As filed with the Securities and Exchange Commission
on June 16, 1995
Registration No.
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No. [ ] Post-
Effective Amendment No.
SMITH BARNEY FUNDS, INC.
(Exact name of Registrant as
specified in Charter)
Area Code and Telephone Number: (212) 790-9218
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:
John E. Baumgardner, Jr., Esq.
Sullivan & Cromwell
125 Broad Street
New York, NY 10004
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 period 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, by 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
SMITH BARNEY FUNDS, INC.
FORM N-14 CROSS REFERENCE SHEET
Pursuant to Rule 481(a) Under the Securities Act of 1933
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 Shareholder's 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 Shareholder's
Rights; Additional Information About the
U.S. Government Securities Portfolio and the
Portfolio; Prospectus of the U.S. Government
Securities 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
Shareholder's Rights; Additional
Information About the Monthly Payment
Government Portfolio
Item 7. Voting Information Summary; Information
About the
Reorganization; Comparative Information
on Shareholder's Rights; Voting Information
Item 8. Interest of Certain Persons Financial
Statements and Experts; Legal
and Experts 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 Cover Page;
Statement of Additional
About the Company Being Information of
Smith Barney Funds, Inc.
Acquired dated April 28, 1995
Item 14. Financial Statements Annual Report
of Smith Barney
Funds, Inc. dated
December 31, 1994
Part C Item No. and Caption Other
Information Caption
Item 15. Indemnification Incorporated by
reference to Part A
caption "Comparative Information on
Shareholder's Rights - Liability of
Directors"
Item 16. Exhibits Exhibits
Item 17. Undertakings Undertakings
SMITH BARNEY FUNDS, INC
Investing for your future. Every day.
[ ], 1995
Dear Valued Shareholder:
An Important Notice About the Smith Barney Funds, Inc. - Monthly
Payment Government Portfolio
We would like to inform you of a proposal that has
recently been reviewed and unanimously endorsed by the
Board of Directors of Smith Barney Funds, Inc. concerning
the reorganization of the Smith Barney Fund Monthly Payment
Government Portfolio.
The proposal calls for all or substantially all of
the Monthly Payment Government Portfolio's assets and
liabilities to be acquired by the Smith Barney Funds, Inc.-
U.S. Government Securities Portfolio. After this
reorganization, the Monthly Payment Government Portfolio
would be terminated, and you will become a shareholder of
the U.S. Government Securities Portfolio. You will receive
shares with a total net asset value equal to the total net
asset value of your Monthly Payment Government Portfolio
investment at the time of the transaction.
The Board of Directors believes that the proposed
reorganization is in the best interests of Monthly Payment
Government Portfolio 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. In addition, the Monthly Payment Government
Portfolio will be managed by the same team that currently
manages the U.S. Government Securities Portfolio.
Please complete, sign and mail the enclosed proxy card...today!
A Special Meeting of Shareholders will be held on
September 29, 1995 to consider this transaction. We
strongly urge you to participate by reviewing, completing
and returning your proxy by no later than September 28, 1995
in the postage-paid envelope provided.
For more details about the proposed
transaction, please refer to the encolosed 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 of
Smith Barney Funds, Inc.
SMITH BARNEY FUNDS, INC.- MONTHLY PAYMENT GOVERNMENT PORTFOLIO
388 Greenwich Street
New York, New York 10013
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held On September 29, 1995
___________________
Notice is hereby given that a Special Meeting of
Shareholders (the "Meeting") of Smith Barney Monthly Payment
Government Portfolio (the "Monthly Payment Government
Portfolio"), will be held at 388 Greenwich Street, New York,
New York on September 29, 1995, at 1:00 p.m. for the following
purposes:
1. To consider and act upon the Agreement and
Plan of Reorganization (the "Plan") dated as of [
], 1995, providing for: (i) the acquisition of all or
substantially all of the assets of the Monthly Payment
Government Portfolio, a separate series of Smith Barney
Funds, Inc. by the U.S. Government Securities
Portfolio, a separate series of the Smith Barney Funds,
Inc. (the "U.S. Government Securities Portfolio") in
exchange for shares of the U.S. Government Securities
Portfolio and the assumption by the U.S. Government
Securities Portfolio of certain liabilities of the
Monthly Payment Government Portfolio; (ii) the
distribution of such shares of the U.S. Government
Securities Portfolio to shareholders of the Monthly
Payment Government Portfolio in liquidation of the
Monthly Payment Government Portfolio; and (iii) the
subsequent termination of the Monthly Payment
Government Portfolio.
2. To transact any other business which may
properly come before the Meeting or any adjournment
thereof.
The Directors of the Monthly Payment Government Portfolio
have fixed the close of business on July 21,1995, as the record
date for the determination of shareholders of the Monthly
Payment Government Portfolio entitled to notice of and to vote
at this Meeting or any adjournment thereof (the "Record Date").
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, 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 TO THE
MONTHLY PAYMENT GOVERNMENT PORTFOLIO AT ANY TIME BEFORE
THE PROXY IS EXERCISED OR BY VOTING IN PERSON AT THE
MEETING.
By order of the
Directors
Christina T. Sydor
Secretary
[ ], 1995
YOUR PROMPT ATTENTION TO THE ENCLOSED PROXY WILL
HELP TO AVOID THE EXPENSE OF FURTHER SOLICITATION.
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 on the registration on the
proxy card.
3. All other Accounts: The capacity of the
individual signing the proxy card should be
indicated unless it is reflected in the form of registration.
For example:
Registration
Valid Signatures
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
PROSPECTUS/PROXY STATEMENT DATED [ ], 1995
Acquisition of the Assets Of
SMITH BARNEY FUNDS, INC.-- MONTHLY PAYMENT GOVERNMENT PORTFOLIO
388 Greenwich Street
New York, New York 10013
(800) 224-7523
By And In Exchange For Shares Of
SMITH BARNEY FUNDS, INC.-- U.S. GOVERNMENT SECURITIES PORTFOLIO
388 Greenwich Street
New York, New York 10013
(800)224-7523
This Prospectus/Proxy Statement is being furnished to
shareholders of Monthly Payment Government Portfolio, a separate
series of Smith Barney Funds, Inc. (the "Monthly Payment
Government Portfolio"), in connection with a proposed Agreement
and Plan of Reorganization (the "Plan"), to be submitted to
shareholders for consideration at a Special Meeting of
Shareholders to be held on September 29, 1995 at 1:00 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 Monthly Payment Government Portfolio to be acquired by the
U.S. Government Securities Portfolio, a separate series of Smith
Barney Funds, Inc. (the "U.S. Government Securities Portfolio"),
in exchange for shares of the U.S. Government Securities
Portfolio and the assumption by the U.S. Government Securities
Portfolio of certain liabilities of the Monthly Payment
Government Portfolio (hereinafter referred to as the
"Reorganization"). Following the Reorganization, shares of the
U.S. Government Securities Portfolio will be distributed to
shareholders of the Monthly Payment Government Portfolio in
liquidation of the Monthly Payment Government Portfolio and the
Monthly Payment Government Portfolio will be terminated. As a
result of the proposed Reorganization, each shareholder of the
Monthly Payment Government Portfolio will receive that number of
shares of the U.S. Government Securities Portfolio having an
aggregate net asset value equal to the aggregate net asset value
of such shareholder's shares of the Monthly Payment Government
Portfolio. Holders of Class A shares in the Monthly Payment
Government Portfolio will receive Class A shares of the U.S.
Government Securities Portfolio, and no sales charge will be
imposed on the Class A shares of the U.S. Government Securities
Portfolio received by the Monthly Payment Government Portfolio
Class A shareholders. Holders of Class B and Class C shares in
the Monthly Payment Government Portfolio will receive Class B and
Class C shares, respectively, of the U.S. Government Securities
Portfolio; any contingent deferred sales charge ("CDSC") which is
applicable to a shareholder's investment will continue to apply,
and in calculating the applicable CDSC payable upon the
subsequent redemption of Class B or Class C shares of the U.S.
Government Securities Portfolio, the period during which a
Monthly Payment Government Portfolio shareholder held Class B or
Class C shares of the Monthly Payment Government Portfolio will
be counted. Holders of Class Y shares in the Monthly Payment
Government Portfolio will receive Class Y shares of the U.S.
Government Securities Portfolio. This transaction is being
structured as a tax-free reorganization.
The U.S. Government Securities Portfolio and the Monthly
Payment Government Portfolio are both open-end diversified
management investment companies with similar investment
objectives. Each of the U.S. Government Securities Portfolio and
the Monthly Payment Government Portfolio's investment objective
is to seek high current income, liquidity and security of
principal by investing in obligations of the U.S. Government, its
agencies or instrumentalities and related repurchase and reverse
repurchase agreements. Each portfolio invests primarily in
Government National Mortgage Association ("GMNA") certificates of
the modified pass-through type and will also normally include
U.S. Governement Obligations. Smith Barney Mutual Funds
Management Inc. serves as investment manager (the "Manager") to
both the U.S. Government Securities Portfolio and the Monthly
Payment Government Portfolio.
The investment policies of the U.S. Government Securities
Portfolio are generally similar to those of the Monthly Payment
Government Portfolio. 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 U.S. Government Securities 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 April 28, 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 Monthly Payment
Government Portfolio Prospectus referred to below are available
upon request and without charge by calling or writing to the
Monthly Payment Government Portfolio at the telephone number or
address listed on the cover page of this Prospectus/Proxy
Statement or by contacting a Smith Barney Financial Consultant.
1. The Prospectus dated April 28, 1995 of Smith
Barney Funds, Inc. -- U.S. Government Securities
Portfolio and Monthly Payment Government Portfolio is
incorporated in its entirety by reference and a copy
is included herewith.
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.
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.
TABLE OF CONTENTS
Page
Additional Materials 1
Fee Tables 2
Summary 8
Risk Factors 10
Reasons for the Reorganization 10
Information about the Reorganization 11
Information about the U.S. Government Securities Portfolio 16
Information about the Monthly Payment Government Portfolio 17
Comparison of Investment Objectives and Policies 18
Comparative Information on Shareholders' Rights 20
Additional Information About the U.S. Government Securities Portfolio and
the Monthly Payment Government Portfolio 21
Other Business 22
Voting Information 22
Financial Statements and Experts 23
Legal Matters 24
Exhibit A: Agreement and Plan of Reorganization 25
ADDITIONAL MATERIALS
The following additional materials, which have
been incorporated by reference into the Statement of
Additional Information dated April 28, 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. Annual Report of Smith Barney Funds, Inc. dated
December 31, 1994.
FEE TABLE
Following are tables showing the current costs and expenses
of the U.S. Government Securities Portfolio and the Monthly
Payment Government Portfolio and the ProForma costs and expenses
expected to be incurred by the U.S. Government Securities
Portfolio after giving effect to the Transaction, each based on
the maximum sales charge or maximum CDSC that may be incurred at
the time of purchase or redemption:
<TABLE>
<CAPTION>
CLASS A SHARES U.S. Government Monthly Payment ProForma
Securities Government
Portfolio Portfolio
<S> <C> <C> <C>
Shareholder Transaction Expenses
Maximum sales charge
imposed on purchases
(as a percentage of
offering price)
Maximum CDSC
(as a percentage of None* None* None*
original cost or redemption
proceeds, whichever is lower)
Annual Portfolio Operating Expenses
(as a percentage of average
net assets)
Management fees
12b-1 fees
Other expenses**
Total Portfolio Operating
Expenses
</TABLE>
*Purchases of Class A shares, which when combined with current
holdings of Class A shares offered with a sales charge equal or
exceed $500,000 in the aggregate, 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.
**These expenses for Class A shares of the U.S. Government
Securities Portfolio are based on estimated amounts for the
fiscal year ending December 31, 1995; for the Monthly Payment
Government Portfolio, for the fiscal year ending December 31,
1995; and for the ProForma numbers, on estimated amounts for the
fiscal year ending December 31, 1995.
<TABLE>
<CAPTION>
CLASS B SHARES U.S. Government Monthly Payment ProForma
Securities Government
Portfolio Portfolio
<S> <C> <C> <C>
Shareholder Transaction Expenses
Maximum sales charge
imposed on purchases
(as a percentage of
offering price)
Maximum CDSC
(as a percentage of
original cost or redemption
proceeds, whichever is lower)
Annual Portfolio Operating Expenses
(as a percentage of average
net assets)
Management fees
12b-1 fees
Other expenses**
Total Portfolio Operating
Expenses
</TABLE>
______________________
*Upon conversion of Class B shares to Class A shares, such shares
will no longer be subject to a distribution fee, but will
continue to be subject to a 0.25% service fee.
**These expenses for Class B shares of the U.S. Government
Securities Portfolio are based on estimated amounts for the
fiscal year ending December 31, 1995; for the Monthly Payment
Government Portfolio, for the fiscal year ending December 31,
1995; and for the ProForma numbers, on estimated amounts for the
fiscal year ending December 31, 1995.
<TABLE>
<CAPTION>
CLASS C SHARES* U.S. Government Monthly Payment
ProForma
Securities Government
Portfolio Portfolio
<S> <C> <C> <C>
Shareholder Transaction Expenses
Maximum sales charge
imposed on purchases
(as a percentage of
offering price)
Maximum CDSC
(as a percentage of
original cost or redemption
proceeds, whichever is lower)
Annual Portfolio Operating Expenses
(as a percentage of average
net assets)
Management fees
12b-1 fees
Other expenses**
Total Portfolio Operating
Expenses
</TABLE>
*Class C shares do not have a conversion feature and, therefore,
are subject to an ongoing distribution fee. As a result, long-
term shareholders of Class C shares may pay more than the
economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc.
**These expenses for Class C shares of the U.S. Government
Securities Portfolio are based on estimated amounts for the
fiscal year ending December 31, 1995; for the Monthly Payment
Government Portfolio, for the fiscal year ending December 31,
1995; and for the ProForma numbers, on estimated amounts for the
fiscal year ending December 31, 1995.
<TABLE>
<CAPTION>
CLASS Y SHARES U.S. Government Monthly Payment ProForma
Securities Government
Portfolio Portfolio
<S> <C> <C> <C>
Shareholder Transaction Expenses
Maximum sales charge
imposed on purchases
(as a percentage of
offering price)
Maximum CDSC
(as a percentage of
original cost or redemption
proceeds, whichever is lower)
Annual Portfolio Operating Expenses
(as a percentage of average
net assets)
Management fees
12b-1 fees
Other expenses**
Total Portfolio Operating
Expenses
</TABLE>
*These expenses for Class Y shares of the U.S. Government
Securities Portfolio are based on estimated amounts for the
fiscal year ending December 31, 1995; for the Monthly Payment
Government Portfolio, for the fiscal year ending December 31,
1995; and for the ProForma numbers, on estimated amounts for the
fiscal year ending December 31, 1995.
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.
<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
U.S. Government Securities Portfolio
Monthly Payment Government Portfolio
ProForma
Class B
U.S. Government Securities Portfolio
Monthly Payment Government Portfolio
ProForma
Class C
U.S. Government Securities Portfolio
Monthly Payment Government Portfolio
ProForma
Class Y
U.S. Government Securities Portfolio
Monthly Payment Government Portfolio
ProForma
1 Year 3 Years 5 Years 10 Years*
An investor would pay the following
expenses on the same annual return
and no redemption:
Class A
U.S. Government Securities Portfolio
Monthly Payment Government Portfolio
ProForma
Class B
U.S. Government Securities Portfolio
Monthly Payment Government Portfolio
ProForma
Class C
U.S. Government Securities Portfolio
Monthly Payment Government Portfolio
ProForma
Class Y
U.S. Government Securities Portfolio
Monthly Payment Government Portfolio
ProForma
</TABLE>
________________________
*Ten-year figures assume conversion of Class B shares to Class A
shares at the end of the eighth year following the date of
purchase.
The examples also provide a means for the investor to compare ex
pense 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 U.S. Government
Securities Portfolio and the Monthly Payment Government Portfolio
dated April 28, 1995, the Statement of Additional Information of
Smith Barney Funds, Inc. dated April 28, 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 Monthly Payment
Government Portfolio in exchange for shares of the U.S.
Government Securities Portfolio and the assumption by the U.S.
Government Securities Portfolio of certain liabilities of the
Monthly Payment Government Portfolio. The Plan also calls for
the distribution of shares of the U.S. Government Securities
Portfolio to the Monthly Payment Government Portfolio
shareholders in liquidation of the Monthly Payment Government
Portfolio. As a result of the Reorganization, each shareholder of
the Monthly Payment Government Portfolio will become the owner of
that number of full and fractional shares of the U.S. Government
Securities Portfolio having an aggregate net asset value equal to
the aggregate net asset value of their shares of the Monthly
Payment Government Portfolio, as of the close of business on the
date that the Monthly Payment Government Portfolio's assets are
exchanged for shares of the U.S. Government Securities Portfolio.
(Shareholders of Class A, Class B, Class C and Class Y shares of
the Monthly Payment Government Portfolio will receive Class A,
Class B, Class C and Class Y shares, respectively, of the U.S.
Government Securities Portfolio.) See "Information About the
Reorganization."
For the reasons set forth below under "Reasons for the
Reorganization," the Board of Directors of Smith Barney Funds,
Inc., including all of the "non-interested" Directors, 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 Monthly Payment Government Portfolio and that the
interests of the Monthly Payment Government Portfolio'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 Monthly Payment Government
Portfolio's shareholders. The Board of Directors of Smith Barney
Funds, Inc. recommends approval of the Plan effecting the
Reorganization.
Approval of the Reorganization will require the affirmative
vote of a majority of the outstanding shares of the Monthly
Payment Government Portfolio. See "Voting Information."
Tax Consequences. Prior to completion of the
Reorganization, the Monthly Payment Government Portfolio will
have received an opinion from counsel that, upon the
Reorganization and the transfer of the assets of the Monthly
Payment Government Portfolio, no gain or loss will be recognized
by the Monthly Payment Government Portfolio or its shareholders
for Federal income tax purposes. The holding period and tax
basis of shares of the U.S. Government Securities Portfolio that
are received by each Monthly Payment Government Portfolio
shareholder will be the same as the holding period and tax basis
of the shares of the Monthly Payment Government Portfolio
previously held by such shareholder. In addition, the holding
period and tax basis of the assets of the Monthly Payment
Government Portfolio in the hands of the U.S. Government
Securities Portfolio as a result of the Reorganization will be
the same as in the hands of the Monthly Payment Government
Portfolio immediately prior to the Reorganization.
Investment Objectives, Policies and Restrictions. The
Monthly Payment Government Portfolio and the U.S. Government
Securities Portfolio have generally similar investment
objectives, policies and restrictions. The U.S. Government
Securities Portfolio and the Monthly Payment Government Portfolio
each seek high current income, liquidity and security of
principal from a portfolio of U.S. Government obligations. At
least 65% of the Portfolio's assets are invested in Government
National Mortgage Association ("GNMA") Certificates.
Although the respective investment objectives and policies
of the U.S. Government Securities Portfolio and the Monthly
Payment Government Portfolio are generally similar, shareholders
of the Monthly Payment Government Portfolio should consider
certain differences in such objectives and policies. See
"Information About the U.S. Government Securities Portfolio",
"Information About the Monthly Payment Government Portfolio" and
"Comparison of Investment Objectives and Policies."
Purchase and Redemption Procedures. Purchase of shares of
the U.S. Government Securities Portfolio and the Monthly Payment
Government Portfolio must be made through the Funds' distributor
Smith Barney, 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 at their
respective public offering prices (net asset value next
determined plus any applicable sales charge). Class A shares of
both the U.S. Government Securities Portfolio and the Monthly
Payment Government Portfolio are sold subject to a maximum
initial sales charge of 4.50% of the public offering price.
Class B are sold subject to a maximum initial sales charge of
4.50% of redemption proceeds. Class C shares of both Funds are
sold without an initial sales charge but are subject to certain
higher ongoing expenses and a CDSC payable upon certain
redemptions.
Class Y shares of both Funds are sold without an initial
sales charge or CDSC, and are available only to investors
investing a minimum of $5,000,000.
Class A shares and Class Y shares of both Funds may be
redeemed at their net asset per share value next determined
without charge. Class B shares of both Funds may be redeemed at
their net asset value per share, subject to a maximum CDSC of
4.50% of the lower of original cost or redemption proceeds,
declining by 0.50% the first year after purchase and by 1.00%
each year thereafter to zero. Class C shares of both Funds may be
redeemed at their net asset value per share, subject to a CDSC of
1.00% if such shares are redeemed during the first 12 months
following their purchase. Shares of both Funds held by Smith
Barney as custodian must be redeemed by submitting a written
request to a Smith Barney Financial Consultant. All other shares
may be redeemed through a Smith Barney Financial Consultant,
Introducing Broker or dealer in the selling group or by
forwarding a written request for redemption to The Shareholder
Services Group, Inc. ("TSSG"), a subsidiary of First Data
Corporation. See "Redemption of Shares" in the accompanying
Prospectus of the Monthly Payment Government Portfolio.
Exchange Privileges. The exchange privileges available to
shareholders of the U.S. Government Securities Portfolio are
identical to those available to shareholders of the Monthly
Payment Government Portfolio. Shareholders of both the Monthly
Payment Government Portfolio and the U.S. Government Securities
Portfolio may exchange at net asset value all or a portion of
their shares for shares of the same Class in certain funds of the
Smith Barney Mutual Funds. 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. No initial sales charge is
imposed on the shares being acquired, and no CDSC is imposed on
the shares being disposed of, through an exchange. However, a
sales charge differential may apply to exchanges of Class A
shares with other Smith Barney Mutual Funds. With respect to
Class B and Class C shares of the Funds, the Class B and Class C
shares acquired in the exchange will be deemed to have been
purchased on the same date as the Class B and Class C shares that
were exchanged. Class B shares of the Funds that are exchanged
for Class B shares of other Smith Barney Mutual Funds imposing a
higher CDSC will be subject to the higher applicable CDSC.
Dividends. Each Fund's policy is to declare and pay
dividends from net investment income annually and to make annual
distributions of net realized capital gains, if any. Unless a
shareholder otherwise instructs, dividends and capital gains
distributions will be reinvested automatically in additional
shares of the same Class at net asset value, subject to no sales
charge or CDSC. The distribution option currently in effect for
a shareholder of the Monthly Payment Government Portfolio will
remain in effect after the Reorganization. After the
Reorganization, however, the former Monthly Payment Government
Portfolio shareholders may change their distribution option at
any time by contacting a Smith Barney Financial Consultant or
TSSG in writing. See "Dividends, Distributions and Taxes" in the
accompanying prospectus of the Monthly Payment Government
Portfolio.
Shareholder Voting Rights. The U.S. Government Securities
Portfolio and the Monthly Payment Government Portfolio are both
open-end, diversified investment companies. Both U.S. Government
Securities Portfolio and the Monthly Payment Government are
separate series of Smith Barney Funds, Inc., a Maryland
corporation. As permitted by Maryland law, normally no meetings
of shareholders will be held 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 each Fund then in office will call
a shareholders' meeting for the election of directors.
Shareholders may, at any meeting called for such 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. For purposes of voting with respect to the
Reorganization, the Class A, Class B, Class C and Class Y shares
of the Fund shall vote together as a single class. See
"Comparative Information on Shareholder's Rights-Voting Rights."
RISK FACTORS
Due to the similarities of investment objectives and
policies of the U.S. Government Securities Portfolio and the
Monthly Payment Government Portfolio, the investment risks are
generally similar. Such risks are generally those typically
associated with investing in U.S. Government Obligations. 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".
REASONS FOR THE REORGANIZATION
The Board of Directors of Smith Barney Funds, Inc. has
determined that it is advantageous to combine the Monthly Payment
Government Portfolio with the U.S. Government Securities
Portfolio. The Funds have generally similar investment
objectives and policies and the Funds have the same Manager and
shareholder servicing agent.
The Board of Directors of Smith Barney Funds, Inc. has
determined that the Reorganization should provide certain
benefits to its shareholders. In making such determination, the
Board of Directors considered, among other things: (i) the terms
and conditions of the Reorganization; (ii) the savings in
expenses borne by shareholders expected to be realized by the
Reorganization; (iii) the fact that the Reorganization will be
effected as a tax-free 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 investment
advisory services would be provided to the combined fund by the
same portfolio managers who currently manage the Monthly Payment
Government Portfolio.
In light of the foregoing, the Board of Directors of Smith
Barney Funds, Inc., including the non-interested Directors, have
decided that it is in the best interests of the Monthly Payment
Government Portfolio and its shareholders to combine with the
U.S. Government Securities Portfolio. The Board of Directors has
also determined that a combination of the Monthly Payment
Government Portfolio and the U.S. Government Securities Portfolio
would not result in a dilution of the Monthly Payment Government
Portfolio's shareholders' interests.
The Board of Directors of Smith Barney Funds, Inc.
considered the following factors, among others, in approving the
Reorganization and determining that it is advantageous to acquire
the assets of the Monthly Payment Government Portfolio: (i) the
terms and conditions of the Reorganization; and (ii) the fact
that the Reorganization will be effected as a tax-free
reorganization. Accordingly, the Board of Directors of the U.S.
Government Securities Portfolio, including a majority of the non-
interested Directors, has determined that the Reorganization is
in the best interests of the U.S. Government Securities
Portfolio's shareholders and that the interests of the U.S.
Government Securities 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 U.S. Government Securities
Portfolio will acquire all or substantially all of the assets of
the Monthly Payment Government Portfolio in exchange for shares
of the U.S. Government Securities Portfolio and the assumption by
the U.S. Government Securities Portfolio of certain liabilities
of the Monthly Payment Government Portfolio on October 6, 1995,
or such later date as may be agreed upon by the parties (the
"Closing Date"). Prior to the Closing Date, the Monthly Payment
Government Portfolio will endeavor to discharge all of its known
liabilities and obligations. The U.S. Government Securities
Portfolio will not assume any liabilities or obligations of the
Monthly Payment Government Portfolio other than those reflected
in an unaudited statement of assets and liabilities of the
Monthly Payment Government Portfolio 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 U.S. Government Securities Portfolio will assume the
liability for payment of any unpaid amounts under the Monthly
Payment Government Portfolio's Rule 12b-1 plan which were carried
over as of the Closing Date. The number of full and fractional
Class A, Class B, Class C and Class Y shares of the U.S.
Government Securities Portfolio to be issued to the Monthly
Payment Government Portfolio shareholders will be determined on
the basis of the U.S. Government Securities Portfolio's and the
Monthly Payment Government Portfolio relative net asset values
per Class A, Class B, Class C and Class Y shares, respectively,
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, minus liabilities, by the total
number of outstanding shares.
Both the Monthly Payment Government Portfolio and the U.S.
Government Securities Portfolio will utilize the procedures set
forth in the Prospectus of the U.S. Government Securities
Portfolio to determine the value of their respective portfolio
securities. The method of valuation employed will be consistent
with the requirements set forth in the Prospectus of the U.S.
Government Securities Portfolio, 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 Monthly Payment
Government Portfolio will, and the U.S. Government Securities
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
(computed without regard to any deduction for dividends paid) and
all of 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 Monthly Payment Government Portfolio 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 U.S. Government Securities Portfolio received by the Monthly
Payment Government Portfolio. Such liquidation and distribution
will be accomplished by the establishment of accounts in the
names of the Monthly Payment Government Portfolio's shareholders
on the share records of the U.S. Government Securities
Portfolio's shareholder servicing agent. Each account will
represent the respective pro rata number of full and fractional
shares of the U.S. Government Securities Portfolio due to each of
the Monthly Payment Government Portfolio's shareholders. After
such distribution has been made and the affairs have been wound
up, the Monthly Payment Government Portfolio will be terminated,
and it will apply for an order of the SEC declaring that its
registration under the 1940 Act has ceased.
The consummation of the Reorganization is subject to the
conditions set forth in the Plan. Notwithstanding approval of the
Monthly Payment Government Portfolio's shareholders, the Plan may
be terminated at any time at or prior to the Closing Date by
either party: (i) by mutual agreement of the U.S. Government
Securities Portfolio and the Monthly Payment Government
Portfolio; or (ii) by either party to the Plan upon a material
breach by the other party of any representation, warranty or
agreement contained therein to be performed at or prior to the
Closing Date; or (iii) 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.
Approval of the Plan will require the affirmative vote of a
majority of the outstanding shares of the Monthly Payment
Government Portfolio. If the Reorganization is not approved by
shareholders of the Monthly Payment Government Portfolio, the
Board of Directors of Smith Barney Funds, Inc. will consider
other possible courses of action, including liquidation of the
Monthly Payment Government Portfolio.
Description of the U.S. Government Securities Portfolio's
Shares. Full and fractional shares of the respective class of
shares of common stock of the U.S. Government Securities
Portfolio will be issued to the Monthly Payment Government
Portfolio in accordance with the procedures detailed in the Plan
and as described in the U.S. Government Securities Portfolio's
Prospectus. Generally, the U.S. Government Securities Portfolio
does not issue share certificates to shareholders unless a
specific request is submitted to the U.S. Government Securities
Portfolio's shareholder servicing agent. The shares of the U.S.
Government Securities Portfolio to be issued to the Monthly
Payment Government Portfolio shareholders and registered on the
shareholder records of the shareholder servicing agent will have
no preemptive rights.
Federal Income Tax Consequences. For Federal income tax
purposes, the exchange of assets for shares of the U.S.
Government Securities Portfolio is intended to qualify 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 Monthly Payment Government
Portfolio will receive an opinion from Sullivan & Cromwell,
counsel to the Monthly Payment Government Portfolio, 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, the following will apply:
(1) the transfer of all or substantially all of
the Monthly Payment Government Portfolio's assets
in exchange for the U.S. Government Securities
Portfolio's shares and the assumption by the U.S.
Government Securities Portfolio of certain
liabilities of the Monthly Payment Government
Portfolio will constitute a "reorganization"
within the meaning of Section 368 (a)(1)(C) of the
Code, and the U.S. Government Securities Portfolio
Portfolio and the Monthly Payment Government
Portfolio 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
U.S. Government Securities Portfolio upon the
receipt of the assets of the Monthly Payment
Government Portfolio in exchange for the U.S.
Government Securities Portfolio's shares and the
assumption by the U.S. Government Securities
Portfolio of certain scheduled liabilities of the
Monthly Payment Government Portfolio;
(3) no gain or loss will be recognized by the
Monthly Payment Government Portfolio upon the
transfer of the Monthly Payment Government
Portfolio's assets to the U.S. Government
Securities Portfolio in exchange for the U.S.
Government Securities Portfolio's shares and the
assumption by the U.S. Government Securities
Portfolio of certain scheduled liabilities of the
Monthly Payment Government Portfolio or upon the
distribution (whether actual or constructive) of
the U.S. Government Securities Portfolio's shares
to the Monthly Payment Government Portfolio's
shareholders;
(4) no gain or loss will be recognized by
shareholders of the Monthly Payment Government
Portfolio upon the exchange of their Monthly
Payment Government Portfolio shares for the U.S.
Government Securities Portfolio Portfolio shares
and the assumption by the U.S. Government
Securities Portfolio of certain scheduled
liabilities of the Monthly Payment Government
Portfolio;
(5) the aggregate tax basis of the U.S.
Government Securities Portfolio shares received by
each Monthly Payment Government Portfolio
shareholder pursuant to the Reorganization will be
the same as the aggregate tax basis of the Monthly
Payment Government Portfolio shares surrendered in
exchange therefor and the holding period of the
U.S. Government Securities Portfolio shares to be
received by each Monthly Payment Government
Portfolio shareholder will include the period
during which the shares of the Monthly Payment
Government Portfolio which are surrendered in
exchange therefor were held by such shareholder
(provided the Monthly Payment Government Portfolio
shares were held as capital assets on the date of
the Reorganization);
(6) the tax basis of the Monthly Payment
Government Portfolio's assets acquired by the U.S.
Government Securities Portfolio will be the same
as the tax basis of such assets to the Monthly
Payment Government Portfolio immediately prior to
the Reorganization and the holding period of the
assets of the Monthly Payment Government Portfolio
in the hands of the U.S. Government Securities
Portfolio will include the period during which
such assets were held by the Monthly Payment
Government Portfolio.
Shareholders of the Monthly Payment Government Portfolio
should consult their tax advisors 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 Monthly Payment Government Portfolio should
also consult their tax advisors as to state and local tax
consequences, if any, of the Reorganization.
Capitalization. The following table, which is unaudited,
shows the capitalization of the U.S. Government Securities
Portfolio and the Monthly Payment Government Portfolio as of July
21, 1994 and on a pro forma basis as of that date, giving effect
to the proposed acquisition of assets at net asset value:
<TABLE>
<CAPTION>
(In thousands, except per share values)
(Unaudited)
U.S. GovernmentMonthly Payment Pro forma for
Class A SharesSecurities PortfolioGovernement Portfolio
Reorganization
<S> <C> <C> <C>
Net Assets................
Net asset value per share.
Shares outstanding........
U.S. GovernmentMonthly Payment Pro forma for
Class B SharesSecurities PortfolioGovernement Portfolio
Reorganization
Net Assets................
Net asset value per share.
Shares outstanding........
U.S. GovernmentMonthly Payment Pro forma for
Class C SharesSecurities PortfolioGovernement Portfolio
Reorganization
Net Assets................
Net asset value per share.
Shares outstanding........
U.S. GovernmentMonthly Payment Pro forma for
Class Y SharesSecurities PortfolioGovernement Portfolio
Reorganization
Net Assets................
Net asset value per share.
Shares outstanding........
</TABLE>
As of the Record Date, there were [ ]
outstanding Class A shares, [ ]outstanding
Class B shares, [ ]outstanding Class C and [
]outstanding Class Y shares of the Monthly Payment
Government Portfolio and [ ]outstanding Class A
shares, [ ] outstanding Class B shares, [
] outstanding Class C shares and [ ]
outstanding Class Y shares of the U.S. Government Securities
Portfolio. As of the Record Date, the officers and
directors of the Monthly Payment Government Portfolio as a
group beneficially owned less than 1% of the outstanding
shares of the Monthly Payment Government Portfolio. To the
best knowledge of the Directors of the Monthly Payment
Government Portfolio, 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"), owned
beneficially or of record 5% or more of the Monthly Payment
Government Portfolio.
<TABLE>
<CAPTION>
Percentage of Class Owned of Record
or Beneficially
Name and Fund and As of the Upon
Consummation
Address Class Record Date of the
Reorganization
<S> <C> <C> <C>
</TABLE>
INFORMATION ABOUT THE U.S. GOVERNMENT SECURITIES PORTFOLIO
Management's Discussion and Analysis of Market Conditions
and Portfolio Review.
For the three months ended April 30, 1995, the total return
for Class A shares of the U.S. Government Securities Portfolio
was 4.38%. The Lehman Brothers GNMA Mutual Fund Index returned
4.67% for the same period.
After briefly rising above 8.00% in late October 1994, long-
term rates are now at the same levels as they were in May 1994.
Short-term rates have decreased since January 1995 and the yield
curve has steepened dramatically. This steepening has occurred
for two reasons. First, market participants are starting to
believe that the Federal Reserve Board has accomplished its task
of slowing the economy and pre-empting inflation. Normally, as
the Fed tightens, the market will anticipate future tightening,
and the spread between federal funds rate and other short-term
instruments, such as two-year Treasuries, will widen. As an
example, the spread between the federal funds rate and the two-
year Treasury was as wide as 2.20% in December 1994 and January
1995. This spread can increase sharply when the market believes
the Fed is finished tightening. The spread on April 28 was 40
basis points. While 40 basis points is not unprecedented, it
seems tight given we are not assured that the Fed has completed
its task. The second reason for this tightening is that Foreign
Central Banks have been buying Treasury securities in an effort
to support the U.S. dollar. Foreign Central Banks purchased an
amount equal to approximately half the net issuance of the U.S.
Treasury year-to-date 1995.
This has been a favorable market for mortgage-backed
securities. For the 12 months ended April 30, 1995, the GNMA
index outperformed the Lehman Government index by 2.07%.
Scarcity of supply, low-yield volatility, and a steepening yield
curve all contributed to this outperformance.
Our strategy since last summer has remained the same.
Ginnie Mae securities trading at a discount to their face value
and with coupon rates of from 6.5% to 7.5%, were cheap. We slowly
moved from a very defensive posture to a slightly defensive
posture by investing in these discounts bonds which also gave us
some prepayment protection in the event of a strong rally. More
recently we went to a slightly bullish posture. In early April we
purchased $20 million of Ginnie Maes with a coupon rate of 8%,
which is a more current coupon and provides incremental yield. We
are now 97.5% invested in Ginnie Maes. Our average coupon rate
is 7.8% versus 8.07% for the GNMA index, and our duration is 4.90
years compared with 4.69 years for the GNMA index.
These are interesting times in the fixed-income markets.
The market appears to have discounted the achievement of a "soft
landing" by the Fed. Indeed, the most recent economic numbers
provide support for that viewpoint. Wage gains remain meager,
and first-quarter gross domestic product was up a moderate 2.8%
with final sales up a mere 1.8%. Consumer spending was sluggish
and residential construction declined. Inventory accumulation
was high and should be a drag on second-quarter corporate
results. On the other side of the scale, however, is the falling
dollar, and the potential for rising import prices. Commodity
prices, particularly oil, bear watching although they have yet
to reach a worrisome stage. In addition, we must be aware that
the $42 billion in bonds held by Foreign Central Banks are
probably not long-term investments.
I believe the factor that will tip the scale in favor of
slightly lower near-term yields is that many fixed-income
investors are under-invested. If they remain so, they risk sub-
par performance this year on the heels of a dismal 1994. Weak
economic numbers over the May/June time frame will force
investors into the market. Therefore, we will remain somewhat
bullish in our positioning of the portfolio. As the summer
unfolds, we will take a fresh look at the economy and the
prospects for an economic rebound.
INFORMATION ABOUT THE MONTHLY PAYMENT GOVERNMENT PORTFOLIO
Management's Discussion and Analysis of Market Conditions
and Portfolio Review
For the three months ended April 30, 1995, the total return
for Class A shares of the Monthly Payment Government Portfolio
was 4.51%. The Lehman Brothers GNMA Mutual Fund Index returned
4.67% for the same period.
After briefly rising above 8.00% in late October 1994, long-
term rates are now at the same levels as they were in May 1994.
Short-term rates have decreased since January 1995 and the yield
curve has steepened dramatically. This steepening has occurred
for two reasons. First, market participants are starting to
believe that the Federal Reserve Board has accomplished its task
of slowing the economy and pre-empting inflation. Normally, as
the Fed tightens, the market will anticipate future tightening,
and the spread between federal funds rate and other short-term
instruments, such as two-year Treasuries, will widen. As an
example, the spread between the federal funds rate and the two-
year Treasury was as wide as 2.20% in December 1994 and January
1995. This spread can increase sharply when the market believes
the Fed is finished tightening. The spread on April 28 was 40
basis points. While 40 basis points is not unprecedented, it
seems tight given we are not assured that the Fed has completed
its task. The second reason for this tightening is that Foreign
Central Banks have been buying Treasury securities in an effort
to support the U.S. dollar. Foreign Central Banks purchased an
amount equal to approximately half the net issuance of the U.S.
Treasury year-to-date 1995.
This has been a favorable market for mortgage-backed
securities. For the 12 months ended April 30, 1995, the GNMA
index outperformed the Lehman Government index by 2.07%.
Scarcity of supply, low-yield volatility, and a steepening yield
curve all contributed to this outperformance.
Our strategy since last summer has remained the same.
Ginnie Mae securities trading at a discount to their face value
and with coupon rates of from 6.5% to 7.5% were cheap. We
slowly moved from a very defensive posture to a slightly
defensive posture by investing in these discounts bonds which
also gave us some prepayment protection in the event of a strong
rally. We are now 98% invested in Ginnie Maes. Our average
coupon rate is 7.86% versus 8.07% for the GNMA index, and our
duration is 4.82 years compared with 4.69 years for the GNMA
index.
These are interesting times in the fixed-income markets.
The market appears to have discounted the achievement of a "soft
landing" by the Fed. Indeed, the most recent economic numbers
provide support for that viewpoint. Wage gains remain meager,
and first-quarter gross domestic product was up a moderate 2.8%
with final sales up a mere 1.8%. Consumer spending was sluggish
and residential construction declined. Inventory accumulation
was high and should be a drag on second-quarter corporate
results. On the other side of the scale, however, is the falling
dollar, and the potential for rising import prices. Commodity
prices, particularly oil, bear watching although they
have yet to reach a worrisome stage. In addition, we must be
aware that the $42 billion in bonds held by Foreign Central Banks
are probably not long-term investments.
I believe the factor that will tip the scale in favor of
slightly lower near-term yields is that many fixed-income
investors are under-invested. If they remain so, they risk sub-
par performance this year on the heels of a dismal 1994. Weak
economic numbers over the May/June time frame will force
investors into the market. Therefore, we will remain somewhat
bullish in our positioning of the portfolio. As the summer
unfolds, we will take a fresh look at the economy and the
prospects for an economic rebound.
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
The following discussion which compares investment
objectives, policies and restrictions of the U.S. Government
Securities Portfolio to the Monthly Payment Government Portfolio
is based upon and qualified in its entirety by the investment
objectives, policies and restriction section of the Prospectus of
the U.S. Government Securities Portfolio and the Prospectus of
the Monthly Payment Government Portfolio, respectively. For a
full discussion of the investment objectives, policies and
restrictions of the U.S. Government Securities Portfolio, refer
to the U.S. Government Securities Portfolio's Prospectus, which
accompanies this Prospectus/Proxy Statement, under the captions,
"Investment Objectives and Management Policies" and for a
discussion of these issues as they apply to the Monthly Payment
Government Portfolio, refer to the Monthly Payment Government
Portfolio's Prospectus under the caption, "Investment Objectives
and Management Policies."
Investment Objective. The principal investment objective of
the U.S. Government Securities Portfolio is identical to that of
the Monthly Payment Government Portfolio, in that each seek high
current income, liquidity and security of principal by investing
in obligations of the U.S. Governement, its agencies or its
instrumentalities and related repurchase and reverse repurchase
agreements. There can be no assurance that either Fund will be
able to achieve its investment objectives. Both the U.S.
Government Securities Portfolio's and the Monthly Payment
Government Portfolio's investment objective is fundamental and,
as such, may be changed only by the "vote of a majority of the
outstanding voting securities," as defined in the 1940 Act. The
investment policies of the U.S. Government Securities Portfolio
and the Monthly Payment Government Portfolio are non-fundamental
and, as such, may be changed by the Board of Directors, without
shareholder approval, provided such change is not prohibited by
the investment restrictions (which are set forth in the
applicable Statements of Additional Information) or applicable
law, and any such change will first be disclosed in the then
current prospectus.
Primary Investments. The U.S. Government Securities
Portfolio and the Monthly Payment Government Portfolio invest
primarily in Government National Mortgage Association ("GNMA")
Certificates of the modified pass-through type and will also
normally include other "U.S. Government Obligations", i.e.,
obligations issued or guaranteed by the United States, its
agencies or its instrumentalities and related repurchase
agreements (reverse repurchase agreement transactions are limited
to no more than 5% of each Portfolio's net assets). Under normal
market conditions, each Portfolio will seek to invest
substantially all of its assets - and a Portfolio will invest not
less than 65% of its assets- in such securities. GNMA
Certificates are debt securities issued by a mortgage banker or
other mortgagee representing an interest in a pool of mortgages
insured by the Federal Housing Administration or the Farmers Home
Administration or guaranteed by the Veterans Administration. The
National Housing Act provides that the full faith and credit of
the United States is pledged to the timely payment of principal
and interest by GNMA of amounts due on these GNMA Certificates.
Securities of the type to be purchased for these Portfolios have
historically involved no credit risk; however, due to
fluctuations in interest rates, the market value of such
securities will vary during the period of a shareholder's
investment in the Portfolio. The average life of GNMA
Certificates varies with the maturities of the underlying
mortgages (with maximum maturities of 30 years) but it is likely
to be substantially less than the original maturity of the
mortgage pools underlying the securities as the result of
prepayments, refinancing of such mortgages or foreclosure.
Unscheduled prepayments of mortgages are passed through to the
holders of GNMA Certificates at par and will increase or decrease
the yield realized by the Portfolio, depending on the cost of
the underlying Certificate and its market value at the time of
prepayment. As a hedge against changes in interest rates, the
U.S. Government Securities Portfolio and the Monthly Payment
Government Portfolio may enter in agreements with dealers in GNMA
Certificates to purchase or sell an agreed-upon principal amount
of GNMA Certificates at a specified price on a certain price on a
certain date; provided, however that settlement occurs within
120 days of the trade date.
The U.S Government Securities Portfolio and the Monthly
Payment Government Portfolio each may seek to increase its net
investment income by lending its securities to unaffiliated
brokers, dealers and other financial institutions, 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 securites loaned.
Management will limit such lending to not more than one-third of
the value of each Portfolio's total assets. The risks in lending
portfolios securities consist of possible delay in recovery of
the securities or possible loss of rights in the collateral
should the borrower fail financially.
Restrictions. Each Fund has adopted investment restrictions
to protect the shareholders, which restrictions may not be
changed without the approval of the holders of a majority, as
defined in the 1940 Act, of the voting securities of the
respective Fund. Each of the U.S. Government Securities
Portfolio and the Monthly Payment Government Portfolio may not:
1. Purchase any securities other than the obligations issued or
guarenteed 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 if
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 mortgage-related 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 borrowings 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 provision 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 deemed to be an underwriter of securities
except tot he extent the Fund may be deemed to be an underwriter
in connection witht the sale of portfolio holdings.
Risk Factors. The U.S. Government Securities Portfolio and
the Monthly Payment Government Portfolio may enter into
Repurchase Agreements, which are contracts under which a security
is acquired for a relatively short period (usually not more than
one week), subject to the obligation of the seller to repurchase
and the buyer to resell such security at a fixed time and price.
This could involve certain risks in the event of default or
insolvency of the other party. To increase investment income,
the U.S. Government Securities Portfolio may lend their
securities to brokers, dealers or other financial institutions,
which loans are secured by cash or U.S. Government obligations
and are limited to not more than one-third of the value of the
total assets of the Fund. The Monthly Payment Government
Portfolio may also lend securities to brokers, dealers and other
financial institutions, but only up to 20% of their total assets.
Both Portfolios may pay finders, administrative and custodial
fees for said loans and may not lend securities to other persons.
The U.S. Government Securities Portfolio and the Monthly
Payment Government Portfolio may also invest in futures
contracts, which provide for the future sale by one party and the
purchase by another of a specified amount of a specified
financial instrument or currency for a specified price at a
designated time and place. However, there is much risk involved
because prices of futures contracts are volatile and are
influenced, among other things, by actual and anticipated changes
in interest rates, which are affected by fiscal and monetary
policies and national and international political and economic
events.
COMPARATIVE INFORMATION ON SHAREHOLDERS' RIGHTS
General. Both the Monthly Payment Government Portfolio and
the U.S. Government Securities Portfolio are open-end,
diversified management investment companies registered under the
1940 Act, which continuously offer to sell shares at their
current net asset value. Each Portfolio is a series fund within
a Maryland corporation and is governed by the respective
corporation's Articles of Incorporation, By-Laws and Board of
Directors. Each Portfolio is also governed by applicable state
and Federal law. Each Portfolio is a separate series of Smith
Barney Funds, Inc. Smith Barney Funds, Inc. 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
additional series of shares in the future. The assets of each
Portfolio are segregated and separately managed and a
shareholder's interest is in the assets of the Portfolio in which
he or she holds shares. In both Portfolios, Class A, Class B,
Class C and Class Y shares of each Portfolio represent interests
in the assets of that Portfolio 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 each Fund's Rule 12b-1 distribution plan which
pertains to a particular Class.
Directors. The By-Laws of Smith Barney Funds, Inc. provides
that the term of office of each Director shall be from the time
of his or her election and qualification until the next annual
meeting of shareholders and until his or her successor shall have
been elected and shall have qualified. Any Director may be
removed by the shareholders by a majority of the votes entitled
to be cast for the election of Directors. Vacancies on the
Boards of either Fund may be filled by the Directors remaining in
office. A meeting of shareholders will be required for the
purpose of electing additional Directors whenever fewer than a
majority of the Directors then in office were elected by
shareholders.
Voting Rights. As permitted by Maryland law, normally no
meetings of shareholders will be held 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. Shareholders
may, at any meeting called for such 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.
Liquidation or Termination. In the event of the liquidation
or termination of the U.S. Government Securities Portfolio or the
Monthly Payment Government Portfolio, the shareholders of the
Portfolios are entitled to receive, when and as declared by the
Directors, the excess of the assets belonging to the Portfolios
over the liabilities belonging to the Portfolios. In either
case, the assets so distributed to shareholders of the Portfolios
will be distributed among the shareholders in proportion to the
number of shares of the Portfolios held by them and recorded on
the books of the Portfolios.
Liability of Directors. The Articles of Incorporation of
Smith Barney Funds, Inc. provide that the Directors and officers
shall not be liable for monetary damages for breach of fiduciary
duty as a Director or officer, except to the extent such
exemption is not permitted by law. The Articles of Incorporation
further provide that Smith Barney Funds, Inc. shall indemnify
each Director and officer to the fullest extent permitted by
Maryland General Corporate Law. The By-Laws of each Portfolio
provide that each Director and officer shall be indemnified
against liabilities and expenses incurred in connection with any
suit or proceeding to which they may be a party to the fullest
extent permitted by law, provided, however, that the Portfolio
will not indemnify any person for any liability arising by reason
of such person's wilful misfeasance, or reckless disregard of his
or her duties.
Rights of Inspection. Maryland law permits any shareholder
of the Portfolios or any agent of such shareholder to inspect and
copy during the Portfolio's usual business hours the By-laws,
minutes of shareholder proceedings, annual statements of the
Portfolio's affairs and voting trust agreements on file at its
principal office.
The foregoing is only a summary of certain characteristics
of the operations of the U.S. Government Securities Portfolio and
the Monthly Payment Government Portfolio, their respective
Articles of Incorporation, By-laws and Maryland law. The
foregoing is not a complete description of the documents cited.
Shareholders should refer to the provisions of such Articles of
Incorporation, By-laws and Maryland law directly for a more
thorough description.
ADDITIONAL INFORMATION ABOUT
THE U.S. GOVERNMENT SECURITIES PORTFOLIO
AND THE MONTHLY PAYMENT GOVERNMENT PORTFOLIO
The Monthly Payment Government Portfolio. Information about
the Monthly Payment Government Portfolio is incorporated herein
by reference from its current Prospectus dated April 28, 1994,
and in the Statement of Additional Information dated April 28,
1994, which has been filed with the SEC. A copy of the
Prospectus and the Statement of Additional Information is
available upon request and without charge by writing the Monthly
Payment Government Portfolio at 388 Greenwich Street, New York,
New York 10013 or by calling (800) 224-7523.
The U.S. Government Securities Portfolio. Information
concerning the operation and management of the U.S. Government
Securities Portfolio is incorporated herein by reference from
it's current Prospectus dated April 28, 1995, a copy of which is
enclosed herewith, and 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 the U.S. Government
Securities Portfolio at 388 Greenwich Street, New York, New York
10013 or by calling (800) 224-7523.
Both the U.S. Government Securities Portfolio and the
Monthly Payment Government Portfolio 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 Directors of Smith Barney Funds, Inc. 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 Directors of Smith
Barney Funds, Inc. to be used at the Special Meeting of
Shareholders to be held at 1:00 p.m. on September 29, 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 Monthly Payment Government
Portfolio on or about July 21, 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 Monthly
Payment Government Portfolio 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 determining
a quorum for transacting business at the Meeting, abstentions and
broker "non-votes" (that is, proxies from brokers 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 the Smith
Barney Funds Inc.- Monthly Payment Government Portfolio, 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 of the outstanding shares of the Monthly Payment
Government Portfolio. Shareholders of Class A, Class B, Class C
and Class Y shares of the Monthly Payment Government Portfolio
shall vote together as a single class. Shareholders of the
Monthly Payment Government Portfolio 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 by The
Shareholder Services Group, Inc., a subsidiary of First Data
Corporation, (the Funds' transfer agent). The aggregate cost of
solicitation of the shareholders of the Monthly Payment
Government Portfolio Fund is expected to be [$ ]. Expenses
of the Reorganization, including the costs of proxy solicitation,
the preparation of this Prospectus/Proxy Statement and enclosures
attached hereto and reimbursement of expenses for forwarding
solicitation material to beneficial owners of shares of the
Monthly Payment Government Prospectus will be borne by the U.S.
Government Securities Portfolio and the Monthly Payment
Government Portfolio in proportion to their shares.
In the event that sufficient votes to approve the
Reorganization are not received by September 29, 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 U.S. Government
Securities Portfolio are not being solicited by this
Prospectus/Proxy Statement.
FINANCIAL STATEMENTS AND EXPERTS
The audited statements of assets and liabilities of the
Monthly Payment Government Portfolio as of December 31, 1994, and
the related statements of operations for the year then ended and
changes in net assets for the two years then ended and financial
highlights, 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 for the Monthly Payment
Government Portfolio, given on the authority of that firm as
experts in accounting and auditing. The audited statements of
assets and liabilities, including the schedule of investments, of
the U.S. Government Securities Portfolio as of December 31, 1994
and the related statements of operations, statement of changes in
net assets and financial highlights for the period for the seven
year period ending December 31, 1994, have been incorporated by
reference into the Statement of Additional Information relating
to this Prospectus/Proxy Statement in reliance on the report of
KPMG Peat Marwick LLP, the independent auditor for the U.S.
Government Securities Portfolio, given on authority of such firm
as experts in accounting and auditing.
LEGAL MATTERS
The validity of shares of the U.S. Government Securities
Portfolio will be passed upon by Sullivan &
Cromwell, One Cititcorp Center, New York, NY 10022.
THE BOARD OF DIRECTORS OF SMITH BARNEY FUNDS,
INC., INCLUDING THE "NON-INTERESTED" DIRECTORS,
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.
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement")
is made as of this [ ]th day of [ ], 1995, by and
between Smith Barney Funds, Inc. ("Smith Barney Funds"), a
Maryland corporation with its principal place of business at 388
Greenwich Street, New York, New York 10013, on behalf of the U.S.
Government Securities Portfolio (the "Acquiring Fund"), an
investment portfolio of Smith Barney Funds and Smith Barney
Funds, Inc. ("Smith Barney Funds"), a Maryland corporation with
its principal place of business at 388 Greenwich Street, New
York, New York 10013, on behalf of the Smith Barney Monthly
Payment Government Portfolio (the "Acquired Fund"), an investment
portfolio of the Smith Barney Funds.
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
for Class A, Class B, Class C and Class Y shares of common stock
of the Acquiring Fund (collectively, the "Acquiring Fund Shares"
and each, an "Acquiring Fund Share") and the assumption by the
Acquiring Fund of certain scheduled liabilities of the Acquired
Fund and the distribution, after the Closing Date herein referred
to, of Acquiring Fund Shares to the shareholders of the Acquired
Fund in liquidation of the Acquired Fund and the termination of
the Acquired Fund, all upon the terms and conditions hereinafter
set forth in this Agreement.
WHEREAS, Smith Barney Funds is a registered investment
company 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;
WHEREAS, Smith Barney Funds is authorized to issue shares of
common stock;
WHEREAS, the Board of Directors of the Smith Barney Funds
has determined that the exchange of all or substantially all of
the assets and certain of the liabilities of the Acquired Fund
for Acquiring Fund Shares and the assumption of such liabilities
by Smith Barney Funds on behalf of 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;
WHEREAS, the Board of Directors of Smith Barney Funds has
determined that the exchange of all or substantially 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 THE
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 Smith Barney Funds, on behalf of the Acquired Fund
agrees to transfer the Acquired Fund's assets as set forth in
paragraph 1.2 to Smith Barney Funds on behalf of the Acquiring
Fund, and Smith Barney Funds on behalf of 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
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 B Acquiring Fund Shares,
including fractional Class B Acquiring Fund Shares, determined by
dividing the value of the Acquired Fund's net assets attributable
to its Class B 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 B Acquiring Fund Share, computed in the manner and as
of the time and date set forth in paragraph 2.2; (iii) to deliver
to the Acquired Fund the number of Class C Acquiring Fund Shares,
including fractional Class C Acquiring Fund Shares, determined by
dividing the value of the Acquired Fund's net assets attributable
to its 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 C Acquiring Fund Share, computed in the manner and as
of the time and date set forth in paragraph 2.2; (iv) 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; and (v) to
assume certain scheduled 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
Smith Barney Funds on behalf of the Acquiring Fund shall consist
of all or substantially all of its property, including, without
limitation, all cash, securities and dividends 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 the 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 Smith Barney Funds, on behalf of the Acquired Fund
will endeavor to discharge all the Acquired Fund's known
liabilities and obligations prior to the Closing Date. Smith
Barney Funds on behalf of 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 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. Smith Barney
Funds on behalf of 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
thereon.
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, Class B, Class C and
Class Y shares of the Acquired Fund shall receive Class A, Class
B, Class C and Class Y shares, respectively, 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 cancelled 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
paragraph 1.1. 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. Acquiring Fund
Shares 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 terminated.
1.8. The Acquired Fund shall, following the Closing Date
and the making of all distributions pursuant to paragraph 1.4, be
terminated under the laws of the State of Maryland 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 Acquiring Fund Shares shall be
the net asset value per share computed as of the close of regular
trading on the NYSE on 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 Smith
Barney Mutual Funds Management Inc. in accordance with their
regular practice as pricing agent for the Acquired Fund and the
Acquiring Fund, respectively.
3. CLOSING AND CLOSING DATE
3.1. The Closing Date shall be October 6, 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 Smith Barney Inc., 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 and percentage ownership of outstanding shares
owned by each such shareholder immediately prior to the Closing,
certified on behalf of the Acquired Fund by its President. 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 Acquired Fund represents and warrants to the
Acquiring Fund as follows:
(a) The Acquired Fund is an investment portfolio of Smith
Barney Funds which is a Maryland corporation, duly organized,
validly existing and in good standing under the laws of the State
of Maryland;
(b) The Acquired Fund is a registered investment company
classified as a 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, as amended (the "1940 Act") is in full force
and effect;
(c) The Acquired Fund is not, and the execution, delivery
and performance of this Agreement will not result, in a material
violation of its Articles of Incorporation or By-laws or of any
agreement, indenture, instrument, contract, lease or other
undertaking to which the Acquired Fund is a party or by which it
is bound;
(d) The Acquired Fund 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) Except as otherwise disclosed in writing to and
accepted by the Acquiring Fund, 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 the Acquired
Fund's properties or assets, except as previously disclosed to
the Acquiring Fund which, if adversely determined, would
materially and adversely affect its financial condition or the
conduct of its business. The Acquired Fund knows of no facts
which might form the basis for the institution of such
proceedings and is not 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 herein contemplated;
(f) The Statements of Assets and Liabilities of the
Acquired Fund as of the period from April 6, 1986 (commencement
of operations) to December 31, 1994, have been audited by KPMG
Peat Marwick LLP. and Price Waterhouse, both independent
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) The Acquired Fund will file its final federal and other
tax returns for the period ending on the Closing Date in
accordance with the Code. At the Closing Date, all federal and
other tax returns and reports of the Acquired Fund required by
law then to have been filed prior to the Closing Date shall have
been filed, and all federal and other taxes shown as due on such
returns 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;
(h) 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;
(i) 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 3.4.
The Acquired Fund does not have outstanding any options, warrants
or other rights to subscribe for or purchase any shares of the
Acquired Fund, nor is there outstanding any security convertible
into any shares of the Acquired Fund;
(j) 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;
(k) The execution, delivery and performance of this
Agreement has been duly authorized by all necessary action on the
part of Acquiring Fund's Board of Directors, and subject to the
approval of the Acquired Fund's shareholders, this Agreement,
assuming due authorization, execution and delivery by the
Acquiring Fund, will constitute a valid and binding obligation of
the Acquired Fund, enforceable in accordance with its terms,
subject as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium and other laws relating to or
affecting creditors' rights and to general equity principles;
(l) 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; and
(m) 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 materially misleading.
4.2. The Acquiring Fund represents and warrants to the
Acquired Fund as follows:
(a) The Acquiring Fund is a portfolio of Smith Barney
Funds, which is a corporation, duly organized, validly existing
and in good standing under the laws of the State of Maryland;
(b) Smith Barney Funds 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 and the Statement of Additional
Information of the Acquiring Fund 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 the Acquiring Fund's assets;
(e) The Acquiring Fund is not, and the execution, delivery
and performance of this Agreement on behalf of the Acquiring Fund
will not result, in a material violation of its Articles of
Incorporation or By-laws or of any agreement, indenture,
instrument, contract, lease or other undertaking with respect to
the Acquiring Fund to which Smith Barney Funds is a party or by
which it is 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 the Acquiring Fund's properties or assets, except as
previously disclosed in writing to the Acquired Fund. The
Acquiring Fund know of no facts which might form the basis for
the institution of such proceedings and the Acquiring Fund 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 the Acquiring Fund's business or the Acquiring
Fund's ability to consummate the transactions contemplated
herein;
(g) The Statements of Assets and Liabilities of the
Acquiring Fund for the period from October 9, 1984 (commencement
of operations) through December 31, 1994, have been audited by
KPMG Peat Marwick LLP. and Price Waterhouse, both independent
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) At the Closing Date, all federal and other tax returns
and reports of the Acquiring Fund required by law then to have
been filed by such dates shall have been filed, and all federal
and other taxes shown as due on said returns and reports shall
have been paid so far as due, 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;
(i) 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;
(j) 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
non-assessable, 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 shares of the Acquiring
Fund;
(k) The execution, delivery and performance of this
Agreement has been duly authorized by all necessary action, if
any, on the part of the Acquiring Fund's Board of Directors and
assuming due authorization, execution and delivery by Smith
Barney Funds, Inc. on behalf of the Acquired Fund, this Agreement
constitutes a valid and binding obligation of the Acquiring Fund,
enforceable in accordance with its terms, subject as to
enforcement, to bankruptcy, insolvency, reorganization,
moratorium and other laws relating to or affecting creditors'
rights and to general equity principles;
(l) The Acquiring Fund Shares to be issued and delivered to
the Acquired Fund, for the account of the Acquired Fund
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 non-assessable with no
personal liability attaching to the ownership thereof;
(m) 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;
(n) 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
materially misleading; and
(o) 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
the Acquiring Fund's operations after the Closing Date.
5. COVENANTS OF SMITH BARNEY FUNDS, INC., THE ACQUIRED FUND,
AND THE ACQUIRING 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. It is understood that such ordinary
course of business will include the declaration and payment of
customary dividends and distributions and any other dividends and
distributions deemed advisable, in each case payable either in
cash or in additional shares.
5.2. Smith Barney Funds Inc., on behalf of the Acquired
Fund will call a meeting of its shareholders to consider and act
upon this Agreement and to take all other action necessary to
obtain approval of the transactions contemplated herein.
5.3. Smith Barney Funds Inc., on behalf of 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, Smith
Barney Funds Inc., on behalf of the Acquired Fund and on behalf
of the Acquiring 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
President and Treasurer of the Acquired Fund.
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(m), all to be included in
a Registration Statement on Form N-14 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 Smith Barney Funds, Inc., and the
Acquired Fund to consummate the transactions provided for herein
shall be subject, at its election, to the performance by 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 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 Acquiring Fund shall have delivered to Smith
Barney Funds, Inc., 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 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
6.3. The Acquired Fund shall have received on the Closing
Date a favorable opinion from Sullivan & Cromwell, counsel to the
Acquiring Fund, dated as of the Closing Date, in a form
reasonably satisfactory to Christina T. Sydor, Esq., Secretary of
the Acquired Fund, covering the following points:
That (a) the Acquiring Fund is duly organized and
validly existing under the laws of the State of Maryland;
(b) the Acquiring Fund 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 Acquiring Fund, and this
Agreement has been duly executed and delivered by the
Acquiring Fund and is a valid and binding obligation of the
Acquiring Fund enforceable in accordance with its terms
against the assets of the Acquiring Fund; and (d) the Class
A, Class B, Class C 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 of the
pertinent class authorized to be issued by the Acquiring
Fund in the Articles of Incorporation of the Acquiring Fund
and then unissued, duly authorized and, subject to the
receipt by the Acquiring Fund of consideration equal to the
net asset value thereof (but in no event less than the par
value thereof), such Class A, Class B, Class C and Class Y
Acquiring Fund Shares, when issued in accordance with this
Agreement, will be validly issued and fully paid and
non-assessable. Such opinion may state that it is solely
for the benefit of Smith Barney Funds, Inc., its Directors
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 SMITH BARNEY FUNDS IN
RESPECT OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to complete the
transactions provided for herein shall be subject, at its
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 Smith Barney
Funds, Inc., 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
Acquired Fund;
7.3. The Acquired Fund shall have delivered to the
Acquiring Fund on the Closing Date a certificate executed in its
name by its 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 Smith Barney Funds and
the Acquired 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
7.4. The Acquiring Fund shall have received on the Closing
Date a favorable opinion of Sullivan & Cromwell, counsel to the
Acquired Fund, in a form satisfactory to Christina T. Sydor,
Esq., Secretary of the Acquiring Fund, covering the following
points:
That (a) Smith Barney Funds, Inc., is duly organized and
validly existing under the laws of the State of Maryland;
(b) Smith Barney Funds, Inc., 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 Smith
Barney Funds, Inc., and this Agreement has been duly
executed and delivered by Smith Barney Funds, Inc., and is a
valid and binding obligation of Smith Barney Funds, Inc.,
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 Acquiring
Fund, its Directors 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.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF SMITH BARNEY
FUNDS, INC., THE ACQUIRED FUND, AND THE ACQUIRING FUND
If any of the conditions set forth below do not exist on or
before the Closing Date with respect to the Acquiring Fund or the
Acquired Fund, the other party to this Agreement shall, at its
option, not be required to consummate the transactions
contemplated by this Agreement:
8.1. This 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 Smith Barney Funds, Inc's
Articles of Incorporation and By-laws 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 shall have declared and paid a
dividend or dividends on the outstanding shares of the Acquired
Fund, which, together with all previous such dividends, shall
have the effect of distributing to the shareholders of the
Acquired Fund all of the investment company taxable income and
exempt-interest income of the Acquired Fund for all taxable years
ending on or prior to the Closing Date. The dividend declared
and paid by the Acquired Fund shall also include all of such
fund's net capital gain realized in all taxable years ending on
or prior to the Closing Date (after reduction for any capital
loss carryforward);
8.6. The parties shall have received a favorable opinion of
Sullivan & Cromwell, addressed to the Acquiring Fund and the
Acquired Fund and satisfactory to Christina T. Sydor, Esq., as
Secretary of each of the Funds, 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 in exchange for the Acquiring
Fund Shares and the assumption by the Acquiring Fund of
certain scheduled 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 scheduled
liabilities of the Acquired Fund or upon the distribution
(whether actual or constructive) of the Acquiring Fund
Shares to the Acquired Fund's shareholders; (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 scheduled 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, 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 hereby 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,
Smith Barney Inc., the distributor of the Acquiring Fund and the
Acquired Fund shall be liable for the expenses incurred in
connection with entering into and carrying out the provisions of
this Agreement, including the expenses of: (i) counsel and
independent accountants associated with the 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)
any special pricing fees associated with the valuation of the
Acquired Fund's of the Acquiring Fund's portfolio on the Closing
Date; (iv) 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; (v) 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.
The Acquired Fund shall be liable for: (i) all fees and expenses
related to the liquidation and termination of the Acquired Fund;
and (ii) fees and expenses of the Acquired Fund's custodian and
transfer agent incurred in connection with the Reorganization.
The Acquiring Fund shall be liable for any fees and expenses of
the Acquiring Fund's custodian and transfer agent incurred 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 parties hereto agree that no party has made any
representation, warranty or covenant not set forth herein and
that this Agreement constitutes the entire agreement between 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 prior to
the Closing Date by: (1) the mutual agreement of the Acquired
Fund and the Acquiring Fund; (2) the Acquired Fund in the event
that in the event that the Acquiring Fund shall, or in respect of
the Acquiring Fund in the event that 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 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 Acquired Fund
or the Acquiring Fund or their respective Directors or officers
to the other party, 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 Acquired Fund and the
Acquiring Fund; provided, however, that following the meeting of
the Acquired Fund 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., 388 Greenwich Street, 22nd
Floor, New York, New York 10013, Attention: Heath B. McLendon; or
to the Acquiring Fund, 388 Greenwich Street, 22nd Floor, 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, corporation or other entity, other than the
parties hereto and their respective successors and assigns, any
rights or remedies under or by reason of this Agreement.
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 attested by its Secretary or
Assistant Secretary.
Attest: SMITH BARNEY FUNDS, INC.
on behalf of the U.S. GOVERNMENT
SECURITIES PORTFOLIO
By:
Name: Christina T. Sydor Name: Jessica Bibliowicz
Title: Secretary Title: President
Attest: SMITH BARNEY FUNDS, INC.,
on behalf of the MONTHLY PAYMENT
GOVERNMENT PORTFOLIO
By:
Name: Christina T. Sydor Name: Heath B. McLendon
Title: Secretary Title: Chairman of the Board
STATEMENT OF ADDITIONAL INFORMATION DATED,[ ]1995
Acquisition Of The Assets Of
SMITH BARNEY MONTHLY PAYMENT GOVERNMENT PORTFOLIO
a separate investment portfolio of
SMITH BARNEY FUNDS INC.
388 Greenwich Street
New York, New York 10013
(800) 224-7523
By And In Exchange For Class A, Class B, Class C and C
lass Y Shares Of
U.S. GOVERNMENT SECURITIES PORTFOLIO
a separate investment portfolio 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 Monthly Payment Government
Portfolio (the "Acquired Fund") to Smith Barney Funds, Inc.
("Smith Barney Funds") on behalf of its U.S. Government
Securities Portfolio (the "Acquiring Fund") in exchange for Class
A, Class B, Class C and Class Y shares of the Acquiring Fund and
the assumption by Smith Barney Funds 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
Funds, Inc. dated April 28, 1995 for both the U.S. Government
Securities Portfolio and the Monthly Payment Government
Portfolio.
2. Annual Report of Smith Barney Funds, Inc. for the fiscal
year ended December 31, 1994.
3. Pro Forma Financial Statements.
This Statement of Additional Information is not a
prospectus. A Prospectus/Proxy Statement, dated
, 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 toll-free 1-800-224-7523. This Statement of
Additional Information should be read in conjunction with the
Prospectus/Proxy Statement dated [ ] ,
1995.
The date of this Statement of Additional Information is April 28,
1995.
PROSPECTUS OF
SMITH BARNEY FUNDS, INC. - U.S. GOVERNMENT SECURITIES PORTFOLIO
DATED April 28, 1995
STATEMENT OF ADDITIONAL INFORMATION
OF
SMITH BARNEY FUNDS, INC.
DATED April 28, 1995
ANNUAL REPORT
OF
SMITH BARNEY FUNDS-U.S. GOVERNMENT SECURITIES PORTFOLIO
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
ANNUAL REPORT
OF
SMITH BARNEY FUNDS-MONTHLY PAYMENT GOVERNMENT PORTFOLIO
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
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
April 28, 1995 (File Nos. 2-25890 and 811-1464)
(1) (a) Articles Supplementary dated November 16, 1992 are
incorporated by reference to Exhibit 1(a) to the Post-
Effective Amendment No. 49.
(1) (b) Articles Supplementary dated October 29, 1992 are
incorporated by reference to Exhibit 1(b) to Post-
Effective Amendment No. 49.
(1) (c) Articles of Amendment dated October 29, 1992 are
incorporated by reference to Exhibit 1(c) to Post-
Effective Amendment No. 49.
(1) (d) Articles Supplementary dated September 6, 1991 are
incorporated by reference to Exhibit 1(a) to Post-
Effective Amendment No. 46.
(1) (e) Articles Supplementary dated October 31, 1990 are
incorporated by reference to Exhibit 1(a) to Post-
Effective 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 Post-
Effective Amendment No. 39.
(1) (h) Articles Supplementary dated December 14, 1993 are
incorporated by reference to Exhibit 1(h) to Post-
Effective 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 Monthly Payment Government Portfolio is
incorporated by reference to Exhibit 5(c) to Post-
Effective Amendment No. 43.
(7) Distribution Agreement between Smith Barney Funds
and Smith Barney, Harris Upham & Co. Incorporated is
incorporated by reference to Exhibit 6(b) to Post-
Effective 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 Monthly Payment Government Portfolio is
incorporated by reference to Exhibit 15(c) to Post-
Effective Amendment No. 46 to the Registration
Statement.
(10) (b) Amended Plan of distribution pursuant to Rule 12b-
1 on behalf of Monthly Payment Government Portfolio is
incorporated by reference to Exhibit 15(l) to Post-
Effective 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 Sullivan & Cromwell with respect to tax
matters.**
(13) Not Applicable
(14) Consent of KPMG Peat Marwick L.L.P.**
(15) Not Applicable.
(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.
* Is 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 post-effective
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.
SIGNATURES
As required by the Securities Act os 1933, this Pre-
Effective Amendment No. 1 to the Registration Statement has been
signed on behalf of the Registrant, in the City of New York and
State of New York on the 16 th day of June, 1995.
SMITH BARNEY FUNDS, INC.
on behalf of the U.S. GOVERNMENT
SECURITIES PORTFOLIO
By: \s\ Heath B. McLendon
Chairman of the Board,
Chief Executive Officer
and President
As required by the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities
and on the dates indicated.
Signature Title Date
\s\ Heath B. McLendon Chairman of the Board, June 16, 1995
Heath B. McLendon Chief Executive Officer
\s\ Jessica Bibliowicz President June 16,
1995
Jessica Bibliowicz
\s\ Lewis E. Daidone Senior Vice President and June 16,
1995
Lewis E. Daidone Treasurer (Chief Financial
and Accounting Officer)
Ralph D. Creasman* Director June 16, 1995
Ralph D. Creasman
Joseph H. Fleiss* Director June 16, 1995
Joseph H. Fleiss
Signature Title Date
Donald R. Foley* Director June 16, 1995
Donald R. Foley
Paul Hardin* Director June 16, 1995
Paul Hardin
Francis P. Martin* Director June 16, 1995
Francis P. Martin
Roderick C. Rasmussen* Director June 16, 1995
Roderick C. Rasmussen
Bruce D. Sargent* Director June 16, 1995
Bruce D. Sargent
John P. Toolan* Director June 16, 1995
John P. Toolan
C. Richard Youngdahl* Director June 16, 1995
C. Richard Youngdahl
*By:\s\ Christina T. Sydor
Christina T. Sydor
Pursuant to Power of Attorney
FORM OF PROXY CARD
VOTE THIS VOTING INSTRUCTION CARD TODAY!
YOUR PROMPT RESPONSE WILL SAVE
THE EXPENSE OF ADDITIONAL MAILINGS
(Please Detach at Perforation Before Mailing)
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SMITH BARNEY FUNDS, INC. - MONTHLY PAYMENT GOVERNMENT PORTFOLIO
PROXY SOLICITED BY THE BOARD OF DIRECTORS
The undersigned holder of shares of Smith Barney Funds, Inc. - Monthly
Payment Government Portfolio (the "Monthly Payment Government
Portfolio") , hereby appoints Heath B. McLendon, Lewis E. Daidone and
Christina T. Sydor, 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
Monthly Payment Government Portfolio that the undersigned is entitled
to vote at the Special Meeting of Shareholders of the Monthly Payment
Government Portfolio to be held at the offices of the Monthly Payment
Government Portfolio, 388 Greenwich Street, New York, New York on
, 1995 at 1:00pm and any adjournment or adjournments thereof. The
undersigned hereby acknowledges receipt of the Notice of Special
Meeting and Prospectus /Proxy Statement dated [ ], 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)
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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.
1. To approve the Agreement and Plan of Reorganization FOR
AGAINST ABSTAIN
dated as of [ ], 1995 providing for:(i)
the acquisition of all or substantially all of the assets of Smith
Barney Funds, Inc. -Monthly Payment Government Portfolio (the
"Monthly Payment Government Portfolio") by Smith Barney Funds, Inc. -
U.S. Government Securities Portfolio (the "U.S. Government Securities
Portfolio") in exchange for Class A, Class B, Class C and Class Y
shares of the U.S. Government Securities Portfolio and the assumption
by the U.S. Government Securities Portfolio of certain scheduled
liabilities of the Monthly Payment Government Portfolio; (ii) the
distribution of such shares of the U.S. Government Securities
Portfolio to shareholders of the Monthly Payment Government Portfolio
in liquidation of the Monthly Payment Government Portfolio; and (iii)
the subsequent termination of the Monthly Payment Government
Portfolio.
FORM OF TRANSFER AGREEMENT
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 out-of-pocket
charges annexed hereto as Schedule B and incorporated herein.
Unspecified out-of-pocket expenses shall be limited to those out-
of-pocket expenses reasonably incurred by the Transfer Agent in
the performance of its obligations hereunder. Reimbursement by
the Fund for expenses incurred by the Transfer Agent in any month
shall be made as soon as practicable but no later than 15 days
after the receipt of an itemized bill from the Transfer Agent.
(b) Any compensation agreed to hereunder may be
adjusted from time to time by attaching to Schedule A, a revised
fee schedule, executed and dated by the parties hereto.
4. Documents. In connection with the appointment of the
Transfer Agent, the Fund shall deliver or caused to be delivered
to the Transfer Agent the following documents on or before the
date this Agreement goes into effect, but in any case within a
reasonable period of time for the Transfer Agent to prepare to
perform its duties hereunder:
(a) If applicable, specimens of the certificates for
Shares of the Fund;
(b) All account application forms and other documents
relating to Shareholder accounts or to any plan, program or
service offered by the Fund;
(c) A signature card bearing the signatures of any
officer of the Fund or other Authorized Person who will sign
Written Instructions or is authorized to give Oral Instructions;
(d) A certified copy of the Articles of Incorporation,
as amended;
(e) A certified copy of the By-laws of the Fund, as
amended;
(f) A copy of the resolution of the Board of Directors
authorizing the execution and delivery of this Agreement;
(g) A certified list of Shareholders of the Fund with
the name, address and taxpayer identification number of each
Shareholder, and the number of Shares of the Fund held by each,
certificate numbers and denominations (if any certificates have
been issued), lists of any accounts against which stop transfer
orders have been placed, together with the reasons therefore, and
the number of Shares redeemed by the Fund; and
(h) An opinion of counsel for the Fund with respect to
the validity of the Shares and the status of such Shares under
the Securities Act of 1933, as amended.
5. Further Documentation. The Fund will also furnish the
Transfer Agent with copies of the following documents promptly
after the same shall become available:
(a) each resolution of the Board of Directors
authorizing the issuance of Shares;
(b) any registration statements filed on behalf of the
Fund and all pre-effective and post-effective amendments thereto
filed with the Commission;
(c) a certified copy of each amendment to the Articles
of Incorporation or the By-laws of the Fund;
(d) certified copies of each resolution of the Board
of Directors or other authorization designating Authorized
Persons; and
(e) such other certificates, documents or opinions as
the 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 co-venturers.
(i) Entire Agreement; Severability. This Agreement and
the Schedules attached hereto constitute the entire agreement of
the parties hereto relating to the matters covered hereby and
supersede any previous agreements. If any provision is held to
be illegal, unenforceable or invalid for any reason, the
remaining provisions shall not be affected or impaired thereby.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their duly authorized officers, as of
the day and year first above written.
[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 ex-dividend date, the date of payment thereof,
the record date as of which shareholders entitled to payment
shall be determined, the amount payable per Share to the
shareholders of record as of that date, the total amount payable
to the Transfer Agent or its agent on the payment date and
whether such dividend or distribution is to be paid in Shares of
such class at net asset value.
On or before the payment date specified in such
resolution of the Board of Directors, the Custodian of the Fund
will pay to the Transfer Agent sufficient cash to make payment to
the shareholders of record as of such payment date.
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
to
Schedule C
Summary of Services
The services to be performed by the Transfer Agent or its
agent shall be as follows:
A. DAILY RECORDS
Maintain daily the following information with respect
to each Shareholder account as received:
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.
