[SB]Smith Barney
[MF]Mutual Funds
Your Serious Money. Professionally Managed.(SM)
P R O S P E C T U S
Smith Barney
Institutional Cash
Management Fund
Cash Portfolio
Government Portfolio
Municipal Portfolio
Class A Shares
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September 28, 2000
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INVESTMENT PRODUCTS: NOT FDIC INSURED * NO BANK GUARANTEE * MAY LOSE VALUE
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The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
Institutional Cash Management Fund
Contents
<TABLE>
<S> <C>
Investments, risks and performance.......................................... 2
Management.................................................................. 9
Buying shares............................................................... 10
Exchanging shares........................................................... 11
Redeeming shares............................................................ 12
Other things to know about share transactions............................... 14
Distributions, dividends and taxes.......................................... 16
Share price................................................................. 17
Financial highlights........................................................ 18
</TABLE>
Smith Barney Mutual Funds
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<PAGE>
Investment, risks and performance
Investment objectives
Cash Portfolio and Government Portfolio each seek maximum current income to the
extent consistent with preservation of capital and the maintenance of liquidi-
ty. Municipal Portfolio seeks maximum current income that is exempt from fed-
eral income taxes to the extent consistent with preservation of capital and the
maintenance of liquidity.
Principal investment strategies
Key investments
Government Portfolio This portfolio invests exclusively in short-term U.S. gov-
ernment obligations, including securities issued or guaranteed by the U.S. Gov-
ernment, its agencies and instrumentalities and U.S. Treasury securities and
related repurchase agreements.
Cash Portfolio This portfolio invests in high quality, U.S. dollar denominated
short-term debt securities, primarily commercial paper and obligations of
financial institutions such as certificates of deposit, bankers' acceptances,
or time deposits of U.S. banks with total assets greater than $1 billion (or
the equivalent in other currencies in the case of foreign banks). Either the
principal amount of each obligation is fully insured by the FDIC or the issuing
bank has more than $100 million of working capital or more than $1 billion of
total assets. The portfolio also may invest in obligations issued by the U.S.
government, its agencies or instrumentalities, U.S. states and municipalities
and U.S. and foreign corporate issuers. The portfolio will invest at least 25%
of its assets in obligations of domestic and foreign banks.
Cash Portfolio also may invest in money market securities including asset-
backed securities, repurchase agreements and other short term debt securities.
These securities may pay interest at fixed, floating or adjustable rates. The
portfolio limits foreign investments to U.S. dollar denominated securities of
issuers located in major industrialized countries.
Municipal Portfolio This portfolio invests primarily in high quality, short-
term investment grade municipal securities whose interest is excluded from
gross income for Federal income tax purposes. These include securities issued
by any of the 50 states and their political subdivisions, agencies and public
authorities (together with certain other governmental issuers such as Puerto
Rico, the Virgin Islands and Guam). As a result, the interest rate on these
securities normally is lower than it would be if the securities were subject to
taxation. The municipal securities in which the portfolio invests
Institutional Cash Management Fund
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<PAGE>
include general obligation bonds, revenue bonds and notes, and municipal
leases. These securities may pay interest at fixed, variable or floating rates.
The Municipal Portfolio can invest up to 20% of its assets in securities whose
interest is federally taxable.
Minimum credit quality The portfolios invest only in high quality securities,
which are those rated by a nationally recognized statistical rating organiza-
tion in one of its two highest short-term rating categories or, if unrated, of
equivalent quality.
Maximum maturity Each portfolio invests exclusively in securities having
remaining maturities of 397 days or less. Each portfolio maintains a dollar-
weighted average portfolio maturity of 90 days or less.
Structured securities Structured securities are a type of derivative instru-
ment. Municipal Portfolio may invest up to 20% of its assets in three types of
structured securities: tender option bonds, partnership interests and swap-
based securities. These securities represent participation interests in a spe-
cial purpose trust or partnership holding one or more municipal bonds and/or
municipal bond interest rate swaps. A typical swap enables the trust or part-
nership to exchange a municipal bond fixed interest rate for a floating or
variable, short-term municipal interest rate.
Selection process
In selecting investments for the portfolios, the manager looks for:
. The best relative values based on an analysis of yield, price, interest rate
sensitivity and credit quality
. Issuers offering minimal credit risk
. Maturities consistent with the manager's outlook for interest rates
Principal risks of investing in the portfolios
All investments involve some degree of risk. However, each portfolio is a
"money market fund" and, as such, seeks income by investing in short-term debt
securities that meet strict standards established by the portfolios' Board of
Directors based on special rules for money market funds adopted under federal
law.
Although each portfolio seeks to preserve the value of your investment at $1
per share, it is possible to lose money by investing in a portfolio, or the
portfolios could underperform other short-term debt instruments or money market
funds if:
. Interest rates rise sharply.
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. An issuer or guarantor of a portfolio's securities defaults, or the
security's credit rating is downgraded.
. The manager's judgment about the value or credit quality of a particular
security proves to be incorrect.
Cash Portfolio invests at least 25% of its assets in obligations of domestic
and foreign banks and, as a result, is more susceptible to events affecting the
banking industry. The value of Cash Portfolio's foreign securities may decline
because of unfavorable government actions or political instability.
Some of Municipal Portfolio's income distributions may be, and distributions of
the portfolio's gains will be, subject to federal taxation. The portfolio may
realize taxable gains on the sale of its securities. Some of the portfolio's
income distributions may be subject to the federal alternative minimum tax. In
addition, distributions of Municipal Portfolio's income and gains generally
will be subject to state income taxation.
Structured securities, unlike some derivatives, are not designed to leverage
the portfolio or increase its exposure to interest rate risk. Investments in
structured securities raise certain tax, legal, regulatory and accounting
issues which may not be presented by investments in other municipal bonds.
These issues could be resolved in a manner that could hurt the performance of
the portfolios.
Who may want to invest
Cash Portfolio and Government and Municipal Portfolio may be an appropriate
investment if you:
. Are seeking current income
. Are looking for an investment with lower risk than most other types of port-
folios
In addition to the above, Municipal Portfolio may be an appropriate investment
if you:
. Are a taxpayer in a high federal tax bracket seeking current income exempt
from federal taxation
. Are willing to accept the risks of municipal securities
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Risk return bar charts
The bar charts indicate the risks of investing in the portfolios by showing
changes in the portfolios' performance from year to year. Past performance does
not necessarily indicate how a portfolio will perform in the future. The bar
charts show the performance of each of the portfolio's Class A shares for each
of the past 4 calendar years.
Total Return for Cash Portfolio
[BAR CHART]
96 97 98 99
---- ---- ---- ----
5.37% 5.54% 5.50% 5.14%
Calendar years ended December 31
Quarterly returns:
Highest: 1.40% in 4th quarter 1997; Lowest: 1.18% in 2nd quarter 1999 Year to
date: 2.99% through 6/30/2000
Total Return for Government Portfolio
[BAR CHART]
96 97 98 99
---- ---- ---- ----
5.31% 5.43% 5.36% 4.96%
Calendar years ended December 31
Quarterly returns:
Highest: 1.38% in 4th quarter 1997; Lowest: 1.15% in 2nd quarter 1999 Year to
date: 2.90% through 6/30/2000
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Total Return for Municipal Portfolio
[BAR CHART]
96 97 98 99
---- ---- ---- ----
3.41% 3.55% 3.39% 3.16%
Quarterly returns:
Highest: 0.91% in 4th quarter 1997; Lowest: 0.69% in 1st quarter 1999 Year to
date: 1.53% through 6/30/2000
Risk return table
This table indicates the risks of investing in the portfolios by showing the
average annual total return of Class A shares of the portfolios for the periods
indicated. This table assumes redemption of shares at the end of the period and
reinvestment of distributions and dividends.
Average Annual Total Returns
Calendar Year Ended December 31, 1999
<TABLE>
<CAPTION>
Fund 1 year Since inception Inception Date
<S> <C> <C> <C>
Cash Portfolio 5.14% 5.45% 6/16/95
Government Portfolio 4.96% 5.33% 6/16/95
Municipal Portfolio 3.16% 3.44% 6/16/95
90 Day T-Bill 4.74% 5.02% 6/16/95
</TABLE>
* Index comparison begins on June 30, 1995.
7 day yield as of December 31, 1999
<TABLE>
<CAPTION>
Cash Government Municipal
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
7 day yield 5.71% 5.16% 4.19%
</TABLE>
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Fee table
This table sets forth the fees and expenses you will pay if you invest in the
portfolios' shares.
Shareholders fees
<TABLE>
<CAPTION>
Cash Government Municipal
(fees paid directly from your investment) Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Maximum sales charge (load) imposed on
purchases
(as a % of offering price) None None None
Maximum deferred sales charge (load) (as a % of
the lower of net asset value at purchase or
redemption) None None None
</TABLE>
Annual portfolio operating expenses
<TABLE>
<CAPTION>
Cash Government Municipal
(expenses deducted from fund assets) Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Management fee(/1/) 0.27% 0.27% 0.27%
Distribution and service (12b-1) fees none none none
Other expenses 0.02% 0.05% 0.07%
----- ----- -----
Total annual portfolio operating expenses(/1/) 0.29% 0.32% 0.34%
</TABLE>
(/1/)The manager has voluntarily agreed to limit total annual operating
expenses, exclusive of certain other expenses, to .80% of each portfolio's
average daily net assets. Because the manager waived a portion of the manage-
ment fees, actual expenses for the prior fiscal year were:
<TABLE>
<CAPTION>
Cash Government Municipal
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Management fee 0.21% 0.18% 0.16%
Total annual fund operating expenses 0.23% 0.23% 0.23%
</TABLE>
Subject to the cap on total annual operating expenses, the manager may change
or eliminate these management fee waivers at any time. The manager may termi-
nate the .80% limit on total annual operating expenses on fourteen days' prior
notice to shareholders.
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Example
This example helps you compare the costs of investing in each portfolio with
the costs of investing in other mutual funds. Your actual costs may be higher
or lower. The example assumes:
. You invest $10,000 in the portfolio for the period shown
. You redeem all of your shares at the end of the period
. Your investment has a 5% return each year
. You reinvest all distributions and dividends without a sales charge
. Each portfolio's operating expenses remain the same
. Redemption of your shares at the end of the period
Number of years you own your shares
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Cash Portfolio $30 $ 93 $163 $368
Government Portfolio $33 $103 $180 $406
Municipal Portfolio $35 $109 $191 $431
</TABLE>
Institutional Cash Management Fund
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Management
Manager The portfolios' investment manager is SSB Citi Fund Management LLC
(successor to SSBC Fund Management Inc.), an affiliate of Salomon Smith Barney
Inc. The manager's address is 388 Greenwich Street, New York, New York 10013.
The manager selects the portfolios' investments and oversees their operations.
The manager and Salomon Smith Barney are subsidiaries of Citigroup Inc.
Citigroup businesses produce a broad range of financial services--asset manage-
ment, banking and consumer finance, credit and charge cards, insurance, invest-
ments, investment banking and trading--and use diverse channels to make them
available to consumer and corporate customers around the world.
Management fee For its services, the manager received a fee during each portfo-
lio's last fiscal year equal to the amount shown below:
<TABLE>
<CAPTION>
Management fee as a percentage of
Portfolio each portfolio's average daily net assets
<S> <C>
Cash Portfolio 0.21%
Government Portfolio 0.18%
Municipal Portfolio 0.16%
</TABLE>
In addition, the distributor may make payments for distribution and/or share-
holder servicing activities out of its past profits and other available sourc-
es. The distributor may also make payments for marketing, promotional or
related expenses to dealers. The amount of these payments is determined by the
distributor and may be substantial. The manager or an affiliate may make simi-
lar payments under similar arrangements.
Transfer agent and shareholder servicing agent Citi Fiduciary Trust Company
serves as each portfolio's transfer agent and shareholder servicing agent (the
"transfer agent"). The transfer agent has entered into a sub-transfer agency
and services agreement with PFPC Global Fund Services to serve as each portfo-
lio's sub-transfer agent (the "sub-transfer agent"). The sub-transfer agent
will perform certain functions including shareholder record keeping and
accounting services.
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Buying shares
Retail and institutional investors may purchase shares of the portfolios.
The minimum initial investment amount for each account is $1,000,000. Each
additional investment must be $50 or more.
Through a You should contact your broker-dealer, financial intermedi-
Service Agent ary, financial institution or a distributor's financial con-
sultants (each called a "Service Agent") to open a brokerage
account and make arrangements to buy shares.
If you do not provide the following information, your order
will be rejected:
. Specific portfolio being bought
. The class of shares and dollar amount or number of shares
being bought
You should pay for your shares through your brokerage account
on the day you place your order. Your Service Agent may
charge an annual account maintenance fee.
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Through the Certain investors who are clients of certain Service Agents
portfolio are eligible to buy shares directly from a portfolio.
. Call the transfer agent at 1-800-282-3505 for more informa-
tion on establishing an account or purchasing additional
shares.
. Enclose a check to pay for the shares or arrange for
the wiring of federal funds to the transfer agent by call-
ing 1-800-282-3505. For initial purchases, complete and
send an account application.
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Effectiveness
of purchase When purchase orders are paid for in federal funds, or are
orders placed by an investor with a sufficient balance in the
investor's brokerage account with a Service Agent, the order
becomes effective on the day of receipt if the
Institutional Cash Management Fund
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order is received prior to 12 noon (Eastern time) which is
the close of business for the Municipal Portfolio and 2:00 pm
(Eastern time) which is the close of business with respect to
the Cash and Government Portfolios on any day on which a
portfolio calculates its net asset value. Purchase orders
received after the close of business or with respect to which
federal funds are not available, or when the orders for the
purchase of shares are paid for in other than federal funds,
will not be accepted and a new purchase order will need to be
submitted the next day a portfolio calculates its net asset
value.
Exchanging shares
You should contact your Service Agent to exchange into
another portfolio. An exchange is a taxable transaction.
. To qualify for the exchange privilege, you must exchange
shares with a current value of at least $1,000
. If you hold share certificates, the transfer agent must
receive the certificates endorsed for transfer or with
signed stock powers (documents transferring ownership of
certificates) before the exchange is effective.
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By telephone
If you do not have a brokerage account with a Service Agent,
you may be eligible to exchange shares through the portfolio.
You must complete an authorization form to authorize tele-
phone transfers. If eligible, you may make telephone
exchanges on any day the New York Stock Exchange is open.
Call the transfer agent at 1-800-282-3505 between 9:00 a.m.
and 2:00 p.m. Eastern time (between 9 a.m. and 12 noon for
Municipal Portfolio).
You can make telephone exchanges only between accounts that
have identical registrations.
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By mail
If you do not have a brokerage account, contact your Service
Agent or write to the sub-transfer agent at the address on
page 13.
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Redeeming shares
Generally
Redemption requests received in proper form prior to 2 p.m.
Eastern time (12 noon for Municipal Portfolio) are priced at
the net asset value next determined. Redemption requests
received after 2 p.m. Eastern time (12 noon for Municipal
Portfolio) will not be accepted and a new redemption request
should be submitted on the next day that the portfolio calcu-
lates its net asset value. If you hold share certificates,
the sub-transfer agent must receive the certificates endorsed
for transfer or with signed stock powers before the redemp-
tion is effective.
In a
Brokerage You may redeem shares by contacting your Service Agent. If
Account you have a brokerage account with a Service Agent, your
redemption proceeds will be placed in your account in the
form of federal funds on the same day that the redemption
order was accepted and not reinvested without your specific
instruction. You may have the proceeds sent in the form of
federal funds wired on the same day to a bank account previ-
ously designated on your application form. If you change the
bank account designated to receive the proceeds you must sub-
mit in proper form a new account application with a signature
guarantee. Alternatively, your redemption proceeds can be
sent by check to your address of record normally within one,
but in no event more than three, business days after your
request is received in proper form.
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By telephone
If you have an account application on file with the transfer
agent with the telephone privilege section properly completed
you may request redemptions by telephone on any day the New
York Stock Exchange is open. Call the transfer agent at 1-
800-282-3505 between 9:00 a.m. and 2:00 p.m. Eastern time
(between 9 a.m. and 12 noon for Municipal Portfolio). If,
however, you are unable to contact the transfer agent by tel-
ephone you may contact your Service Agent to effect such
redemption.
Institutional Cash Management Fund
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By mail For accounts held directly at the portfolios, send written
requests to the portfolio at the following address:
Smith Barney Institutional Cash Management Fund Inc.
(Specify portfolio)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, RI 02940-9699
Your written request must provide the following:
. The portfolio and account number
. The class of shares and dollar amount or number of shares
to be redeemed
. Signatures of each owner exactly as the account is
registered
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Other things to know about share transactions
When you buy, exchange or redeem shares, your request must be in good order.
This means you have provided the following information, without which your
request will not be processed:
. Name of the portfolio
. Account number
. The class of shares and dollar amount or number of shares being bought,
exchanged or redeemed
. Signature of each owner exactly as the account is registered
A request to purchase shares becomes effective only when the Service Agent or
the transfer agent receives, or converts the purchase
amount into, federal funds.
The portfolio will try to confirm that any telephone exchange or redemption
request is genuine by recording calls, asking the caller to provide certain
personal identification information, sending you a written confirmation or
requiring other confirmation procedures from time to time.
Signature guarantees To be in good order, your redemption request must include
a signature guarantee if you:
. Are sending signed share certificates or stock powers to the sub-transfer
agent
. Instruct the sub-transfer agent to mail the check to an address different
from the one on your account
. Changed your account registration
. Want the check paid to someone other than the account owner(s)
. Are transferring the redemption proceeds to an account with a different reg-
istration
You can obtain a signature guarantee from most banks, dealers, brokers, credit
unions and federal savings and loan institutions, but not from a notary public.
Each portfolio has the right to:
. Suspend the offering of shares
. Waive or change minimum and additional investment amounts
Institutional Cash Management Fund
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. Reject any purchase or exchange order
. Change, revoke or suspend the exchange privilege
. Suspend telephone transactions
. Suspend or postpone redemptions of shares on any day when trading on the New
York Stock Exchange is restricted, or as otherwise permitted by the Securi-
ties and Exchange Commission
. Pay redemption proceeds by giving you securities. You may pay transaction
costs to dispose of the securities
Small account balances If your account falls below $100,000 because of a
redemption of portfolio shares, a portfolio may ask you to bring your account
up to the applicable minimum investment amount. If you choose not to do so
within 60 days, the portfolio may close your account and send you the redemp-
tion proceeds.
Share certificates The portfolios do not issue share certificates unless a
written request signed by all registered owners is made to the sub-transfer
agent. If you hold share certificates, it will take longer to exchange or
redeem shares.
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Distributions, dividends and taxes
Dividends Each portfolio intends to declare a dividend of substantially all of
its net investment income on each day the New York Stock Exchange is open.
Income dividends are paid monthly. Each portfolio generally makes capital gain
distributions, if any, once a year, typically in December. Each portfolio may
pay additional distributions and dividends at other times if necessary for the
portfolio to avoid a federal tax. Each portfolio expects distributions to be
primarily from income. Dividends and capital gain distributions are reinvested
in additional portfolio shares of the same class you hold. Alternatively, you
can instruct your Service Agent, the transfer agent or the
sub-transfer agent to have your distri-
butions and/or dividends paid in cash. You can change your choice at any time
to be effective as of the next distribution or dividend, except that any change
given to your Service Agent, transfer agent or the sub-transfer agent less than
five days before the payment date will not be effective until the next distri-
bution or dividend is paid.
Taxes In general, receiving distributions (whether in cash or additional
shares) is a taxable event.
<TABLE>
<CAPTION>
Transaction Federal tax status
<S> <C>
Redemption or exchange of shares Usually no gain or loss
Long-term capital gain distributions Long-term capital gain
Short-term capital gain distributions Ordinary income
Dividends Ordinary income (except for
Municipal Portfolio's
distributions
of tax-exempt interest,
which are excludable from
gross income
for Federal income tax
purposes)
</TABLE>
Each portfolio anticipates that it will normally not earn or distribute any
long-term capital gains.
After the end of each year, each portfolio will provide you with information
about the distributions and dividends you received during the previous year. If
you do not provide the portfolios with your correct taxpayer identification
number and any required certifications, you may be subject to back-up withhold-
ing of 31% of your distributions and dividends (other than tax-exempt divi-
dends). Because each shareholder's circumstances are different and special tax
rules may apply, you should consult your tax adviser about your investment in
the portfolios.
Institutional Cash Management Fund
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<PAGE>
Share price
You may buy, exchange or redeem shares at their net asset value next determined
after receipt of your request in good order. Each portfolio's net asset value
is the value of its assets minus its liabilities. Municipal Portfolio calcu-
lates its net asset value at noon, Eastern time, every day the New York Stock
Exchange is open. Cash Portfolio and Government Portfolio each calculate their
respective net asset values at 2 p.m., Eastern time, every day the New York
Stock Exchange is open. The Exchange is closed on certain holidays listed in
the Statement of Additional Information.
Each portfolio uses the amortized cost method to value portfolio securities.
Using this method, a portfolio constantly amortizes over the remaining life of
a security the difference between the principal amount due at maturity and the
cost of the security to the portfolio.
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Financial highlights
The financial highlights tables are intended to help you understand the perfor-
mance of Class A shares of each portfolio for the past 5 years (or since incep-
tion if less than 5 years). Certain information reflects financial results for
a single share. Total return represents the rate that a shareholder would have
earned (or lost) on a portfolio share assuming reinvestment of all dividends
and distributions. The information in the following tables was audited by KPMG
LLP, independent accountants, whose report, along with the portfolios' finan-
cial statements, is included in the annual report (available upon request).
Cash Portfolio
For a Class A share of capital stock outstanding throughout each year ended
May 31:
<TABLE>
<CAPTION>
2000(/1/) 1999 1998 1997 1996(/2/)
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year $1.00 $1.00 $1.00 $1.00 $1.00
--------------------------------------------------------------------------------
Net investment income(/3/) 0.055 0.051 0.055 0.052 0.053
Distributions from net
investment income (0.055) (0.051) (0.055) (0.052) (0.053)
Distributions from net realized
gains (0.000)* (0.000)* (0.000)* -- --
--------------------------------------------------------------------------------
Net Asset Value, End of Year $1.00 $1.00 $1.00 $1.00 $1.00
--------------------------------------------------------------------------------
Total Return 5.60% 5.23% 5.58% 5.35% 5.44%++
--------------------------------------------------------------------------------
Net Assets, End of Year
(millions) $1,918 $1,057 $ 848 $ 216 $ 278
--------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(/3/)(/4/) 0.23% 0.23% 0.23% 0.23% 0.15%+
Net investment income 5.56 5.07 5.43 5.23 5.43+
--------------------------------------------------------------------------------
</TABLE>
(/1/) Per share amounts have been calculated using the monthly average shares
method.
(/2/) For the period from June 16, 1995 (inception date) to May 31, 1996.
(/3/) The manager has waived a portion of its fees for the portfolio for the
years ended May 31, 2000, 1999, 1998, 1997 and for the period ended May
31, 1996. If the manager had not agreed to the fee waiver, the per share
effect on net investment income and the ratio of expenses to average net
assets for the Class A shares would have been:
<TABLE>
<CAPTION>
Per Share
Decrease to Net Expense Ratio
Investment Income Without Fee Waiver
2000 1999 1998 1997 1996 2000 1999 1998 1997 1996
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A $0.001 $0.001 $0.001 $0.001 $0.001 0.29% 0.31% 0.35% 0.36% 0.39%+
--------------------------------------------------------------------------------
</TABLE>
(/4/) As a result of a voluntary expense limitation, the ratio of expenses to
average net assets of the Portfolio was no greater than 0.23%.
* Amount represents less than $0.001.
++ Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
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<PAGE>
Government Portfolio
For a Class A share of capital stock outstanding throughout each year ended
May 31:
<TABLE>
<CAPTION>
2000(/1/) 1999 1998 1997 1996(/2/)
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year $1.00 $1.00 $1.00 $1.00 $1.00
--------------------------------------------------------------------------------
Net investment income(/3/) 0.053 0.049 0.053 0.052 0.052
Distributions from net
investment income (0.053) (0.049) (0.053) (0.052) (0.052)
Distributions from net realized
gains -- -- -- (0.000)* (0.000)*
--------------------------------------------------------------------------------
Net Asset Value, End of Year $1.00 $1.00 $1.00 $1.00 $1.00
--------------------------------------------------------------------------------
Total Return 5.41% 5.05% 5.46% 5.29% 5.36%++
--------------------------------------------------------------------------------
Net Assets, End of Year
(millions) $134 $146 $88 $152 $58
--------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(/3/)(/4/) 0.23% 0.23% 0.23% 0.21% 0.16%+
Net investment income 5.26 4.86 5.33 5.18 5.28+
--------------------------------------------------------------------------------
</TABLE>
(/1/) Per share amounts have been calculated using the monthly average shares
method.
(/2/) For the period from June 16, 1995 (commencement of operations) to May 31,
1996.
(/3/) The manager has waived a portion of its fees for the portfolio for the
years ended May 31, 2000, 1999, 1998, 1997 and the period ended May 31,
1996. If the manager had not agreed to the fee waiver, the per share
effect on net investment income and the ratio of expenses to average net
assets would have been:
<TABLE>
<CAPTION>
Per Share
Decrease to Net Expense Ratio
Investment Income Without Fee Waiver
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2000 1999 1998 1997 1996 2000 1999 1998 1997 1996
---------------------------------------------------------------------
$0.001 $0.002 $0.002 $0.001 $0.002 0.32% 0.42% 0.39% 0.43% 0.55%+
---------------------------------------------------------------------
</TABLE>
(/4/) As a result of a voluntary expense limitation, the ratio of expenses to
average net assets of the portfolio was no greater than 0.23%.
* Amount represents less than $0.001.
++Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
Smith Barney Mutual Funds
19
<PAGE>
Municipal Portfolio
For a Class A share of capital stock outstanding throughout each year ended
May 31:
<TABLE>
<CAPTION>
2000(/1/) 1999 1998 1997 1996(/2/)
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year $1.00 $1.00 $1.00 $1.00 $1.00
------------------------------------------------------------------------------
Net investment income(/3/) 0.034 0.031 0.035 0.034 0.035
Distributions from net
investment income (0.034) (0.031) (0.035) (0.034) (0.035)
Distributions from net
realized gains (0.000)* -- (0.000)* -- --
------------------------------------------------------------------------------
Net Asset Value, End of Year $1.00 $1.00 $1.00 $1.00 $1.00
------------------------------------------------------------------------------
Total Return 3.48% 3.18% 3.56% 3.40% 3.55%++
------------------------------------------------------------------------------
Net Assets, End of Year
(millions) $82 $312 $86 $24 $59
------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(/3/)(/4/) 0.23% 0.23% 0.23% 0.21% 0.15%+
Net investment income 3.35 3.09 3.50 3.34 3.46+
------------------------------------------------------------------------------
</TABLE>
(/1/) Per share amounts have been calculated using the monthly average shares
method.
(/2/) For the period from June 16, 1995 (commencement of operations) to May 31,
1996.
(/3/) The manager has waived all or a part of its fees for the portfolio for
the years ended May 31, 2000, 1999, 1998, 1997 and the period ended May
31, 1996. In addition, the manager agreed to reimburse the portfolio for
$63,835 in expenses for the period ended May 31, 1996. If the manager had
not agreed to the fee waiver and the expense reimbursement, the per share
effect on net investment income and the ratio of expenses to average net
assets would have been:
<TABLE>
<CAPTION>
Per Share Expense Ratio
Decrease to Net Without Fee Waiver
Investment Income and Reimbursement
2000 1999 1998 1997 1996 2000 1999 1998 1997 1996
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A $0.001 $0.002 $0.001 $0.004 $0.003 0.34% 0.39% 0.41% 0.41% 0.69%+
----------------------------------------------------------------------------
</TABLE>
(/4/) As a result of a voluntary expense limitation, the ratio of expenses to
average net assets of the Portfolio was no greater than 0.23%.
* Amount represents less than $0.001.
++Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
Institutional Cash Management Fund
20
<PAGE>
[SB] Smith Barney
[MF] Mutual Funds
Your Serious Money. Professionally Managed./SM/
Smith Barney Institutional Cash Management Fund
Shareholder reports Annual and semiannual reports to shareholders provide addi-
tional information about each portfolio's investments. These reports discuss
the market conditions and investment strategies that significantly affected the
portfolios' performance during their last fiscal year or period.
The portfolios send only one report to a household if more than one account has
the same address. Contact your Service Agent or the transfer agent if you do
not want this policy to apply to you.
Statement of additional information The statement of additional information
provides more detailed information about the portfolios and is incorporated by
reference into (is legally part of) this prospectus.
You can make inquiries about the portfolios or obtain shareholder reports or
the statement of additional information (without charge) by contacting your
Service Agent, by calling the portfolios at 1-800-282-3505, or by writing to
the portfolios at Smith Barney Mutual Funds, 388 Greenwich Street, MF2, New
York, New York 10013.
Visit our web site. Our web site is located at www.smithbarney.com
Information about the portfolios (including the SAI) can be reviewed
and copied at
the Securities and Exchange Commission's (the "Commission") Public Reference
Room in Washington, D.C. In addition, information on the operation of the Pub-
lic Reference Room may be obtained by calling the Commission at 1-202-942-8090.
Reports and other information about the portfolios
are available on the EDGAR Data-
base on the Commission's Internet site at http://www.sec.gov. Copies of this
information may be obtained for a duplicating fee by electronic request at the
following E-mail address: [email protected], or by writing the Commission's
Public Reference Section, Washington, D.C. 20549-0102.
If someone makes a statement about the portfolios that is not in this prospec-
tus, you should not rely upon that information. Neither the portfolios nor the
distributor is offering to sell shares of the portfolios to any person to whom
the portfolios may not lawfully sell their shares.
Your Serious Money. Professionally Managed. is a service mark of Salomon Smith
Barney Inc.
(Investment Company Act file
no. 811-9012)
[FD0958 9/00]
<PAGE>
[SB] Smith Barney
[MF] Mutual Funds
Your Serious Money. Professionally Managed.(SM)
P R O S P E C T U S
Smith Barney
Institutional Cash
Management Fund
Cash Portfolio
Government Portfolio
Municipal Portfolio
Class B Shares
-------------------------------------------------------------------------------
September 28, 1999
-------------------------------------------------------------------------------
INVESTMENT PRODUCT: NOT FDIC INSURED * NO BANK GUARANTEE * MAY LOSE VALUE
-------------------------------------------------------------------------------
The Securities and Exchange Commission has not approved or disapproved
these securities or determined whether this prospectus is accurate or
complete. Any statement to the contrary is a crime.
<PAGE>
Institutional Cash Management Fund
Contents
<TABLE>
<S> <C>
Investments, risks and performance.......................................... 2
Management.................................................................. 7
Buying shares............................................................... 8
Exchanging shares........................................................... 9
Redeeming shares............................................................ 10
Other things to know about share transactions............................... 12
Distributions, dividends and taxes.......................................... 14
Share price................................................................. 15
Financial highlights........................................................ 16
</TABLE>
Smith Barney Mutual Funds
1
<PAGE>
Investment, risks and performance
Investment objectives
Cash Portfolio and Government Portfolio each seek maximum current income to the
extent consistent with preservation of capital and the maintenance of liquidi-
ty. Municipal Portfolio seeks maximum current income that is exempt from fed-
eral income taxes to the extent consistent with preservation of capital and the
maintenance of liquidity.
Principal investment strategies
Key investments
Government Portfolio This portfolio invests exclusively in short-term U.S. gov-
ernment obligations, including securities issued or guaranteed by the U.S. Gov-
ernment, its agencies and instrumentalities and U.S. Treasury securities and
related repurchase agreements.
Cash Portfolio This portfolio invests in high quality, U.S. dollar denominated
short-term debt securities, primarily commercial paper and obligations of
financial institutions such as certificates of deposit, bankers acceptances,
time deposits of U.S. banks with total assets greater than $1 billion (or the
equivalent in other currencies in the case of foreign banks). Either the prin-
cipal amount of each obligation is fully insured by the FDIC or the issuing
bank has more than $100 million of working capital or more than $1 billion of
total assets. These also may include obligations issued by the U.S. government,
its agencies or instrumentalities, U.S. states and municipalities and U.S. and
foreign corporate issuers. The portfolio will invest at least 25% of its assets
in obligations of domestic and foreign banks.
Cash Portfolio also may invest in money market securities including asset-
backed securities, repurchase agreements and other short term debt securities.
These securities may pay interest at fixed, floating or adjustable rates. The
portfolio limits foreign investments to U.S. dollar denominated securities of
issuers located in major industrialized countries.
Municipal Portfolio This portfolio invests primarily in high quality, short-
term investment grade municipal securities whose interest is exempt from Fed-
eral income tax. These include securities issued by any of the 50 states and
their political subdivisions, agencies and public authorities (together with
certain other governmental issuers such as Puerto Rico, the Virgin Islands and
Guam). As a result, the interest rate on these securities normally is lower
than it would be if the securities were subject to taxation. The municipal
securities in which the fund invests include general obligation bonds, revenue
bonds and notes, and municipal leases. These securities
Institutional Cash Management Fund
2
<PAGE>
may pay interest at fixed, variable or floating rates. The Municipal Portfolio
can invest up to 20% of its assets in securities whose interest is federally
taxable.
Minimum credit quality The portfolios invest only in high quality securities,
which are those rated by a nationally recognized statistical rating organiza-
tion in one of its two highest short-term rating categories or, if unrated, of
equivalent quality.
Maximum maturity Each portfolio invests exclusively in securities having
remaining maturities of 397 days or less. Each portfolio maintains a dollar-
weighted average portfolio maturity of 90 days or less.
Structured securities Structured securities are a type of derivative instru-
ment. Municipal Portfolio may invest up to 20% of its assets in three types of
structured securities: tender option bonds, partnership interests and swap-
based securities. These securities represent participation interests in a spe-
cial purpose trust or partnership holding one or more municipal bonds and/or
municipal bond interest rate swaps. A typical swap enables the trust or part-
nership to exchange a municipal bond fixed interest rate for a floating or
variable, short-term municipal interest rate.
Selection process
In selecting investments for the portfolios, the manager looks for:
. The best relative values based on an analysis of yield, price, interest rate
sensitivity and credit quality
. Issuers offering minimal credit risk
. Maturities consistent with the manager's outlook for interest rates
Principal risks of investing in the portfolios
All investments involve some degree of risk. However, each portfolio is a
"money market fund" and, as such, seeks income by investing in short-term debt
securities that meet strict standards established by the portfolios' Board of
Directors based on special rules for money market funds adopted under federal
law.
Although each portfolio seeks to preserve the value of your investment at $1
per share, it is possible to lose money by investing in a portfolio, or the
portfolios could underperform other short-term debt instruments or money market
funds if:
. Interest rates rise sharply.
Smith Barney Mutual Funds
3
<PAGE>
. An issuer or guarantor of the portfolios' securities defaults, or the
security's credit rating is downgraded.
. The manager's judgment about the value or credit quality of a particular
security proves to be incorrect.
Cash Portfolio invests at least 25% of its assets in obligations of domestic
and foreign banks and, as a result, is more susceptible to events affecting the
banking industry. The value of Cash Portfolio's foreign securities may decline
because of unfavorable government actions or political instability.
Some of Municipal Portfolio's income distributions may be, and distributions of
the portfolio's gains will be, subject to federal taxation. The portfolio may
realize taxable gains on the sale of its securities. Some of the portfolio's
income distributions may be subject to the federal alternative minimum tax. In
addition, distributions of Municipal Portfolio's income and gains generally
will be subject to state income taxation.
Structured securities, unlike some derivatives, are not designed to leverage
the portfolio or increase its exposure to interest rate risk. Investments in
structured securities raise certain tax, legal, regulatory and accounting
issues which may not be presented by investments in other municipal bonds.
These issues could be resolved in a manner that could hurt the performance of
the portfolios.
Who may want to invest
Cash Portfolio and Government and Municipal Portfolio may be an appropriate
investment if you:
. Are seeking current income
. Are looking for an investment with lower risk than most other types of port-
folios
In addition to the above, Municipal Portfolio may be an appropriate investment
if you:
. Are a taxpayer in a high federal tax bracket seeking current income exempt
from federal taxation
. Are willing to accept the risks of municipal securities
No performance information is presented for Class B shares of the portfolios
since there were no Class B shares outstanding
for any of the portfolios for a full calendar year since inception.
Institutional Cash Management Fund
4
<PAGE>
Fee table
This table sets forth the fees and expenses you will pay if you invest in the
portfolios' shares. Since no Class B shares of the portfolios were outstanding
for the fiscal year ended May 31, 2000, management fees and other expenses are
estimated for the fiscal year ending May 31, 2001.
Shareholder fees
<TABLE>
<CAPTION>
Cash Government Municipal
(fees paid directly from your investment) Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Maximum sales charge (load) imposed on
purchases (as a % of offering price) None None None
Maximum deferred sales charge (load) (as a % of
the lower of net asset value at purchase or
redemption) None None None
</TABLE>
Annual portfolio operating expenses
<TABLE>
<CAPTION>
Cash Government Municipal
(expenses deducted from fund assets) Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Management fee/1/ 0.27% 0.27% 0.27%
Distribution and service (12b-1) fees 0.25% 0.25% 0.25%
Other expenses 0.02% 0.05% 0.07%
----- ----- -----
Total annual portfolio operating expenses/1/ 0.54% 0.57% 0.59%
</TABLE>
/1/The manager has voluntarily agreed to limit total annual operating expenses,
exclusive of certain other expenses, to .80% of each portfolio's average daily
net assets. Because the manager waived a portion of the management fees, esti-
mated expenses for the fiscal year ending May 31, 2000 are:
<TABLE>
<CAPTION>
Cash Government Municipal
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Management fee 0.19% 0.16% 0.13%
Total annual portfolio operating expenses 0.46% 0.46% 0.45%
</TABLE>
Subject to the cap on total annual operating expenses, the manager may change
or eliminate these management fee waivers at any time. The manager may termi-
nate the .80% limit on total annual operating expenses on fourteen days prior
notice to shareholders.
Smith Barney Mutual Funds
5
<PAGE>
Example
This example helps you compare the costs of investing in each portfolio with
the costs of investing in other mutual funds. Your actual costs may be higher
or lower. The example assumes:
. You invest $10,000 in the portfolios for the period shown
. You redeem all of your shares at the end of the period
. Your investment has a 5% return each year
. You reinvest all distributions and dividends without a sales charge
. Each portfolio's operating expenses remain the same
. Redemption of your shares at the end of the period
Number of years you own your shares
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Cash Portfolio $55 $173 $302 $677
Government Portfolio $58 $183 $318 $714
Municipal Portfolio $65 $205 $357 $738
</TABLE>
Institutional Cash Management Fund
6
<PAGE>
Management
Manager The portfolios' investment manager is SSB Citi Fund Management LLC
(successor to SSBC Fund Management Inc.), an affiliate of Salomon Smith Barney
Inc. The manager's address is 388 Greenwich Street, New York, New York 10013.
The manager selects the portfolios' investments and oversees their operations.
The manager and Salomon Smith Barney are subsidiaries of Citigroup Inc.
Citigroup businesses produce a broad range of financial services--asset manage-
ment, banking and consumer finance, credit and charge cards, insurance, invest-
ments, investment banking and trading--and use diverse channels to make them
available to consumer and corporate customers around the world.
Distribution plans Each portfolio has adopted a Rule 12b-1 distribution plan
for its Class B shares. Under the plan, the portfolio pays distribution and/or
service fees. These fees are an ongoing expense and, over time, may cost you
more than other types of sales charges.
In addition, the distributor may make payments for distribution and/or share-
holder servicing activities out of its past profits and other available sourc-
es. The distributor may also make payments for marketing, promotional or
related expenses to dealers. The amount of these payments is determined by the
distributor and may be substantial. The manager or an affiliate may make simi-
lar payments under similar arrangements.
Transfer agent and shareholder servicing agent Citi Fiduciary Trust Company
serves as the fund's transfer agent and shareholder servicing agent (the
"transfer agent"). The transfer agent has entered into a sub-transfer agency
and services agreement with PFPC Global Fund Services to serve as the fund's
sub-transfer agent (the "sub-transfer agent"). The sub-transfer agent will per-
form certain functions including shareholder record keeping and accounting
services.
Smith Barney Mutual Funds
7
<PAGE>
Buying shares
Retail and institutional investors may purchase shares of the portfolios as
a record owner on behalf of fiduciary, agency or custody accounts.
The minimum initial
investment amount for each account is $1,000,000. Each additional investment
must be $50 or more.
Through a You should contact a broker-dealer, financial intermediary,
Service Agent financial institution or a distributor's financial consul-
tants (each called a "Service Agent") to open a brokerage
account and make arrangements to buy shares.
If you do not provide the following information, your order
will be rejected
. Specific portfolio being bought
. The class of shares and dollar amount or number of shares
being bought
You should pay for your shares through your brokerage account
on the day you place your order. Your Service Agent may
charge an annual account maintenance fee.
--------------------------------------------------------------------------------
Through the Certain investors who are clients of certain Service Agents
portfolio are eligible to buy shares directly from a portfolio.
. Call the transfer agent at 1-800-282-3505 for more informa-
tion on establishing an account or purchasing additional
shares.
. Enclose a check to pay for the shares, or arrange for the
wiring of federal funds to the transfer agent by calling 1-
800-282-3505. For initial purchases, complete and send an
account application.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Effectiveness When purchase orders are paid for in federal funds, or are
of purchase placed by an investor with a sufficient balance in the
orders investor's brokerage account with a Service Agent,
the order becomes effective on the day
of receipt if the order is received prior to 12 noon (Eastern
time) which is the close of business for the Municipal Port-
folio and 2:00 pm (Eastern time) which is the close of busi-
ness with respect to the Cash and Government Portfolios on
any day on which a portfolio calculates its net asset value.
Purchase orders received after the close of business or with
Institutional Cash Management Fund
8
<PAGE>
respect to which federal funds are not available, or when the
orders for the purchase of shares are paid for in other than
federal funds, will not be accepted and a new purchase order
will need to be submitted the next day a portfolio calculates
its net asset value.
Exchanging shares
You should contact your Service Agent to exchange into
another portfolio. An exchange is a taxable transaction.
. To qualify for the exchange privilege, you must exchange
shares with a current value of at least $1,000
. If you hold share certificates, the transfer agent must
receive the certificates endorsed for transfer or with
signed stock powers (documents transferring ownership of
certificates) before the exchange is effective.
--------------------------------------------------------------------------------
By telephone If you do not have a brokerage account with a Service
Agent, you may be eligible to exchange shares through the
portfolio. You must complete an authorization form to
authorize telephone transfers. If eligible, you may make
telephone exchanges on any day the New York Stock Exchange
is open. Call the transfer agent at 1-800-282-3505 between
9:00 a.m. and 2:00 p.m. Eastern time (between 9 a.m. and
12 noon for Municipal Portfolio).
You can make telephone exchanges only between accounts
that have identical registrations.
--------------------------------------------------------------------------------
By mail If you do not have a brokerage account, contact your
Service Agent or write to the sub-transfer agent at the
address on page 11.
Smith Barney Mutual Funds
9
<PAGE>
Redeeming shares
Generally
Redemption requests received in proper form prior to 2 p.m.
Eastern time (12 noon for Municipal Portfolio) are priced at
the net asset value next determined. Redemption requests
received after 2 p.m. Eastern time (12 noon for Municipal
Portfolio) will not be accepted and a new redemption request
should be submitted on the next day that the portfolio calcu-
lates its net asset value. If you hold share certificates,
the sub-transfer agent must receive the certificates endorsed
for transfer or with signed stock powers before the redemp-
tion is effective.
--------------------------------------------------------------------------------
In a
Brokerage You may redeem shares by contacting your Service Agent. If
Account you have a brokerage account with a Service Agent, your
redemption proceeds will be placed in your account in the
form of federal funds on the same day that the redemption
order was accepted and not reinvested without your specific
instruction. You may have the proceeds sent in the form of
federal funds wired on the same day to a bank account previ-
ously designated on your application form. If you change the
bank account designated to receive the proceeds you must sub-
mit in proper form a new account application with a signature
guarantee. Alternatively, your redemption proceeds can be
sent by check to your address of record normally within one,
but in no event more than three, business days after your
request is received in proper form.
--------------------------------------------------------------------------------
By telephone
If you have an account application on file with the transfer
agent with the telephone privilege section properly completed
you may request redemptions by telephone on any day the New
York Stock Exchange is open. Call the transfer agent at 1-
800-282-3505 between 9:00 a.m. and 2:00 p.m. Eastern time
(between 9 a.m. and 12 noon for Municipal Portfolio). If,
however, you are unable to contact the transfer agent by tel-
ephone you may contact your Service Agent to effect such
redemption.
Institutional Cash Management Fund
10
<PAGE>
By mail
For accounts held directly at the portfolios, send written
requests to the portfolio at the following address:
Smith Barney Institutional Cash Management Fund Inc.
(Specify portfolio)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, RI 02940-9699
Your written request must provide the following:
. The portfolio and account number
. The class of shares and dollar amount or number of shares
to be redeemed
. Signatures of each owner exactly as the account is
registered
Smith Barney Mutual Funds
11
<PAGE>
Other things to know about share transactions
When you buy, exchange or redeem shares, your request must be in good order.
This means you have provided the following information, without which your
request will not be processed:
. Name of the portfolio
. Account number
. The class of shares and dollar amount or number of shares being bought,
exchanged or redeemed
. Signature of each owner exactly as the account is registered
A request to purchase shares becomes effective only when the Service Agent
or the transfer agent receives, or converts the purchase
amount into, federal funds.
The portfolio will try to confirm that any telephone exchange or redemption
request is genuine by recording calls, asking the caller to provide certain
personal identification information, sending you a written confirmation or
requiring other confirmation procedures from time to time.
Signature guarantees To be in good order, your redemption request must include
a signature guarantee if you:
. Are sending signed share certificates or stock powers to the sub-transfer
agent
. Instruct the sub-transfer agent to mail the check to an address different
from the one on your account
. Changed your account registration
. Want the check paid to someone other than the account owner(s)
. Are transferring the redemption proceeds to an account with a different reg-
istration
You can obtain a signature guarantee from most banks, dealers, brokers, credit
unions and federal savings and loan institutions, but not from a notary public.
Each portfolio has the right to:
. Suspend the offering of shares
. Waive or change minimum and additional investment amounts
Institutional Cash Management Fund
12
<PAGE>
. Reject any purchase or exchange order
. Change, revoke or suspend the exchange privilege
. Suspend telephone transactions
. Suspend or postpone redemptions of shares on any day when trading on the New
York Stock Exchange is restricted, or as otherwise permitted by the Securi-
ties and Exchange Commission
. Pay redemption proceeds by giving you securities. You may pay transaction
costs to dispose of the securities
Small account balances If your account falls below $100,000 because of a
redemption of portfolio shares, a portfolio may ask you to bring your account
up to the applicable minimum investment amount. If you choose not to do so
within 60 days, the portfolio may close your account and send you the redemp-
tion proceeds.
Share certificates The portfolios do not issue share certificates unless a
written request signed by all registered owners is made to the sub-transfer
agent. If you hold share certificates, it will take longer to exchange or
redeem shares.
Smith Barney Mutual Funds
13
<PAGE>
Distributions, dividends and taxes
Dividends Each portfolio intends to declare a dividend of substantially all of
its net investment income on each day the New York Stock Exchange is open.
Income dividends are paid monthly. Each portfolio generally makes capital gain
distributions, if any, once a year, typically in December. Each portfolio may
pay additional distributions and dividends at other times if necessary for the
portfolio to avoid a federal tax. Each portfolio expects distributions to be
primarily from income. Dividends and capital gain distributions are reinvested
in additional portfolio shares. Alternatively, you can instruct your Service
Agent, transfer agent or the sub-transfer agent to have your distributions
and/or dividends
paid in cash. You can change your choice at any time to be effective as of the
next distribution or dividend, except that any change given to your Service
Agent, transfer agent or the sub-transfer agent less than five days before the
payment date will not be effective until the next distribution or dividend is
paid.
Taxes In general, receiving distributions (whether in cash or additional
shares) is a taxable event.
<TABLE>
<CAPTION>
Transaction Federal tax status
<S> <C>
Redemption or exchange of shares Usually no gain or loss
Long-term capital gain distributions Long-term capital gain
Short-term capital gain distributions Ordinary income
Dividends Ordinary income (except for
Municipal Portfolio's distributions
of tax-exempt interest,
which are excludable
from gross income
for Federal income tax purposes)
</TABLE>
Each portfolio anticipates that it will normally not earn or distribute any
long-term capital gains.
After the end of each year, each portfolio will provide you with information
about the distributions and dividends you received during the previous year. If
you do not provide the portfolios with your correct taxpayer identification
number and any required certifications, you may be subject to back-up withhold-
ing of 31% of your distributions and dividends (other than tax-exempt divi-
dends). Because each shareholder's circumstances are different and special tax
rules may apply, you should consult your tax adviser about your investment in
the portfolios.
Institutional Cash Management Fund
14
<PAGE>
Share price
You may buy, exchange or redeem shares at their net asset value next determined
after receipt of your request in good order. Each portfolio's net asset value
is the value of its assets minus its liabilities. Municipal Portfolio calcu-
lates its net asset value at noon, Eastern time, every day the New York Stock
Exchange is open. Cash Portfolio and Government Portfolio each calculate their
respective net asset values at 2 p.m., Eastern time, every day the New York
Stock Exchange is open. The Exchange is closed on certain holidays listed in
the Statement of Additional Information.
Each portfolio uses the amortized cost method to value portfolio securities.
Using this method, a portfolio constantly amortizes over the remaining life of
a security the difference between the principal amount due at maturity and the
cost of the security to the portfolio.
Smith Barney Mutual Funds
15
<PAGE>
Financial highlights
The financial highlights table is intended to help you understand the perfor-
mance of Class B shares of Cash portfolio for the past 5 years (or since incep-
tion if less than 5 years). Certain information reflects financial results for
a single share. Total return represents the rate that a shareholder would have
earned (or lost) on a portfolio share assuming reinvestment of all dividends
and distributions. The information in the following table was audited by KPMG
LLP, independent accountants, whose report, along with the Cash Portfolio's
financial statement, is included in the 1998 annual report.
No financial information is presented for Class B shares of Government Portfo-
lio and Municipal Portfolio since there were no Class B shares outstanding.
Cash Portfolio
For a Class B share* of capital stock outstanding throughout each year ended
May 31:
<TABLE>
<CAPTION>
1998(/1/)
-------------------------------------------------
<S> <C>
Net asset value, beginning of year $ 1.00
-------------------------------------------------
Income (loss) from operations:
Net investment income (loss)(/2/) 0.31
-------------------------------------------------
Total income (loss) from operations 0.31
-------------------------------------------------
Less distributions from:
Net investment income (0.31)
Total distributions (0.31)
-------------------------------------------------
Net asset value, end of year $ 1.00
-------------------------------------------------
Total return 3.13%(4)
-------------------------------------------------
Net assets, end of year (000)'s $2,400
-------------------------------------------------
Ratios to average net assets:
Expenses(/2/)(/3/) 0.47%(5)
Net investment income (loss) 5.21
-------------------------------------------------
</TABLE>
Institutional Cash Management Fund
16
<PAGE>
(/1/) For the period from October 28, 1997 (commencement of operations) to May
31, 1998.
(/2/) The manager has waived a portion of its fees for the fiscal years ended
May 31, 2000, May 31, 1999 and for the period ended May 31, 1998. If the
manager had not agreed to the fee waiver, the per share decrease in net
investment income and ratio of expenses to average net assets would have
been:
<TABLE>
<CAPTION>
Per Share Decrease Expense
Ratio
In Net Investment Income Without Fee
Waiver
1998(/1/)
1998(/1/)
--------------------------------------------------------------------------------
------
<S> <C> <C>
Cash Portfolio $0.000(/6/) 0.48%
--------------------------------------------------------------------------------
------
</TABLE>
(/3/) As a result of a voluntary waiver, the ratio of expenses to
average net assets was 0.48%.
(/4/) Not annualized.
(/5/) Annualized.
(/6/) Amount represents less than $0.01.
* There were no Class B shares outstanding for years prior or subsequent to
the year ended May 31, 1998.
Smith Barney Mutual Funds
17
<PAGE>
[LOGO] Smith Barney
Mutual Funds
Smith Barney Institutional Cash
Management Fund
Shareholder reports Annual and semiannual reports to shareholders provide addi-
tional information about each portfolio's investments. These reports discuss
the market conditions and investment strategies that significantly affected the
portfolios' performance during their last fiscal year or period.
The portfolios send only one report to a household if more than one account has
the same address. Contact your Service Agent or the transfer agent if you do
not want this policy to apply to you.
Statement of additional information The statement of additional information
provides more detailed information about the portfolios and is incorporated by
reference into (is legally part of) this prospectus.
You can make inquiries about the portfolios or obtain shareholder reports or
the statement of additional information (without charge) by contacting your
Service Agent, by calling the portfolios at 1-800-282-3505, or by writing to
the portfolios at Smith Barney Mutual Funds, 388 Greenwich Street, MF2, New
York, New York 10013.
Visit our web site. Our web site is located at www.smithbarney.com
Information about the portfolios (including the SAI) can be reviewed and
copied at
the Securities and Exchange Commission's (the "Commission") Public Reference
Room in Washington, D.C. In addition, information on the operation of the Pub-
lic Reference Room may be obtained by calling the Commission at 1-202-942-8090.
Reports and other information about the portfolios
are available on the EDGAR Data-
base on the Commission's Internet site at http://www.sec.gov. Copies of this
information may be obtained for a duplicating fee by electronic request at the
following E-mail address: [email protected], or by writing the Commission's
Public Reference Section, Washington, D.C. 20549-0102.
If someone makes a statement about the portfolios that is not in this prospec-
tus, you should not rely upon that information. Neither the portfolios nor the
distributor is offering to sell shares of the portfolios to any person to whom
the portfolios may not lawfully sell their shares.
Your Serious Money. Professionally Managed is a service mark of Salomon Smith
Barney Inc.
(Investment Company Act file
no. 811-09012)
FD0959 9/00
PART B
SMITH BARNEY INSTITUTIONAL CASH MANAGEMENT FUND, INC.
388 Greenwich Street
New York, NY 10013
800-451-2010
STATEMENT OF ADDITIONAL INFORMATION
September 28, 2000
The Cash Portfolio, the Government Portfolio and the Municipal
Portfolio.
Smith Barney Institutional Cash Management Fund, Inc. (the
"Company") is a money market fund that invests in high quality
money market instruments. The Company is a no-load, open-end
management investment company that offers shares in three funds:
the Cash Portfolio, the Government Portfolio and the Municipal
Portfolio (individually, a "fund" and collectively, the "funds").
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 interest income that is excluded from gross
income for Federal income tax purposes to the extent consistent
with the preservation of capital and the maintenance of liquidity.
An investment in a fund is neither insured nor guaranteed by the
U.S. Government. There is no assurance that a fund will be able
to maintain a stable net asset value of $1.00 per share.
Each fund currently offers
two classes of shares. Class A shares of the Cash, Government and
Municipal Portfolios may be purchased by any retail or
institutional investor meeting the investment minimum. Class B
shares may be purchased by financial institutions as a record
owner on behalf of fiduciary, agency or custody accounts meeting
the investment minimum.
This statement of additional information ("SAI") expands upon and
supplements the information contained in the current prospectuses
of Class A shares and Class B shares dated September 28, 2000,
as amended or supplemented from time to
time (the "prospectuses"), and should be read in conjunction with
the prospectuses. The prospectuses may be obtained from a Salomon
Smith Barney Financial Consultant, a Service Agent (as defined on
page 25) or by writing or calling the Company at the address or
telephone number set forth above. This SAI, although not in
itself a prospectus, is incorporated by reference into the
prospectuses in its entirety.
TABLE OF CONTENTS
Management of the Company 3
Investment Objectives 5
Types of Securities and Investment Techniques 5
Risk Factors 19
Investment Restrictions 19
Yield Information 23
Determination of Net Asset Value 25
Purchase of Shares 25
Exchange Privilege 26
Redemption of Shares 27
Management Agreement, Plan of Distribution and Other Services 28
Taxes 31
Additional Information About the Company 32
Financial Statements 34
Appendix A Description of Securities Ratings A-1
Appendix B Description of Municipal Securities B-1
MANAGEMENT OF THE COMPANY
Directors and Executive Officers of the Company
Overall responsibility for management and supervision of the
Company rests with its Directors. The Directors approve all
significant agreements between the Company and the companies that
furnish services to the Company, including agreements with the
Company's distributor, investment adviser, custodian, transfer
agent and sub-transfer agent. The day-to-day operations of each
fund are delegated to SSB Citi Fund Management LLC ("SSB Citi" or
the "Manager") (successor to SSB Citi Fund Management Inc.).
The following are the names of the Directors and executive
officers of the Company together with a brief description of their
principal occupations during the last five years. Each Director
who is an "interested person" of the Company, as defined in the
Investment Company Act of 1940 as amended (the "1940 Act"), is
indicated by an asterisk.
Paul R. Ades, Director (Age 60). Law firm of Paul R. Ades LLC.
His address is Argyle Square, 181 West Main Street, Suite C, P.O.
Box 790, Babylon, New York 11702.
Herbert Barg, Director (Age 77). Private investor. His address
is 273 Montgomery Avenue, Bala Cynwyd, Pennsylvania 19004.
Dwight B. Crane, Director (Age 62). Professor, Graduate School of
Business Administration, Harvard University. His address is
Harvard Business School, Harvard University, Boston, Massachusetts
02163.
Frank G. Hubbard, Director (Age 63). President, Avatar
International, Inc.; Former Vice President of S&S Industries;
Former Corporate Vice President, Materials Management and
Marketing Services of Huls America, Inc. His address is 87
Whittredge Road, Summit, New Jersey 07901.
*Heath B. McLendon, Chairman of the Board, President and Chief
Executive Officer (Age 67). Managing Director of Salomon Smith
Barney Inc. ("Salomon Smith Barney") and President of SSB Citi and
Travelers Investment Advisers, Inc. ("TIA"); Chairman and Co-
Chairman of the Board of 78 investment companies associated with
Citigroup, Inc. ("Citigroup"). His address is 7 World Trade
Center, 45th Floor, New York, NY 10048.
Jerome Miller, Director (Age 61). Retired, Former President,
Asset Management Group of Shearson Lehman Brothers. His address
is 27 Hemlock Road, Manhasset, New York, New York 11030.
Ken Miller, Director (Age 58). President of Young Stuff Apparel
Group, Inc. His address is 1407 Broadway, 6th Floor, New York,
New York 10018.
Joseph Benevento (Age 32), Vice President and Investment Officer
of Salomon Smith Barney and Vice President of the Fund and four
investment companies associated with Salomon Smith Barney. His
address is 7 World Trade Center, 43rd Floor, New York, NY 10048.
Lewis E. Daidone, Senior Vice President and Treasurer (Age 42).
Managing Director of Salomon Smith Barney; Senior Vice President
and Treasurer of 61 investment companies affiliated with
Citigroup, Director and Senior Vice President of SSB Citi and TIA.
His address is 125 Broad Street, New York, New York 10004.
Christina T. Sydor, Secretary (Age 49). Managing Director of
Salomon Smith Barney; General Counsel and Secretary of SSB Citi
and TIA. Ms. Sydor also serves as Secretary of 61 investment
companies associated with Citigroup. Her address is 388 Greenwich
Street, New York, New York 10013.
Phyllis M. Zahorodny, Vice President and Investment Officer (Age
41). Investment Officer of SSB Citi and Managing Director of
Salomon Smith Barney and Investment Officer of four investment
companies associated with Salomon Smith Barney. Her address is 7
World Trade Center, 43rd Floor, New York, NY 10048..
Joseph Deane, Vice President and Investment Officer (Age 51).
Managing Director of Salomon Smith Barney and Investment Officer
of 9 other investment companies associated with Salomon Smith
Barney. His address is 7 World Trade Center, 45th Floor, New
York, NY 10048.
Each Director also serves as a director, trustee and/or general
partner of certain other mutual funds for which Salomon Smith
Barney serves as distributor. As of September 13, 2000, the
Directors and officers of the Company, as a group, owned less than
1.00% of the outstanding shares of common stock of each fund.
To the best knowledge of the Directors, as of September 13, 2000
the following shareholders or "groups" (as such term is defined in
section 13(d) of the Securities Exchange Act of 1934, as amended
(the "1934 Act")) owned beneficially or of record more than 5% of
the shares of the following funds:
FUND
CLASS
PERCENT
NAME
ADDRESS
Municipal
Portfolio
A
17.5545%
David Litman and
Malia A. Litman
JTWROS
5001 Swiss Avenue
Dallas, TX 75214-5237
Municipal
Portfolio
A
8.8257
Saxon & Co
c/o PNC Bank
Attn: ACI/Reorg
Lawrence Lockwood or
Maleka Young
200 Stevens Drive
Suite 260A
Lester, PA 19113
Municipal
Portfolio
A
6.0625
James A. Harmon
45 Kettle Creek Rd.
Weston, CT 06883-2208
Municipal
Portfolio
A
5.7444
Smith Barney Private
Trust Company
Attn: Peter C.
Stoffers
153 East 53rd Street
23rd Floor
New York, NY 10043
Municipal
Portfolio
A
5.7081
T.M. Equity
Attn: Jim Clarke
Rt. 23
Box 577-A
Hendersonville, NC
28792-8928
Government
Portfolio
A
59.0137%
City of Bridgeport
Pension Plan A
Attn: Jerome I Baron
Dir. Of Finance
45 Lyon Terrace
Bridgeport CT 06604-
4023
Government
Portfolio
A
6.2854
Babcock & Wilcox
Inc.
P. O. Box N-7796
Nassau, Bahamas
No officer, director or employee of Salomon Smith Barney or any
parent or subsidiary receives any compensation from the Company
for serving as an officer or Director of the Company. The Company
pays each Director who is not an officer, director or employee of
Salomon Smith Barney or any of its affiliates a fee of $3,000 per
annum plus $750 per meeting attended and reimburses travel and
out-of-pocket expenses. For the fiscal year ended May 31, 2000,
such expenses totaled $18,574.
For the fiscal year ended May 31, 2000, the Directors were paid
the following compensation as a director of the Company and as
trustee or director of other Smith Barney Mutual Funds.
Name of Person
Aggregate
Compensation
from Company
Total Pension
or Retirement
Benefits
Accrued as
part of
Company
Expenses
Compensation
from Company
and Fund
Complex Paid
to Directors
Number of
Funds for
Which
Director
Serves Within
Fund Complex
Paul R. Ades
$6,000
0
$56,238
5
Herbert Barg
6,000
0
114,288
16
Dwight B. Crane
6,000
0
155,363
23
Frank G. Hubbard
6,750
0
56,138
5
Heath B. McLendon
0
0
0
78
Jerome Miller
6,000
0
51,613
5
Ken Miller
6,000
0
47,188
5
* Director Emeritus. 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 10 years
during which time they are paid 50% of the annual retainer fee and
meeting fees otherwise applicable to the Company Directors
together with reasonable out-of-pocket expenses for each meeting
attended. During the Company's last fiscal year aggregate
compensation paid by the Company to Directors Emeritus totaled
$6,800.
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
interest income that is excluded from gross income for Federal
income tax purposes to the extent consistent with preservation of
capital and the maintenance of liquidity. There can be no
assurance that a fund will achieve its investment objective or
maintain a stable net asset value of $1.00 per share. The
investment objectives of the funds are fundamental and may not be
changed without shareholder approval. Shareholders will be
notified of material changes in investment policies.
TYPES OF SECURITIES AND INVESTMENT TECHNIQUES
The funds 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 funds 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 SSB Citi; and (iii) has been determined
by SSB Citi to present minimal credit risks pursuant to procedures
approved by the Directors. In addition, the funds will maintain a
dollar-weighted average portfolio maturity of 90 days or less.
The NRSROs currently designated as such by the SEC are Standard &
Poor's Ratings Group ("S&P"), Moody's Investors Service, Inc.
("Moody's"), FitchIBCA, Inc., Duff and Phelps Credit Rating Co.
and Thomson BankWatch. 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 described below), the Cash and
Municipal Portfolios will not invest more than 5% of their total
assets in the securities of any one issuer, except when the
securities are subject to demand features and/or guarantees that
meet the requirements of Rule 2a-7 (as to diversification and
other requirements of the Rule). To ensure adequate liquidity, no
fund may invest more than 10% of its net assets in illiquid
securities, including repurchase agreements maturing in more than
seven days and time deposits that mature in more than two business
days. Because the funds are typically used as a cash management
vehicle, they intend to maintain a high degree of liquidity. SSB
Citi determines and monitors the liquidity of portfolio securities
under the supervision of the Directors.
If the funds acquire securities that are unrated (other than U.S.
Government Securities, as described below), the acquisition must
be approved under the procedures adopted by the Board of
Directors.
Under Rule 2a-7, each fund 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 fund does not make more than one such
investment at any one time.
Pursuant to Rule 2a-7, each fund invests in ''first-tier"
securities. First-tier securities are U.S. Government Securities,
shares of other money market funds, and securities that are rated,
or are issued by an issuer with short-term debt outstanding that
is rated, in the highest short-term rating category by the
Requisite NRSROs, or are unrated and of comparable quality to a
rated security. In addition, a fund may invest in "second-tier"
securities, which are defined as eligible securities that are not
first-tier securities. However, a fund may not invest in a second-
tier security (in the case of the Municipal Portfolio, second tier
conduit securities), if immediately after the acquisition thereof
the fund would have invested more than (i) the greater of one
percent of its total assets or $1,000,000 in second-tier
securities (in the case of the Municipal Portfolio, second tier
conduit securities) issued by that issuer, or (ii) five percent of
its total assets in second-tier securities (in the case of the
Municipal Portfolio, second tier conduit securities).
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 the greater of 1%
of their respective total assets or $1,000,000 in the Second Tier
Securities of any one issuer.
U.S. Government Securities. Each fund invests in securities
issued or guaranteed by the U.S. Government or one of its
agencies, authorities or instrumentalities. Securities in which
the funds 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 funds will invest in
obligations issued by an instrumentality of the U.S. Government
unless SSB Citi determines that the instrumentality's credit risk
does not make its securities unsuitable for investment by the
fund.
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 funds as initial
criteria for the selection of portfolio securities, but the funds
also will rely upon the independent advice of SSB Citi to evaluate
potential investments.
Subsequent to the purchase of a particular security by a fund, its
rating may be reduced below the minimum required for purchase by
the fund or the issuer of the security may default on its
obligations with respect to the security. In that event, the fund
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 fund. 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 fund, but the Directors will promptly consider
such event in their determination of whether the fund 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 fund will attempt to use comparable
ratings as standards for its investments in accordance with its
investment objective and policies.
Repurchase Agreements. Each fund may engage in repurchase
agreement transactions with banks which are issuers of instruments
acceptable for purchase by such fund and with certain dealers
listed on the Federal Reserve Bank of New York's list of reporting
dealers. Repurchase agreements are transactions in which a fund
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 fund may incur costs in disposing of the
collateral and may experience losses if there is any delay in its
ability to do so. The Company's custodian maintains possession of
the underlying collateral, which is maintained at not less than
100% of the repurchase price. SSB Citi, acting under the
supervision of the Directors, reviews the creditworthiness of
those banks and dealers with which a fund enters into repurchase
agreements to evaluate potential risks.
Reverse Repurchase Agreements. Each fund may enter into reverse
repurchase agreements. Reverse repurchase agreements are
transactions in which a fund 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.
Lending of Portfolio Securities. Each fund 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 fund's total assets, taken at value. A fund may
not lend its portfolio securities to SSB Citi or its affiliates
without specific authorization from the Securities and Exchange
Commission (the "SEC"). Loans of portfolio securities by a fund
will be collateralized by cash 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 fund
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 fund or with SSB Citi,
and which is acting as a "finder."
By lending portfolio securities, each fund 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
fund 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 fund must be able to
terminate the loan at any time; (d) the fund 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 fund 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 Company must terminate the
loan and regain the right to vote the securities.
The limit of 20% of each fund's total assets to be committed to
securities lending is a fundamental policy of each fund, which
means that it cannot be changed without approval of a majority of
a fund's outstanding shares. However, the funds do not currently
intend to engage in securities lending.
Floating Rate and Variable Rate Obligations. Each fund may
purchase floating rate and variable rate obligations, including
participation interests therein. 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. 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 fund may
purchase floating rate and variable rate obligations which carry a
demand feature that would permit the fund to tender them back to
the issuer or remarketing agent at par value prior to maturity.
Each fund 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. Securities with
ultimate maturities of greater than 13 months may be purchased
only pursuant to Rule 2a-7. Frequently, floating rate and
variable rate obligations are secured by letters of credit or
other credit support arrangements provided by banks. As
determined by SSB Citi, 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, SSB Citi 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. The funds may invest in participation
interests in any type of security in which the funds may invest.
Each fund 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 fund'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 SSB Citi, under the supervision of the Directors, has
determined meets the prescribed quality standards of the fund.
Each fund 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 fund's participation interest in the obligation, plus
accrued interest. Each fund 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 fund. 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 fund 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 fund will purchase securities on a
when-issued basis only with the intention of actually acquiring
the securities, the fund 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 fund'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 fund 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 fund's
assets will vary from $1.00 per share. Interest will not accrue
on fixed income securities purchased by a fund until delivery and
payment for the securities take place. 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 other liquid securities
equal to the amount of the when-issued commitments will be
established with the Company's custodian with respect to a fund's
when-issued obligations. When the time comes to pay for when-
issued securities, a fund 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 fund'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 "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.
The funds 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 section "Obligations of Financial
Institutions," below.
In evaluating municipal lease obligations, SSB Citi 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 SSB Citi 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 fund, 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 fund.
Demand Features -- The funds may invest in securities that are
subject to puts and standby commitments, also known as demand
features. Demand features give the fund 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
funds' investments may be dependent in part on the credit quality
of the banks supporting the funds' investments and changes in the
credit quality of these financial institutions could cause losses
to the funds and affect 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.
The Cash Portfolio
The Cash Portfolio pursues its objective by investing primarily in
high quality commercial paper and obligations of financial
institutions. The fund may also invest in U.S. Government
Securities and municipal securities, although the fund expects to
invest in such securities to a lesser degree.
Debt Securities -- The fund 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 fund 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,
SSB Citi 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.
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 fund, depending upon the principal amount of certificates of
deposit ("CDs") of each bank held by the fund) 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 Financial Institutions -- The fund may invest in
obligations of financial institutions. Examples of obligations in
which the fund 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 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 fund 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.
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 fund 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 fund may also
invest in Eurodollar and Yankee bank obligations.
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, SSB Citi will carefully evaluate such investments
on a case-by-case basis.
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.
U.S. Government Securities -- The fund may invest without limit in
U.S. Government Securities as described under "The Government
Portfolio."
Municipal Securities -- The fund may invest in obligations of
states, territories or possessions of the United States and their
subdivisions, authorities and corporations as described under "The
Municipal Portfolio." These obligations may pay interest that is
excluded from gross income for Federal income tax purposes, but
only the Municipal Portfolio's distributions of tax-exempt
interest will be excluded from the gross income of shareholders.
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"), "Certificates of Accrual on Treasury
Securities" ("CATS") and FICO Strips. 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.
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 fund's investment objective and
policies and, subject to the review and approval of the Company's
Board of Directors, the fund 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 fund may invest. Any participation purchased by
the fund 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 fund 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 fund may be subject to delays, expenses
and risks that are greater than those that would have been
involved if the fund had purchased a direct obligation, such as
commercial paper, of the borrower. Moreover, under the terms of
the loan participation, the fund may be regarded as a creditor of
the issuing bank, rather than of the underlying corporate
borrower, so that the fund 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 SSB Citi does not believe that price quotations
currently obtainable from banks, dealers or pricing services
consistently represent the market values of participation
interests, SSB Citi 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, SSB Citi 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 Company'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 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, for the purpose of
describing permitted investments, repurchase agreements
collateralized and municipal securities refunded with escrowed
U.S. Government Securities ("U.S. Government Securities"). U.S.
Government Securities in which the fund 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 fund 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 excluded from
gross income for Federal income tax purposes. Under normal market
conditions, the fund will invest at least 80% of its assets in
municipal securities whose interest is excluded from gross income
for Federal income tax purposes. However, the fund reserves the
right to invest up to 20% of the value of its assets in securities
whose interest is Federally taxable. In addition, the fund 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 fund'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 SSB Citi is
unable to locate investment opportunities with desirable
risk/reward characteristics, the fund may invest without limit in
cash and cash equivalents, including obligations that may be
Federally taxable.
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.
At times, the fund 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 fund may also invest more
than 25% of its assets in industrial development bonds or
participation interests therein.
The Municipal Portfolio (and each of the other funds) 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 fund 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 fund generally must ensure that, at the close of each
quarter of its taxable year, (i) not more than 25% of the market
value of the fund'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 fund 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 fund'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 fund'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 fund's investment objective
is dependent in part on the continuing ability of the issuers of
municipal securities in which the fund 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 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 gross income for Federal income tax purposes 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. These
obligations generally have maturities of thirteen months or less.
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 that is excluded from gross income for
Federal income tax purposes, the fund generally will invest in
taxable obligations only if and when the Directors believe it
would be in the best interests of the fund'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 fund shares or of portfolio
securities, (b) pending settlement of purchases of portfolio
securities or (c) when the fund is attempting to maintain
liquidity for the purpose of meeting anticipated redemptions. The
fund temporarily may invest more than 20% of its total assets in
taxable securities to maintain a defensive posture when, in the
opinion of SSB Citi, 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 fund'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 fund with respect
to a particular Municipal Obligation held by the fund 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
fund paid on the acquisition), less any amortization of market
premium or plus any amortization of market or original issue
discount during the period the fund 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
fund. Absent unusual circumstances, the fund 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 fund could
not transfer a stand-by commitment, the fund 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 fund without the payment of any direct or indirect
consideration. The fund 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
fund would not exceed 1/2 of 1% of the value of the fund'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 SSB Citi believes
present minimum credit risks. The fund'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 fund will be
evaluated on an ongoing basis by SSB Citi 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 fund 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
fund 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 fund's
portfolio.
The Municipal Portfolio understands that the Internal Revenue
Service has issued a revenue ruling to the effect that, in
specific factual circumstances, 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 fund. There can be no assurance that all of the fund's
stand-by commitments will be factually the same as those described
in this ruling or governed by its conclusions.
Municipal Leases -- The fund 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. SSB Citi 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 fund will
attempt to invest substantially all of its assets in municipal
securities whose interest is excluded from gross income for
Federal income tax purposes, the fund 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. Income
from securities lending transactions is also taxable.
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
fund holds an interest in one or more underlying bonds coupled
with a conditional right to sell ("put") the fund'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 fund. 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 fund 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 fund intends to limit the risk of derivative products by
purchasing only those derivative products that are consistent with
the fund's investment objective and policies. The fund will not
use such instruments to leverage securities. Hence, derivative
products' contributions to the overall market risk characteristics
of a fund will not materially alter its risk profile and will be
fully consistent with the fund's maturity guidelines.
RISK FACTORS
Although each fund invests only in high quality money market
instruments, an investment in a fund is subject to risk even if
all securities in a fund'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 fund 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 fund. The market value of the obligations
in each fund 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 fund will
tend to be somewhat higher than prevailing market rates, and in
periods of rising interest rates, the yield of each fund will tend
to be somewhat lower. Also, when interest rates are falling, the
inflow of net new money to each fund from the continuous sale of
its shares will likely be invested in portfolio instruments
producing lower yields than the balance of the fund, thereby
reducing the current yield of the fund. In periods of rising
interest rates, the opposite can be expected to occur. In
addition, securities in which the funds 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.
INVESTMENT RESTRICTIONS
As indicated in the prospectus, each fund 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 Company (or a particular fund if a matter affects just that
fund), 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 Company (or a particular fund) are present or
represented by proxy.
As used in the restrictions set forth below and as used elsewhere
in this 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 (other than for tax purposes) to include
repurchase agreements collateralized and municipal securities
refunded with escrowed 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 fund may make commitments more restrictive than the
fundamental restrictions listed below so as to permit the sale of
fund shares in certain states. Should a fund determine that any
such commitment is no longer in the best interests of the fund and
its shareholders, it will revoke the commitment by terminating
sales of its shares in the state involved.
The funds have adopted the following fundamental policies:
(1) With respect to 75% of its assets, a fund may not purchase a
security other than a U.S. Government Security, if, as a result,
more than 5% of the fund's total assets would be invested in the
securities of a single issuer or the fund would own more than 10%
of the outstanding voting securities of any single issuer.
(2) A fund may not purchase securities if more than 25% of the
value of a fund'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 fund may not act as an underwriter of securities issued by
others, except to the extent that a fund may be deemed an
underwriter in connection with the disposition of portfolio
securities of such fund.
(4) A fund 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
fund may not lend any security if, as a result, more than 20% of a
fund's total assets would be lent to other parties.
(5) A fund may not purchase or sell real estate or any interest
therein, except that the fund 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 fund 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
fund's total assets by reason of a decline in net assets, the fund
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 fund 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 fund.
Each fund has adopted the following nonfundamental investment
restrictions that may be changed by the Board of Directors of the
Company without shareholder approval:
(1) A fund may not invest in securities or enter into repurchase
agreements with respect to any securities if, as a result, more
than 10% of the fund'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 fund'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 fund may not invest in the securities of another
investment company except in connection with a merger,
consolidation, reorganization or acquisition of assets.
(3) A fund 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.
(4) A fund 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
fund'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 fund could invest.
(5) A fund may not pledge, mortgage, hypothecate or encumber any
of its assets except to secure permitted borrowings or in
connection with permitted short sales.
(6) A fund may not invest directly in interests in oil and gas
or interests in other mineral exploration or development programs
or leases; however, the fund may own debt securities of companies
engaged in those businesses.
(7) A fund may not invest in companies for the purpose of
exercising control of management.
Portfolio Turnover
The funds do not intend to seek profits through short-term
trading. Nevertheless, the funds will not consider turnover rate a
limiting factor in making investment decisions. Because the funds
invest in securities with relatively short-term maturities, each
fund is expected to have a high portfolio turnover rate. However,
a high turnover rate should not increase a fund's costs because
brokerage commissions are not normally charged on the purchase and
sale of money market instruments.
Under certain market conditions, a fund 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 fund (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 fund 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 fund, 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 fund
are made by SSB Citi which also is responsible for placing these
transactions, subject to the overall review of the Company's Board
of Directors.
Although investment decisions for each fund are made independently
from those of the other accounts managed by its Manager,
investments of the type the fund may make also may be made by
those other accounts. When a fund and one or more other accounts
managed by its SSB Citi 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 Manager to be equitable to each. In some cases, this procedure
may adversely affect the price paid or received by a fund or the
size of the position obtained or disposed of by the fund.
Transactions on 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. 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 fund, the fund's Manager seeks the best overall
terms available. In assessing the best overall terms available for
any transaction, 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
Company and the Manager relating to a fund 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 1934 Act) provided to the fund,
the other funds and/or other accounts over which the Manager or
its affiliates exercise investment discretion. The fees under the
advisory agreements relating to the funds between the Company and
the Manager are not reduced by reason of their receiving such
brokerage and research services. The Company's Board of Directors
periodically will review the commissions paid by the funds to
determine if the commissions paid over representative periods of
time were reasonable in relation to the benefits inuring to the
funds.
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 fund
may be executed through Salomon Smith Barney and other affiliated
broker-dealers if, in the judgment of the fund's 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 fund a
rate consistent with that charged to comparable unaffiliated
customers in similar transactions. Salomon Smith Barney may
directly execute such transactions for the funds on the floor of
any national securities exchange, provided (a) the Board of
Directors has expressly authorized Salomon Smith Barney to effect
such transactions, and (b) Salomon 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.
YIELD INFORMATION
The funds may measure performance in several ways, including
"yield", "effective yield" and "tax equivalent yield" (for the
Municipal Portfolio only). A fund's yield is a way of showing the
rate of income the fund earns on its investments as a percentage
of the fund's share price. Yield represents the income, less
expenses generated by the investments, of the fund 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
fund's tax-free yield. Fund yield figures are based upon
historical earnings and are not intended to indicate future
performance. A fund 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 funds in advertising is
historical and is not intended to indicate future returns.
In performance advertising, the funds may compare any of their
performance information with data published by independent
evaluators such as Morningstar, Inc., Lipper Analytical Services,
Inc., CDA/Wiesenberger, IBC Money Fund Report or other companies
which track the investment performance of investment companies
("Fund Tracking Companies"). The funds 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 funds 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 funds 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 funds and comparative mutual fund data and
ratings reported in independent periodicals, such as newspapers
and financial magazines.
Any current yield quotation of a fund 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 fund'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 fund 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 fund's yield after taxes. Tax equivalent yields
are calculated by dividing the Municipal Portfolio's yield by one
minus the stated Federal tax rate. If only a portion of the fund's
yield is tax-exempt, only that portion is adjusted in the
calculation.
Although published yield information is useful to investors in
reviewing a fund's performance, investors should be aware that the
fund's yield fluctuates from day to day and that the fund's yield
for any given period is not an indication or representation by the
fund of future yields or rates of return on the fund's shares.
Also, Service Agents, as defined on page 25, may charge their
customers direct fees in connection with an investment in a fund,
which will have the effect of reducing the fund's net yield to
those shareholders. The yield of a fund is not fixed or
guaranteed, and an investment in a fund is not insured.
Accordingly, a fund's yield information may not necessarily be
used to compare fund 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
funds are not insured or guaranteed, a fund's yield information
may not necessarily be used to compare the fund with investment
alternatives which are insured or guaranteed.
For the seven-day period ended May 31, 2000, 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)*
6.31%
6.51%
Government Portfolio (Class A)*
6.17
6.36
Municipal Portfolio+ (Class A)*
3.90
3.98
* As at May 31, 2000, (No Class B shares of were
outstanding, accordingly, no comparable information is
available on that class.)
+ The Municipal Portfolio's tax-equivalent yield (assuming a
Federal income tax rate of 36%) for the same period for
Class A shares was 6.09% and its tax-equivalent effective
yield (assuming a Federal income tax rate of 36%) for the
same period was 6.22%.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Cash Portfolio and the
Government Portfolio is determined as of 2 pm New York City time
on each day that the New York Stock Exchange ("NYSE") and the
Company's custodian are open. The net asset value per share of the
Municipal Portfolio is determined as of 12 noon, New York City
time on each day that the NYSE and the Company's custodian are
open. The net asset value per share of each fund is determined by
dividing the fund'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 fund 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 New York
Stock Exchange is closed on the following holidays: New Year's
Day, Martin Luther King Jr. Day, President's Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
Each fund 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 fund'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 fund would receive if it sold the
instrument. During such periods the yield to investors in the
fund 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 fund 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 fund'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 fund's price per share to change from $1.00.
PURCHASE OF SHARES
Purchases of fund shares may be made directly through PFPC Global
Fund Services, with a broker-dealer, financial intermediary, or a
financial institution (each called a "Service Agent") or a Salomon
Smith
Barney Financial Consultant. Salomon Smith Barney and other
Service Agents 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 the sub-transfer agent , PFPC Global Fund Services
("PFPC") are not subject to a maintenance fee. The Company
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 of the Cash, Government and
Municipal Portfolios are available for purchase by any investor
meeting the investment minimum. Class B shares are available for
purchase by retail or institutional financial institutions on
behalf of fiduciary, agency or custody accounts if the investment
minimum amount is met.
The minimum initial investment in each fund is $1,000,000. Until
October 31, 2000, Class A shares of the Cash Portfolio are also
available to those investors who invest a minimum of $1,000 and
who previously invested at least $500,000 at a single time in
another institutional money market previously made available by
Salomon Smith Barney. The minimum subsequent investment is $50.
The issuance of shares of a fund is recorded on the books of the
Company, 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 Company'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 PFPC,
a Salomon Smith Barney Financial Consultant
or a Service Agent receives, or converts the
purchase amount into Federal funds (i.e., monies of member banks
within the Federal Reserve Board) that are either in the client's
brokerage account at Salomon Smith Barney or the Service Agent
before the fund's close of business. When orders for the purchase
of Company 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 Salomon Smith Barney or the
Service Agent, the order becomes effective on the day of receipt
if the order is received prior to 12 noon (New York time) which is
the close of business with respect to orders for the Municipal
Portfolio and 2:00 p.m. (New York time) which is the close of
business with respect to orders for the Cash and Government
Portfolios, on any day the Company calculates its net asset value.
Purchase orders received after the close of business or with
respect to which Federal funds are not available, or when orders
for the purchase of shares are paid for other than in Federal
funds, will not be accepted and a new purchase order will need to
be submitted on the next day the Company calculates the fund's net
asset value. Shares purchased begin to accrue income dividends on
the business day the purchase order becomes effective.
EXCHANGE PRIVILEGE
Shareholders of a fund may exchange their shares for shares of any
other fund 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 funds offers to exchange its shares for shares of any
other fund, on the basis of relative net asset value per share.
Since all of the funds 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 fund, all
dividends accrued on such shares for the month to date will be
invested in shares of the fund into which the exchange is being
made. An exchange between funds pursuant to the exchange privilege
is treated as a potentially taxable transaction for shareholders
for Federal income tax purposes.
To exercise the exchange privilege, shareholders should contact
PFPC their SSB Financial Consultant or their Service Agent, who
will advise the applicable fund 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 fund will be the same as
for the fund 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 fund into which he wishes to make
the exchange, the name of the fund and the number of shares he
wishes to exchange. The shareholder also may write to PFPC
requesting that the exchange be effected. Such letter must be
signed exactly as the account is registered with signature(s)
guaranteed by a commercial bank which is a member of the FDIC, a
trust company or a member firm of a domestic securities exchange.
The Company reserves the right to require a properly completed
exchange application.
These exchange privileges may be modified or terminated at any
time.
REDEMPTION OF SHARES
Shareholders may redeem their shares without charge on any day the
Company calculates its net asset value. 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 Company
calculates its net asset value. Redemption requests must be made
through a Salomon Smith Barney Financial Consultant or a Service
Agent, except that shareholders who purchased shares of the
Company from PFPC may also redeem shares directly through PFPC. A
shareholder desiring to redeem shares represented by certificates
also must present the certificates to a Salomon Smith Barney
Financial Consultant, the Service Agent or PFPC 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 PFPC in proper form.
Shares held at Salomon Smith Barney A redemption request received
by Salomon 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 PFPC A shareholder who purchased shares of the
Company directly through PFPC may redeem shares through PFPC in
the manner described 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 PFPC and have the proceeds sent by a
Federal funds wire to a previously designated bank account. A
redemption request received prior to 2:00 p.m. (12:00 noon in the
case of the Municipal Portfolio) (New York time) will not earn a
dividend on the day the request is received and payment will be
made in Federal funds wired on the same business day. If an
expedited redemption request for which the redemption proceeds
will be wired is received after 2:00 p.m. (12:00 noon in the case
of the Municipal Portfolio) (New York time), and prior to the
close of regular trading on a day on which PFPC is open for
business, the redemption proceeds will be wired on the next
business day following the redemption request that PFPC 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 Salomon Smith Barney or
PFPC 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 Company or PFPC will not be
liable for following instructions communicated by telephone that
they reasonably believe to be genuine. In this regard, the Fund
and PFPC 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 PFPC 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 fund, 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 PFPC at the telephone number listed on the
preceding page to make an expedited redemption request, he may
contact his Service Agent 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 PFPC. A fund will make
payment for shares redeemed pursuant to the ordinary redemption
procedures by check sent to the shareholder at the address on such
shareholder's account application. Such checks will normally be
sent out within one business day, but in no event more than three
business days after receipt of the redemption request in proper
form. If certificates have been issued representing the shares to
be redeemed, prior to effecting a redemption with respect to such
shares, PFPC must have received such certificates. A shareholder's
signature must be guaranteed by an "eligible guarantor
institution", as such term is defined by Rule 17Ad-15 of the
Securities Exchange Act of 1934, as amended, the existence and
validity of which may be verified by PFPC through use of industry
publications. A notary public is not an acceptable guarantor. In
certain instances, PFPC 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 PFPC.
MANAGEMENT AGREEMENT, PLAN OF DISTRIBUTION AND OTHER SERVICES
Manager
SSB Citi serves as investment adviser to the funds pursuant to
separate investment management agreements (the "Management
Agreements"). SSB Citi is an affiliate of Salomon Smith Barney
and an indirect, wholly owned subsidiary of Citigroup. The
Management Agreement was most recently approved by the Board of
Directors, including a majority of the Directors who are not
"interested persons" of the Company or the investment advisers
(the "Independent Directors"), and by shareholders of the
respective funds on July 20, 2000. SSB Citi provides investment
advisory and management services to investment companies
affiliated with Salomon Smith Barney.
SSB Citi manages the day-to-day operations of each fund pursuant
to management agreements entered into by the Company on behalf of
each fund. Under the management agreements, the Manager offers
each fund 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 fund. It
also furnishes each fund 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 Company.
Each fund's management agreement provides that all other expenses
not specifically assumed by the Manager under each management
agreement are borne by the Company. Expenses payable by the
Company 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 Company) and shareholder servicing agents, filing fees and
expenses relating to the registration and qualification of the
Company's shares under Federal or state securities laws and
maintaining such registrations and qualifications (including the
printing of the Company'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 1940 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 Company's corporate existence and
extraordinary expenses such as litigation and indemnification
expenses. Direct expenses are charged to each fund; 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 Company, but expenses incurred in complying with
laws regulating the issue or sale of the Company's shares are not
deemed sales or promotion expenses.
The Manager has agreed that if in any fiscal year the total
expenses of any fund, exclusive of taxes, brokerage, interest and
extraordinary expenses exceed 0.80% of the average daily net
assets for that fiscal year of the fund, the Manager will reduce
its fee to the extent of such excess. The 0.80% 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.
As compensation for SSB Citi's services to the funds, each fund
pays a monthly fee at the annual rate of 0.27% of the value of
that fund's average daily net assets.
SSB Citi waived a portion of its management fee for the Company
for the fiscal year ended May 31, 2000, and the effective rate of
the management fee was 0.23%, 0.23% and 0.23% of the daily net
assets for the Cash Portfolio, Government Portfolio and Municipal
Portfolio, respectively. For the past fiscal year, total
operating expenses without the management fee waiver were 0.29%,
0.32% and 0.34% of the average daily net assets for the Cash
Portfolio, Government Portfolio and Municipal Portfolio,
respectively.
For the fiscal year ended May 31, 1997, SSB Citi waived a portion
of the management fees due to it. Absent this fee waiver, the
management fees for the fund's Class A shares would have been
$585,305, $227,516 and $117,100, respectively, for the Cash
Portfolio, Government Portfolio and Municipal Portfolio.
For the fiscal year ended May 31, 1998, SSB Citi waived a portion
of the management fees due to it. Absent this fee waiver, the
management fees for the fund's Class A shares would have been
$1,505,040, $325,002 and $186,349, respectively, for the Cash
Portfolio, Government Portfolio and Municipal Portfolio.
For the fiscal year ended May 31, 1999, SSB Citi waived a portion
of the management fees due to it. Absent this fee waiver, the
management fees for the fund's Class A shares would have been
$2,641,152, $304,826 and $368,395, respectively, for the Cash
Portfolio, Government Portfolio and Municipal Portfolio.
For the fiscal year ended May 31, 2000, SSB Citi waived a portion
of the management fees due to it. Absent this fee waiver, the
management fees for the fund's Class A shares
would have been $4,250,471, $496,013 and $382,093, respectively,
for the Cash Portfolio, Government Portfolio and Municipal
Portfolio.
No Class B shares were outstanding for the Cash Portfolio prior or
subsequent to the period ended May 31, 1998. No Class B shares
were outstanding for the Government Portfolio or the Municipal
Portfolio during the period ended May 31, 1997 through the period
ended May 31, 2000.
Code of Ethics
Pursuant to Rule 17j-1 of the 1940 Act, each fund, its investment
adviser and principal underwriter have adopted codes of ethics
that permit personnel to invest in securities for their own
accounts, including securities that may be purchased or held by
the fund. All personnel must place the interests of clients first
and avoid activities, interests and relationships that might
interfere with the duty to make decisions in the best interests of
the clients. All personal securities transactions by employees
must adhere to the requirements of the codes and must be conducted
in such a manner as to avoid any actual or potential conflict of
interest, the appearance of such a conflict, or the abuse of an
employee's position of trust and responsibility.
A copy of the fund's Code of Ethics is on file with the Securities
and Exchange Commission.
Plan of Distribution
Effective June 5, 2000, the Board of Directors of the Company
approved a Distribution Agreement with Salomon Smith Barney Inc.,
replacing the Distribution Agreement with CFBDS, Inc.
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 Company's
prospectus relating to Class B shares and enjoy certain exclusive
voting rights on matters relating to these service fees.
The Company 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 Salomon Smith Barney; processing dividend payments
from the funds 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 retail and institutional investors that
have not entered into servicing agreements with the Company in
connection with their investments meeting the investment minimum
(See "Purchase of Shares").
Brokerage
The Manager places orders for the purchase and sale of securities
for the portfolios of the fund. All of each fund'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 Salomon Smith Barney.
TAXES
The following is a summary of the material Federal tax
considerations affecting the separate funds and their
shareholders. In addition to the considerations described below,
there may be other Federal, state, local, and/or foreign tax
applications to consider. Because taxes are a complex matter,
prospective shareholders are urged to consult their tax advisors
for more detailed information with respect to the tax consequences
of any investment.
Each fund of the Company will be treated as a separate entity for
tax purposes. The funds intend to qualify, as in prior years,
under Subchapter M of the Internal Revenue Code (the "Code") for
tax treatment as regulated investment companies so long as such
qualification is in the best interests of shareholders. In each
taxable year that the separate funds so qualify, the funds will
pay no Federal income tax on the investment company taxable income
and net capital gain that is distributed to shareholders. The
Municipal Portfolio also intends to satisfy conditions that will
enable it to pay "exempt-interest dividends" to its shareholders.
Exempt-interest dividends are generally not subject to regular
Federal income taxes, although they may be considered taxable for
certain state and local income tax purposes and may be subject to
Federal individual and corporate alternative minimum taxes.
Dividends paid from net investment income (other than "exempt-
interest dividends") and net realized short-term capital gain, are
subject to Federal income tax as ordinary income. Distributions,
if any, from net realized long-term capital gains are taxable as
long-term capital gains, regardless of the length of time a
shareholder has owned fund shares.
Losses, if any, on the redemption, exchange or other sale of
shares held for six months or less may be disallowed or
recharacterized to the extent of any exempt-interest dividends or
capital gain dividends paid with respect to such shares.
Shareholders are required to pay tax on all taxable distributions,
even if those distributions are automatically reinvested in
additional shares. None of the dividends paid will qualify for the
corporate dividends received deduction. Dividends consisting of
interest from U.S. Government Securities may be exempt from state
and local income taxes. Shareholders will be informed of the
source and tax status of all distributions promptly after the
close of each calendar year.
The funds are required to withhold ("backup withholding") 31% of
all taxable dividends and capital gain distributions for
shareholders who do not provide the funds with a correct taxpayer
identification number (social security or employer identification
number and any required certifications). Withholding from taxable
dividends and capital gain distributions also is required for
shareholders who otherwise are subject to backup withholding. Any
tax withheld as a result of backup withholding does not constitute
an additional tax, and may be claimed as a credit on the
shareholders' Federal income tax return.
Dividends and Distributions
Each fund declares a dividend from its net investment income
daily, for each day the NYSE is open to conduct business, and pays
dividends monthly. If a shareholder redeems an account in full
between monthly dividend payment dates, all dividends declared up
to and including the date of liquidation will be paid with the
redemption proceeds. Dividends from net realized capital gains, if
any, will be distributed annually. The funds may also pay
additional dividends shortly before December 31 from certain
amounts of undistributed ordinary income and capital gains, in
order to avoid a Federal excise tax liability. If a shareholder
does not otherwise instruct, monthly income dividends and capital
gain distributions will be reinvested automatically in additional
shares of the same class at net asset value, with no additional
sales charge or CDSC.
The per share amounts of dividends from net investment income on
Class B shares may be lower than that of Class A shares, mainly as
a result of the service fees applicable to the Class B shares.
Capital gain distributions, if any, will be the same across both
Classes of Fund shares.
The Municipal Portfolio
Exempt-interest dividends attributable to interest received by the
fund on certain "private activity" bonds will be treated as a
specific tax preference item to be included in a shareholder's
alternative minimum tax computation. Exempt-interest dividends
derived from the interest earned on private activity bonds will
not be excluded from gross income for Federal income tax purposes
for those shareholders who are "substantial users" (or persons
related to "substantial users") of the facilities financed by
these bonds.
Shareholders who receive social security or equivalent railroad
retirement benefits should note that exempt-interest dividends are
one of the items taken into consideration in determining the
amount of these benefits that may be subject to Federal income
tax.
The interest expense incurred by a shareholder on borrowing made
to purchase or carry fund shares, is not deductible for Federal
income tax purposes to the extent related to the exempt-interest
dividends received on such shares.
Dividends paid by the fund from interest income on taxable
investments, net short-term capital gains, and all, or a portion
of, any gains realized from the sale or other disposition of
certain market discount bonds are subject to Federal income tax as
ordinary income. Distributions, if any, from net long-term capital
gains are taxable as long-term capital gains, regardless of the
length of time a shareholder has
owned Company shares.
ADDITIONAL INFORMATION ABOUT THE COMPANY
The Company, 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
funds, and may also authorize the creation of additional series of
shares. Each share of a fund represents an equal proportionate
interest in the net assets of that fund or class with each other
share of the same fund or class and is entitled to such dividends
and distributions out of the net income of that fund or class as
are declared in the discretion of the Directors.
Voting Rights
Shareholders are entitled to one vote for each share held and will
vote in the aggregate and not by fund or class, except as
otherwise required by the 1940 Act or Maryland General Corporation
Law. The funds ordinarily will not hold shareholder meetings;
however, shareholders have the right to call a meeting upon a vote
of 10% of a fund's outstanding shares for the purpose of voting to
remove Directors and the Company will assist shareholders in
calling such a meeting as required by the 1940 Act.
Each share of each fund of the Company has one vote (and
fractional votes for fractional shares). Shares of all funds of
the Company have noncumulative voting rights, which means that the
holders of more than 50% of the shares of all funds of the Company
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 fund of the Company will vote separately only with respect to
those matters that affect only that fund.
The present Directors of the Company 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
Company 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 fund, 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.
Counsel
Willkie Farr & Gallagher serves as legal counsel to the Company.
The Directors who are not "interested persons" of the Company have
selected Stroock & Stroock & Lavan LLP as their counsel.
Auditors
KPMG LLP, 757 Third Avenue, New York, New York 10017, has been
selected as independent auditors for the Company for its fiscal
year ending May 31, 2001, to examine and report on the financial
statements and financial highlights of the Company.
Custodian and Transfer Agent
PFPC Trust Company is located at 17th and Chestnut Streets,
Philadelphia,
Pennsylvania 19103, and serves as custodian for the funds. Under
its custodial agreement with the Company, PFPC Trust Company
is authorized to
appoint one or more foreign or domestic banking institutions as
sub-custodians of assets owned by a fund. For its custody
services, PFPC Trust Company receives monthly fees charged to each
fund based
upon the month-end, aggregate net asset value of the Company, plus
certain charges for securities transactions. The assets of the
Company are held under bank custodianship in accordance with the
1940 Act.
Transfer Agent
Citi Fiduciary Trust Company, located at 125 Broad Street, New
York NY 10004, serves as the Company's transfer agent and
shareholder services agent.
PFPC Global Fund Services, located at P.O. Box 9699, Providence,
RI 02940-9699 serves as each fund's sub-transfer agent to render
certain shareholder record keeping and accounting services
functions.
Minimum Account Size
The Company reserves the right to redeem involuntarily any
shareholder's account if the aggregate net asset value of the
shares of a fund held in the account is less than $100,000 (if a
shareholder has more than one account in a fund, each account must
satisfy the minimum account size.) Before the Directors of the
Company 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.
Annual Reports
The Company 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 Company at the end of the period
covered.
FINANCIAL STATEMENTS
The funds' Annual Reports for the fiscal year ended May 31, 2000
are incorporated into this Statement of Additional Information by
reference in their entirety.
Appendix A Description of Securities Ratings
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 excluded from gross income for Federal
income tax purposes 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 and corporations, 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.
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