As filed with the Securities and Exchange Commission on September 17,
1997
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. 4
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940, AS AMENDED
Amendment No. 4 [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) 816-6474
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:
Immediately upon filing pursuant to Rule 485(b)
X on September 26, 1997, 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, 1997 was filed on July 28, 1997 .
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
PROSPECTUSES
PROSPECTUS
Smith Barney
Institutional Cash
Management
Fund, Inc.
Class A Shares
SEPTEMBER 26, 1997
Prospectus begins on page one
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day.
<PAGE>
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Prospectus September 26, 1997
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Smith Barney Institutional
Cash Management Fund, Inc. -- Class A Shares
388 Greenwich Street
New York, New York 10013
(800) 451-2010
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 26, 1997, 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
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Table of Contents
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Fee Table 3
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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 16
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Valuation of Shares 17
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Dividends, Automatic Reinvestment and Taxes 18
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Purchase of Shares 19
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Exchange Privilege 20
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Redemption of Shares 21
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Minimum Account Size 23
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Yield Information 23
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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.
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2
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Fee Table
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The following expense table lists the costs and expenses an investor will
incur either directly or indirectly as a shareholder of a Portfolio based on its
current operating expenses:
Smith Barney Institutional Cash Cash Government Municipal
Management Fund -- Class A Shares 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 0.09%, 0.16% and 0.14%, respectively for the Cash Portfolio,
Government Portfolio and Municipal Portfolio, and "Total Portfolio
Operating Expenses" would have been 0.36%, 0.43% and 0.41%, 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."
Smith Barney Institutional Cash
Management Fund -- Class A Shares 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
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Financial Highlights
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The following information for the year ended May 31, 1997 and the period
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,
1997. 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 year:
Cash Portfolio 1997 1996(1)
================================================================================
Net Asset Value, Beginning of Year $ 1.00 $ 1.00
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Net investment income (2) 0.052 0.053
Distributions from investment income (0.052) (0.053)
Net realized gains -- (0.00)*
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Net Asset Value, End of Year $ 1.00 $ 1.00
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Total Return 5.35% 5.44%++
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Net Assets, End of Year (000s) $ 216,055 $ 277,572
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Ratios to Average Net Assets+:
Expenses (2) 0.23% 0.15%+
Net investment income 5.23 5.43+
================================================================================
Government Portfolio 1997 1996(1)
================================================================================
Net Asset Value, Beginning of Year $ 1.00 $ 1.00
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Net investment income (2) 0.052 0.052
Distributions from net investment income (0.052) (0.052)
Distributions from net realized gains (0.000)* (0.000)*
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Net Asset Value, End of Year $ 1.00 $ 1.00
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Total Return 5.29% 5.36%++
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Net Assets, End of Period (000s) $ 151,840 $ 57,698
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Ratios to Average Net Assets:
Expenses (2) 0.21% 0.16%+
Net investment income 5.18 5.28+
================================================================================
(1) For the period from June 16, 1995 (commencement of operations) to May 31,
1996.
(2) The Manager waived a portion of its fees for the Portfolio for the
years ended May 31, 1997 and 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
----------------- ------------------
1997 1996(1) 1997 1996(1)
---- ------ ---- ------
Cash Portfolio $0.001 $0.001 0.36% 0.39%+
Government Portfolio 0.001 0.002 0.43 0.55+
++ 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
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Financial Highlights (continued)
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For a share of each class of capital stock outstanding throughout the year:
Municipal Portfolio 1997 1996(1)
================================================================================
Net Asset Value, Beginning of Year $ 1.00 $ 1.00
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Net investment income (2) 0.034 0.035
Dividends from net investment income (0.034) (0.035)
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Net Asset Value, End of Year $ 1.00 $ 1.00
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Total Return 3.40% 3.55%++
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Net Assets, End of Year (000s) $ 23,666 $ 59,308
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Ratios to Average Net Assets:
Expenses (2) 0.21% 0.15%+
Net investment income 3.34 3.46+
================================================================================
(1) For the period from June 16, 1995 (commencement of operations) to May 31,
1996.
(2) The Manager waived all of its fees for the Portfolio for the years
ended May 31, 1997 and May 31, 1996. In addition, the Manager
reimbursed 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
----------------- ------------------
1997 1996(1) 1997 1996(1)
---- ------ ---- ------
Municipal Portfolio $0.004 $0.003 0.41% 0.69%+
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
5
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Investment Objectives and Policies
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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.
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
6
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Investment Objectives and Policies (continued)
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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. 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, L.P., Duff & 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.
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
7
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Investment Objectives and Policies (continued)
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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 may
purchase fixed time deposits maturing from two business days to seven calendar
days up to 10% of its total assets. The Cash Portfolio may also purchase such
fixed time deposits maturing in more than seven calendar days,
but in less than one year, provided, however, that fixed time
deposits shall be considered illiquid
securities.
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.
8
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Investment Objectives and Policies (continued)
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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. 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.
9
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Investment Objectives and Policies (continued)
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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 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
10
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Investment Objectives and Policies (continued)
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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.
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
11
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Investment Objectives and Policies (continued)
- --------------------------------------------------------------------------------
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 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
12
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Investment Objectives and Policies (continued)
- --------------------------------------------------------------------------------
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.
Derivative Products -- The Municipal Portfolio may invest up to 20% of the
value of its assets in one or more of the three principal types of derivative
product structures described below. Derivative products are typically structured
by a bank, broker-dealer or other financial institution. A derivative product
generally consists of a trust or partnership through which the Portfolio holds
an interest in one or more underlying bonds coupled with a conditional right to
sell ("put") the Portfolio's interest in the underlying bonds at par plus
accrued interest to a financial institution (a "Liquidity Provider"). Typically,
a derivative product is structured as a trust or partnership which provides for
pass-through tax-exempt income. There are currently three principal types of
derivative structures: (1) "Tender Option Bonds", which are instruments which
grant the holder thereof the right to put an underlying bond at par plus accrued
interest at specified intervals to a Liquidity Provider; (2) "Swap Products", in
which the trust or partnership swaps the payments due on an underlying bond with
a swap counterparty who agrees to pay a floating municipal money market interest
rate; and (3) "Partnerships", which allocate to the partners income, expenses,
capital gains and losses in accordance with a governing partnership agreement.
Investments in derivative products raise certain tax, legal, regulatory
and accounting issues which may not be presented by investments in other
municipal obligations. There is some risk that certain issues could be resolved
in a manner which could adversely impact the performance of the Portfolio. For
example, the tax-exempt treatment of the interest paid to holders of derivative
products is premised on the legal conclusion that the holders of such derivative
products have an ownership interest in the underlying bonds. While the Portfolio
receives an opinion of legal counsel to the effect that the income from each
derivative product is tax-exempt to the same extent as the underlying bond, the
Internal Revenue Service (the "IRS") has not issued a ruling on this subject.
Were the IRS to issue an adverse ruling, there is a risk that the interest paid
on such derivative products would be deemed taxable.
The Portfolio intends to limit the risk of derivative products by
purchasing only those derivative products that are consistent with the
Portfolio's investment objective and policies. The Portfolio will not use such
instruments to leverage securities. Hence, derivative products' contributions to
the overall market risk characteristics of a Portfolio will not materially alter
its risk profile and will be fully consistent with the Portfolio's maturity
guidelines.
Stand-by Commitments -- The Municipal Portfolio may acquire "stand-by
commitments" with respect to municipal securities held in its portfolio. Under a
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Investment Objectives and Policies (continued)
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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 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
14
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Common Investment Techniques (continued)
- --------------------------------------------------------------------------------
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 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
15
<PAGE>
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Common Investment Techniques (continued)
- --------------------------------------------------------------------------------
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. The Fund's Custodian
will maintain, in a segregated account of the Portfolio, cash, debt
securities of any grade or equity securities, having a value equal to or
greater than the
Portfolio's purchase commitments, provided such securities have been determined
by SBMFM to be liquid and unencumbered, and are marked to market daily, pursuant
to guidelines established by the directors. 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.
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.
16
<PAGE>
- --------------------------------------------------------------------------------
Risks and Special Considerations (continued)
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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.
17
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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 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
18
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Dividends, Automatic Reinvestment and Taxes (continued)
- --------------------------------------------------------------------------------
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"). Smith Barney and other broker/dealers
may charge their customers an annual account maintenance fee in connection with
a brokerage account through which an investor purchases or holds shares.
Accounts held directly at First Data are not subject to a maintenance fee. 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 each Portfolio is $1,000,000. The
minimum subsequent investment is $50.
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 12:00 noon (New York time) with respect to
orders for the
19
<PAGE>
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Purchase of Shares (continued)
- --------------------------------------------------------------------------------
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.
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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,
20
<PAGE>
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Exchange Privilege (continued)
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
Redemption of Shares. Shareholders may redeem their shares without charge
on any day the Fund calculates its net asset value. See "Valuation of Shares."
Redemption requests received in proper form prior to 2:00 p.m. (12:00 noon in
the case of the Municipal Portfolio), New York time, are priced at the net asset
value as next determined. Redemption requests received after 2:00 p.m. (12:00
noon in the case of the Municipal Portfolio), New York time, will not be
accepted and a new redemption request should be submitted on the following day
that the Fund calculates its net asset value. Redemption requests must be made
through Smith Barney, an introducing broker or the securities dealer in the
selling group through whom the shares were purchased, except that shareholders
who purchased shares of the Fund from First Data may also redeem shares directly
through First Data. A shareholder desiring to redeem shares represented by
certificates also must present the certificates to Smith Barney, the Introducing
Broker or First Data endorsed for transfer (or accompanied by an endorsed stock
power), signed exactly as the shares are registered. Redemption requests
involving shares represented by certificates will not be deemed received until
certificates are received by First Data in proper form.
Shares held at Smith Barney. A redemption request received by Smith Barney
in proper form before 2:00 p.m. (12:00 noon in the case of the Municipal
Portfolio) will not earn a dividend on the day the request is received and
redemption proceeds will be credited to a shareholder's account on the same day.
Shares held at First Data. A shareholder who purchased shares of the Fund
directly through First Data may redeem shares through First Data in the manner
described in the Prospectus under "Expedited Redemption Procedures" and
"Ordinary Redemption Procedures".
Expedited Redemption Procedures
Shareholders meeting the requirements stated below may initiate
redemptions by submitting their redemption requests by telephone at 800-451-2010
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
21
<PAGE>
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Redemption of Shares (continued)
- --------------------------------------------------------------------------------
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 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 on
the preceding page 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
22
<PAGE>
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Redemption of Shares (continued)
- --------------------------------------------------------------------------------
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 to avoid involuntary redemption.
- --------------------------------------------------------------------------------
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.
23
<PAGE>
- --------------------------------------------------------------------------------
Yield Information (continued)
- --------------------------------------------------------------------------------
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.
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, 1997 SBMFM had aggregate assets under management in excess of $81
billion.
24
<PAGE>
- --------------------------------------------------------------------------------
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 dealer 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 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 02109,
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.
25
<PAGE>
SMITH BARNEY
------------
A Member of TravelersGroup [LOGO]
Smith Barney Institutional Cash
Management Fund, Inc.
Class A Shares
388 Greenwich Street
New York, New York 10013
FD0958 9/97
PROSPECTUS
Smith Barney
Institutional Cash
Management
Fund, Inc.
Class B Shares
SEPTEMBER 26, 1997
Prospectus begins on page one
[Logo] Smith Barney Mutual Funds
Investing for your future.
Every day.
<PAGE>
- --------------------------------------------------------------------------------
Prospectus September 26, 1997
- --------------------------------------------------------------------------------
Smith Barney Institutional
Cash Management Fund -- Class B Shares
388 Greenwich Street
New York, New York 10013
(800) 451-2010
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 26, 1997, 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>
- --------------------------------------------------------------------------------
Table of Contents
- --------------------------------------------------------------------------------
Fee Table 3
- --------------------------------------------------------------------------------
Investment Objectives and Policies 4
- --------------------------------------------------------------------------------
Common Investment Techniques 12
- --------------------------------------------------------------------------------
Risks and Special Considerations 15
- --------------------------------------------------------------------------------
Valuation of Shares 15
- --------------------------------------------------------------------------------
Dividends, Automatic Reinvestment and Taxes 16
- --------------------------------------------------------------------------------
Purchase of Shares 17
- --------------------------------------------------------------------------------
Exchange Privilege 18
- --------------------------------------------------------------------------------
Redemption of Shares 19
- --------------------------------------------------------------------------------
Minimum Account Size 21
- --------------------------------------------------------------------------------
Yield Information 21
- --------------------------------------------------------------------------------
Management of the Fund 22
- --------------------------------------------------------------------------------
Distributor and Service Organizations 23
- --------------------------------------------------------------------------------
Additional Information 23
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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>
- --------------------------------------------------------------------------------
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:
Smith Barney Institutional Cash Management Cash Government Municipal
Fund -- Class B Shares 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 0.09%, 0.16% and 0.14%, respectively, for the Cash
Portfolio, Government Portfolio and Municipal Portfolio, and "Total Portfolio
Operating Expenses" would have been 0.68%, 0.61% and 0.66%, 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 and
Service Organazations."
Smith Barney Institutional Cash Management
Fund -- Class B Shares 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 year ended May 31, 1997.
3
<PAGE>
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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.
4
<PAGE>
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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. 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, L.P., Duff & 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.
5
<PAGE>
- --------------------------------------------------------------------------------
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 may
purchase fixed time deposits maturing from two business days to seven calendar
days up to 10% of its total assets. The Cash Portfolio may also purchase fixed
time deposits maturing in more than seven calendar days but in less than
one year, provided, however, that such fixed time
deposits shall be considered illiquid securities.
6
<PAGE>
- --------------------------------------------------------------------------------
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
above mentioned 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. 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
7
<PAGE>
- --------------------------------------------------------------------------------
Investment Objectives and Policies (continued)
- --------------------------------------------------------------------------------
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 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
8
<PAGE>
- --------------------------------------------------------------------------------
Investment Objectives and Policies (continued)
- --------------------------------------------------------------------------------
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 13 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.
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.
9
<PAGE>
- --------------------------------------------------------------------------------
Investment Objectives and Policies (continued)
- --------------------------------------------------------------------------------
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 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
10
<PAGE>
- --------------------------------------------------------------------------------
Investment Objectives and Policies (continued)
- --------------------------------------------------------------------------------
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 .
Derivative Products -- The Municipal Portfolio may invest up to 20% of the
value of its assets in one or more of the three principal types of derivative
product structures described below. Derivative products are typically structured
by a bank, broker-dealer or other financial institution. A derivative product
generally consists of a trust or partnership through which the Portfolio holds
an interest in one or more underlying bonds coupled with a conditional right to
sell ("put") the Portfolio's interest in the underlying bonds at par plus
accrued interest to a financial institution (a "Liquidity Provider"). Typically,
a derivative product is structured as a trust or partnership which provides for
pass-through tax-exempt income. There are currently three principal types of
derivative structures: (1) "Tender Option Bonds", which are instruments which
grant the holder thereof the right to put an underlying bond at par plus accrued
interest at specified intervals to a Liquidity Provider; (2) "Swap Products", in
which the trust or partnership swaps the payments due on an underlying bond with
a swap counterparty who agrees to pay a floating municipal money market interest
rate; and (3) "Partnerships", which allocate to the partners income, expenses,
capital gains and losses in accordance with a governing partnership agreement.
Investments in derivative products raise certain tax, legal, regulatory and
accounting issues which may not be presented by investments in other municipal
obligations. There is some risk that certain issues could be resolved in a
manner which could adversely impact the performance of the Portfolio. For
example, the tax-exempt treatment of the interest paid to holders of derivative
products is premised on the legal conclusion that the holders of such derivative
products have an ownership interest in the underlying bonds. While the Portfolio
receives an opinion of legal counsel to the effect that the income from each
derivative product
11
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Investment Objectives and Policies (continued)
- --------------------------------------------------------------------------------
is tax-exempt to the same extent as the underlying bond, the Internal Revenue
Service (the "IRS") has not issued a ruling on this subject. Were the IRS to
issue an adverse ruling, there is a risk that the interest paid on such
derivative products would be deemed taxable.
The Portfolio intends to limit the risk of derivative products by
purchasing only those derivative products that are consistent with the
Portfolio's investment objective and policies. The Portfolio will not use such
instruments to leverage securities. Hence, derivative products' contributions to
the overall market risk characteristics of the Portfolio will not materially
alter its risk profile and will be fully consistent with the
Portfolio's maturity guidelines.
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.
- --------------------------------------------------------------------------------
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 stand by 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
12
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- --------------------------------------------------------------------------------
Common Investment Techniques (continued)
- --------------------------------------------------------------------------------
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 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 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
13
<PAGE>
- --------------------------------------------------------------------------------
Common Investment Techniques (continued)
- --------------------------------------------------------------------------------
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. The Fund's custodian
will maintain, in a segragated account of the Portfolio, cash, debt
securities of any grade or equity securities, having a value equal to
or greater than the portfolio's purchase commitments, provided such
securities have been determined by SBMFM to be liquid and unencumbered,
and are marked to market daily, pursuant
to guidelines established by the directors. 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.
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.
14
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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, 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.
- --------------------------------------------------------------------------------
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,
15
<PAGE>
- --------------------------------------------------------------------------------
Valuation of Shares (continued)
- --------------------------------------------------------------------------------
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.
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
16
<PAGE>
- --------------------------------------------------------------------------------
Dividends, Automatic Reinvestment and Taxes (continued)
- --------------------------------------------------------------------------------
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"). Smith Barney and other broker/dealers
may charge their customers an annual account maintenance fee in connection with
a brokerage account through which an investor purchases or holds shares.
Accounts held directly at First Data are not subject to a maintenance fee. 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 each Portfolio is
$1,000,000. The minimum subsequent investment is $50.
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
17
<PAGE>
- --------------------------------------------------------------------------------
Purchase of Shares (continued)
- --------------------------------------------------------------------------------
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 12:00 noon (New York City time) with respect
to orders for the Municipal Portfolio and 2:00 p.m. (New York City 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 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
18
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Exchange Privilege (continued)
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
Redemption of Shares
- --------------------------------------------------------------------------------
Redemption of Shares. Shareholders may redeem their shares without charge
on any day the Fund calculates its net asset value. See "Valuation of Shares."
Redemption requests received in proper form prior to 2:00 p.m. (12:00 noon in
the case of the Municipal Portfolio), New York City time, are priced
at the net asset value as next determined. Redemption requests
received after 2:00 p.m. (12:00 noon in the case of the Municipal Portfolio),
New York City time, will not be
accepted and a new redemption request should be submitted on the following day
that the Fund calculates its net asset value. Redemption requests must be made
through Smith Barney, an Introducing Broker or the securities dealer in the
selling group through whom the shares were purchased, except that shareholders
who purchased shares of the Fund from First Data may also redeem shares directly
through First Data. A shareholder desiring to redeem shares represented by
certificates also must present the certificates to Smith Barney, the Introducing
Broker or First Data endorsed for transfer (or accompanied by an endorsed stock
power), signed exactly as the shares are registered. Redemption requests
involving shares represented by certificates will not be deemed received until
certificates are received by First Data in proper form.
Shares held at Smith Barney. A redemption request received by Smith Barney
in proper form before 2:00 p.m. (12:00 noon in the case of the Municipal
Portfolio), New York City time will not earn a dividend on the day the
request is received and redemption proceeds will be credited to
a shareholder's account on the same day.
Shares held at First Data. A shareholder who purchased shares of the Fund
directly through First Data may redeem shares through First Data in the manner
described in the Prospectus under "Expedited Redemption Procedures" and
"Ordinary Redemption Procedures".
19
<PAGE>
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Redemption of Shares (continued)
- --------------------------------------------------------------------------------
Expedited Redemption Procedures
Shareholders meeting the requirements stated below may initiate redemptions
by submitting their redemption requests by telephone at 800-451-2010 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 City 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 City 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 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.
20
<PAGE>
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Redemption of Shares (continued)
- --------------------------------------------------------------------------------
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 to avoid involuntary redemption.
- --------------------------------------------------------------------------------
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
21
<PAGE>
- --------------------------------------------------------------------------------
Yield Information (continued)
- --------------------------------------------------------------------------------
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.
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, 1997 SBMFM had aggregate assets under management in excess of $81
billion.
22
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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.
- --------------------------------------------------------------------------------
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,
23
<PAGE>
- --------------------------------------------------------------------------------
Additional Information (continued)
- --------------------------------------------------------------------------------
Philadelphia, Pennsylvania 19103, is the custodian of each Portfolio's assets.
First Data, located at Exchange Place, Boston, Massachusetts 02109,
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 TravelersGroup[Logo]
Smith Barney Institutional Cash
Management Fund, Inc.
Class B Shares
388 Greenwich Street
New York, New York 10013
FD 0959 9/97
PART B
STATEMENT OF ADDITIONAL INFORMATION
SMITH BARNEY
INSTITUTIONAL CASH MANAGEMENT FUND, INC.
388 Greenwich Street
New York, NY 10013
800-451-2010
STATEMENT OF ADDITIONAL INFORMATION
September 26, 1997
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 26, 1997, 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:
Management of the
Fund.....................................................................
............................................
2
Counsel and
Auditors.................................................................
......................................................
4
Investment Objectives (See in Prospectuses "Investment Objectives and
Policies")............................
4
Investment
Restrictions.............................................................
.......................................................
5
Types of Securities and Investment Techniques
(See in Prospectuses "Common Investment
Techniques").............................................................
.....
9
Yield
Information..............................................................
...............................................................
17
Determination of Net Asset Value (See in Prospectuses "Valuation of
Shares").................................
19
Management Agreement, Plan of Distribution and Other Services
(See in Prospectuses "Management of the
Fund")...................................................................
..........
19
Voting
Rights...................................................................
................................................................
21
Additional
Information..............................................................
.......................................................
21
Financial
Statement................................................................
..........................................................
22
Appendix A - Description of Securities
Ratings..................................................................
.............
A1
Appendix B - Description of Municipal
Securities...............................................................
............
B1
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:
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, Inc.
("First Data")....................................................
Transfer Agent and Dividend Disbursing Agent
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 Investment Company Act of 1940 as amended
(th "1940 Act"), is indicated by an asterisk.
Paul R. Ades, Director (Age 57). Partner in the law firm of Murov &
Ades. His address is 272 South Wellwood Avenue, Lindenhurst, New York
11757.
Herbert Barg, Director (Age 74). Private investor. His address is 273
Montgomery Avenue, Bala Cynwyd, Pennsylvania 19004.
Dwight B. Crane, Director (Age 59). 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 62). 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
64). Managing Director of Smith Barney, Chairman of Smith Barney
Strategy Advisors, President of SBMFM and President of Travelers
Investment Advisers, Inc.("TIA"), 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; 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 60). 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 55). President of Young Stuff Apparel Group,
Inc. His address is 1407 Broadway, 6th Floor, New York, New York 10018.
John R. White, Director (Age 79). 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.
Joseph Benevento (Age 30), Vice President and Investment Officer of Smith
Barney and Vice President of the Fund and four investment companies
associated with Smith Barney.
Lewis E. Daidone, Senior Vice President and Treasurer (Age 40). Managing
Director of Smith Barney; Director and Senior Vice President of SBMFM and
TIA. 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 46). Managing Director of Smith
Barney. General Counsel and Secretary of SBMFM and TIA. 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 39).
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 49).
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 5, 1997, 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 5, 1997, the
following shareholders or "groups" (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 the following
Portfolios:
Cash Portfolio - Class A
Geotek Communications, Inc.
Attn. Accounting Dept.
20 Craig Road
Montvale, NJ 07645
owned 38,728,741 (12.60%) shares
Level One Communications
Attn. David "Bridgeford
9750 Goethe Road
Sacramento, CA 95827-3500
owned 25,022,440.11 (8.14) shares
DH Technology Inc.
Attn. Pauline Schafer
15070 Avenue of Science
San Diego, CA 92128-3404
owned 17,716,263.55(5.76%) shares
Aviron
Attn. Controller
297 N. Bernardo Ave.
Mountain View, CA 94043
owned 17,386,425.06(5.66%) shares
Municipal Portfolio - Class A
Saxon & Co.
PNC Bank NA
ABC International Court 2
200 Stevens Drive
Lester, PA 19113
Attn,. Income Collections Dept.
owned 24,525,950.65(38.61%) shares
Palm Harbor Homes LP
15303 Dallas Parkway Ste 800
Dallas, TX 75248
owned 14,859,064.38(23.39%) shares
Jerome M. Johnson TTEE
The 1987 Goodfellow Marital Trust
U/W/O Marilou P. Goodfellow
4041 Roosevelt Way NE
Seattle, WA 98105
owned 7,267,837.28 (11.44%)
The Buckle, Inc.
2407 W. 24th Street
Kearney, NE 68847
owned 6,705,441.57(10.56%) shares
Saxon & Co.
PNC Bank NA
FBO Wolf Block Schorr #11
A/C 35-35-008-0364587
PO Box 7780-1888
Philadelphia, PA 19182
owned 5,050,770.140 (7.95%) shares
Government Portfolio - Class A
Unifi Communications Inc.
900 Chelmsford Street
Lowell, MA 01851
owned 73,428,301.67(41.99%) shares
Cole National Group, Inc.
5915 Landerbrook Drive
Clevelan, OH 44124
owned 30,363,726.07(17.37%) shares
Giant Industries Inc.
Attn. Mark Cox
23733
North Scottsdale Road
Scottsdale, AZ 85255-3465
owned 18,821,772.75 (10.76%) shares
Juniper Networks
Attn. Marcel Gani
3260 Jay Street
Santa Clara, CA 95054
owned 13,073,944.99 (7.48%) shares
No officer, director or employee of Smith Barney or 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, 1997 such fees and expenses totaled $53,413.
For the fiscal year ended May 31, 1997, the Directors were paid the
following compensation as a director of the Fund and as, trustee and/or
general partner of other Smith Barney Mutual Funds.
Aggregate
Compensation
Aggregate
Compensation From
the Smith Barney
Directors(*)
From the
Fund**
Mutual Funds
Paul R. Ades (4)
$6,100
$51,725
Herbert Barg (11)
6,100
102,525
Alger B. Chapman (9)
6,100
75,100
Dwight B. Crane (18)
6,100
137,725
Frank G. Hubbard (3)
6,100
51,725
Heath B. McLendon (41)
N/A
N/A
Jerome Miller(1)
6,100
12,200
Ken Miller (4)+
6,100
48,725
John F. White (4)+
6,100
51,625
(*) 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, 1997, 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.
Upon attainment of age 80 directors are required to change to emeritus
status. Directors Emeritus are entitled to serve in emeritus status for
a maximum of ten years during which time they are paid 50% of the annual
retainer fee and meeting fees otherwise applicable to the Funds
Directors, together with reasonable out-of -pocket expenses for each
meeting attended.
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 LLP 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, 1998, 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 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 below 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 under the
1940 Act, 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 SBMFM 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 the Manager will consider the factors it 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 the Manager relating to a
Portfolio authorizes the 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 Manager or its affiliates exercise investment
discretion. The fees under the advisory agreements relating to the
Portfolios between the Fund and the 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.
Except to the limited extent permitted by Rule 2a-7 and except for U.S.
Government Securities (as defined below), 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 exced 10% of the Portfolio's total assets. 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.
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.
Under Rule 2a-7, 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. 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 $1,000,000 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 rate 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 the 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 the Cash Portfolio
and the 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 interests 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. The 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.
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 newspapers 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, 1997 the yield and effective
yield for Class A shares of the Cash Portfolio, Government Portfolio and
Municipal Portfolio were as follows:
Portfolio*
Yield
Effective
Yield
Cash Portfolio (Class A)
5.61%
5.76%
Government Portfolio (Class A)
5.27
5.41
Municipal Portfolio+ (Class A)
3.59
3.65
* As at May 31, 1997, no Class B shares of any Portfolio was
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 5.35%
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 Rule 2a-7 under the 1940 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.
For the fiscal year ended May 31, 1997, SBMFM waived a portion of the
management fees due to it. Absent this fee waiver, the management fees
for the Portfolio's Class A shares would have been $585,305, $227,516 and
$117,100, 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, 1997 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 charac-
teristics 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 26, 1997
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,
1997, including the Report of Independent Accountants dated July
14, 1997, which was filed pursuant to Rule 30b-2 of the 1933 Act
on July 29, 1997 as Accession number 91155-97-000357, 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 toPre-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.
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 is filed herin
(17) Financial Data Schedule is filed herein
(18) Form of Rule 18f-3(d) Multiple Class Plan of
the Registrant is incorporated by reference to Post-
Amendement No. 2
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 5, 1997
The Cash Portfolio
Class A
113
Class B 1
The Government Portfolio
Class A 38
Class B 1
The Municipal Portfolio
Class A 18
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 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"), which in turn is a wholly owned subsidiary of
Travelers Group Inc. ("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
Consulting Group Capital Markets Funds; Global Horizons Investment
Series (Cayman Islands); Greenwich Street California Municipal Fund
Inc.; Greenwich Street Municipal Fund Inc.; High Income Opportunity Fund
Inc.; The Italy Fund Inc.; Managed High Income Portfolio Inc.; Managed
Municipals Portfolio II Inc.; Managed Municipals Portfolio Inc.;
Municipal High Income Fund Inc.; Puerto Rico Daily Liquidity Fund Inc.;
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 Inc.; Smith Barney Concert Series Inc.; Smith Barney Disciplined
Small Cap Fund, Inc.; Smith Barney Equity Funds; Smith Barney
Fundamental Value Fund Inc.; Smith Barney Funds, Inc.; Smith Barney
Income Funds; Smith Barney Income Trust; Smith Barney Institutional Cash
Management Fund, Inc.; Smith Barney Intermediate Municipal Fund, Inc.;
Smith Barney Investment Funds Inc.; Smith Barney Investment Trust; Smith
Barney Large Capitalization Growth Fund; Smith Barney Managed
Governments Fund Inc.; Smith Barney Managed Municipals Fund Inc.; Smith
Barney Massachusetts Municipals Fund; Smith Barney Money Funds, Inc.;
Smith Barney Muni Funds; Smith Barney Municipal Fund, Inc.; Smith Barney
Municipal Money Market Fund, Inc.; Smith Barney Natural Resources Fund
Inc.; Smith Barney New Jersey Municipals Fund Inc.; Smith Barney Oregon
Municipals Fund Inc.; Smith Barney Principal Return Fund; Smith Barney
Series Fund; Smith Barney Telecommunications Trust; Smith Barney
Variable Account Funds; Smith Barney World Funds, Inc.; Smith Barney
Worldwide Special Fund N.V. (Netherlands Antilles); Travelers Series
Fund Inc.; The USA High Yield Fund N.V.; Worldwide Securities Limited
(Bermuda); Zenix Income Fund Inc. and various series of unit investment
trusts.
Smith Barney is a wholly owned subsidiary of Holdings. 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. 4 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 12th day of
September, 1997 .
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. 4 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 12, 1997
/s/ Lewis E. Daidone Senior Vice President and
Lewis E. Daidone Treasurer (Chief Financial and
Accounting Officer)
September 12, 1997
Signature Title Date
/s/ Paul R. Ades* Director
September 12, 1997
Paul R. Ades
/s/ Herbert Barg* Director
September 12, 1997
Herbert Barg
/s/ Dwight B. Crane* Director
September 12, 1997
Dwight B. Crane
/s/ Frank G. Hubbard* Director
September 12, 1997
Frank G. Hubbard
/s/ Jerome Miller* Director
September 12, 1997
Jerome Miller
/s/ Ken Miller* Director
September 12, 1997
Ken Miller
/s/ John R. White* Director
September 12, 1997
John R. White
* By: /s/ Heath B. McLendon
Heath B. McLendon
Attorney-in-Fact
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
(4) Specimen Stock Certificate
(11) Consent of KPMG Peat Marwick LLP
(16) Performance Data
(17) Financial Data Schedule
u:\legal\funds\inst\1997\secdocs\pea4
SMITH BARNEY
INSTITUTIONAL CASH MANAGEMENT FUND INC.
CLASS A SHARES
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
ACCOUNT NO. CUSIP
THIS IS TO CERTIFY THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE CLASS A SHARES OF CAPITAL STOCK OF PAR
VALUE OF $0.001 EACH OF
SMITH BARNEY INSTITUTIONAL CASH MANAGEMENT FUND INC.
("the Corporation") transferable only on the books of the Corporation by
the holder hereof in person or by duly authorized attorney, upon
surrender of this Certificate properly endorsed. This certificate is not
valid until countersigned by the Transfer Agent.
WITNESS the facsimile Seal of the Corporation and the facsimile Seal of
the corporation and the facsimile signatures of its duly authorized
officers.
DATED
___________________ ____________________
CHAIRMAN SECRETARY BY
_________________________
AUTHORIZED SIGNATURE
THE FUND HAS MORE THAN ONE CLASS OS THE CAPITAL STOCK AND THE BOARD OF
DIRECTORS MAY AUTHORIZE ADDITIONAL CLASSES OF THE CAPITAL STOCK. THE
CORPORATION WILL FURNISH A FULL STATEMENT OF THE BOARD OF DIRECTOR'S
AUTHORITY AND OF THE DESIGNATIONS AND ANY PREFERENCES, CONVERSIONS AND
OTHER RIGHTS, VOTING POWERS, RESTRICTIONS LIMITATIONS AS TO DIVIDENDS,
QUALIFICATIONS AND TERMS AND CONDITIONS OF REDEMPTION OF THE STOCK OF
EACH CLASS WHICH THE CORPORATION IS AUTHORIZED TO ISSUE TO ANY
STOCKHOLDER UPON REQUEST WITHOUT CHARGE.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in
full according to applicable laws or regulations.
TEN COM- as tenants in commom UNIF GIFT MIN ACT-
..........Custodian............
(Cust)
(Minor)
TEN ENT- as tenants by entireties under
Uniform Gifts to Minors
JT TEN- as joint tenants with right
of survivorship and not as
Act............................................
tenants in common
Additional abbreviations may also be used though not in the above list.
For value recieved,_______________________hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
__________________________________________
________________________________________________________________________
________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF
ASSIGNEE
________________________________________________________________________
_________________________________
of the Capital Stock represented by the Certificate, and do hereby
irrevocably constitute and appoint
______________________________________________________________________At
torney
to transfer the said stock on the books of the within-named Corporation
with full power of substitution in the premises.
Dated,_______________________
_________________________
NOTICE: The signature to
this assignment must
correspond with the name as written
upon the face of the Certificate. In every
particular, without alteration
or enlargement, or any
change whatever.
SMITH BARNEY
INSTITUTIONAL CASH MANAGEMENT FUND INC.
CLASS B SHARES
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
ACCOUNT NO. CUSIP
THIS IS TO CERTIFY THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE CLASS A SHARES OF CAPITAL STOCK OF PAR
VALUE OF $0.001 EACH OF
SMITH BARNEY INSTITUTIONAL CASH MANAGEMENT FUND INC.
("the Corporation") transferable only on the books of the Corporation by
the holder hereof in person or by duly authorized attorney, upon
surrender of this Certificate properly endorsed. This certificate is not
valid until countersigned by the Transfer Agent.
WITNESS the facsimile Seal of the Corporation and the facsimile Seal of
the corporation and the facsimile signatures of its duly authorized
officers.
DATED
___________________ ____________________
CHAIRMAN SECRETARY BY
_________________________
AUTHORIZED SIGNATURE
THE FUND HAS MORE THAN ONE CLASS OS THE CAPITAL STOCK AND THE BOARD OF
DIRECTORS MAY AUTHORIZE ADDITIONAL CLASSES OF THE CAPITAL STOCK. THE
CORPORATION WILL FURNISH A FULL STATEMENT OF THE BOARD OF DIRECTOR'S
AUTHORITY AND OF THE DESIGNATIONS AND ANY PREFERENCES, CONVERSIONS AND
OTHER RIGHTS, VOTING POWERS, RESTRICTIONS LIMITATIONS AS TO DIVIDENDS,
QUALIFICATIONS AND TERMS AND CONDITIONS OF REDEMPTION OF THE STOCK OF
EACH CLASS WHICH THE CORPORATION IS AUTHORIZED TO ISSUE TO ANY
STOCKHOLDER UPON REQUEST WITHOUT CHARGE.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in
full according to applicable laws or regulations.
TEN COM- as tenants in commom UNIF GIFT MIN ACT-
..........Custodian............
(Cust)
(Minor)
TEN ENT- as tenants by entireties under
Uniform Gifts to Minors
JT TEN- as joint tenants with right
of survivorship and not as
Act............................................
tenants in common
Additional abbreviations may also be used though not in the above list.
For value recieved,_______________________hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
__________________________________________
________________________________________________________________________
________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF
ASSIGNEE
________________________________________________________________________
_________________________________
of the Capital Stock represented by the Certificate, and do hereby
irrevocably constitute and appoint
______________________________________________________________________At
torney
to transfer the said stock on the books of the within-named Corporation
with full power of substitution in the premises.
Dated,_______________________
_________________________
NOTICE: The signature to
this assignment must
correspond with the name as written
upon the face of the Certificate. In every
particular, without alteration
or enlargement, or any
change whatever.
Independent Auditors' Consent
To the Shareholders and Board of Trustees of
Smith Barney Institutional Cash Management Fund, Inc.:
We consent to the use of our report dated July 14, 1997 for the Smith
Barney 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 26, 1997
EXHIBIT 16
INSTITUTIONAL CASH MANAGEMENT FUND, INC.
SCHEDULE OF 7 DAY YIELD COMPUTATION
Cash Portfolio
Net change in value per share
from May 24, 1997 to May 30, 1997 $0.001072054794521
Value of one share at May 24 $1.00
7 Day Yield = 0.001072054794521*365/7 5.59%
Government Portfolio
Net change in value per share
from May 24, 1997 to May 30, 1997 $0.001006849315068
Value of one share at May 24 $1.00
7 Day Yield = 0.001006849315068*365/7 5.25%
Municipal Portfolio
Net change in value per share
from May 24, 1997 to May 30, 1997 $0.0006904109589041
Value of one share at May 24 $1.00
7 Day Yield = 0.0006904109589041*365/7 3.60%
SCHEDULE OF 7 DAY EFFECTIVE YIELD COMPUTATION 5/31/97
Cash Portfolio
[(Based period return +1) 365/7] -1
[(0.001072054794521+1)52.142857]-1
Effective 7 Day Yield=5.75%
Government Portfolio
[(Based period return +1) 365/7] -1
[(0.001006849315068+1)52.142857]-1
Effective 7 Day Yield=5.39%
Municipal Portfolio
[(Based period return +1) 365/7] -1
[(0.0006904109589041+1)52.142857]-1
Effective 7 Day Yield=3.66%
u:\legal\funds\inst\misc\ex16
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<RECEIVABLES> 114,289
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<OTHER-ITEMS-LIABILITIES> 569,105
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<PAID-IN-CAPITAL-COMMON> 151,840,212
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<SHARES-COMMON-PRIOR> 57,697,729
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<PER-SHARE-NII> .016
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