with the
requirements of the Internal Revenue Code
pertaining to regulated investment companies and to
make the required distributions to shareholders;
therefore, no provision for Federal income taxes has
been made.
-3-
Pro Forma Footnotes of Merger Between Smith Barney
Funds, Inc. Short-Term U.S. Treasury Securities
Portfolio and Smith Barney Limited Maturity Treasury
Fund, a subtrust of Smith Barney Income Trust.
December 31, 1994 (unaudited) (continued)
3. Pro Forma Adjustments
The accompanying pro forma financial statements
reflect changes in fund shares and expenses as if
the
merger had taken place on January 1, 1994. For a
description of the adjustments see the Pro-Forma
Financial Statements.
4. Management Agreement and Transactions with
Affiliated
Persons
Smith Barney Mutual Funds Management Inc. ("SBMFM")
formerly known as Smith Barney, Advisers, Inc., a
subsidiary of Smith Barney Holdings, Inc. acts as
investment manager of the Portfolio. The
Portfolio pays SBMFM a management fee calculated
at the annual rate of 0.45% of the Portfolio's
average daily net
assets. All fees are calculated daily and paid
monthly.
Smith Barney, Inc. ("SB"), a subsidiary of Smith
Barney Holdings, Inc., acts as distributor of Fund
shares.
Pursuant to a distribution plan the Portfolio pays a
service fee with respect to class A shares
calculated at the annual rate of 0.25% of its
average daily net assets and a distribution fee
calculated at the annual rate of 0.10% of
average daily net assets. All
officers and two directors of the Fund are employees
of SB.
5. Investments
At December 31, 1994, the Portfolio had net
capital loss carryovers of $5,791,904 available to
offset future capital gains, respectively. To the
extent that these carryover losses are used to
offset capital gains, it is probable that any gains
so offset will not be distributed.
6. Repurchase agreements
The Portfolio purchases (and its custodian takes
possession of) U.S. Government securities from
banks and securities dealers subject to agreements
to resell the securities to the sellers at a
future date (generally, the next business day) at
an agreed upon higher repurchase price. The Fund
requires continual maintenance of the market value
of the collateral in amounts at least equal to
the repurchase price.
- -4-
U:\OSUNKWO\LMTPARTC.N14
SMITH BARNEY FUNDS, INC.
PART C
OTHER INFORMATION
Item 15. Indemnification
The response to this item is
incorporated by reference to "Liability of
Directors" under the caption "Comparative
Information on Shareholder's Rights" in
Part A of this Registration Statement.
Item 16. Exhibits
All references are to Registrant's
Registration Statement on Form N-1A (the
"Registration Statement") as filed with the
Securities and Exchange Commission on (File Nos. 33-
89600 and 811-1464)
(1) (a) Articles Supplementary dated November
16,
1992 are
incorporated by reference to Exhibit 1(a)
to the PostEffective Amendment No. 49.
(1) (b) Articles Supplementary dated October
29,
1992 are
incorporated by reference to Exhibit
1(b) to PostEffective Amendment No. 49.
(1) (c) Articles of Amendment dated October
29,
1992
are
incorporated by reference to Exhibit
1(c) to PostEffective Amendment No. 49.
(1) (d) Articles Supplementary dated September
6,
1991 are
incorporated by reference to Exhibit
1(a) to PostEffective Amendment No. 46.
(1) (e) Articles Supplementary dated October
31,
1990 are
incorporated by reference to Exhibit
1(a) to PostEffective Amendment No.43.
(1) (f) Articles Supplementary dated March
27,
1986,
May
15, 1985, December 28, 1984, August 2,
1984, June 8, 1984, February 26, 1972
and April 25, 1967 are incorporated by
reference to Exhibits 1(a) through (g) to
Post-Effective Amendment No. 39.
(1) (g) Articles of Incorporation dated
December
1,
1966
are incorporated by reference to Exhibit
1(h) to PostEffective Amendment No. 39.
(1) (h) Articles Supplementary dated December
14,
1993 are
incorporated by reference to Exhibit
1(h) to PostEffective Amendment No. 54.
(2) By-Laws of the Fund are incorporated
by
reference
to Exhibit 2 to Post-Effective Amendment
No. 39.
(3) Not Applicable
(4) Agreement and Plan of Reorganization
(included as
Exhibit A to Registrant's
Prospectus/Proxy Statement contained in
Part A of this Registration Statement).*
(5) Not applicable.
(6) Management Agreement between Smith
Barney,
Inc.
and Short-Term U.S. Treasury Securities
Portfolio is incorporated by reference
to Exhibit 5(a) to PostEffective
Amendment No. 46.
(7) Distribution Agreement between Smith
Barney
Funds
and Smith Barney, Harris Upham & Co.
Incorporated is incorporated by
reference to Exhibit 6(b) to
PostEffective Amendment No. 56.
(8) Distribution Agreement between Smith
Barney
Funds,
Inc. and Smith Barney Shearson Inc. is
incorporated by reference to Exhibit 6(b)
to Post-Effective Amendment No. 56 to the
Registration Statement.
(9) (a) Custodian Agreement
between Registrant
and
Provident National Bank is incorporated by
reference to Exhibit 8 to Post-Effective
Amendment No. 39 to the Registration
Statement.
(9) (b) Form of Transfer Agency
Agreement
between
Registrant and The Shareholder Services
Group, Inc.*
(10) (a) Plan of Distribution pursuant to Rule 12b-
1
on behalf of Short-Term U.S. Treasury
Securities Portfolio is incorporated by
reference to Exhibit 15(a) to
PostEffective Amendment No. 46 to the
Registration Statement.
(10) (b) Amended Plan of distribution pursuant to
Rule
12b1 on behalf of Short-Term U.S. Treasury
Securities Portfolio is incorporated by
reference to Exhibit 15(h) to PostEffective
Amendment 56 to Registration Statement.
(11) (a) Opinion of Sullivan & Cromwell as to
validity of shares.*
(11) (b) Opinion of Piper & Marbury, special
Maryland counsel, as to validity of
shares.*
(12) Opinion of Willkie Farr & Gallagher
with
respect
to tax matters.*
(13) Not Applicable
(14) (a) Consent of Coopers & Lybrand L.L.P.*
(14) (b) Consent of KPMG Peat Marwick
L.L.P.* (15) Not Applicable.
* Is filed herewith.
(16) Not Applicable.
(17) (a) Form of Proxy Card.*
(17) (b) Registrant's Declaration pursuant to
Rule 24f-
2 is incorporated by reference to its
initial Registration Statement.
_________________
* Filed herewith.
Item 17. Undertakings
(1) The undersigned Registrant agrees
that
prior to
any public reoffering of the
securities registered through the use of
a prospectus which is a part of this
Registration Statement by any person or
party who is
deemed to be an underwriter within the meaning of
Rule 145(c) of the Securities Act of 1933, the
reoffering prospectus will contain the information
called for by the applicable registration form
for reofferings by persons who may be deemed
underwriters, in addition to the information
called for by the other items of the applicable
form.
(2) The undersigned Registrant
agrees
that
every
prospectus that is filed under paragraph
(1) above will be filed as a part of an
amendment to the Registration Statement
and will not be used until the amendment
is
effective, and that, in determining any
liability under the Securities Act of
1933, each posteffective amendment
shall be deemed to be a new registration
statement for the securities offered
therein, and the
offering of the securities at that time
shall be deemed to be the initial bona
fide offering of them.
EXHIBIT INDEX
Exhibit Number
Description
Page
4 Agreement and Plan of
Reorganization
(included as
Exhibit A
to Registrant's Prospectus/Proxy
Statement contained in Part
A of this
Registration Statement)*
9 (b) Form of Transfer Agency
Agreement
between
Registrant and
The
Shareholder Services Group, Inc.*
11 (a) Opinion of Sullivan and Cromwell
as
to
validity of
shares*
11 (b) Opinion of Piper & Marbury,
special
Maryland
counsel,
as to
validity of shares*
12 Opinion of Willkie Farr &
Gallagher
with
respect
to tax matters*
14 (a) Consent of Coopers &
Lybrand,
L.L.P.*
14 (b) Consent of KPMG Peat
Marwick
L.L.P.*
17 (a) Form of Proxy Card.*
* Is filed herewith.
u:\osunkwo\openta.doc06/09/95 06:23 PM
FORM OF
TRANSFER AGENCY AND REGISTRAR
AGREEMENT AGREEMENT, dated as of
_______________, between
______________ (the "Fund"), a ______________
having its principal place
of business at
________________________________, and THE
SHAREHOLDER SERVICES GROUP, INC. (MA) (the
"Transfer Agent"), a
Massachusetts corporation having its principal
place of business at One Exchange Place, 53
State Street, Boston, Massachusetts 02109.
W I T N E S S E T H
That for and in consideration of the mutual
covenants and promises hereinafter set forth,
the Fund and the Transfer Agent agree as
follows:
1. Definitions. Whenever used in this
Agreement,
the following words and phrases, unless the
context
otherwise requires, shall have the following
meanings:
(a) "Articles of Incorporation" shall
mean
the
Articles of Incorporation, Declaration of Trust,
Partnership Agreement, or similar organizational
document as the case may be, of the Fund as the
same may be amended from time to time.
(b) "Authorized Person" shall be
deemed
to
include any person, whether or not such person is an
officer or employee of the Fund, duly authorized
to give Oral Instructions or Written Instructions on
behalf of the Fund as indicated in a certificate
furnished to the Transfer Agent pursuant to Section
4(c) hereof as may be received by the Transfer Agent
from time to time.
(c) "Board of Directors" shall mean the
Board of Directors, Board of Trustees or, if the
Fund is a limited partnership, the General
Partner(s) of the Fund, as the case may be.
(d) "Commission" shall mean the
Securities
and
Exchange Commission.
(e) "Custodian" refers to any custodian
or
sub
custodian of securities and other property which
the Fund may from time to time deposit, or cause to
be deposited or held under the name or account of
such a custodian pursuant to a Custody Agreement.
(f) "Fund" shall mean the entity
executing
this
Agreement, and if it is a series fund, as such term
is used in the 1940 Act, such term shall mean each
series of the Fund hereafter
created, except that appropriate
documentation with respect to each series must be
presented to the Transfer Agent before this
Agreement shall become effective with respect to
each such series.
(g) "1940 Act" shall mean the Investment
Company Act of 1940.
(h) "Oral Instructions" shall mean
instructions, other than Written Instructions,
actually received by the Transfer Agent from a
person
reasonably believed by the Transfer Agent to be an
Authorized Person.
(i) "Prospectus" shall mean the most
recently
dated Fund Prospectus and Statement of
Additional Information, including any supplements
thereto, which has
become effective under the Securities Act of 1933
and the 1940 Act.
(j) "Shares" refers collectively to such
shares of capital stock, beneficial interest or
limited partnership interests, as the case may be, of
the Fund as may be issued from time to time and,
if the Fund is a closed-end or a series fund, as
such terms are used in the 1940 Act any other
classes or series of stock, shares of beneficial
interest or limited partnership interests that may be
issued from time to time.
(k) "Shareholder" shall mean a holder of
shares of capital stock, beneficial interest or any
other class or series, and also refers to partners of
limited partnerships.
(l) "Written Instructions" shall mean a
written
communication signed by a person reasonably believed
by the Transfer Agent to be an Authorized Person
and actually received by the Transfer Agent. Written
Instructions shall include
manually executed originals and authorized
electronic transmissions, including telefacsimile
of a manually executed original or other process.
2. Appointment of the Transfer Agent. The
Fund
hereby appoints and constitutes the Transfer
Agent as transfer agent, registrar and dividend
disbursing agent for Shares of the Fund and as
shareholder servicing agent for the Fund. The
Transfer Agent accepts such appointments and agrees
to perform the duties hereinafter set forth.
3. Compensation.
(a) The Fund will compensate or
cause
the Transfer Agent to be compensated for the
performance of its obligations hereunder in
accordance with the fees set forth in the written
schedule of fees annexed hereto as Schedule A and
incorporated
herein. The Transfer Agent will transmit an
invoice to the Fund as soon as practicable after the
end of each calendar month which will be detailed in
accordance with Schedule A, and the Fund will pay to
the Transfer Agent the amount of such invoice within
thirty (30) days after the Fund's receipt of the
invoice.
In addition, the Fund agrees to pay, and
will be billed separately for, reasonable out-of
pocket expenses incurred by the Transfer Agent in
the performance of its duties hereunder. Out-of-
pocket expenses shall include, but shall not be
limited to, the items specified in the written
schedule of outofpocket charges annexed hereto as
Schedule B and incorporated herein. Unspecified
out-of-pocket expenses shall be limited to those
out-of-pocket expenses reasonably incurred by the
Transfer Agent in the performance of its obligations
hereunder. Reimbursement by the Fund for expenses
incurred by the Transfer Agent in any month
shall be made as soon as practicable but
no later than 15 days after the receipt of an
itemized bill from the Transfer Agent.
(b) Any compensation agreed to hereunder
may be adjusted from time to time by attaching to
Schedule A, a revised fee schedule, executed and
dated by the parties hereto.
4. Documents. In connection with the
appointment
of
the Transfer Agent, the Fund shall deliver or caused
to be delivered to the Transfer Agent the following
documents on or before the date this Agreement goes
into effect, but in any case within a reasonable
period of time for the Transfer Agent to prepare to
perform its duties hereunder:
(a) If applicable, specimens of the
certificates for Shares of the Fund;
(b) All account application forms and
other
documents relating to Shareholder accounts or to any
plan, program or service offered by the Fund;
(c) A signature card bearing the
signatures of
any officer of the Fund or other Authorized Person
who will sign Written Instructions or is authorized
to give Oral Instructions;
(d) A certified copy of the
Articles of
Incorporation, as amended;
(e) A certified copy of the By-laws of
the Fund, as amended;
(f) A copy of the resolution of the
Board of
Directors authorizing the execution and delivery
of this Agreement;
(g) A certified list of Shareholders of
the Fund with the name, address and taxpayer
identification number of each Shareholder, and the
number of Shares of the Fund held by each,
certificate numbers and denominations (if any
certificates have been
issued), lists of any accounts against
which stop transfer
orders have been placed, together with the
reasons therefore, and the number of Shares
redeemed by the Fund; and
(h) An opinion of counsel for the
Fund
with
respect to the validity of the Shares and the status
of such Shares under the Securities Act of 1933, as
amended.
5. Further Documentation. The Fund will also
furnish the Transfer Agent with copies of the
following documents promptly after the same shall
become available:
(a) each resolution of the Board of
Directors
authorizing the issuance of Shares;
(b) any registration statements filed on
behalf
of the Fund and all pre-effective and post
effective amendments thereto filed with the
Commission;
(c) a certified copy of each amendment
to
the
Articles of Incorporation or the By-laws of the Fund;
(d) certified copies of each resolution
of
the
Board of Directors or other authorization
designating Authorized Persons; and
(e) such other certificates,
documents or
opinions as the Transfer Agent may reasonably
request in connection with the performance of its
duties hereunder.
6. Representations of the Fund. The Fund
represents
to the Transfer Agent that all outstanding
Shares are validly issued, fully paid and non-
assessable. When Shares are hereafter issued in
accordance with the terms of the Fund's Articles
of Incorporation and its Prospectus, such Shares
shall be validly issued, fully paid and non
assessable.
7. Distributions Payable in Shares. In the
event
that the Board of Directors of the Fund shall
declare a distribution payable in Shares, the Fund
shall deliver or cause to be delivered to the
Transfer Agent written notice
of such declaration signed on behalf of the Fund
by an officer thereof, upon which the Transfer
Agent shall be entitled to rely for all
purposes, certifying (i) the identity of the
Shares involved, (ii) the number of Shares involved,
and (iii) that all appropriate action has been
taken.
8. Duties of the Transfer Agent. The
Transfer
Agent shall be responsible for administering
and/or performing those functions typically performed
by a transfer agent; for acting as service agent
in connection with dividend and distribution
functions and for performing shareholder account
and administrative agent functions in connection
with the issuance, transfer and redemption or
repurchase
(including coordination with the Custodian) of
Shares in accordance with the terms of the
Prospectus and applicable law.
The operating standards and procedures to be followed
shall be determined from time to time by agreement
between the Fund and the Transfer Agent and shall
initially be as described in Schedule C attached
hereto. In addition, the Fund shall deliver to the
Transfer Agent all notices issued by the Fund with
respect to the Shares in accordance with and
pursuant to the Articles of Incorporation or By-laws
of the
Fund or as required by law and shall perform such
other specific duties as are set forth in the
Articles of Incorporation including the giving of
notice of any special or annual meetings of
shareholders and any other notices required thereby.
9. Record Keeping and Other
Information. The
Transfer Agent shall create and maintain all
records
required of it pursuant to its duties hereunder and
as set forth in Schedule C in accordance with all
applicable laws, rules and regulations, including
records required by Section 31(a) of the 1940
Act. All records shall be available during regular
business hours for inspection and use by the Fund.
Where applicable, such records shall be maintained by
the Transfer Agent for the periods and in the
places required by Rule 31a-2 under the 1940 Act.
Upon reasonable notice by the Fund, the
Transfer Agent shall make available during regular
business hours such of its facilities and premises
employed in connection with the performance of its
duties under this Agreement
for reasonable visitation by the Fund, or any person
retained by the Fund as may be necessary for the
Fund to evaluate the quality of the services
performed by the Transfer Agent pursuant hereto.
10. Other Duties. In addition to the
duties set forth in Schedule C, the Transfer Agent
shall perform such other duties and functions, and
shall be paid such amounts therefor, as may from time
to time be agreed upon in writing between the Fund
and the Transfer Agent. The compensation for such
other duties and functions shall be reflected in a
written amendment to Schedule A or B and the duties
and functions shall be reflected in an amendment to
Schedule C, both dated and signed by authorized
persons of the parties hereto.
11. Reliance by Transfer Agent; Instructions.
(a) The Transfer Agent will have no
liability when acting upon Written or Oral
Instructions believed to have been executed or
orally communicated by an Authorized Person and will
not be held to have any notice of any change of
authority of any person until receipt of a
Written Instruction thereof from the Fund pursuant
to Section 4(c).
The Transfer Agent will also have no
liability
when
processing Share certificates which it reasonably
believes
to bear the proper manual or facsimile signatures
of the officers of the Fund and the proper
countersignature of the Transfer Agent.
(b) At any time, the Transfer Agent may
apply to any Authorized Person of the Fund for
Written Instructions and may seek advice from legal
counsel for the Fund, or its own legal
counsel, with respect to any matter arising in
connection with this Agreement, and it shall not be
liable for any action taken or not taken or suffered
by it in good faith in accordance with such Written
Instructions or in accordance with the opinion of
counsel for the Fund or for the Transfer Agent.
Written Instructions requested by the Transfer
Agent will be provided by the Fund within a
reasonable period of time. In addition, the Transfer
Agent, its officers, agents or employees, shall
accept Oral Instructions or Written Instructions
given to them by any person representing or acting
on behalf of the Fund only if said representative
is an Authorized Person. The Fund agrees that all
Oral Instructions shall be followed within one
business day by confirming Written Instructions,
and that the Fund's failure to so confirm shall not
impair in any respect the Transfer Agent's right to
rely on Oral Instructions. The Transfer Agent shall
have no duty or obligation to inquire into, nor
shall the Transfer Agent be
responsible for, the legality of any act done by it
upon the request or direction of a person reasonably
believed by the Transfer Agent to be an Authorized
Person.
(c) Notwithstanding any of the foregoing
provisions of this Agreement, the Transfer Agent
shall be under no duty or obligation
to inquire into, and shall not be liable for:
(i) the legality of the issuance or sale of any
shares or the sufficiency of the amount to be
received therefor; (ii) the legality of the
redemption of any Shares, or the propriety of the
amount to be paid therefor; (iii) the legality of
the declaration of any dividend by the Board of
Directors, or the legality of the issuance of any
Shares in payment of any dividend; or (iv) the
legality of any recapitalization or readjustment of
the Shares.
12. Acts of God, etc. The Transfer Agent will
not be liable or responsible for delays or errors by
acts of God or by reason
of circumstances beyond its control, including
acts of civil or military authority, national
emergencies, labor difficulties, mechanical
breakdown, insurrection, war, riots, or
failure or unavailability of transportation,
communication or power supply, fire, flood, or
other catastrophe.
13. Duty of Care and Indemnification. Each
party
hereto (the "Indemnifying Party") will indemnify the
other party (the "Indemnified Party") against and
hold it harmless from any and all losses, claims,
damages, liabilities or expenses of any sort or
kind (including reasonable counsel fees and
expenses) resulting from any claim, demand, action or
suit or other proceeding (a "Claim") unless such
Claim resulted from a negligent failure to act or
omission to act or bad faith of the Indemnified
Party in the performance of its duties hereunder.
In addition, the
Fund will indemnify the Transfer Agent against and
hold it harmless from any Claim, damages,
liabilities or expenses (including reasonable
counsel fees) that is a result of: (i) any
action taken in accordance with Written or
Oral Instructions,
or any other instructions, or share
certificates reasonably believed by the Transfer
Agent to be genuine and to be signed,
countersigned or executed, or orally communicated by
an Authorized Person; (ii) any action taken
in accordance with written or oral advice reasonably
believed by the Transfer Agent to have been given by
counsel for the Fund or its own counsel; or (iii)
any action taken as a
result of any error or omission in any record
(including but not limited to magnetic tapes,
computer
printouts, hard copies and microfilm copies)
delivered, or
caused to be delivered by the Fund to the Transfer
Agent in connection with this Agreement.
In any case in which the Indemnifying Party
may be asked to indemnify or hold the Indemnified
Party harmless,
the Indemnifying Party shall be advised of all
pertinent facts concerning the situation in question.
The Indemnified Party
will notify the Indemnifying Party promptly after
identifying any situation which it believes
presents or appears likely to present a claim
for indemnification against the Indemnifying Party
although the failure to do so shall
not prevent recovery by the Indemnified Party.
The
Indemnifying Party shall have the option to
defend the Indemnified Party against any Claim which
may be the subject of this indemnification, and,
in the event that the
Indemnifying Party so elects, such defense
shall be
conducted by counsel chosen by the Indemnifying
Party and satisfactory to the Indemnified Party,
and thereupon the Indemnifying Party shall take over
complete defense of the Claim
and the Indemnified Party shall sustain no
further
legal or other expenses in respect of such
Claim. The
Indemnified Party will not confess any Claim or
make any compromise in any case in which the
Indemnifying Party will be asked
to provide indemnification, except with the
Indemnifying Party's prior written consent. The
obligations of the parties hereto under this Section
shall survive the termination of this Agreement.
14. Consequential Damages. In no event and
under no circumstances shall either party under
this Agreement be liable to
the other party for indirect loss of profits,
reputation or business or any other special damages
under
any provision of this Agreement or for any act or
failure to act hereunder.
15. Term and Termination.
(a) This Agreement shall be effective on
the date first written above and shall continue
until ___________,
and thereafter shall automatically continue for
successive annual periods ending on the anniversary
of the date first written above, provided that it
may be terminated by either party
upon written notice given at least 60 days prior to
termination.
(b) In the event a termination notice is
given by the Fund,
it shall be accompanied by a resolution of the
Board of Directors, certified by the Secretary of
the Fund,
designating a successor transfer agent or transfer
agents. Upon such
termination and at the expense of the Fund, the
Transfer Agent will deliver to such successor a
certified list of shareholders of the Fund (with
names and addresses), and all other relevant books,
records, correspondence and other Fund records or
data in the possession of the Transfer Agent, and
the Transfer Agent will cooperate with the Fund and
any successor transfer agent or agents in
the
substitution process.
16. Confidentiality. Both parties hereto agree
that any non public information obtained hereunder
concerning the other party is confidential and may
not be disclosed to any other person without the
consent of the other party, except as may be
required by applicable law or at the request of the
Commission or other governmental agency. The
parties further agree that a breach of this
provision would irreparably damage the other party
and accordingly agree that each of them is
entitled, without bond or other
security, to an injunction or injunctions to
prevent breaches of this provision.
17. Amendment. This Agreement may
only be amended or modified by a written instrument
executed by both parties.
18. Subcontracting. The Fund agrees that
the Transfer Agent may, in its discretion,
subcontract for certain of the services described
under this Agreement or the Schedules hereto;
provided, that the appointment of any
such Transfer Agent shall not relieve the Transfer
Agent of its responsibilities hereunder.
19. Miscellaneous.
(a) Notices. Any notice or other
instrument authorized or required by this Agreement
to be given in writing to the Fund or the
Transfer Agent, shall be sufficiently given if
addressed to that party and received by it at its
office set forth below or at such other place as it
may from time to time designate in writing.
To the Fund:
________________________________
________________________________
________________________________
________________________________
Attention:
________________________ To the
Transfer Agent:
The Shareholder Services Group
One Exchange Place
53 State Street
Boston, Massachusetts 02109
Attention: Robert F. Radin,
President
with a copy to TSSG Counsel.
(b) Successors. This Agreement shall
extend to and shall be binding upon the
parties hereto, and their respective successors
and assigns, provided, however, that this
Agreement shall not be assigned to any
person other than a person controlling,
controlled
by or under common control with the assignor
without the written consent of the other party,
which consent shall not be unreasonably
withheld.
(c) Governing Law. This Agreement shall be
governed exclusively by the laws of the State
of New York without reference to the
choice of law
provisions thereof. Each party hereto
hereby
agrees that (i) the
Supreme Court of New York sitting in New York
County shall have exclusive jurisdiction over
any and all disputes arising hereunder; (ii)
hereby consents to the personal jurisdiction of
such court over the parties hereto, hereby
waiving any defense of lack of personal
jurisdiction; and (iii) appoints the person to
whom notices hereunder are to be sent as agent
for service of process.
(d) Counterparts. This Agreement may be
executed in any number of counterparts, each of
which shall be deemed to be an original; but
such counterparts shall, together, constitute
only one instrument.
(e) Captions. The captions of this
Agreement are included for convenience of
reference only and in no way define or delimit
any of the provisions hereof or otherwise affect
their construction or effect.
(f) Use of Transfer Agent's Name. The Fund
shall not use the name of the Transfer Agent
in any Prospectus, shareholders' report, sales
literature or other material relating to the
Fund in a manner not approved prior thereto in
writing; provided, that the Transfer Agent
need only receive notice of all reasonable uses
of its name which merely refer in accurate
terms to its appointment hereunder or which are
required by any government agency or applicable
law or rule. Notwithstanding
the foregoing, any reference to the Transfer
Agent shall include a statement to the effect
that it is a wholly owned subsidiary of First
Data Corporation.
(g) Use of Fund's Name. The Transfer
Agent
shall not use the name of the Fund or material
relating to the Fund on any documents or forms
for other than internal use in a manner not
approved prior thereto in writing; provided, that
the Fund need only receive notice of all
reasonable uses of its name which merely refer in
accurate terms to the appointment of the
Transfer Agent or which are required by any
government agency or applicable law or rule.
(h) Independent Contractors. The parties agree
that they are independent contractors and not
partners or coventurers.
(i) Entire Agreement; Severability. This
Agreement and the Schedules attached hereto
constitute the entire agreement of the parties
hereto relating to the matters covered hereby
and supersede any previous agreements. If
any provision is held to be illegal,
unenforceable or invalid for any reason, the
remaining provisions shall not be affected or
impaired
thereby.
IN WITNESS WHEREOF, the parties hereto have
caused
this Agreement to be executed by their duly
authorized officers, as of the day and year first
above written.
[FUND]
By:
___________________
__ Title:
___________________
_
THE SHAREHOLDER
SERVICES GROUP,
INC.
By:
_____________________
Title:
___________________
_
A-1
Transfer Agent Fee
Schedule A
Class A shares
The Fund shall pay the Transfer Agent an
annualized fee of $11.00 per shareholder
account that is open during any monthly period.
Such fee shall be billed by the Transfer Agent
monthly in arrears on a prorated basis of 1/12 of
the annualized fee for all accounts that are open
during such a month.
The Fund shall pay the Transfer Agent an
additional fee of $.125 per closed account per
month applicable to those shareholder accounts
which close in a given month and remain closed
through the following month-end billing cycle.
Such fee shall be billed by the Transfer
Agent monthly in arrears.
Class B shares
The Fund shall pay the Transfer Agent an
annualized fee of $12.50 per shareholder
account
that is open during any monthly period. Such
fee shall be billed by the Transfer Agent monthly
in arrears on a prorated basis of 1/12 of the
annualized fee for all accounts that are open
during such a month.
The Fund shall pay the Transfer Agent an
additional fee of $.125 per closed account per
month applicable to those shareholder accounts
which close in a given month and remain closed
through the following month-end billing cycle.
Such fee shall be billed by the Transfer Agent in
arrears.
Class C shares
The Fund shall pay the Transfer Agent an
annualized
fee of $8.50 per shareholder account that is
open during any
monthly period. Such fee shall be billed by
the Transfer Agent monthly in arrears on a
prorated basis of 1/12 of the annualized fee for
all accounts that are open during such a month.
The Fund shall pay the Transfer Agent an
additional fee of $.125 per closed
account per month applicable
to those
shareholder accounts which close in a given month
and
remain closed dthrough the following month-end
billing
cycle. Such fee shall be billed by the
Transfer
Agent monthly in arrears.
Class D shares
The Fund shall pay the Transfer Agent an
annualized fee of $9.50 per shareholder
account that is open during any monthly period.
Such fee shall be billed by the Transfer Agent
monthly in arrears on a prorated basis of 1/12 of
the annualized fee for all accounts
that are open during such a month.
The Fund shall pay the Transfer Agent an
additional fee of $.125 per closed
account per month applicable
to those
shareholder accounts which close in a given month
and remain closed dthrough the following month-
end billing cycle. Such fee shall be
billed by
the Transfer
Agent monthly in arrears.
B-1
Schedule B
OUT-OF-POCKET EXPENSES
The Fund shall reimburse the Transfer Agent
monthly for applicable out-of-pocket
expenses, including,
but not
limited to the following items:
- Microfiche/microfilm production
Magnetic media tapes and freight
- Printing costs,
including certificates, envelopes,
checks and stationery
- Postage (bulk, pre-sort,
ZIP+4, barcoding, first class) direct
pass through to the
Fund - Due diligence mailings
- Telephone and
telecommunication costs, including
all lease, maintenance and
line costs. -Proxy
solicitations, mailings
and
tabulations
-Daily & Distribution advice
mailings Shipping, Certified
and Overnight mail and
insurance
-Year-end form production and
mailings Terminals,
communication lines, printers
and
other
equipment and any expenses
incurred in connection
with such terminals and
lines Duplicating services
- Courier services
- Incoming and outgoing wire
charges Federal Reserve charges
for check clearance - Record
retention, retrieval and
destruction
costs, including,
but not limited to exit
fees charged by third party
record keeping vendors.
- Third party audit reviews
- Insurance
- Such other miscellaneous
expenses
reasonably incurred
by the Transfer Agent in
performing its duties and
responsibilities under this
Agreement.
B-2
The Fund agrees that postage and mailing
expenses will be paid on the day of or prior to
mailing as agreed with the Transfer Agent. In
addition, the Fund
will promptly
reimburse the Transfer Agent for any other
unscheduled expenses incurred by the Transfer
Agent whenever the Fund and the Transfer Agent
mutually agree that such expenses are not
otherwise properly borne by the Transfer Agent as
part of its duties and obligations under the
Agreement.
C-1
Schedule C
DUTIES OF THE TRANSFER AGENT
1. Shareholder Information. The
Transfer Agent
or its
agent shall maintain a record of the number of
Shares held by each holder of record which shall
include name, address, taxpayer identification
and which shall indicate whether such Shares are
held in certificates or uncertificated form.
2. Shareholder Services. The Transfer
Agent
or its agent will investigate all
inquiries
from
Shareholders of the Fund relating to
Shareholder accounts and will respond to all
communications from Shareholders and others
relating to its duties hereunder and such
other correspondence as may from time to time be
mutually agreed upon between the Transfer Agent
and the Fund. The Transfer Agent shall provide
the Fund with reports concerning shareholder
inquiries and the responses thereto by the
Transfer Agent, in such form and at such time as
are agreed to by the Fund and the Transfer Agent.
3. Share Certificates.
(a) At the expense of the Fund, it
shall supply
the Transfer Agent or its agent with an adequate
supply of blank share certificates to meet the
Transfer Agent's or its agent's requirements
therefor. Such Share certificates shall be
properly signed by facsimile. The Fund agrees
that, notwithstanding the death, resignation, or
removal of any officer of the Fund whose
signature appears on such certificates, the
Transfer Agent or its agent may continue to
countersign certificates which bear such
signatures until otherwise directed by Written
Instructions.
(b) The Transfer Agent or its agent
shall issue
replacement Share certificates in lieu of
certificates which have been lost, stolen or
destroyed, upon receipt by the Transfer Agent
or its agent of properly executed affidavits and
lost certificate bonds, in form satisfactory to
the Transfer Agent or its agent, with the Fund
and the Transfer Agent or its agent as obligees
under the bond.
(c) The Transfer Agent or its agent
shall also
maintain a record of each certificate issued, the
number of Shares represented thereby and the
holder of record. With respect to Shares held
in open accounts or uncertificated form, i.e.,
no certificate being
issued with respect thereto, the Transfer
Agent or its agent shall maintain comparable
records of the record holders thereof, including
their names, addresses and taxpayer
identification. The Transfer Agent or it agent
shall further maintain a stop transfer record on
lost and/or replaced certificates.
C-2
4. Mailing Communications to Shareholders;
Proxy
Materials. The Transfer Agent or its agent
will address and mail to
Shareholders of the
Fund, all
reports to
Shareholders, dividend and distribution notices
and proxy material for the Fund's meetings
of Shareholders. In
connection with meetings of Shareholders, the
Transfer Agent or its Agent will prepare
Shareholder lists, mail and certify as to the
mailing of proxy materials, process and tabulate
returned proxy cards, report on proxies voted
prior to meetings, act as inspector of election
at meetings and certify Shares voted at
meetings.
5. Sales of Shares
(a) Suspension of Sale of
Shares.The Transfer
Agent or its agent shall not be required to issue
any Shares of the Fund where it has received a
Written Instruction from the Fund or official
notice from any appropriate Federal or state
authority that the sale of the Shares of the Fund
has been suspended or discontinued. The
existence of such Written Instructions or such
official notice shall be conclusive evidence of
the right of the Transfer Agent or its agent to
rely on such Written Instructions or official
notice.
(b) Returned Checks. In the event
that any
check or other order for the payment of money
is returned unpaid for any reason, the Transfer
Agent
or its agent will: (i) give prompt notice of
such return to the Fund or its designee; (ii)
place a stop transfer order against all Shares
issued as a result of such check or order; and
(iii) take such actions as the Transfer Agent may
from time to time deem appropriate.
6. Transfer and Repurchase
(a) Requirements for Transfer or
Repurchase of Shares.
The Transfer Agent or its agent shall process
all requests to transfer or redeem Shares in
accordance with the transfer or repurchase
procedures determined by the Fund.
The Transfer Agent or its agent will
transfer or repurchase Shares upon receipt
of Oral or Written Instructions or otherwise
pursuant to the Prospectus and Share
certificates, if any, properly endorsed for
transfer or redemption, accompanied by such
documents as the Transfer Agent or its agent
reasonably may deem necessary.
The Transfer Agent or its agent
reserves the right to refuse to transfer or
repurchase Shares until it is satisfied that the
endorsement on the instructions is valid and
genuine. The Transfer Agent or its agent also
reserves the right to refuse to transfer or
repurchase Shares until it is satisfied that the
requested transfer or
C-3
repurchase is legally authorized, and it shall
incur no liability for the refusal, in good
faith, to make transfers or repurchases which the
Transfer Agent or its agent, in its good
judgment, deems improper or unauthorized, or
until it is reasonably satisfied that there is no
basis to any claims adverse to such transfer or
repurchase.
(b) Notice to Custodian and Fund. When
Shares are redeemed, the Transfer Agent or
its agent shall, upon receipt of the
instructions and documents in proper form,
deliver to the Custodian and the Fund or its
designee a notification setting forth the number
of Shares to be repurchased. Such repurchased
Shares shall be reflected on appropriate
accounts
maintained by the Transfer Agent or its agent
reflecting outstanding Shares of the Fund and
Shares attributed to individual accounts.
(c) Payment of Repurchase Proceeds. The
Transfer Agent or its agent shall, upon receipt
of the moneys paid to it by the Custodian for
the repurchase of Shares, pay such moneys as are
received from the Custodian, all in accordance
with the procedures described in the Written
Instruction received by the Transfer Agent or its
agent from the Fund.
The Transfer Agent or its agent shall
not process or effect any repurchase with
respect to Shares of the Fund after receipt by
the Transfer Agent or its agent of
notification of the suspension of the
determination of net asset value of the Fund.
7. Dividends
(a) Notice to Agent and Custodian.
Upon
the declaration of each dividend and each
capital gains distribution by the Board of
Directors of the Fund with respect to Shares
of the Fund, the Fund shall furnish or cause to
be furnished to the Transfer Agent or its agent
a copy of a resolution of the Fund's Board of
Directors certified by the Secretary of the
Fund setting forth the date of the declaration
of such dividend or distribution, the exdividend
date, the date of payment thereof, the record
date as of which shareholders entitled to
payment shall be determined, the amount payable
per Share to the shareholders of record as of
that date, the total amount payable to the
Transfer Agent or its agent on the payment date
and whether such dividend or distribution is to
be paid in Shares of such class at net asset
value.
On or before the payment date
specified in such resolution of the Board of
Directors, the Custodian of the Fund will pay
to the Transfer Agent sufficient cash to make
payment to the shareholders of record as of
such payment date.
C-4
(b) Insufficient Funds for Payments.
If the Transfer Agent or its agent does not
receive sufficient cash from the Custodian
to make total dividend and/or distribution
payments to
all
shareholders of the Fund as of the record date,
the
Transfer Agent or its agent will, upon notifying
the Fund, withhold payment to all Shareholders
of record as
of the record date until sufficient cash is
provided to the Transfer Agent or its agent.
C-5
Exhibit
1
t
o
Schedule C
Summary of Services
The services to be performed by the
Transfer Agent or its agent shall be as
follows:
A. DAILY RECORDS
Maintain daily the following
information with respect to each
Shareholder account as received:
Name and Address (Zip Code)
Class of Shares
Taxpayer Identification Number Balance of
Shares held by Agent
Beneficial owner
code: i.e., male,
female, joint
tenant,
etc.
Dividend code (reinvestment)
Number of Shares held in certificate form
B. OTHER DAILY ACTIVITY
Answer written inquiries relating to
Shareholder accounts (matters relating to
portfolio management, distribution of
Shares and other management policy questions
will be referred to the Fund).
Process additional payments into
established Shareholder accounts in
accordance with Written Instruction from
the Fund.
Upon receipt of proper instructions and all
required documentation, process requests for
repurchase of Shares.
Identify redemption requests made with
respect to accounts in which Shares have been
purchased within an agreed-upon period of time
for determining whether good
funds have been collected with respect to such
purchase and process as agreed by the Transfer
Agent in accordance with Written Instructions
set forth by the Fund.
Examine and process all transfers of Shares,
ensuring that all transfer requirements and
legal documents have been supplied.
Issue and mail replacement checks.
Open new accounts and maintain records of
exchanges between accounts.
C. DIVIDEND ACTIVITY
Calculate and process Share dividends and
distributions as instructed by the Fund.
Compute, prepare and mail all necessary
reports to Shareholders or various authorities
as requested by the Fund. Report to the
Fund reinvestment plan share purchases and
determination of the reinvestment price.
D. MEETINGS OF SHAREHOLDERS
Cause to be mailed proxy and related material
for all meetings of Shareholders. Tabulate
returned proxies (proxies must be adaptable to
mechanical equipment of the Transfer Agent or
its agents) and supply daily reports when
sufficient proxies have been received.
Prepare and submit to the Fund an Affidavit of
Mailing.
At the time of the meeting, furnish a certified
list
of
Shareholders, hard copy, microfilm or microfiche
and, if requested by the Fund, Inspection of
Election.
E. PERIODIC ACTIVITIES
Cause to be mailed reports, Prospectuses, and any
other enclosures requested by the Fund
(material must be adaptable to mechanical
equipment of the Transfer Agent or its agents).
Receive all notices issued by the Fund with respect
to the Preferred Shares in accordance with and
pursuant to the Articles of Incorporation and the
Indenture and perform such other specific duties as
are set forth in the Articles of Incorporation
including a giving of notice of a special
meeting and notice of redemption in the
circumstances and otherwise in
accordance with all relevant provisions
of the Articles of Incorporation.
[SULLIVAN & CROMWELL LETTERHEAD]
April 18,
1995
Smith Barney Funds, Inc.,
388 Greenwich Street,
New York, New York 10013
Dear Sirs:
In connection with the registration under
the
Securities
Act of 1933 (the "Act") of an indefinite number of
shares (the "Shares") of Common Stock, par value $.01
per share, of Smith Barney Funds, Inc., a Maryland
corporation (the "Company"), we, as
your counsel,
have examined such corporate records,
certificates and other documents, and such questions of
law, as we have considered necessary or appropriate for
the purposes of this opinion.
Upon the basis of such examination, we advise you
that, in our opinion, when the Shares are issued and
sold in accordance with the Company's Registration
Statement on Form N 14 (File No. 33-89600) under the Act
in connection with the acquisition by the Company on
behalf of the Short-Term U.S. Treasury Securities
Portfolio of all or substantially all of the assets,
and the assumption of certain liabilities, of
the Smith Barney Limited Maturity Treasury Fund, a sub
trust of Smith Barney Income Trust, and in accordance with
the Articles of Incorporation and By-Laws of the Company,
the Shares will be validly issed, fully paid and
nonassessable.
The foregoing opinion is limited to the General
Corporation Law of the State of Maryland, and we are
expressing no opinion as to the effect of the laws of
any other jurisdiction. With respect to all matters of
Maryland law, we have, with your approval, relied upon
the opinion dated April 18, 1995 of Piper &
Marbury, and our opinion is subject to the same
assumptions,
qualifications and limitations with respect to
Smith Barney Funds, Inc.
Page 2
such matters as are contained in such opinion of Piper &
Marbury. We believe you and we are justified in relying
on such opinion for such matters. We have relied as
to certain matters on information obtained from public
officials, officers of the Company and other sources
believed by us to be responsible.
We hereby consent to the filing of this opinion
as an exhibit to the Company's Registration Statement. In
giving such consent, we do not thereby admit that we are
in the category of persons whose consent is
required under
Section 7 of
the Securities
Act of 1933.
Very truly
yours,
/s/Sulliv
a n
& Cromwell
Sullivan &
Cromwell
[PIPER & MARBURY LETTERHEAD]
April 18,
1995
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Smith Barney Funds, Inc.--Short-Term U.S.
Treasury Securities Portfolio
Dear Sirs:
We have acted as Maryland counsel to Smith Barney
Funds, Inc., a Maryland corporation (the "Company"), in
connection with the Company's Registration Statement on
Form N-14, including all amendments or supplements
thereto, filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended
(the "Act"), and the issuance of shares of common stock
of the Short-Term U.S. Treasury Securities Portfolio (the
"Shares"), pursuant to such Registration
Statement. The
Registration Statement relates to a reorganization
involving the Smith
Barney Income Trust, a Massachusetts business trust, and
the Company.
In this capacity, we have examined the Company's
charter and by-laws, the Agreement and Plan of
Reorganization providing for the issuance of the
Shares, the proceedings of the Board of Directors of
the Comapny relating to the issuance of the Shares and
such other statutes, certificates, instruments and
documents relating to the Company and matters of law as
we have deemed necessary to the issuance of this
opinion. In such examination, we have assumed the
genuineness of all signatures, the conformity of final
documents in all material respects to the versions
thereof submitted to us in draft form, the authenticity of
all documents submitted to us as originals, and the
conformity with originals of all documents submitted to us
as copies.
Based upon the foregoing, and limited in all
respects to applicable Maryland law, we are of the opinion
and
advise you that:
1. The Company has been duly incorporated and is
validly existing as a corporation under the laws of
the State of Maryland.
2. The Shares to be issued by the Company pursuant
to the Registration Statement have been duly authorized
and, when issued as contemplated in the Registration
Statement, will be validly issued, fully paid and non
assessable. Securities and Exchange Commission
Page 2
We hereby consent to the filing of this opinion
as an
exhibit to the Registration Statement and to the reference
to our firm under the heading "Legal Matters" in the
Prospectus included in the Registration Statement. In
giving our consent, we do not thereby admit that we are
in the category of persons whose consent is required
under Section 7 of the Act or the Rules and Regulations of
the Commission thereunder.
Sullivan & Cromwell are authorized to rely on this
opinion in rendering their opinion to be included in the
Registration Statement.
Very truly
yours, /s/Piper & Marbury Piper & Marbury
[WILLKIE FARR & GALLAGHER LETTERHEAD]
April 25, 1995 Smith Barney Funds, Inc., on
behalf
of Short-Term U.S. Treasury
Securities Portfolio
388 Greenwich Street
New York, New York 10013
Smith Barney Income Trust, on behalf
of Smith Barney Limited Maturity
Treasury Fund
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
You have asked us for our opinion concerning
certain federal income tax consequences to (a)
Smith Barney Limited Maturity Treasury Fund, a
separate series of Smith Barney Income Trust (the
"Acquired Fund"), (b) Short-Term U.S. Treasury
Securities Portfolio, a separate series of Smith
Barney Funds, Inc. (the "Acquiring Fund"), and (c)
holders of shares of beneficial interest in the
Acquired fund (the "Acquired Fund Shareholders") when
the holders of Class A and Class C shares in the
Acquired Fund receive Class A
shares, and holders of Class Y shares of the Acquired Fund
receive Class Y shares, of the Acquiring Fund (all such
shares of the Acquiring Fund referred to hereinafter as the
"Acquired Fund Shares"), in liquidation of their interests
in the Acquired Fund pursuant to an acquisition by the
Acquiring Fund of all or substantially all of the assets of
the Acquired Fund in exchange for the Acquiring Fund
Shares and the assumption by the Acquiring Fund of certain
scheduled liabilities of the Acquired Fund and the
subseequent liquidation of the Acquired Fund and
distribution in
liquidation of the Acquiring Fund Shares to the Acquired
Fund Shareholders.
We have reviewed such documents and materials as we
have considered necessary for the purpose of rendering
this opinion. In rendering this opinion, we assume that
such documents as yet unexecuted will, when executed,
conform in all material respects to the proposed forms
for such documents that we have examined. In addition, we
assume the genuineness of all signatures, the capacity of
each party executing a document so to execute that
document, the authenticity of all documents submitted to
us as originals and the conformity to original
documents of all documents submitted to us as certified
or photostatic copies. We have made inquiry as to the
underlying facts which we considered to be relevant to
the conclusions set forth in this letter.
The opinions expressed in this letter are based upon
certain factual statements relating to the Acquired Fund
and the Acquiring Fund set forth in the Registration
Statement on Form N14 (the "Registration Statement")
filed by Smith Barney Funds, Inc., on behalf of the
Acquiring Fund, with the Securities and Exchange
Commission and our expectations as to
representations to be made in letters from the Acquired
Fund and the Acquiring Fund addressed to us for our use in
rendering a final opinion at the
Smith Barney Funds, Inc., on behalf
of Short-Term U.S. Treasury
Securities Portfolio
Smith Barney Income Trust, on behalf
of Smith Barney Limited Maturity
Treasury Fund
April 25, 1995
Page 2
Closing. We have no reason to believe that these
representations and facts will not be valid, but we have
not attempted and will not attempt to verify
independently any of these representations and facts, and
this opinion is based upon the assumption that each of
them is accurate. Capitalized terms used herein and not
otherwise defined shall have the meaning given them in
the Registration Statement.
The conclusions expressed herein are based upon the
Internal Revenue Code of 1986 (the "Code"), Treasury
regulations issued thereunder, published rulings and
procedures of the Internal Revenue Service and judicial
decisions, all as in effect on the date of this letter.
Based upon the foregoing, it is our opinion that:
(1) the transfer of all or substantially all of
the Acquired Fund's assets in exchange for Acquiring
Fund Shares and the assumption by the Acquiring Fund
of certain scheduled liabilities of the Acquired
Fund will constitute a "reorganization" within the
meaning of Section 368 (a) (1) (C) of the Code, and the
Acquired Fund and the Acquiring Fund are each a "party to a
reorganization" within the meaning of Section 368 (b) of
the Code;
(2) no gain or loss will be recognized by the
Acquiring Fund upon the receipt of the assets of the
Acquired Fund in exchange for Acquiring Fund Shares and
the assumption by the Acquiring Fund of certain
scheduled liabilities of the Acquired Fund;
(3) no gain or loss will be recognized by the Acquired
Fund upon the transfer of the Acquired Fund's assets to
the Acquiring Fund in exchange for Acquiring Fund Shares
and the assumption by the Acquiring Fund of certain
scheduled liabilities of the Acquired
Fund or upon the distribution (whether actual or
constructive)
of Acquiring Fund Shares to Acquired Fund
Shareholders;
(4) no gain or loss will be reconized by the
Acquired Fund Shareholders upon the exchange of their
shares of the Acquired Fund for Acquiring Fund
Shares and the assumption by the Acquiring Fund of
certain scheduled liabilities of the Acquired Fund;
(5) the aggregate tax basis of Acquiring Fund
Shares received by each Acquired Fund Shareholder
pursuant to the Reorganization will be the same as
the aggregate tax basis of the shares of the Acquired
Fund
surrendered in exchange therefor, and the holding
period of the Acquiring Fund Shares to be received by
each Acquired Fund Shareholder will include the
period during which the shares of the Acquired Fund
exchanged therefor were held by such Acquired Fund
Shareholder (provided the shares of the Acquired
Fund were
held as capital assets on the date of the
Reorganization); and
(6) the tax basis of the Acquired Fund's assets
acquired by the Acquiring Fund will be the same as
the tax basis of such assets to the Acquired
Fund immediately prior to the
Reorganization, and the
Smith Barney Funds, Inc., on behalf
of Short-Term U.S. Treasury
Securities Portfolio
Smith Barney Income Trust, on behalf
of Smith Barney Limited Maturity
Treasury Fund
April 25, 1995
Page 3
holding period of the assets of the
Acquired Fund in the hands of the
Acquiring Fund will include the period
during which those assets were held by
the Acquired Fund.
We hereby consent to the filing of
this opinion as an exhibit to the
Registration Statement and to the use
of our name and any reference to our
firm
in the Registration Statement or
in Prospectus/Proxy Statement constituting
a part thereof.
Very truly yours,
/s/ Willkie Farr & Gallagher
Willkie Farr & Gallagher
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees of
Smith Barney Limited Maturity Treasury
Fund of
Smith Barney Income Trust:
We hereby consent to the following
with respect to the
Registration Statement on Form N-14 under
the Securities Act of 1933, as amended,
of Smith Barney Funds Inc.:
1. The incorporation of our report
dated
January 18, 1995,
accompanying the financial
statements of the Smith Barney
Limited Maturity Treasury Fund
(formerly the Smith Barney Shearson
Limited Maturity Treasury Fund) as of
November 30, 1994, which report is
included in Post Effective Amendment
No. 6 to the Registration
Statement on Form N-1A (File No. 3343446)
of the Smith Barney Income Trust.
2. The reference to our firm under
the
heading "Financial
Statements and Experts" in the
Prospectus/Proxy Statement.
/s/Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
May 8, 1995
Independent Auditors' Consent The Board of Directors of
Smith Barney Funds, Inc.:
We consent to the use of our report dated February 17, 1995 with respect to
the Short-Term U.S. Treasury Securities Portfolio incorporated herein by
reference in the Prospectus/Proxy Statement and
included in this Registration Statement on Form N-14 for Smith Barney
Funds, Inc. and to the references to our firm under the headings
"Financial Statements and Experts" and "Representations and Warranties" in
the Prospectus/Proxy Statement and "Financial
Highlights" in the Prospectus and "Independent Auditors" in the Statement
of Additional Information incorporated herein by reference.
/s/ KPMG Peat Marwick LLP KPMG Peat Marwick LLP
May 24, 1995
New York, New York
VOTE THIS VOTING INSTRUCTIONS CARD TODAY
YOUR PROMPT RESPONSE WILL SAVE
THE EXPENSE OF ADDITIONAL MAILINGS
(Please detach at Perforation Before Mailing)
...........................................................................
. .. ..
...........................................................................
. .. ..
SMITH BARNEY INCOME TRUST
ON BEHALF OF SMITH BARNEY LIMITED MATURITY TREASURY FUND
PROXY SOLICITED BY THE BOARD OF TRUSTEES
The undersigned holder of shares of Smith Barney Limited Maturity Treasury
Fund (the "Limited Maturity Fund"), a sub-trust of Smith Barney Income
Trust, hereby appoints Heath B. McLendon, Christina T. Sydor and Caren
A. Cunningham, attorneys 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 Limited Maturity Fund that the undersigned
is entitled to vote at the Special Meeting of Shareholders of the Limited
Maturity Fund to be held at the offices of the Limited Maturity Fund,
388 Greenwich Street, 26th Floor, New York, New York on July 14, 1995 at
4:30 p.m. and any adjournment or adjournments thereof. The
undersigned hereby acknowledges receipt of the Notice of Special Meeting
and Prospectus/Proxy Statement dated June 12, 1995 and hereby instructs
said attorneys and proxies to vote said shares as
indicated herein. 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 of 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):
.
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.
FOR AGAINST
ABSTAIN PROPOSAL: To approve or disapprove an Agreement and Plan
of Reorganization dated as of December 20, 1994 providing
for: (i) the acquisition of all or substantially all
of the assets of Smith Barney Limited Maturity Treasury
Fund (the "Limited Maturity Fund") by Smith Barney
Funds, Inc. ShortTerm U.S. Treasury Securities
Portfolio (the "Portfolio") in exchange for Class A and
Class Y shares of the Portfolio and the
assumption by the Portfolio of certain scheduled
liabilities of the Limited Maturity Fund; (ii)
the distribution of such shares of the Portfolio
to shareholders of the Limited Maturity Fund in
liquidation of the Limited Maturity Fund; and (iii)
the subsequent dissolution of the Limited Maturity
Fund.
u:\osunkwo\lmtrn14.prx
u:\osunkwo\sbfsign.n14
SIGNATURES
Pursuant to the requirements of the Securities Act
of 1933, this Registration Statement has been signed on
behalf of the Registrant, and where applicable, the true
and lawful attorney-infact, thereto duly authorized, in
the City of New York and State of New York on the 12th day
of June,1995.
SMITH BARNEY FUNDS,
INC. BY /s/ Heath
B.
McLendon (Heath B. McLendon, Chief Executive Officer)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints
Heath B. McLendon, Christina T. Sydor and Caren A.
Cunningham and each and any of them, his true and lawful
attorney-infact and agents, with full power of
substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign
any or all amendments (including post-effective
amendments) to this Registration Statement, and to file
the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and
Exchange Commission, granting full power and authority
to do and perform each and every act therein requisite and
necessary to be done in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or
any of them, or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act
of 1933, this Pre-Effective Amendment to the Registration
Statement has been signed below by the following persons
in the capacities and on the date indicated.
<TABLE>
<CAPTION>
<S> <S>
Signatures Title
Date
/s/ Heath B. McLendon Director, Chairman
and
6/12/95
(Heath B. McLendon) Chief Executive Officer
/s/ Jessica M. Bibliowicz
President
6/12/95
(Jessica M. BIbliowicz)
/s/ Ralph D. Creasman Director
6/12/95
(Ralph D. Creasman)
/s/ Joseph H. Fleiss Director
6/12/95
(Joseph H. Fleiss)
/s/ Donald R. Foley Director
6/12/95
(Donald R. Foley)
/s/ Paul Hardin Director
6/12/95
(Paul Hardin III)
Signatures Title
Date
/s/ Francis P. Martin Director
6/12/95
(Francis P. Martin)
/s/ Roderick C. Rasmussen Director
6/12/95
(Roderick C. Rasmussen)
/s/ Bruce D. Sargent Director
6/12/95
(Bruce D. Sargent)
/s/ John P. Toolan Director
6/12/95
(John P. Toolan)
/s/ C. Richard Youngdahl Director
6/12/95
(C. Richard Youngdahl)
/s/ Lewis E. Daidone Treasurer
and
Principal
6/12/95
(Lewis E. Daidone) Financial
Officer
</TABLE>
