As filed with the Securities and Exchange Commission on September 27,
1996
Registration No. 33-90952
811-9012
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No. [X] Post-Effective Amendment
No. 2
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940, AS AMENDED
Amendment No. 2 [X]
SMITH BARNEY INSTITUTIONAL CASH MANAGEMENT FUND, INC.
(Exact name of Registrant as Specified in Charter)
388 Greenwich Street, New York, New York 10013
(Address of Principal Executive Offices) (Zip Code)
(212) 723-9218
Area Code and Telephone Number
Christina T. Sydor
Secretary
388 Greenwich Street New York, New York 10013
(Name and Address of Agent for Service)
copies to:
Burton M. Leibert, Esq.
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, NY 10022
Approximate Date of Proposed Public Offering:
As soon as possible after this Post-Effective Amendment becomes
effective.
It is proposed that this filing will become effective:
X Immediately upon filing pursuant to Rule 485(b)
_____ on _____, pursuant to Rule 485(b)
60 days after filing pursuant to Rule 485(a)
_____ on ----, pursuant to Rule 485(a)
The Registrant has previously filed a declaration of indefinite
registration of its shares pursuant to Rule 24f-2 under the Investment
Company Act of 1940, as amended. Registrant's Rule 24f-2 Notice for the
fiscal year ended May 31, 1996 will be filed on or before November
27, 1996 .
SMITH BARNEY INSTITUTIONAL CASH MANAGEMENT FUND, INC.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement contains the following pages and documents:
Front Cover
Contents Page
Cross-Reference Sheet
Part A - Prospectus
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
SMITH BARNEY INSTITUTIONAL CASH MANAGEMENT FUND, INC.
FORM N-1A
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(a)
Part A Cash Portfolio
Item No. Government Portfolio
Municipal Portfolio
Prospectus Heading
1. Cover Page.......................................... Cover
Page
2. Synopsis............................................. Fee
Table
3. Condensed Financial Information............... Financial
Highlights
4. General Description of Registrant.............. Cover Page;
Investment
Objectives and Policies;
Yield Information;
Additional
Information
5. Management of the Fund.........................
Introduction; Fee Table;
Management of the Fund;
Distributor
6. Capital Stock and Other Securities............. Dividends,
Automatic
Reinvestment and Taxes;
Additional Information
7. Purchase of Securities Being Offered.......... Purchase of
Shares; Valuation
of Shares
8. Redemption or Repurchase....................... Redemption
of Shares
9. Pending Legal Proceedings...................... Not
applicable
Part B Cash Portfolio
Item No. Government Portfolio
Municipal Portfolio
Heading in Statement of
Additional Information
10. Cover Page.......................................... Cover Page
11. Table of Contents................................... Table of
Contents
12. General Information and History................ Management
Agreement, Plan of
Distribution and Other
Services; See
Prospectus "Cover Page", and
"Additional Information"
13. Investment Objectives and Policies.............. Investment
Objectives and Policies
14. Management of the Fund.......................... Management
Agreement, Plan of
Distribution and Other
Services; See
Prospectus "Management of the
Fund"
15. Control Persons and Principal Holders
of Securities..........................................
Management Agreement, Plan of
Distribution and Other
Services; See
Prospectus "Management of the
Fund"
16. Investment Advisory and Other Services....... Management
Agreement, Plan of
Distribution and Other
Services;
See Prospectus "Management of
the Fund", "Distributor" and
"Additional Information"
17. Brokerage Allocation and Other Practices...... Investment
Objectives; Management
Agreement, Plan of
Distribution and
Other Services
18. Capital Stock and Other Securities............... See
Prospectus "Purchase of Shares";
"Redemption of Shares"; and
"Dividends, Automatic
Reinvestment
and Taxes"
19. Purchase, Redemption and Pricing of
Securities Being Purchased.........................
Determination of Net Asset Value; See
Prospectus: "Purchase of
Shares";
"Redemption of Shares";
"Valuation
of Shares"
20. Tax Status............................................. See
Prospectus- "Dividends, Automatic
Reinvestment and Taxes"
21. Underwriters......................................... See
Prospectus-- "Purchase of Shares"
22. Calculation of Performance Data................. Yield
Information; See Prospectus
"Yield Information",
"Performance Data"
23. Financial Statements................................ Statement of
Assets and Liabilities
SMITH BARNEY INSTITUTIONAL CASH MANAGEMENT FUND, INC.
FORM N-1A
PART A
PROSPECTUS
PROSPECTUS
Smith Barney
Institutional Cash
Management
Fund, Inc.
Class
A Shares
SEPTEMBER
27, 1996
Prospectus begins on
page one
[Logo] Smith Barney Mutual Funds
Investing for your future.
Every day.
<PAGE>
Smith Barney Institutional
Cash Management Fund, Inc. - Class A Shares
- ------------------------------------------------------------------------
- --------
Prospectus September
27, 1996
- ------------------------------------------------------------------------
- --------
388 Greenwich Street
New York, New York 10013
(800) 282-3505
Smith Barney Institutional Cash Management Fund, Inc. (the "Fund")
is a
money market fund that invests in high quality money market instruments.
The
Fund is a no-load, open-end management investment company that offers
shares in
three Portfolios: the Cash Portfolio, the Government Portfolio and the
Municipal
Portfolio (individually, a "Portfolio" and collectively, the
"Portfolios").
The investment objective of each of the Cash Portfolio and the
Government
Portfolio is to maximize current income to the extent consistent with
the
preservation of capital and the maintenance of liquidity. The investment
objective of the Municipal Portfolio is to maximize current income
exempt from
Federal income taxes to the extent consistent with the preservation of
capital
and the maintenance of liquidity.
An investment in a Portfolio is neither insured nor guaranteed by
the U.S.
Government. There is no assurance that a Portfolio will be able to
maintain a
stable net asset value of $1.00 per share.
Each Portfolio is designed primarily for institutions as an
economical and
convenient means for the investment of short-term funds. Each Portfolio
currently offers two Classes of shares. Class A shares may be purchased
by
institutional investors on their own behalf. Class B shares may be
purchased by
institutional investors on behalf of their clients. A Prospectus for
Class B
shares is available upon request and without charge by calling the Fund
at the
telephone number set forth above or by contacting a Smith Barney
Financial
Consultant.
This Prospectus sets forth concisely certain information about the
Fund and
the Portfolios, including service fees and expenses, that prospective
investors
will find helpful in making an investment decision. Investors are
encouraged to
read this Prospectus carefully and retain it for future reference.
Additional
information about the Fund is contained in a Statement of Additional
Information
dated September 27, 1996, as amended or supplemented from time to time,
that is
available upon request and without charge by calling or writing the Fund
at the
telephone number or address set forth above. The Statement of Additional
Information has been filed with the Securities and Exchange Commission
(the
"SEC") and is incorporated by reference into this Prospectus in its
entirety.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A
CRIMINAL OFFENSE.
1
<PAGE>
Smith Barney Institutional
Cash Management Fund, Inc. - Class A Shares
- ------------------------------------------------------------------------
- --------
Table of Contents
- ------------------------------------------------------------------------
- --------
Fee Table
3
- ------------------------------------------------------------------------
- --------
Financial Highlights
4
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- --------
Investment Objectives and Policies
6
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- --------
Common Investment Techniques
14
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- --------
Risks and Special Considerations
17
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- --------
Valuation of Shares
18
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- --------
Dividends, Automatic Reinvestment and Taxes
18
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- --------
Purchase of Shares
19
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- --------
Exchange Privilege
21
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- --------
Redemption of Shares
21
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- --------
Minimum Account Size
23
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- --------
Yield Information
24
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- --------
Management of the Fund
24
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- --------
Distributor
25
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- --------
Additional Information
25
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- --------
=====================================================================
===========
No person has been authorized to give any information or to make
any
representations in connection with this offering other than those
contained in
this Prospectus and, if given or made, such other information and
representations must not be relied upon as having been authorized by the
Fund or
Smith Barney Inc. This Prospectus does not constitute an offer by the
Fund or
Smith Barney Inc., to sell or a solicitation of an offer to buy any of
the
securities offered hereby in any jurisdiction to any person to whom it
is
unlawful to make such offer or solicitation in such jurisdiction.
=====================================================================
===========
2
<PAGE>
Smith Barney Institutional
Cash Management Fund, Inc. - Class A Shares
- ------------------------------------------------------------------------
- --------
Fee Table
- ------------------------------------------------------------------------
- --------
The following expense table lists the costs and expenses that an
investor
will incur either directly or indirectly as a shareholder of a Portfolio
based
on its current operating expenses:
Cash Government
Municipal
Portfolio Portfolio
Portfolio
=====================================================================
===========
Shareholders Transaction Expenses
Sales Charge Imposed on Purchase None None
None
Deferred Sales Charge None None
None
Annual Portfolio Operating Expenses
(as a percentage of average net assets)
Management Fees 0.27% 0.27%
0.27%
12b-1 Fees None None
None
Other Expenses (after reimbursement*) 0.08 0.08
0.08
=====================================================================
===========
TOTAL PORTFOLIO OPERATING
EXPENSES 0.35% 0.35%
0.35%
=====================================================================
===========
* "Other Expenses" include an expense reimbursement. Absent an expense
reimbursement, for its most recent fiscal year end, "Other Expenses"
would
have been 0.13%, 0.30% and 0.42%, respectively for the Cash Portfolio,
Government Portfolio and Municipal Portfolio, and "Total Portfolio
Operating Expenses" would have been 0.40%, 0.57% and 0.69%,
respectively,
for the Cash Portfolio, Government Portfolio and Municipal Portfolio.
Example
The following example is intended to assist an investor in
understanding
the various costs that an investor in each of the Portfolios will bear
directly
or indirectly. The example assumes payment by the Portfolio of operating
expenses at the levels set forth in the table above. See "Purchase of
Shares,"
"Redemption of Shares," "Management of the Fund" and "Distributor."
1 Year 3 Years 5 Years 10
Years
=====================================================================
===========
An investor would pay the
following expenses on a $1,000
investment, assuming (1) 5.00%
annual return and (2) redemption
at the end of each time period:
Cash Portfolio $4 $11 $20
$44
Government Portfolio 4 11 20
44
Municipal Portfolio 4 11 20
44
The example also provides a means for the investor to compare
expense
levels of funds with different fee structures over varying investment
periods.
To facilitate such comparison, all funds are required to utilize a 5.00%
annual
return assumption. However, a Portfolio's actual return will vary and
may be
greater or less than 5.00%. This example should not be considered a
representation of past or future expenses and actual expenses may be
greater or
less than those shown.
3
<PAGE>
Smith Barney Institutional
Cash Management Fund, Inc. - Class A Shares
- ------------------------------------------------------------------------
- --------
Financial Highlights
- ------------------------------------------------------------------------
- --------
The following information for the fiscal year ended May 31, 1996
has been
audited by KPMG Peat Marwick LLP, independent auditors, whose report
thereon
appears in the Fund's Annual Report dated May 31, 1996. The information
set out
below should be read in conjunction with the financial statements and
related
notes that also appear in the Fund's Annual Report which is incorporated
by
reference into the Statement of Additional Information.
For a share of Class A capital stock outstanding throughout the period:
Cash Portfolio
1996(1)
=====================================================================
===========
Net Asset Value, Beginning of Period $
1.00
- ------------------------------------------------------------------------
- --------
Net investment income (2)
0.053
Dividends from net investment income
(0.053)
Net realized gains
(0.00)*
- ------------------------------------------------------------------------
- --------
Net Asset Value, End of Period $
1.00
- ------------------------------------------------------------------------
- --------
Total Return++
5.44%
- ------------------------------------------------------------------------
- --------
Net Assets, End of Period (000s)
$277,572
- ------------------------------------------------------------------------
- --------
Ratios to Average Net Assets+:
Expenses (2)
0.15%
Net investment income
5.43
=====================================================================
===========
Government Portfolio
1996(1)
=====================================================================
===========
Net Asset Value, Beginning of Period $
1.00
- ------------------------------------------------------------------------
- --------
Net investment income (2)
0.052
Dividends from net investment income
(0.052)
- ------------------------------------------------------------------------
- --------
Net Asset Value, End of Period $
1.00
- ------------------------------------------------------------------------
- --------
Total Return++
5.36%
- ------------------------------------------------------------------------
- --------
Net Assets, End of Period (000s) $
57,698
- ------------------------------------------------------------------------
- --------
Ratios to Average Net Assets+:
Expenses (2)
0.16%
Net investment income
5.28
=====================================================================
===========
(1) For the period from June 16, 1995 (commencement of operations) to
May 31,
1996.
(2) The Manager has waived a portion of its fees for the Portfolio for
the
period ended May 31, 1996. If the Manager had not agreed to the fee
waiver,
the per share decrease in net investment income and the ratio of
expenses
to average net assets would have been:
Per Share
Decrease in Net Expense
Ratio
Investment Income Without Fee
Waiver
------------------ ------------
- ------
1996 1996
---- ----
Cash Portfolio $0.001 0.21%+
Government Portfolio 0.002 0.36+
++ Total return is not annualized, as it may not be representative of
the
total return for the year.
+ Annualized.
* Amount represents less than $0.01.
4
<PAGE>
Smith Barney Institutional
Cash Management Fund, Inc. - Class A Shares
- ------------------------------------------------------------------------
- --------
Financial Highlights (continued)
- ------------------------------------------------------------------------
- --------
For a share of each class of capital stock outstanding throughout the
period:
Municipal Portfolio
1996(1)
=====================================================================
===========
Net Asset Value, Beginning of Period $
1.00
- ------------------------------------------------------------------------
- --------
Net investment income (2)
0.035
Dividends from net investment income
(0.035)
- ------------------------------------------------------------------------
- --------
Net Asset Value, End of Period $
1.00
- ------------------------------------------------------------------------
- --------
Total Return++
3.55%
- ------------------------------------------------------------------------
- --------
Net Assets, End of Period (000s)
$59,308
- ------------------------------------------------------------------------
- --------
Ratios to Average Net Assets+:
Expenses (2)
0.15%
Net investment income
3.46
=====================================================================
===========
(1) For the period from October 1, 1995 (commencement of operations) to
May 31,
1996.
(2) The Manager has waived all of its fees for the Portfolio for the
period
ended May 31, 1996. In addition, the Manager has agreed to
reimburse the
Portfolio for $63,835 in expenses. If the Manager had not agreed to
the fee
waiver and the expense reimbursement, the per share decrease in net
investment income and the ratio of expenses to average net assets
would
have been:
Per Share Expense
Ratio
Decrease in Net Without Fee
Waiver
Investment Income and
Reimbursement
----------------- -------------
- ------
1996 1996
---- ----
Municipal Portfolio $0.003 0.35%+
++ Total return is not annualized, as it may not be representative of
the
total return for the year.
+ Annualized.
5
<PAGE>
Smith Barney Institutional
Cash Management Fund, Inc. - Class A Shares
- ------------------------------------------------------------------------
- --------
Investment Objectives and Policies
- ------------------------------------------------------------------------
- --------
The investment objective of each Portfolio set forth in this
Prospectus is
fundamental and may not be changed without the affirmative vote of a
majority of
the outstanding voting securities of that Portfolio. Shareholders will
be
notified of material changes in investment policies. The Portfolios are
subject
to additional investment policies and restrictions described in the
Statement of
Additional Information, some of which are fundamental and may not be
changed
without shareholder approval.
The investment objective of each of the Cash Portfolio and the
Government
Portfolio is to seek maximum current income to the extent consistent
with
preservation of capital and the maintenance of liquidity. The investment
objective of the Municipal Portfolio is to seek maximum current income
that is
exempt from Federal income taxes to the extent consistent with
preservation of
capital and the maintenance of liquidity. There can be no assurance that
a
Portfolio will achieve its investment objective or be able to maintain a
stable
net asset value of $1.00 per share.
Common Investment Policies
The Portfolios will invest only in eligible high quality, short-
term money
market instruments that present minimal credit risks, as determined by
Smith
Barney Mutual Funds Management Inc., the Funds' investment manager
("SBMFM"),
pursuant to procedures adopted by the Fund's Board of Directors (the
"Directors"). Each Portfolio may invest only in U.S. dollar denominated
instruments that have a remaining maturity of 13 months or less (as
calculated
pursuant to Rule 2a-7 under the Investment Company Act of 1940, as
amended (the
"1940 Act"), and will maintain a dollar weighted average portfolio
maturity of
90 days or less.
Except to the limited extent permitted by Rule 2a-7 and except for
U.S.
Government Securities (as defined below), each of the Cash Portfolio and
the
Government Portfolio will not invest more than 5% of its total assets in
the
securities of any one issuer. A guarantor is not considered an issuer
for the
purpose of this limitation, provided that the value of all securities
held by a
Portfolio that are issued or guaranteed by that institution does not
exceed 10%
of the Portfolio's total assets. In the case of the Municipal Portfolio,
up to
25% of its assets may be invested without regard to the foregoing
limitations.
To ensure adequate liquidity, no Portfolio may invest more than 10% of
its net
assets in illiquid securities, including repurchase agreements maturing
in more
than seven days and certain time deposits that are subject to early
withdrawal
penalties and mature in more than seven days. Because the Portfolios are
typically used as a cash management
6
<PAGE>
Smith Barney Institutional
Cash Management Fund, Inc. - Class A Shares
- ------------------------------------------------------------------------
- --------
Investment Objectives and Policies (continued)
- ------------------------------------------------------------------------
- --------
vehicle, they intend to maintain a high degree of liquidity. SBMFM
determines
and monitors the liquidity of portfolio securities under the supervision
of the
Directors.
Portfolio Quality
Each Portfolio will limit its investments to securities that the
Directors
determine present minimal credit risks and that are "Eligible
Securities" at the
time of acquisition by the Portfolio. The term "Eligible Securities"
includes
securities rated by the "Requisite NRSROs" in one of the two highest
short-term
rating categories, securities of issuers that have received such ratings
with
respect to other short-term debt securities and comparable unrated
securities.
"Requisite NRSROs" means, in the case of the Cash Portfolio and the
Government
Portfolio, (a) any two nationally recognized statistical rating
organizations
("NRSROs") that have issued a rating with respect to a security or class
of debt
obligations of an issuer or (b) one NRSRO, if only one NRSRO has issued
a rating
with respect to such security or issuer at the time the Portfolio
acquires the
security, and, in the case of the Municipal Portfolio, any one NRSRO
that has
issued ratings with respect to a security or class of debt obligations
of an
issuer. If the Cash Portfolio or the Government Portfolio acquires
securities
that are unrated (other than U.S. Government Securities, as defined
below) or
that have been rated by a single NRSRO, the acquisition must be approved
or
ratified by the Directors. The NRSROs currently designated as such by
the SEC
are Standard & Poor's Ratings Group ("S & P"), Moody's Investors
Service, Inc.
("Moody's"), Fitch Investors Services LP, Duff and Phelps Credit Rating
Co.,
IBCA Limited and its affiliate, IBCA, Inc. and Thomson BankWatch. A more
detailed discussion of the categories of Municipal Obligations (as
defined
below) and the ratings of NRSROs is contained in the Statement of
Additional
Information relating to the Portfolios.
In addition, the Cash Portfolio and the Government Portfolio may
not invest
more than 5% of their respective total assets in Eligible Securities
that have
not received the highest rating from the Requisite NRSROs and comparable
unrated
securities ("Second Tier Securities") and may not invest more than 1% of
their
respective total assets in the Second Tier Securities of any one issuer.
Each of the Cash Portfolio and the Government Portfolio may invest
more
than 5% (but no more than 25%) of the then-current value of its total
assets in
the securities of a single issuer for a period of up to three business
days,
provided that (a) the securities either are rated by the Requisite
NRSROs in the
highest short-term rating category or are securities of issuers that
have
received such rating with respect to other short-term debt securities or
are
comparable unrated securities, and (b) the Portfolio does not make more
than one
such investment at any one time.
7
<PAGE>
Smith Barney Institutional
Cash Management Fund, Inc. - Class A Shares
- ------------------------------------------------------------------------
- --------
Investment Objectives and Policies (continued)
- ------------------------------------------------------------------------
- --------
The Cash Portfolio
The Cash Portfolio pursues its objective by investing primarily in
high
quality commercial paper and obligations of financial institutions. The
Portfolio may also invest in U.S. Government Securities (as defined
below) and
municipal securities, although the Portfolio expects to invest in such
securities to a lesser degree.
Debt Securities -- The Portfolio may invest in debt obligations of
domestic
and foreign issuers, including commercial paper (short-term promissory
notes
issued by companies to finance their, or their affiliates', current
obligations), notes and bonds and variable amount master demand notes.
The
Portfolio may invest in privately issued commercial paper that is
restricted as
to disposition under the federal securities laws. In general, any sale
of this
paper may not be made without registration under the Securities Act of
1933, as
amended (the "1933 Act"), or the availability of an appropriate
exemption
therefrom. Pursuant to the provisions of Section 4(2) of the 1933 Act,
however,
some privately issued commercial paper ("Section 4(2) paper") is
eligible for
resale to institutional investors, and accordingly, SBMFM may determine
that a
liquid market exists for that paper pursuant to guidelines adopted by
the
Directors. If a particular investment in Section 4(2) paper is not
determined to
be liquid, that investment will be included within the 10% limitation on
illiquid securities.
Obligations of Financial Institutions -- The Portfolio may invest
in
obligations of financial institutions. Examples of obligations in which
the
Portfolio may invest include negotiable certificates of deposit,
bankers'
acceptances and time deposits of U.S. banks having total assets in
excess of $1
billion or the equivalent of $1 billion in other currencies (in the case
of
foreign banks) and securities backed by letters of credit of U.S. banks
or other
U.S. financial institutions that are members of the Federal Reserve
System or
the Federal Deposit Insurance Corporation ("FDIC") (including
obligations of
foreign branches of such members), if either: (a) the principal amount
of the
obligation is insured in full by the FDIC, or (b) the issuer of such
obligation
has capital, surplus and undivided profits in excess of $100 million or
total
assets of $1 billion (as reported in its most recently published
financial
statements prior to the date of investment). Under current FDIC
regulations, the
maximum insurance payable as to any one certificate of deposit is
$100,000;
therefore, certificates of deposit in denominations greater than
$100,000 that
are purchased by the Portfolio will not be fully insured. The Cash
Portfolio
will not purchase fixed time deposits maturing in more than seven
calendar days,
and will limit its investment in fixed time deposits maturing from two
business
to seven calendar days to 10% of its total assets.
8
<PAGE>
Smith Barney Institutional
Cash Management Fund, Inc. - Class A Shares
- ------------------------------------------------------------------------
- --------
Investment Objectives and Policies (continued)
- ------------------------------------------------------------------------
- --------
The Cash Portfolio intends to maintain at least 25% of its total
assets
invested in obligations of domestic and foreign banks, subject to the
abovementioned size criteria. The Portfolio may invest in instruments
issued by
domestic banks, including those issued by their branches outside the
United
States and subsidiaries located in Canada, and in instruments issued by
foreign
banks through their branches located in the United States and the United
Kingdom. In addition, the Cash Portfolio may invest in fixed time
deposits of
foreign banks issued through their branches located in Grand Cayman
Island,
Nassau, Tokyo and Toronto. The Portfolio may also invest in Eurodollar
and
Yankee bank obligations as discussed below.
Eurodollar or Yankee Obligations -- Eurodollar bank obligations are
dollar
denominated certificates of deposit or time deposits issued outside the
U.S.
capital markets by foreign branches of U.S. banks and by foreign banks.
Yankee
bank obligations are dollar denominated obligations issued in the U.S.
capital
markets by foreign banks. Eurodollar (and to a limited extent, Yankee)
bank
obligations are subject to certain sovereign risks. One such risk is the
possibility that a foreign government might prevent dollar denominated
funds
from flowing across its borders. Other risks include: adverse political
and
economic developments in a foreign country; the extent and quality of
government
regulation of financial markets and institutions; the imposition of
foreign
withholding taxes; and expropriation or nationalization of foreign
issuers. See
"Risks and Special Considerations."
U.S. Government Securities -- The Portfolio may invest without
limit in
U.S. Government Securities as described below under "The Government
Portfolio."
Municipal Securities -- The Portfolio may invest in obligations of
states,
territories or possessions of the United States and their subdivisions,
authorities and corporations as described below under "The Municipal
Portfolio."
These obligations may pay interest that is exempt from Federal income
taxation.
Custodial Receipts -- The Cash Portfolio may acquire custodial
receipts or
certificates with respect to U.S. Government Securities, such as CATS,
TIGRs and
FICO Strips, underwritten by securities dealers or banks that evidence
ownership
of future interest payments, principal payments or both on certain notes
or
bonds issued by the U.S. Government, its agencies, authorities or
instrumentalities. The underwriters of these certificates or receipts
purchase a
U.S. Government Security and deposit the security in an irrevocable
trust or
custodial account with a custodian bank, which then issues receipts or
certificates that evidence ownership of the periodic unmatured coupon
payments
and the final principal payment on the U.S.
9
<PAGE>
Smith Barney Institutional
Cash Management Fund, Inc. - Class A Shares
- ------------------------------------------------------------------------
- --------
Investment Objectives and Policies (continued)
- ------------------------------------------------------------------------
- --------
Government Security. Custodial receipts evidencing specific coupon or
principal
payments have the same general attributes as zero coupon U.S. Government
Securities but are not U.S. Government Securities. Although typically
under the
terms of a custodial receipt the Cash Portfolio is authorized to assert
its
rights directly against the issuer of the underlying obligation, the
Cash
Portfolio may be required to assert through the custodian bank such
rights as
may exist against the underlying issuer. Thus, in the event the
underlying
issuer fails to pay principal and/or interest when due, the Cash
Portfolio may
be subject to delays, expenses and risks that are greater than those
that would
have been involved if the Cash Portfolio had purchased a direct
obligation of
the issuer. In addition, in the event that the trust or custodial
account in
which the underlying security has been deposited is determined to be an
association taxable as a corporation, instead of a nontaxable entity,
the yield
on the underlying security would be reduced in respect of any taxes
paid.
The Government Portfolio
The Government Portfolio pursues its objective by investing
exclusively in
obligations issued and/or guaranteed, as to payment of principal and
interest,
by the United States government or by its agencies and instrumentalities
and
repurchase agreements secured by such obligations. The Government
Portfolio will
be rated from time to time by S&P and Moody's.
U.S. Government Securities -- U.S. government securities are
securities
issued or guaranteed by the U.S. government, its agencies and
instrumentalities
and include repurchase agreements collateralized and municipal
securities
refunded with escrowed U.S. government securities ("U.S. Government
Securities"). U.S. Government Securities in which the Portfolio may
invest
include U.S. Treasury securities and obligations issued or guaranteed by
U.S.
government agencies and instrumentalities that are backed by the full
faith and
credit of the U.S. government, such as those guaranteed by the Small
Business
Administration or issued by the Government National Mortgage
Association. In
addition, U.S. Government Securities in which the Portfolio may invest
include
securities supported by the right of the issuer to borrow from the U.S.
Treasury, such as securities of Federal Home Loan Banks; and securities
supported primarily or solely by the creditworthiness of the issuer,
such as
securities of the Federal National Mortgage Association, the Federal
Home Loan
Mortgage Corporation and the Tennessee Valley Authority. There is no
guarantee
that the U.S. government will support securities not backed by its full
faith
and credit. Accordingly, although these securities have historically
involved
little risk of loss of principal if held to
10
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Investment Objectives and Policies (continued)
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maturity, they may involve more risk than securities backed by the full
faith
and credit of the U.S. government.
The Municipal Portfolio
The Municipal Portfolio pursues its objective by investing
primarily in
municipal securities whose interest is exempt from Federal income taxes.
Under
normal market conditions, the Portfolio will invest at least 80% of its
assets
in municipal securities whose interest is exempt from Federal income
taxes.
However, the Portfolio reserves the right to invest up to 20% of the
value of
its assets in securities whose interest is federally taxable. In
addition, the
Portfolio may invest without limit in private activity bonds. Interest
income on
certain types of private activity bonds issued after August 7, 1986 to
finance
non-governmental activities is a specific tax preference item for
purposes of
the Federal individual and corporate alternative minimum taxes.
Individual and
corporate shareholders may be subject to a Federal alternative minimum
tax to
the extent the Portfolio's dividends are derived from interest on these
bonds.
These private activity bonds are included in the term "municipal
securities" for
purposes of determining compliance with the 80% test described above.
Dividends
derived from interest income on all municipal securities are a component
of the
"current earnings" adjustment item for purposes of the Federal corporate
alternative minimum tax. Additionally, when SBMFM is unable to locate
investment
opportunities with desirable risk/reward characteristics, the Portfolio
may
invest without limit in cash and cash equivalents, including obligations
that
may be Federally taxable (See "Taxable Investments").
Municipal Securities -- The municipal securities in which the
Portfolio may
invest include municipal notes and short-term municipal bonds. Municipal
notes
are generally used to provide for the issuer's short-term capital needs
and
generally have maturities of thirteen months or less. Examples include
tax
anticipation and revenue anticipation notes, which generally are issued
in
anticipation of various seasonal revenues, bond anticipation notes,
construction
loan notes and tax-exempt commercial paper. Short-term municipal bonds
may
include "general obligation bonds," which are secured by the issuer's
pledge of
its faith, credit and taxing power for payment of principal and
interest;
"revenue bonds," which are generally paid from the revenues of a
particular
facility or a specific excise tax or other source; and "industrial
development
bonds," which are issued by or on behalf of public authorities to
provide
funding for various privately operated industrial and commercial
facilities. The
Portfolio may also invest in high quality participation interests in
municipal
securities. A more detailed description of various types of municipal
securities
is contained in Appendix B in the Statement of Additional Information.
11
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Investment Objectives and Policies (continued)
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When the assets and revenues of an agency, authority,
instrumentality or
other political subdivision are separate from those of the government
creating
the issuing entity and a security is backed only by the assets and
revenues of
the issuing entity, that entity will be deemed to be the sole issuer of
the
security. Similarly, in the case of an industrial development bond
backed only
by the assets and revenues of the non-governmental issuer, the non-
governmental
issuer will be deemed to be the sole issuer of the bond.
At times, the Portfolio may invest more than 25% of the value of
its total
assets in tax-exempt securities that are related in such a way that an
economic,
business, or political development or change affecting one such security
could
similarly affect the other securities; for example, securities whose
issuers are
located in the same state, or securities whose interest is derived from
revenues
of similar type projects. The Portfolio may also invest more than 25% of
its
assets in industrial development bonds or participation interests
therein.
The Municipal Portfolio intends to conduct its operations so as to
qualify
as a "regulated investment company" for purposes of the Internal Revenue
Code of
1986, as amended (the "Code"), which will relieve the Portfolio of any
liability
for Federal income tax to the extent that its earnings are distributed
to
shareholders. In order to so qualify, among other things, the Portfolio
must
ensure that, at the close of each quarter of the taxable year, (i) not
more than
25% of the market value of the Portfolio's total assets will be invested
in the
securities (other than U.S. Government Securities) of a single issuer or
of two
or more issuers that the Portfolio controls and that are engaged in the
same,
similar or related trades or businesses and (ii) at least 50% of the
market
value of the Portfolio's total assets is represented by (a) cash and
cash items,
(b) U.S. Government Securities and (c) other securities limited in
respect of
any one issuer to an amount not greater in value than 5% of the market
value of
the Portfolio's total assets and to not more than 10% of the outstanding
voting
securities of the issuer.
Yields on municipal securities are dependent on a variety of
factors,
including the general conditions of the money market and of the
municipal bond
and municipal note markets, the size of a particular offering, the
maturity of
the obligation and the rating of the issue. The achievement of the
Portfolio's
investment objective is dependent in part on the continuing ability of
the
issuers of municipal securities in which the Portfolio invests to meet
their
obligations for the payment of principal and interest when due.
Obligations of
issuers of municipal securities are subject to the provisions of
bankruptcy,
insolvency and other laws affecting the rights and remedies of
creditors, such
as the Bankruptcy Reform Act of 1978, as amended. Therefore, the
possibility
exists that as a result of litigation or other
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Investment Objectives and Policies (continued)
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conditions, the ability of any issuer to pay, when due, the principal of
and
interest on its municipal securities may be materially affected.
Municipal Leases -- The Portfolio may invest in municipal leases or
participation interests therein. Municipal leases are municipal
securities which
may take the form of a lease or an installment purchase or conditional
sales
contract. Municipal leases are issued by state and local governments and
authorities to acquire a wide variety of equipment and facilities.
Lease obligations may not be backed by the issuing municipality's
credit
and may involve risks not normally associated with general obligation
bonds and
other revenue bonds. For example, their interest may become taxable if
the lease
is assigned and the holders may incur losses if the issuer does not
appropriate
funds for the lease payment on an annual basis, which may result in
termination
of the lease and possible default. SBMFM may determine that a liquid
market
exists for municipal lease obligations pursuant to guidelines
established by the
Directors.
Taxable Investments -- As discussed above, although the Portfolio
will
attempt to invest substantially all of its assets in municipal
securities whose
interest is exempt from Federal income tax, the Portfolio may, under
certain
circumstances, invest in certain securities whose interest is subject to
such
taxation. These securities include: (i) short-term obligations of the
U.S.
government, its agencies or instrumentalities, (ii) certificates of
deposit,
bankers' acceptances and interest bearing savings deposits of banks
having total
assets of more than $1 billion and whose deposits are insured by the
FDIC, (iii)
commercial paper and (iv) repurchase agreements as described below
covering any
of the securities described in items (i) and (iii) above or any other
obligations of the U.S. government, its agencies or instrumentalities .
Tender Option Bonds -- The Municipal Portfolio may invest up to 20%
of the
value of its assets in tender option bonds. A tender option bond is a
municipal
security (generally held pursuant to a custodial arrangement) having a
relatively long maturity and bearing interest at a fixed rate
substantially
higher than prevailing short-term tax-exempt rates, that has been
coupled with
the agreement of a third party, such as a bank, broker-dealer or other
financial
institution, pursuant to which such institution grants the security
holders the
option, at periodic intervals, to tender their securities to the
institution and
receive the face value thereof. As consideration for providing the
option, the
financial institution receives periodic fees equal to the difference
between the
municipal security's fixed coupon rate and the rate, as determined by a
remarketing or similar agent at or near the commencement of such period,
that
would cause the securities, coupled with the tender option, to trade at
13
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Investment Objectives and Policies (continued)
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par on the date of such determination. Thus, after payment of this fee,
the
security holder effectively holds a demand obligation that bears
interest at the
prevailing short-term tax-exempt rate. SBMFM, on behalf of the
Portfolio, will
consider on an ongoing basis the creditworthiness of the issuers of the
underlying municipal security, of any custodian and the third-party
provider of
the tender option. In certain instances and for certain tender option
bonds, the
option may be terminable in the event of a default in payment of
principal or
interest on the underlying municipal securities and for other reasons.
The
Portfolio will not invest more than 10% of the value of its net assets
in
illiquid securities, which would include tender option bonds for which
the
required notice to exercise the tender feature is more than seven days
if there
is no secondary market available for these securities.
Stand-by Commitments -- The Municipal Portfolio may acquire "stand-
by
commitments" with respect to municipal securities held in its portfolio.
Under a
stand-by commitment, a dealer agrees to purchase, at the Portfolio's
option,
specified municipal securities at a specified price. The Portfolio
intends to
enter into stand-by commitments only with dealers, banks and broker-
dealers
which, in the opinion of SBMFM, present minimal credit risks. In
evaluating the
creditworthiness of the issuer of a stand-by commitment, SBMFM will
periodically
review the issuer's assets, liabilities, contingent claims and other
relevant
financial information. The Portfolio will acquire stand-by commitments
solely to
facilitate portfolio liquidity and does not intend to exercise its
rights
thereunder for trading purposes.
- ------------------------------------------------------------------------
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Common Investment Techniques
- ------------------------------------------------------------------------
- --------
Participation Interests -- The Portfolios may invest in
participation
interests in any type of security in which the Portfolios may invest. A
participation interest gives a Portfolio an undivided interest in the
underlying
securities in the proportion that the Portfolio's participation interest
bears
to the total principal amount of the underlying securities.
Participation
interests usually carry a demand feature, as described below, backed by
a letter
of credit or guarantee of the institution that issued the interests
permitting
the holder to tender them back to the institution.
Demand Features -- The Portfolios may invest in securities that are
subject
to puts and standby commitments ("demand features"). Demand features
give the
Portfolio the right to resell securities at specified periods prior to
their
maturity dates to the seller or to some third party at an agreed upon
price or
yield. Securities with demand features may involve certain expenses and
risks,
including the inability of
14
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Smith Barney Institutional
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Common Investment Techniques (continued)
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the issuer of the instrument to pay for the securities at the time the
instrument is exercised, non-marketability of the instrument and
differences
between the maturity of the underlying security and the maturity of the
instrument. Securities may cost more with demand features than without
them.
Demand features can serve three purposes: (i) to shorten the maturity of
a
variable or floating rate security, (ii) to enhance the instrument's
credit
quality, and (iii) to provide a source of liquidity. Demand features are
often
issued by third party financial institutions, generally domestic and
foreign
banks. Accordingly, the credit quality and liquidity of the Portfolios'
investments may be dependent in part on the credit quality of the banks
supporting the Portfolios' investments and changes in the credit quality
of
these financial institutions could cause losses to the Portfolios and
effect
their share prices. This will result in exposure to risks pertaining to
the
banking industry, including the foreign banking industry. Brokerage
firms and
insurance companies also provide certain liquidity and credit support.
Variable and Floating Rate Securities -- The securities in which
the
Portfolios invest may have variable or floating rates of interest. These
securities pay interest at rates that are adjusted periodically
according to a
specified formula, usually with reference to some interest rate index or
market
interest rate. Securities with ultimate maturities of greater than 13
months may
be purchased only pursuant to Rule 2a-7. Under that Rule, only those
long-term
instruments that have demand features which comply with certain
requirements and
certain variable rate U.S. Government Securities may be purchased.
Similar to
fixed rate debt instruments, variable and floating rate instruments are
subject
to changes in value based on changes in market interest rates or changes
in the
issuer's or guarantor's creditworthiness. The rate of interest on
securities
purchased by a Portfolio may be tied to short-term Treasury or other
government
securities or indices on securities that are permissible investments of
the
Portfolios, as well as other money market rates of interest. The
Portfolios will
not purchase securities whose values are tied to interest rates or
indexes that
are not appropriate for the duration and volatility standards of a money
market
fund.
Mortgage and Asset-Backed Securities -- Each of the Cash Portfolio
and the
Government Portfolio may purchase fixed or adjustable rate mortgage-
backed
securities issued by the Government National Mortgage Association,
Federal
National Mortgage Association or the Federal Home Loan Mortgage
Corporation. In
addition, the Cash Portfolio may purchase other asset-backed securities,
including securities backed by automobile loans, equipment leases or
credit card
receivables. These securities directly or indirectly represent a
participation
in, or are secured by and payable from, fixed or adjustable rate
mortgage or
other loans which may be secured by real estate or other assets. Unlike
traditional debt instruments, payments on these securities include both
interest
and a partial
15
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Smith Barney Institutional
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- ------------------------------------------------------------------------
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Common Investment Techniques (continued)
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payment of principal. Prepayments of the principal of underlying loans
may
shorten the effective maturities of these securities and may result in a
Portfolio having to reinvest proceeds at a lower interest rate.
Repurchase Agreements -- Each Portfolio may seek additional income
by
entering into repurchase agreements with respect to obligations that
could
otherwise be purchased by a Portfolio. Repurchase agreements are
transactions in
which a Portfolio purchases securities (normally U.S. Government
Securities) and
simultaneously commits to resell those securities to the seller at an
agreed
upon price on an agreed upon future date, normally one to seven days
later. The
resale price reflects a market rate of interest that is not related to
the
coupon rate or maturity of the securities. If the seller of the
securities
underlying a repurchase agreement fails to pay the agreed resale price
on the
agreed delivery date, a Portfolio may incur costs in disposing of the
collateral
and may experience losses if there is any delay in its ability to do so.
The
Fund's custodian maintains possession of the underlying collateral,
which is
maintained at not less than 100% of the repurchase price.
Reverse Repurchase Agreements -- Each Portfolio may enter into
reverse
repurchase agreements. Reverse repurchase agreements are transactions in
which a
Portfolio sells a security and simultaneously commits to repurchase that
security from the buyer at an agreed upon price on an agreed upon future
date.
This technique will be used only for temporary or emergency purposes,
such as
meeting redemption requests or to earn additional income on portfolio
securities.
When-Issued or Delayed Delivery Securities -- Each Portfolio may
purchase
securities on a when-issued or delayed delivery basis. Securities so
purchased
are subject to market price fluctuation from the time of purchase but no
interest on the securities accrues to a Portfolio until delivery and
payment for
the securities take place. Accordingly, the value of the securities on
the
delivery date may be more or less than the purchase price. Forward
commitments
will be entered into only when a Portfolio has the intention of taking
possession of the securities, but a Portfolio may sell the securities
before the
settlement date if deemed advisable.
Borrowing and Lending -- Each Portfolio may borrow money for
temporary or
emergency purposes in amounts up to 33 1/3% of its total assets;
provided,
however that no additional investments will be made while borrowings
exceed 5%
of a Portfolio's total assets. A Portfolio may not mortgage or pledge
securities
except to secure permitted borrowings. As a fundamental policy, a
Portfolio will
not lend securities or other assets if, as a result, more than 20% of
its total
assets would be lent to other parties; however, the Portfolios do not
currently
intend to engage in securities lending.
16
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Smith Barney Institutional
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Common Investment Techniques (continued)
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Portfolio Turnover -- Because the Portfolios invest in securities
with
relatively short-term maturities, each Portfolio is expected to have a
high
portfolio turnover rate. However, a high turnover rate should not
increase a
Portfolio's costs because brokerage commissions are not normally charged
on the
purchase and sale of money market instruments.
- ------------------------------------------------------------------------
- --------
Risks and Special Considerations
- ------------------------------------------------------------------------
- --------
Although each Portfolio only invests in high quality money market
instruments, an investment in a Portfolio is subject to risk even if all
securities in a Portfolio's portfolio are paid in full at maturity. All
money
market instruments, including U.S. Government Securities, can change in
value as
a result of changes in interest rates, the issuer's actual or perceived
creditworthiness or the issuer's ability to meet its obligations.
Each Portfolio will be affected by general changes in interest
rates which
will result in increases or decreases in the value of the obligations
held by
such Portfolio. The market value of the obligations in each Portfolio
can be
expected to vary inversely to changes in prevailing interest rates.
Investors
should recognize that, in periods of declining interest rates, the yield
of each
Portfolio will tend to be somewhat higher than prevailing market rates,
and in
periods of rising interest rates, the yield of each Portfolio will tend
to be
somewhat lower. Also, when interest rates are falling, the inflow of net
new
money to each Portfolio from the continuous sale of its shares will
likely be
invested in portfolio instruments producing lower yields than the
balance of the
Portfolio, thereby reducing the current yield of the Portfolio. In
periods of
rising interest rates, the opposite can be expected to occur. In
addition,
securities in which the Portfolios will invest may not yield as high a
level of
current income as might be achieved by investing in securities with less
liquidity and safety and longer maturities.
Investments in securities issued by foreign banks or foreign
issuers
present certain risks, including those resulting from fluctuations in
currency
exchange rates, revaluation of currencies, future political and economic
developments and the possible imposition of currency exchange blockages
or other
foreign governmental laws or restrictions and reduced availability of
public
information. Foreign issuers generally are not subject to uniform
accounting,
auditing and financial reporting standards or to other regulatory
practices and
requirements applicable to domestic issuers. In addition, there may be
less
publicly available information about a foreign bank than about a
domestic bank.
17
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Smith Barney Institutional
Cash Management Fund, Inc. - Class A Shares
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Valuation of Shares
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- --------
The net asset value per share of the Cash Portfolio and the
Government
Portfolio is determined as of 2 pm New York City time on each day that
the New
York Stock Exchange ("NYSE") and the Fund's custodian are open. The net
asset
value per share of the Municipal Portfolio is determined as of 12 noon,
New York
City time on each day that the NYSE and the Fund's custodian are open.
The net
asset value per share of each Portfolio is determined by dividing the
Portfolio's net assets attributable to the Class (i.e., the value of its
assets
less liabilities) by the total number of shares of the Class
outstanding. Each
Portfolio may also determine net asset value per share on days when the
NYSE is
not open, but when the settlement of securities may otherwise occur. The
Fund
employs the amortized cost method of valuing portfolio securities and
intends to
use its best efforts to continue to maintain a constant net asset value
of $1.00
per share.
- ------------------------------------------------------------------------
- --------
Dividends, Automatic Reinvestment and Taxes
- ------------------------------------------------------------------------
- --------
All Portfolios
Each Portfolio intends to declare a dividend of substantially all
of its
net investment income on each day the NYSE is open. Net investment
income
includes interest accrued and discount earned and all short-term
realized gains
and losses on portfolio securities and is less premium amortized and
expenses
accrued. Income dividends are paid monthly and will automatically be
reinvested
in additional shares of the same Class of the respective Portfolio
unless a
shareholder has elected to receive distributions in cash. If a
shareholder
redeems in full an account between payment dates, all dividends declared
up to
and including the date of liquidation will be paid with the proceeds
from the
redemption of shares. Long-term capital gains, if any, will be
distributed
annually.
It is each Portfolio's intention to qualify as a regulated
investment
company under Subchapter M of the Code. If so qualified, the Portfolio
will not
be subject to Federal income taxes to the extent that it distributes its
taxable
net income. For Federal income tax purposes, dividends (other than
dividends
derived from income on tax-exempt municipal securities, if any) and
capital gain
distributions, if any, whether in shares or cash, are taxable to
shareholders of
each Portfolio. Under the Code, no portion of the Portfolio
distributions will
be eligible for the dividends received deduction for corporations.
The Municipal Portfolio
Distributions by the Municipal Portfolio that are exempt for
Federal income
tax
18
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Smith Barney Institutional
Cash Management Fund, Inc. - Class A Shares
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Dividends, Automatic Reinvestment and Taxes (continued)
- ------------------------------------------------------------------------
- --------
purposes will not necessarily result in exemption under income tax or
other
tax laws of any state or local taxing authority. Generally, only
interest earned
on obligations issued by the state or municipality in which the investor
resides
will be exempt from state and local taxes; however, the laws of the
several
states and local taxing authorities vary with respect to the taxation of
exempt-interest income, and each shareholder should consult a tax
advisor in
that regard. The Portfolio will make available annually to its
shareholders
information concerning the percentage of interest income the Portfolio
received
during the calendar year from municipal securities on a state-by-state
basis.
Under the Code, interest on indebtedness incurred or continued to
purchase
or carry shares of the Portfolio will not be deductible to the extent
that the
Portfolio's distributions are exempt from Federal income tax. In
addition, any
loss realized upon the redemption of shares held less than six months
will be
disallowed to the extent of any exempt-interest dividends received by
the
shareholder during such period. However, this holding period may be
shortened by
the Treasury Department to a period of not less than the greater of 31
days or
the period between regular dividend distributions. Further, persons who
may be
"substantial users" (or "related persons" of substantial users) of
facilities
financed by industrial development bonds should consult their tax
advisors
before purchasing Portfolio shares.
The Tax Reform Act of 1986 provides that interest on certain
municipal
securities (i.e., certain private activity bonds) issued after August 7,
1986
will be treated as a preference item for purposes of both the corporate
and
individual alternative minimum tax. Under Treasury regulations, that
portion of
the Portfolio's exempt-interest dividend to be treated as a preference
item for
shareholders will be based on the proportionate share of the interest
received
by the Portfolio from the specified private activity bonds. Shareholders
should
consult their tax advisors concerning the effect of the Tax Reform Act
on an
investment in the Fund.
- ------------------------------------------------------------------------
- --------
Purchase of Shares
- ------------------------------------------------------------------------
- --------
Purchases of Portfolio shares may be made directly through the
Fund's
transfer agent, First Data Investor Services Group, Inc. ("First Data"),
through
a brokerage account maintained with Smith Barney Inc. ("Smith Barney")
or with a
broker that clears securities transactions through Smith Barney on a
fully
disclosed basis (an "Introducing Broker"). Subsequent investments may be
made by
calling the telephone number listed above. No maintenance fee will be
charged by
the Fund in
19
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Smith Barney Institutional
Cash Management Fund, Inc. - Class A Shares
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- --------
Purchase of Shares (continued)
- ------------------------------------------------------------------------
- --------
connection with a brokerage account through which an investor purchases
or holds
shares. The Fund reserves the right to waive or change minimums, to
decline any
order to purchase its shares and to suspend the offering of shares from
time to
time. Class A shares are available for purchase by institutional
investors on
their own behalf.
The minimum initial investment in the Fund is $3,000,000, which may
be met
by aggregating the amount of the initial investment made in all three
Portfolios. For qualified municipalities, including state and locally
chartered
agencies, making an initial investment in the Government Portfolio of at
least
$1,000,000, the minimum initial investment requirement in the Fund shall
not
apply. There is no minimum subsequent investment.
The issuance of shares of a Portfolio is recorded on the books of
the Fund,
and, to avoid additional operating costs and for investor convenience,
stock
certificates will not be issued unless expressly requested in writing by
a
shareholder. Certificates will not be issued for fractional shares.
The Fund's shares are sold continuously at their net asset value
next
determined after a purchase order is received and becomes effective. A
purchase
order becomes effective when First Data, Smith Barney or an Introducing
Broker
receives, or converts the purchase amount into Federal funds (i.e.,
monies of
member banks within the Federal Reserve Board). When orders for the
purchase of
Fund shares are paid for in Federal funds, or are placed by an investor
with
sufficient Federal funds or cash balance in the investor's brokerage
account
with Smith Barney or the Introducing Broker, the order becomes effective
on the
day of receipt if received prior to 12 noon (New York time) with respect
to
orders for the Municipal Portfolio and 2:00 p.m. (New York time) with
respect to
orders for the Cash and Government Portfolios, on any day the Fund
calculates
its net asset value. See "Valuation of Shares". Purchase orders received
after
the Fund calculates each Portfolio's net asset value on any business day
are
effective as of the time the net asset value is next determined. When
orders for
the purchase of Fund shares are paid for other than in Federal funds,
First
Data, Smith Barney or the Introducing Broker, acting on behalf of the
investor,
will complete the conversion into, or itself advance, Federal funds, and
the
order will become effective on the day following its receipt by First
Data,
Smith Barney or the Introducing Broker (as the case may be). Shares
purchased
begin to accrue income dividends on the business day the purchase order
becomes
effective.
20
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Smith Barney Institutional
Cash Management Fund, Inc. - Class A Shares
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- --------
Exchange Privilege
- ------------------------------------------------------------------------
- --------
Shareholders of a Portfolio may exchange their shares for shares of
any
other Portfolio on the basis described below. To qualify for the
Exchange
Privilege, a shareholder must exchange shares with a current value of at
least
$1,000. Under the Exchange Privilege, each of the Portfolios offers to
exchange
its shares for shares of any other Portfolio, on the basis of relative
net asset
value per share. Since all of the Portfolios seek to maintain a constant
$1.00
net asset value per share, it is expected that any exchange with those
funds
would be on a share-for-share basis. If in utilizing the Exchange
Privilege the
shareholder exchanges all his shares of a Portfolio, all dividends
accrued on
such shares for the month to date will be invested in shares of the
Portfolio
into which the exchange is being made. An exchange between Portfolios
pursuant
to the Exchange Privilege is treated as a sale for Federal income tax
purposes
and depending upon the circumstances, a short- or long-term capital gain
or loss
may be realized.
To exercise the Exchange Privilege, shareholders should contact
First Data
or their Smith Barney Financial Consultants, who will advise the
applicable
Portfolio of the exchange. A shareholder may make exchanges by
telephone,
provided that (i) he has elected the telephone exchange option on the
account
application, (ii) the registration of the account for the new Portfolio
will be
the same as for the Portfolio from which it is exchanged, and (iii) the
shares
to be exchanged are not in certificate form. To make exchanges by
telephone, a
shareholder should call the telephone number listed above. The
shareholder
should identify himself by name and account number and give the name of
the
Portfolio into which he wishes to make the exchange, the name of the
Portfolio
and the number of shares he wishes to exchange. The shareholder also may
write
to First Data requesting that the exchange be effected. Such letter must
be
signed exactly as the account is registered with signature(s) guaranteed
by a
commercial bank which is a member of the FDIC, a trust company or a
member firm
of a domestic securities exchange. The Fund reserves the right to
acquire a
properly completed Exchange Application.
These exchange privileges may be modified or terminated at any
time.
- ------------------------------------------------------------------------
- --------
Redemption of Shares
- ------------------------------------------------------------------------
- --------
Upon receipt of a proper redemption request (indicating the name
and
account number of the shareholder, the name of the Portfolio and the
dollar
amount of shares to be redeemed), each Portfolio will redeem its shares
at the
next determined net asset value on a day that the NYSE is open for
business.
Shareholders may use ordinary redemption procedures or expedited
redemption
procedures. If the
21
<PAGE>
Smith Barney Institutional
Cash Management Fund, Inc. - Class A Shares
- ------------------------------------------------------------------------
- --------
Redemption of Shares (continued)
- ------------------------------------------------------------------------
- --------
shareholder redeems all shares owned, his dividends accrued for the
month to
date will be simultaneously remitted by check.
Expedited Redemption Procedures
Shareholders meeting the requirements stated below may initiate
redemptions
by submitting their redemption requests by telephone or mail to First
Data and
have the proceeds sent by a Federal funds wire to a previously
designated bank
account. A redemption request received prior to 2:00 p.m. (12:00 noon in
the
case of the Municipal Portfolio) (New York time) will not earn a
dividend on the
day the request is received and payment will be made in Federal funds
wired on
the same business day. If an expedited redemption request for which the
redemption proceeds will be wired is received after 2:00 p.m. (12:00
noon in the
case of the Municipal Portfolio) (New York time), and prior to the close
of
regular trading on a day on which First Data is open for business, the
redemption proceeds will be wired on the next business day following the
redemption request that First Data is open for business. A redemption
request
received after 2:00 p.m. (12:00 noon in the case of the Municipal
Portfolio)
(New York time) will earn a dividend on the day the request is received.
If an
expedited redemption request is received after the regular close of
trading on
the NYSE or on a day that Smith Barney or First Data is closed, the
redemption
proceeds will be wired on the next business day following receipt of the
redemption request. Therefore, a redeeming shareholder will receive a
dividend
on the day the request is received, but not on the day that shares are
redeemed
out of his account. The Fund or First Data will not be liable for
following
instructions communicated by telephone that they reasonably believe to
be
genuine. In this regard, the Fund and First Data will employ reasonable
procedures to confirm that instructions communicated by telephone are
genuine.
Telephone redemptions and exchanges are not available for shares for
which
certificates have been issued.
To utilize the expedited redemption procedure, all shares must be
held in
non-certificate form in the shareholder's account. In addition, an
account
application with the expedited section properly completed must be on
file with
First Data before an expedited redemption request is submitted. This
form
requires a shareholder to designate the bank account to which its
redemption
proceeds should be sent. Any change in the bank account designated to
receive
the proceeds must be submitted in proper form on a new account
application with
signature guaranteed. In making a telephone redemption request, a
shareholder
must provide the shareholder's name and account number, the dollar
amount of the
redemption requested, the name of the Portfolio, and the name of the
bank to
which the redemption proceeds should be sent. If the information
provided by the
shareholder
22
<PAGE>
Smith Barney Institutional
Cash Management Fund, Inc. - Class A Shares
- ------------------------------------------------------------------------
- --------
Redemption of Shares (continued)
- ------------------------------------------------------------------------
- --------
does not correspond to the information on the application, the
transaction will
not be approved. If, because of unusual circumstances, a shareholder is
unable
to contact First Data at the telephone number listed above to make an
expedited
redemption request, he may contact his Smith Barney Financial Consultant
to
effect such a redemption, or request redemption in writing as described
under
"Ordinary Redemption Procedures" below.
Ordinary Redemption Procedures
If this method of redemption is used, the shareholder may submit
his
redemption request in writing to First Data. A Portfolio will make
payment for
shares redeemed pursuant to the ordinary redemption procedures by check
sent to
the shareholder at the address on such shareholder's account
application. Such
checks will normally be sent out within one business day, but in no
event more
than three business days after receipt of the redemption request in
proper form.
If certificates have been issued representing the shares to be redeemed,
prior
to effecting a redemption with respect to such shares, First Data must
have
received such certificates. A shareholder's signature must be guaranteed
by an
"eligible guarantor institution", as such term is defined by Rule 17 Ad-
15 of
the Securities Exchange Act of 1934, as amended, the existence and
validity of
which may be verified by First Data through use of industry
publications. A
notary public is not an acceptable guarantor. In certain instances,
First Data
may request additional documentation which it believes necessary to
insure
proper authorization such as, but not limited to: trust instruments,
death
certificates, appointment of executor or administrator, or certificates
of
corporate authority. Shareholders having questions regarding proper
documentation should contact First Data.
- ------------------------------------------------------------------------
- --------
Minimum Account Size
- ------------------------------------------------------------------------
- --------
The Fund reserves the right to redeem involuntarily any
shareholder's
account if the aggregate net asset value of the shares of a Portfolio
held in
the account is less than $100,000 (if a shareholder has more than one
account in
a Portfolio, each account must satisfy the minimum account size.) Before
the
Directors of the Fund elect to exercise such right, shareholders will
receive
prior written notice and will be permitted 60 days to bring accounts up
to the
minimum account size to avoid involuntary redemption.
23
<PAGE>
Smith Barney Institutional
Cash Management Fund, Inc. - Class A Shares
- ------------------------------------------------------------------------
- --------
Yield Information
- ------------------------------------------------------------------------
- --------
The Portfolios may measure performance in several ways, including
"yield",
"effective yield" and "tax equivalent yield" (for the Municipal
Portfolio only).
A Portfolio's yield is a way of showing the rate of income the Portfolio
earns
on its investments as a percentage of the Portfolio's share price. Yield
represents the income, less expenses generated by the investments, in
the
Portfolio over a seven-day period expressed as an annual percentage
rate.
Effective yield is similar in that it is calculated over the same time
frame,
but instead the net investment income is compounded and then annualized.
Due to
the compounding effect, the effective yield will normally be higher than
the
yield. The Municipal Portfolio may also quote its tax-equivalent yield,
which
shows the taxable yield an investor would have to earn before taxes to
equal the
Portfolio's tax-free yield. Portfolio yield figures are based upon
historical
earnings and are not intended to indicate future performance.
From time to time in advertisements or sales material, the
Portfolios may
discuss their performance ratings or other information as published by
recognized statistical or rating services, such as Lipper Analytical
Services,
Inc., IBC Money Fund Report, Morningstar, or by publications of general
interest, such as Forbes or Money. In addition, the Portfolios may
compare their
yields to those of certain U.S. Treasury obligations or other money
market
instruments.
- ------------------------------------------------------------------------
- --------
Management of the Fund
- ------------------------------------------------------------------------
- --------
Directors
Overall responsibility for management and supervision of the Fund
rests
with its Directors. The Directors approve all significant agreements
between the
Fund and the companies that furnish services to the Fund and each
Portfolio,
including agreements with the Fund's distributor, investment manager,
custodian
and transfer agent. The day-to-day operations of each Portfolio are
delegated to
the Portfolio's investment manager. The Statement of Additional
Information
contains background information regarding each Director and executive
officer of
the Fund.
Investment Manager
SBMFM manages the day-to-day operations of each Portfolio pursuant
to
management agreements entered into by the Fund on behalf of each
Portfolio,
24
<PAGE>
Smith Barney Institutional
Cash Management Fund, Inc. - Class A Shares
- ------------------------------------------------------------------------
- --------
Management of the Fund (continued)
- ------------------------------------------------------------------------
- --------
subject to the direction of the Directors of the Fund. As compensation
for
SBMFM's services to the Portfolios, each Portfolio pays a monthly fee at
the
annual rate of 0.27% of the value of that Portfolio's average daily net
assets.
SBMFM is a wholly owned subsidiary of Smith Barney Holdings Inc.,
which is
a wholly owned subsidiary of Travelers Group, Inc., a diversified
financial
services holding company engaged, through its subsidiaries, principally
in four
business segments: Investment Services, Consumer Finance Services, Life
Insurance Services and Property & Casualty Services. Smith Barney and
Smith
Barney Holdings Inc. are each located at 388 Greenwich Street, New York,
New
York 10013.
SBMFM was incorporated on March 12, 1968 under the laws of
Delaware. As of
August 31, 1996 SBMFM had aggregate assets under management in excess of
$77
billion.
- ------------------------------------------------------------------------
- --------
Distributor
- ------------------------------------------------------------------------
- --------
Smith Barney serves as Principal Underwriter of shares of the Fund.
The
Fund has adopted a Distribution and Shareholder Servicing Plan (the
"Plan")
pursuant to Rule 12b-1 under the 1940 Act. With respect to Class A
shares, the
Plan permits SBMFM to use its advisors fee to pay a fee to Smith Barney
which in
turn makes payments to securities dealers with which Smith Barney has
entered
into selected dealers agreements. Smith Barney may also use a portion of
the fee
it receives under the Plan to compensate its Financial Consultants. The
purpose
of the Plan is to promote distribution of the Fund's shares and to
enhance the
provision of shareholder services. The Plan merely permits the
reallocation of a
portion of the advisory fee received to pay for distribution related and
shareholder servicing activities.
- ------------------------------------------------------------------------
- --------
Additional Information
- ------------------------------------------------------------------------
- --------
The Fund, an open-end, management investment company, was organized
under
the laws of the State of Maryland on March 28, 1995. The Directors have
authorized the issuance of three series of shares, each representing
shares in
one of three separate Portfolios, and may also authorize the creation of
additional series of shares. Each share of a Portfolio represents an
equal
proportionate interest in the net
25
<PAGE>
Smith Barney Institutional
Cash Management Fund, Inc. - Class A Shares
- ------------------------------------------------------------------------
- --------
Additional Information (continued)
- ------------------------------------------------------------------------
- --------
assets of that Portfolio or Class with each other share of the same
Portfolio or
Class and is entitled to such dividends and distributions out of the net
income
of that Portfolio or Class as are declared in the discretion of the
Directors.
Shareholders are entitled to one vote for each share held and will vote
in the
aggregate and not by Portfolio or Class, except as otherwise required by
the
1940 Act or Maryland General Corporation Law. As described under "Voting
Rights"
in the Statement of Additional Information, the Portfolio ordinarily
will not
hold shareholder meetings; however, shareholders have the right to call
a
meeting upon a vote of 10% of the Portfolio's outstanding shares for the
purpose
of voting to remove Directors and the Fund will assist shareholders in
calling
such a meeting as required by the 1940 Act.
PNC Bank, National Association, located at 17th and Chestnut
Streets,
Philadelphia, Pennsylvania 19103, is the custodian of each Portfolio's
assets.
First Data, located at Exchange Place, Boston, Massachusetts,
provides
transfer agency and shareholder services for the Fund.
The Fund sends to each shareholder a semi-annual report and an
audited
annual report, each of which includes a list of the investment
securities held
by the Fund at the end of the period covered.
26
<PAGE>
SMITH BARNEY
----
- --------
A Member of
TraverlersGroup[Logo]
Smith Barney
Institutional Cash
Management
Fund, Inc.
Class
A Shares
388
Greenwich Street
New York, New
York 10013
FD0958 9/96
PROSPECTUS
Smith Barney
Institutional Cash
Management
Fund, Inc.
Class
B Shares
SEPTEMBER
27, 1996
Prospectus begins on
page one
[Logo} Smith Barney Mutual Funds
Investing for your future.
Every day.
<PAGE>
Smith Barney Institutional
Cash Management Fund, Inc. - Class B Shares
- ------------------------------------------------------------------------
- --------
Prospectus September
27, 1996
- ------------------------------------------------------------------------
- --------
388 Greenwich Street
New York, New York 10013
(800) 282-3505
Smith Barney Institutional Cash Management Fund, Inc. (the "Fund")
is a
money market fund that invests in high quality money market instruments.
The
Fund is a no-load, open-end management investment company that offers
shares in
three Portfolios: the Cash Portfolio, the Government Portfolio and the
Municipal
Portfolio (individually, a "Portfolio" and collectively, the
"Portfolios").
The investment objective of each of the Cash Portfolio and the
Government
Portfolio is to maximize current income to the extent consistent with
the
preservation of capital and the maintenance of liquidity. The investment
objective of the Municipal Portfolio is to maximize current income
exempt from
Federal income taxes to the extent consistent with the preservation of
capital
and the maintenance of liquidity.
An investment in a Portfolio is neither insured nor guaranteed by
the U.S.
Government. There is no assurance that a Portfolio will be able to
maintain a
stable net asset value of $1.00 per share.
Each Portfolio is designed primarily for institutions as an
economical and
convenient means for the investment of short-term funds. Each Portfolio
currently offers two Classes of shares. Class A shares may be purchased
by
institutional investors on their own behalf. Class B shares may be
purchased by
institutional investors on behalf of their clients. A Prospectus for
Class A
shares is available upon request and without charge by calling the Fund
at the
telephone number set forth above or by contacting a Smith Barney
Financial
Consultant.
This Prospectus sets forth concisely certain information about the
Fund and
the Portfolios, including service fees and expenses, that prospective
investors
will find helpful in making an investment decision. Investors are
encouraged to
read this Prospectus carefully and retain it for future reference.
Additional
information about the Fund is contained in a Statement of Additional
Information
dated September 27, 1996, as amended or supplemented from time to time,
that is
available upon request and without charge by calling or writing the Fund
at the
telephone number or address set forth above. The Statement of Additional
Information has been filed with the Securities and Exchange Commission
(the
"SEC") and is incorporated by reference into this Prospectus in its
entirety.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
Smith Barney Institutional
Cash Management Fund, Inc. - Class B Shares
- ------------------------------------------------------------------------
- --------
Table of Contents
- ------------------------------------------------------------------------
- --------
Fee Table
3
- ------------------------------------------------------------------------
- --------
Investment Objectives and Policies
4
- ------------------------------------------------------------------------
- --------
Common Investment Techniques
12
- ------------------------------------------------------------------------
- --------
Risks and Special Considerations
15
- ------------------------------------------------------------------------
- --------
Valuation of Shares
16
- ------------------------------------------------------------------------
- --------
Dividends, Automatic Reinvestment and Taxes
16
- ------------------------------------------------------------------------
- --------
Purchase of Shares
18
- ------------------------------------------------------------------------
- --------
Exchange Privilege
19
- ------------------------------------------------------------------------
- --------
Redemption of Shares
20
- ------------------------------------------------------------------------
- --------
Minimum Account Size
21
- ------------------------------------------------------------------------
- --------
Yield Information
22
- ------------------------------------------------------------------------
- --------
Management of the Fund
22
- ------------------------------------------------------------------------
- --------
Distributor and Service Organizations
23
- ------------------------------------------------------------------------
- --------
Additional Information
24
- ------------------------------------------------------------------------
- --------
========================================================================
========
No person has been authorized to give any information or to make
any
representations in connection with this offering other than those
contained in
this Prospectus and, if given or made, such other information and
representations must not be relied upon as having been authorized by the
Fund or
Smith Barney Inc. This Prospectus does not constitute an offer by the
Fund or
Smith Barney Inc., to sell or a solicitation of an offer to buy any of
the
securities offered hereby in any jurisdiction to any person to whom it
is
unlawful to make such offer or solicitation in such jurisdiction.
========================================================================
========
2
<PAGE>
Smith Barney Institutional
Cash Management Fund, Inc. - Class B Shares
- ------------------------------------------------------------------------
- --------
Fee Table
- ------------------------------------------------------------------------
- --------
The following expense table lists the costs and expenses that an
investor
will incur either directly or indirectly as a shareholder of a Portfolio
based
on its projected annual operating expenses:
Cash Government
Municipal
Portfolio Portfolio
Portfolio
========================================================================
========
Shareholders Transaction Expenses
Sales Charge Imposed on Purchase None None
None
Deferred Sales Charge None None
None
Annual Portfolio Operating Expenses
(as a percentage of average net assets)
Management Fees 0.27% 0.27%
0.27%
12b-1 Fees 0.25 0.25
0.25
Other Expenses (after reimbursement)* 0.08 0.08
0.08
========================================================================
========
TOTAL PORTFOLIO OPERATING
EXPENSES 0.60% 0.60%
0.60%
========================================================================
========
* "Other Expenses" have been estimated based on expenses for Class A
shares
of each Portfolio. These estimated expenses include an expense
reimbursement. Absent an expense reimbursement, for its most recent
fiscal
year end, "Other Expenses" would have been 0.13%, 0.30% and 0.42%,
respectively for the Cash Portfolio, Government Portfolio and
Municipal
Portfolio, and "Total Portfolio Operating Expenses" would have been
0.65%,
0.77% and 0.94%, respectively for the Cash Portfolio, Government
Portfolio
and Municipal Portfolio.
Example
The following example is intended to assist an investor in
understanding
the various costs that an investor in each of the Portfolios will bear
directly
or indirectly. The example assumes payment by the Portfolio of operating
expenses at the levels set forth in the table above. See "Purchase of
Shares,"
"Redemption of Shares," "Management of the Fund" and "Distributor."
1 Year 3 Years 5 Years
10 Years
========================================================================
========
An investor would pay the following
expenses on a $1,000 investment,
assuming (1) 5.00% annual return and
(2) redemption at the end of each time
period:
Cash Portfolio 6 19 33
75
Government Portfolio 6 19 33
75
Municipal Portfolio 6 19 33
75
The example also provides a means for the investor to compare
expense
levels of funds with different fee structures over varying investment
periods.
To facilitate such comparison, all funds are required to utilize a 5.00%
annual
return assumption. However, a Portfolio's actual return will vary and
may be
greater or less than 5.00%. This example should not be considered a
representation of past or future expenses and actual expenses may be
greater or
less than those shown.
No financial information is presented since there were no Class B
shares
outstanding for the period ended May 31, 1996.
3
<PAGE>
Smith Barney Institutional
Cash Management Fund, Inc. - Class B Shares
- ------------------------------------------------------------------------
- --------
Investment Objectives and Policies
- ------------------------------------------------------------------------
- --------
The investment objective of each Portfolio set forth in this
Prospectus is
fundamental and may not be changed without the affirmative vote of a
majority of
the outstanding voting securities of that Portfolio. Shareholders will
be
notified of material changes in investment policies. The Portfolios are
subject
to additional investment policies and restrictions described in the
Statement of
Additional Information, some of which are fundamental and may not be
changed
without shareholder approval.
The investment objective of each of the Cash Portfolio and the
Government
Portfolio is to seek maximum current income to the extent consistent
with
preservation of capital and the maintenance of liquidity. The investment
objective of the Municipal Portfolio is to seek maximum current income
that is
exempt from Federal income taxes to the extent consistent with
preservation of
capital and the maintenance of liquidity. There can be no assurance that
a
Portfolio will achieve its investment objective or be able to maintain a
stable
net asset value of $1.00 per share.
Common Investment Policies
The Portfolios will invest only in eligible high quality, short-
term money
market instruments that present minimal credit risks, as determined by
Smith
Barney Mutual Funds Management Inc., the Fund's investment manager
("SBMFM"),
pursuant to procedures adopted by the Fund's Board of Directors (the
"Directors"). Each Portfolio may invest only in U.S. dollar denominated
instruments that have a remaining maturity of 13 months or less (as
calculated
pursuant to Rule 2a-7 under the Investment Company Act of 1940, as
amended (the
"1940 Act"), and will maintain a dollar weighted average portfolio
maturity of
90 days or less.
Except to the limited extent permitted by Rule 2a-7 and except for
U.S.
Government Securities (as defined below), each of the Cash Portfolio and
the
Government Portfolio will not invest more than 5% of its total assets in
the
securities of any one issuer. A guarantor is not considered an issuer
for the
purpose of this limitation, provided that the value of all securities
held by a
Portfolio that are issued or guaranteed by that institution does not
exceed 10%
of the Portfolio's total assets. In the case of the Municipal Portfolio,
up to
25% of its assets may be invested without regard to the foregoing
limitations.
To ensure adequate liquidity, no Portfolio may invest more than 10% of
its net
assets in illiquid securities, including repurchase agreements maturing
in more
than seven days and certain time deposits that are subject to early
withdrawal
penalties and mature in more than seven days. Because the Portfolios are
typically used as a cash management vehicle, they intend to maintain a
high
degree of liquidity. SBMFM determines and monitors the liquidity of
portfolio
securities under the supervision of the Directors.
4
<PAGE>
Smith Barney Institutional
Cash Management Fund, Inc. - Class B Shares
- ------------------------------------------------------------------------
- --------
Investment Objectives and Policies (continued)
- ------------------------------------------------------------------------
- --------
Portfolio Quality
Each Portfolio will limit its investments to securities that the
Directors
determine present minimal credit risks and that are "Eligible
Securities" at the
time of acquisition by the Portfolio. The term "Eligible Securities"
includes
securities rated by the "Requisite NRSROs" in one of the two highest
short-term
rating categories, securities of issuers that have received such ratings
with
respect to other short-term debt securities and comparable unrated
securities.
"Requisite NRSROs" means, in the case of the Cash Portfolio and the
Government
Portfolio, (a) any two nationally recognized statistical rating
organizations
("NRSROs") that have issued a rating with respect to a security or class
of debt
obligations of an issuer or (b) one NRSRO, if only one NRSRO has issued
a rating
with respect to such security or issuer at the time the Portfolio
acquires the
security, and, in the case of the Municipal Portfolio, any one NRSRO
that has
issued ratings with respect to a security or class of debt obligations
of an
issuer. If the Cash Portfolio or the Government Portfolio acquires
Securities
that are unrated (other than U.S. Government Securities, as defined
below) or
that have been rated by a single NRSRO, the acquisition must be approved
or
ratified by the Directors. The NRSROs currently designated as such by
the SEC
are Standard & Poor's Ratings Group ("S & P"), Moody's Investors
Service, Inc.
("Moody's"), Fitch Investors Services LP, Duff and Phelps Credit Rating
Co.,
IBCA Limited and its affiliate, IBCA, Inc. and Thomson BankWatch. A more
detailed discussion of the categories of Municipal Obligations (as
defined
below) and the ratings of NRSROs is contained in the Statement of
Additional
Information relating to the Portfolios.
In addition, the Cash Portfolio and the Government Portfolio may
not invest
more than 5% of their respective total assets in Eligible Securities
that have
not received the highest rating from the Requisite NRSROs and comparable
unrated
securities ("Second Tier Securities") and may not invest more than 1% of
their
respective total assets in the Second Tier Securities of any one issuer.
Each of the Cash Portfolio and the Government Portfolio may invest
more
than 5% (but no more than 25%) of the then-current value of its total
assets in
the securities of a single issuer for a period of up to three business
days,
provided that (a) the securities either are rated by the Requisite
NRSROs in the
highest short-term rating category or are securities of issuers that
have
received such rating with respect to other short-term debt securities or
are
comparable unrated securities, and (b) the Portfolio does not make more
than one
such investment at any one time.
5
<PAGE>
Smith Barney Institutional
Cash Management Fund, Inc. - Class B Shares
- ------------------------------------------------------------------------
- --------
Investment Objectives and Policies (continued)
- ------------------------------------------------------------------------
- --------
The Cash Portfolio
The Cash Portfolio pursues its objective by investing primarily in
high
quality commercial paper and obligations of financial institutions. The
Portfolio may also invest in U.S. Government Securities (as defined
below) and
municipal securities, although the Portfolio expects to invest in such
securities to a lesser degree.
Debt Securities -- The Portfolio may invest in debt obligations of
domestic
and foreign issuers, including commercial paper (short-term promissory
notes
issued by companies to finance their, or their affiliates', current
obligations), notes and bonds and variable amount master demand notes.
The
Portfolio may invest in privately issued commercial paper that is
restricted as
to disposition under the federal securities laws. In general, any sale
of this
paper may not be made without registration under the Securities Act of
1933, as
amended (the "1933 Act"), or the availability of an appropriate
exemption
therefrom. Pursuant to the provisions of Section 4(2) of the 1933 Act,
however,
some privately issued commercial paper ("Section 4(2) paper") is
eligible for
resale to institutional investors, and accordingly, SBMFM may determine
that a
liquid market exists for that paper pursuant to guidelines adopted by
the
Directors. If a particular investment in Section 4(2) paper is not
determined to
be liquid, that investment will be included within the 10% limitation on
illiquid securities.
Obligations of Financial Institutions -- The Portfolio may invest
in
obligations of financial institutions. Examples of obligations in which
the
Portfolio may invest include negotiable certificates of deposit,
bankers'
acceptances and time deposits of U.S. banks having total assets in
excess of $1
billion or the equivalent of $1 billion in other currencies (in the case
of
foreign banks) and securities backed by letters of credit of U.S. banks
or other
U.S. financial institutions that are members of the Federal Reserve
System or
the Federal Deposit Insurance Corporation ("FDIC") (including
obligations of
foreign branches of such members), if either: (a) the principal amount
of the
obligation is insured in full by the FDIC, or (b) the issuer of such
obligation
has capital, surplus and undivided profits in excess of $100 million or
total
assets of $1 billion (as reported in its most recently published
financial
statements prior to the date of investment). Under current FDIC
regulations, the
maximum insurance payable as to any one certificate of deposit is
$100,000;
therefore, certificates of deposit in denominations greater than
$100,000 that
are purchased by the Portfolio will not be fully insured. The Cash
Portfolio
will not purchase fixed time deposits maturing in more than seven
calendar days,
and will limit its investment in fixed time deposits maturing from two
business
to seven calendar days to 10% of its total assets.
6
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Investment Objectives and Policies (continued)
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The Cash Portfolio intends to maintain at least 25% of its total
assets
invested in obligations of domestic and foreign banks, subject to the
abovementioned size criteria. The Portfolio may invest in instruments
issued by
domestic banks, including those issued by their branches outside the
United
States and subsidiaries located in Canada, and in instruments issued by
foreign
banks through their branches located in the United States and the United
Kingdom. In addition, the Cash Portfolio may invest in fixed time
deposits of
foreign banks issued through their branches located in Grand Cayman
Island,
Nassau, Tokyo and Toronto. The Portfolio may also invest in Eurodollar
and
Yankee bank obligations as discussed below.
Eurodollar or Yankee Obligations -- Eurodollar bank obligations are
dollar
denominated certificates of deposit or time deposits issued outside the
U.S.
capital markets by foreign branches of U.S. banks and by foreign banks.
Yankee
bank obligations are dollar denominated obligations issued in the U.S.
capital
markets by foreign banks. Eurodollar (and to a limited extent, Yankee)
bank
obligations are subject to certain sovereign risks. One such risk is the
possibility that a foreign government might prevent dollar denominated
funds
from flowing across its borders. Other risks include: adverse political
and
economic developments in a foreign country; the extent and quality of
government
regulation of financial markets and institutions; the imposition of
foreign
withholding taxes; and expropriation or nationalization of foreign
issuers. See
"Risks and Special Considerations."
U.S. Government Securities -- The Portfolio may invest without
limit in
U.S. Government Securities as described below under "The Government
Portfolio."
Municipal Securities -- The Portfolio may invest in obligations of
states,
territories or possessions of the United States and their subdivisions,
authorities and corporations as described below under "The Municipal
Portfolio."
These obligations may pay interest that is exempt from Federal income
taxation.
Custodial Receipts -- The Cash Portfolio may acquire custodial
receipts or
certificates with respect to U.S. Government Securities, such as CATS,
TIGRs and
FICO Strips, underwritten by securities dealers or banks that evidence
ownership
of future interest payments, principal payments or both on certain notes
or
bonds issued by the U.S. Government, its agencies, authorities or
instrumentalities. The underwriters of these certificates or receipts
purchase a
U.S. Government Security and deposit the security in an irrevocable
trust or
custodial account with a custodian bank, which then issues receipts or
certificates that evidence ownership of the periodic unmatured coupon
payments
and the final principal payment on the U.S.
7
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Investment Objectives and Policies (continued)
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Government Security. Custodial receipts evidencing specific coupon or
principal
payments have the same general attributes as zero coupon U.S. Government
Securities but are not U.S. Government Securities. Although typically
under the
terms of a custodial receipt the Cash Portfolio is authorized to assert
its
rights directly against the issuer of the underlying obligation, the
Cash
Portfolio may be required to assert through the custodian bank such
rights as
may exist against the underlying issuer. Thus, in the event the
underlying
issuer fails to pay principal and/or interest when due, the Cash
Portfolio may
be subject to delays, expenses and risks that are greater than those
that would
have been involved if the Cash Portfolio had purchased a direct
obligation of
the issuer. In addition, in the event that the trust or custodial
account in
which the underlying security has been deposited is determined to be an
association taxable as a corporation, instead of a nontaxable entity,
the yield
on the underlying security would be reduced in respect of any taxes
paid.
The Government Portfolio
The Government Portfolio pursues its objective by investing
exclusively in
obligations issued and/or guaranteed, as to payment of principal and
interest,
by the United States government or by its agencies and instrumentalities
and
repurchase agreements secured by such obligations. The Government
Portfolio will
be rated from time to time by S&P and Moody's.
U.S. Government Securities -- U.S. government securities are
securities
issued or guaranteed by the U.S. government, its agencies and
instrumentalities
and include repurchase agreements collateralized and municipal
securities
refunded with escrowed U.S. government securities ("U.S. Government
Securities"). U.S. Government Securities in which the Portfolio may
invest
include U.S. Treasury securities and obligations issued or guaranteed by
U.S.
government agencies and instrumentalities that are backed by the full
faith and
credit of the U.S. government, such as those guaranteed by the Small
Business
Administration or issued by the Government National Mortgage
Association. In
addition, U.S. Government Securities in which the Portfolio may invest
include
securities supported by the right of the issuer to borrow from the U.S.
Treasury, such as securities of Federal Home Loan Banks; and securities
supported primarily or solely by the creditworthiness of the issuer,
such as
securities of the Federal National Mortgage Association, the Federal
Home Loan
Mortgage Corporation and the Tennessee Valley Authority. There is no
guarantee
that the U.S. government will support securities not backed by its full
faith
and credit. Accordingly, although these securities have historically
involved
little risk of loss of principal if held to
8
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Investment Objectives and Policies (continued)
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maturity, they may involve more risk than securities backed by the full
faith
and credit of the U.S. government.
The Municipal Portfolio
The Municipal Portfolio pursues its objective by investing
primarily in
municipal securities whose interest is exempt from Federal income taxes.
Under
normal market conditions, the Portfolio will invest at least 80% of its
assets
in municipal securities whose interest is exempt from Federal income
taxes.
However, the Portfolio reserves the right to invest up to 20% of the
value of
its assets in securities whose interest is federally taxable. In
addition, the
Portfolio may invest without limit in private activity bonds. Interest
income on
certain types of private activity bonds issued after August 7, 1986 to
finance
non-governmental activities is a specific tax preference item for
purposes of
the Federal individual and corporate alternative minimum taxes.
Individual and
corporate shareholders may be subject to a Federal alternative minimum
tax to
the extent the Portfolio's dividends are derived from interest on these
bonds.
These private activity bonds are included in the term "municipal
securities" for
purposes of determining compliance with the 80% test described above.
Dividends
derived from interest income on all municipal securities are a component
of the
"current earnings" adjustment item for purposes of the Federal corporate
alternative minimum tax. Additionally, when SBMFM is unable to locate
investment
opportunities with desirable risk/reward characteristics, the Portfolio
may
invest without limit in cash and cash equivalents, including obligations
that
may be Federally taxable (See "Taxable Investments").
Municipal Securities -- The municipal securities in which the
Portfolio may
invest include municipal notes and short-term municipal bonds. Municipal
notes
are generally used to provide for the issuer's short-term capital needs
and
generally have maturities of thirteen months or less. Examples include
tax
anticipation and revenue anticipation notes, which generally are issued
in
anticipation of various seasonal revenues, bond anticipation notes,
construction
loan notes and tax-exempt commercial paper. Short-term municipal bonds
may
include "general obligation bonds," which are secured by the issuer's
pledge of
its faith, credit and taxing power for payment of principal and
interest;
"revenue bonds," which are generally paid from the revenues of a
particular
facility or a specific excise tax or other source; and "industrial
development
bonds," which are issued by or on behalf of public authorities to
provide
funding for various privately operated industrial and commercial
facilities. The
Portfolio may also invest in high quality participation interests in
municipal
securities. A more detailed description of various types of
9
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Investment Objectives and Policies (continued)
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municipal securities is contained in Appendix B in the Statement of
Additional
Information.
When the assets and revenues of an agency, authority,
instrumentality or
other political subdivision are separate from those of the government
creating
the issuing entity and a security is backed only by the assets and
revenues of
the issuing entity, that entity will be deemed to be the sole issuer of
the
security. Similarly, in the case of an industrial development bond
backed only
by the assets and revenues of the non-governmental issuer, the non-
governmental
issuer will be deemed to be the sole issuer of the bond.
At times, the Portfolio may invest more than 25% of the value of
its total
assets in tax-exempt securities that are related in such a way that an
economic,
business, or political development or change affecting one such security
could
similarly affect the other securities; for example, securities whose
issuers are
located in the same state, or securities whose interest is derived from
revenues
of similar type projects. The Portfolio may also invest more than 25% of
its
assets in industrial development bonds or participation interests
therein.
The Municipal Portfolio intends to conduct its operations so as to
qualify
as a "regulated investment company" for purposes of the Internal Revenue
Code of
1986, as amended (the "Code"), which will relieve the Portfolio of any
liability
for Federal income tax to the extent that its earnings are distributed
to
shareholders. In order to so qualify, among other things, the Portfolio
must
ensure that, at the close of each quarter of the taxable year, (i) not
more than
25% of the market value of the Portfolio's total assets will be invested
in the
securities (other than U.S. Government Securities) of a single issuer or
of two
or more issuers that the Portfolio controls and that are engaged in the
same,
similar or related trades or businesses and (ii) at least 50% of the
market
value of the Portfolio's total assets is represented by (a) cash and
cash items,
(b) U.S. Government Securities and (c) other securities limited in
respect of
any one issuer to an amount not greater in value than 5% of the market
value of
the Portfolio's total assets and to not more than 10% of the outstanding
voting
securities of the issuer.
Yields on municipal securities are dependent on a variety of
factors,
including the general conditions of the money market and of the
municipal bond
and municipal note markets, the size of a particular offering, the
maturity of
the obligation and the rating of the issue. The achievement of the
Portfolio's
investment objective is dependent in part on the continuing ability of
the
issuers of municipal securities in which the Portfolio invests to meet
their
obligations for the payment of principal and interest when due.
Obligations of
issuers of municipal securities are
10
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Investment Objectives and Policies (continued)
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subject to the provisions of bankruptcy, insolvency and other laws
affecting the
rights and remedies of creditors, such as the Bankruptcy Reform Act of
1978, as
amended. Therefore, the possibility exists that as a result of
litigation or
other conditions, the ability of any issuer to pay, when due, the
principal of
and interest on its municipal securities may be materially affected.
Municipal Leases -- The Portfolio may invest in municipal leases or
participation interests therein. Municipal leases are municipal
securities which
may take the form of a lease or an installment purchase or conditional
sales
contract. Municipal leases are issued by state and local governments and
authorities to acquire a wide variety of equipment and facilities.
Lease obligations may not be backed by the issuing municipality's
credit
and may involve risks not normally associated with general obligation
bonds and
other revenue bonds. For example, their interest may become taxable if
the lease
is assigned and the holders may incur losses if the issuer does not
appropriate
funds for the lease payment on an annual basis, which may result in
termination
of the lease and possible default. SBMFM may determine that a liquid
market
exists for municipal lease obligations pursuant to guidelines
established by the
Directors.
Taxable Investments -- As discussed above, although the Portfolio
will
attempt to invest substantially all of its assets in municipal
securities whose
interest is exempt from Federal income tax, the Portfolio may, under
certain
circumstances, invest in certain securities whose interest is subject to
such
taxation. These securities include: (i) short-term obligations of the
U.S.
government, its agencies or instrumentalities, (ii) certificates of
deposit,
bankers' acceptances and interest bearing savings deposits of banks
having total
assets of more than $1 billion and whose deposits are insured by the
FDIC, (iii)
commercial paper and (iv) repurchase agreements as described below
covering any
of the securities described in items (i) and (iii) above or any other
obligations of the U.S. government, its agencies or instrumentalities .
Tender Option Bonds -- The Municipal Portfolio may invest up to 20%
of the
value of its assets in tender option bonds. A tender option bond is a
municipal
security (generally held pursuant to a custodial arrangement) having a
relatively long maturity and bearing interest at a fixed rate
substantially
higher than prevailing short-term tax-exempt rates, that has been
coupled with
the agreement of a third party, such as a bank, broker-dealer or other
financial
institution, pursuant to which such institution grants the security
holders the
option, at periodic intervals, to tender their securities to the
institution and
receive the face value thereof. As consideration for providing the
option, the
financial institution receives periodic fees equal to the
11
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Common Investment Techniques (continued)
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difference between the municipal security's fixed coupon rate and the
rate, as
determined by a remarketing or similar agent at or near the commencement
of such
period, that would cause the securities, coupled with the tender option,
to
trade at par on the date of such determination. Thus, after payment of
this fee,
the security holder effectively holds a demand obligation that bears
interest at
the prevailing short-term tax-exempt rate. SBMFM, on behalf of the
Portfolio,
will consider on an ongoing basis the creditworthiness of the issuers of
the
underlying municipal security, of any custodian and the third-party
provider of
the tender option. In certain instances and for certain tender option
bonds, the
option may be terminable in the event of a default in payment of
principal or
interest on the underlying municipal securities and for other reasons.
The
Portfolio will not invest more than 10% of the value of its net assets
in
illiquid securities, which would include tender option bonds for which
the
required notice to exercise the tender feature is more than seven days
if there
is no secondary market available for these securities.
Stand-by Commitments -- The Municipal Portfolio may acquire "stand-
by
commitments" with respect to municipal securities held in its portfolio.
Under a
stand-by commitment, a dealer agrees to purchase, at the Portfolio's
option,
specified municipal securities at a specified price. The Portfolio
intends to
enter into stand-by commitments only with dealers, banks and broker-
dealers
which, in the opinion of SBMFM, present minimal credit risks. In
evaluating the
creditworthiness of the issuer of a stand-by commitment, SBMFM will
periodically
review the issuer's assets, liabilities, contingent claims and other
relevant
financial information. The Portfolio will acquire stand-by commitments
solely to
facilitate portfolio liquidity and does not intend to exercise its
rights
thereunder for trading purposes.
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Common Investment Techniques
- ------------------------------------------------------------------------
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Participation Interests -- The Portfolios may invest in
participation
interests in any type of security in which the Portfolios may invest. A
participation interest gives a Portfolio an undivided interest in the
underlying
securities in the proportion that the Portfolio's participation interest
bears
to the total principal amount of the underlying securities.
Participation
interests usually carry a demand feature, as described below, backed by
a letter
of credit or guarantee of the institution that issued the interests
permitting
the holder to tender them back to the institution.
12
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Common Investment Techniques (continued)
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Demand Features -- The Portfolios may invest in securities that are
subject
to puts and standby commitments ("demand features"). Demand features
give the
Portfolio the right to resell securities at specified periods prior to
their
maturity dates to the seller or to some third party at an agreed upon
price or
yield. Securities with demand features may involve certain expenses and
risks,
including the inability of the issuer of the instrument to pay for the
securities at the time the instrument is exercised, non-marketability of
the
instrument and differences between the maturity of the underlying
security and
the maturity of the instrument. Securities may cost more with demand
features
than without them. Demand features can serve three purposes: (i) to
shorten the
maturity of a variable or floating rate security, (ii) to enhance the
instrument's credit quality, and (iii) to provide a source of liquidity.
Demand
features are often issued by third party financial institutions,
generally
domestic and foreign banks. Accordingly, the credit quality and
liquidity of the
Portfolios' investments may be dependent in part on the credit quality
of the
banks supporting the Portfolios' investments and changes in the credit
quality
of these financial institutions could cause losses to the Portfolios and
effect
their share prices. This will result in exposure to risks pertaining to
the
banking industry, including the foreign banking industry. Brokerage
firms and
insurance companies also provide certain liquidity and credit support.
Variable and Floating Rate Securities -- The securities in which
the
Portfolios invest may have variable or floating rates of interest. These
securities pay interest at rates that are adjusted periodically
according to a
specified formula, usually with reference to some interest rate index or
market
interest rate. Securities with ultimate maturities of greater than 13
months may
be purchased only pursuant to Rule 2a-7. Under that Rule, only those
long-term
instruments that have demand features which comply with certain
requirements and
certain variable rate U.S. Government Securities may be purchased.
Similar to
fixed rate debt instruments, variable and floating rate instruments are
subject
to changes in value based on changes in market interest rates or changes
in the
issuer's or guarantor's creditworthiness. The rate of interest on
securities
purchased by a Portfolio may be tied to short-term Treasury or other
government
securities or indices on securities that are permissible investments of
the
Portfolios, as well as other money market rates of interest. The
Portfolios will
not purchase securities whose values are tied to interest rates or
indexes that
are not appropriate for the duration and volatility standards of a money
market
fund.
Mortgage and Asset-Backed Securities -- Each of the Cash Portfolio
and the
Government Portfolio may purchase fixed or adjustable rate mortgage-
backed
securities issued by the Government National Mortgage Association,
Federal
National Mortgage Association or the Federal Home Loan Mortgage
Corporation. In
addition, the Cash Portfolio may purchase other asset-backed securities,
13
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Common Investment Techniques (continued)
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including securities backed by automobile loans, equipment leases or
credit card
receivables. These securities directly or indirectly represent a
participation
in, or are secured by and payable from, fixed or adjustable rate
mortgage or
other loans which may be secured by real estate or other assets. Unlike
traditional debt instruments, payments on these securities include both
interest
and a partial payment of principal. Prepayments of the principal of
underlying
loans may shorten the effective maturities of these securities and may
result in
a Portfolio having to reinvest proceeds at a lower interest rate.
Repurchase Agreements -- Each Portfolio may seek additional income
by
entering into repurchase agreements with respect to obligations that
could
otherwise be purchased by a Portfolio. Repurchase agreements are
transactions in
which a Portfolio purchases securities (normally U.S. Government
Securities) and
simultaneously commits to resell those securities to the seller at an
agreed
upon price on an agreed upon future date, normally one to seven days
later. The
resale price reflects a market rate of interest that is not related to
the
coupon rate or maturity of the securities. If the seller of the
securities
underlying a repurchase agreement fails to pay the agreed resale price
on the
agreed delivery date, a Portfolio may incur costs in disposing of the
collateral
and may experience losses if there is any delay in its ability to do so.
The
Fund's custodian maintains possession of the underlying collateral,
which is
maintained at not less than 100% of the repurchase price.
Reverse Repurchase Agreements -- Each Portfolio may enter into
reverse
repurchase agreements. Reverse repurchase agreements are transactions in
which a
Portfolio sells a security and simultaneously commits to repurchase that
security from the buyer at an agreed upon price on an agreed upon future
date.
This technique will be used only for temporary or emergency purposes,
such as
meeting redemption requests or to earn additional income on portfolio
securities.
When-Issued or Delayed Delivery Securities -- Each Portfolio may
purchase
securities on a when-issued or delayed delivery basis. Securities so
purchased
are subject to market price fluctuation from the time of purchase but no
interest on the securities accrues to a Portfolio until delivery and
payment for
the securities take place. Accordingly, the value of the securities on
the
delivery date may be more or less than the purchase price. Forward
commitments
will be entered into only when a Portfolio has the intention of taking
possession of the securities, but a Portfolio may sell the securities
before the
settlement date if deemed advisable.
Borrowing and Lending -- Each Portfolio may borrow money for
temporary or
emergency purposes in amounts up to 33 1/3% of its total assets;
provided,
however
14
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Common Investment Techniques (continued)
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that no additional investments will be made while borrowings exceed 5%
of a Portfolio's total assets. A Portfolio may not mortgage or pledge
securities
except to secure permitted borrowings. As a fundamental policy, a
Portfolio will
not lend securities or other assets if, as a result, more than 20% of
its total
assets would be lent to other parties; however, the Portfolios do not
currently
intend to engage in securities lending.
Portfolio Turnover -- Because the Portfolios invest in securities
with
relatively short-term maturities, each Portfolio is expected to have a
high
portfolio turnover rate. However, a high turnover rate should not
increase a
Portfolio's costs because brokerage commissions are not normally charged
on the
purchase and sale of money market instruments.
- ------------------------------------------------------------------------
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Risks and Special Considerations
- ------------------------------------------------------------------------
- --------
Although each Portfolio only invests in high quality money market
instruments, an investment in a Portfolio is subject to risk even if all
securities in a Portfolio's portfolio are paid in full at maturity. All
money
market instruments, including U.S. Government Securities, can change in
value as
a result of changes in interest rates, the issuer's actual or perceived
creditworthiness or the issuer's ability to meet its obligations.
Each Portfolio will be affected by general changes in interest
rates which
will result in increases or decreases in the value of the obligations
held by
such Portfolio. The market value of the obligations in each Portfolio
can be
expected to vary inversely to changes in prevailing interest rates.
Investors
should recognize that, in periods of declining interest rates, the yield
of each
Portfolio will tend to be somewhat higher than prevailing market rates,
and in
periods of rising interest rates, the yield of each Portfolio will tend
to be
somewhat lower. Also, when interest rates are falling, the inflow of net
new
money to each Portfolio from the continuous sale of its shares will
likely be
invested in portfolio instruments producing lower yields than the
balance of the
Portfolio, thereby reducing the current yield of the Portfolio. In
periods of
rising interest rates, the opposite can be expected to occur. In
addition,
securities in which the Portfolios will invest may not yield as high a
level of
current income as might be achieved by investing in securities with less
liquidity and safety and longer maturities.
Investments in securities issued by foreign banks or foreign
issuers
present certain risks, including those resulting from fluctuations in
currency
exchange rates,
15
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Risks and Special Considerations (continued)
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revaluation of currencies, future political and economic developments
and the
possible imposition of currency exchange blockages or other foreign
governmental
laws or restrictions and reduced availability of public information.
Foreign
issuers generally are not subject to uniform accounting, auditing and
financial
reporting standards or to other regulatory practices and requirements
applicable
to domestic issuers. In addition, there may be less publicly available
information about a foreign bank than about a domestic bank.
- ------------------------------------------------------------------------
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Valuation of Shares
- ------------------------------------------------------------------------
- --------
The net asset value per share of the Cash Portfolio and the
Government
Portfolio is determined as of 2:00 p.m. New York City time on each day
that the
New York Stock Exchange ("NYSE") and the Fund's custodian are open. The
net
asset value per share of the Municipal Portfolio is determined as of
12:00 noon
New York City time on each day that the NYSE and the Fund's custodian
are open.
The net asset value per share of each Portfolio is determined by
dividing the
Portfolio's net assets attributable to the Class (i.e., the value of its
assets
less liabilities) by the total number of shares of the Class
outstanding. Each
Portfolio may also determine net asset value per share on days when the
NYSE is
not open, but when the settlement of securities may otherwise occur. The
Fund
employs the amortized cost method of valuing portfolio securities and
intends to
use its best efforts to continue to maintain a constant net asset value
of $1.00
per share.
- ------------------------------------------------------------------------
- --------
Dividends, Automatic Reinvestment and Taxes
- ------------------------------------------------------------------------
- --------
All Portfolios
Each Portfolio intends to declare a dividend of substantially all
of its
net investment income on each day the NYSE is open. Net investment
income
includes interest accrued and discount earned and all short-term
realized gains
and losses on portfolio securities and is less premium amortized and
expenses
accrued. Income dividends are paid monthly and will automatically be
reinvested
in additional shares of the same Class of the respective Portfolio
unless a
shareholder has elected to receive distributions in cash. If a
shareholder
redeems in full an account between payment dates, all dividends declared
up to
and including the date of liquidation will be paid with the proceeds
from the
redemption of shares. The per share dividend of Class B shares of each
Portfolio
will be less than the per share dividends of Class A shares of each
Portfolio
principally as a result of the service fee applicable to Class B shares.
Long-term capital gains, if any, will be distributed annually.
16
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Dividends, Automatic Reinvestment and Taxes (continued)
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It is each Portfolio's intention to qualify as a regulated
investment
company under Subchapter M of the Code. If so qualified, the Portfolio
will not
be subject to Federal income taxes to the extent that it distributes its
taxable
net income. For Federal income tax purposes, dividends (other than
dividends
derived from income on tax-exempt municipal securities, if any) and
capital gain
distributions, if any, whether in shares or cash, are taxable to
shareholders of
each Portfolio. Under the Code, no portion of the Portfolio
distributions will
be eligible for the dividends received deduction for corporations.
The Municipal Portfolio
Distributions by the Municipal Portfolio that are exempt for
Federal income
tax purposes will not necessarily result in exemption under income tax
or other
tax laws of any state or local taxing authority. Generally, only
interest earned
on obligations issued by the state or municipality in which the investor
resides
will be exempt from state and local taxes; however, the laws of the
several
states and local taxing authorities vary with respect to the taxation of
exempt-interest income, and each shareholder should consult a tax
advisor in
that regard. The Portfolio will make available annually to its
shareholders
information concerning the percentage of interest income the Portfolio
received
during the calendar year from municipal securities on a state-by-state
basis.
Under the Code, interest on indebtedness incurred or continued to
purchase
or carry shares of the Portfolio will not be deductible to the extent
that the
Portfolio's distributions are exempt from Federal income tax. In
addition, any
loss realized upon the redemption of shares held less than six months
will be
disallowed to the extent of any exempt-interest dividends received by
the
shareholder during such period. However, this holding period may be
shortened by
the Treasury Department to a period of not less than the greater of 31
days or
the period between regular dividend distributions. Further, persons who
may be
"substantial users" (or "related persons" of substantial users) of
facilities
financed by industrial development bonds should consult their tax
advisors
before purchasing Portfolio shares.
The Tax Reform Act of 1986 provides that interest on certain
municipal
securities (i.e., certain private activity bonds) issued after August 7,
1986
will be treated as a preference item for purposes of both the corporate
and
individual alternative minimum tax. Under Treasury regulations, that
portion of
the Portfolio's exempt-interest dividend to be treated as a preference
item for
shareholders will be based on the proportionate share of the interest
received
by the Portfolio from the specified private activity bonds. Shareholders
should
consult their tax advisors concerning the effect of the Tax Reform Act
on an
investment in the Fund.
17
<PAGE>
Smith Barney Institutional
Cash Management Fund, Inc. - Class B Shares
- ------------------------------------------------------------------------
- --------
Purchase of Shares
- ------------------------------------------------------------------------
- --------
Purchases of Portfolio shares may be made directly through the
Fund's
transfer agent, First Data Investor Services Group, Inc. ("First Data"),
through
a brokerage account maintained with Smith Barney Inc. ("Smith Barney")
or with a
broker that clears securities transactions through Smith Barney on a
fully
disclosed basis (an "Introducing Broker"). Subsequent investments may be
made by
calling the telephone number listed above. No maintenance fee will be
charged by
the Fund in connection with a brokerage account through which an
investor
purchases or holds shares. The Fund reserves the right to waive or
change
minimums, to decline any order to purchase its shares and to suspend the
offering of shares from time to time. Class B shares are available for
purchase
by institutional investors on behalf of their clients. The minimum
initial
investment in the Fund is $3,000,000 which may be met by aggregating the
amount
of the initial investment made in all three Portfolios. For qualified
municipalities, including state and locally chartered agencies, making
an
initial investment in the Government Portfolio of at least $1,000,000,
the
minimum initial investment requirement in the Fund shall not apply.
There is no
minimum subsequent investment.
The issuance of shares of a Portfolio is recorded on the books of
the Fund,
and, to avoid additional operating costs and for investor convenience,
stock
certificates will not be issued unless expressly requested in writing by
a
shareholder. Certificates will not be issued for fractional shares.
The Fund's shares are sold continuously at their net asset value
next
determined after a purchase order is received and becomes effective. A
purchase
order becomes effective when First Data, Smith Barney or an Introducing
Broker
receives, or converts the purchase amount into Federal funds (i.e.,
monies of
member banks within the Federal Reserve Board). When orders for the
purchase of
Fund shares are paid for in Federal funds, or are placed by an investor
with
sufficient Federal funds or cash balance in the investor's brokerage
account
with Smith Barney or the Introducing Broker, the order becomes effective
on the
day of receipt if received prior to 12 noon (New York time) with respect
to
orders for the Municipal Portfolio and 2:00 p.m. (New York time) with
respect to
orders for the Cash and Government Portfolios, on any day the Fund
calculates
its net asset value. See "Valuation of Shares". Purchase orders received
after
the Fund calculates the respective Portfolio's net asset value on any
business
day are effective as of the time the net asset value is next determined.
When
orders for the purchase of Fund shares are paid for other than in
Federal funds,
First Data, Smith Barney or the Introducing Broker, acting on behalf of
the
investor, will complete the conversion into, or itself advance, Federal
funds,
and the order will become effective on the day following its receipt by
First
Data, Smith Barney or the Introducing Broker (as the case may
18
<PAGE>
Smith Barney Institutional
Cash Management Fund, Inc. - Class B Shares
- ------------------------------------------------------------------------
- --------
Purchase of Shares (continued)
- ------------------------------------------------------------------------
- --------
be). Shares purchased begin to accrue income dividends on the business
day the
purchase order becomes effective.
- ------------------------------------------------------------------------
- --------
Exchange Privilege
- ------------------------------------------------------------------------
- --------
Shareholders of a Portfolio may exchange their shares for shares of
any
other Portfolio on the basis described below. To qualify for the
Exchange
Privilege, a shareholder must exchange shares with a current value of at
least
$1,000. Under the Exchange Privilege, each of the Portfolios offers to
exchange
its shares for shares of any other Portfolio, on the basis of relative
net asset
value per share. Since all of the Portfolios seek to maintain a constant
$1.00
net asset value per share, it is expected that any exchange with those
funds
would be on a share-for-share basis. If in utilizing the Exchange
Privilege the
shareholder exchanges all his shares of a Portfolio, all dividends
accrued on
such shares for the month to date will be invested in shares of the
Portfolio
into which the exchange is being made. An exchange between Portfolios
pursuant
to the Exchange Privilege is treated as a sale for Federal income tax
purposes
and depending upon the circumstances, a short- or long-term capital gain
or loss
may be realized.
To exercise the Exchange Privilege, shareholders should contact
First Data,
or their Smith Barney Financial Consultants, who will advise the
applicable
Portfolio of the exchange. A shareholder may make exchanges by
telephone,
provided that (i) he has elected the telephone exchange option on the
account
application, (ii) the registration of the account for the new Portfolio
will be
the same as for the Portfolio from which it is exchanged, and (iii) the
shares
to be exchanged are not in certificate form. To make exchanges by
telephone, a
shareholder should call the telephone number listed above. The
shareholder
should identify himself by name and account number and give the name of
the
Portfolio into which he wishes to make the exchange, the name of the
Portfolio
and the number of shares he wishes to exchange. The shareholder also may
write
to First Data requesting that the exchange be effected. Such letter must
be
signed exactly as the account is registered with signature(s) guaranteed
by a
commercial bank which is a member of the FDIC or by a trust company or a
member
firm of a domestic securities exchange. The Fund reserves the right to
acquire a
properly completed Exchange Application.
These exchange privileges may be modified or terminated at any
time.
19
<PAGE>
Smith Barney Institutional
Cash Management Fund, Inc. - Class B Shares
- ------------------------------------------------------------------------
- --------
Redemption of Shares
- ------------------------------------------------------------------------
- --------
Upon receipt of a proper redemption request (indicating the name
and
account number of the shareholder, the name of the Portfolio and the
dollar
amount of shares to be redeemed), each Portfolio will redeem its shares
at the
next determined net asset value on a day that the NYSE is open for
business.
Shareholders may use ordinary redemption procedures or expedited
redemption
procedures. If utilizing any of the redemption procedures the
shareholder
redeems all shares owned, his dividends accrued for the month to date
will be
simultaneously remitted by check.
Expedited Redemption Procedures
Shareholders meeting the requirements stated below may initiate
redemptions
by submitting their redemption requests by telephone or mail to First
Data and
have the proceeds sent by a Federal Funds wire to a previously
designated bank
account. A redemption request received prior to 2:00 p.m. (12:00 noon in
the
case of the Municipal Portfolio) (New York time) will not earn a
dividend on the
day the request is received and payment will be made in Federal Funds
wired on
the same business day. If an expedited redemption request for which the
redemption proceeds will be wired is received after 2:00 p.m. (12:00
noon in the
case of the Municipal Portfolio) (New York time), and prior to the close
of
regular trading on the NYSE on a day on which First Data is open for
business,
the redemption proceeds will be wired on the next business day following
the
redemption request that First Data is open for business. A redemption
request
received after 2:00 p.m. (12:00 noon in the case of the Municipal
Portfolio)
(New York time) will earn a dividend on the day the request is received.
If an
expedited redemption request is received after the regular close of
trading on
the NYSE or on a day that Smith Barney or First Data is closed, the
redemption
proceeds will be wired on the next business day following receipt of the
redemption request. Therefore, a redeeming shareholder will receive a
dividend
on the day the request is received, but not on the day that shares are
redeemed
out of his account. The Fund or First Data will not be liable for
following
instructions communicated by telephone that they reasonably believe to
be
genuine. In this regard, the Fund and First Data will employ reasonable
procedures to confirm that instructions communicated by telephone are
genuine.
Telephone redemptions and exchanges are not available for shares for
which
certificates have been issued.
To utilize the expedited redemption procedure, all shares must be
held in
non-certificate form in the shareholder's account. In addition, an
account
application with the expedited section properly completed must be on
file with
First Data before an expedited redemption request is submitted. This
form
requires a shareholder to designate the bank account to which its
redemption
proceeds should be sent. Any change in the bank account designated to
receive
the proceeds must be submitted in proper form on a new account
application with
signature guaranteed. In making a
20
<PAGE>
Smith Barney Institutional
Cash Management Fund, Inc. - Class B Shares
- ------------------------------------------------------------------------
- --------
Redemption of Shares (continued)
- ------------------------------------------------------------------------
- --------
telephone redemption request, a shareholder must provide the
shareholder's name
and account number, the dollar amount of the redemption requested, the
name of
the Portfolio, and the name of the bank to which the redemption proceeds
should
be sent. If the information provided by the shareholder does not
correspond to
the information on the application, the transaction will not be
approved. If,
because of unusual circumstances, a shareholder is unable to contact
First Data
at the telephone number listed above to make an expedited redemption
request, he
may contact his Smith Barney Financial Consultant to effect such a
redemption or
request redemption in writing as described under "Ordinary Redemption
Procedures" below.
Ordinary Redemption Procedures
If this method of redemption is used, the shareholder may submit
his
redemption request in writing to First Data. A Portfolio will make
payment for
shares redeemed pursuant to the ordinary redemption procedure by check
sent to
the shareholder at the address on such shareholder's account
application. Such
checks will normally be sent out within one business day, but in no
event more
than three business days after receipt of the redemption request in
proper form.
If certificates have been issued representing the shares to be redeemed,
prior
to effecting a redemption with respect to such shares First Data must
have
received such certificates. A shareholder's signature must be guaranteed
by an
"eligible guarantor institution", as such term is defined by Rule 17 Ad-
15 of
the Securities Exchange Act of 1934, as amended, the existence and
validity of
which may be verified by First Data through use of industry
publications. A
notary public is not an acceptable guarantor. In certain instances,
First Data
may request additional documentation which it believes necessary to
insure
proper authorization such as, but not limited to: trust instruments,
death
certificates, appointment of executor or administrator, or certificates
of
corporate authority. Shareholders having questions regarding proper
documentation should contact First Data.
- ------------------------------------------------------------------------
- --------
Minimum Account Size
- ------------------------------------------------------------------------
- --------
The Fund reserves the right to redeem involuntarily any
shareholder's
account if the aggregate net asset value of the shares of a Portfolio
held in
the account is less than $100,000 (if a shareholder has more than one
account in
a Portfolio, each account must satisfy the minimum account size.) Before
the
Directors of the Fund elect to exercise such right, shareholders will
receive
prior written notice and will be permitted 60 days to bring accounts up
to the
minimum account size to avoid involuntary redemption.
21
<PAGE>
Smith Barney Institutional
Cash Management Fund, Inc. - Class B Shares
- ------------------------------------------------------------------------
- --------
Yield Information
- ------------------------------------------------------------------------
- --------
The Portfolios may measure performance in several ways, including
"yield",
"effective yield" and "tax equivalent yield" (for the Municipal
Portfolio only).
A Portfolio's yield is a way of showing the rate of income the Portfolio
earns
on its investments as a percentage of the Portfolio's share price. Yield
represents the income, less expenses generated by the investments, in
the
Portfolio over a seven-day period expressed as an annual percentage
rate.
Effective yield is similar in that it is calculated over the same time
frame,
but instead the net investment income is compounded and then annualized.
Due to
the compounding effect, the effective yield will normally be higher than
the
yield. The Municipal Portfolio may also quote its tax-equivalent yield,
which
shows the taxable yield an investor would have to earn before taxes to
equal the
Portfolio's tax-free yield. Portfolio yield figures are based upon
historical
earnings and are not intended to indicate future performance.
From time to time in advertisements or sales material, the
Portfolios may
discuss their performance ratings or other information as published by
recognized statistical or rating services, such as Lipper Analytical
Services,
Inc., IBC Money Fund Report, Morningstar, or by publications of general
interest, such as Forbes or Money. In addition, the Portfolios may
compare their
yields to those of certain U.S. Treasury obligations or other money
market
instruments.
- ------------------------------------------------------------------------
- --------
Management of the Fund
- ------------------------------------------------------------------------
- --------
Directors
Overall responsibility for management and supervision of the Fund
rests
with its Directors. The Directors approve all significant agreements
between the
Fund and the companies that furnish services to the Fund and each
Portfolio,
including agreements with the Fund's distributor, investment manager,
custodian
and transfer agent. The day-to-day operations of each Portfolio are
delegated to
the Portfolio's investment manager. The Statement of Additional
Information
contains background information regarding each Director and executive
officer of
the Fund.
Investment Manager
SBMFM manages the day-to-day operations of each Portfolio pursuant
to
management agreements entered into by the Fund on behalf of each
Portfolio,
subject to the direction of the Directors of the Fund. As compensation
for
SBMFM's services to the Portfolios, each Portfolio pays a monthly fee at
the
annual rate of 0.27% of the value of that Portfolio's average daily net
assets.
22
<PAGE>
Smith Barney Institutional
Cash Management Fund, Inc. - Class B Shares
- ------------------------------------------------------------------------
- --------
Management of the Fund (continued)
- ------------------------------------------------------------------------
- --------
SBMFM is a wholly owned subsidiary of Smith Barney Holdings Inc.,
which is
a wholly owned subsidiary of Travelers Group, Inc., a diversified
financial
services holding company engaged, through its subsidiaries, principally
in four
business segments: Investment Services, Consumer Finance Services, Life
Insurance Services and Property & Casualty Services. Smith Barney and
Smith
Barney Holdings Inc. are each located at 388 Greenwich Street, New York,
New
York 10013.
SBMFM was incorporated on March 12, 1968 under the laws of
Delaware. As of
August 31, 1996 SBMFM had aggregate assets under management in excess of
$77
billion.
- ------------------------------------------------------------------------
- --------
Distributor and Service Organizations
- ------------------------------------------------------------------------
- --------
Smith Barney serves as Principal Underwriter of shares of the Fund.
The
Fund has adopted a Distribution and Shareholder Servicing Plan (the
"Plan")
pursuant to Rule 12b-1 under the 1940 Act. The Plan permits the Fund to
make
payments to institutional investors such as banks, savings and loans
associations and other financial institutions ("service organizations")
who are
purchasing Class B shares on behalf of their customers, at an annual
rate of
0.25% of that Class' average daily net assets.
The Fund will enter into an agreement with each service
organization which
purchases Class B shares to provide certain services to the beneficial
owners of
such shares. Such services include aggregating and processing purchase
and
redemption requests from customers and placing net purchase and
redemption
orders with Smith Barney; processing dividend payments from the Fund on
behalf
of the customers; providing information periodically to customers
showing their
positions in shares; arranging for bank wires; responding to customer
inquiries
relating to the services provided by the service organization and
handling
correspondence; and acting as shareholder of record and nominee. Under
terms of
the agreements, service organizations are required to provide to their
customers
a schedule of any fees that they may charge customers in connection with
their
investment in Class B shares. The service organizations may be subject
to
various state laws regarding the services described above, and may be
required
to register as dealers pursuant to state law.
23
<PAGE>
Smith Barney Institutional
Cash Management Fund, Inc. - Class B Shares
- ------------------------------------------------------------------------
- --------
Additional Information
- ------------------------------------------------------------------------
- --------
The Fund, an open-end, management investment company, was organized
under
the laws of the State of Maryland on March 28, 1995. The Directors have
authorized the issuance of three series of shares, each representing
shares in
one of three separate Portfolios, and may also authorize the creation of
additional series of shares. Each share of a Portfolio represents an
equal
proportionate interest in the net assets of that Portfolio or Class with
each
other share of the same Portfolio or Class and is entitled to such
dividends and
distributions out of the net income of that Portfolio or Class as are
declared
in the discretion of the Directors. Shareholders are entitled to one
vote for
each share held and will vote in the aggregate and not by Portfolio or
Class
except as otherwise required by the 1940 Act or Maryland General
Corporation
Law. As described under "Voting Rights" in the Statement of Additional
Information, the Portfolio ordinarily will not hold shareholder
meetings;
however, shareholders have the right to call a meeting upon a vote of
10% of the
Portfolio's outstanding shares for the purpose of voting to remove
Directors and
the Fund will assist shareholders in calling such a meeting as required
by the
1940 Act.
PNC Bank, National Association, located at 17th and Chestnut
Streets,
Philadelphia, Pennsylvania 19103, is the custodian of each Portfolio's
assets.
First Data, located at Exchange Place, Boston, Massachusetts,
provides
transfer agency and shareholder services for the Fund.
The Fund sends to each shareholder a semi-annual report and an
audited
annual report, each of which includes a list of the investment
securities held
by the Fund at the end of the period covered.
24
<PAGE>
SMITH BARNEY
----
- --------
A Member of Travelers
Group [Logo}
Smith Barney
Institutional Cash
Management
Fund, Inc.
Class
B Shares
388
Greenwich Street
New York, New
York 10013
FD
0959 9/96
SMITH BARNEY INSTITUTIONAL CASH MANAGEMENT FUND, INC.
FORM N-1A
PART B
STATEMENT OF ADDITIONAL INFORMATION
SMITH BARNEY
INSTITUTIONAL CASH MANAGEMENT FUND, INC.
388 Greenwich Street
New York, NY 10013
(212) 723-9218
STATEMENT OF ADDITIONAL INFORMATION
September 27, 1996
The Cash Portfolio, the Government Portfolio and the Municipal
Portfolio.
This Statement of Additional Information expands upon and supplements
the information contained in the current prospectuses of Class A shares
and Class B shares each dated September 27, 1996, as amended or
supplemented from time to time (the "Prospectuses"), of Smith Barney
Institutional Cash Management Fund, Inc. (the "Fund") relating to the
Cash Portfolio, the Government Portfolio and the Municipal Portfolio
(each, a "Portfolio" and collectively, the "Portfolios"), each a series
of the Fund, and should be read in conjunction with the Prospectuses.
The Prospectuses may be obtained from a Smith Barney Financial
Consultant or by writing or calling the Fund at the address or telephone
number set forth above. This Statement of Additional Information,
although not in itself a prospectus, is incorporated by reference into
the Prospectuses in its entirety.
TABLE OF CONTENTS
For ease of reference, the same section headings are used in the
Prospectuses and in this Statement of Additional Information, except
where shown below:
<TABLE>
<S>
Management of the
Fund....................................................................
.
............................................
<C>
2
Counsel and
Auditors................................................................
.
......................................................
4
Investment Objectives (See in Prospectuses "Investment Objectives and
Policies")............................
4
Investment
Restrictions............................................................
.
.......................................................
4
Types of Securities and Investment Techniques
(See in Prospectuses "Common Investment
Techniques).............................................................
.
......
8
Yield
Information.............................................................
.
...............................................................
18
Performance
Data....................................................................
.
........................................................
19
Determination of Net Asset Value (See in Prospectuses "Valuation of
Shares").................................
21
Management Agreement, Plan of Distribution and Other Services
(See in Prospectuses "Management of the
Fund")..................................................................
.
..........
21
Voting
Rights..................................................................
.
................................................................
22
Additional
Information.............................................................
.
.......................................................
23
Financial
Statement...............................................................
.
..........................................................
23
Appendix A - Description of Securities
Ratings.................................................................
.
.............
A1
Appendix B - Description of Municipal
Securities..............................................................
.
............
B1
</TABLE>
MANAGEMENT OF THE FUND
The executive officers of the Fund are employees of certain of the
organizations that provide services to the Fund. These organizations
are the following:
<TABLE>
<CAPTION>
<S> <C>
Name Service
Smith Barney Mutual Funds Management Inc.
("SBMFM" or the "Manager").......................... Investment
Adviser and Administrator
PNC Bank, National Association
("PNC")............................................................
Custodian
First Data Investor Services Group
("First Data")....................................................
Transfer Agent and Dividend Disbursing Agent
</TABLE>
These organizations and the services they perform for the Fund and the
Portfolios are discussed in the Prospectuses and in this Statement of
Additional Information.
Directors and Executive Officers of the Fund
The following are the names of the Directors and executive officers of
the Fund together with a brief description of their principal
occupations during the last five years. Each Director who is an
"interested person" of the Fund, as defined in the 1940 Act, is
indicated by an asterisk.
Paul R. Ades, Director (Age 56). Partner in the law firm of Murov &
Ades. His address is 272 South Wellwood Avenue, Lindenhurst, New York
11757.
Herbert Barg, Director (Age 73). Private investor. His address is 273
Montgomery Avenue, Bala Cynwyd, Pennsylvania 19004.
Jessica M. Bibliowicz, Director and President (Age 37). Executive Vice
President of Smith Barney; prior to 1994, Director of Sales and
Marketing for Prudential Mutual Funds; prior to 1990, First Vice
President of Asset Management Division of Shearson Lehman Brothers. Ms.
Bibliowicz also serves as President of 39 other funds of the Smith
Barney Mutual Funds. Her address is 388 Greenwich Street, New York, New
York 10013.
Alger B. Chapman, Director (Age 65). Chairman and Chief Operating
Officer of the Chicago Board of Options Exchange. His address is
Chicago Board of Options Exchange, LaSalle at Van Buren, Chicago,
Illinois 60605.
Dwight B. Crane, Director (Age 58). Professor, Graduate School of
Business Administration, Harvard University. His address is Graduate
School of Business Administration, Harvard University, Boston,
Massachusetts 02163.
Frank G. Hubbard, Director (Age 61). Vice President of S&S Industries;
Former Corporate Vice President, Materials Management and Marketing
Services of Huls America, Inc. His address is 80 Centennial Avenue P.O.
Box 456, Piscataway, New Jersey 08855-0456.
*Heath B. McLendon, Chairman of the Board and Investment Officer (Age
63). Managing Director of Smith Barney, Chairman of Smith Barney
Strategy Advisors and President of SBMFM; prior to July 1993, Senior
Executive Vice President of Shearson Lehman Brothers Inc. ("Shearson
Lehman Brothers"); Vice Chairman of Asset Management Division of
Shearson Lehman Brothers; Director of PanAgora Asset Management, Inc.
and PanAgora Asset Management Limited. Mr. McLendon also serves as
Chairman of the Board of 41 other funds of the Smith Barney Mutual
funds. His address is 388 Greenwich Street, New York, New York 10013.
Jerome Miller, Director (Age 59). Retired, Former President, Asset
Management Group of Shearson Lehman Brothers. His address is 27 Hemlock
Road, Manhasset, New York, NY 11030.
Ken Miller, Director (Age 54). President of Young Stuff Apparel Group,
Inc. His address is 1407 Broadway, 6th Floor, New York, New York 10018.
John R. White, Director (Age 78). President Emeritus of The Cooper
Union for the Advancement of Science and Art. Special Assistant to the
President of the Aspen Institute. His addresses is Crows Nest Road,
Tuxedo Park, New York 10987.
Lewis E. Daidone, Senior Vice President and Treasurer (Age 39).
Managing Director of Smith Barney; Director and Senior Vice President of
SBMFM. Mr. Daidone also serves as Senior Vice President and Treasurer
of 41 other funds of the Smith Barney Mutual Funds. His address is 388
Greenwich Street, New York, New York 10013.
Christina T. Sydor, Secretary (Age 45). Managing Director of Smith
Barney. General Counsel and Secretary of SBMFM. Ms. Sydor also serves
as Secretary of 41 other funds of the Smith Barney Mutual Funds. Her
address is 388 Greenwich Street New York, New York, 10013.
Phyllis M. Zahorodny, Vice President and Investment Officer (Age 38).
Investment Officer of SBMFM and Managing Director of Smith Barney; prior
to July 1993, Managing Director of Shearson Lehman Advisors. Ms.
Zahorodny serves as Investment Officer of 4 other funds of the Smith
Barney Mutual Funds. Her address is 388 Greenwich Street, New York, New
York, 10013.
Lawrence T. McDermott, Vice President and Investment Officer (Age 48).
Investment Officer of SBMFM and Managing Director of Smith Barney; prior
to July 1993, Managing Director of Shearson Lehman Advisors. Mr.
McDermott serves as Investment Officer of 10 other funds of the Smith
Barney Mutual Funds. His address is 388 Greenwich Street, New York, New
York, 10013.
Each Director also serves as a director, trustee and/or general partner
of certain other mutual funds for which Smith Barney serves as
distributor. As of September 6, 1996, the Directors and officers of the
Fund, as a group, owned less than 1.00% of the outstanding shares of
common stock of each Portfolio.
To the best knowledge of the Directors, as of September 6, 1996, no
shareholder or "group" (as such term is defined in section 13(d) of the
Securities Exchange Act of 1934, as amended) owned beneficially or of
record more than 5% of the shares of each Portfolio.
No officer, director or employee of Smith Barney of any parent or
subsidiary receives any compensation from the Fund for serving as an
officer or Director of the Fund. The Fund pays each Director who is not
a director, officer or employee of Smith Barney or any of its
affiliates, a fee of $3,000 per annum plus $750 per meeting attended and
reimburses them for travel and out of pocket expenses.
For the Fiscal year ended May 31, 1996, the Directors were paid the
following compensation as a director, trustee and/or general partner of
other Smith Barney Mutual Funds.
[S]
[C]
Aggregate
Compensation
[C]
Aggregate
Compensation From
the Smith Barney
Directors(*)
From the
Fund**
Mutual Funds
Paul R. Ades (4)
5,250
52,350
Herbert Barg (11)
6,000
97,350
Alger B. Chapman (
)
6,000
75,400
Dwight B. Crane (18)
6,000
135,850
Frank G. Hubbard (3)
6,000
48,6000
Heath B. McLendon (41)
____
____
Jerome Miller
5,750
10,850
Ken Miller (4)+
6,000
48,100
John F. White (4)+
6,000
48,100
(*) Number of directorships/trusteeships held with other funds in the
Smith Barney Mutual Funds Family.
** The Aggregate remuneration paid to Directors by the Fund for the
fiscal year ended May 31, 1996, which includes reimbursement for travel
and out-of-pocket expenses.
+ Pursuant to the Fund's deferred compensation plan, Messrs. Ken
Miller and John White have elected to defer the payment of some or all
of the compensation due to them from the Fund.
COUNSEL AND AUDITORS
Willkie Farr & Gallagher serves as legal counsel to the Fund. The
Directors who are not "interested persons" of the Fund have selected
Stroock & Stroock & Lavan as their counsel.
KPMG Peat Marwick LLP, 345 Park Avenue, New York, New York 10154, have
been selected as independent auditors for the Fund for its fiscal year
ending May 31, 1997, to examine and report on the financial statements
and financial highlights of the Fund.
INVESTMENT OBJECTIVES
As discussed in the Prospectuses, the investment objective of each of
the Cash Portfolio and the Government Portfolio is to seek maximum
current income to the extent consistent with preservation of capital and
the maintenance of liquidity. The investment objective of the Municipal
Portfolio is to seek maximum current income that is exempt from Federal
income taxes to the extent consistent with preservation of capital and
the maintenance of liquidity. There can be no assurance that a
Portfolio will achieve its investment objective or maintain a stable net
asset value of $1.00 per share. The investment objectives of the
Portfolios are fundamental and may not be changed without shareholder
approval.
INVESTMENT RESTRICTIONS
As indicated in the Prospectus, each Portfolio has adopted certain
fundamental investment restrictions that cannot be changed without
shareholder approval. Shareholder approval means approval by the lesser
of (i) more than 50% of the outstanding voting securities of the Fund
(or a particular Portfolio if a matter affects just that Portfolio), or
(ii) 67% or more of the voting securities present at a meeting if the
holders of more than 50% of the outstanding voting securities of the
Fund (or a particular Portfolio) are present or represented by proxy.
As used in the restrictions set forth below and as used elsewhere in
this Statement of Additional Information ("SAI"), the term "U.S.
Government Securities" shall have the meaning set forth in the
Investment Company Act of 1940, as amended (the "1940 Act"). The 1940
Act defines U.S. Government Securities as securities issued or
guaranteed by the United States government, its agencies or
instrumentalities and has been interpreted to include repurchase
agreements collateralized and municipal securities refunded with
escrowed U.S. Government Securities ("U.S. Government Securities").
If a percentage restriction described below is complied with at the time
of an investment, a later increase or decrease in percentage resulting
from a change in values or assets will not constitute a violation of
such restriction. The identification of the issuer of a Municipal
Obligation depends on the terms and conditions of the obligation. If
the assets and revenues of an agency, authority, instrumentality or
other political subdivision are separate from those of the government
creating the issuing entity and a security is backed only by the assets
and revenues of the entity, the entity would be deemed to be the sole
issuer of the security. Similarly, in the case of a private activity
bond, if that bond is backed only by the assets and revenues of the
non-governmental user, then the non-governmental user would be deemed to
be the sole issuer. If, however, in either case, the creating
government or some other entity guarantees a security, such a guarantee
would be considered a separate security and would be treated as an issue
of such government or other entity.
Each Portfolio may make commitments more restrictive than the
fundamental restrictions listed above so as to permit the sale of
Portfolio shares in certain states. Should a Portfolio determine that
any such commitment is no longer in the best interests of the Portfolio
and its shareholders, it will revoke the commitment by terminating sales
of its shares in the state involved.
The Portfolios have adopted the following fundamental policies:
(1) With respect to 75% of its assets, a Portfolio may not purchase a
security other than a U.S. Government Security, if, as a result, more
than 5% of the Portfolio's total assets would be invested in the
securities of a single issuer or the Portfolio would own more than 10%
of the outstanding voting securities of any single issuer. (As noted in
the Prospectus, the Cash Portfolio and the Government Portfolio are
currently subject to the greater diversification standards of Rule 2a-7,
which are not fundamental.)
(2) A Portfolio may not purchase securities if more than 25% of the
value of a Portfolio's total assets would be invested in the securities
of issuers conducting their principal business activities in the same
industry; provided that: (i) there is no limit on investments in U.S.
Government Securities or in obligations of domestic or foreign
commercial banks (including U.S. branches of foreign banks subject to
regulations under U.S. laws applicable to domestic banks and, to the
extent that its parent is unconditionally liable for the obligation,
foreign branches of U.S. banks); (ii) this limitation shall not apply to
the Municipal Portfolio's investments in municipal securities; (iii)
there is no limit on investments in issuers domiciled in a single
country; (iv) financial service companies are classified according to
the end users of their services (for example, automobile finance, bank
finance and diversified finance are each considered to be a separate
industry); and (v) utility companies are classified according to their
services (for example, gas, gas transmission, electric, and telephone
are each considered to be a separate industry).
(3) A Portfolio may not act as an underwriter of securities issued by
others, except to the extent that a Portfolio may be deemed an
underwriter in connection with the disposition of portfolio securities
of such Portfolio.
(4) A Portfolio may not make loans, except that this restriction shall
not prohibit (a) purchase and holding of a portion of an issue of
publicly distributed debt securities, (b) the lending of portfolio
securities, or (c) entry into repurchase agreements. A Portfolio may not
lend any security if, as a result, more than 20% of a Portfolio's total
assets would be lent to other parties.
(5) A Portfolio may not purchase or sell real estate or any interest
therein, except that the Portfolio may invest in debt obligations
secured by real estate or interests therein or securities issued by
companies that invest in real estate or interests therein.
(6) A Portfolio may borrow money for emergency purposes (not for
leveraging) in an amount not exceeding 33 1/3% of the value of its total
assets (including the amount borrowed) less liabilities (other than
borrowings). If borrowings exceed 5% of the value of a Portfolio's total
assets by reason of a decline in net assets, the Portfolio will reduce
its borrowings within three business days to the extent necessary to
comply with the 33 1/3% limitation. Reverse repurchase agreements or the
segregation of assets in connection with such agreements shall not be
considered borrowing for the purposes of this limit.
(7)Each Portfolio may, notwithstanding any other investment policy or
restriction (whether or not fundamental), invest all of its assets in
the securities of a single open-end management investment company with
substantially the same fundamental investment objectives, policies and
restrictions as that Portfolio.
Each Portfolio has adopted the following nonfundamental investment
restrictions that may be changed by the Board of Directors of the Fund
(the "Directors") without shareholder approval:
(1) A Portfolio may not invest in securities or enter into repurchase
agreements with respect to any securities if, as a result, more than 10%
of the Portfolio's net assets would be invested in repurchase agreements
not entitling the holder to payment of principal within seven days and
in other securities that are not readily marketable ("illiquid
securities"). The Directors, or the Portfolio's Investment Adviser
acting pursuant to authority delegated by the Directors, may determine
that a readily available market exists for certain securities such as
securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933, as amended, or any successor to such rule,
Section 4(2) commercial paper and municipal lease obligations.
Accordingly, such securities may not be subject to the foregoing
limitation.
(2) A Portfolio may not purchase the securities of an issuer if one or
more of the Directors or Officers of the Portfolio individually own
beneficially more than 1/2 of 1% of the outstanding securities of such
issuer or together own beneficially more than 5% of such securities.
(3) A Portfolio may not invest more than 15% of its assets in the
securities of any unseasoned issuer or in illiquid securities. Solely
for the purposes of this paragraph, illiquid securities include
securities eligible for resale pursuant to Rule 144A.
(4) A Portfolio may not invest in the securities of another investment
company except in connection with a merger, consolidation,
reorganization or acquisition of assets.
(5) A Portfolio may not purchase securities on margin, or make short
sales of securities, except for short sales against the box and the use
of short-term credit necessary for the clearance of purchases and sales
of portfolio securities.
(6) A Portfolio may not invest more than 5% of the value of its total
assets in the securities of any issuer that has conducted continuous
operations for less than three years, including operations of
predecessors, except that this shall not affect the Portfolio's ability
to invest in US. Government Securities, fully collateralized debt
obligations, municipal obligations, securities that are rated by at
least one nationally recognized statistical rating organization and
securities guaranteed as to principal and interest by an issuer in whose
securities the Portfolio could invest.
(7) A Portfolio may not pledge, mortgage, hypothecate or encumber any of
its assets except to secure permitted borrowings or in connection with
permitted short sales.
(8) A Portfolio may not invest directly in interests in oil and gas or
interests in other mineral exploration or development programs or
leases; however, the Portfolio may own debt securities of companies
engaged in those businesses.
(9) A Portfolio may not invest in companies for the purpose of
exercising control of management.
Portfolio Turnover
The Portfolios do not intend to seek profits through short-term trading.
Nevertheless, the Portfolios will not consider turnover rate a limiting
factor in making investment decisions.
Under certain market conditions, a Portfolio may experience increased
portfolio turnover as a result of its options activities. For instance,
the exercise of a substantial number of options written by a Portfolio
(due to appreciation of the underlying security in the case of call
options or depreciation of the underlying security in the case of put
options) could result in a turnover rate in excess of 100%. The
portfolio turnover rate of a Portfolio is calculated by dividing the
lesser of purchases or sales of portfolio securities for the year by the
monthly average value of portfolio securities. Securities with remaining
maturities of one year or less on the date of acquisition are excluded
from the calculation.
Portfolio Transactions
Most of the purchases and sales of securities for a Portfolio, whether
transacted on a securities exchange or in the over-the-counter market,
will be effected in the primary trading market for the securities. The
primary trading market for a given security generally is located in the
country in which the issuer has its principal office. Decisions to buy
and sell securities for a Portfolio are made by SBMFM which also is
responsible for placing these transactions, subject to the overall
review of the Fund's Board of Directors.
Although investment decisions for each Portfolio are made independently
from those of the other accounts managed by its Investment Manager,
investments of the type the Portfolio may make also may be made by those
other accounts. When a Portfolio and one or more other accounts managed
by its Investment Manager are prepared to invest in, or desire to
dispose of, the same security, available investments or opportunities
for sales will be allocated in a manner believed by the Investment
Manager to be equitable to each. In some cases, this procedure may
adversely affect the price paid or received by a Portfolio or the size
of the position obtained or disposed of by the Portfolio.
Transactions on domestic stock exchanges and some foreign stock
exchanges involve the payment of negotiated brokerage commissions. On
exchanges on which commissions are negotiated, the cost of transactions
may vary among different brokers. On most foreign exchanges, commissions
are generally fixed. There is generally no stated commission in the case
of securities traded in domestic or foreign over-the-counter markets,
but the prices of those securities include undisclosed commissions or
mark-ups. The cost of securities purchased from underwriters includes an
underwriting commission or concession, and the prices at which
securities are purchased from and sold to dealers include a dealer's
mark-up or mark-down. U.S. Government Securities are generally purchased
from underwriters or dealers, although certain newly issued U.S.
Government Securities may be purchased directly from the United States
Treasury or from the issuing agency or instrumentality, respectively.
In selecting brokers or dealers to execute portfolio transactions on
behalf of a Portfolio, the Portfolio's Investment Manager seeks the best
overall terms available. In assessing the best overall terms available
for any transaction, each Investment Manager will consider the factors
the Investment Manager deems relevant, including the breadth of the
market in the security, the price of the security, the financial
condition and the execution capability of the broker or dealer and the
reasonableness of the commission, if any, for the specific transaction
and on a continuing basis. In addition, each advisory agreement between
the Fund and an Investment Manager relating to a Portfolio authorizes
the Investment Manager, in selecting brokers or dealers to execute a
particular transaction and in evaluating the best overall terms
available, to consider the brokerage and research services (as those
terms are defined in Section 28(e) of the Securities Exchange Act of
1934) provided to the Portfolio, the other Portfolios and/or other
accounts over which the Investment Manager or its affiliates exercise
investment discretion. The fees under the advisory agreements relating
to the Portfolios between the Fund and the Investment Managers are not
reduced by reason of their receiving such brokerage and research
services. The Fund's Board of Directors periodically will review the
commissions paid by the Portfolios to determine if the commissions paid
over representative periods of time were reasonable in relation to the
benefits inuring to the Portfolios.
To the extent consistent with applicable provisions of the 1940 Act and
the rules and exemptions adopted by the SEC thereunder, the Board of
Directors has determined that transactions for a Portfolio may be
executed through Smith Barney and other affiliated broker-dealers if, in
the judgment of the Portfolio's Investment Manager, the use of such
broker-dealer is likely to result in price and execution at least as
favorable as those of other qualified broker-dealers, and if, in the
transaction, such broker-dealer charges the Portfolio a rate consistent
with that charged to comparable unaffiliated customers in similar
transactions. Smith Barney may directly execute such transactions for
the Portfolios on the floor of any national securities exchange,
provided (a) the Board of Directors has expressly authorized Smith
Barney to effect such transactions, and (b) Smith Barney annually
advises the Fund of the aggregate compensation it earned on such
transactions. Over-the-counter purchases and sales are transacted
directly with principal market makers except in those cases in which
better prices and executions may be obtained elsewhere.
TYPES OF SECURITIES AND INVESTMENT TECHNIQUES
The Portfolios will invest only in eligible high-quality, short-term
money market instruments that present minimal credit risks determined by
the Manager pursuant to procedures adopted by the Directors.
Each of the Portfolios may invest only in "eligible securities" as
defined in Rule 2a-7 adopted under the 1940 Act. Generally, an eligible
security is a security that (i) is denominated in U S. dollars and has a
remaining maturity of 13 months or less (as calculated pursuant to Rule
2a-7); (ii) is rated, or is issued by an issuer with short-term debt
outstanding that is rated, in one of the two highest rating categories
by any two nationally recognized statistical rating organizations
("NRSROs") or, if only one NRSRO has issued a rating, by that NRSRO (the
"Requisite NRSROs") or is unrated and of comparable quality to a rated
security, as determined by SBMFM; and (iii) has been determined by SBMFM
to present minimal credit risks pursuant to procedures approved by the
Directors. In addition, the Portfolios will maintain a dollar-weighted
average portfolio maturity of 90 days or less. A description of the
ratings of some NRSROs appears in Appendix A.
Under Rule 2a-7, a Portfolio may not invest more than 5% of its total
assets in the securities of any one issuer other than US. Government
Securities, provided that in certain cases a Portfolio may invest more
than 5% of its assets in a single issuer for a period of up to three
business days. In the case of the Municipal Portfolio, up to 25% of its
assets may be invested without regard to the foregoing limitations.
Pursuant to Rule 2a-7, each Portfolio (except the Municipal Portfolio)
will invest at least 95% of its total assets in ''first-tier"
securities. First-tier securities are eligible securities that are
rated, or are issued by an issuer with short-term debt outstanding that
is rated, in the highest rating category by the Requisite NRSROs or are
unrated and of comparable quality to a rated security. In addition, a
Portfolio may invest in "second-tier" securities which are eligible
securities that are not first-tier securities. However, a Portfolio
(except for the Municipal Portfolio) may not invest in a second-tier
security if immediately after the acquisition thereof the Portfolio
would have invested more than (i) the greater of one percent of its
total assets or one million dollars in second-tier securities issued by
that issuer, or (ii) five percent of its total assets in second-tier
securities.
The following discussion of types of securities in which the Portfolios
may invest supplements and should be read in conjunction with the
Prospectus.
Certain Portfolio Strategies
U.S. Government Securities. Securities issued or guaranteed by the U.S.
Government or one of its agencies, authorities or instrumentalities in
which the Portfolios may invest include debt obligations of varying
maturities issued by the U.S. Treasury or issued or guaranteed by an
agency or instrumentality of the U.S. Government, including the Federal
Housing Administration, Farmers Home Administration, Export-Import Bank
of the United States, Small Business Administration, Government National
Mortgage Association, General Services Administration, Central Bank for
Cooperatives, Federal Farm Credit Banks, Federal Home Loan Banks,
Federal Home Loan Mortgage Corporation, Federal Intermediate Credit
Banks, Federal Land Banks, Federal National Mortgage Association,
Maritime Administration, Tennessee Valley Authority, District of
Columbia Armory Board, Student Loan Marketing Association and Resolution
Trust Corporation. Direct obligations of the U.S. Treasury include a
variety of securities that differ in their interest rates, maturities
and dates of issuance. Because the U.S. Government is not obligated by
law to provide support to an instrumentality that it sponsors, none of
the Portfolios will invest in obligations issued by an instrumentality
of the U.S. Government unless SBMFM determines that the
instrumentality's credit risk does not make its securities unsuitable
for investment by the Portfolio.
Ratings as Investment Criteria. In general, the ratings of NRSROs
represent the opinions of those organizations as to the quality of the
securities that they rate. It should be emphasized, however, that such
ratings are relative and subjective, are not absolute standards of
quality and do not evaluate the market risk of securities. These
ratings will be used by the Portfolios as initial criteria for the
selection of portfolio securities, but the Portfolios also will rely
upon the independent advice of SBMFM to evaluate potential investments.
Subsequent to the purchase of a particular security by a Portfolio, its
rating may be reduced below the minimum required for purchase by the
Portfolio or the issuer of the security may default on its obligations
with respect to the security. In that event, the Portfolio will dispose
of the security as soon as practicable, consistent with achieving an
orderly disposition of the security, unless the Directors determine that
disposal of the security would not be in the best interest of the
Portfolio. In addition, it is possible that a security may cease to be
rated or an NRSRO might not timely change its rating of a particular
security to reflect subsequent events. Neither of these events will
necessarily require the sale of the security by the Portfolio, but the
Directors will promptly consider such event in its determination of
whether the Portfolio should continue to hold the security. In
addition, to the extent that the ratings change as a result of changes
in such organizations or their rating systems, the Portfolio will
attempt to use comparable ratings as standards for its investments in
accordance with its investment objective and policies.
Repurchase Agreements. Each of the Portfolios may engage in repurchase
agreement transactions with banks which are issuers of instruments
acceptable for purchase by such Portfolio and with certain dealers
listed on the Federal Reserve Bank of New York's list of reporting
dealers. Repurchase agreements are contracts under which the buyer of a
security simultaneously commits to resell the security to the seller at
an agreed-upon price and date. Under each repurchase agreement, the
selling institution will be required to maintain the value of the
securities subject to the repurchase agreement at not less than their
repurchase price. Repurchase agreements could involve certain risks in
the event of default or insolvency of the other party, including
possible delays or restrictions upon the relevant Portfolio's ability to
dispose of the underlying securities. SBMFM, acting under the
supervision of the Directors, reviews the value of the collateral and
the creditworthiness of those banks and dealers with which a Portfolio
enters into repurchase agreements to evaluate potential risks.
Lending of Portfolio Securities. Each Portfolio has the ability to lend
securities from its portfolio to brokers, dealers and other financial
organizations. Such loans, if and when made, will not exceed 20% of the
Portfolio's total assets, taken at value. A Portfolio may not lend its
portfolio securities to SBMFM or its affiliates without specific
authorization from the SEC. Loans of portfolio securities by a
Portfolio will be collateralized by cash, letters of credit or
securities issued or guaranteed by the U.S. Government or its agencies
which will be maintained at all times in an amount equal to at least
100% of the current market value of the loaned securities. From time to
time, a Portfolio may return a part of the interest earned from the
investment of collateral received for securities loaned to the borrower
and/or a third party, which is unaffiliated with the Portfolio or with
SBMFM, and which is acting as a "finder."
By lending portfolio securities, each Portfolio can increase its income
by continuing to receive interest on the loaned securities as well as by
either investing the cash collateral in short-term instruments or
obtaining yield in the form of interest paid by the borrower when
government securities are used as collateral. Requirements of the SEC,
which may be subject to future modifications, currently provide that the
following conditions must be met whenever portfolio securities are
loaned: (a) the Portfolio must receive at least 100% cash collateral or
equivalent securities from the borrower; (b) the borrower must increase
such collateral whenever the market value of the securities rises above
the level of such collateral; (c) the Portfolio must be able to
terminate the loan at any time; (d) the Portfolio must receive
reasonable interest on the loan, as well as an amount equal to any
dividends, interest or other distributions on the loaned securities and
any increase in market value; (e) the Portfolio may pay only reasonable
custodian fees in connection with the loan; and (f) voting rights on the
loaned securities may pass to the borrower; however, if a material event
adversely affecting the investment occurs, the Directors of the Fund
must terminate the loan and regain the right to vote the securities.
The limit of 20% of each Portfolio's total assets to be committed to
securities lending is a fundamental policy of each Portfolio, which
means that it cannot be changed without approval of a majority of a
Portfolio's outstanding shares. See "Investment Restrictions" above.
Floating Rate and Variable Rate Obligations Each Portfolio may purchase
floating rate and variable rate obligations, including participation
interests therein. Floating rate or variable rate obligations provide
that the rate of interest is set as a specific percentage of a
designated base rate (such as the prime rate at a major commercial
bank). Variable rate obligations provide for a specified periodic
adjustment in the interest rate, while floating rate obligations have an
interest rate which changes whenever there is a change in the external
interest rate. Each Portfolio may purchase floating rate and variable
rate obligations which carry a demand feature that would permit the
Portfolio to tender them back to the issuer or remarketing agent at par
value prior to maturity. Each Portfolio currently is permitted to
purchase floating rate and variable rate obligations with demand
features in accordance with requirements established by the SEC, which,
among other things, permit such instruments to be deemed to have
remaining maturities of 13 months or less, notwithstanding that they may
otherwise have a stated maturity in excess of 13 months. Frequently,
floating rate and variable rate obligations are secured by letters of
credit or other credit support arrangements provided by banks. As
determined by SBMFM, under the supervision of the Directors, the quality
of the underlying creditor or of the bank, as the case may be, also must
be equivalent to the quality standards set forth above. In addition,
SBMFM will monitor on an ongoing basis the earning power, cash flow and
other liquidity ratios of the issuers of the obligations, and similarly
will monitor the creditworthiness of the institution responsible for
paying the principal amount of the obligation under the demand feature.
Participation Interests. Each Portfolio may invest in participation
interests in floating rate or variable obligations owned by banks. A
participation interest gives the purchaser an undivided interest in the
obligation in the proportion that the Portfolio's participation interest
bears to the total principal amount of the obligation and provides the
demand repurchase feature. Each participation is backed by an
irrevocable letter of credit or guarantee of a bank that SBMFM, under
the supervision of the Directors, has determined meets the prescribed
quality standards of the Portfolio. Each Portfolio has the right to
sell the instrument back to the issuing bank or draw on the letter of
credit on demand for all or any part of the Portfolio's participation
interest in the obligation, plus accrued interest. Each Portfolio
currently is permitted to invest in participation interests when the
demand provision complies with conditions established by the SEC. Banks
will retain or receive a service fee, letter of credit fee and a fee for
issuing repurchase commitments in an amount equal to the excess of the
interest paid on the obligations over the negotiated yield at which the
instruments were purchased by the Portfolio. Participation interests in
the form to be purchased by Municipal Portfolio are relatively new
instruments, and no ruling of the Internal Revenue Service has been
secured relating to their tax-exempt status. Each of Cash Portfolio and
Municipal Portfolio intends to purchase participation interests based
upon opinions of counsel.
When-Issued Securities. Each Portfolio may purchase securities on a
when-issued basis, in which case delivery of and payment for the
securities normally take place within 45 days after the date of the
commitment to purchase. The payment obligation and the interest rate to
be received on the securities purchased on a when-issued basis are each
fixed when the buyer enters into a commitment. Although each Portfolio
will purchase securities on a when-issued basis only with the intention
of actually acquiring the securities, the Portfolio may sell these
securities before the settlement date if it is deemed advisable as a
matter of investment strategy.
Securities purchased on a when-issued basis and the securities held in a
Portfolio's portfolio are subject to changes in market value based upon
the public's perception of the creditworthiness of the issuer and
changes, real or anticipated, in the level of interest rates (which
generally will result in similar changes in value, i.e., both
experiencing appreciation when interest rates decline and depreciation
when interest rates rise). Therefore, to the extent a Portfolio remains
substantially fully invested at the same time it has purchased
securities on a when-issued basis, there will be a greater possibility
that the market value of the Portfolio's assets will vary from $1.00 per
share. Purchasing securities on a when-issued basis can involve a risk
that the yields available in the market when the delivery takes place
may actually be higher than those obtained in the transaction.
A separate account consisting of cash or liquid debt securities equal to
the amount of the when-issued commitments will be established with the
Fund's custodian with respect to a Portfolio's when-issued obligations.
When the time comes to pay for when-issued securities, a Portfolio will
meet its obligations from then-available cash flow, sale of securities
held in the separate account, sale of other securities or, although it
normally would not expect to do so, from the sale of the when-issued
securities themselves (which may have a value greater or less than the
Portfolio's payment obligations). Sales of securities to meet such
obligations carries with it a greater potential for the realization of
capital gains, which are not exempt from federal income tax.
Municipal Leases. The Cash Portfolio and the Municipal Portfolio may
invest in municipal leases. Municipal leases frequently have special
risks not normally associated with general obligation or revenue bonds.
Leases and installment purchase or conditional sales contracts (which
normally provide for title to the leased asset to pass eventually to the
government issuer) have evolved as a means for governmental issuers to
acquire property and equipment without meeting the constitutional and
statutory requirements for the issuance of debt. The debt-issuance
limitations of many state constitutions and statutes are deemed to be
inapplicable because of the inclusion in many leases or contracts of
"nonappropriation" clauses that provide that the governmental issuer has
no obligation to make future payments under the lease or contract unless
money is appropriated for such purpose by the appropriate legislative
body on a yearly or other periodic basis. The Portfolios will only
purchase municipal leases subject to a non-appropriation clause when the
payment of principal and accrued interest is backed by an unconditional,
irrevocable letter of credit, or guarantee of a bank or other entity
that meets the criteria described in the Prospectus under "Taxable
Investments".
In evaluating municipal lease obligations, SBMFM will consider such
factors as it deems appropriate, including: (a) whether the lease can be
canceled; (b) the ability of the lease obligee to direct the sale of the
underlying assets; (c) the general creditworthiness of the lease
obligor; (d) the likelihood that the municipality will discontinue
appropriating funding for the leased property in the event such property
is no longer considered essential by the municipality; (e) the legal
recourse of the lease obligee in the event of such a failure to
appropriate funding; (f) whether the security is backed by a credit
enhancement such as insurance; and (g) any limitations which are imposed
on the lease obligor's ability to utilize substitute property or
services other than those covered by the lease obligation. If a lease is
backed by an unconditional letter of credit or other unconditional
credit enhancement, then SBMFM may determine that a lease is an eligible
security solely on the basis of its evaluation of the credit
enhancement.
Municipal leases, like other municipal debt obligations, are subject to
the risk of non-payment. The ability of issuers of municipal leases to
make timely lease payments may be adversely impacted in general economic
downturns and as relative governmental cost burdens are allocated and
reallocated among federal, state and local governmental units. Such
non-payment would result in a reduction of income to the Portfolio, and
could result in a reduction in the value of the municipal lease
experiencing non-payment and a potential decrease in the net asset value
of the Portfolio.
The Cash Portfolio
Bank Obligations. Domestic commercial banks organized under federal law
("national banks") are supervised and examined by the U.S. Comptroller
of the Currency and are required to be members of the Federal Reserve
System and to be insured by the Federal Deposit Insurance Corporation
(the "FDIC"). Domestic banks organized under state law are supervised
and examined by state banking authorities but are members of the Federal
Reserve System only if they elect to join. Most state banks are insured
by the FDIC (although such insurance may not be of material benefit to
the Portfolio, depending upon the principal amount of certificates of
deposit ("CDs") of each bank held by the Portfolio) and are subject to
federal examination and to a substantial body of federal law and
regulation. As a result of government regulations, domestic branches
of domestic banks are, among other things, generally required to
maintain specified levels of reserves, and are subject to other
supervision and regulation designed to promote financial soundness.
Obligations of foreign branches of domestic banks and of foreign
branches of foreign banks, such as CDs and time deposits ("TDs"), may be
general obligations of the parent bank in addition to the issuing
branch, or may be limited by the terms of a specific obligation or by
governmental regulation. Such obligations are subject to different
risks than are those of domestic banks or domestic branches of foreign
banks. These risks include foreign economic and political developments,
foreign governmental restrictions that may adversely affect payment of
principal and interest on the obligations, foreign exchange controls and
foreign withholding and other taxes on interest income. Foreign
branches of domestic banks and foreign branches of foreign banks are not
necessarily subject to the same or similar regulatory requirements that
apply to domestic banks, such as mandatory reserve requirements, loan
limitations, and accounting, auditing and financial record keeping
requirements. In addition, less information may be publicly available
about a foreign branch of a domestic bank or about a foreign bank than
about a domestic bank.
Obligations of domestic branches of foreign banks may be general
obligations of the parent bank in addition to the issuing branch, or may
be limited by the terms of a specific obligation and by governmental
regulation as well as governmental action in the country in which the
foreign bank has its head office. A domestic branch of a foreign bank
may or may not be subject to reserve requirements imposed by the Federal
Reserve System or by the state in which the branch is located if the
branch is licensed in that state. In addition, branches licensed by the
Comptroller of the Currency and branches licensed by certain states
("State Branches") may or may not be required to: (a) pledge to the
regulator by depositing assets with a designated bank within the state,
an amount of its assets equal to a specific percentage of its total
liabilities; and (b) maintain assets within the state in an amount equal
to a specified percentage of the aggregate amount of liabilities of the
foreign bank payable at or through all of its agencies or branches
within the state. The deposits of State Branches may not necessarily be
insured by the FDIC. In addition, there may be less publicly available
information about a domestic branch of a foreign bank than about a
domestic bank.
In view of the foregoing factors associated with the purchase of CDs and
TDs issued by foreign branches of domestic banks, by domestic branches
of foreign banks or by foreign branches of foreign banks, SBMFM will
carefully evaluate such investments on a case-by-case basis.
Custodial Receipts. The Cash Portfolio may acquire custodial receipts
that evidence ownership of future interest payments, principal payments
or both on certain U.S. Government notes or bonds. These notes and
bonds are held in custody by a bank on behalf of the owners. These
custodial receipts are known by various names, including "Treasury
Receipts," "Treasury Investors Growth Receipts" ("TIGRs"), and
"Certificates of Accrual on Treasury Securities" ("CATS"). Custodial
receipts are not considered U.S. Government Securities.
Asset-Backed and Receivable-Backed Securities. The Cash Portfolio may
invest in asset-backed and receivable-backed securities. Several types
of asset-backed and receivable-backed securities have been offered to
investors, including "Certificates for Automobile Receivables" ("CARs")
and interests in pools of credit card receivables. CARs represent
undivided fractional interests in a trust, the assets of which consist
of a pool of motor vehicle retail installment sales contracts and
security interests in the vehicles securing the contracts. Payments of
principal and interest on CARs are passed through monthly to certificate
holders and are guaranteed up to certain amounts and for a certain time
period by a letter of credit issued by a financial institution
unaffiliated with the trustee or originator of the trust. An investor's
return on CARs may be affected by early prepayment of principal on the
underlying vehicle sales contracts. If the letter of credit is
exhausted, the trust may be prevented from realizing the full amount
due on a sales contract because of state law requirements and
restrictions relating to foreclosure sales of vehicles and the
availability of deficiency judgments following such sales, because of
depreciation, damage or loss of a vehicle, because of the application of
federal and state bankruptcy and insolvency laws or other factors. As a
result, certificate holders may experience delays in payment if the
letter of credit is exhausted. Consistent with the Portfolio's
investment objective and policies and, subject to the review and
approval of the Fund's Board of Directors, the Portfolio also may invest
in other types of asset-backed and receivable-backed securities.
Participation Interests. The Cash Portfolio may purchase participation
interests in loans with remaining maturities of 13 months or less.
These loans must be made to issuers in whose obligations the Portfolio
may invest. Any participation purchased by the Portfolio must be issued
by a bank in the United States with assets exceeding $1 billion.
Because the issuing bank does not guarantee the participation in any
way, they are subject to the credit risks generally associated with the
underlying corporate borrower. In addition, because it may be necessary
under the terms of the loan participation for the Portfolio to assert
through the issuing bank such rights as may exist against the underlying
corporate borrower, in the event the underlying corporate borrower fails
to pay principal and interest when due, the Portfolio may be subject to
delays, expenses and risks that are greater than those that would have
been involved if the Portfolio had purchased a direct obligation, such
as commercial paper, of the borrower. Moreover, under the terms of the
loan participation, the Portfolio may be regarded as a creditor of the
issuing bank, rather than of the underlying corporate borrower, so that
the Portfolio may also be subject to the risk that the issuing bank may
become insolvent. Further, in the event of the bankruptcy or insolvency
of the corporate borrower, the loan participation may be subject to
certain defenses that can be asserted by the borrower as a result of
improper conduct by the issuing bank. The secondary market, if any, for
these loan participation is limited and any participation interest may
be regarded as illiquid.
In the event that SBMFM does not believe that price quotations currently
obtainable from banks, dealers or pricing services consistently
represent the market values of participation interests, SBMFM will,
following guidelines established by the Board of Directors, value the
participation interests held by the Cash Portfolio at fair value, which
approximates market value. In valuing a participation interest, SBMFM
will consider the following factors, among others: (i) the
characteristics of the participation interest, including the cost, size,
interest rate, period until next interest rate reset, maturity and base
lending rate of the participation interest, the terms and conditions of
the loan and any related agreements and the position of the loan in the
borrower's debt structure; (ii) the nature, adequacy and value of the
collateral, including the Fund's rights, remedies and interests with
respect to the collateral; (iii) the creditworthiness of the borrower
based on an evaluation of its financial condition, financial statements
and information about the borrower's business, cash flows, capital
structure and future prospects; (iv) the market for the participation
interest, including price quotations for and trading in the
participation interest and similar participation interests or
instruments and the market environment and investor attitudes toward the
participation interest or participation interests generally; (v) the
quality and creditworthiness of any intermediary participants; and
(vi) general economic or market conditions.
The Municipal Portfolio
Description of Municipal Obligations. Municipal obligations in which
the Municipal Portfolio may invest are short-term debt obligations of
states, cities, counties, municipalities, municipal agencies and
regional districts (generally referred to as "municipalities") that pay
interest which is excluded from gross income for federal income tax
purposes ("Municipal Obligations"). The three principal classifications
of Municipal Obligations are Municipal Bonds, Municipal Commercial Paper
and Municipal Notes.
Municipal Bonds. Municipal Bonds, which generally have a maturity of
more than one year when issued, have two principal classifications:
General Obligation Bonds and Revenue Bonds. A private activity bond is
a particular kind of Revenue Bond. The classifications of Municipal
Bonds and private activity bonds are discussed below.
1. General Obligation Bonds. The proceeds of these obligations are
used to finance a wide range of public projects including construction
or improvement of schools, highways and roads, and water and sewer
systems. General Obligation Bonds are secured by the issuer's pledge of
its faith, credit and taxing power for the payment of principal and
interest.
2. Revenue Bonds. Revenue Bonds are issued to finance a wide variety
of capital projects, including electric, gas, water and sewer systems;
highways, bridges and tunnels; port and airport facilities; colleges and
universities; and hospitals. The principal security for a Revenue Bond
is generally the net revenues derived from a particular facility, group
of facilities or, in some cases, the proceeds of a special excise or
other specific revenue source. Although the principal security behind
these bonds may vary, many provide additional security in the form of a
debt service reserve fund whose money may be used to make principal and
interest payments on the issuer's obligations. Some authorities provide
further security in the form of a state's ability (without obligation)
to make up deficiencies in the debt service reserve fund.
3. Private Activity Bonds. Private activity bonds are considered
Municipal Bonds if the interest paid on them is excluded from federal
income tax and are issued by or on behalf of public authorities to raise
money to finance, for example, various privately operated facilities for
manufacturing and housing. These bonds also are used to finance
facilities such as airports, docks, wharves and mass commuting
facilities. The payment of the principal and interest on these bonds is
dependent solely on the ability of the facility's user to meet its
financial obligations and the pledge, if any, of real and personal
property so financed as security for such payment.
Municipal Commercial Paper. Issues of Municipal Commercial Paper
typically represent short-term, unsecured, negotiable promissory notes.
These obligations are issued by agencies of state and local governments
to finance seasonal working capital needs of municipalities or are
refinanced with long-term debt. In most cases, Municipal Commercial
Paper is backed by letters of credit, lending agreements, note
repurchase agreements or other credit facility agreements offered by
banks or other institutions.
1. Tax Anticipation Notes. Tax Anticipation Notes are issued to
finance working capital needs of municipalities. Generally, they are
issued in anticipation of various seasonal tax revenues, such as income,
sales, use and business taxes and are payable from these specific future
taxes.
2. Revenue Anticipation Notes. Revenue Anticipation Notes are issued
in expectation of receipt of other kinds of revenue, such as federal
revenues available under the Federal Revenue Sharing Program.
3. Bond Anticipation Notes. Bond Anticipation Notes are issued to
provide interim financing until long-term financing can be arranged. In
most cases, the long-term bonds provide the money for the repayment of
the Notes.
4. Construction Loan Notes. Construction Loan Notes are sold to
provide construction financing. Permanent financing, the proceeds of
which are applied to the payment of Construction Loan Notes, is
sometimes provided by a commitment by the Government National Mortgage
Association ("GNMA") to purchase the loan, accompanied by a commitment
by the Federal Housing Administration to insure mortgage advances
thereunder. In other instances, permanent financing is provided by
commitments of banks to purchase the loan. Municipal Portfolio will
purchase only construction Loan Notes that are subject to GNMA or bank
purchase commitments.
There are a number of other types of Municipal Commercial Paper issued
for specified purposes and secured in manners that may vary from those
described above.
Tender Option Bonds. The Municipal Portfolio may invest up to 20%
of the value of its assets in tender option bonds. The Portfolio
will not purchase tender option bonds unless (a) the demand feature
applicable thereto is exercisable by the Portfolio within 13 months of
the date of such purchase upon no more than 30 days' notice and
thereafter is exercisable by the Portfolio no less frequently than
annually upon no more than 30 days' notice and, (b) at the time of such
purchase, SBMFM reasonably expects that, (i) based upon its assessment
of current and historical interest rate trends, prevailing short-term
tax-exempt rates will not exceed the stated interest rate on the
underlying Municipal Obligations at the time of the next tender fee
adjustment, and (ii) the circumstances which might entitle the grantor
of a tender option to terminate the tender option would not occur prior
to the time of the next tender opportunity. At the time of each tender
opportunity, the Portfolio will exercise the tender option with respect
to any tender option bonds unless SBMFM reasonably expects that, (a)
based upon its assessment of current and historical interest rate
trends, prevailing short-term tax-exempt rates will not exceed the
stated interest rate on the underlying Municipal Obligations at the time
of the next tender fee adjustment, and (b) the circumstances which might
entitle the grantor of a tender option to terminate the tender option
would not occur prior to the time of the next tender opportunity. The
Portfolio will exercise the tender feature with respect to tender option
bonds, or otherwise dispose of its tender option bonds, prior to the
time the tender option is scheduled to expire pursuant to the terms of
the agreement under which the tender option is granted. The Portfolio
otherwise will comply with the provisions of Rule 2a-7 under the 1940
Act in connection with the purchase of tender option bonds, including,
without limitation, the requisite determination by the Board of
Directors that the tender option bonds in question meet the quality
standards described in Rule 2a-7. In the event of a default of the
Municipal Obligation underlying a tender option bond, or the termination
of the tender option agreement, the Portfolio would look to the maturity
date of the underlying security for purposes of compliance with Rule
2a-7 and, if its remaining maturity was greater than 13 months, the
Portfolio would sell the security as soon as would be practicable. The
Portfolio will purchase tender option bonds only when it is satisfied
that (a) the custodial and tender option arrangements, including the fee
payment arrangements, will not adversely affect the tax-exempt status of
the underlying Municipal Obligations and (b) payment of any tender fees
will not have the effect of creating taxable income for the Portfolio.
Based on the tender option bond arrangement, the Portfolio expects to
value the tender option bond at par; however, the value of the
instrument will be monitored to assure that it is valued at fair value.
Taxable Investments. Because the Municipal Portfolio's objective is to
provide income exempt from federal income taxes, the Portfolio generally
will invest in taxable obligations only if and when the Directors
believe it would be in the best interests of the Portfolio's
shareholders to do so.
Situations in which the Municipal Portfolio may invest up to 20% of its
total assets in taxable securities include: (a) pending investment of
proceeds of sales of Portfolio shares or of portfolio securities, (b)
pending settlement of purchases of portfolio securities or (c) when the
Portfolio is attempting to maintain liquidity for the purpose of meeting
anticipated redemptions. The Portfolio temporarily may invest more than
20% of its total assets in taxable securities to maintain a defensive
posture when, in the opinion of Smith Barney, it is advisable to do so
because of adverse market conditions affecting the market for Municipal
Obligations.
Purchase of Securities with Stand-By Commitments. The Municipal
Portfolio may acquire stand-by commitments with respect to Municipal
Obligations held in its portfolio. Under a stand-by commitment, a
broker-dealer, dealer or bank would agree to purchase at the Portfolio's
option a specified Municipal Obligation at a specified price. Thus, a
stand-by commitment may be viewed as the equivalent of a "put" option
acquired by the Portfolio with respect to a particular Municipal
Obligation held in the Portfolio's portfolio.
The amount payable to the Municipal Portfolio upon its exercise of a
stand-by commitment normally would be (a) the acquisition cost of the
Municipal Obligation (excluding any accrued interest the Portfolio paid
on the acquisition), less any amortization of market premium or
plus any amortization of market or original issue discount during the
period the Portfolio owned the security, plus (b) all interest accrued
on the security since the last interest payment date during the period
that the security was owned by the Portfolio. Absent unusual
circumstances, the Portfolio would value the underlying Municipal
Obligation at amortized cost. As a result, the amount payable by the
broker-dealer, dealer or bank during the time a stand-by commitment is
exercisable would be substantially the same as the value of the
underlying Municipal Obligation.
The Municipal Portfolio's right to exercise a stand-by commitment would
be unconditional and unqualified. Although the Portfolio could not
transfer a stand-by commitment, the Portfolio could sell the underlying
Municipal Obligation to a third party at any time. It is expected that
stand-by commitments generally will be available to the Portfolio
without the payment of any direct or indirect consideration. The
Portfolio may pay for stand-by commitments, however, if such action is
deemed necessary. In any event, the total amount paid for outstanding
stand-by commitments held by the Portfolio would not exceed 1/2 of 1% of
the value of the Portfolio's total assets calculated immediately after
each stand-by commitment is acquired.
The Municipal Portfolio intends to enter into stand-by commitments only
with broker-dealers, dealers or banks that Smith Barney believes present
minimum credit risks. The Portfolio's ability to exercise a stand-by
commitment will depend on the ability of the issuing institution to pay
for the underlying securities at the time that the stand-by commitment
is exercised. The credit of each institution issuing a stand-by
commitment to the Portfolio will be evaluated on an ongoing basis by
SBMFM in accordance with procedures established by the Board of
Directors.
The Municipal Portfolio intends to acquire stand-by commitments solely
to facilitate portfolio liquidity and does not intend to exercise its
rights thereunder for trading purposes. The acquisition of a stand-by
commitment would not affect the valuation of the underlying Municipal
Obligation, which will continue to be valued in accordance with the
amortized cost method. Each stand-by commitment will be valued at zero
in determining net asset value. Should the Portfolio pay directly or
indirectly for a stand-by commitment, its costs will be reflected in
realized gain or loss when the commitment is exercised or expires. The
maturity of a Municipal Obligation purchased by the Portfolio will not
be considered shortened by any stand-by commitment to which the
obligation is subject. Thus, stand-by commitments will not affect the
dollar-weighted average maturity of the Portfolio's portfolio.
The Municipal Portfolio understands that the Internal Revenue Service
has issued a revenue ruling to the effect that a registered investment
company will be treated for federal income tax purposes as the owner of
Municipal Obligations acquired subject to a stand-by commitment and the
interest on the Municipal Obligations will be tax-exempt to the
Portfolio.
YIELD INFORMATION
A Portfolio may provide current annualized and effective annualized
yield quotations based on its daily dividends. These quotations may from
time to time be used in advertisements, shareholder reports or other
communications to shareholders. All performance information supplied by
the Portfolios in advertising is historical and is not intended to
indicate future returns.
In performance advertising, the Portfolios may compare any of their
performance information with data published by independent evaluators
such as Morningstar, Inc., Lipper Analytical Services, Inc.,
CDC/Wiesenberger, IBC Money Fund Report or other companies which
track the investment performance of investment companies ("Fund Tracking
Companies"). The Portfolios may also compare their performance
information with the performance of recognized stock, bond and other
indexes, including but not limited to the Municipal Bond Buyers Indices,
the Salomon Brothers Bond Index, the Lehman Bond Index, the Standard &
Poor's 500 Composite Stock Price Index, the Dow Jones Industrial
Average, U.S. Treasury bonds, bills or notes and changes in the Consumer
Price Index as published by the U.S. Department of Commerce. The
Portfolios may refer to general market performance over past time
periods such as those published by Ibbotson Associates (for instance,
its "Stocks, Bonds, Bills and Inflation Yearbook"). The Portfolios may
also refer in such materials to mutual fund performance rankings and
other data published by Fund Tracking Companies. Performance advertising
may also refer to discussions of the Portfolios and comparative mutual
fund data and ratings reported in independent periodicals, such as news-
papers and financial magazines.
Any current yield quotation of a Portfolio which is used in such a
manner as to be subject to the provisions of Rule 482(d) under the
Securities Act of 1933, as amended, shall consist of an annualized
historical yield, carried at least to the nearest hundredth of one
percent, based on a specific seven calendar day period. The Portfolio's
current yield shall be calculated by (a) determining the net change
during a seven calendar day period in the value of a hypothetical
account having a balance of one share at the beginning of the period,
(b) dividing the net change by the value of the account at the beginning
of the period to obtain a base period return, and (c) multiplying the
quotient by 365/7 (i.e., annualizing). For this purpose, the net change
in account value would reflect the value of additional shares purchased
with dividends declared on the original share and dividends declared on
both the original share and any such additional shares, but would not
reflect any realized gains or losses from the sale of securities or any
unrealized appreciation or depreciation on portfolio securities. In
addition, the Portfolio may advertise effective yield quotations.
effective yield quotations are calculated by adding 1 to the base period
return, raising the sum to a power equal to 365/7, and subtracting 1
from the result (i.e., compounding).
The Municipal Portfolio's tax equivalent yield is the rate an investor
would have to earn from a fully taxable investment in order to equal the
Portfolio's yield after taxes. Tax equivalent yields are calculated by
dividing the Municipal Portfolio's yield by one minus the stated federal
or combined federal and state tax rate. If only a portion of the
Portfolio's yield is tax-exempt, only that portion is adjusted in the
calculation.
Although published yield information is useful to investors in reviewing
a Portfolio's performance, investors should be aware that the
Portfolio's yield fluctuates from day to day and that the Portfolio's
yield for any given period is not an indication or representation by the
Portfolio of future yields or rates of return on the Portfolio's shares.
Also, Processing Organizations may charge their customers direct fees in
connection with an investment in a Portfolio, which will have the effect
of reducing the Portfolio's net yield to those shareholders. The yield
of a Portfolio is not fixed or guaranteed, and an investment in a
Portfolio is not insured. Accordingly, a Portfolio's yield information
may not necessarily be used to compare Portfolio shares with investment
alternatives which, like money market instruments or bank accounts, may
provide a fixed rate of interest. In addition, because investments in
the Portfolios are not insured or guaranteed, a Portfolio's yield
information may not necessarily be used to compare the Portfolio with
investment alternatives which are insured or guaranteed.
For the seven-day period ended May 31, 1996 the yield and effective
yield for Class A shares of the Cash Portfolio, Government Portfolio
and Municipal Portfolio were as follows:
<TABLE>
<CAPTION>
<S>
Portfolio*
<C>
Yield
<C>
Effective
Yield
Cash Portfolio (Class A)
5.15%
5.29%
Government Portfolio (Class A)
5.10
5.23
Municipal Portfolio+ (Class A)
3.53
_3.60_
<FN>
* As at May 31, 1996, no Class B shares of any Portfolio is
outstanding, accordingly, no comparable information is available
on that Class.
+ The Municipal Portfolio's tax-equivalent yield for the same
period for Class A shares was 5.12%
</FN>
</TABLE>
PERFORMANCE DATA
From time to time, the Fund may quote total return of the Classes of the
various Portfolios in advertisements or in reports and other
communications to shareholders. A Portfolio may include comparative
performance information in advertising or marketing the Portfolio's
shares. Such performance information may include the following industry
and financial publications: Barron's, Business Week, CDA Investment
Technologies, Inc., Changing Times, Forbes, Fortune, Institutional
Investor, Investors Daily, Money, Morningstar Mutual Fund Values, The
New York Times, USA Today and The Wall Street Journal. To the extent any
advertisement or sales literature of the Portfolios describes the
expenses or performance of Class A or Class B, it will also disclose
such information for the other Class.
Average Annual Total Return
"Average annual total return" figures are computed according to a
formula prescribed by the SEC. The formula can be expressed as follows:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = Ending Redeemable Value of a hypothetical $1,000
payment made
at the beginning of the 1-, 5- or 10-year period
at the
end of the 1-, 5- or 10-year period (or
fractional portion thereof),
assuming reinvestment of all dividends and
distributions.
The average annual total returns of the Portfolios' shares were as
follows:
<TABLE>
<CAPTION>
<S>
<C>
Class A
Shares*
One Year
Period
Name of Portfolio
Ended
5/31/96
Cash Portfolio
5.44%
Government
Portfolio
5.36
Municipal Portfolio
3.56
<FN>
* For the period from June 16, 1996 (commencement of
operations) to May 31, 1996. As at May 31, 1996, no Class B
shares of any Portfolio were outstanding, accordingly, no
comparable information is available on that Class
</FN>
</TABLE>
Aggregate Total Return
"Aggregate total return" figures represent the cumulative change in the
value of an investment in the Class for the specified period and are
computed by the following formula:
ERV-P
P
Where: P = a hypothetical initial payment of $10,000.
ERV = Ending Redeemable Value of a hypothetical $10,000
investment made at
the beginning of the 1-, 5- or 10-year period at the
end of the 1-, 5- or
10-year period (or fractional portion thereof),
assuming reinvestment of
all dividends and distributions.
The aggregate total returns of the Portfolios' shares were as follows:
<TABLE>
<CAPTION>
<S>
<C>
Class A
shares*
One Year
Period
Name of Portfolio
Ended
5/31/96
Cash Portfolio
5.44%
Government
Portfolio
5.36
Municipal Portfolio
3.55
<FN>
* For the period from June 16, 1996 (commencement of operations) to May
31, 1996. As at May 31, 1996, no Class B shares of any Portfolio were
outstanding, accordingly, no comparable information is available on that
Class
</FN
</TABLE>
DETERMINATION OF NET ASSET VALUE
The Prospectus states that net asset value will be determined on any day
the New York Stock Exchange is open. The New York Stock Exchange is
closed on the following holidays: New Year's Day, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
Each Portfolio uses the "amortized cost method" for valuing portfolio
securities pursuant to a rule under the Act. The amortized cost method
of valuation of the Portfolio's securities involves valuing a
security at its cost at the time of purchase and thereafter assuming a
constant amortization to maturity of any discount or premium, regardless
of the impact of fluctuating interest rates on the market value of the
instrument. The market value of portfolio securities will fluctuate on
the basis of the creditworthiness of the issuers of such securities and
with changes in interest rates generally. While the amortized cost
method provides certainty in valuation, it may result in periods during
which value, as determined by amortized cost, is higher or lower than
the price the Portfolio would receive if it sold the instrument. During
such periods the yield to investors in the Portfolio may differ somewhat
from that obtained in a similar company that uses mark-to-market values
for all its portfolio securities. For example, if the use of amortized
cost resulted in a lower (higher) aggregate portfolio value on a
particular day, a prospective investor in the Portfolio would be able to
obtain a somewhat higher (lower) yield than would result from investment
in such similar company, and existing investors would receive less
(more) investment income. The purpose of this method of valuation is to
attempt to maintain a constant net asset value per share, and it is
expected that the price of the Portfolio's shares will remain at $1.00;
however, shareholders should be aware that despite procedures that will
be followed to have a stabilized price, including maintaining a maximum
dollar-weighted average portfolio maturity of 90 days and investing in
securities with remaining maturities of only 13 months or less, there is
no assurance that at some future date there will not be a rapid change
in prevailing interest rates, a default by an issuer or some other event
that could cause the Portfolio's price per share to change from $1.00.
MANAGEMENT AGREEMENT, PLAN OF DISTRIBUTION AND OTHER SERVICES
Manager
SBMFM manages the day to day operations of each Portfolio pursuant to
management agreements entered into by the Fund on behalf of each
Portfolio. Under the management agreements, the Manager offers each
Portfolio advice and assistance with respect to the acquisition, holding
or disposal of securities and recommendations with respect to other
aspects of the business and affairs of each Portfolio. It also
furnishes each Portfolio with executive and other personnel; management,
bookkeeping, accounting and administrative services; office space and
equipment; and the services of the officers and employees of the Fund.
Each Portfolio's management agreement provides that all other expenses
not specifically assumed by the Manager under each management agreement
are borne by the Fund. Expenses payable by the Fund include, but are
not limited to, all charges of custodian (including amounts as custodian
and amounts for keeping books, performing portfolio valuations, and for
rendering other services to the Fund) and shareholder servicing agents,
filing fees and expenses relating to the registration and qualification
of the Fund's shares under Federal or state securities laws and
maintaining such registrations and qualifications (including the
printing of the Fund's registration statements and prospectuses),
expenses of preparing, printing and distributing all proxy material,
reports and notices to shareholders, out-of-pocket expenses of directors
and fees of directors who are not "interested persons" as defined in the
Act, fees of auditors and legal counsel, interest, taxes, fees and
commissions of every kind, expenses of issue, repurchase or redemption
of shares, and all other costs incident to the Fund's corporate
existence and extraordinary expenses such as litigation and
indemnification expenses. Direct expenses are charged to each
Portfolio; the management fee and general corporate expenses are
allocated on the basis of relative net assets. No sales or promotion
expenses are incurred by the Fund, but expenses incurred in complying
with laws regulating the issue or sale of the Fund's shares are not
deemed sales or promotion expenses.
The Manager has agreed that if in any fiscal year the total expenses of
any Portfolio, exclusive of taxes, brokerage, interest and (with the
prior written consent of the necessary state securities commissions)
extraordinary expenses exceed 0.8% of the average daily net assets for
that fiscal year of the Portfolio, the Manager will reduce its fee to
the extent of such excess. The 0.8% voluntary expense limitation shall
be in effect until it is terminated by 14 days' written notice to
shareholders and by supplement to the then current prospectus.
For the fiscal year ended May 31, 1996, the Portfolios paid no
management fees since SBMFM waived all of the management fees due to it
for that period. Absent this fee waiver, the management fees for the
Class A shares would have been $464,884, $102,253 and $63,064
respectively for the Cash Portfolio, Government Portfolio and Municipal
Portfolio.
Plan of Distribution
Service Organizations
Institutional investors who are purchasing shares on behalf of their
customers, such as banks, savings and loans institutions and other
financial institutions ("service organizations") may purchase Class B
shares. These shares are identical in all respects to Class A shares
except that they bear certain additional service fees described in the
Fund's prospectus relating to Class B shares and enjoy certain exclusive
voting rights on matters relating to these service fees.
The Fund will enter into an agreement with each service organization
that purchases Class B shares to provide certain services to the
beneficial owners of such shares. Such services include aggregating and
processing purchase and redemption requests from customers and placing
net purchase and redemption orders with Smith Barney; processing
dividend payments from the Fund on behalf of their customers; providing
information periodically to customers showing the positions in shares;
arranging for bank wires; responding to customer inquiries relating to
the services provided by the service organization and handling
correspondence: and acting as shareholder of record and nominee. Under
terms of the agreements, service organizations are required to provide
to their customers a schedule of any fees that they may charge customers
in connection with their investment in Class B shares.
Class A shares are sold to institutions that have not entered into
servicing agreements with the Fund in connection with their investments.
Brokerage
The Manager places orders for the purchase and sale of securities for
the portfolios of the Portfolio. All of each Portfolio's transactions
have been principal transactions with major dealers in money market
instruments, on which no brokerage commissions are paid. Purchases from
or sales to dealers serving as market-makers include the spread between
the bid and asked prices. No portfolio transactions are handled by
Smith Barney.
VOTING RIGHTS
The present Directors of the Fund were elected at a meeting of
shareholders held on April 27, 1995 . Under the By-Laws, each
Director will continue in office until the dissolution of the Fund or
his earlier death, resignation, bankruptcy, incapacity or removal.
Vacancies will be filled by a majority of the remaining Directors,
subject to the 1940 Act. Therefore, no annual or regular meetings of
shareholders normally will be held, unless otherwise required by the By-
Laws or the 1940 Act. Subject to the foregoing, shareholders have the
power to vote to elect or remove Directors, to terminate or reorganize
their Portfolio, to amend the By-Laws, to bring certain derivative
actions and on any other matters on which a shareholder vote is required
by the 1940 Act, the By-Laws or the Directors.
Each share of each series of the Fund has one vote (and fractional votes
for fractional shares). Shares of all series of the Fund have
noncumulative voting rights, which means that the holders of more than
50% of the shares of all series of the Fund voting for the
election of Directors can elect 100% of the Directors if they choose to
do so and, in such event, the holders of the remaining shares will not
be able to elect any Directors. Each series of the Fund will vote
separately only with respect to those matters that affect only that
series.
ADDITIONAL INFORMATION
The Fund was incorporated on March 28, 1995 as a Maryland Corporation.
PNC is located at 17th and Chestnut Streets, Philadelphia, Pennsylvania
19103, and serves as custodian for the Portfolios. Under its custodial
agreement with the Fund, PNC is authorized to appoint one or more
foreign or domestic banking institutions as sub-custodians of assets
owned by a Portfolio. For its custody services, PNC receives monthly
fees charged to each Portfolio based upon the month-end, aggregate net
asset value of the Fund, plus certain charges for securities
transactions. The assets of the Fund are held under bank custodianship
in accordance with the 1940 Act.
First Data is located at Exchange Place, Boston, Massachusetts 02109,
and serves as the Fund's transfer agent and dividend disbursing agent.
For its services as transfer agent and dividend disbursing agent, First
Data receives fees charged to the Portfolios at an annual rate based
upon the number of shareholder accounts maintained during the year.
First Data also is reimbursed by the Portfolios for its out-of-pocket
expenses.
FINANCIAL STATEMENTS
The Portfolios' Annual Reports for the fiscal year ended May 31, 1996
are incorporated into this Statement of Additional Information by
reference in their entirety.
Appendix A Description
Moody's and Standard and Poor's
Municipal and Corporate Bonds and Municipal Loans
The two highest ratings of Standard & Poor's Rating Group ("S&P") for
municipal and corporate bonds are AAA and AA Bonds rated AAA have the
highest rating assigned by S&P to a debt obligation. Capacity to pay
interest and repay principal is extremely strong. Bonds rated AA have a
very strong capacity to pay interest and repay principal and differ from
the highest rated issues only in a small degree. The AA rating may be
modified by the addition of a plus (+) or minus (-) sign to show
relative standing within that rating category
The two highest ratings of Moody's Investors Service, Inc. ("Moody's")
for municipal and corporate bonds are Aaa and Aa. Bonds rated Aaa are
judged by Moody's to be of the best quality. Bonds rated Aa are judged
to be of high quality by all standards. Together with the Aaa group,
they comprise what are generally known as high-grade bonds. Moody's
states that Aa bonds are rated lower than the best bonds because margins
of protection or other elements make long-term risks appear somewhat
larger than Aaa securities. The generic rating Aa may be modified by the
addition of the numerals 1, 2 or 3. The modifier 1 indicates that the
security ranks in the higher end of the Aa rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3 indicates that the
issue ranks in the lower end of such rating category
Short-Term Municipal Loans
S&P's highest rating for short-term municipal loans is SP- 1. S&P states
that short-term municipal securities bearing the SP- 1 designation have
a strong capacity to pay principal and interest. Those issues rated SP-
1 which are determined to possess a very strong capacity to pay debt
service will be given a plus (+) designation. Issues rated SP-2 have
satisfactory capacity to pay principal and interest with some
vulnerability to adverse financial and economic changes over the term of
the notes.
Moody's highest rating for short-term municipal loans is MIG- 1/VMIG- 1.
Moody's states that short-term municipal securities rated MIG- 1/VMIG- 1
are of the best quality, enjoying strong protection from established
cash flows of funds for their servicing or from established and
broad-based access to the market for refinancing, or both. Loans bearing
the MIG-2/1/MIG-2 designation are of high quality, with margins of
protection ample although not so large as in the MIG- 1/1/MIG- 1 group.
Other Short-Term Debt Securities
Prime- 1 and Prime-2 are the two highest ratings assigned by Moody's for
other short-term debt securities and commercial paper, and A- 1 and A-2
are the two highest ratings for commercial paper assigned by S&P.
Moody's uses the numbers 1, 2 and 3 to denote relative strength within
its highest classification of Prime, while S&P uses the numbers 1, 2 and
3 to denote relative strength within its highest classification of A.
Issuers rated Prime- 1 by Moody's have a superior ability for repayment
of senior short-term debt obligations and have many of the following
characteristics: leading market positions in well-established
industries, high rates of return on funds employed, conservative
capitalization structure with moderate reliance on debt and ample asset
protection, broad margins in earnings coverage of fixed financial
charges and high internal cash generation, and well established access
to a range of financial markets and assured sources of alternate
liquidity. Issuers rated Prime-2 by Moody's have a strong ability for
repayment of senior short-term debt obligations and display many of the
same characteristics displayed by issuers rated Prime- 1, but to a
lesser degree. Issuers rated A- 1 by S&P carry a strong degree of safety
regarding timely repayment Those issues determined to possess extremely
strong safety characteristics are denoted with a plus (+) designation.
Issuers rated A-2 by S&P carry a satisfactory degree of safety regarding
timely repayment.
Appendix B Description of Municipal Securities
Municipal Notes generally are used to provide for short-term capital
needs and usually have maturities of one year or less. They include the
following:
1. Project Notes, which carry a U.S. government guarantee, are issued by
public bodies (called "local issuing agencies") created under the laws
of a state, territory, or U.S. possession. They have maturities that
range up to one year from the date of issuance. Project Notes are backed
by an agreement between the local issuing agency and the Federal
Department of Housing and Urban Development. These Notes provide
financing for a wide range of financial assistance programs for housing,
redevelopment, and related needs (such as low-income housing programs
and renewal programs).
2. Tax Anticipation Notes are issued to finance working capital needs of
municipalities. Generally, they are issued in anticipation of various
seasonal tax revenues, such as income, sales, use and business taxes,
and are payable from these specific future taxes.
3. Revenue Anticipation Notes are issued in expectation of receipt of
other types of revenues, such as Federal revenues available under the
Federal Revenue Sharing Programs.
4. Bond Anticipation Notes are issued to provide interim financing until
long-term financing can be arranged. In most cases, the long-term bonds
then provide the money for the repayment of the Notes.
5. Construction Loan Notes are sold to provide construction financing.
After successful completion and acceptance, many projects receive
permanent financing through the Federal Housing Administration under the
Federal National Mortgage Association ("Fannie Mae") or the Government
National Mortgage Association ("Ginnie Mae").
6. Tax-exempt Commercial Paper is a short-term obligation with a stated
maturity of 365 days or less. It is issued by agencies of state and
local governments to finance seasonal working capital needs or as
short-term financing in anticipation of longer term financing.
Municipal Bonds, which meet longer term capital needs and generally have
maturities of more than one year when issued, have three principal
classifications:
1. General Obligation Bonds are issued by such entities as states,
counties, cities, towns and regional districts. The proceeds of these
obligations are used to fund a wide range of public projects, including
construction or improvement of schools, highways and roads, and water
and sewer systems. The basic security behind General Obligation Bonds is
the issuer's pledge of its full faith and credit and taxing power for
the payment of principal and interest. The taxes that can be levied for
the payment of debt service may be limited or unlimited as to the rate
or amount of special assessments.
2. Revenue Bonds in recent years have come to include an increasingly
wide variety of types of municipal obligations. As with other kinds of
municipal obligations, the issuers of revenue bonds may consist of
virtually any form of state or local governmental entity, including
states, state agencies, cities, counties, authorities of various kinds,
such as public housing or redevelopment authorities, and special
districts, such as water, sewer or sanitary districts. Generally,
revenue bonds are secured by the revenues or net revenues derived from a
particular facility group of facilities, or, in some cases, the proceeds
of a special excise or other specific revenue source. Revenue bonds are
issued to finance a wide variety of capital projects including electric,
gas, water and sewer systems; highways, bridges, and tunnels; port and
airport facilities; colleges and universities; and hospitals. Many of
these bonds provide additional security in the form of a debt service
reserve fund to be used to make principal and interest payments. Various
forms of credit enhancement, such as a bank letter of credit or
municipal bond insurance, may also be employed in revenue bond issues.
Housing authorities have a wide range of security, including partially
or fully insured mortgages, rent subsidized and/or collateralized
mortgages, and/or the net revenues from housing or other public
projects. Some authorities provide further security in the form of a
state's ability (without obligation) to make up deficiencies in the debt
service reserve fund.
In recent years, revenue bonds have been issued in large volumes for
projects that are privately owned and operated (see below).
Private Activity Bonds are considered municipal bonds if the interest
paid thereon is exempt from Federal income tax and are issued by or on
behalf of public authorities to raise money to finance various privately
operated facilities for business and manufacturing, housing and health.
These bonds are also used to finance public facilities such as airports,
mass transit systems and ports. The payment of the principal and
interest on such bonds is dependent solely on the ability of the
facility's user to meet its financial obligations and the pledge, if
any, of real and personal property as security for such payment.
While, at one time, the pertinent provisions of the Internal Revenue
Code permitted private activity bonds to bear tax-exempt interest in
connection with virtually any type of commercial or industrial project
(subject to various restrictions as to authorized costs, size
limitations, state per capita volume restrictions, and other matters),
the types of qualifying projects under the Code have become increasingly
limited, particularly since the enactment of the Tax Reform Act of 1986.
Under current provisions of the Code, tax-exempt financing remains
available, under prescribed conditions, for certain privately owned and
operated rental multi-family housing facilities, nonprofit hospital and
nursing home projects, airports, docks and wharves, mass commuting
facilities and solid waste disposal projects, among others, and for the
refunding (that is, the tax-exempt refinancing) of various kinds of
other private commercial projects originally financed with tax-exempt
bonds. In future years, the types of projects qualifying under the Code
for tax-exempt financing are expected to become increasingly limited.
Because of terminology formerly used in the Internal Revenue Code,
virtually any form of private activity bond may still be referred to as
an "industrial development bond", but more and more frequently revenue
bonds have become classified according to the particular type of
facility being financed, such as hospital revenue bonds, nursing home
revenue bonds, multi-family housing revenues bonds, single family
housing revenue bonds, industrial development revenue bonds, solid waste
resource recovery revenue bonds, and so on.
Other Municipal Obligations, incurred for a variety of financing
purposes, include: municipal leases, which may take the form of a lease
or an installment purchase or conditional sale contract, are issued by
state and local governments and authorities to acquire a wide variety of
equipment and facilities such as fire and sanitation vehicles,
telecommunications equipment and other capital assets. Municipal leases
frequently have special risks not normally associated with general
obligation or revenue bonds. Leases and installment purchase or
conditional sale contracts (which normally provide for title to the
leased asset to pass eventually to the government issuers have evolved
as a means for governmental issuers to acquire property and equipment
without meeting the constitutional and statutory requirements for the
issuance of debt. The debt-issuance limitations of many state
constitutions and statutes are deemed to be inapplicable because of the
inclusion in many leases or contracts of "non-appropriation" clauses
that provide that the governmental issuer has no obligation to make
future payments under the lease or contract unless money is appropriated
for such purpose by the appropriate legislative body on a yearly or
other periodic basis. To reduce this risk, the Fund will only purchase
municipal leases subject to a non-appropriation clause when the payment
of principal and accrued interest is backed by an unconditional
irrevocable letter of credit, or guarantee of a bank or other entity
that meets the criteria described in the Prospectus.
Tax-exempt bonds are also categorized according to whether the interest
is or is not includible in the calculation of alternative minimum taxes
imposed on individuals, according to whether the costs of acquiring or
carrying the bonds are or are not deductible in part by banks and other
financial institutions, and according to other criteria relevant for
Federal income tax purposes. Due to the increasing complexity of
Internal Revenue Code and related requirements governing the issuance of
tax-exempt bonds, industry practice has uniformly required, as a
condition to the issuance of such bonds, but particularly for revenue
bonds, an opinion of nationally recognized bond counsel as to the
tax-exempt status of interest on the bonds.
Smith Barney
Institutional Cash
Management
Fund, Inc.
Cash Portfolio
Government Portfolio
Municipal Portfolio
Statement of
Additional Information
September 27, 1996
Smith Barney
Institutional Cash Management Fund, Inc.
388 Greenwich Street
New York, NY 10013
SMITH BARNEY
A Member of Travelers
Group
SMITH BARNEY INSTITUTIONAL CASH MANAGEMENT FUND, INC.
PART C
OTHER INFORMATION
Item 24.
Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A:
Financial Highlights
Included in Part B:
The Registrant's Annual Reports for the fiscal year ended May 31,
1996, including the Report of Independent Accountants dated July
17, 1996, which was filed pursuant to Rule 30b-2 of the 1933 Act
on July 30, 1996 as Accession number 91155-96-000297, is
incorporated by reference in its entirety.
Included in Part C:
Consent of Independent Accountants is filed herein
(b) Exhibits
All references are to the Registrant's Registration statement on Form N-
1A (the "Registration Statement") as filed with the SEC on April 5, 1995
(File Nos. 33-90952 and 811-9012)
Exhibit No. Description of Exhibits
(1) Articles of Incorporation of Registrant are
incorporated by
reference to the Fund's Registration Statement
(2) By-Laws of Registrant are incorporated by
reference to
Pre-Effective Amendment No. 1 to the
Registration Statement
filed on June 19, 1995 ("Pre-Effective Amendment
No. 1")
(3) Not applicable
(4) Specimen Stock Certificate
(5) Investment Advisory Agreement between the
Registrant and
Smith Barney Mutual Funds Management Inc. is
incorporated
by reference to Pre-Effective Amendment No. 1
(6) Distribution Agreement between the Registrant
and Smith
Barney Inc. is incorporated by reference to Pre-
Effective
Amendment No. 1
(7) Not applicable
(8) Custody Agreement between the Registrant and PNC
Bank,
National Association is incorporated by
reference to
Pre-Effective Amendment No 1
(9) Form of Transfer Agency Agreement between the
Registrant
and First Data Investor Services, Group Inc.
(formerly
The Shareholder Services Group, Inc.) is
incorporated by
reference to Pre-Effective Amendment No. 1
(10)(a) Opinion and consent of Willkie Farr &
Gallagher is
incorporated by reference to Pre-Effective
Amendment No. 1
(b) Opinion and consent of Venable, Baetjer &
Howard is
incorporated by reference to Pre-Effective
Amendment No. 1.
(11) Consent of KPMG Peat Marwick LLP is filed
herein
(12) Not applicable
(13) Not applicable
(14) Not applicable
(15) Distribution and Service Plan under Rule 12b-1
is incorporated
by reference to Pre-Effective Amendment No. 1
(16) Performance Data
(17) Financial Data Schedule is filed herein
(18) Form of Rule 18f-3(d) Multiple Class Plan of
the
Registrant is filed herein
Item 25. Persons Controlled by or Under Common Control with
Registrant
None
Item 26. Number of Holders of Securities
Number of Record Holders
Title of Series as of September 6, 1996
The Cash Portfolio
Class A
49
Class B 1
The Government Portfolio
Class A 32
Class B 1
The Municipal Portfolio
Class A 13
Class B 1
Item 27. Indemnification
The response to this item is incorporated by reference to Registrant's
Pre-Effective Amendment No. 1 to the Registration Statement.
Item 28. Business and Other Connections of the Investment Advisers
Investment Adviser - - Smith Barney Mutual Funds Management Inc.
("SBMFM")
SBMFM, formerly known as Smith, Barney Advisers, Inc., was incorporated
in December 1968 under the laws of the State of Delaware. SBMFM is a
wholly owned subsidiary of Smith Barney Holdings Inc. ("Holdings")
(formerly known as Smith Barney Shearson Holdings Inc.), which in turn
is a wholly owned subsidiary of Travelers Group Inc. (formerly known as
Primerica Corporation) ("Travelers"). SBMFM is registered as an
investment adviser under the Investment Advisers Act of 1940 (the
"Advisers Act").
The list required by this Item 28 of officers and directors of SBMFM
together with information as to any other business, profession, vocation
or employment of a substantial nature engaged in by such officers and
directors during the past two fiscal years, is incorporated by reference
to Schedules A and D of FORM ADV filed by SBMFM pursuant to the Advisers
Act (SEC File No. 801-8314).
Item 29. Principal Underwriters
Smith Barney Inc. ("Smith Barney") currently acts as distributor for
Smith Barney Managed Municipals Fund Inc., Smith Barney California
Municipals Fund Inc., Smith Barney Massachusetts Municipals Fund, Smith
Barney Aggressive Growth Fund Inc., Smith Barney Appreciation Fund Inc.,
Smith Barney Concert Series Inc., Smith Barney Principal Return Fund,
Smith Barney Managed Governments Fund Inc., Smith Barney Income Funds,
Smith Barney Equity Funds, Smith Barney Investment Funds Inc., Smith
Barney Natural Resources Fund Inc., Smith Barney Telecommunications
Trust, Smith Barney Arizona Municipals Fund Inc., Smith Barney New
Jersey Municipals Fund Inc., The USA High Yield Fund N.V., Garzarelli
Sector Analysis Portfolio N.V., Smith Barney Fundamental Value Fund
Inc., Smith Barney Series Fund, Consulting Group Capital Markets Funds,
Smith Barney Investment Trust, Smith Barney Adjustable Rate Government
Income Fund, Smith Barney Oregon Municipals Fund, Smith Barney Funds,
Inc., Smith Barney Muni Funds, Smith Barney World Funds, Inc., Smith
Barney Money Funds, Inc., Smith Barney Tax Free Money Fund, Inc., Smith
Barney Variable Account Funds, Smith Barney U.S. Dollar Reserve Fund
(Cayman), Worldwide Special Fund, N.V., Worldwide Securities Limited,
(Bermuda), Smith Barney International Fund (Luxembourg) and various
series of unit investment trusts.
Smith Barney is a wholly owned subsidiary of Holdings. On June 1, 1994,
Smith Barney changed its name from Smith Barney Shearson Inc. to its
current name. The information required by this Item 29 with respect to
each director, officer and partner of Smith Barney is incorporated by
reference to Schedule A of FORM BD filed by Smith Barney pursuant to the
Securities Exchange Act of 1934 (SEC File No. 812-8510).
Item 30 . Location of Accounts and Records
(1) Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
(2) Smith Barney Institutional Cash Management Fund, Inc.
388 Greenwich Street
New York, New York 10013
(3) Smith Barney Mutual Funds Management Inc.
388 Greenwich Street
New York, New York 10013
(4) PNC Bank, National Association
17th and Chestnut Streets
Philadelphia, PA 19103
(6) First Data Investor Services Group
One Exchange Place
Boston, Massachusetts 02109
Item 31. Management Services
Not applicable
Item 32. Undertakings
(a) None
Rule 485(b) Certification
The Registrant hereby certifies that it meets all of the
requirements for effectiveness pursuant to Rule 485(b) under the
Securities Act of 1933, as amended.
SIGNATURES
As required by the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, Registrant has duly caused
this Post-Effective Amendment No. 2 to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in
the City of New York, State of New York, on the 27th day of
September, 1996 .
SMITH BARNEY INSTITUTIONAL CASH MANAGEMENT FUND,
INC.
By: /s/ Heath B. McLendon
Heath B. McLendon
Chairman of the Board
(Chief Executive Officer)
As required by the Securities Act of 1933, as amended, this
Post-Effective Amendment No. 2 to the Registration Statement on Form N-
1A has been signed below by the following persons in the capacities and
on the dates indicated:
Signature Title Date
/s/ Heath B. McLendon Chairman of the Board and
Heath B. McLendon Director
(Chief Executive Officer)
September 27, 1996
/s/ Jessica Bibliowicz
Jessica Bibliowicz President and Director
September 27, 1996
/s/ Lewis E. Daidone Senior Vice President and
Lewis E. Daidone Treasurer (Chief Financial and
Accounting Officer) September 27,
1996
Signature Title Date
/s/ Paul R. Ades* Director
September 27, 1996
Paul R. Ades
/s/ Herbert Barg* Director
September 27, 1996
Herbert Barg
/s/ Alger B. Chapman* Director
September 27, 1996
Alger B. Chapman
/s/ Dwight B. Crane* Director
September 27, 1996
Dwight B. Crane
/s/ Frank G. Hubbard* Director
September 27, 1996
Frank G. Hubbard
/s/ Jerome Miller* Director
September 27, 1996
Jerome Miller
/s/ Ken Miller* Director
September 27, 1996
Ken Miller
/s/ John R. White* Director
September 27, 1996
John R. White
* By: /s/ Heath B. McLendon
Heath B. McLendon
Attorney-in-Fact
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
(11) Consent of KPMG Peat Marwick LLP
(17) Financial Data Schedule
(18) Form of Rule 18f-3(d) Multiple Class Plan
of the Registrant
Cover Letter
g:\funds\inst\1996\secdocs\pea2.doc
A-
g:\funds\inst\1996\secdocs\sai996.doc
g:\funds\inst\1996\secdocs\sai996.doc
26
g:\funds\inst\1996\secdocs\sai996.doc
3
A-
g:\funds\inst\1996\secdocs\sai996.doc
B-13
g:\funds\inst\1996\secdocs\sai996.doc
Independent Auditors' Consent
To the Shareholders and Directors of Smith Barney Institutional Cash
Management Fund, Inc.:
We consent to the use of our report dated July 17, 1996, with respect to
the Cash, Government and Municipal Portfolios of the Institutional Cash
Management Fund, Inc. , incorporated herein by reference and to the
references to our Firm under the headings "Financial Highlights" in the
Prospectus and "Counsel and Auditors" in the Statement of Additional
Information.
KPMG PEAT MARWICK LLP
New York, New York
September 27, 1996
[ARTICLE] 6
[CIK] 0000943309
[NAME] SMITH BARNEY INSTITUTIONAL CASH MANAGEMENT FUND INC.
[SERIES]
[NUMBER] 1
[NAME] SMITH BARNEY INSTITUTIONAL CASH FUND
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] MAY-31-1996
[PERIOD-END] MAY-31-1996
[INVESTMENTS-AT-COST] 277,175,236
[INVESTMENTS-AT-VALUE] 277,175,236
[RECEIVABLES] 1,127,900
[ASSETS-OTHER] 507
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 287,303,643
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 731,833
[TOTAL-LIABILITIES] 731,833
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 277,571,810
[SHARES-COMMON-STOCK] 277,571,809
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 277,571,810
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 9,664,112
[OTHER-INCOME] 0
[EXPENSES-NET] 267,973
[NET-INVESTMENT-INCOME] 9,396,139
[REALIZED-GAINS-CURRENT] 4,721
[APPREC-INCREASE-CURRENT] 0
[NET-CHANGE-FROM-OPS] 9,400,860
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 9,396,139
[DISTRIBUTIONS-OF-GAINS] 4,721
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 1,533,423,459
[NUMBER-OF-SHARES-REDEEMED] 1,263,863,115
[SHARES-REINVESTED] 8,011,466
[NET-CHANGE-IN-ASSETS] 277,571,810
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 130,059
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 359,015
[AVERAGE-NET-ASSETS] 180,560,137
[PER-SHARE-NAV-BEGIN] 1.00
[PER-SHARE-NII] 0.053
[PER-SHARE-GAIN-APPREC] 0
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0.053
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 1.00
[EXPENSE-RATIO] 0.15
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[CIK] 0000943309
[NAME] SMITH BARNEY INSTITUTIONAL CASH MANAGEMENT FUND INC.
[SERIES]
[NUMBER] 2
[NAME] SMITH BARNEY INSTITUTIONAL GOVERNMENT FUND
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] MAY-31-1996
[PERIOD-END] MAY-31-1996
[INVESTMENTS-AT-COST] 57,899,575
[INVESTMENTS-AT-VALUE] 57,899,575
[RECEIVABLES] 465
[ASSETS-OTHER] 53,289
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 57,953,329
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 255,600
[TOTAL-LIABILITIES] 255,600
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 57,697,729
[SHARES-COMMON-STOCK] 57,697,728
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 57,697,729
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 2,075,094
[OTHER-INCOME] 0
[EXPENSES-NET] 144,101
[NET-INVESTMENT-INCOME] 2,014,475
[REALIZED-GAINS-CURRENT] 1,574
[APPREC-INCREASE-CURRENT] 0
[NET-CHANGE-FROM-OPS] 2,016,049
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 2,014,475
[DISTRIBUTIONS-OF-GAINS] 1,574
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 434,782,708
[NUMBER-OF-SHARES-REDEEMED] 378,769,977
[SHARES-REINVESTED] 1,684,998
[NET-CHANGE-IN-ASSETS] 57,697,729
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 30,310
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 144,101
[AVERAGE-NET-ASSETS] 39,670,757
[PER-SHARE-NAV-BEGIN] 1.00
[PER-SHARE-NII] 0.052
[PER-SHARE-GAIN-APPREC] 0
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0.052
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 1.00
[EXPENSE-RATIO] 0.16
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[CIK] 0000943309
[NAME] SMITH BARNEY INSTITUTIONAL CASH MANAGEMENT FUND INC.
[SERIES]
[NUMBER] 3
[NAME] SMITH BARNEY INSTITUTIONAL MUNICIPAL FUND
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] MAY-31-1996
[PERIOD-END] MAY-31-1996
[INVESTMENTS-AT-COST] 59,050,204
[INVESTMENTS-AT-VALUE] 59,050,204
[RECEIVABLES] 417,644
[ASSETS-OTHER] 63,835
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 59,531,683
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 223,289
[TOTAL-LIABILITIES] 223,289
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 59,308,394
[SHARES-COMMON-STOCK] 59,308,393
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 59,308,394
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 882,372
[OTHER-INCOME] 0
[EXPENSES-NET] 36,576
[NET-INVESTMENT-INCOME] 845,796
[REALIZED-GAINS-CURRENT] 0
[APPREC-INCREASE-CURRENT] 0
[NET-CHANGE-FROM-OPS] 845,796
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 845,796
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 307,764,680
[NUMBER-OF-SHARES-REDEEMED] 249,124,390
[SHARES-REINVESTED] 668,104
[NET-CHANGE-IN-ASSETS] 59,308,394
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 17,858
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 118,269
[AVERAGE-NET-ASSETS] 24,449,752
[PER-SHARE-NAV-BEGIN] 1.00
[PER-SHARE-NII] 0.029
[PER-SHARE-GAIN-APPREC] 0
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0.029
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 1.00
[EXPENSE-RATIO] 0.11
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
EXHIBIT 18
Rule 18f-3 (d) Multiple Class Plan
for Smith Barney Mutual Funds
Introduction
This plan (the "Plan") is adopted pursuant to Rule 18f-3 (d) of
the Investment Company Act of 1940, as amended (the "1940 Act").
The purpose of the Plan is to restate the existing arrangements
previously approved by the Boards of Directors and Trustees of
certain of the open-end investment companies set forth on
Schedule A (the "Funds" and each a "Fund") distributed by Smith
Barney Inc. ("Smith Barney") under the Funds' existing order of
exemption (Investment Company Act Release Nos. 20042 (January 28,
1994) (notice) and 20090 (February 23, 1994)). Shares of the
Funds are distributed pursuant to a system (the "Multiple Class
System") in which each class of shares (a "Class") of a Fund
represents a pro rata interest in the same portfolio of
investments of the Fund and differs only to the extent outlined
below.
I. Distribution Arrangements and Service Fees
One or more Classes of shares of the Funds are offered for
purchase by investors with the following sales load structure.
In addition, pursuant to Rule 12b-1 under the 1940 Act (the
"Rule"), the Funds have each adopted a plan (the "Services and
Distribution Plan") under which shares of the Classes are subject
to the services and distribution fees described below.
1. Class A Shares
Class A shares are offered with a front-end sales load and under
the Services and Distribution Plan are subject to a service fee
of up to 0.25% of average daily net assets. In addition, the
Funds are permitted to asses a contingent deferred sales charge
("CDSC") on certain redemptions of Class A shares sold pursuant
to a complete waiver of front-end sales loads applicable to large
purchases, if the shares are redeemed within one year of the date
of purchase. This waiver applies to sales of Class A shares
where the amount of purchase is equal to or exceeds $500,000
although this amount may be changed in the future.
2. Class B Shares
Class B shares are offered without a front-end sales load, but
are subject to a five-year declining CDSC and under the Services
and Distribution Plan are subject to a service fee at an annual
rate of up to 0.25% of average daily net assets and a
distribution fee at an annual rate of up to 0.75% of average
daily net assets.
3. Class C Shares
Class C shares are offered without a front-end load, but are
subject to a one-year CDSC and under the Services and
Distribution Plan are subject to a service fee at an annual rate
of up to 0.25% of average daily net assets and a distribution fee
at an annual rate of up to 0.75% of average daily net assets.
Unlike Class B shares, Class C shares do not have the conversion
feature as discussed below and accordingly, these shares are
subject to a distribution fee for an indefinite period of time.
The Funds reserve the right to impose these fees at such higher
rates as may be determined.
4. Class Y Shares
Class Y shares are offered without impositions of either a sales
charge or a service or distribution fee for investments where the
amount of purchase is equal to or exceeds $5 million.
5. Class Z Shares
Class Z shares are offered without imposition of either a sales
charge or a service or distribution fee for purchase (i) by
employee benefit and retirement plans of Smith Barney and its
affiliates, (ii) by certain unit investment trusts sponsored by
Smith Barney and its affiliates, and (iii) although not currently
authorized by the governing boards of the Funds, when and if
authorized, (x) by employees of Smith Barney and its affiliates
and (y) by directors, general partners or trustees of any
investment company for which Smith Barney serves as a distributor
and, for each of (x) and (y), their spouses and minor children.
6. Additional Classes of Shares
The Boards of Directors and Trustees of the Funds have the
authority to create additional classes, or change existing
Classes, from time to time, in accordance with Rule 18f-3 of the
1940 Act.
II. Expense Allocations
Under the Multiple Class System, all expenses incurred by a Fund
are allocated among the various Classes of shares based on the
net assets of the Fund attributable to each Class, except that
each Class's net assets value and expenses reflect the expenses
associated with that Class under the Fund's Services and
Distribution Plan, including any costs associated with obtaining
shareholder approval of the Services and Distribution Plan (or an
amendment thereto) and any expenses specific to that Class. Such
expenses are limited to the following:
(I) transfer agency fees as identified by the transfer
agent as being attributable to a specific Class;
(ii) printing and postage expenses related to preparing and
distributing materials such as shareholder reports,
prospectuses and proxies to current shareholders;
(iii) Blue Sky registration fees incurred by a Class of
shares;
(iv) Securities and Exchange Commission registration fees
incurred by a Class of shares;
(v) the expense of administrative personnel and services as
required to support the shareholders of a specific Class;
(vi) litigation or other legal expenses relating solely to
one Class of shares; and
(vii) fees of members of the governing boards of the funds
incurred as a result of issues relating to one Class of
shares.
Pursuant to the Multiple Class System, expenses of a Fund
allocated to a particular Class of shares of that Fund are borne
on a pro rata basis by each outstanding share of that Class.
III. Conversion Rights of Class B Shares
All Class B shares of each Fund will automatically convert to
Class A shares after a certain holding period, expected to be, in
most cases, approximately eight years but may be shorter. Upon
the expiration of the holding period, Class B shares (except
those purchases through the reinvestment of dividends and other
distributions paid in respect of Class B shares) will
automatically convert to Class A shares of the Fund at the
relative net asset value of each of the Classes, and will, as a
result, thereafter be subject to the lower fee under the Services
and Distribution Plan. For purposes of calculating the holding
period required for conversion, newly created Class B shares
issued after the date of implementation of the Multiple Class
System are deemed to have been issued on (i) the date on which
the issuance of the Class B shares occurred or (ii) for Class B
shares obtained through an exchange, or a series of exchanges,
the date on which the issuance of the original Class B shares
occurred.
Shares purchased through the reinvestment of dividends and other
distributions paid in respect of Class B shares are also Class B
shares. However, for purposes of conversion to Class A, all
Class B shares in a shareholder's Fund account that were
purchased through the reinvestment of dividends and other
distributions paid in respect of Class B shares (and that have
not converted to Class A shares as provided in the following
sentence) are considered to be held in a separate sub-account.
Each time any Class B shares in the shareholder's Fund account
(other than those in the sub-account referred to in the preceding
sentence) convert to Class A, a pro rata portion of the Class B
shares then in the sub-account also converts to Class A. The
portion is determined by the ratio that the shareholder's Class B
shares converting to Class A bears to the shareholder's total
Class B shares not acquired through dividends and distributions.
The conversion of Class B shares to Class A shares is subject to
the continuing availability of a ruling of the Internal Revenue
Service that payment of different dividends on Class A and Class
B shares does not result in the Fund's dividends or distributions
constituting "preferential dividends" under the Internal Revenue
Code of 1986, as amended (the "Code"), and the continuing
availability of an opinion of counsel to the effect that the
conversion of shares does not constitute a taxable event under
the Code. The conversion of Class B shares to Class A shares may
be suspended if this opinion is no longer available, In the
event that conversion of Class B shares of not occur, Class B
shares would continue to be subject to the distribution fee and
any incrementally higher transfer agency costs attending the
Class B shares for an indefinite period.
IV. Exchange Privileges
Shareholders of a Fund may exchange their shares at net asset
value for shares of the same Class in certain other of the Smith
Barney Mutual Funds as set forth in the prospectus for such Fund.
Class A shareholders who wish to exchange all or part of their
shares for Class A shares of a Fund sold subject to a sales
charge equal to or lower that that assessed with respect to the
shares of the Fund being exchanged may do so without paying a
sales charge. Class A shareholders of a Fund who wish to
exchange all or part of their shares for Class A shares of a Fund
sold subject to a sales charge higher than that assessed with
respect to the shares of the Fund being exchanged are charged the
appropriate "sales charge differential." Funds only permit
exchanges into shares of money market funds having a plan under
the Rule if, as permitted by paragraph (b) (5) of Rule 11a-3
under the 1940 Act, either (i) the time period during which the
shares of the money market funds are held is included in the
calculations of the CDSC or (ii) the time period is not included
but the amount of the CDSC is reduced by the amount of any
payments made under a plan adopted pursuant to the Rule by the
money market funds with respects to those shares. Currently, the
Funds include the time period during which shares of the money
market fund are held in the CDSC period. The exchange privileges
applicable to all Classes of shares must comply with Rule 11a-3
under the 1940 Act.
Smith Barney Sponsored Investment Companies
Operating under Rule 18f-3 - Schedule A
(as of August 25, 1995)
Smith Barney Adjustable Rate Government Income Fund
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund
Smith Barney Equity Funds -
Smith Barney Strategic Investors Fund
Smith Barney Growth and Income Fund
Smith Barney Fundamental Value Fund Inc.
Smith Barney Funds, Inc. -
Income and Growth Portfolio
Utilities Portfolio
Income Return Account Portfolio
Monthly Payment Government Portfolio
Short-Term U.S. Treasury Securities Portfolio
U.S. Government Securities Portfolio
Smith Barney Income Funds -
Smith Barney Premium Total Return Fund
Smith Barney Convertible Fund
Smith Barney Diversified Strategic Income Fund
Smith Barney High Income Fund
Smith Barney Tax-Exempt Income Fund
Smith Barney Exchange Reserve Fund
Smith Barney Utilities Fund
Smith Barney Investment Trust -
Smith Barney Intermediate Maturity
California Municipals Fund
Smith Barney Intermediate Maturity
New York Municipals Fund
Smith Barney Investment Funds Inc. -
Smith Barney Special Equities Fund
Smith Barney Government Securities Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Growth Opportunity Fund
Smith Barney Managed Growth Fund
Smith Barney Institutional Cash Management Fund Inc.
Smith Barney Managed Governments Fund Inc.
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
Smith Barney Money Funds, Inc. -
Cash Portfolio
Government Portfolio
Retirement Portfolio
Smith Barney Municipal Money Market Fund, Inc.
Smith Barney Muni Funds -
....California Money Market Portfolio
Florida Portfolio
Florida Limited Portfolio
Georgia Portfolio
.....National Portfolio
....New York Portfolio
New York Money Market Portfolio
Ohio Portfolio
Pennsylvania Portfolio
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney Oregon Municipals Fund
Smith Barney Natural Resources Fund Inc.
Smith Barney Telecommunications Trust -
Smith Barney Telecommunications Growth Fund
Smith Barney Telecommunications Income Fund
Smith Barney World Funds, Inc. -
International Equity Portfolio
International Balanced Portfolio
European Portfolio
Pacific Portfolio
Global Government Bond Portfolio
g:\funds\inst\misc\18f3plan.doc
